Yves here. This post takes a contrarian view of the preoccupation with home ownership and argues that single family homes increase inequality and the rate of climate change. Its authors contend that the idea that home ownership reduces inequality is largely a conservative myth.
I strongly encourage you to read it in full, with an eye to the notion that knee-jerk reactions against some of its arguments are likely to reflect a personal attachment to the notion of homeownership….which as this piece stresses, is a fairly recent cultural inculcation.
No less than the Economist magazine recently deemed the push for widespread homeownership as a massive policy failure, and also described how that demand for home-ownership was stoked by messaging and policies, such as tax breaks for developers and buyers.
However, this picture is complicated in the US by the fact that tenants have weak rights compared to landlords. That produces a dynamic where the better housing stock is purchased by owner-occupants, since those with the means to do so will want to own their dwelling so as to not be at risk of the landlord not being willing to renew the lease or doing a poor job of maintaining the property. Thus for the most part, renters in the US are young people who haven’t yet accumulated enough to buy a house, and those with moderate or erratic incomes.
But owning a home has often become a bad deal even for the better off. The days where a worker would stay with the same company for >20 years and the 30-year mortgage was a good match for a typical career, nearly always spent in the same town, are long gone. Employers often requires that a mid-level or senior executive move to a different city. Relocation subsidies are paltry compared to what they once were. Someone who loses a job might also find it necessary to move either to find a new post or to cut housing costs.
Do the math. Selling and buying houses has high transaction costs. If you assume 5% brokerage costs and another 1% to spruce up the house for sale, that’s 6% of the sales price….and if you have no price increase and 20% equity, nearly a third of your equity. Oh, but you might say, we still sold at a nice profit! You nevertheless gave up a lot of the gain in the costs of the trade.
By contrast, it is possible to have a regime with strong renters’ rights, as Germany does. If tenants are confident they can stay in the same apartment (or house) for ten or more years, they’ll see it as a home and will treat it with more care. Lower turnover makes the economics of renting more attractive to landlords too, since regular vacancies and the need to paint and tidy up between tenants is a big dent to their returns. As readers may recall, I lived for 22 years in a rent stabilized apartment (and the rent was WAY over $2000 a month). The big attraction, aside from rent increases that more or less tracked inflation, was that the landlord was required to give me a lease renewal as long as I was current on my payments. Over 20% of the tenants in the building had been there as long or longer that me.
This article suggests another route for making rentals more attractive, which is a great increase in urban “affordable” housing, which continues to be a very successful model in Vienna. I stayed in Richard Smith’s two bedroom flat in the Barbican, which had originally been built as council housing. It was very cleverly designed and surprisingly room-y feeling despite being merely 800 square feet.
By Pirmin Fessler, Senior Economist, Austrian Central Bank and Martin Schürz, Head of Monetary Unit, Oesterreichische Nationalbank, Economic Analysis Division. Originally published at the Institute for New Economic Thinking website
Housing is a major problem in today´s societies. In the following, we discuss some elements of how the owner-occupied single-family home to which individuals aspire became what The Economist called “the West’s biggest economic policy mistake.” We argue, however, that it is more than a policy mistake and that we have to reflect on our dreams and fears to grasp the magnitude of the mistake.
Since Sigmund Freud’s foundational work on psychoanalysis, we have known that our dreams are the royal gateway to our unconscious. Psychoanalysis builds upon the idea that dreams try to fulfill a deep desire. And while houses are made of brick and mortar, they are also made of dreams and fears. A home is not only a piece of real estate to buy and sell; it is in most cases part of a person’s self-realization and charged with emotion. Societal ownership projects portray single-family homes as reachable for most people within capitalism. While other wealth components often feel virtual and literally “out of reach,” a house sitting on a piece of land promises shelter in a world of uncertainty. We argue that housing as a basic need must be liberated not only from its ideological content but also from its problematic role in personal aspirations.
We illustrate how this housing nightmare is related to the two greatest challenges faced by contemporary societies – climate change and rising inequality – and why it must be part of a solution to both. A more fearless dream of housing is urgently needed, one that will allow a focus on the housing needs of people as well as the social aspects of housing.
Homeownership in Western Societies
Dwellings are a place to live. They are local by nature, as they occupy a piece of land, a distinct place in the world. That distinguishes them from most other wealth components. And their common function is use, irrespective of whether a flat is rented or a house is owned (see Analysing Wealth Inequality: A Conceptual Reflection). Whether we rent or own our dwelling should not make a difference in costs given the standard assumptions in most economic models, such as strict life cycle preferences, no bequest motives, no credit constraints, and rational behavior. Economic models are often based on rational choice. Aside from the fact that these assumptions fail once economists bring them to the data, we also know from neuroscience that emotional engagement is actually a pre-condition for any means-end rationality. On top of that, from within a rational model, it is impossible to decide if it is rational to apply the model (see Lakoff and Johnson, p. 514). But clearly, we must be dreaming of homes that we own, not rent, for a reason.
During the 20th century, the single-family home became the central trademark of belonging to the rising middle class. After the second world war, real estate ownership also became a major vehicle for wealth accumulation. A large degree of wealth accumulation during this time was based on rising real estate prices, driven by rising land prices (see Knoll et al. 2017). While rising prices increase the attractiveness of investment, they at the same time undermine affordability. This makes the club of owner-occupiers more and more exclusive in the sense that it becomes more difficult over time to enter this club just by saving out of labor income. Rising house price-to-income ratios imply that young households come to rely ever more heavily on access to parental wealth for becoming homeowners themselves. An alternative is debt – often in excessive amounts. In pursuit of their dream to enter the middle class and gain the security promised by homeownership, households take up large amounts of debt, betting everything on a single asset powered by high leverage. What sounds like the business of a hedge-fund, has become the only way for many people to realize alleged upward mobility by entering the realm of homeownership.
Nevertheless, homeownership rates are remarkably stable. At the same time, levels of wealth and income become better and better predictors of being a homeowner (Fessler and Schürz 2020b). Low rates of homeownership in a society are also associated with high wealth inequality. The development of housing markets directly influences the distribution of wealth. Inelastic housing supply combined with elastic lending possibilities of financial institutions make the housing market particularly volatile. Housing market bubbles have been at the center of many financial crises.
From a naïve static perspective, it seems that housing wealth makes the distribution of wealth more equal because housing assets are more equally distributed than other forms of wealth. And this empirical fact allows conservative discourses to link private property ambitions to social justice principles. Conservatives proclaim that their ideology combines an economic rationale of asset building with a fight for fairness. They present housing as a way to mitigate wealth inequality. Thus, a rare combination of material and immaterial values makes real estate particularly interesting for economic policy approaches. Sebastian Kohl shows differences in homeownership ideology by analyzing party manifestos (Kohl 2018).
The UK housing revolution provides an example, where the welfare state and the working class were weakened by Margaret Thatcher’s project of a homeownership society. It played off individual asset-building against collective welfare. A homeownership society aims at a two-class society, owners and capitalists, but not a classless society. The idea is that making people homeowners will make them more ready to support the interests of owners in general, even though their share in wealth is comparably small and does not include access to income and does not generate the power that capitalists derive from their business wealth.
Declining ownership rates in recent years for the first time in decades show this. 9 million homeowners in the United States went through a foreclosure, surrendered their home to a lender, or sold their home out of distress between 2006 and 2014. As wages stagnate and real estate prices rise, young people have increasing difficulty affording a home. Capital gains in the real estate market have been reached at the expense of the welfare positions of renters. The renters are seeing more of their incomes eaten up by higher rents.
Young people cannot afford to leave their parents, and if they do, they have to move into expensive rental apartments. But usually they have to stay at home with their parents for longer than they would like.
How Dreams and Family Values Help Enact Homeownership as Salvation<
The wealth component of the main residence allows for combining family values and real estate monetary market value. It links dreams of security with illusions of freedom. As houses are localized, this form of private property can take an imagined place of refuge and independence. Even if a suburban home is far from the dream of riding a white horse through wide-open spaces, the house nevertheless belongs to its owner and can provide a feeling of security. The saying “my home is my castle” or in its original form from the 16th century, “a (English)man’s house is his castle” speaks directly to the idea of power, safety, and freedom within one’s own home.
Rarely will people guard memories of their financial wealth. Only seldom – in the case of ruinous hyperinflation – can one be sure that people will not forget the huge loss in savings. If a family loses its home, its refuge, this memory might likely stay for generations. And almost all people have memories of their infancy or their children in the context of housing.
As life ends, one day I will die but my house will be the place to live for my children and grandchildren – as long as it is “mine,” my privately owned property. Thus, family values favor private property projects right from the beginning and weaken societal considerations. For a conservative political homeownership project, this is a huge advantage.
However, differences in homeownership rates across countries and clearly varying housing markets cross-nationally underline that there is a choice of policy options. Politics may promise to strengthen the middle class of society by firming certain values or may concentrate on social housing. Thus, in theory, housing could be part of several political approaches, since it is open for diverging emotions.
Our emotions guide our actions. Policies influence emotions in a subtle way. Homeownership is a crucial part of the American dream. This vision guides dreaming in a direction: avoidance of “Unbehaustsein”. The German word “Unbehaustsein” – literally “being with no-home” – describes the feeling of having no home that is characterized by a missing sense of belonging and a certain degree of rootlessness. The conservative discursive strategy lays its ideological emphasis on security and not on solidarity. Therefore, not belonging, not having a place, not owning a home, is dangerous. Owning a home shows that you belong to, and are a valuable part of, society.
In Red Vienna in 1919, a huge public housing program was financed by luxury taxes and real estate taxes. The dream of the working class was to have a common living space, cultural facilities, and a certain level of wellbeing. Private property was not part of their dream. However, such radical political approaches remained exceptional in history.
