Home Ownership and the American Dream

Despite the hit it took in the wake of the downturn, ownership remains good for individuals and society. And, yes, Americans still long for a home of their own.

February 1, 2011

In a special Forbes magazine report in 2007, the publication asked dozens of prominent cultural, political, and economic figures to offer their definition of the phrase "American Dream." As one might expect, the answers were wide-ranging in content and tone. For some, the concept had evolved, and not necessarily for the better: Filmmaker Mel Brooks said that during his childhood, it referred to home and car ownership, yet today it means winning "American Idol." Astronaut Buzz Aldrin said it "used to be achieving one’s goals in your field of choice" but added that he thought it had "morphed into the pursuit of money."

One of the most resonant and thoughtful answers came from media personality Martha Stewart. She quoted Samuel Johnson, "To be happy at home is the ultimate result of all ambition," and expanded on that sentiment in her explanation of the American dream: "Our families and our homes are the center of American life. And everything we do is to make those homes—and the lives in them—more beautiful, more comfortable, more functional, and more full of life and light and joy for those we love. At the end of the day, that is the American Dream. All the rest is window dressing."

It’s true: Home is the one place where we create an environment that’s all our own. It’s also where we establish traditions, mold our family’s values, and form our identity. But does it matter whether we own the home or not? In the past several months, as the country has worked to sort through the wreckage of the financial crisis, that question has been hotly debated, with some critics saying that too much emphasis has been placed on the virtues of home ownership.

"The conversation is appropriate," said NATIONAL ASSOCIATION OF REALTORS® President Ronald L. Phipps in an op-ed piece published in the Washington Times Dec. 21. "The cost excesses of the past decade cannot be ignored or minimized. That said, they should not be amplified to the extent that we forget or ignore the true value of home ownership to our great nation."

For Realtors®, there’s no more urgent business in 2011 than debunking the notion that home ownership is no longer part of the American dream. It’s a premise stated most famously in a September 2010 Time magazine cover story. Writer Barbara Kiviat said Americans had made buying a house into a "fetish," responsible for a litany of ills ranging from lingering economic stagnation to suburban sprawl. In the same month, Daniel Indiviglio of The Atlantic said that while it can be "great in many situations," home ownership probably "shouldn’t be considered to be a part of the American dream."

NAR leaders have been countering such commentaries with a large-scale campaign that includes national advertising, regular communications to Realtors® and the media, outreach to consumers, and advocacy on Capitol Hill. Their message to the public and politicos alike: Home ownership matters—to people, to communities, and to America. At stake, they say, is not just the health of the real estate brokerage industry but the very values upon which the country was built.

"The people of the United States have believed for 234 years that property ownership is a core value for this country," Phipps wrote in his op-ed. "To say that America should no longer invest in home ownership, to say that we should stop encouraging people to own a home because the system failed them, is to forget who we are as a nation."

The message is getting through. NAR began tracking "media impressions" on topics related to the campaign last fall, categorizing them as positive, negative, or neutral. In a recent week, including the Phipps op-ed piece, NAR counted 11.7 million positive impressions about home ownership. Impressions have been running 2:1 in support of NAR’s view.

Spread the Word:  Data Tells the Story

Both past research and a recent poll conducted by NAR and Harris Interactive back NAR’s assertion that ownership remains a dream of Americans and makes a positive difference in people’s family relationships, their finances, and their feelings of connectedness to their community.

Respondents to the NAR-Harris poll—both owners and renters—cited financial security as the most important factor in achieving the American dream. Asked if owning a home was a better financial decision than renting, an overwhelming number of home owners, 96 percent, said it was—and 71 percent of renters agreed. Even in the midst of an economic crisis, both groups see home ownership as a smart financial move, a means to achieving financial security.

And they’re right. Data from the Federal Reserve shows a very real and extreme disparity in wealth between home owners and renters. In 2007, the median net worth of home owning families was $234,200 compared with $5,100 for renting families, according to a Federal Reserve Board report on household finances.

Before you dismiss that gap as a product of the housing boom, consider that in 1998, prior to the real estate market heating up, home owning families’ median net worth was $168,200, while net worth for renters was just $5,400. (Figures from both years are calculated in 2007 dollars.)

Newer Fed data, which was collected in 2010 but likely won’t be released until 2012, will likely reflect the decline in home values but show a continued wide gap between owners and renters.

Moreover, when comparing median net worth to median earnings, home owning families come out ahead: Using the Federal Reserve’s numbers again, owners’ net worth comes out to about two to three times their before-tax income. On the other hand, the net worth of renters amounts to only about 20 to 25 percent of their before-tax income.

If financial stability is a cornerstone of the American dream, ownership offers a clear advantage, says David K. Stark, president of Stark Co., Realtors®, in Fitchburg, Wis., and author of the South Central Wisconsin Real Estate Blog, which focuses on national and local real estate market trends.

"Home ownership is perhaps the surest way to accumulate net worth that there is, and it is often the largest and most important part of the total portfolio of many middle-income Americans," Stark says. "The beauty of home ownership in this regard is that it tends to be a slow, almost inexorable wealth builder. In many ways, it operates more like a savings account than an investment. Each mortgage payment is like making a savings deposit, slowly building equity."

There are benefits for society as well. According to a 2001 report from Harvard University’s Joint Center for Housing Studies, students from families that owned houses scored much higher on Peabody Individual Achievement Tests for math and reading than those from families who rent.

And owners are often the glue that holds a community together. More than half of home owning respondents to the NAR-Harris Interactive poll felt "connected" and "committed" to their communities, whereas fewer than 40 percent of renters acknowledged similar feelings. Owners were more likely to say they felt safe in their neighborhood, and it’s no wonder: They’ve lived in their home longer and are more likely to know their neighbors extremely or very well. For the same reasons, a majority of both renters and owners said ownership strengthens a community.

