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The Case Against Subsidizing Housing Debt

Advocates of an “ownership society” argue that homeowners take better care of their properties than renters, with positive externalities for communities. But there is also an argument against public policies that encourage home ownership, not least that it leaves households with too much debt and too little savings.

SINGAPORE – At the end of the first quarter, according to the Federal Reserve Bank of New York, American consumer debt for the first time exceeded its previous peak (in dollars), reached in the third quarter of 2008, just as the global financial crisis erupted. Although car loans and student debt have been rising especially rapidly, housing debt remains more than two-thirds of the $12.7 trillion total.

As a share of income, household debt is nothing like the threat to the national economy that it was ten years ago. But the new statistic is a reminder that American households don’t save enough.

Some would attribute Americans’ tendency to spend – while Asians, for example, tend to save – to cultural factors. But there is an important policy component as well. US government policy is designed as if to encourage Americans to take on as much housing debt as possible.

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