The improvement of living standards of the poor is not at the center of policy considerations; instead, political messages concentrate on turning poor people into small owners. As Friedrich Engels wrote in 1872 in “The Housing Question”:
“The worker who owns a little house to the value of a thousand talers is certainly no longer a proletarian, but one must be Dr. Sax to call him a capitalist.”
Emil Sax was an Austrian economist of the second generation of the Austrian school and a liberal politician. In the judgment of Friedrich Engels, he remained anchored in bourgeois thinking. To study housing does not allow us to talk about the whole wealth distribution, but only about certain parts of the wealth distribution. The rich remain missing in the considerations since housing forms only a rather small part of their portfolio. A focus on housing alone allows for a public debate on the middle class while avoiding more radical ideas of redistribution. It serves ideological purposes as it compresses a distribution with a skewed right tail and guides our vision to the middle and to a more common asset.
Kids dream of epic fights against dragons, of becoming a princess or a king. They dream about heroic developments in their lives. But the dream of homeownership is not born out of feelings of greatness; it is born out of fear. Not belonging is bad, but becoming homeless is a horror scenario, not only in times of a pandemic. Owning a home means to be safe in the sense that one is freed from the shackles of periodic rent payments and periodic contract restatements as a precondition for staying in the place one calls home. In most countries, ownership in the form of a home is also treated legally as more worthy of protection than other forms of ownership.
The psychological advantages of homeownership are evident. People can pass it on to their children and this follows family values (Fessler and Schürz 2020a). For thousands of years, humans have been conditioned to find food and shelter as primary goals in order to survive. If their fulfillment is questionable, humans react with fear and major stress.
Fear is the emotion that characterizes much of our lives. The ownership society provides, at first glance, a convincing narrative to overcome fear that is also tied in with positive and accessible family values. Privacy is important for all of us. It gives power to the people. A lack of privacy gives power to other people. Homes are a symbol of privacy.
As space is limited, so is housing. Home prices can go up, but the land they are built on and refer to is limited. This limitation makes the concept of real estate more understandable than financial wealth prices. The limitless accumulation of shares is scarier for people than the inherent limitation of houses. For the same reasons people also struggle and are intimidated by money creation or exponential growth. Wealth inequality is far greater than inequality of housing wealth. The most expensive residence in the world has a value below USD 1 billion while share prices can sky-rocket.
Private housing strengthens the anti-meritocratic element in society as real estate will be passed on and improve the wealth position of some and relatively deteriorate it for others. Recently, Harvard Economist Stefanie Stantcheva tweeted about the somewhat surprising finding of her research that people hold both contradicting beliefs:
“that it’s fair that children start from a level playing field and that parents pass on wealth tax-free.”
Such psychological family mechanisms related to the intergenerational dimension of real estate dampen claims for equality of opportunity and justice. But equality of opportunity is by far not the only problem that makes the dream of the single-family home a nightmare for society.
Safety Dream for Some Individuals, Nightmare for Society
It is unclear if it was ever good for society that almost everybody was striving for a single-family home. What is rather obvious is that in combination with other challenges our societies face today, such as aging and climate change, the dream of a single-family home has become a major problem – and likely one that is hard to fix, because it has already taken rather deep roots in our minds. There are now many claims that the focus on the single-family home has been harmful, but we are not aware of any attempts that policymakers are engaged in correcting this fallacy by tackling it directly. Nobody seems to be brave enough to take on people’s dreams – even if they are clearly harmful.
On January 16th, 2020, The Economist featured an article titled, “Home ownership is the West’s biggest economic policy mistake” and subtitled, “it is an obsession that undermines growth, fairness and public faith in capitalism.” The authors describe how a shift in public policies in the 1950s started to favor owner-occupation over renting by using tax breaks, subsidies, and sales of public housing. This approach was favored by right-wing politicians for reasons of “encouraging responsible citizenship” and by the left for “nudging poorer households to build wealth”. Among many others, they bring in the NIMBY (not in my backyard) argument against owner-occupation, which basically means that owner-occupiers try to stop any form of development around them in order to protect the value of their own home and the surrounding area. They also claim that especially the “young people’s view that housing is out of reach—unless you have rich parents—helps explain their drift towards ‘millennial socialism’.”
And the World Social Report 2020 of the United Nations “Inequality in a rapidly changing world” argues that, “…securing housing and land rights, in particular, is a must. Governments have often exacerbated housing crises, instead of resolving them, by cutting back funds for social housing and failing to intervene to control property and land speculation” (United Nations, 2020, p. 123). Henry George was aware of the fact that society subsidizes all those who own the land. Even though many economists across all camps – among them Milton Friedman, Robert Solow, and Joseph Stiglitz – have endorsed parts of his ideas, only a small group of libertarians still argue for the radical tax ideas he invented (Foldvary 2005). It is however widely accepted that better access to public transportation, infrastructure, and public goods in general translates to higher prices for those who already own, while it increases rent and lowers affordability for those who do not. Adair Turner was clear about that:
“There is indeed a strong case in principle for taxing either land values or the gains from their appreciation. Land value appreciation produces wealth accumulation unrelated to the process of innovation or capital investment that drives economic growth, and rising urban land prices are a very major contributor to the rising wealth inequalities that Thomas Piketty has described. But while the case from land taxation was first made by the economist Henry George more than 100 years ago, few tax regimes reflect its strength” (Turner 2016).
The main story is easy to sum up:
50 years ago, a single-family home was typically occupied by a family, often spanning at least two generations. Today, houses tend to be heavily underused due to increases in longevity, women’s emancipation, higher mobility, and urbanization. Often excessively large houses are occupied for decades by an elderly couple or single-person household. This is not only economically inefficient and fosters social exclusion, loneliness, and depression among the elderly, but it is also an ecological nightmare as sparse housing development is not only a waste of space but also a waste of energy and infrastructure. But that’s not all. Housing is organized in a way that counteracts green policies and is often harmful in social respects. Consider the endeavor to give suburban single-family homes access to the public transportation system as a green policy of a city. Not only does it become more expensive and inefficient because of the sparsely populated areas of underused homes, but it also increases the value of those owner-occupied suburban homes and fosters inequality. The same is true for subsidies helping owner-occupiers to improve their homes to make them more energy-efficient. While the goal of greening the use of these homes is certainly well-intentioned, it cements and fosters urban sprawl, which is a way of living that is in principle neither environmentally nor socially desirable.
Instead of further subsidizing urban sprawl, measures to fight both climate change and rising inequality would need to favor more flexible and more densely populated housing solutions. Such a policy program would also allow for more public space and local recreation areas without the usual pressure to consume. When young people move out of their parental home, they usually want to live alone or with friends. In the next stage of life, couples and changing relationships are the norm. Most people at some point have a family and children. But after a few decades, the children leave home and often live in different forms of households and patchwork families until people get older and tend to live in couples or alone once more. In short, the single-family home which is tailored for the classical standard family and the large multi-generational household does not fit current western societies where a vast majority of households consist of one or two adults. In the US, the share of single-person households grew from about 5% in 1960 to more than 30% today. The share of family households of the classical married couple type decreased from about 80% of all households in 1950 to below 50% today (see Historical Households Tables).
Homeownership also reduces mobility. Spain and Italy, both countries with relatively high rates of homeownership and relatively small markets for affordable rental housing, have to deal with the problem that the young find it rather hard to leave parental households as affordable rental housing is scarce.
Home is a set of memories. Home is the historical record of the family who came before us. But in the case of private property, it transcends into the future with other family members, namely children and grandchildren. For those who lack the means for buying a house their dream of being able to buy one in the future stays alive. Even when mortgages may be a heavy financial burden, the dreams of a better life for one’s children will continue to exist.
A home creates a sense of identity, which makes the home important for politics. This link to identity may be even stronger than the one to class or rights. Home is where emotions are. Home means the place you come from: where you grew up, and to which you return for family celebrations and in your memories. Our identity is developed through our emotions and identity is tied in with having a home. People live in a place with a specific history.
And home has become a place of work for many more people. A private place becomes a labor income-earning asset. As homes are increasingly becoming workplaces and the places from which we do our banking business, etc., our homes become subject to an ambiguous domestication of work and commodification. Tensions over the meaning of home will intensify during this pandemic. As people feel depressed and develop all kinds of fear and anger some people will support measures to exert greater control over their homes, to strengthen gated communities. This will reinforce the idea of private property while the danger of being without a home increases.
Deregulation to make private real estate markets cheaper would likely turn out to make things worse since such policies encourage shorter rental contracts and create a general increase of uncertainty for the renters, which in turn increases the fear of losing one’s home. As we argued above, the fear and potential of losing one’s home is crucial for housing decisions. To replace the single-family home in the dreams of the people one has to offer something that provides feelings at a similar level of security, freedom, and independence.
We have to dream big to solve housing problems. This means strengthening the dreams of hope and not those born out of fear. As we are bitterly learning in the pandemic, communal solutions are crucial when it comes to existential threats.
What we would need is a new sense of home. A sense of being at home can come from many sources. And people can create a shared sense of home together. Perhaps we can learn from the legacies of Red Vienna, the hometown of Freud, a city that remains among the most livable cities in the world. In Vienna, the share of social housing is about 43%. While about 22% of households live in apartments directly owned by the municipal government, 21% live in social housing provided by limited-profit housing associations. Rents, which are cost-based, are on average 23% lower than for-profit sector rents (OECD 2019).
References
Fessler, P. and Schürz, M. (2020a): Inheritances and equal opportunity – it´s the family that matters, Public Sector Economics, vol 44, no 4, p.463-482.
Fessler, P. and Schürz, M. (2020b): Structuring the Analysis of Wealth Inequality using the Functions of Wealth: A Class-Based Approach, NBER Chapters, in: Measuring and Understanding the Distribution and Intra/Inter-Generational Mobility of Income and Wealth, National Bureau of Economic Research, Inc., forthcoming.
