Money Rehab with Nicole Lapin - Homeownership is a Conspiracy. Here's Why

Episode Date: February 6, 2024

Have you ever asked yourself: do I want to buy the house with the white picket fence, or do I just feel like I’m supposed to live in one? Today, Nicole dissects the fascinating history of home ownership as a part of the American Dream. It will help you decide what's best for you.  Originally aired 4.18.22 $ Investors: Robinhood has the only IRA that gives you a 3% boost on every dollar you contribute when you subscribe to Robinhood Gold. Learn more at Robinhood.com/boost  $ Want the kiddos in your life to become money masters? Check out Greenlight, the best money app and debit card for families (and get one month free!): http://greenlight.com/moneyrehab $ Is mental health a resolution for 2024? Get 10% off your first month of therapy with BetterHelp at: http://betterhelp.com/moneyrehab  $ The secret to health and wealth is in your gut. Literally. Get 20% off a 90 day bottle of Just Thrive Probiotic and Just Calm. Try it at: justthrivehealth.com and use promo code: MONEYREHAB. $ Want one-on-one money coaching from Nicole? Book a meeting with her here: intro.co/moneynewsnetwork 

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Well, it doesn't. Charge for wasting our time. I will take a check. Like an old school check. You recognize her from anchoring on CNN, CNBC, and Bloomberg. The only financial expert you don't need a dictionary to understand. The cold lappin'. It's obvious that where you settle down is a big deal.

And if settling down involves buying a house, it becomes an even bigger deal. For a lot of us, our house is a reflection of our identity. It is a physical projection of who we are. After all, it's not just a house, it's a home. And not to mention, because of the pandemic, we're all super aware of the importance of loving where you live because you never know when you're going to have to be stuck there for two years straight. But tied up in all of these totally understandable urges are societal pressures that are hard to parse. Do I want to buy the house with the white picket fence? Or do I feel like I'm supposed to buy the house with the white picket fence? In 1988, the New York Times ran a piece about homeownership. Here's a little

snippet. Quote, when it comes to owning a home, few people in the world pursue the dream with as much vigor, desire, or penny-pinching thrift as Americans. End quote. Even though we're talking years later, I feel like I could open the Times tomorrow and see the same headline written. But why? Where does this vigor come from? Not every country in the world feels this way.

For example, in Switzerland, only a third of the population own their home and there's no shame there in renting. Why is it so different in America? This is an important thread to follow because it gets to the heart of the social pressures of homeownership. Personally, I felt the homeownership pressure subside as soon as I understood where it came from. So I'll share with you what helped me. The link between home ownership and the American dream is hardly new. This link even predates the idea of the white picket fence. Its roots go all the way back to the beginning. And I mean the proper beginning, when America was formed. In one of the founding documents of this country, the Bill of Rights, Americans were assured life, liberty, and property.

Of course, the founding fathers had a very narrow definition of who was American at the time. That excluded women and people of color. But regardless, it is a salient point that the men who frame the values of this country align the right to live with the right to own property. Quickly, no, not actually. What I mean is it's been shown that people are more likely to invest in the community where they live if they own the home rather than just rent it. That makes intuitive sense, right? It's like when you're inviting people to your wedding and you're deciding who gets to bring plus ones. That friend who's perpetually in love with the new person every three months, they don't get the plus one because you don't want to pay for the date's chicken dinner if

you're going to be cropping him out of that photo in six months. It's a similar principle here. You don't want to invest your time and money in something that isn't long-term. What does this have to do with unpaid interns, you ask? Well, the government has a long history of harnessing and mobilizing the phenomenon that people tend to invest resources in land they own. One of the first programs to leverage this dynamic was the Homestead Act passed in 1862 by good old Honest Abe. Abe told Americans that they could have 160 acres of public land for a small registration fee if, there's always an if, they live on the land and improve it. This program allowed Americans to exercise their right to property, and it helped the federal government expand the reach of the country and grow the

agriculture industry. Win-win, right? The federal government encouraged property ownership again decades later. In the early 1900s, American realtors were looking for their next big marketing campaign. What did they decide to go with? Fearmongering, folks. A classic marketing move. Realtors tapped into the American paranoia at the time that Russian communism would overtake the American way of life. Realtors hitched their marketing campaign to the argument, and this is a real quote, that socialism and communism do not take root in the ranks of those who have their feet firmly embedded in the soil of America through home ownership. In other words, if you're a good patriot, you should buy a house.

Their homeowners against communism appeal was so compelling, especially for the American government, that the Own Your Own Home campaign was taken over by the U.S. Department of Labor in 1917. In the following years, the U.S. government continued to cheer for homeownership and used homeownership as a mark of economic health. But then came 1929, the Great Depression. During the Great Depression, home ownership declined for two major reasons. First, the new generation of would-be buyers didn't have the money to buy a house. And second, existing homeowners were unable to pay their mortgages. As the government strove to pick up the pieces the Great Depression left behind, helping people with housing seemed like a good way to get the country back on its

feet. As a result, the federal government took an even more involved stance on homeownership. FDR's administration passed several pieces of legislation aimed to help Americans become and stay homeowners. One of these pieces of legislation aimed to help Americans become and stay homeowners. One of these pieces of legislation created the Federal Housing Administration, FHA. Before FHA, homeownership required a ton of cash up front. The norm before the Great Depression was for mortgages to only cover 50% of the total cost of the house, which meant that prospective homebuyers needed to scrounge together a down payment that added up to 50 percent or more of the total value of the house. Plus, the average mortgage term was very short by today's standards, typically around 5 to 15 years.

So homeowners needed to have the capability to put down a big old down payment and pay the rest off relatively quickly. But post-depression, the federal government wanted to make it easier for prospective home buyers to submit smaller down payments, 20% instead of 50, and receive longer mortgage terms, 30 years instead of 15, so that there wasn't as much immediate financial burden involved with buying a house. It should be obvious by now that the federal government has been actively involved in encouraging homeownership in the United States. But is that a good thing? As we've talked about before on the show, Americans have a choice between two housing options, renting and buying.

But when it comes to federal support, there's a clear winner, buying. Should the government be pushing Americans so far in one direction? On the one hand, federal aid makes homeownership accessible to more Americans, which can lead to all sorts of positive outcomes like growing wealth and engaged communities of homeowners. But on the other hand, even with government aid, homeownership is a reach for a lot of Americans. Even a 20% down payment on a house is a large sum, and there are plenty of people that aren't able to scrounge that up front. So does homeownership ultimately help people grow wealth? Or does it continue to keep people in low socioeconomic groups shut out? For today's tip, you can take straight to the bank.

Homeownership is not right for everyone. And I hope understanding how this American dream has somewhat been manufactured helps you see past the pressure of homeownership and choose the path that's best for you and your finances. Money Rehab is a production of iHeartRadio. I'm your host, Nicole Lappin. Our producers are Morgan Lavoie and Mike Coscarelli. Executive producers are Nikki Etor and Will Pearson. Our mascots are Penny and Mimsy. Huge thanks to OG Money Rehab team Michelle Lanz for her development work, Catherine Law for her production and writing magic, and Brandon Dickert for his editing, engineering, and sound design. And as always, thanks to you for finally investing in yourself so that you can get it together and get it all.