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1. The Pre-American Dream

Widespread homeownership is a recent phenomenon in world history. Most people who have ever lived did not own the land they lived on. Just a few hundred years ago, only a tiny fraction of people—probably less than 1 percent—lived in homes that they owned. “Property systems open to all citizens are a relatively recent phenomenon—no more than 200 years old,” wrote economist Hernando de Soto in 2000.¹

The Benefits of Homeownership

Advocates of policies aimed at boosting homeownership have long claimed that homeownership benefits not only the families of the homeowners but also society at large. Homeownership “makes for better children,” Herbert Hoover once told a convention of realtors.² “When individuals and families own their home, they establish roots in their communities and have a greater stake in the growth, safety and development of their towns and cities,” said Elizabeth Dole.³

Many of these claims have been supported by researchers who have found many benefits of homeownership. In a 2003 lecture sponsored by Habitat for Humanity, Ohio State University economist Donald Haurin listed some of the documented private and social benefits of homeownership. The main private benefits include the following:

1.	Homeownership increases personal wealth, partly because it forces people to save money for a down payment and partly because the house itself appreciates in value.4 (However, as Chapter 11 will show, such appreciation is not guaranteed.)
2.	Homeowners have an incentive to maintain their homes (to protect their investment) and thus “have better physical home environments than renters.” Moreover, neighborhoods with high rates of homeownership tend to have more stable property values because people maintain their homes and yards.
3.	Owner-occupied homes are better for children, who do significantly better in school than children living in rental homes. The difference is greatest for children of low-income families and is negligible for wealthy families.
4.	Personal self-esteem rises considerably when renters become homeowners, which is probably one reason why the children of homeowners do better in school.
5.	Homeowners have a greater stake in the future of their community and so are more likely to get involved in community programs, public affairs, and politics. As another survey notes, this benefit has been confirmed by numerous studies.5

On the downside, Haurin notes that homeowners are less mobile than renters, making it more difficult for them to respond to changes in the employment market. However, as Chapter 14 will show, this lack of mobility is mainly a problem where government policies have made housing expensive. Unfortunately, the other downside is that one major effect of homeowners’ getting involved in politics is that they work to boost the values of their own homes—but by making housing expensive, they thereby reduce their own long-term mobility.

Other researchers have found that homeownership can provide families a safety net during bad economic times. Nations with high homeownership rates tend to have lower levels of social spending, apparently because the homes act as a form of social insurance and provide a nest egg for emergencies and peoples’ retirements.⁶

Naturally, some debate exists about whether homeownership truly does all these things. “There’s a pervasive problem in trying to sort out whether there is something intrinsic about homeownership that causes these externalities or whether the people that become homeowners are the kind of people that generate these externalities,” says Massachusetts Institute of Technology economist James Poterba.⁷ In other words, there may be a self-selection issue: people who are more likely to buy homes may also be more likely to save money, help their children do better in school, and get involved in the community. Haurin thinks his research on the effects of homeownership on children controlled for enough variables to show that homeownership itself was the cause of children’s scoring higher on standardized tests, but the economic literature is full of articles on both sides of the question.

For example, Federal Reserve Bank economist Daniel Aaronson examined the issue in 1999 and concluded that at least “some of the homeownership effect [on child schooling] is driven by family characteristics associated with homeownership, especially residential stability.”⁸ This conclusion suggests that the children of those families would have done as well, or nearly as well, even if those particular families had rented their homes. But in 2001, New York University sociologist Dalton Conley used multigenerational data to show that homeownership makes a major difference to children in African-American homes. Homeownership, says Conley, “matters not only for the immediate well-being of families, but also for the life-chances of the subsequent generation.”⁹ Similarly, after reviewing a wide range of variables, policy analysts at Johns Hopkins University concluded in 2003 that “homeownership is beneficial to children’s outcomes in almost any neighborhood” and that “children of most low-income renters would be better served by programs that help their families become homeowners in their current neighborhoods instead of helping them move to better neighborhoods but remain renters.”¹⁰

What is clear is that most of the benefits of homeownership mentioned by Haurin accrue to the homeowners and their families, not to society in general. This fact suggests that governments have little reason to subsidize homeownership except to the extent that they subsidize other programs, such as education or poverty reduction, that might be more cost-effectively achieved through homeownership programs. Haurin suggests, for example, that increasing homeownership can increase children’s test scores at a much lower cost than investing in the educational system.¹¹

Haurin left out one major benefit of living in a society with high homeownership rates: a high level of economic growth. Peruvian economist Hernando de Soto believes that nations that make it easy to own homes grow more rapidly because homeowners can easily start small businesses by borrowing against the equity in their homes. “The single most important source of funds for new businesses in the United States,” de Soto notes, “is a mortgage on the entrepreneur’s house.”¹² This fact doesn’t necessarily mean governments should promote homeownership, but they shouldn’t stand in the way, as many governments of developing nations do by maintaining large areas of land in public or communal ownership.