Foldvary, F. (2005): Geo-Rent: A Plea to Public Economists, Econ Journal Watch (2005): 106-132.
Kohl, S. (2018): The political economy of homeownership: a comparative analysis of homeownership ideology through party manifestos, Socio-Economic Review.
Knoll, K., Schularick, M., and Steger, T. (2017): No Price Like Home: Global House Prices, 1870-2012, American Economic Review, 107, No. 2, pp.331-353
Lakoff, G. and Johnson, M. (1999): Philosophy in the Flesh. The embodied mind and its challenge to western thought. Basic Books.
OECD (2019), OECD Economic Surveys: Austria 2019, OECD Publishing, Paris,
Schürz. M. (2020) Überreichtum. Campus Verlag Frankfurt/New York.
Turner, A. 2016: Between Debt and the Devil – Money, Credit and fixing Global Finance Princeton University Press, New Jersey.
United Nations 2020: World Social Report 2020: Inequality in a Rapidly Changing World, Department of Economic and Social Affairs
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A 2016 paper by a New Zealand organisation compared “in excess of a hundred and twenty studies that explored the associations between housing tenure and social,economic and health outcomes.” The organisation describes itself as “Housing Foundation is a charitable trust that delivers affordable housing options for working New Zealand households who are finding it difficult to buy a secure, warm, dry home.”. http://familycentre.org.nz/wp-content/uploads/2019/04/Social_and_Economic_Impacts_of_Housing_Tenure-1.pdf
They found that “On balance, the research suggests housing tenure is a significant factor for positive social and economic outcomes. Homeownership is often significantly associated with positive health, crime, and educational outcomes in studies, usually after controlling for a range of variables including socio-economic status and income”.
In a world where distressed working and middle class homeowners are being forced out of their homes due to the steady deterioration in jobs and wages, and the homes are then sold to giant hedge funds and the like, the side of me that questions every research paper and why it was produced and for whom, says that we could expect a plethora of papers “proving” why rental is better than purchase if the big money is with buying up homes for rental.
Now of course this NZ charitable organisation may have a bias in its research towards home ownership, or the banks may have a bias in their research due to where the profits are the largest.
Without a very hard-nosed look it is difficult to make any conclusion.
The heart says home ownership is more of a port in an economic storm than is rental if there is family support. From experience of family, family feel more settled and less stress when they have their name on the title, and can hammer a fixing into a wall for a painting – a positive social outcome.
I hate to beat up on you, but you’ve done two things to get in my crosshairs. The first is to comport yourself as if you did not read the post in full. In fact, you make it seem as if you didn’t even read the preamble. That is a violation of our site Policies.
Second is that the first comment often sets the tone for the entire thread. I warned about being hostage to what amounts to culturally-instilled prejudice…yet what do you do but serve that up in droves, including misusing your source, which talks about solely about TENURE, not ownership!
Tenure does not have to have anything to do with home ownership. I lived in the same rental in NYC for 22 years. I would still be there if I didn’t have to take care of my now 93 year old mother in another city. There are people in that building who have been there over 50 years. You can pass a rent regulated apartment in NYC to a spouse, sibling, or child IF they live with you for a month or more (full time, and yes these buildings do check). Similarly, families in Germany, which has a strong pro-tenant regime, regularly live in the same flat for decades.
At best, you seem unable to grasp that the property rights a tenant has are a function of the law, and the law can be changed. For instance, in NYC the law allows tenants to have roommates and to sublet (I have done that, twice, legally, did all the paperwork and the landlord signed off). IF a tenant has decent property rights, renting is a perfectly fine deal. I greatly prefer renting because all the property maintenance associated with homeownership is a time sink. The less I have to know about plumbing, the better.
If tenants have decent property rights and stable pricing, I think home ownership becomes more of an emotional decision than a financial one. Moving from one rental unit to another is expensive. You have to come up with first month’s rent, last month’s rent and at least one month’s rent for security in a lot of places. If you can’t rely on friends, family and a u-haul, you have to pay a mover. And moving is a giant pain in the rear. My cousin’s inlaws had a rent controlled apartment in NYC for 50 years. It was “home” to them and to their kids.
I bought my house just before the pre-2008 peak of the market. Overpaid for what I got at the time, but still, it wasn’t an expensive house and after refinancing a couple of years ago, I’m on track to own it free and clear at the end of this year. Aside from the emotional aspects of home ownership, which, for me include having whatever pets I want in whatever quantities I want, being able to do whatever I want to the interior and exterior, and not having to deal with landlords, owning the house free and clear is, to me the major advantage over renting. It’s especially an advantage if one can get to that point relatively early in life. Without a mortgage, I’m looking at about $400 per month to cover the property taxes. Utilities are probably another $200/month. The other advantage, absent rent control, is that my monthly costs have remained stable for the past 15 years. Property taxes have gone up, but not at the rate that rental costs have increased around here. The downside: maintenance. There are always things to be fixed and replaced, and one needs both a financial cushion and a contact list of reliable contractors to deal with the inevitable. I’m fortunate to have both.
My cousin’s inlaws lived in the same rent controlled apartment in NYC for 50 years. Renting is indeed a great option with strong protections for tenants.
I find it interesting how common is the phrase “free and clear”. A mortgage is only one item of expense for a house. There are taxes, costs to maintain, furnishings, and the like. In many ways a house is never “free and clear”. It can easily turn into a sinkhole for money and time.
Very true. I sometimes call my house the gift that keeps on taking, although it isn’t really true. Things break. Walls need painting. Now and then I look at some part of it that I don’t like and decide it needs to change. I enjoy all but the things breaking part. Not everyone does. And anyone who’s struggling to afford the initial transaction of buying a house should really think twice because when the hot water heater goes, you don’t have the option of telling your landlord to fix it.
New York is it’s own world. Many older people in New York live in rent stabilized housing. I have several friends who have lived in the same New York apartment for around 50 years. Very few cities in America have rent control of any sort. I know people who recently sold their co-op at very high prices. My sense is that younger people who buy real estate in New York are doing it with family money. Like many New Yorkers of my generation, I’m in my 70s, I grew up in an apartment. There was no stigma to renting in New York. Trotsky stayed in the Bronx for a few months around 1916. He doubted there could be a revolution in America, because housing conditions were so much better. The building he lived still stands
It is not just that NYC has rent control and rent stabilization. It also has generally strong tenants’ rights. Makes a huge difference.
I rented apartments 7x in NYC. Only one was that rent stabilized unit. Several were sublets. In NONE of them did I have difficulties with noise or services. In one, the landlord didn’t make an improvement he’d promised. So basically in seven rentals in only one did I have a minor problem. And most of these were low price point rentals (like when I still had to have a roommate or subletting a cheap apartment while renovating an apartment I had bought).
Tenant rights and long tenured residents are certainly important to a neighborhood. I can’t help wonder, though, if there’s a flip side too this. Is less housing investment and less density (and the higher priced rents that would be associated with this) associated with more onerous government interference?
Maybe I’ve heard one too many neoliberal talking points, but my experience in DC – and Arlington VA – supports this. So much government bureaucracy and affordable housing initiatives and restrictions that limits the amount of increased density that could be created. And along some of the most walkable and mass transit friendly areas in the country!
You bring up a lot of good points about European countries, particularly Germany, and how they seem to manage both. I wonder if there’s other differences though. Are there as large of a rush to certain cities in Germany as some “hot” cities here like Austin?
No, from what I can tell, Europeans are not big on moving and Germans are no exception.
Apologies for the second comment, but I did some digging after my first. From the mid 90s Germany’s population has increased from 81.5 million to 83.2 million today. Compare that to the US. 263 million to 328 million. Maybe Germany’s policies would work fine here. But if Germany had a 30 percent larger population then 25 years ago, I could similarly see their housing stabilization being stressed – even with the policies you note
i’ve only ever rented in Texas, where renters are purposefully at a disadvantage, wages never keep up with rising rents and the often corporate landlords are persnikkety and mean and forever inventing arbitrary restrictions on behavior.
needless to say, i’ve not had as good an experience with renting as you have.
that said…the article goes to lengths to diminish the security aspect of homeownership…for me, this is prolly the main thing, given my personal history.
the main thing lacking in my young adulthood(yes, hindsight=20/20) was a place to retreat to.
this has been the main thing i’ve wanted to provide for my boys…a homestead.
and i’m with Polanyi in thinking that the commodification of property…at least the kind one lives on…was a mistake.
if there was a simple path to Allodial Title, i’d jump on it.
“home equity” and “property value” ….and all the associated “flipping” and “investment” considerations seem anathema, to me.
i understand that most of this sentiment comes from the sort of Ur-Homelessness i experienced….i mean, i lived in a van for 5+ years…and was rarely secure.
I haven’t delved too deeply into it, but i also have a fondness for Henry George…looks like a better way of property tax than what we do now, at least in Texas(here, unless you run cattle, one is pretty much punished for being productive…and even more so for being productive outside of the holy Market(yeomanry—as i’ve gone on and on about, autarky is my goal…getting rid of as many dependencies as possible…because i do not trust the people who are the beneficiaries of all those dependencies(why would i?)
another caveat to my prolly keejerk reaction is that i’m coming from a decidedly rural place….much of what the authors are talking about has to do with cities…i have a learned aversion to urban and suburban and even exurban places…again, this is due to my personal history, and i admit that i have little idea how to remedy the housing crisis, aside from drowning blackrock in a water trough.
first cup of coffee…so i’m rambling….i’ll attempt more coherence as the caffeine kicks in.
I’ve rented in four different states, and for the most part, landlords are sh*ts everywhere. A person has very little protection legally against landlords, and I find that not only people, but also the courts are very biased against tenants. I did have two landlords that I loved and would have willingly lived in their apartments for many years, but as usual, the apartments were sold – to sh*ts!
