A Nation of Renters or a Nation of Owners?

I don’t wade into politics very often, but today I am going to.  This week the National Association of Realtors held their annual Conference, Convention, and Board of Directors meeting in Chicago.  Normally a pretty passive affair, this year’s meeting coincided with the proposed federal tax reform.  So, you might imagine some excitement, and you’d be right.  However, a presentation by Iona Harrison, a realtor in Crofton, MD, was a wakeup call for many Directors in the room, including me.


Iona Harrison – New Tax Code Winners and Losers

Iona discussed the new tax code proposal.  It is scary for middle class Americans, especially homeowners who can expect to lose an average of $815, while renters pick up about $516.  The traditional news media is spinning this both ways: a huge win for the middle class, a huge loss for the middle class.  That all depends on which station you are watching.  But if we look at the facts, we can see that whether it’s a plus or a minus for the middle class, the negative impact for all Americans is significant.

The bottom line is this…Right now, we as a nation have a decision to make.  Do we want to be a nation of homeowners or a nation of home renters?  This is a great question with large and long lasting societal impact.  The United States is a great, and now proven, experiment in democracy and free enterprise, holding as a core foundation, private property ownership.

But the current trends are disturbing if we believe that private property ownership is a major cornerstone of our successful system.  According to the Pew Research Center, “More U.S. households are headed by renters than at any point since at least 1965.”

A Nation of Renters or a Nation of Owners?

Source:   http://www.pewresearch.org/fact-tank/2017/07/19/more-u-s-households-are-renting-than-at-any-point-in-50-years/

Additionally, Lawrence Yun, NAR’s Chief Economist, was quoted last year in Forbes Magazine saying:

Homeownership has provided a wealth accumulation for owners. According to the Federal Reserve’s Survey of Consumer Finances, a typical homeowner’s net worth was $195,400, while that of renter’s was $5,400, as of 2013……  That is, a typical homeowner will be ahead of a typical renter by a multiple of 45 on a lifetime financial achievement scale.


WOW.  Homeowners amass 45 times the net worth of renters over a lifetime.  The financial wealth that homeowners accumulate is intrinsically meaningful for sure.  But so is the concept of having a home paid for in retirement when incomes can be fixed and, in many cases, much lower than during the active earning years.  Home ownership is foundational in many societal ways, too, ensuring long term stability for children who do better in school, and providing a sense of community with those living nearby.  Home Ownership has cash value and a whole lot more.

A Nation of Renters or a Nation of Owners?

ECI’s Cobb, Nowrasteh of CATO, and Lawrence Yun of NAR in Washington DC May 2017

But let’s stay on the specifics of the tax reform itself and the impact it brings.  The new tax code would eliminate mortgage deductions and tax incentives for new home buyers on homes over $500,000 and eliminate the mortgage deduction on all second homes.  It caps the deductions on state and local property taxes over $10,000.  And, as it relates to home ownership, the proposed reform also limits and changes the rules to the capital gains exemptions on the sale of a home.

Now I know many will say that owning a $500,000 home isn’t middle class, especially since this value is $300,000 higher than the national median price of $188,900. But let’s examine some large housing markets for a better look, and then we’ll see how the trickle down from the higher priced homes affects everyone.

  • The median home value in the Bay Area of California is $742,000.  San Francisco: $1.2 million.
  • The median home value in Boston is $561,400.
  • The average sales price for Brooklyn homes is $788,529.
  • The median home value in Fairfax County, Virginia, is $519,600.
  • The median home price in Los Angeles is $570,500.

The prediction coming from the Research Department for the National Association of Realtors, is that following the passage of the new reform, as is, home values in the United States will plummet, perhaps by as much as 10%.  Having been through 2008, and the huge losses people experienced then, a redo now seems foolish.  This reform really impacts ALL homeowners, not just those in the $500k bracket and above.  Passage could precipitate a huge loss of wealth, a loss by people who may have little or no savings for retirement other than the equity in their homes.

It has been said many times because it’s worth saying.  If you are of retirement age, you have no time to recover from huge losses.  The median home price in the U.S. is $188,900.  10% of this number is a loss of nearly $20,000.  For most folks in America, the home is the largest bank of wealth, and $20,000 is a lot of money.

The reforms, if implemented, will have impact nationwide.  Today, construction jobs represent about 4.5% of all employment in the U.S.  But it’s not just the direct employment provided by home construction that is affected.  Manufacturing, transportation, warehousing, and the service sectors are affected too.  The spin down and job losses will impact the poorest segment of society the most.

Perhaps this new tax legislation with its ceiling on mortgage interest and capital gains deductions is punishment for the “blue” states and “blue” cities by a Republican Congress.  Most of the “red” states and “red” urban areas fall into a median price well under the $500k cap.  But all joking aside, the reform measures will hurt middle America as much as anywhere and the middle class the most.

