Do you ever REALLY own your home? What I want to discuss is the modern version of homeownership as compared to traditional factors that caused people to buy homes in the past. On that front, much has changed in the past 30-40 years, so much so that the entire purpose for owning a home might be unrecognizable to homeowners and would-be homeowners of previous generations. It might not even look like ownership to them at all.
So what’s changed and how do those changes affect the degree to which we actually own homes today?
Property use limitations
It used to be that when you owned your own home, you could do what ever you wanted with it and in it. Now we have ordinances and zoning laws — not that they didn’t exist in the past but we have more today and still more are added each year. Some of the things you can’t do in a typical suburban home include:
- Running certain businesses out of it
- Housing beyond a certain number of occupants
- Parking certain types of vehicles and equipment
- Composting or burning compost on the property
- Making major modifications to the property
- Neighborhoods run by home owners associations (HOAs) can restrict even more, such as the color you can paint your home or the number of vehicles you can park on the property (read your bylaws if you don’t believe me!)
For previous generations, the freedom to do some or all of the above was one of the primary reasons to own a home rather than rent. With all of these limitations, how fair is it to say that we truly own our homes today?
It can (and usually is) argued that the reason these restrictions exist is to protect all home owners in a neighborhood or community from excesses, but at what point do they go beyond protection and start infringing on the enjoyment and benefits of ownership? As legal owner, you are fully responsible for your property and yet you aren’t free to do with it as you please. Is that true ownership?
Economic use limitations
For centuries, one of the driving forces behind home ownership was economic benefit — the income you could earn as a result of owning the home and property adjacent to it. Typical uses included farming, mineral, timber or fishing production, running a shop out of the home or renting out rooms to boarders. The last two are something I remember to be true in the 1960s and 70s but it seems to have disappeared in most places.
Do you think this shift might be contributing to the foreclosure crisis?
Today, suburban homes have virtually no economic value – they’re strictly places to live. Put another way, in purely economic terms, they’re liabilities, not assets. The aforementioned property use restrictions have effectively put an end to most economic uses of a home.
Is this indicative of true ownership?
Property taxes rising to infinity
Property taxes have existed for centuries, but what’s different now is the degree. The cost of supporting local government services apparently has no ceiling, and property taxes have been raised relentlessly in the past few decades to provide the funding. In many cases, the property taxes on a home are higher than the mortgage!
Do you really own a home when you’re paying $500, $700, $1,000 or more each month just for the privilege of owning it? Unlike a mortgage, paying real estate taxes doesn’t increase property value or the equity in it.
Get into any sort of financial entanglement these days and it’s almost certain your adversary will attach a lien to your home. It’s not that this sort of thing never happened in the past, there’s just more of it. You could lose your home equity even for reasons having nothing to do with the house itself. I saw this all the time when I was in the mortgage business. The combination of high property values and high asset visibility have invited it.
Lawsuits, income taxes, and mechanics liens — where someone who’s done work on your property can attach a lien to it for non-payment — not only consume your equity, they can also make it impossible to sell your home.
What does that do to ownership?
The commoditization of the American homestead
There are two factors that stand above the rest when it comes to motivation to own a home today: price appreciation and income tax deductibility. Neither is intrinsic to home ownership in and of itself; one is driven primarily by market forces, and the other is a public incentive.
We’re willing to put up with heavy restriction of property usage, the virtual elimination of economic use, the imposition of high and growing taxes, and the potential for legal attachment in exchange for tax incentives and the ability to sell the property at a higher price in the future.
Good deal perhaps, but it seems more like renting with the option to sell at a profit at a later date. Owning a home today is more like owning a stock—you hold title, but you have no impact on how the business is run, and your primary advantage is the ability to sell at a higher price. That means a house has morphed into something more like a tradable commodity than the traditional family homestead that could nurture a family for generations.
The dirty little secret in the housing sector is that over the past few decades price appreciation has become everything when it comes to homeownership.
As much as we like to think of homeownership as something sacred, the version we live with today is something much less. We’ve largely traded the traditional virtues of homeownership for price appreciation and reduced income taxes. Has that been a fair exchange — or have we given up too much in the process? Like true homeownership and all of the benefits that could come from it?
What are your thoughts? Am I on to something here or am I just blowing smoke? Feel free to disagree or to present counter arguments!