And by sh*ts, I mean like the landlord who wouldn’t fix my roof leaks and then tried to say I was responsible for the damaged wall and rug in the apartment, like when I had to live with raw sewage in my tub for two weeks when the landlord wouldn’t fix the plumbing. I called the state’s tenant protection agency and they said to pay up my year’s lease and then sue the landlord. Like I had $12,000 available to do that! Like the landlord in my neighborhood who left a young family in the cold for two weeks because he claimed he couldn’t get a part for the furnace. And I am sure anyone who has ever rented have their own horror stories.
I now own my own house- well, at least a good part of it – the bank owns the rest. I was able to put enough down so that my payments are always much lower than the average rents around here, so I do feel more secure – for now – I did read that article on nursing homes so my future doesn’t look at that great though. I also for the first time have a place to park my car without constantly getting door dings!
But I agree with the author on how living in the types of single houses we live in doesn’t really help the environment or the economy. What floored me when I began looking for a house to buy was that they all looked the same – the difference being mostly in the amount of square feet. Cookie cutter houses abound around here which means that there really isn’t all that much choice if you are looking for something that fits your personal needs. I really don’t need all the 1400 sq ft that I have, but I couldn’t find anything smaller. And yes, we have large parks full of useless green grass for everyone to admire. I once went to the HOA meeting and asked if that large useless park behind my house could be turned into allotments, since we all have small yards. I got a lot of deer in the headlight looks for that!
When I am too old to live here, this house will be sold – probably to pay the nursing home. Most of my children live in other states and they aren’t going to want this house. So for all practical purposes, I really am just a long term renter while euphemistically calling myself an owner.
Sorry Yves, but I am confused about your comments. In the article I referenced, their preamble was “various forms of housing tenure, mainly homeownership and renting”, so I thought this was very relevant to the discussion.
I don’t know where to start with what is wrong with the main article. The neoliberal bias and dismissal of the views of ordinary people is profound. Since when is mobility a virtue? Except for employers. I feel as if they are saying we should all take one for the team.
For ordinary people, we want housing that gives social and financial stability. And from what we see in our country and others, except for the very few, tenants have the overall experience of instability, being at the mercy of landlords who can raise rents and sell whenever.
Like others, my rental experience has been mixed. My last rental had 3 toilets, and at one stage none of them worked properly. After the kitchen stove ceased to work the landlord delayed and delayed and did nothing because of the cost. After two weeks I started to threaten her with legal action, she brought around a one burner camp stove. And told me I was a very unreasonable tenant.
In the press yesterday was a story of an apartment block with mould so bad that one of the tenants ended up in hospital. The owners have done nothing in years of complaints to fix the problem. And these days its not so easy to move apartments.
In my country security of tenure for years is a pipe dream except for those lucky few who have social housing, and it comes with its own set of problems.
You are completely talking over the point I made at the outset, that the rights of tenants are legally constructed, and that regimes with strong tenant protections regarding lease renewal DO produce stability. You are simply unable to wrap your mind around the idea that tenants can and do have better deals than they do in most of the US. Germany has strong tenant protections and moderate rent rates as a matter of national policy.
You are stuck in the Anglosphere model and appear unable to grasp that other arrangements are not only possible but actually exist in entire countries.
I rented for many years in France and Belgium which are known for very strong tenant protection, probably more than in Germany.
I think most people are misguided about how well they have it.
First, you have to sign a minimum 3 year lease agreement (forget about the month to month or other flexibility we have here in the US), then any potential tenant has to come up with minimum 3 months security deposit upfront up to 6 months in some cases. Most rental units are In deplorable state, and forget the standards we have in the US with kitchen bathroom living room bedrooms, sometimes what counts for kitchen is an electric stove and a sink and the bathrooms is very rudimentary.
People don’t realize that only high end dwelling s in Europe have AC , whereas here most affordable housing for low income people comes with AC .
Then another thing is that people rent in Europe because it’s so hard to get a mortgage to buy a house and you need a substantial down payment, no government agencies to buy mortgages, credit doesn’t come easy. Most houses are inherited and when people buy a house is usually to live there all their life.
Ok, so I understand the point that tenants rights are legally constructed, and in the places I know of they are legally constructed to favour landlords.
There has been a local tenants union to speak up for tenants and to help them, which has now been defunded by the government, and it is now going defunct. Otherwise it is a few volunteers doing this out of the goodness of their hearts and I applaud them.
The problems is, where I am, that the real estate industry donates to the politicians and just as the research in the US shows (sorry don’t have the link at the moment), ordinary people have basically a zero say in what laws are enacted. I don’t think it is much different here.
Therefore getting legally constructed rights that really protect tenants is almost impossible because tenants by and large don’t have a lot of political clout. Rich tenants, in my experience go and buy their own dwellings.
And the observations by “I have lived in the future” about the quality of rentals in countries with strong rights is pretty depressing.
Thankyou for the robust and reasoned debate btw.
This is simply not true. Page 3 of the report in question, paragraph 1 states, ” It describes the social and economic associations of various forms of housing tenure, mainly homeownership and renting.”
Paragraph 3 of the same page states, “The review shows there is substantial evidence, that homeownership has important positive effects on these outcomes when compared with private renting. There are however, a number of studies that show no significant positive or negative associations, but apart from a minority of studies on employment impacts, no studies were found that demonstrated negative effects of homeownership.”
In fact, ‘homeownership’ is used 148 times in the report.
I glanced at the document. It repeatedly conflates the benefits of homeownership with mere long tenancy. It also appears that just about NONE of these studies were adjusted for income. Some were adjusted for “class”. And all they have is correlation, not cauastion. As I said at the very outset, people with lower incomes or less secure employment situations tend to be renters in the Anglosphere. People with lower incomes and less secure jobs are more likely to have to move.
In other words, the supposedly poor outcomes attributed to non-ownership are likely to be the effect primarily of a very different cause: unstable income. Attributing it to renting is spurious.
Another reason for shorter housing tenures, including for homeowners, are what mortgage experts call the Three Ds: death, divorce, disability. A spousal death or divorce or serious ailment will produce a big income hit and will force a move. Those are directly or secondarily huge stressors and produce bad health and psychological outcomes.
In other words, this “study” by a homeownership advocacy group (see its own description of its aims: https://tindall.org.nz/new-zealand-housing-foundation-changing-lives-and-growing-communities/) looks to be garbage.
Yes I noticed they mixed up studies of tenure with those of homeownership repetitively, and overall it is not very well written. No doubt this throws the whole review into jeopardy, but that is completely different from stating that it is only about tenure and that it has nothing to do with homeownership whatsoever.
Whom cares about property with out earnings that enable such constructs E.g. 50 year or generational mortgagees all due to rank speculation front run by dumb money – ???? – looking for flows ….
I want to see studies about how social stigmas affect health outcomes. Especially stigmas on how one is treated based on what they have and don’t have versus no stigma based on what you or don’t have.
I got caught out in the UK’s 1980s/1990s real estate boom and bust.
I was the mug who got in just before the bust.
Property had been rising in price throughout the 1980s and I thought this just can’t go on, but it did.
I was getting older and wanted to buy my own place, but I was wary, as I thought this boom couldn’t last. The removal of dual tax relief on mortgages forced my hand. If I didn’t buy now, I would never be able to afford it.
There was one last sharp upswing before the crash.
My property was falling in price, the economy was in recession and the threat of redundancy wasn’t far away.
This went on for years.
The only consolation being there were plenty of people my age in exactly the same boat.
That was very silly.
I am sure our policymakers will have learnt their lesson and won’t do that again.
Dream on.
They used the bust to work out how to get the ponzi scheme going again.
Buy-to-Let
What were they doing?
They had adopted the economic growth model of the US in the 1920s, where the money creation of unproductive bank lending (into real estate) drives the economy as they head towards a financial crisis, just like 1929
The Thatcher revolution was our “roaring twenties”.
We got the financial crisis in 2008 and would have plunged into a Great Depression if we hadn’t saved the banks.
Bankers make the most money when they are driving your economy into a financial crisis.
They will load your economy up with their debt products until you get a financial crisis.
On a BBC documentary, comparing 1929 to 2008, it said the last time US bankers made as much money as they did before 2008 was in the 1920s.
https://www.youtube.com/watch?v=vAStZJCKmbU&list=PLmtuEaMvhDZZQLxg24CAiFgZYldtoCR-R&index=6
At 18 mins.
The bankers loaded the US economy up with their debt products until they got financial crises in 1929 and 2008.
As you head towards the financial crisis, the economy booms due to the money creation of bank loans.
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf
The financial crisis appears to come out of a clear blue sky when you use an economics that doesn’t consider debt, like neoclassical economics.
The Thatcher Revolution was our roaring twenties, which led a financial crisis and would have caused a Great Depression if we hadn’t saved the banks.
Bankers make the most money when they are driving your economy into a financial crisis.
They will load your economy up with their debt products until you get a financial crisis.
https://www.housepricecrash.co.uk/forum/uploads/monthly_2018_02/Screen-Shot-2017-04-21-at-13_53_09.png.e32e8fee4ffd68b566ed5235dc1266c2.png
The bankers loaded the economy up with their debt products until we got a financial crisis in 2008.
As we headed towards the financial crisis, the economy boomed due to the money creation of bank loans.
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf
The financial crisis appeared to come out of a clear blue sky as we used an economics that doesn’t consider debt, neoclassical economics.
Banks – What is the idea?
The idea is that banks lend into business and industry to increase the productive capacity of the economy.
Business and industry don’t have to wait until they have the money to expand. They can borrow the money and use it to expand today, and then pay that money back in the future.
The economy can then grow more rapidly than it would without banks.
Debt grows with GDP and there are no problems.
The banks create money and use it to create real wealth.
