Canadian Business Mag: 'Housing: Real insanity' - On Renters And Owners

The article by Joe Castalado at canadianbusiness.com 25 Apr 2011 is an absolute must read for anybody with even a vague interest in Vancouver RE. It is a multifaceted article, and we have/will highlight various bits and pieces of it elsewhere. It is headlined here to archive its presence in the chronology and to encourage all to take a look.

We also take the opportunity here to highlight excerpts that summarize well the renter/owner discussion:

“Canada has a long history of embracing property ownership (it was once a requirement to vote), and government policy continues to support it. “It’s a virtuous circle,” says Phil Soper, CEO of Royal LePage. “Governments have been elected over the years for putting forward policies that encourage home ownership, and people have in turn viewed it as good policy.”

Politically, it makes sense for governments to cater to homeowners, a powerful voting lobby. But part of the logic behind supporting ownership is that it’s [good] for society. The prevailing wisdom is that homeowners vote and volunteer more than renters. They’re more engaged with their communities. They’re even healthier. In short, property ownership makes better citizens.

The evidence for this is dubious. William Rohe, director of the Center for Urban and Regional Studies at the University of North Carolina at Chapel Hill, summarized the existing research a few years ago for a Harvard University housing journal. He found that homeowners have higher self-esteem than renters, but pointed out that the original studies may not have adequately controlled for other contributing factors. Numerous studies also show that homeowners participate more in volunteer organizations and political activities. It’s still unclear, wrote Rohe, whether ownership actually leads to this behaviour. Yet another purported benefit of ownership is that it fosters better education for children. Again, the evidence is weak. A paper in the journal Real Estate Economics published in 2008 examined much of the literature using more sophisticated analytical techniques. It found that children of American homeowners scored no better on math and reading tests than renters’ kids, nor did they have lower high-school dropout rates.

Grace Bucchianeri, a professor of real estate at the Wharton School of Business, found the societal benefits of home ownership to be similarly overblown when she examined data collected from 600 women in Ohio. She found little evidence to support the idea that owners participate in civic and community activities any more than renters, and after controlling for factors such as income, housing quality and health, she concluded that owners were no happier. In fact, they spent less time on leisure activities and socializing with friends than their renting counterparts. When you look beneath our assumptions, Bucchianeri writes in her 2009 study, “the intuitive link between home ownership and well-being breaks down.

As for the renter’s fear of losing out financially, that too is exaggerated. Today, the average home-price-to-rent ratio is at its highest level on record, which means renting may actually be more affordable than paying a mortgage. Furthermore, a 2007 study from the UBC Centre for Urban Economics and Real Estate found that over the past three decades, renters could have beat homeowners’ financial results. The study examined the theoretical returns of buying versus renting in nine Canadian cities. In four of them, renters who invested wisely could accumulate 24% more wealth than homeowners, and match it in three others.
…
Considering the inconclusive research, it might be time to rethink the degree to which governments support homeownership. David Hulchanski, an associate director of research at Cities Centre at the University of Toronto, for one, argues that our current system punishes renters. … Housing policy should stop blindly favouring ownership, Hulchanski argues. Eliminating the capital-gains tax exemption on home sales would be one way to free up some cash. “That’s billions that could be used on rental or social housing, and we rebalance the system,” he says. He knows the prospects of that are next to zero, however. “Even the NDP is silent on it.”