Do You Ever REALLY Own Your Home?

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:

  1. Running certain businesses out of it
  2. Housing beyond a certain number of occupants
  3. Parking certain types of vehicles and equipment
  4. Composting or burning compost on the property
  5. Making major modifications to the property
  6. 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?

Do You Ever REALLY Own Your Home?
Do You Ever REALLY Own Your Home?

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.

Legal attachment

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!

( Photo by Penelope Waits )

23 Responses to Do You Ever REALLY Own Your Home?

  1. First of all you have to evaluate your current property value. If you found that it is lesser then your assessments value then you should appeal .Lots of the people do not fight either they don’t know that it is beneficial or they think that it is time and money consuming. But it is not difficult nor money consuming Actually it is money saving ….. It will take a little time but if you don’t have time then you can hire an expert who will take care of your case…

  2. Hi Steve–That’s one way to deal with the property tax issue, and you’re right a lot of people don’t do it for one reason or another. But in areas where property taxes are over $10,000 a 20-30% reduction still means you’re paying $7000-8000 in taxes that add nothing to your value or equity. It’s a major problem with home ownership in our time, and I think, a major limitation to ownership. Even if you pay off your mortgage, you still have a substantial tax bill, and for many that bill is higher than the entire house payment was when they bought the home 20-30 years earlier.

  3. Kevin,

    Areas with property taxes over $10k? Ugh! Makes our tax of around $1.5k a year seem manageable.

    I agree with much of what you say above, especially the part about houses being liabilities. Many years ago I remember one of the financial ‘gurus’ stating that a house is a liability simply because it costs you money each month. Something about an assest creating income, and a liability costing you money. Any way you slice it, a house costs you money.

    One of the primary reasons my wife and I moved to AZ over a decade ago was so that we could afford to buy a house. Coming from LA, the land of outrageous house prices, we needed to move somewhere we had a fighting chance. One year after we moved here, we bought our first, and current, house.

    Within the past 2 weeks we have made a life changing decision to follow our dreams of moving to the gulf coast so that we can be closer to the ocean and participate in all the activities that it has to offer. This is something we have literally been considering for years, but have been unable to pull the trigger. Well, the trigger has been pulled and we have started the wild ride of shaking things up.

    Unfortunately, the house is the one anchor that is holding us back from the move, so we had some hard decisions to make. They were made and now we wait to see what happens.

    I am not as big of a fan of home ownership as I once was. Things can turn bad in an instant, and it makes one ponder if it is really worth it. Once we get things straightened out here in AZ (hopefully the process will be quick and we will get out of here ASAP), we plan on being renters for a couple of years. This will let us figure out what area we really want to put roots down in, but also will let us reevaluate life in general and what we want out of it.

    It is an exciting and scary process, but we are taking steps to fulfilling a longtime dream. Things will work out and we will be where we want to be.

  4. Hi Marshall–I find that kind of real life adventure to be exciting and wish you both the best. When you do something like that you rehearse the known negatives in your mind but just remember that there will be unknown positives that will more than balance it out. You’re following your dream and that’s admirable–try to have fun with it!

    Getting back to housing though, its interesting that today people are ending up in financial oblivion often because of their house. A few generations ago, when a house could be used to run a business out of and/or to house boarders or extended family members, the house was the solution to your financial problems. During the Depression, my grandmother ran a confectionary store out of her house, which is largely how the family survived. You couldn’t do something like that in most areas today. We’ve completely lost touch with that aspect of homeownership.

  5. Nailed it. All very true. Buying generally puts the owner in a nicer neighborhood and buying gives neighbors economic incentives to keep up the neighborhood.

  6. Hi Jason–But neither is a true economic benefit. Economic incentives to keep up the neighborhood is aimed at price appreciation, not any true economic benefit. In today’s scenario, nearly every economic benefit hinges on price appreciation. If that doesn’t happen, there is no economic benefit. I think that’s a large part of what’s causing the current problems in the real estate market. Everything seems to hinge on ever rising prices.

  7. We purchased our current home with the purpose of homesteading and selling our extra produce to make a little extra. Before we rented farm land so the decision to buy a small farm seemed logical and exciting. We purchased land and a house that had been used for a garden for 40 plus years in a town that stated their mandate is to support local agriculture. Guess what, they turned down our application to run a small farm! They said they only support in hone businesses that are an office in a house. So our house is now a liability. We would of had our mortgage paid off in 10 years. Now we are looking at 20. We are waiting on a new ruling but that will take about a year. You are very right about the changes in home owner ship. I feel like the town is micro managing my own home! Can’t even change a door with out getting a “home improvement” permit.