Homeownership also has a political component: Many believe that homeownership makes people more fiscally and socially conservative, suggesting that Republican or other conservative parties have an interest in boosting homeownership while Democratic or other liberal parties have an interest in boosting renting. “No one who owns his own house and lot can be a Communist,” said homebuilder William Levitt. “He has too much to do.”¹³

In fact, the relationship between homeownership and social issues is probably imaginary. Researchers at the University of Louisville found no correlation between homeownership and attitudes toward civil rights, women’s rights, or gay rights.¹⁴ The relationship between homeownership and fiscal issues may be more realistic: European nations with high rates of homeownership tend to have much lower rates of social spending. However, it isn’t clear whether the high homeownership leads to lower social spending or the low social spending leads to high homeownership.¹⁵

Homeownership and Property Rights

Economists sometimes describe property rights as a “bundle of sticks.” One stick represents the right to use the property. Normally, property owners have this right unless they rent or lease the property to someone else, in which case the renter or leaser has this stick. Another stick is the right to sell the property. Although we normally take it for granted that someone who owns a house has the right to sell it, that hasn’t always been true. During some periods in the past, some nations have limited the rights of property owners to sell their land in order to keep most property in the hands of a small aristocracy.

Ownership of all possible sticks in the property rights bundle is known as an allodial title. Since the government usually reserves to itself the right to tax, regulate, and take property through eminent domain, it is rare for anyone other than a government to hold an allodial title. However, in 1997 the Nevada legislature, which was apparently in a libertarian mood, allowed homeowners without a mortgage on their home to claim an allodial title to their house and land by paying a fee to the state equal to 5 percent of the value of their property. This fee would relieve them from ever paying property taxes on the home and would also protect their home from being taken by creditors or through eminent domain proceedings. If the owner sells the property or bequeaths it to an heir, the buyer or heir must again pay 5 percent to keep the allodial status. Nevada repealed the law in 2005 so it is likely that the number of Nevada properties that have allodial title is limited.¹⁶

The combination of sticks that we call “homeownership” has evolved over a long period and is still—some would say unfortunately—evolving today. Landownership by anyone other than a chief or sovereign has been rare in human history. Most hunter-gatherer societies had no concept of landownership at all. Early agricultural societies were probably run by chiefs and, eventually, kings who held effective title to all land and granted its use to individuals in exchange for favors or support.

Homeownership in Ancient Times

Ancient Greece was not a nation but a group of city-states, each of which had its own laws and customs. Many of those city-states, including Athens, allowed and encouraged private ownership of farms. Farm ownership was vested with families, not individuals, and lacked one of the sticks we generally associate with private ownership: the right to sell the land. Instead, the land was tied to the family in perpetuity (or, in actual practice, until a foreign invader changed the system of property rights, generally by putting most land in the hands of a few people).¹⁷ This system of private ownership proved to be very productive, and farm productivity notably declined when it was replaced by a system of absentee owners over large areas.¹⁸

Ancient Rome, too, had a system of private property rights that probably contributed to that empire’s success. Unlike the Greek system, owners could sell their property, which may be why the best lands were eventually held by a few powerful families.

Medieval Homeownership

Roman rule of Britannia influenced English property law for several centuries after the fall of Rome. That law, which became known as the Anglo-Saxon common law, gave landowners the right to sell their land and to will it to whomever they wished. When William the Conqueror successfully invaded England in 1066, however, he overturned those laws and declared that all land in the kingdom belonged to him.¹⁹ He thereby introduced the feudal system to Britain in which he as king would grant lands to his lords. They in turn would divide lands among their vassals who would each manage a piece of land known as a fief. The vassals and lords paid rents, promised military service, or provided other services to their lord or king.

Feudal land grants came with reservations, two of which were primogeniture and entail. Primogeniture required that only the eldest son could inherit the land (in some countries, but not England, the eldest daughter could inherit if there were no sons). Entail prohibited landowners from selling their land. In effect, the land grants were to families, not individuals, and these reservations kept most land in the hands of a few aristocrats.

One alternative to primogeniture is known as gavelkind, in which land was equally divided among all the children (or, at least, all the male children). Gavel meant “payment” in Middle English, and English land courts typically accompanied a decision about payments by striking a rock. Today, gavel has come to mean the hammer doing the striking. In any case, although gavelkind might seem more just than primogeniture, it also meant that properties became more and more chopped up into smaller pieces. Primogeniture prevailed in England for any estates where the owner died without a will until 1926, whereas Wales relied on gavelkind, which some say is one reason why England was able to conquer Wales in the late 13th century.

