IN 2004, President George W. Bush announced the aim of a broader “Ownership Society” so more Americans could benefit from owning a home, retirement accounts and other financial assets. “If you own something,” he declared, “you have a vital stake in the future of our country. The more ownership there is in America, the more vitality there is in America.”
Decades of evidence suggest this premise is correct: Asset ownership improves the well-being of families and provides an irreplaceable rung on the ladder to a stable place in the middle class.
For most families, owning a home brings considerable benefits. It is, first, a hedge against rising housing costs.
Second, home ownership promotes household wealth-building. Required payments on a mortgage effectively force homeowners to build equity in their home over time.
And third, when a family owns their home, benefits spill over to the wider community. Studies demonstrate that neighborhoods with high home ownership rates experience higher civic engagement, less resident turnover, greater property appreciation, and less high-displacement gentrification.
Asset ownership is important to middle-class families in other ways, too.
Compared to other nations, the United States has a relatively modest government safety net. Social Security, for instance, replaces only about 40 percent of a median individual’s earnings during her retirement years.
Middle-class families also encounter higher tuition bills and health expenses than their peers elsewhere. Studies show that even a small savings account makes a big difference to the well-being of lower-income families experiencing a financial setback.
In short, asset holdings serve as a “buffer ” enabling families to smooth spending in the face of financial ups and downs.
Despite these benefits, the share of households owning a home or other assets has fallen over the last decade, particularly among vulnerable groups. The home ownership rate declined from a peak of 69.2 percent of all households in 2004 to a 50-year low of 63.1 percent in 2016, bouncing back slightly last year. The decline has been especially severe among African–Americans, Hispanics, people without a college degree and millennials.
Likewise, enrollment rates in 401(k) plans and other tax-advantaged retirement programs have declined considerably since the 1990s for African–Americans, Hispanics and young adults. Only 52 percent of Americans in the middle income quintile—and just 31 percent of the lower-middle quintile—had money in retirement accounts as of last year.
The chief factor for declining home ownership rates is, almost surely, the fact that house prices have been at sky-high levels by historical standards. Ownership rates actually fell from 2004 to 2007 despite the excesses of housing finance during those years because houses became so unaffordable.
As for retirement assets, the existing system is failing many middle-income households. People find it too easy to withdraw account balances and too difficult to roll accounts over to new employers, which means a substantial minority of enrollees have virtually nothing in their accounts.
For millennials, another impediment is the millstone of student debt. Outstanding student loans have exploded from under $400 billion in 2005 to $1.5 trillion today.
To revive upward mobility and safeguard the American Dream of a secure middle-class life, reversing this trend is essential. Providing a “hand-up” to help lower-income people onto the first rung of the ladder to stable asset ownership is one of the most powerful engines for upward mobility and a sustainable middle class.
Government at all levels should promote sustainable home ownership by:
Loosening onerous land use restrictions to stimulate development of much-needed housing supply and drive down housing prices. Studies show that cities with the least restrictive zoning rules, like Dallas, Nashville and Charlotte, have the most construction and relatively modest housing price increases.
Using property tax incentives to encourage homeowners and landlords to rehab existing homes, which could add as much to the future housing stock as any plausible amount of new construction.
Phasing out the mortgage interest deduction for middle-income families and higher to eliminate the price distortions this needless tax break creates, and converting it into a refundable tax credit for lower-income families who currently derive no benefit from it.
Taxing land more heavily and structures more lightly to induce development.
To promote retirement plans, Congress should replace today’s heavily-regulated, burdensome mix of retirement mechanisms with easily portable, tax-advantaged “universal savings accounts” with far higher contribution limits.
Government at all levels should stop penalizing savings in determining eligibility for means-tested benefit programs. They should also consider innovative experiments in matching contributions by lower-income families to savings vehicles. And Washington should overhaul the student loan system to reverse the buildup of indebtedness, which renders wealth-building an unreachable fantasy for millions of young Americans.
Finally, policymakers should foster the emergence of cheap, technology-enabled, no-conflicts financial advice to middle- and lower-income people—which is almost impossible to provide in today’s over-regulated and conflict-ridden financial services environment.
President Bush’s vision of an “Ownership Society” is more valid than ever in 2018. Building asset holdings is one sure way to bolster America’s middle class.