Posts tagged ‘government’

Benefits of a Rental Society

I am, in general, agnostic about renting versus owning. I own a car, but probably should have leased. I buy CD’s, but maybe I’m old-fashioned. I rent movies, after all, so why not music?

For the entire history of the US, homeownership, or land ownership prior to that, was part of the American dream and indeed, many of the failed government policies we have today are nothing more than good intentions performed by an ineffective body (government) – think Fannie and Freddie, or Sallie Mae. While I was always critical of having government distort prices, I thought there were a lot of good arguments for an ownership society, albeit without government subsidies.

Earlier today, on The Reformed Broker site, Josh Brown linked to one of the few pieces I’ve read about why renting real estate might actually provide a net benefit to society:

We study the link between homeownership and entrepreneurship by exploiting the longitudinal dimension of the British Household Panel Survey (BHPS) and constructing a detailed monthly-spell dataset that tracks individuals‟ job history and tenure choice, coupled with other time-varying characteristics. Our fixed-effects estimates show that purchasing a house reduces the likelihood of starting a business by 20-25%. This result is driven by homeowners with mortgages and persists for several years after entering homeownership. The negative link can be rationalized by portfolio considerations: leveraged housing investments crowd out entrepreneurial investments. Alternative explanations based on credit constraints find little support in our data.

Read the full paper here.

The authors, Bracke, Hilber, and Silva find that ownership crowds out entrepreneurship. If that’s the case for homes, it would translate for other assets as well, I assume, albeit on a smaller scale. Maybe the ability to rent music, then, is pro-small business. In addition to some other arguments in favor of renting (e.g. labor mobility), this would imply that maybe home ownership shouldn’t be a national priority.

I still like owning music, and lug around CD books on long trips, but maybe it’s crowding out starting another business.

On the flip side, check out this chart of price-to-rent:

Real estate ownership might crowd out entrepreneurship, but it is definitely looking attractive to me as an investor. While the returns on starting your own investment might outweigh other investments, the authors didn’t look at all alternative investments as options. That is, of course one investment or use of capital will crowd out a different investment or use of capital – isn’t that obvious? The real question is whether there is a benefit in one over the other. From my perspective, it depends on the costs. Ownership is much more attractive now than it was three years ago, but maybe so is starting your own business. Certainly if I was a recent college grad without a job (like roughly 50% are), I would have no opportunity costs and would definitely start a business today. Why not? In fact, maybe I would start a business buying up distressed properties.

All of that was to say, the paper found an interesting correlation; I’m just not sure about causation. Moreover, it only convinces me even more that government policies that distort price discovery and setting are net negative for society over the long term – even when they’re well-intentioned.


Written July 26th, 2010

I follow developments in the tech industry quite closely but rarely discuss specific stories – this one is different.

…Google announced Google Apps for Government, a new version of Google’s suite of cloud-based enterprise applications that have been hardened to meet the government’s more stringent security restrictions.Dave Girouard, Google’s President of Enterprise, kicked off the presentation with a few stats: every year, the federal government spends $76 billion on IT expenses. Another $50 billion is spent on IT by state and local governments. Google is looking to help.

Google says that this is the first multi-tenant cloud application suite that has received FISMA certification at a FISMA-Moderate level, which gives it the ability to store and serve sensitive (but not classified) information. Google’s Matthew Glotzbach says this encompasses 80-90% of all government information.

For the link, click here.

First, the fact that the government is ever growing, to the point that Google finds it necessary (and profitable) to develop government-specific IT programs is pretty astonishing (concerning, amazing, cool, scary, etc.). Second, the fact that even the government recognizes the challenges of closed systems is encouraging (again, it’s also quite scary). Lastly, the fact that Google is developing something to such standards is encouraging for the rest of the world as it will ultimately trickle down into our apps. (No position in GOOG – I just think it’s pretty impressive.)