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The Virtues and Vices of the Growth of Homeownership

by Jean-Claude Driant & translated by Christina Mitrakos, le 24/11/2010

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Why is it necessary to become a homeowner? Jean-Claude Driant examines the arguments for and against policies that support the growth of homeownership in France. He wonders whether the present government has abandoned the caution that up until now has guided national housing policy.

Since the 1970’s, successive governments have continuously made the growth of homeownership a major issue in housing policy. Ever since Valéry Giscard d’Estaing’s 1974 election campaign, the slogan “France: a county of homeowners” has been the leitmotif, though leftist governments have weakened it somewhat. Today, under the presidency of Nicolas Sarkozy, the only clearly stated priority regarding housing policy is to attain the goal of “70% homeowners.” It is also the only part of the policy that has not been subjected to austerity measures.

Where are we today on this roadmap? What objectives are being pursued and what are the hidden pitfalls? Isn’t reviving policy in favor of homeownership, announced at the end of 2010, forsaking the caution that has characterized public policy for the last 30 years?

The Current Situation

The growth of homeownership is one of the most important changes regarding housing since post-war. 35% of households owned their main home in 1954. This number went up to 45% in 1970 and today it is over 57%, of which 38% have paid off their mortgage loan. If we add renters who own a second home, or a house, which they rent out, the number of households that own a house or an apartment reaches 63%.

The proportion of homeowners in France is close to the European median, but differs from southern European countries, as well as Ireland and the United Kingdom, where homeownership is higher (for example, in Spain up to 82% are homeowners) and countries in northern Europe, where renting is more common than in France (Sweden, Germany, Denmark and Holland).

Becoming a homeowner can be thought of as a stage in the lifecycle; it marks the time when a certain level of familial and financial stability has been reached that allows the undertaking of a long-term project and a significant amount of debt. Thus, there is a strong link between homeownership and age and family situation. The rate of homeownership is only 13% for those younger than 30 years old, and exceeds 72% for those over 60 years old. 67% of home-owning households are couples [1] and half of them have children.

Also, it should be noted that in France 80% of homeowners live in single-family houses and that 80% of single-family houses are occupied by homeowners.

Arguments for Policy in Favor of Homeownership

All opinion polls show that the majority of French households aspire to owning their home. [2] This argument, however doesn’t explain why elected officials are pursuing policies consistent with these aspirations. In fact, the justification of policy encouraging homeownership comes from very diverse horizons, which can be summed up into four points.

The first point speaks to individual situations. It is based on the idea that homeownership responds to expectations about securing a house, stability, and a good investment to be passed down to the next generation. Owning a home would be «the achievement of successful residential social mobility.» [3] Concerns about retirement reinforce this aspiration and explain why the majority of French people hope to become homeowners before retiring. In fact, in 2006, the rate of occupants over 60 years old who were homeowners was almost three out of four. Does this mean that the goal has essentially been achieved?

The second point refers to making households responsible. To quote, once again, the words of the President of the Republic in December 2007: “Homeownership is a guarantee of good maintenance by all parties in a building. It is the guarantee of civic-mindedness, peaceful relations between neighbors, responsible occupants. It is even a guarantee of true social diversity.” In short, the rise of homeownership would be a gage of harmonious urban living and of the maintenance of housing, better kept than by renters or landlords who would not take the same responsibility. This is one of the central arguments for selling social housing units (HLM-habitat à loyer modéré) to their tenants.

The macroeconomic argument is built on the idea that a homeowner, more autonomous, costs less to the state and devotes more to money to consuming, once their loans are reimbursed.

Finally, supporters of policy in favor of first-time home buying, emphasize its effect on the housing market. Homebuyers free up rental housing, notably social housing, which then becomes available to those with modest means. Thus, the residential mobility of households shows the complimentary role played by homeowners and renters. [4]

Arguments Against Policy in Favor of Homeownership

Confronted with these arguments, the most vocal critics emphasize the risks that low and middle-income households can incur with the hasty growth of homeownership. Their main points can be expressed as four different concerns.

The first concern is linked to the risk of excessive indebtedness, which recalls the difficulties encountered in the 1980’s by holders of specific mortgages (called PAP) [5], and to the experiences of countries with poorly regulated policies or where the practices of financial institutions led to an intolerable situation for numerous households. The example of the American sub-prime mortgage crisis serves here as a long lasting deterrent (Vorms 2008).

