If anything, our government policies should encourage renting, not buying. Homeownership occupies a central place in the American Dream primarily because decades of policy have put it there. A recent study by Grace Wong, an economist at the Wharton School of Business, shows that, controlling for income and demographics, homeowners are no happier than renters, nor do they report lower levels of stress or higher levels of self-esteem.He goes on to argue that homeowners remain tied to one location, and one job. When more Americans rented, the workforce was nimble.
The foreclosure crisis creates a real opportunity here. Instead of resisting foreclosures, the government should seek to facilitate them in ways that can minimize pain and disruption. Banks that take back homes, for instance, could be required to offer to rent each home to the previous homeowner, at market rates—which are typically lower than mortgage payments—for some number of years. (At the end of that period, the former homeowner could be given the option to repurchase the home at the prevailing market price.)I like this idea. Banks won't. Banks don't like to act as property managers. They want foreclosed properties off the books and out of their hands as quickly as possible.
Perhaps they should reconsider that attitude. If the "rent to own" model were adopted, then at least we would know the true value of any given property. At a minimum, the home would be worth what it fetches in rent. With that value set, we would know the true toxicity of the financial instruments founded on mortgages.
14 comments:
AP:
"Kansas suspends income tax refunds, may miss payroll"
Very interesting post, Joseph, but I am not sure I agree renting is better.
Part of the reason land and even home ownership has historically worked, is that, used properly, one could build equity -- and even (gasp!) pay off one's home. (Of course by that time, the property taxes have risen to the level of your old mortgage payment.) The wealth could be passed to the next generation or cashed out to make one's last years better.
The reason it looks bad now is that people began cashing out their equity and using their homes as piggy banks. That should not be encouraged by public policy.
If some home owners are not necessarily happier than renters, it may be either because they have over-extended themselves taking out too much equity from the house and are now over-extended or because property requires a lot of maintenance work.
But renters are not necessarily free to move. A lot of them risk losing their deposits and have a hard time coming up with more money for a deposit for the new place. And they have no equity built up to help.
djmm
I think I over-extended the use of the words "over-extended" -- sorry!!
djmm
The idea that an investor, bank or individual, could give a renter an option to buy the property for nothing could only be proposed by someone who does not understand basic financing. Most rents do not give a good return on investment, hence landlords put properties for rent with the hope that the property will increase in value. If that increase in value is given away, there's no incentive to invest in real estate. Now why would someone buy property when one could rent for less? For exactly the same reason. It pays to have a higher monthly payment (mortgage, taxes, insurance and maintenance, less tax deduction) than to pay rent because one hopes the house will increase in value (not always). A homeowner also gets stability. A renter can be asked to vacate any time. For those who have children in school, it can be disruptive, and one cannot make alterations to a house one rents.
Nationalising the banks' property first (loans secured with mortgages), then taking the houses into state ownership, and then renting them out at subsidised social rents - that'd be good.
Of course, in practice the state would raise the money by going to the banks. And would crack down, perhaps in other areas of life than housing, in order to pay back these lovely banks who'd stumped up the money out of their kindness of their hearts.
Look at what happened last September and October - the banks own the authorities, and even if they don't, they've got them by the goolies. They could bring the whole damn show crashing down as surely as if they'd released a couple of hundred nuclear warheads. No shit.
Slowly, slowly, the scenario of the revolutionary overthrow of the entire capitalist shebang inches its way back onto the agenda...
Let us hope.
What other option is there? Never mind all the crap spouted by 'economists' who all want to be experts on 'what next?' when they didn't even foresee that what goes up tends to come down.
Economics isn't the answer. If it's the answer, then the question was wrong. Social revolution, worldwide, is the answer - however much it might appear a pathetically unlikely hope.
While I'm here: a typo by Associated Press: the "Conference of Presidents of Major American Jewish Organizations" gets called the Conference of Presidents of Major American Organizations" Oops!
b
Anon, your observations make sense in normal times. But right now the banks have all sorts of toxic assets on the books. I imagine they are thinking not in terms of making a profit on those properties but in terms of keeping the losses to a minimum.
I have loooooong believed that home ownership is not all it's cracked up to be. I'm enormously happy as a renter -- I have a sweet little home that I could afford to live in even if I lost a big chunk of my income, while my friends fret day and night over their mortgages. But if I feel like it, I can pack up and move to another one. If anything breaks, my landlord gets to fix it or pay to replace it. And on and on.
Oh, and as to "alterations," that favorite buzzword in favor of home "ownership"? Well, I've painted the walls of my home, laid in new flooring, put in a garden, added an enclosure, bought new appliances...Oh and the landlord deducted the price of painting and appliances from my rent. (Do mortgages get reduced if you improve the property?) As long as you don't paint the walls black and cover them in graffiti most landlords will let you make minor alterations. Every renter I know has been able to do similar things.
Now the one area where it's difficult to rent is with pets -- I'm lucky that my LL lets me have pets as long as they don't trash the place or bite anyone. I think more LLs need to be reasonable about pets, and I think they will be once they wake up to reality.
