Dear Auntie Pinko,
The current administration has mentioned several times
that increasing home values and record home ownership is evidence
that our economy is strong, and average folks are benefiting.
I purchased a house about 4 years ago, and the value has risen.
It seems to me that really isn't money in my pocket. I can't
spend that money unless I sell, and of course if I sell, I'll
have to buy another house (unless I choose to rent, and thus
lose some of my freedom).
Despite the fact that much of my money is going into
the banker's pocket, and (because of deductions) not as much
to the government who could use it for the general good, I
still feel fortunate. I feel fortunate, but also feel like
a pawn. It seems to me that the ones who are getting shafted
are the ones who don't own a house. It's getting more and
more difficult to afford one. It seems to me that the divide
between the 'rich' and the 'poor' is getting wider and wider.
My question: In your opinion, are 'average folks' benefiting
from the housing boom?
Concerned for my son,
The increased value of your home is very much money in your
pocket! The fact that it is not cash flow doesn't mean you
are not benefiting very substantially from that rise. Auntie
Pinko is not a financial advisor or expert, and can't explain
these things as well as such an individual could, but there
are a good many places you can get information in detail about
the advantages of home ownership to the average American family,
and the effects of rising home values on increasing family
asset values. Home ownership benefits go far beyond cash value.
For many families, the value of the mortgage interest deduction
is the single biggest tax break they experience each year,
and enables them to use the value of that deduction to invest
in education, transportation, retirement savings, and other
important projects. The fact that your equity in the home
is increasing much faster than it would if the value remained
static and you simply made your payments gives you a much
more substantial asset, against which you can borrow (at low,
tax-deductible interest rates) to invest in a small business,
improve your home and increase its value further, or otherwise
grow your assets and your net worth.
There is absolutely no question that the single most important
public policy contribution to the expansion of America's middle
class during the 20th Century was the government's conscious
effort to encourage home ownership through subsidized mortgage
rates and mortgage insurance, mortgage interest deductions,
etc. For many families, the largest portion of their net worth
is that home equity. It's a "savings plan" that pays far more
than any certificate of deposit.
However, you have put your finger on the sore spot: it is
getting harder and harder for low- and moderate-income individuals
to enter the housing market for their first home. One thing
contributing to this problem is the declining stock of "starter"
homes - smaller homes offering modest amenities, available
at modest prices. The trend in home building is to larger,
more luxurious houses - and the older stock of modest housing
is often bulldozed to make way for new 5,000 square foot "McMansions"
that make bigger profits for builders and developers.
Even older housing in the inner-ring suburbs around large
cities is often priced out of the first homebuyer market due
to growing urban sprawl/gridlock problems and escalating commute
issues. And zoning policies often mandate low-density land
uses that require developers and builders to build more expensive,
high-profit homes to recoup their investments.
Few developers and builders are willing to accept the lower
profits they could make building 2,000 square foot houses
without "great rooms," "master suites," Jacuzzi baths, "mud
rooms," etc. - the sort of houses in which a great many people
of Auntie Pinko's generation spent comfortable childhoods.
The sort of houses that many young people in their 20s and
30s today could afford, and the sort of houses that many new
Americans would be thrilled to be able to buy to invest in
the American Dream.
If our elected representatives want to preserve the real
middle class - the backbone of America's strength and prosperity
- they will start thinking about new public policy incentives
to maintain home ownership rates and encourage home ownership
among the young people and new immigrants to America. You
make an excellent point, Dan, and thanks for asking Auntie
Dear Auntie Pinko,
Some time ago John DiIulio described the Bush administration
as concentrating almost entirely on politics rather than policy.
I was telling this to a friend the other day, but got stuck
on explaining the difference between politics and policy.
Could you help?
No problem. Policy is what you do to govern responsibly;
politics is what you do to get re-elected.
Do you have a question for Auntie Pinko?
Do political discusions discombobulate you? Are you a liberal
at a loss for words when those darned dittoheads babble their
talking points at you? Or a conservative, who just can't understand
those pesky liberals and their silliness? Auntie Pinko has
an answer for everything.
Just send e-mail to: firstname.lastname@example.org,
and make sure it says "A question for Auntie Pinko"
in the subject line. Please include your name and hometown.