Fixing America's subsidized homeownership

Measuring people’s happiness is now popular among many economists. Even Federal Reserve Chairman Ben Bernanke said recently the world needs better ways to determine “economic well-being” than aggregate data like housing starts. That’s good advice for President Obama and Congress as they move to fix a broken piece of the American dream – its housing system – with new legislation.

Government support for homeownership in the United States has not only proved costly – a housing bubble, then a market crash, the Great Recession, and now a weak recovery – but it has hardly brought personal well-being.

Countries such as France, Germany, and Switzerland have rates of homeownership that are well below those in the US. Yet a survey known as the Better Life Index shows people in those European countries are more satisfied with their housing situation.

Mr. Bernanke also notes that a person’s wealth, such as equity in a house, does not contribute to self-reported happiness. Costa Ricans are as happy as Americans but one-quarter as wealthy. Rather, belonging to a group and feeling in control create “life satisfaction.” Economists focus too much on “material determinants,” he says, rather than less measurable aspects such as individual freedom.

His comments are worth remembering as Mr. Obama and Congress try to craft new ways to subsidize homeownership and to protect taxpayers from another fiscal disaster like the government takeover of mortgage giants Fannie Mae and Freddie Mac.

The president wants private lenders to take on more of the risk of issuing mortgages, but not so far as to jeopardize the popularity of a 30-year mortgage at favorable rates. For that, however, Congress will still need to guarantee new mortgages with a government entity. A powerful lobby of home builders, bankers, and real estate agents will likely drive Congress to approve such a step and once again put taxpayers at risk.

But lawmakers should at least step back and discuss a subsidy of the American dream in terms that economists like Bernanke and many others are now talking about: Does owning a house increase well-being?

Canada has a higher rate of homeownership than the US, but it achieved that without most of the subsidies that Americans enjoy. And Canadians are more satisfied with their housing situation. Canada also didn’t suffer the 2007-09 market crash in home prices.

Other points that Congress can consider: By encouraging homeownership, government reduces the ability or willingness of laid-off workers to relocate to new jobs. Subsidizing homeownership has mainly benefited wealthy and middle-class Americans, perhaps worsening income disparities. And the nation as a whole might be better off if individuals put more than their money into better investments as export industries.

Fortunately, Obama backs proposals to increase the ease of renting in the US. With the mirage that “housing prices will always go high” now gone, the notion that paying rent is “throwing money away” has far less hold on Americans. At the least, government may now let a free market decide between buying or renting rather than tip the scales with mortgage subsidies and guarantees.

If, as the Federal Reserve chief says, a person’s satisfaction is better measured by individual freedom and being in control of one’s life, then perhaps government needs to let the housing industry loose of its dependency on Washington. Happiness can be found by other means.