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf
The UK used to be the great financial superpower and it looks as though we understood this in the past.
https://www.housepricecrash.co.uk/forum/uploads/monthly_2018_02/Screen-Shot-2017-04-21-at-13_53_09.png.e32e8fee4ffd68b566ed5235dc1266c2.png
What happened in 1979?
The UK eliminated corset controls on banking in 1979, the banks invaded the mortgage market and this is where the problem starts.
The transfer of existing assets, like real estate, doesn’t add to GDP, so debt rises faster than GDP until you get a financial crisis.
Before 1980 – banks lending into the right places that result in GDP growth (business and industry, creating new products and services in the economy)
Debt grows with GDP
Bankers don’t make much money
After 1980 – banks lending into the wrong places that don’t result in GDP growth (real estate and financial speculation)
Debt rises faster than GDP
Bankers make lots of money
2008 – The financial crisis
Contracts of legal demands proceed all and the means to write them establishes the out comes ….
I have no quarrel with the main argument of the article that affordability is a problem. I also think that in the US, we will have single payer health care, the cars will drive themselves and people will dwell on Mars before we get to the social cohesion required for 40% + of the rental housing stock to be publicly owned.
I offer two observations:
1. Higher population density is a desirable goal – except in a pandemic. In March of last year, New York was Mordor. Single most important reason for this – population density. One might argue that the suburbs eventually caught up, but by the time they did, the mortality had fallen (as a percentage of cases).
2. Under the current system, the mortgage you carry on your house is an inflation hedge. So, as long as you can afford the mortgage, carrying one may not turn out to be such a poor financial decision.
oops – the link that went on 2. was meant to support 1. apologies.
The argument that high density housing is a major risk factor for viral transmission has proven to be false. Hong Kong has some of the most dense housing in the world, yet through effective mitigation strategies that city had relatively small caseloads of COVID-19.
https://www.statista.com/statistics/1109011/coronavirus-covid19-death-rates-us-by-state/
Note top 3 states. Death rates in the 240-250/ 10000. NJ, NY, MA
Note bottom 5 states (I exclude Hawaii and Alaska because they are special – not part of the contiguous US). Three bottom states are VT, ME, OR – 32-51/10000 death rate.
It looks to me that population density is correlated to death rates. I do not live in Hong Kong. I live in the US. And to me, it looks like population density was a major risk factor for dying of Covid.
The desire for a home that you own (or at least have firm tenure on) goes very deep, and you see it across numerous cultures. Even in the former Soviet Union, people would live in collective blocks, but still ‘own’ (to the extent allowed) a dacha. Perhaps something of that model can be applied to our cities in a post Covid world where people will perhaps have a smaller base in the City and live more further out in a ‘home’.
The form a home takes is of course very closely related to laws on tenure and the ease of construction. There is, for example, a huge difference in housing stock between Japan, where building a multi generational house on a block (usually a standard rice field size) became the norm, while in South Korea vast high rise apartments were built, mostly linked to the big Chaebol, often tied to employment. This was more or less an accidental outcome from a variety of policy decisions, mostly relating to zoning, building regulations, and land nationalisation. And yet both have had problems with runaway property inflation. In Japan it was partly tamed by demographic changes (empty, but still well maintained houses are a common sight outside the big cities), while South Korea is now facing a possible mega housing bust, thanks to some unwise alterations a few years ago to their lending rules.
I’ve noticed in my local part of Dublin how changing culture on tenure has shaped the city itself – a focus on tiny houses to individually owned apartments, to private sector owned blocks, with public housing in between – all immediately obvious visually, as each type of tenure shapes the ‘consumers’ requirements. In a local apartment development, frozen for 6 years by the Celtic Tiger crash, it went from individually owned apartments to an investor owned block. The first phase was obviously designed to be attractive to buyers – lots of frills and balconies. The second phase was obviously designed for an institutional renter – simple shapes, layouts obviously designed for ease of maintenance, zero frills. I actually prefer the second phase, it will age better.
The northern europeans very obviously do this better. The variety of mixed tenures you get in the netherlands, Germany or Sweden result in far better housing quality, for generally a lower price, without the macroeconomic hazards presented by housing crashes. But its a tough thing to achieve. There is no such thing as a ‘housing policy’ – in all countries, either good or bad, the form and quality and tenure of houses has often come about from a complex mix of financial rules, zoning regulations, building regulations, the original land ownership structures, the strength of local co-operatives, and so on. It is deeply cultural, but also deeply rooted in law.
Thanks PK,
In the countries of the former Soviet bloc, even today, home ownership is very high – I can’t provide references at the moment but I think it’s on the order of 80% or higher, and mostly without mortgages (although that is changing). Most homes are modest – but they provided stability during the cruel 90ies and today prevent society from collapsing, particularly in the poorer members of the EU like Bulgaria and Romania. There are many poor people, living on minimum wage or minimal pension, but living secure nonetheless – because they own outright their, however modest, home, on which taxes are affordable even with minimal income (there are attempts to claw back money by jacking up the municipal service tax but the overall claim holds).
On the article in general:
I think strong tenant property rights are a good thing and should be supported together with support for home ownership. The two are not mutually exclusive in the least.
Im sorry but anything that The Economist pushes emphatically, as quoted in the article, is very suspect.
This: “On January 16th, 2020, The Economist featured an article titled, “Home ownership is the West’s biggest economic policy mistake” and subtitled, “it is an obsession that undermines growth, fairness and public faith in capitalism.””
I mean, “biggest policy mistake”, “an obsession”, “undermines growth, fairness and public faith in capitalism” – where to start with debunking this ridiculous stinking pile of BS!
What The Economist is saying is, “the escalating inequality that is rampaging across the Western world is making it impossible for most to afford home ownership, so we (the experts) will now say that home ownership is undesirable and is an unhealthy obsession, so that people start viewing it as less of a good thing and hopefully are fooled into wanting it less. This will open ample opportunities to financialize and corporatize housing further, and normalize renting forever, all of which will (nominally) increase GDP and look like growth. What’s not to love about it??”
Should maybe be filed under Guillotine Watch?
Besides which stinking apartments don’t come with yards and to quote Cat Stevens “Tell me, where do the children play?”
Not to mention where does one garden, work on his car, grow trees, and a host of other things apartment dwellers can’t?
As for leasing a house, what if one wishes to modify it?
School. Parks. Inside. You insult children with your lack of imagination.
I lived in Berlin where it’s hard to not live in an apartment. It’s not exactly Oliver Twist conditions for the kids over there.
(Incidentally, while tenant protection for lessees in Germany is strong, it’s a different matter for sub-lessee immigrants, certainly in Berlin. yikes. wild west stuff.)
I think tenants are in a weaker position in the US than even this article outlines. I am speaking as someone who has been evicted twice.
In the US if you go to court to challenge the landlord, your name is recorded and put into a database that rental agencies and landlords can access. It doesn’t matter what the merits of your case are, whether you won or lost, what counts is if you challenged the landlord. That pretty much eliminates the big rental agencies as a source of shelter for the short term at least.
A basic 10-20 year old house in an ok neighborhood in LA was worth $100k in 1980 with interest rates @ nearly 20%, now the very same home that’s 50-60 years old is worth $700k @ sub 3% interest rates.
Yes, I understand that much of the value is in that hallowed 3,400 sq ft land, because of services, schools, roads and other infrastructure. A 3,400 sq ft lot out in the Mojave desert is worth almost nothing in comparison sans improvements.
An awful lot of infrastructure is just as old as the aged home, but hasn’t been kept up, and there hasn’t been as much generational turn, as few young families can afford to buy for wages since 1980 have certainly not kept pace with the value of a home so old, if it was a human it would be looking to retire soon.
And then there’s the concept of value, nothing we own in terms of regular consumer goods really ever goes up in value, drive a new car off the showroom lot and its worth 20% less, buy new clothing and after a few washings its worth 1/10th of what you paid for it @ a thrift store, buy anything high tech and its worth a scintilla a few years later, the furniture & furnishings are almost forgettable if you plan on making money on them, and right on down the line, any basic consumer need or want related to a house only descends in value.
So, why did this happen-turning homes into ad hoc savings accounts, er a financial bubble?
All the financial bubbles i’ve seen were for items that nobody really needed, be it silver, stocks, Ferraris, tin, baseball cards, or what have you, all superfluous stuff. Homes are a different bubble in that its a basic need-shelter.
It has become a given that used homes only go up in value, but why?
I joke people hate inflation, except when it comes to houses
Location, location, location?
To be less facetious – there are reasons and those are often dismissed – wrongly – in an article such as this. Location IS a factor, but there are financial reasons why home ownership in the US is worthwhile. (I’ll post on this further down) and it is important to note that those advantages are not one-time things; they can be repeated over and over.
Everything you mentioned down below is predicated on continual increases in valuation-which has certainly been the case, but why is a tired home in LA that likely has oodles of homeless people in the vicinity (no vocation location) worth so much?
This topic is weighing heavily on me at this time. I’m a few years away from retirement with
modest savings, a small pension, and as a renter. My mother was forced out of her apartment
when rental prices in San Francisco escalated. She moved in with us, which was fine
but in 20 years time, I won’t have off spring to fall back on. We are hoping to buy an
apartment just for the security of knowing we are not at the mercy of a landlord. It all
seems so futile.
I recently watched Nomadland which is a wonderful film and I highly recommend it.
Whether intended or not it is also a damning commentary on the precarious lifestyle
America forces its older citizens into. Having worked their entire lives, the best
that someone can hope for to maintain a secure, rich, independent life is to live in a van
or an RV picking up seasonal gigs.
Why haven’t we invested in our communities? Why haven’t we invested in local senior
housing that allows someone to stay in their community? Why is everything about mouney
and it’s rapacious greed? Trillions of dollars have been spent enriching the MIC, FIRE, and
as far as I can tell, it’s all been taken out of the collective we share in our communities.
