R. Daniel Wadhwani on the Historical Origins of the Home Mortgage Mess

23 04 2012

BHC member R. Daniel Wadhwani has published an important blog post on the history of home mortgages in the United States.

He shows that the problem of over indebted homeowners, which was at the centre of the 2008 financial crisis, is very old: Herbert Hoover held a conference on the issue in 1931. As he Wadhwani notes, We often think of the expansion of easy mortgage financing as a relatively recent development, but the growth of indebted homeownership has older and more complicated origins.

I liked this post but I disagree with one of Wadhwani’s conclusions. Some people, most notably Niall Ferguson, have argued that the cultures of the United States and the other English-speaking countries have become too focused on home ownership. Ferguson notes that a larger proportion of the population in countries such as France and Germany are renters and suggests that we would be better off if fewer people in the Anglo countries tied up all of their money in houses.  See here and here.

Wadhwani  appears to disagree with Ferguson’s proposal that governments should promote renting and discourage buying.

Simple attempts to “fix” the American inclination for ownership by promoting renting seem naive in historical perspective. Long-held preferences for ownership in family economic planning; the cultural and political support for owning; and the economic interests of financial institutions have made indebted ownership a persistent feature of the U.S. economy — despite the crises it has experienced (and created) over the past century. A recent Pew Research Center poll found that 81 percent of Americans still believe that “buying a home is the best long-term investment a person can make.”

I don’t think that Niall Ferguson would say that changing the culture away from its fixation on home ownership would be simple.  Moreover, Wadhwani’s argument that the culture of homeownership is too ingrained to change seems a bit fatalistic to me. Economic norms can shift quite rapidly, actually, provided there is determined political leadership and smart public policy. Homeownership ideology need not be a permanent feature of a national culture.

R. Daniel Wadhwani is Fletcher Jones Assistant Professor at University of the Pacific and is the author, most recently, of “The Institutional Foundations of Personal Finance,” published in the Business History Review.



2 responses

23 04 2012

I was surprised you linked to Niall Ferguson but not to Dan’s blog (your link takes us to his profile). You are also underestimating the process of financialisation of the late 20th century, I think.

23 04 2012

There’s is _now_ a link to his blog post in the first line of my post. My bad.

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