The issue of whether to give a deduction on mortgage interest, or remove the capital gains tax on the sale of a home, brings up the issue of crony capitalism and the favoring of one industry over another.  This is true.  And, in fact, if we look back to the passage of the 16th amendment, we see that the first rates proposed in 1913 topped out at a maximum of 7% percent.  The myriad webs of loopholes, special interest deductions, and hundreds of thousands of pages of regulations would not be necessary today if the rate was still 7%.

Many have seen me write over the years about taxes, tax reform, and favoritism.  As a Libertarian, I would favor a much lower tax rate for everyone with ALL deductions being removed.  This would be the highest and best result of tax reform.  But since that is not happening and our lawmakers are picking and choosing which industries to favor and which to hurt, it’s critical to preserve a valuable deduction for the health of private property ownership in America.

Yes, I benefit from the status quo.  The mortgage deduction is self-serving, but only for one important reason, a philosophical one.  I’m a homeowner and I do take the deduction.  But my existing mortgage won’t be touched, nor will any existing mortgages.  And also, like the folks highlighted in the book, Millionaire Next Door, I don’t plan to move out of my modest home in Shepherdstown, WV, as my wealth grows and my preservation strategies continue to perform.    I’ve spent a lot of time planting trees, berry bushes, and building rock walls and rock gardens.  I want to stay and enjoy these long-term.

A Nation of Renters or a Nation of Owners?

Even Dobby, the Cobb Family Boxer loves the new rock wall.

The real reason I oppose these cuts and changes is simply philosophical.  In a previous article summarized later, I wrote about the importance of realtors at the foundational level of our democratic and economic society.  Realtors assist buyers and sellers of real property to transact hundreds of billions of dollars in business each year.  It’s this right to own property, to sell property, build homes, start businesses on your own property, and create economic futures on the back of real estate, the ultimate hard asset, that has made America great.  To remove a favorable deduction (without cutting all others), smacks in the face of sensibility, fairness, and plays to populism on a superficial scale.

When we look at the situation in this light, we can see that what this really does is rob the solid middle class of one good reason to own property.  It gets to the heart of the first question:  Do we want to be a nation of renters or a nation of property owners?

Historically renters have been at the mercy of landlords, serfs for a millennium or two under the thumb of nobility, then tenants in the mill, factory, and mining towns.  Sure, there are benefits to renting, and I have been a renter.  Expediency and flexibility are great reasons to rent.  Renting while saving money to buy a home is a common necessity.  Renting simply because you want to rent is also a fine reason.

But in the end, the dream of homeownership, and the hard-working pursuit to attain it, has been a powerful engine of growth for America and the developed world.  Property owners have a pride in knowing they own their home.  They enjoy the freedom to occupy and use that property on a permanent basis.  This fundamental difference from renting was critical to the founding fathers and the philosophers who inspired them in this great experiment called the United States.

A Nation of Renters or a Nation of Owners?

Home Ownership – The Key to the American Dream

Yes, it was an experiment.  A work in process, but founded on sound principles that honor human nature.  Self-interest is a reality of being a human being.  Sure, we all have altruism and feelings for others.  But in the end, the only political and economic systems which work well are the ones in harmony with human nature.  Systems that violate the self-interest aspect of human nature only work by coercion and the barrel of a gun.

With free enterprise, no one forces anyone to want to own a piece of property, start a business, and provide for themselves.  The desire to survive and succeed is hardwired into who we are as humans.  The Great Experiment of our founding fathers used this understanding of human nature and institutionalized it in the constitution politically and through the free market system economically.  People were, and are, today free to pursue their dreams and own property.

The bottom line is that by making home ownership less attractive, and harder to achieve financially, the lasting effect will be to lock out the young and poor from what has been the ladder of success for millions of Americans.  Sure, the middle class will suffer, but the young and poor will suffer the most.

Today the cap is on homes above $500k, but what about next year?  Just as the income tax has exploded from a top rate of 7% in 1913, to nearly 40% today, who’s to say that this isn’t a slow slippery slope to the removal of the mortgage, property tax, and cap gains deductions all together.   No one would have predicted in 1913 that taxes could ever exceed 7%.

A Nation of Renters or a Nation of Owners?

If you are so moved, Text ACTION to 30644 to show support for home ownership.

I know that this is a serious article and the implications of passage of the reforms in present form are significant in a negative way.  But I also want to lighten things up just a bit and include a couple pictures from the NAR Conference and Board Meeting.