Urban cores are filled with “luxury housing” developments while homelessness on the
streets keeps growing. Downtown LA is rapidly turning new into one large homeless
encampment. And the luxury lofts and condos just keep going up with abatements and
tax breaks and incentives.
The future looks very bleak.
There’s a group that’s been trying to create a co-housing model in the town to my south. It keeps getting shot down because the citizenry is terrified that affordable housing for seniors will somehow lead to families with lots of kids moving in, which will overwhelm the school system and raise property taxes. Same thing happened with a proposed repurposing of an old school building for affordable senior housing in my town.
And yet the populace also laments the aging population and declining school enrollments, which reveals the true nature of their objections.
Jen, heard through the grapevine that our local educational institution, hospital, and small grocery store chain are trying to find a builder to build affordable housing for employees. Would have to be a heck of a lot of units/houses to make any kind of difference. Apparently their job openings are going unfilled because of a severe lack of affordable housing. I can’t imagine where it would go because you know there’d be a ton of pushback. I’d love to have a child and make this my long-term home and be more involved in the community, but until I can find stable housing, I can’t do that. There’s a lot of us in that situation around here. Had to have a talk recently with my boss that I’m going to have to leave my position quite soon because I can’t afford to stay in it and be able to keep a roof over my head.
Our local educational institution actually owns a large tract of land that use to have affordable units for staff, students and residents at the hospital. Those were torn down to be replaced by other units, but then the financial crisis hit and that was the end of that. They were also recently pitching the idea of building “affordable” housing for grad students along the 120 corridor – starting at $900 per month. I’ve actually heard the response from the dean of graduate studies, and it is not repeatable in polite company or family blogs such as this.
You mean the ones going up along Heater Rd, to be managed by a private company? Last time I drove by, the walls were starting to go up. The prices sounded ridiculous.
David Harvey in his RSA lecture “The Crises of Capitalism” mentioned that Home Ownership in the USA is a result of the industry rigging the actual cost via the home mortgage deduction, but also has a very high percentage of ownership overall, bet in Switzerland home ownership isn’t all that big.
Nice caveat in the preface. For single women, especiall, being a tenant in the US has a special set of anniyances and risks beyond the daily minor humiliations of renting in the US. Same for anyone belonging to a marginalized class.
In the aftermath or recent disasters (fires, hurricanes, Texas winter storm) we see renters with zero options for safety in their apartments.
Nomadland sort of touches on this topic.
No doubt. Thought about the same thing. I just watched that last night on a recommendation from a co-worker.
The scene where she goes to visit her sister after her live-in van home breaks down and she’s talking to her sister’s friends, who are all talking about home sales, is the moment….
“Nomadland” with Frances McDormand…just released on Hulu for those who haven’t seen.
I read the book. Very good.
Great article…but it would be nice if folks named names and not simply create this notion of magical atmospherics…nymby does not flow from a vacuum… mostly real estate agents, who make money on commissions only, are the “whisperers”…to duplicate my comments on the degrowth post…the “international building code” is the real boogie man, advocating policies which help the lovely “humans” overlording in Saudi Arabia (with their push for women’s rights/s) keep flaring and heating the winds as they make their way across the Atlantic and slam into Florida…gotta find new ways to burn the excess oil in the world…add in the LBJ project to crush the knee grow, commonly known as the urban institute…throw in the suburban developers lobbying group oddly named the Urban Land Institute…twist in the knife with code enforcement as revenue (illegal but unprosecuted/unlitigated) as sold at events of the United States conference of mayors…and…well…the well oiled machine keeps stomping it’s foot on the weak and defenseless…for their own good obviously…there are other players but these are the hidden in plain sight krewe…
Can bad policies be readjusted…?? There is certainly hope…with esg/deib/impact/social/sustainable investing being top of mind at the moment and in the near future…there is always a way…as long as those who purposefully created or allowed the bad policies are not the ones with the hands on the levers of change…failed and fatal incrementalism is no longer in order…
I suppose the crux of the problem is the ever-increasing population which creates all this demand for more houses. Nevertheless. What is it that the author really sees as a solution? A world where ‘You will own nothing (including housing) but be happy?’ I hope that a solution is not a return to those high-rise apartments blocks that went up all over the west in the 20th century. They were horrible for the people that lived there, became breeding grounds for crime and when those building were being demolished, absolutely nobody was sorry to see them go or was nostalgic about them.
The author says ‘Homeownership also reduces mobility’. Well, yeah. That is because it is the center of a social supporting network of friends and family. If the author wants mobility, then maybe people could go live in camper vans and camp out in Walmart car parks or something. They would be really mobile then but would be on their own and one major problem away from a disaster. Tough luck if you want to live in your own community. But sacrifices must be made.
Homes too are like a store of value. They can be passed on to give a leg up to the following generation or be sold to do the same. Kinda hard to do that with a rented flat. Also to homes give a social stability. People who own homes tend to want a stable society for their own sake but people that live in flats or even of the streets may not have the same thoughts. But in the end, some people want to live in homes and some people want to live in flats or other accommodation. And this can change several times over the course of a person’s life as I know that it has in mind. Yes there is a housing problem and if we are honest, much of it is tied up in the economic system that we have had developed for us. I would be thinking more along the lines of a massive decentralization to accomplish what is desired here but that would be a total reverse course for our economies.
You make an incredibly valid point. Housing is currently designed according to all sorts of criteria – local building materials, land available, zoning requirements, aesthetics, engineering innovations, government “compassion,” environmental considerations, to harmonize with the natural landscape (cf. Frank Lloyd Wright and Ian McHarg) etc.
But I have not seen one single instance of an architect designing housing based on the fact that we are social primates who spend most of our lives in our homes!
English social housing, both low-rise and high-rise, and the Pruitt-Igoe monstrosities rampant in large American cities, whether by design or inadvertence, have the effect of reducing social interactions to a bare minimum.
Why hasn’t anybody ever designed housing with say four to six families on each floor of a four- to six-story building enclosing a central atrium, sort of a small public square? Not only would it encourage social interaction without forcing it on people, but residents would be more aware of their neighbors if they hadn’t shown their face in a day or so.
The best part is that such a design could be made modular.
An architecture who does for housing for Jane Jacobs did for city planning. Perhaps there is one out there but I have never come across him / her.
Architects actually did try creating mini communities in public housing – they were known as ‘streets in the sky’ – open areas linking small clusters of apartments at each level. This was very common and fashionable in public housing in the 1950’s until the 1970’s, but never worked for all sorts of reasons (except in Japan, this is still a common design model for low cost housing). Another fashionable model in the 1970’s was to cluster houses with their backs facing a common area. Occasionally, this worked, although it was usually a disaster.
But you will find some excellent examples of architect designed communities worldwide – the Netherlands and Scandanavia in particular have many wonderful examples. However, where ever the profit motive (or the desire to cut costs, as with public housing) predominates, you will get terrible housing, and that is the reality for most places unfortunately.
Home ownership “reduces mobility” is the same as home ownership “increases community”.
But the authors do not mention anything about community. Noo, that would be too conservative. That doesn’t increase GDP. Community and staying close to your family doesn’t increase GDP, mobility does.
That tells you where they stand.
After all, look at their titles and where they work.
The tone of the article is (pseudo-)thoughtful, and they even reference Engels (!) and Red Vienna, and even “memories” (central banker economic models have room for “memories”??) but don’t be fooled, this is (somewhat skillful) gaslighting.
Something is amiss with the comment formatting. It’s as if they suddenly needed more living space, and now they’re stretching from one side of my screen to another. Poor comments. They’re trying to tell us that they need better housing.
It should be fixed now. Thanks for letting us know.
Indeed it is! Thank you!
I find it hard to Steel Man the argument made in the article because
a.) it requires a host of changes to existing laws in the tenants favor,
b.) my experience with renting and landlords has been on net an awful experience that I would not wish on anyone.
c.) neighbors in an apartment complex can be a nightmare as well
d.) the biggest drain on wealth is either rent or a mortgage and only one of them has some end date that I can impact
e.) the best transfer of wealth I can provide to my kids is giving them a paid off house/land. I understand the issue that they might not be able to use the house/land due to their job but you can take a lot of low end jobs if rent/mortgage isn’t an issue.
I would say my last point is why most people in my community pursue homeownership, houses/land kept in the family is such a ridiculous advantage to future generations even if they do sell it off at some later date. Heck if I look at the richest local families they all accrued the vast majority of their wealth through a combination of lands retained and lands sold. (And every local knows this which is why they all try to do the same thing.)
I agree with most of what you wrote but would just like to add that even with a paid-off mortgage, property taxes and cost of living are unduly burdensome in many areas of the country.
I am a home owner and have spent significant time in Germany. If we had a German or Austrian view regarding real estate and housing instead of the financialized, corporatized, neoliberal Anglo Saxon predatory mess we have, I would be a willing renter. That means abiding housing and social policies and serious regulation. All of which is really upstream of the renter/owner issue.
Concur, the housing and social policies in the states just don’t facilitate the goals/arguments in the article.
Truth be told, if I showed this article to my neighbors/friends/community the reaction would be extremely negative and most would say “Someone is just trying to convince you not to get a house/land so they can take it for themselves.”
Like the author I am concerned about the massive energy consumption built into modern homes as it relates to the environment but…. going after homeownership itself is tactically one of the worst ways to address the issue.
>>” if I showed this article to my neighbors/friends/community the reaction would be extremely negative and most would say “Someone is just trying to convince you not to get a house/land so they can take it for themselves.””
There is no way that the authors are oblivious to possibility of this interpretation.
That is their goal.
Actually, the Anglo-Saxons themselves were relatively egalitarian, especially by the measure of the times.
It’s the Normans who, in the words of Paul Kingsnorth [nominative determinism if there ever was!], with “the biggest land grab in history,” imposed rigid feudalism (the medieval term for neoliberalism) upon the natives.
