High on Congress’ long to-do list is deciding what to do about Fannie Mae and Freddie Mac, the two giant government-run companies that dominate the nation’s mortgage market (together they accounted for 78% of all mortgage-backed securities issued in the first quarter of this year). Which is another way of saying, Congress has to decide how involved the federal government should be in supporting the nation’s housing industry.
Earlier this summer, Sens. Mark Warner and Bob Corker released a proposal to gradually wind down Fannie and Freddie, though their plan would retain a government mortgage guarantee. Rep. Jeb Hensarling’s plan would go further, leaving mortgage financing entirely to the private sector. President Obama, in a speech Tuesday in Phoenix, outlined his own vision for a post-Fannie and Freddie future.
The two entities — and, more specifically, their guarantees against mortgage defaults — have long been considered key to making homes widely affordable to Americans (along with other policies such as the mortgage-interest deduction). Home ownership, in turn, has for decades been perceived as a central part of the American dream — though not so much lately, as a Pew Research Center survey last year demonstrated.
Most developed countries use tax policies, interventions in the financial markets, or other methods to encourage home ownership, according to a 2011 report from the Organization for Economic Cooperation and Development. So much so, in fact, that the United States had one of the lowest home ownership rates among 42 countries we examined (all the members of the OECD and the European Union, plus Singapore).
One thing that stands out from this list is the number of countries in central and eastern Europe with extraordinarily high home ownership levels. A 2007 paper attributed this to two forces: relatively large rural populations, who typically either built their own homes or inherited them; and the rapid privatization of public rental housing in the 1990s following the collapse of state socialism. In addition, the building boom of the 2000s likely contributed to high ownership rates in countries such as Spain and Portugal.
But even the housing bubble didn’t move the needle much on U.S. home ownership. The ownership rate peaked in 2004 at 69.2%, according to the Census Bureau — not far above its long-term average of about 65%.
