A friend passed me a copy of the fall 2008 issue of, “Region Focus,” with a note to read the article, “House Bias: The economic consequences of subsidizing homeownership.”   “Region Focus” is the publication produced by the Federal Reserve Bank of Richmond.

It’s an interesting read that does raise some potential hazards of subsidizing housing.  To be clear, “housing subsidies” includes quite a lot of minor contributions, but the main support offered by the government is the, mortgage interest deduction.  Other subsidies exist such as VA, FHA, and we can likely add FNMA and FHLMC, since it’s clear the tax payers will be supporting both.

One finding is that home ownership as an investment has not out performed inflation.  That revelation punctures a widely held belief that home-ownership is a road to riches.  I’ve heard many, many people claim otherwise, but the evidence produced is anecdotal in nature.  

The fact that there are a lot of winners as a result of homeownership ignores that there are losers as well.   There’s also some confirmation bias involved.  The anecdotal winners aren’t likely to consider the opportunity costs.

The article does miss in a few places.  High homeownership rates keep a lot of people employed.  Each transaction involves a small army of tax paying citizens and eventual consumers.  The multiplier effect of the transaction is worth exploring as a counter point.

The other objection that immediately comes to mind regards the free flow of labor.  People are stuck so they can’t move to where there are better jobs.  Only an economist, an employed one at that, would so blithely ignore that the free flow of labor involves people who aren’t inclined toward transient elasticity.  The home may be a barrier, but it’s not clear why it is the causal barrier that prevents movement of labor.  Homes can be rented, sold, or left to foreclosure.  Any of these options may lead to hardship, but the need to break a lease to follow jobs reflects a hardship that already exists.  

Ultimately, I find that the best argument against housing subsidies is the same as any argument against all subsidies.  They are unfair, and the magnify the best and worst aspects of the economy.  Maybe homeownership shouldn’t be subsidized.  On the basis of principal, I’d agree.  On the basis of a public good, I’m not convinced.