  8. Hi Moepwr–I’m sorry to hear about your situation, but unfortunately I’ve heard it before. Communities want “clean businesses”, which is to say paper pusher businesses only. Any business that does anything that’s real or tangible is prohibited. This is the main reason why I wrote this post. Our ancestors–even those from a generation or two ago–would be shocked to see how homeownership has devolved into something so sanitized that it doesn’t look at all like it did for centuries.

  9. You make several good points — we refuse to buy any house with an HOA due to the unreasonable restrictions (and “dues”) that they impose with no out and no appeal — aside from refusing to buy in that subdivision.

    I still live where “homesteading” still has meaning in terms of protection from liens other than those directly related to upkeep or improvement of the property. One real cause of today’s situation is the “I want it NOW” mindset of the last generation or two. We couldn’t afford the nifty “things” for sale, and didn’t want to wait long enough to save up for them, so we took out “home equity loans”. When those loans, along with credit card debt, huge and multiple cars, and all the other “cool” toys were more than we could pay, the home property was the means of repayment.

    When we wanted government to “help” us with various issues — wide roads for the huge cars, municipal swimming pools, schools, fire and ambulance services, etc., without having to (seem to) pay for them, taxes took the place of the “fee for service” arrangements in place before.

    One thing a home does provide, whether it is considered an “actual” financial advantage, is shelter and a place where we can put down at least a few roots and feel as if we *have* a place of our own — even if we share it with the government and/or the bank.

  10. Kevin, wow this is are great article, you nailed everything. Really all that we are left with is the right to quiet enjoyment, and even that is questionable. Yea, also when you sell your property, you are most certainly the last to get paid, everyone, including the realtor gets paid first! Our Rights are being whittled away!

  11. Hi Jim–Good point about being last in line to get paid on the sale. This has all been building for decades, but no one paid attention because property values where steadily rising. Now that they aren’t increasing so reliably, we can clearly see the damage that’s been caused. In my opinion, all these regulations and expenses are destroying the liquidy of real estate, and that will hurt all around.

  12. Yep your right Kevin, everyone has just overlooked this in the past due to the rising values. Even Taxes, while always going up, when values were increasing people didn’t squalk about it much. Now that their values have dropped but taxes haven’t the peeps are getting irritated!

  13. Everyone is happy as long as they’re making money. They’re even willing to overpay for various expenses, feeling it will “all come out in the wash”. Now the problem is that it isn’t working anymore.

  14. Add to your already excellent points the fact that the government can take your property away from you any time they feel like it through eminent domain. Supposedly it has to be for public good, but courts increasingly have ruled that property can be taken from one private citizen and given to another simply because the new usage will generate higher tax revenue for the government entity. I keep thinking back to the old bumper sticker….I love my country but I fear my government.

  15. Hi Kathy – That’s an excellent point that I completely neglected. Eminent domain is being imposed for increasingly frivolous purposes and the courts are allowing it. It used to be they’d only invoke it for the public good, like building a public park or hospital, but now they can do it for commercial purposes. You’re supposed to be compensated in those cases, but from what I’ve heard you always get something less than true market value.

  16. Great points, Kevin!

    The one about lawsuits is HUGE as well.

    Having represented creditors and debtors in the past, I can tell you that self-employed debtor who is a renter and leases a car is basically judgment proof. Even if they have a job, in many states, the most they can garnish is 10% of your wages (that’s all creditors combined). It doesn’t mean we can’t get a judgment, it just means it might not be worth the paper its written on.

    Property taxes is a another huge one. Look at your local government. Are they in massive debt? A home is a uniquely “hostage” asset to local governments. You can earn money in another state. You can move bank accounts and cash and gold and antiques/art/collectibles.

    You can’t move your home.

    And don’t tell me you’ll sell your house after the local government enacts confiscatory property taxes–the next buyer is going to discount the price paid to compensate for the taxes.

  17. Very good point on property taxes Jeremy. I’ve seen entire communities suffer property value declines as a result of big tax increases. If it’s all the same, prospective buyers will choose communities with lower taxes. The bozos in government (sorry G-men, but you’ve got to own this one!) think that taxes are like a switch – you raise them and the money rolls in. In reality, with few exceptions, the taxable base begins to decline as people move out.

    I don’t think homeowners are as immobile as we think. They’ll eventually vote with their feet and leave the community. Of course, this works better for those who get out early, since the property value declines aren’t as severe as they will be.

  18. Interesting thoughts Kevin – I’m personally of the opinion that houses, in general, should be thought of as assets (even your own home), and the average increases in house values, beyond inflation, will usually be above the expenses. Therefore, whilst they may create net expenses, the final position on your net worth should be positive.

    However, I completely agree on all accounts regarding ownership – especially in neighborhoods where you are limited to do certain activities or things to your own home.