One might well describe the FrancoNorman land grab in Saxon Britain as the land grab that kept on grabbing, if one considers that the FrancoNormans turned their Englandish conquest into a platform for further conquests . . . . of Cornwall, Wales, Scotland, Ireland, and then step by step to the British Empire and its settler state successors which were really the FrancoNorman Empire under Anglophone cover and disguise.
And considering how another pack of Vikings did the same with Russia, I think the Vikings get far too little credit for their ongoing impact on the great wide world.
I agree that home ownership has a big emotional component, and might not pencil out financially, particularly in a more-mobile society.
The authors assert that a home “is a place to live”. I would like to challenge that assertion, and this will make sense even to urban dwellers by virtue of the recent Work From Home phenomenon (trend) which was accelerated by Covid.
I see the home as a profit-center, not just a cost-center (pure consumption, e.g. just a “place to live”). It is my expectation that as automation, globalization, concentration of wealth, and technology continue their relentless trend, workers will be progressively edged out of the production equation.
They will have to get on the dole – in one form or another – or attach themselves to one of the ponies being created and ridden to support more rent extractions – health care, defense, finance, speculation… all the things we love so much, and that make “money .vs. wealth”.
Households are going to need a platform to operate some form of life support once the consolidation trend runs to completion and they don’t happen to be a 1-percenter.
I anticipate this outcome, so I’m building productive capacity on my land which can support my basic needs – shelter, food, energy and water, light manufacturing, etc. and do so with relatively few external dependencies. I probably wouldn’t do that if I was renting, although it may be possible. Most of the needs-meeting I just described involves significant, more-or-less permanent physical plant.
I also would like to point out that high-density settlement (urban and surburban) patterns have a great deal of overhead. Everything has to be shipped in, and that means transportation, energy, water, sewer overhead – which can be mostly eliminated in a more rural location.
Work – in the form of electrons – is now – finally – moving to the worker, instead of moving the worker to the work. Electrons are light, while cars and food and water are not. If “conservation” is thought of as one quite-viable solution for environmental damage, look at where the energy is being spent. The high-density settlement patterns account for a lot of the load on the environment, as does the linear flow of materials from mine to landfill or river.
I see – in the medium term, say 30-50 years – I see the household becoming the locus of economic activity, and I see that economic activity being performed using household-owned capital – knowledge, tools, facilities, along with the free inputs that land can offer, including solar-energy and water.
Further, the security that’s garnered from having fewer external dependencies isn’t as much emotional as it once was. It’s getting darn-right practical.
Where will you derive the income necessary to provide for your family’s needs when what you do – and what almost everyone else does, e.g. Labor – has been factored out of the production equation?
You’ll need a new market for your labor. And that market may well be your own household.
So I advocate for owning .vs. renting. I wouldn’t rent the basis of my livelihood, if I had any choice.
“Work – in the form of electrons – is now – finally – moving to the worker…”
Wherever they may be in the world?
That opens up a whole other can of worms.
I’m enjoying the golden age of work from home while it lasts…
Christ I loved that place. Only went to the theatre and gallery there but would meander en route to/from the tube, taking in the residential areas, public areas., I found it captivating. Pleasing to hear that it’s cleverly designed on the inside.
I seem to remember there was a girls’ school on the grounds and I saw them playing outside while I was at the theatre cafe. They seemed captivated by it too.
Homeownership as a belief system has become a bit demented in Australia, no doubt driven by 20 years of a highly frothy real estate market. The implication being that if you don’t own a home by the time you reach a certain age, there’s probably something wrong with you, or you’ve spent too much on avocado toast over the years. The inculcation seems to be effective though: on the dating apps I’ll occasionally come across a profile where the woman identifies, first and foremost, as a homeowner. Better than a Harry Potter fan I guess, but still, bit of a red flag for me.
I have lived in a shack, been homeless and own a great little house and garden now. Let me offer my American perspective.
Soviet style tower blocks are far more ‘equitable’ than owned homes, of course.
“And their common function is use, irrespective of whether a flat is rented or a house is owned”
If you want ongoing maintenance, thrift, community involvement, stewardship of the Earth, long term sacrifice, then private home ownership is the way to achieve that. The antithesis of that are housing projects, not just because they skew uneducated and gang prone, but because the Housing Authority is responsible for fixing everything and therefore tenants are responsible for nothing.
No way in hell would anyone plant trees, tend the soil or work to assure community stability, pay taxes to fund and work within schools without home ownership.The grievance hustlers who have not managed to own anything are always in favor of redistribution of wealth.
The loudest shreikers for high density ‘equitable’ housing, are usually white liberals without a pot to piss in who are forced to live their talk among urban gang violence, unsafe streets, vandalism and unappreciative neighbors who don’t share their highly evolved views. Of course they would love to move to the suburbs and to enjoy the antithesis of what they proclaim, to live in a safe, usually white place, which gives them a chance to preach about, but not to have live among, their values.
The pawn of California developers, Scott Weiner’s perpetual bills before the state senate, to destroy local control and zoning are an example of harnessing the grievances and energies of this group of people for the profits of land speculation, capitalism and debt creation, with the costs being socialized.
His laughable promotion of transit oriented housing, sometimes built to create markets for the transit, after the fact, are proving to be complete duds when transit ridership is down 90-95% with the pandemic, and will never recover with the work from home changes in society.
Long live home ownership and to hell with the grievance hustlers!
I remember the time in our mountainous impoverished village during the soviet area.
In the name of fighting private property we were allowed 10 chickens and one cow per household as the private property was viewed to be the main enemy of socialism.
Then one day, in order to please their politbureau bosses, our local party leaders decided that it will be better to put all cows in a common cooperative and eradicate that little corruptive influence form our lives that was the cows.
We had a general meeting and only two most worthless villagers were enthusiastic about it, of course they had no cows of their own.
Eventually the party decided for the cooperative, cows were forcefully collectivized and the two individuals that had no cows ended up in charge of the farm.
Within a year, there was no milk to be had, the one produced by the farm was heavily diluted with water and villagers devolved to keeping cows illegally indoors in their houses, the only alternative to starvation.
The other was of course to establish some corrupt relationship with the farm managers.
Dont start me on the government apartment blocks, its a country wide goulag, nothing less.
living in US can be good, can be bad….it’s depend on your life style. You’ll pay more attention to U.S. current affairs than British issues.It’s a strange transition but one that is, alas, unavoidable for long-term expats. Though, surely caring more about what’s happening in the place you live than the place you used to live is the appropriate human response. At least, this is what I told myself when I was back in Blighty for the last general election and couldn’t persuade myself to give two hoots. Below are some of best places in US to raise a family:
https://homeia.com/city-living-guide/15-best-cities-in-the-us-to-raise-a-family/
The Assumption of a Can Opener; A Parable
There are those among us who for a variety of reasons chose to rent even though they can afford to buy. It helps being spawn-free since house hunting can be as much about school district performance as it is about finding a (semi) permanent living space. They would rather pay rent than shovel the driveway; fix the (fill in the blank); bitch about the neighbor; and all the anxiety that goes with that.
The problem of planning a long-term rental future comes with the initial assumption of a can-opener. For example; they might view the hundred years of housing inflation analysis by Shiller and figure that they can handle the inflation based on that analysis. They would be wrong because the Federal Reserve has determined that they will no longer be able to open the long standing and traditional cans, and the interest on their nice nut of cash has gone from rental size to pocket change size.
They know there is an asset bubble, but they still gotta get that can open to feed the man. So, being geniuses at assumptions, they figure they can get at the goodies regularly by investing in the apartment rental preferred stock. They are so smaht! There are all of these people out there just like them who will always need a place to live and it is regular, conservative cash. Screw the Fed, right! Unfortunately, the Spanish Flu did not figure into their genius-boy arithmetic. And it came back like an evil deus ex machina in the beastly form of a national rent moratorium. Assume pocket change.
They also assume, like the theoretical can opener, that the old sweethearts that they originally rent from will prolly live to be a hundred…hundred ten. They would be wrong, and the owner’s descendants would be happy to sell the apartment block to a callus-free group of trust-funders who have access to the sharp edge of a balloon mortgage in a non-rent controlled town. These skanky young fellows have no interest in Shiller, the can-opener assumption or the genius analysis. They are interested in jacking the rent to the max, holding on to the property for five years and selling at a nice capital gain to another group of skanky young fellows who will do the same. A can opener indeed.
The real problem of home ownership in the US is: deranged neighbors.
But this applies to renting, couch surfing, living with family, and so on. You can always draw a poor hand when playing the neighbor game, if you live somewhere close to anyone else.
And doesn’t that apply to renters too?
Otoh, a nice “Little House on the Prairie” with high speed internet could afford a good deal of privacy and protection from obnoxious neighbors.
Might be worth checking out the writings and work of the late Paolo Soleri. After his death, his AZ work in progress, Arcosanti, devolved into “Lord of the Flies” meets “Animal Farm” –predictably. Within the last year, Taliesin has assumed stewardship of the facility and will run it as a grad architecture institution.
I think PS was on the right track. “Arcology” grouped living areas in a way that is meant to foster community and leaves surrounding landscape largely “undeveloped.”
Soleri was a student of FL Wright but then went his own way.
I have had it with this relentless pursuit of equality in our society.
Peace and calm have gone from our hearts along with the ordered structure of normal functioning society. Liberty means for us that each of us is fit to be president; and its result is the most restless and persistent strife that history has known.
Peace is between unequals; the pretense of equality brings a perennial tug of war.
This utopia of equality breeds endless conflict in politics, in economics and in the soul; worry and strain are written on every face, and embitter every home.
When society recognizes the natural inequality of men in intellect and will, and eliminates the hypocrisy of egalitarian institutions, men may come to know peace again.
Then society will graduate from competition to courtesy, from quantity to quality, from imagination to intelligence and from wealth to art.