It’s always great to see my colleagues and friends from all over the world.  And there’s always time to enjoy a fine Chicago meal after the formal agenda concludes.  Post meeting, several of us went out to Portillo’s for a Chicago classic, Italian beef sandwiches.  Phenomenal.  Later that evening, we hit Lou Malnati’s for deep dish pizza.  Both demand a repeat visit when back in Chicago.

A Nation of Renters or a Nation of Owners?

Clayton Wade (Thailand), Ofelia Ulloa (Costa Rica), Mike Cobb, and Pauline Aunger (Canada) at BOD Meeting

A Nation of Renters or a Nation of Owners?

Thank you Ahmed and MaryCarol Badat for a great Chicago lunch at Portillo’s

If you missed the previous article about Real Estate being the foundation of Democracy and Free Enterprise in the West and Developed world, be sure to read on.


NAR – A Global Network with Powerful Information

It was an honor to be nominated to the Board of Directors of the National Association of Realtors last fall.  Accepting the role of Director was a decision I considered deeply before agreeing.  One major reason I said “Yes” is that the NAR represents the sale of real estate across the globe.  Real property is the foundation and hallmark of what made, and continues to make, America great.  It holds the promise to do the same everywhere given the right conditions.  To be a part of an organization pushing these concepts forward is meaningful and significant.

Historically, the ability of the private citizen to own a piece of dirt and call it their own is revolutionary.   It has only become the “norm” worldwide in the past couple hundred years.  For the Declaration of Independence, Thomas Jefferson rephrased Thomas Locke’s “Life, Liberty, and Property” into:

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the Pursuit of Happiness.

Locke’s “Property” became Jefferson’s “Pursuit of Happiness.”  But to the Founding Fathers, real property ownership was front and center, and the tangible foundation in that pursuit of happiness.

Private ownership of property is a relatively new concept, taking root in the 1600s philosophically.  Then in the 1700s, vast areas of land were settled and titled to new owners establishing a wide base of private property ownership.  The transition wasn’t easy, or even always peaceful, but allowing private ownership of real property had a powerful transformative effect on society, creating a middle class and wealth and prosperity never before seen by so many.

Despite the economic success proven in the great private property experiment, some countries of the world still do not permit private property ownership.  But that is changing as the proof of the concept prevails.  As recently as 2015, Vietnam opened its markets for private property ownership by foreigners marking, a recognition that economic success and property ownership rights are intimately linked.

Yet, having title and the benefits of ownership still remains elusive, even in countries that allow private property.  Hernando de Soto, in his fabulous book, Mystery of Capital, discusses why so many people are locked out of real property ownership and how this affects economic development adversely.  De Soto describes people who “possess” a home or property, sometimes for generations, building up a home slowly by investing hundreds, and even a few thousand dollars, year in and year out.  They may “occupy” an investment worth $10,000, $20,000, or even more, but they have no title to the property.

Lack of title prevents real ownership, precludes borrowing that uses the property as collateral, and denies the long term security a title to the property provides.  In De Soto’s estimates, over $10 trillion of land is possessed by individuals worldwide who have no title.  This capital is locked up.  It is invisible and “useless” in the capitalist system, all for lack of a title.

The great American experiment began as a dream of possibility, where common men could own property, build a home, start a business, and create long term value that established stability and worth.  The National Association of Realtors is the foundational advocacy group for these rights and private property ownership in its pure economic form.  Sure, philosophically the Heritage Foundation, CATO, and others argue at an ethereal level for these rights.  But day in, day out, it’s the men and women in the trenches, realtors helping clients to buy and sell properties that protect, preserve, and promote this basic right in its most profound form.     Consumer Resource Guide

Napoleon Hill once said, “Action is the true measure of intelligence.”  At the heart of the National Association of Realtors are 1.2 million members taking action every day to perpetuate these rights, preserving them in action and in deed (pun intended) for the good of the individual and America as a whole.  But even more, the NAR is engaged worldwide to promote the adoption of modern titling systems to unlock the capital and entrepreneurial potential of that latent capital that De Soto talks about.

The NAR represents our rights as people to be property owners, the foundation of all we hold dear as a nation, and the hope of billions around the world to be lifted out of poverty through the benefits of property ownership combined with human initiative.  The NAR and its members preserve the economic freedom and perpetuate commercial activity which has produced a bountiful abundance for us to enjoy today and long into the future.

It is for these reasons that I am proud to serve on the board of the NAR.  This service reaches to the core and the deepest, most meaningful, level of our economic well being.  Helping the NAR expand its global reach to deliver the benefits of private property ownership to many nations where the positive effects are yet to be felt, where abundance still lags, is why I said yes.

As Bob Buford talks about in his poignant work, Halftime, significance is the pinnacle of service.   Working alongside the 1.2 million members every day, enhancing the reality of property ownership globally, is powerfully significant and intensely rewarding.  I am grateful I was given the opportunity to serve.