  19. Hi Graham – I think the problem today is that the entire construct of homeownership is based squarely on price appreciation. Take that away and the whole game collapses. That’s pretty much what happened with the housing meltdown from 2007 on. Once values started dropping no one wanted to buy and a lot of owners walked. They though of rising values as their “right” and when it stopped it was time for strategic default. In more than a few areas you couldn’t sell a property at any price. No appreciation = no market!

    There’d be more balance – and I’d agree more on the asset designation – if housing went back to having more economic value. Today they’re based strictly on market value – which I know to be true from 15 years in the mortgage business. That means it’s all about property values. When they’re rising everyone is an investment genius. When they’re falling, everyone is trapped.

  20. Not only is home ownership a ruse to squeeze you for money, owning anything gives government an excuse to extract fees for permits and registrations and every kind of imaginable tax.

    Here’s my solution:

    I’ve stopped owning things. I’m serious. I have no car and no house. I own practically nothing of tangible value. Tax that, asshats.

    Here’s another upside: I also have no kind of material insurance. No homeowners insurance, no car insurance, no renters insurance. Not only do I not pay all the taxes that go along with ownership I have no need to insure my [un]property from seizure. Because I don’t have any.

    I’m done. Through. Finished. Not paying their game anymore.

    I rent a crappy apartment, I ride the bus, I walk to the grocery store. Because I don’t have a car I don’t buy a whole lot because then I’d have to carry the damn stuff home. Meh.

    After 6 years of this lifestyle I am nearly free of debt and I have virtually nothing that can be taxed, insured, or seized. Screw you America.

    I am 61 years old. I came into this world with nothing and I will leave with nothing. And I’ll be damned if I’m going to let the government have any more in between.

    With luck and a lot of diligence, I’m headed to S. America in the next year or two. I plan to get old and die down there with nothing. But at least it will be more fun than the grind around here.

    Good luck to everyone-
    Gardener1

  21. I get what you’re saying. The whole “system” has gotten so convoluted, so expensive and I’d even say capricious, that I don’t blame you or anyone else for dropping out. If you’ve ever read Ayn Rand’s classic And Atlas Shrugged, this is exactly what she predicted (back in 1957) would play out. In response to complex regulation and crushing taxes, the productive/tax paying class would simply “disappear”, maybe not literally (though some would leave the country), but they’d just kind of fall off the economic map.

    I often wonder if that isn’t happening right now with all the people who every month seem to “stop looking for work”, according to the Bureau of Labor Statistics. I wonder how many have either cut their living standards drastically, joined the black market economy, or a combination of both. After all, you still have to make a living, at least a minimal one. I doubt they’re dropping out to come home and watch TV all day.

    We rent our house, and I see no reason to own, especially now that our kids are grown. My car is 15 years old, and I doubt I’ll ever own a new car again. Prices are to high (2014 median price for a new car is $32,000), insurance is much higher, and where I live we have an ad valorem tax – a fancy name for an annual sales tax on an asset you already own – that’s based solely on the value of the car. I don’t need any of it. Building my income, and saving and investing money are the priorities at this point in my life. I’d rather live a life that’s superficially “poor”, but financially, spiritually and socially rich. Owning a lot of expensive stuff just gets in the way of that.

    As well, I think that a lot of people who prioritize the accumulation of stuff disregard/ignore/deny/runaway from the reality that we’re really not here that long. Stuff can’t save us, and we can’t take it with us.

    I’ve heard that a lot of Americans who are in or near retirement are moving to Central and South America, including Mexico, Costa Rica, Panama, Uruguay and Argentina. Another new hot spot is Puerto Rico; it’s a US territory but mostly self-governing.

  22. Couldn’t have said it better myself. Kevin you hit the nail on the head. The idea that I have to pay the government rent (taxes) on a home that I own really frosts my britches. So for the privilege of owning a home I get to pay the bank and pay the government and then pay the HOA. WOW what a lucky guy I am. Then all of the maintenance costs, grass cutting, etc as well as the utility costs. Even if we were to go completely solar, we still could not get off the grid because the government would declare the house uninhabitable if we were not hooked up to electric. So I feel the true cost of home ownership is extreme. If I could figure out how to do it I would much rather live in our motorhome and move when the neighbors get noisy.

  23. Well put Delrdr! Home ownership has its virtues, but the cost is getting out of control. Worse, if you have to sell quickly to follow a job opportunity it isn’t always easy to sell, and then to recover your equity if you can. I was in the mortgage business for 15 years and watched the price of both buying and maintaining a house skyrocket. Buying a house is no longer a “no-brainer”. When you add all the other influences that have control over your property, you’re adding complication to the cost.

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