Is home ownership really that good?

Happy home owners

It is said that the American dream or should I say the North American dream is to have a two cars, a wife, a couple kids and a house with a yard. Owning a home in the U.S. and Canada is the most common goal that families have. They dream of having their dream home and then paying off their entire mortgage. However, is it possible that this dream is a bit flawed? Perhaps it isn’t always as good as it sounds.

Since the Clinton administration in the early 90′s and then even more during the Bush administration that followed, home ownership was a stated goal for the American economy and they both pushed hard to increase the numbers of home owners in America. It may be too strong a statement to say that this was a main factor for the housing bubble that occurred recently, but it certainly played some role in it. Regulations on home ownership including mortgage terms were more lenient and contributed to people owning homes that they could not actually afford.

The home ownership level in the U.S., at least before this recession was in the 66% range, give or take. This is no small number; however, Canada’s home ownership rate is surprisingly even higher at around 70% or so. This is quite a large majority for any economy. According to the notion that home ownership is the best choice, versus renting, these figures are good news. Unfortunately, this notion has been shown to be somewhat incorrect.

There is information and a study out there that shows that although home ownership brings about some positives for the community like more involvement and closer relationships with neighbours, it does not do perhaps the most important thing: increase happiness. It appears that home owners are no happier than renters, but do have some increased financial pains. This throws a monkey wrench in the notion that increased home ownership is always a good thing.

If a family owns a home, they have less financial versatility and are less adaptable to changes. For example, in this recent housing crisis, homes across America lost value which means that peoples’ net worth’s decreased. There was little a family could do about it because even if they were able to move, it would just lock in their loss. Hopefully time will raise the value back up but it will take some time. Renters were better off during this period because their net worth was not affected by the housing downturn one bit (not including unrelated investments that both parties may have). Also, if the renter was laid off from work, then that person is in a better position in two ways.

Firstly, the renter can just wait until the lease agreement expires, usually 1-3 years, and then just move to a smaller place. No need to sell and lock in a loss or have to deal with the process of buying and selling property. The second reason the renter is more adaptable during tough financial times is because it is a much simpler process to rent than to buy and/or sell, the renter can look for new job opportunities in different cities, states/provinces and perhaps even countries (especially within the U.S.-Canada region or within Europe). The home owner is usually more entrenched in the community than a renter and adding the difficult task of buying and selling a home during tough economic times (either for the country or individual) the home owner is not as versatile and may end up in worst shape than the renter.

Home ownership is very important and does have some benefits to society, but it appears that the rates of home ownership in North America, especially in Canada are a little too high for their own good. Some economists think that the figure should be somewhere in the low 60%’s which means that the U.S. is actually closer to this number and thus, in better shape than Canada in this aspect (aside from the housing downturn). Hopefully current governments will learn from past mistakes and not put such a strong emphasis on home ownership for everyone and instead focus on good homes for everyone, regardless of whether they are purchased or rented.