The second concern adds to the first. It is the result of the rise in the number of co-owned buildings since the 1990’s that have been experiencing maintenance problems. This has revealed the obvious fact that owning a home neither frees one from maintenance expenses, nor from water and energy consumption. In co-ownership, these expenses are a shared responsibility. Poverty or financial instability thus puts the deterioration of buildings at risk, much more than when a landlord takes charge of the cost, in order to protect the value of his property.

A different concern is the contradiction between the growth of homeownership that rests on a heavy and long-term debt (today, the average length of a loan is over 20 years) and certain societal changes that push people to move at different stages in their lives. The break-up of families and the loss of jobs are often situations when owning a home can become a problem (see the analyses done for ANIL by Bosvieux 2008).

The fourth concern, corollary to the growth of single-family homeownership, points out the relationship between household income and the cost of land, which is often inversely proportional to the distance from the city center. As a result more and more people build houses far into the suburbs. This urban sprawl causes an increase in household expenses for travel and in environmentally harmful gas emissions. Finally, paired with the virtuous effects linked to the freeing-up of rental housing already mentioned, observers of social housing emphasize the consequences of the large waves of first-time homebuyers (mostly in the beginning of the 1980’s and at the end of the 1990’s) on the social composition of social housing projects (HLM). The least attractive neighborhoods have known the highest rate of tenants moving out, which leads to increasing poverty, thus reinforcing tendencies toward segregation.

The End of Cautious Housing Policy?

The debate around these arguments and counter-arguments has shaped French policy regarding homeownership. Until the end of the 2000’s, policy was characterized by great caution, limiting its reach to the most vulnerable households and at the same time, continuing to foster the development of social housing.

Is this caution a thing of the past? Several recent signs give cause for concern. First, uncertainty continues to weigh on the ability of the State to finance the construction of social housing. Precise information on the 2011 budget has not yet been released, but it is already public knowledge that the State is going to greatly reduce its contribution in geographic areas where the market is not so tight. In a rather deceptive move, the State has announced that it will also try to find new resources to keep up the effort of financing social housing. For example, funds produced by social housing agencies (340 million € in 2011) have been shifted to finance construction in cities with a tight market. This amounts to replacing the state contribution with a tax on the rents paid by tenants of social housing. And yet, it is clear that the continuing effort to build social housing, especially with better distribution on the national territory, is a necessary condition to avoid the effects toward segregation that the growth of homeownership triggers. Also, the State Secretary for Housing reiterated the objective of a policy that targets the “lower middle classes.” In the context of economic and social instability, this carries important risks of excessive debt and especially poses a barrier to geographic mobility.

Finally, don’t such policies fundamentally contradict the aims of the Grenelle de l‘Environnement (a national program for sustainable development), which advocates for a more compact city and requires giving priority to collective mechanisms of land control rather than to direct subsidies geared to individual households facing market prices?

Further reading

Bibliography

  • Bosvieux, Jean. 2008. Les obstacles à la mobilité des propriétaires, Habitat Actualités, December, ANIL
  • Driant, Jean-Claude (editor). 2008. Politiques de l’habitat et crises du logement, Problèmes politiques et sociaux, n° 944, January, la Documentation française.
  • Driant, Jean-Claude. 2009. Les politiques du logement en France, Paris : La Documentation française (Les études).
  • Périssol, Pierre-André. 1995. En mal de toit, Paris : L’archipel.
  • Vorms, Bernard. 2008. « Accession à la propriété : la leçon des subprimes », Études foncières, n°131, January-February.

Footnotes

[1] This rate reaches only 43% for renters in private residences (not public housing).

[2] For example, a poll published by IPSOS in Le Monde on June 16, 2006 indicated that 89% of French people hoped to own their home.

[3] Speech given by Nicolas Sarkozy on September 11, 2007 at Vendoeuvre-les-Nancy.

[4] In his proposal, which was published a few weeks before he became the Minister of Housing, and in which he set out the major directions for housing policy (especially the creation of the zero percent loan program or PTZ), Pierre André Périssol supported the idea that the growth of homeownership could be a tool in the fight against exclusion, by accelerating the freeing-up of social housing for the benefit of the poorest population (Périssol P.A. 1995).

[5] The PAP (Prêt accession à la propriété), homebuyers loan program, in effect from 1977 to 1995 had different versions. In the first few years, there could be a progressive interest rate that bet on durable high inflation and on the return of strong economic growth in the 1980’s. The economic downturn put a number of borrowers in very difficult situations. Thus, the term “victims of the PAP.”

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Jean-Claude Driant & translated by Christina Mitrakos, « The Virtues and Vices of the Growth of Homeownership », Metropolitics, 24 November 2010. URL : http://www.metropolitiques.eu/The-Virtues-and-Vices-of-the.html
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