June 23, 1992
"The Dream Goes Sproing!"
San Jose Mercury News
By Timothy Taylor
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THE EMINENT English jurist Sir Edward Coke, back in the early 17th century,
coined the phrase that "a man's house is his castle." In modern America,
that sentiment has evolved beyond a legal principle aimed at limiting government
intrusion, and now describes an expectation about standard of living.
Owning a home has become a central part of that expansive concept, the American
dream. Pollsters Peter Hart and Robert Teeter recently reported that 80 percent
of Americans want to own a single-family detached house with a yard.
The housing market is now a leading character in two of this year's economic
dramas: immediate concern about the laggard economy, and a longer-term fear that
for too many Americans, the possibility of owning a home is retreating into dream-land.
During a meeting with the National Association of Home Builders in late May,
President Bush said, "As housing goes, so goes the economy." The next
day, with the perfect timing of a cream pie in the face, the Department of Commerce
announced that construction of new homes had fallen 17 percent in April.
But to be fair, new housing starts had grown 16 percent during the first three
months of 1992, and the figures released last Tuesday showed an 11 percent jump
for the month of May. All of which illustrates two things about housing.
First, the housing market swings up and down in a highly volatile manner, which
is partly why the government uses housing statistics as one indicator for predicting
where the economy is headed. Bush is correct that when housing picks up, the rest
of the economy usually isn't far behind.
Second, the housing market is signaling lukewarm economic growth. Starts of
housing construction, which had been stuck at a rate of about 1 million units
per year from the start of the recession in July 1990 until early 1991, are now
bouncing about in the range of 1.2 million per year, even with the downward blip
But other housing statistics are less cheerful. The number of new building
permits issued, for example, has been declining slightly from March through the
most recent May figures. In talking with the home builders, Bush reiterated his
main proposal to stimulate housing: the $5,000 tax credit for buyers of new homes
that he pushed in his State of the Union address in January. Although the first-time
buyer's credit has since faded from the public eye, Congress and the administration
are now putting together a grab-bag tax bill, according to a report last week
in the New York Times, so it may well return.
For fighting the recession, Bush's $5,000 tax credit was a mistake the moment
it was announced. After all, promising a tax credit in the near future tends to
discourage people from buying right away, which makes the economy less likely
But home ownership is more than a short-term economic fix. Gradually building
equity in a home is how many people do most of their savings.
Also, people who own homes also tend to feel a stake in their community more
strongly. "The value of home ownership is felt most acutely by those who
have either not achieved it, or those for whom it is a greater struggle,"
reported Hart-Teeter Research after their nationwide poll.
But while 65.6 percent of households owned their own home at the start of the
1980s, the proportion had dropped below 64 percent by the end of the 1980s. According
to another set of Census Bureau figures, 48 percent of American families cannot
afford to buy the median-priced home in the region where they live. For blacks
and Hispanics, the figure is roughly 75 percent.
From this perspective, Bush's plan to help first-time home buyers makes some
sense. Hart-Teeter Research found that the major stumbling block for new home
buyers is the down payment and closing costs, not the size of the monthly mortgage
payment. Although limiting the credit to $5,000 makes it less helpful for high-priced
California housing than in, say, Idaho, limiting the tax break to a certain amount
does mean that it would offer greater proportional assistance to the less well-off.
Current federal housing policy works mainly through the tax deductions for
mortgage interest and property taxes. In addition, capital gains on homes are
not taxed at the time of sale if the money is used to buy a more expensive home.
These provisions reduce federal taxes by more than $50 billion per year. All of
that tax break goes to those who already own homes, and most of it to those with
Anthony Downs, an economist at the Brookings Institution, has argued: "By
reducing home ownership tax benefits less than 20 percent -- and taking almost
all of that reduction from high-income households -- the United States government
could probably pay for a housing voucher entitlement program serving all eligible
very-low-income renter households who applied."
The U.S. government can't afford to ladle out additional subsidies, whether
for housing or any other good cause. But it could, with the political will, refocus
its present level of housing assistance toward those who cannot afford to rent
or own even a very small castle of their own.
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