The MID and Its Malcontents

Given the correlation between home ownership and community involvement, it’s not hard to see why the government would have established policies such as the mortgage interest deduction to support home ownership. For most Realtors® the deduction is sacrosanct. Nearly 80 percent in a recent poll said they agreed with NAR’s position that the MID should be maintained in its current form. But with the federal deficit ballooning to accommodate economic stimulus efforts, calls to change or even eliminate this long-standing incentive have grown louder and more intense.

A tax-reform proposal announced in December 2010 by Alan Simpson and Erskine Bowles—cochairs of the bipartisan National Commission on Fiscal Responsibility and Reform appointed by President Obama—offered just such a change. Simpson, a former Republican senator from Wyoming, and Bowles, a White House chief of staff under President Clinton, proposed addressing the federal government’s shortfall by—among other things—converting the mortgage interest deduction to a 12 percent nonrefundable tax credit, capping the mortgage amount at $500,000, and eliminating credits for second residences and home equity.

Although the plan fell short of the 14 votes from the 18-member commission needed to formally recommend it to Congress, it did get 11 votes, prompting Simpson and Bowles to predict that parts of their proposal would make it into future legislation. Another recommendation from the commission was to eliminate most or all tax expenditures, which would remove the $250,000/$500,000 capital gains exclusion on the sale of a principal residence, thus putting many home sellers in a higher tax bracket the year they sell their houses.

Kiviat’s article was well-timed to throw fire on the MID debate: "Washington throws more than $100 billion a year in tax breaks and subsidies at buyers through the mortgage-interest and property-tax deductions. … None of this is particularly fair: there are no blanket subsidies for the tens of millions of American families that rent either because they choose to or because they have to. Nor are these tax breaks efficient economic policy."And Kiviat wasn’t the only writer to take a stab at the MID: John Tamny, writing for Forbes.com, said in November 2010, "[W]hy should those of us who choose not to own houses subsidize those who do? That the mortgage interest deduction is landlocking individuals at a time when they need to be highly mobile in pursuit of work is yet another reason to abolish a tax-code provision that the property-less must cover."

The curious thing about this line of reasoning? A large majority of renters support the MID. According to the NAR-Harris poll, about two-thirds of renters—along with three-fourths of home owners—said the mortgage interest deduction was "extremely" or "very" important to them.

If the tax system is so unfairly tilted toward home ownership, why would so many renters say it’s so critical? Although the question wasn’t asked, one could extrapolate the reason: They believe in the American dream, and see home ownership as a means to it.

Home Ownership’s Defenders

Many commentators, politicians, and organizations have stepped up to defend the institution of home ownership and federal tax incentives for owners. In addition to NAR, which rolled out its Home Ownership Matters campaign in the fall, the National Association of Home Builders has launched a consumer Web site and a variety of other groups have signed on to the principles of NAR’s campaign. Among them are the National Community Reinvestment Coalition, Habitat for Humanity International, and the Center for Responsible Lending.

National figures such as Democratic political strategist Donna Brazile and Linda Chavez, author of An Unlikely Conservative: The Transformation of an Ex-Liberal, have written commentaries warning against using the current financial crisis as an excuse to end home ownership incentives. "We’re living in a cynical time," Brazile wrote. "Americans are cynical about the economy, about the role of government and about their children’s prospects for the future. The one thing that Americans aren’t cynical about is the promise of the American Dream and of home ownership’s role in that dream."

With the release of the Simpson-Bowles tax reform proposal, Phipps vowed that NAR would remain "vigilant" against any proposals that would fundamentally change the MID. In December, NAR issued two calls for action, each intended to emphasize the importance of the MID to Congress. The first, which targeted the U.S. House of Representatives, was launched Dec. 1, the day the Simpson-Bowles Commission was scheduled to vote on the reform plan (though the vote was delayed two days). The second, focused on the Senate, was issued the following week.

At the Home Ownership Matters page on REALTOR.org, NAR provides links to breaking news, key research, online tools, and resources for associations and members who want to help spread the word about the importance of this key institution. To stay up to date on important home ownership news and events, visit REALTOR.org/homeownership.

The fight to preserve and protect home ownership is just getting under way and will likely rage until there’s a turnaround in economic conditions. Will real estate practitioners step into the fray and make the case for home ownership to consumers? NAR is counting on it. 

Young People Want to Own, Too

One thing that’s clear from the 2010 NAR-Harris poll: Young adults are just as committed to becoming home owners as their parents and grandparents before them.

Of the 798 young adults (ages 18–29) who participated in the poll, about three in four say owning a home provides a healthy, stable environment for raising a family, and more than two-thirds say owning contributes to their long-term financial goals. More than eight in 10 said that over a period of several years, it makes more sense to own a home.

At the same time, young adults believe it has become more difficult to achieve the American dream. Seventy-one percent say it is more or much more difficult than it was for their parents’ generation, and 72 percent predict it will be even more difficult for the next generation.

This difficulty would almost certainly be exacerbated by the elimination or reduction of incentives such as the mortgage interest deduction, says Fitchburg, Wis., practitioner David Stark: "The MID has been with us since the early part of the 20th century and is deeply embedded in the economics of our housing industry. While I’m sure the housing market, over a period of many years, could eventually adapt to the loss of the MID, it would be a painful process to go through.

"If you want to prolong the recession by another few years, keep talking about eliminating the MID," Stark says. "On the other hand, if you’re interested in seeing the recession end and employment pick up, then don’t even think about eliminating it, and pursue policies that will build a floor under housing values and restore consumers’ confidence in the value of their home."

Brian Summerfield is the former manager of business development and outreach for NAR Commercial and Global Services.