Also, how much stability do home "owners" really have? If they miss their mortgage payments they're out on their asses, just like I am if I fail to pay rent.
There's a real stigma in this country against renters, with the exception of some cities like New York (that may be the only exception, actually). For the most part it is unfounded and unfair. Home"owners" are revered as stale and responsible people and renters as shiftless losers. Well, how is that working out for us?
The problem with the housing market is that there is no one behind the money used for the mortgages. When you go for a loan, the bank simply types a number in your bank account. They don't get it from anywhere.
So there's no one that has an actual attachment to those assets. If there was, there is no way that houses would sit around to rot. This is the reason banks are so quick to foreclose and not work with the people. They don't care. If they foreclose, then they can show they have some assets to cover some of the losses. Of course, we know that the houses are going down in value, but that's not what the bankers care about.
The debt system is what is hurting everyone. It's a stupid system where some people are allowed to create money out of thin air and others are not allowed. That's not capitalism, it's a debt system.
Nothing like experiment.
Belgium has a very long experience of 'buying to rent". France has a long experience of "buying to live in"
Both populations are very similar.
Belgium systems is the best by far and large, there is no question about it.
Henrietta Hughes, the woman in Ft. Meyers FL who asked Obama for housing assistance just sold $40,000 worth of property.
Anon., I was intrigued and looked up the stories on Henrietta Hughes. I found no links to the sale you are referring to. $40,000 worth of real estate property? I read she had a truck and stuff in storage...that kind of property?
It looks as if the MSM is doing the opposite of a Joe the Plumber on Hughes. That politician who gave her free use of a house "until she gets back on her feet" will have a long wait, because upstate New York did a story on her and her son getting handouts in 2004. So this is nothing new for them.
Meanwhile, they jointly owned three properties in FL. Two lots, one home. One lot was sold, the home was apparently foreclosed on, and the final property she transferred to her son, who still owns it.
Anyway, apparently, they were offered another home free for three months, with a very low rent after that....but now the politicians who let her stay ini their extra home say that's a "lie."
Looks like the MSM doesn't like their storylines (emphasis on story) messed with. They had their fairy tale ending all wrapped up, dammit!
Oh yes....and there's a website with her name that sprang up at the same time. I'll bet someone is gnashing his teeth that the octuplet mom stole so much attention. And now that the storyline there is how obsessed she is with Angelina, you can be sure that will be a never-ending story.
Dancing Opposum, your landlord is lucky to have you...and vice versa. I've heard so many landlord horror stories. But even with the best of them, you're at the mercy of someone else when you rent.
As exhausting and nervewracking as it can be to own and be solely responsible the next time the hot water heater dies, or the tree limb falls, etc., I still think it's the best way to go. Especially in the long run. It helps when you borrow from a local institution which holds their own mortgages, and never tap into your equity for anything other than improving the property.
In Britain the banks are not so quick to foreclose on mortgage-secured debts. (At the moment). In this climate, this is because they want to avoid writing down their assets and possibly facing a lowering of their own credit ratings (either by the Big Three New York ratings agencies or by the Bank for International Settlements in Basle), which would be big trouble.
Incidentally, lending other than on houses is continuing apace in Britain. Loads of companies are still advertising getting the first few months "free", or "paying nothing for a year" and all that crap.
Also the 'higher education' system continues to run on personal debt. Student grants and mandatory State payment of tuition fees are not available for most students. The university system was deliberately expanded in the 1990s so as to get people off to an big-time indebted start to their adult lives. I mention this to underline that it's not changing. If we want to see opposition to the power of finance capital grow, a demand for the return of student grants and the abolition of tuition fees would be a good thing. It's about time to start demanding social engineering and reforms that work in our favour.
I've been thinking about this. I've always been against 'transitional demands', because they are basically vehicles for elitism. Representation. Substitutionism. Politics and all that crap. But now it seems to me that it's useful to discuss what reforms would be desirable. Genuinely desirable and not in the fake terms motivating kitsch lefties who don't really mean it or who have ulterior motives. But even including demands traditionally associated with such elements, such as the nationalisation of the land and the banks.
And curiously...capitalism really couldn't make such concessions. Be serious. They'd sooner eliminate half the fscking population.
Such reforms are genuinely desirable...and completely impossible.
So what do we get? Social revolution raises its head, not on the basis of some fscked-up hypostatisation of subjectivity, but objectively. As the only way to survive.
b
Notes
1) The Bank for International Settlements is literally a law unto itself.
2) The BIS system for rating banks has not managed to achieve a stable above-board manifestation. ('Basle 2'). Indeed, although one of the main considerations of regulation is the ratio between bank capital and bank assets, there is no openly-accepted centralised international definition of what "bank capital" is!!
Zee,
It's true, I am very lucky. I pray in church every week that my LL enjoys a long and healthy life...I and the other folks who rent from him know that once his son takes over the business, we are history. And I've heard (and experienced) some landlord horror stories myself so believe me, there is a reason I've been renting from this guy (may Allah bless and protect him) for 12 years.
Agree that in the long run, owning is better, IF you can get a decent price and a good loan (big ifs these days).
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