The strongest resistance to William’s changes came from the county of Kent. To avoid bloodshed, William agreed to allow Kent to keep the Anglo-Saxon rules (leading the county to adopt the motto invicta, meaning “undefeated”). Thus, the Anglo-Saxon rules allowing individual ownership are sometimes known as “Kentish tenure.” Rather than deal with annual rents or military obligations, the Kentish system allowed vassals to buy land from the king or lord with one “simple fee” (the word fee being derived from fief), which became known as fee simple ownership. Kentish tenure generally relied on gavelkind, but landowners could specify a different division in their will and could also entail land when willing it to their children. In contrast to fee simple land that could be sold, entailed land was known as fee tail.

Colonial Homeownership

In 1629, King Charles I granted land to Massachusetts colonists “as of our manor of Eastgreenewich, in the County of Kent, in free and common Socage, and not in Capite, nor by knightes service.” Colonists interpreted that to mean they could use Kentish rules rather than feudalistic (“knightes service,” meaning military service) rules. “Socage” nominally meant the land recipients would pay rent to the king, but the charter specified that the only rent to be paid was one-fifth of all gold and silver mined from the land—which, since Massachusetts has insignificant amounts of gold and silver, meant no rent at all.²⁰

Later English grants specified that socage meant the land was “to be held forever in fee without any incumbrance forever.” “The holding of land in free and common socage implied the retention of all produce,” observe historians Michael Doucet and John Weaver. “Ownership by freehold meant the independence to devise and to alienate, and consequently fed a trust in the worth of improving one’s land. It also meant living without the practices of deference toward landlords.” ²¹

In 1618, Virginia offered 50 acres to every family who moved from England to the colony. Other provinces were even more generous: Maryland initially offered 100 acres for every head of family, 100 for his wife, and 50 for every child under the age of 16. In 1663, Carolina Province offered 100 acres for every man plus 50 acres for his male servants and 30 acres for female servants. Pennsylvania offered 50 acres for every servant, and the servant received another 50 acres when his or her term of service expired.²² ,

Similar charters were granted for most of the other colonies or provinces, as some were known at the time. As applied by the trustees for each province, primogeniture ruled in seven colonies—Georgia, Maryland, New York, North and South Carolina, Rhode Island, and Virginia—and gavelkind in the rest.²³ However, Pennsylvania and most New England states tended to follow Mosaic law in giving the eldest son twice the land of other sons.²⁴

All the provinces allowed landowners to entail their properties in their wills, and many of them required entail in their original land grants to settlers. The trustees for the Province of Georgia, for example, gave land to settlers, but added an entail requirement out of the fear that, if settlers were allowed to sell their land, a few people would accumulate most of the land.²⁵ Entail discouraged people from borrowing money against the value of their land. Creditors could not take a debtor’s land unless the debtor had specifically pledged the land as collateral, and even then only after going through a tedious and costly legal process.

Despite what the Georgia trustees believed, these customs kept much of the land concentrated in a few hands. Although colonists could theoretically circumvent primogeniture by preparing a will, many had no desire to do so and, especially near the end of the colonial period, the cost of doing so was increasingly high.²⁶ What all these measures meant was that the great majority of colonists did not own their own homes.

Lack of ownership did not prevent thousands of people from simply farming land they found. From Massachusetts to South Carolina, squatters occupied some 100,000 acres of land as early as 1725. “Both [German and Scotch-Irish immigrants] sitt frequently down on any spott of vacant Land they can find, without asking questions,” learned John Penn—the only son of William Penn born in America— from his business secretary John Logan in 1727. “They say the Proprietor [meaning William Penn] invited People to come and settle his Country, that they are come for that end and must live; both they and the Palatines pretend they would buy but not one in twenty has anything to pay with.” Two years later, Logan again mentioned that “the settlement of those vast nos. of poor but presumptuous People who, without any License, have entered on your Lands, and neither have nor are likely to have anything to purchase with.”²⁷

Although the vast majority of colonials were rural farmers, a small percentage lived in cities. In this preindustrial time, most city dwellers were middle-class traders, and some scholars believe that urban homeownership rates were very high during the colonial era. Most city residents were involved in either trade or politics, giving them incomes that were well above the subsistence levels experienced by many rural residents. One study found that 72 percent of New York City taxpayers owned their homes in 1703, but that home-ownership rates declined after 1730.²⁸ In any case, urban residents were such a small percentage of the nation’s population that their homeownership rates have little influence on the totals.

At the time of the Revolution, it is likely that roughly half of American families owned their homes, the land they farmed, or both— though this number might be lower if all were asked to provide a legal title to their lands. Conflicts over squatters and the disposal of large land grants presaged debates over home- and landownership in post–Revolutionary America. Although many of the young nation’s leaders had an egalitarian spirit and wished to increase the share of Americans who owned their own farms and homes, the nation was slow to make government-owned lands available for such ownership. The result was homeownership rates that fell below 50 percent soon after the Revolution and remained there until after World War II.