Optimum Home Ownership Rates

While listening to the radio this morning, I came across a story about how foreclosures are increasing, meaning that the percentage of Americans who are homeowners is decreasing.  To my delight, I heard the radio host mention that several previous presidential administrations had emphasized increasing home ownership.

Some egghead was brought in and questioned about this, and he observed that 70% was historically too high.  Home ownership rates were traditionally closer to 60 or 65%.  The radio host asked some question along the lines of, “How do we know 60% is an optimal home ownership rate?”  The egghead went off on how home ownership has been increasingly seen as an investment, rather than simply a place to live.  Basically, he blamed real estate investors for this mess, though perhaps he was more implicit in that accusation.

In fact, “Is 60% a good or optimal home ownership rate?” is an excellent question to ask.  The answer is that we don’t know.  Nobody knows what the optimum for this or any other privately determined rate is.  That’s the whole point about the market economy vs. a centrally-planned economy.  One person or even a small group of people, or even a person-controlled machine, cannot determine this optimum rate.  Many have tried: Soviet Russia, Communist China, Cuba, Vietnam, etc.  All have had catastrophic failures.  Why?

From a perspective of Austrian economics, the reason is that each decision as to an individual affording a home, or buying a home, is an individual, subjective decision.  It is often irrational, and therefore unpredictable.  If one decision is unpredictable, then several are still unpredictable (the total is more unpredictable than any individual).  Increasing the number of unpredictable scenarios does not bring any further enlightenment as to whether one or multiple individuals are able to purchase a house, or are interested in doing so.  Yes, we can redistribute money via the welfare state and pressure financial institutions to adopt loose lending practices to encourage a higher percentage of home ownership, but who is to say that such a percentage is good or optimum?  Who is to say that such practices are moral?  Who is to say that such individuals are able to afford the costs and burdens associated with home ownership?

The truth is that the unpredictable nature of any economic decision, including significant ones like home ownership are best left to the market, to individuals acting freely.  Government economic intervention almost always results in an improper distribution of resources, like home ownership, for instance.  Why does Washington want to control what it does not (and cannot) understand?

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Filed under Austrian Economics, Libertarian, politics, role of government

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