Does Home Ownership Hurt Your Job Prospects?

home ownershipThis post originally appeared on Consumerism Commentary.

American culture has long promoted the idea that home ownership is key to the fulfilling middle-class lifestyle.

You can be sure the National Association of Realtors will continue to do its darnedest to keep this interpretation of the American Dream alive; whether you’re buying or selling, it’s always a good time for Realtors to earn their livings.

The government wants its citizens to own houses. All recent presidents have promoted the idea of homeownership, through speeches and policies. To my memory, only Obama has said that not everybody should own a home.

Nevertheless, the policies that encourage home ownership remain in place, like federal support for banks that lend money to prospective home buyers and like the mortgage interest tax deduction for owners.

Only half of all home owners claim the tax deduction either because they don’t know about it or they don’t have enough itemized deductions to be able to take the deduction. This may be because deductions reduce taxable income, and that’s more of a benefit for households with high income. A tax credit, on the other hand, would reach more homeowners, benefiting low-income home owners the same as those with higher incomes.

I can’t believe how many times I hear people suggesting that the tax deduction could be a major factor in the decision to buy a house. Even those who claim the deduction only get back a portion of their interest spent — interest they would not be paying if they were to rent instead. Say your friend wants you to let him hold $200,000 of yours, but this holding comes with a fee of $500 a month. He claims it’s worthwhile because once a year, he’ll pay you $2,100. That’s not exactly a good deal.

Renters don’t exactly have an advantage. Rents pay the owners’ interest — owners do get the deduction and renters receive nothing.

This country’s efforts to promote home ownership may drive resources towards a goal that could be harming, not helping, the economy. Several studies show that homeownership is correlated to — and may be the cause of — higher unemployment. A study in 1999 that outlined this relationship was largely ignored by economists. After all, the study was funded by the National Multi Housing Council, a trade group and lobbying organization that represents the interests of corporate landlords.

Since then, more studies, like this new study by David G. Blanchflower of Dartmouth College and Andrew J. Oswald of the University of Warwick confirms that home ownership levels determine unemployment levels. And the effect is particularly strong: an increase in home owners causes double an increase in unemployment. Because the effect is delayed by up to five years, however, it’s been easy for observers to ignore the evidence.

  • Robin

    I know threre is always the argument saying that the tax decuctions for homeowning don’t pay off. BUT what about the cost of inflation over time or the chance to refinance an existing loan? If I rented my home today I would be paying over $2000 dollars per month with no deductions. Instead I can pay less than $700 for a 15 year loan or less than $500 per month on a 30 year loan and i can deduct the interest. Eventually I will pay nothing but by that time my rent could easily be $3000.

  • Jaime Conde

    One of his statements was 100% flawed. . “Even those who claim the deduction only get back a portion of their interest spent — interest they would not be paying if they were to rent instead.”

    That is completely false. In most cities and markets, the renter IS paying the interest. It’s a cost that gets pushed on the renter as part of the rent. I seriously when writers try to use stats to make a point and they completely botch the meaning of the data.