AUTHORS OF OUR OWN MISFORTUNES (2)

In my blog last week about the folly of “reverse mortgages” I added that house buying is, for many, a mortgage-poor path to insolvency. I received one response from a friend in England who set me thinking. She agreed about “house-poor” people. And she said the rush to buy a home helped put Britain into financial trouble. (They didn’t have sub-prime mortgages, but the housing market was grossly overextended.) We know that millions of people are in so far over their heads, that the economic problems evident today, especially in the U.S., are directly related to the home-ownership mystique.

Remember the “ownership society” that George Bush wanted America to be. Owning your own home was the sold, American-way-of-life thing to do. The principle part of “The American Dream.” But the imperative of home ownership is not new. Veterans returning from WWE2 wanted to own a home. In America we got Levittown’s, enormous cookie cutter development aimed directly at the home-ownership hungry veterans. To a great extent that happened here too. Does anyone remember how E.P. Taylor enriched himself by turning his farm into Canada’s first “satellite city?” He was responsible for Don Mills, which became the magnet for hungry home buyers, How deeply embedded the idea was - one of the conditions he exacted from government was that if he was to build on a farm miles away from the city, he would have to be guaranteed that a multi-lane access road would be built to get to Don Mills. Bingo! The Don Valley Parking Lot.

Governments everywhere, especially in the U.S. and the European Union, are staggering under a load of debt. The biggest part has come from the stampede of helpless and naïve people rushing to buy homes. There us a fatal myth about renters. They are unstable people who care little for the property they rent. There is no “pride of ownership.” We bought the myth lock stock and mortgage.

Governments, fighting the almost fruitless war against the deficit, want that ugly figure to be a reasonable ratio of the Gross National Product. If we applied the same to home buyers and looked at their gross household product, we would soon discover that the ratio of debt to equity was over the top.

What’s even worse is that in America, which like it or not, sets the tone for the world’s economy, greed replaced sanity. Millions of imaginary assets were purchased by people who were gulled into signing documents beyond their understanding and far beyond their budget. All’s fair though – when a country is trying to put people into home ownership...

My wife is, dare I say it, addicted to TV shows like “House Hunters.” I watch it with her, but for different reasons. She watches to see what the prospective home buyer seems to want. I watch it to marvel at the gullibility of the young couple who have permission to overload themselves with a debt that they may never pay. (And we know that many homes among the millions being repossessed are “under water.” The value of the home is less than the size of the mortgage.

I have wondered why banks and other institutions which have become the de facto owners of abandoned or foreclosed property have not, perhaps with government assistance. Offered these homes for rent. (In fact, it does happen where, instead of allowing the house to be empty the foreclosers have rented it to the former owners.

Of course, home ownership makes sense to the developers. They build and get all their money out when they find a buyer. If they rented, they’d still have the cash tied up. Eureka! That’s the real underlying truth. The builder doesn’t want to tie his money up. Neither should the prospective buyer. Accountants have done all the figures and in most cases it is far more practical to keep your capital intact and pay rent.

The argument pro buying is usually: “I’m tired of; paying out money and having nothing to show for it.” People are rent-averse but the irony is that when you buy you are simply renting the money from the bank. The only consolation is that over the long term the value of property increases – unless you get in at the wrong time, the way, when there is a housing boom, everyone wants to buy a house.

My bank manager once said to me, when we insisted on staying in our home, "If you really want the home, that’s what counts." It is not a matter of money.”

We rent. Our capital is tied up in income producing instruments. Our landlord is responsible for all the problems. When we travel, we lock the door behind us and head for the airport. Worry free!