A recent article in The Atlantic magazine by Richard Florida, “How the Crash Will Reshape America,” has some very interesting observations about home ownership and the damage that our society has done to itself by creating artificial incentives for people to own homes. Home ownership has been subsidized in America for many years through mortgage-interest tax deductions and artificially low interest rates. These factors have distorted demand for homes, creating incentives for people to buy bigger (and more) homes than they need. This demand for increasingly larger homes has also distorted development patterns, leading to the creation of low-density suburbs instead of more sustainable, and denser, cities and towns. It also led to a boom in the home building industry, which, as most booms eventually do, has turned rapidly into a bust.

The fictional “happy homeowner”

While I accept that the recent disasters in the mortgage and financial markets are an aberration, we need to realize that not everyone should, or even necessarily want to, own a home of their own. A study from the Wharton School of Business quoted in the same article reports that homeowners are no happier, no more or less stressed, and have no higher self-esteem than renters. Another study shows that in both the U.S. and Europe, areas with higher rates of home ownership also have higher unemployment numbers. Homeowners are less mobile than renters, keeping them from accepting jobs in new locations. In our current dismal economic climate, this problem can lead to more foreclosures as residents are stuck living in homes where they cannot find work. Those that do find work will have longer commutes, reducing their quality of life, using more imported oil, and increasing pollution — none of which is a good thing.

Don’t restart the building industry, reinvent it

New-home construction is in the tank, and the industry and government are tripping over each other trying to figure out how to reinvigorate it. To me this seems a myopic view of the problem. The entire industry is trying restart when it would be better off reinventing itself.

Forget about building new homes, which will be difficult to sell anyway, and focus on both improving the homes we have and building new rental properties. All the homeowners who are losing their homes are going to need a place to live, so why not build it for them? Instead of providing financial incentives for first-time home buyers, let’s create a benefit program for builders and renovators of rental properties and their tenants. Along with that, create incentives to make both new and existing rental properties green. That will move us toward energy independence as well as reduce utility costs for these new renters.

Insanity is not a good business plan

I know that this post will irritate builders, but the industry needs to take a long, hard look at itself and prepare for the future. All business is cyclical, but construction will take a very long time to recover, longer if it doesn’t change the way it does things. Let’s not forget Albert Einstein’s definition of insanity: doing the same thing over and over again and expecting different results.