I don’t believe anyone is arguing that all people should be equal in every way, or that no one should ever have any more than another.
But the fact that we have billionaires while so many struggle for basic necessities is an obscenity.
Our society pursues inequality…
When society recognizes the natural inequality of men in intellect and will
Ever heard the term meritocracy?
politics literally is endless conflict
Utopia of equality, forsooth. Equity is the foundational principle of justice. All major religions and political philosophies agree on this.
Monarchical utopia is the unattainable dream. It is not and has never been “peaceful”. What you are dreaming of is the “peace” of the grave.
Quoting:
“If you assume 5% brokerage costs and another 1% to spruce up the house for sale, that’s 6% of the sales price….and if you have no price increase and 20% equity, nearly a third of your equity.”
One thing that I’d say these ‘home ownership’ articles constantly do is underestimate the financial advantages of home ownership. The mantra is ‘a home is not an investment’.
But that is not correct.
Look at the above quote and note the sneaky insertion “if you have no price increase”. That’s not the likely case. More likely – in recent years – is that you have not only had a nice increase but you also had great leverage on that increase. In the above quote there’d have been roughly 5X leverage. Say it was a $300,000 house bought with 20 percent down and over three or four years it went up 5% a year (which it would have). You just made 80 to 100 percent return on your down payment. Even accounting for transaction costs you did very, very well.
When I see articles that minimize this I suspect the author carries those same prejudices that we are told to abandon.
“When I see articles that minimize this I suspect the author carries those same prejudices that we are told to abandon.”
Or perhaps they simply lived through the RE busts of 1988 and 2008?
I have owned and sold two homes now, one here in Austin, TX — each under 500K and with ~ 10% down on both; both sold after 5 years. Now, maybe I’m just doing something really wrong, but if I overlook a few costly repair/maintenance items on each of the properties, (READ: not remodels), I can say I broke even on both; well, even-ish.
If you want a legacy to pass on, buy a Steinway, some first print rare books, or maybe an oil well. A house is best as a utility.
A lot clearly depends on the market and depends on the timing which you can never really foresee with any complete clarity. I bought a house in Seattle in summer of 2008- yes right before the GFC! Bummer for me. Didn’t see that coming!- and even at that time, the price seemed high, and the cost of the mortgage we just about all we could do.
So within about 4 months, the house was significantly underwater, and was underwater for quite a while. Even thought about doing the keys in the mailbox routine but hung in there instead
We had to sell the house in 2018. Listed the house at 50% above what we bought it for in 2008. A bidding frenzy ensued and and we got 30 offers in a couple of days ALL over the ask price. We ended up accepting an offer 35% above the listing price.
You can do the math but the house almost precisely doubled in price in just under 10 years, and some of those years include the financial crisis. We were lucky with city, lucky with timing.
This would have never happened in Dubuque or Lansing, etc.
You for fortunate to be in the tier of secondary big cities that didn’t really play along in housing bubble part 1, but went gangbusters in part deux compared to say LA, places such as Denver & Boise et al.
In the previous examples, once your houses were sold at a price higher than you paid, what did you buy to replace your house? If the overall price level for houses was rising in your community and you purchased another house in that community, your gain was simply passed on to the person you were buying the new house from to replace the house you sold.
The sale of a house at a price higher than what was originally paid in a market were overall house prices are rising is nothing more than money illusion.
Then there is the loan amortization. The majority of home buyers generally stay in a house no more than 10 years. If you have a 30 year mortgage, in the first 10 years you’ve paid mostly interest and very little principle. The yield on that loan rises substantially for the lender because they have mathematically loaned you only a fraction of the purchase price and made a huge amount of money in interest.
Michael Hudson has stated on a number of occasions that the rise is house prices is caused by bank lending. Banks want to lend as much as possible. It used to be banks would limit lending to 25% of monthly income for a house payment. They will now go as high as 50% which leaves most buyers with less disposable income. This has created an amplifying feedback loop. In order to dampen this, Steve Keen has proposed what he calls PILL, Property Income Limited Leverage. This would cap the amount that can be borrowed by the income earning potential of the property. The difference between this and the selling price must be made up by the buyers cash.
Obviously depends on the situation, but the cash in my bank account doesn’t seem like an illusion. Maybe generally speaking I can agree. In my case, I had to sell as my wife passed away. My daughter was 4 at the time and I needed to relocate in the city to be close to work, school, etc. I was trying to leave nothing to chance, keeping my life and surroundings as close as possible. I didn’t want to buy a place as life was complete chaos in that moment. We are renting a place now and rents are down and going down here. I was just looking at Wolf Richter’s latest about the rent dives in major markets.
But you’re right- even now during the pandemic, homes sales and prices in Seattle still are high, while rents are tanking. If we had just moved ‘sideways’ or ‘up’ your point is correct. And Yves below is also correct- I will only buy a house again if buy into a cheaper market, i.e. move somewhere very different.
See Nels’ point just above. Unless you trade from a high priced market to a cheaper market, your “gain” is illusory since it just goes back into housing but some of your gain got chewed up in major transaction costs. Homeownership is a good bet only if you can stay in the same spot for 10 years or more. With average job tenures under 5 years, how sound a bet is that?
And I owned two apartments before renting. On the first, I got a very nice turn. On the second, I got out at the last conceivable moment when I could (barely) be whole.
I’m in a house now and responsible for the house maintenance. It’s a horrible time sink when I have no time. I would much rather rent if I could find a decent unit.
I was surprised that a discussion about owning versus renting has barely touched upon suburban sprawl. The OP itself mentions it only in passing, without alluding to its unsustainability.
Perhaps the issue of sprawl is uniquely American (and, probably, Australian too) due to the existence of vast open space outside urban cores. The whole topic of how the suburbs are a failed policy was first covered decades ago by James Kuntsler in “The Geography of Nowhere”. (Yes, I am well aware that Kuntsler has decided to market himself as an all-purpose Cassandra; but that book was quite good.) The issue surfaced briefly during the 2008 runup in oil prices that left the folks out in the boondocks gasping to pay their gasoline bills for the 30 mile one-way trips to the nearest Walmart. That surfacing led to policy adjustments that kept the price of oil from killing exurbia outright. On the urban side, investing in public transit and generally infrastructure spending for non-elite city dwellers has been off the table for decades. Instead, we subsidized sports stadiums and glitzy downtown tourist traps because that is what the neoliberal ideology dictates as a tax base for cities.
With all the lockdowns and working from home, the issue of commuting has momentarily receded into the background. But lockdowns have destroyed what little “community” remained in both urban and exurban areas. Besides, suburbia is becoming unaffordable for an America being driven into poverty by neoliberal policies. The effects of these policies hit home at an early age. Witness the proliferation of fees, sometimes hundreds of dollars per semester per student, to participate in various grade school and high school sports. Its hard to build community spirit when you are shamed for being too poor to play football. Many Americans are hanging onto their homes (and their middle-classness) by their fingernails. When they lift the eviction moratoriums it will be SHTF time.
So, I find the OP to be a little lacking in a sense of urgency. We are about to see another big downward step in homeownership, via foreclosure. Focusing on whether renting is a good option seems a bit sanguine, if not naive, in the face of the financial and social bloodbath that will happen when Biden inevitably prioritizes the banksters and hedge funds (that have been on a rental-property buying spree since 2008, even single family suburban property) above the citizenry.
Yves is good enough to regularly post/link to Michael Hudson’s writings and according to his latest talks and interviews, we don’t have long to wait to see what happens. MH is pointing at late March into April when evictions and foreclosures start. That will have so many different dire results it’s hard to foresee how bad it will get.
Millennial here, and the idea of home ownership has always appealed to me, even if I probably will never be in a financial position to consider it and I am already 37.
I have also had many unfortunate deings with puritanical landlords, and many of them have ridiculous restrictions on everything. I currently live in a tiny township next to Rochester, MN, as it was near impossible to find a place in town that would even allow a single cat.
Anyway, aside from landlords being able to raise the cost of rent at will when you renew your lease, there is also the fact that the much vaunted “flexibility” that comes with renting a an apartment is the fact that you are often locked into your lease for a year. You can move somewhere else of course, but many landlords will not let their tenants sublease or charge you for the privilege. Plus, so many of my landlords would not lift a finger to fix the most basic maintenance issues but would try and blame every little scuff on the wall on you and take it out of your deposit. This is to say nothing of not being able to choose how to decorate to interior of your rental until, a small but nice thing to have.
For me, the biggest problem of renting an apartment is that I do not have any space to have a garden or plants. I want to have a few acres worth of space dedicated to some fruit and but trees as many of them need a lot of room as they get huge and there are a lot of odd fruits and nuts that are hard to come by unless you grow them yourself.
Still, I think we should rework a lot of the zoning regulations in some neighborhoods and make it so that it is easier for first time home-buyers to have houses built that suit specific needs as few places will give you a mortgage for that sort of thing without a hefty down-payment and then there are all of the restrictive HOA regulations that some neighborhoods have.
I have a housing plan I found for a compact two-story home, with an integrated garage that is around 900 sq. ft. I would add a basement to it, but other than that, it is all I would need for just myself. However, good luck finding a developer who would let you build something like that on an acre lot.
Landlords don’t rise the rent at will. They usually charge what the market will bear.
When market is hot, they increase the rent, when its cold, they give freebies and decrease the rents.
Rents have been going down in SF and LA by close to 30% since the pandemic.
One of the reasons why housing is not affordable for many is precisely government policy to make it affordable. As soon as you guarantee low interest loans, make credit available to everyone, what happens is that home prices go up. But no one seems to question the interest rate policy of the Fed that has completely distorted the market for about everything. Lets blame greedy landlords.
You just contradicted your first sentence with the beginning of your third – increasing the rent just because the market is hot is more or less the definition of “at will”.
how so, in a “free market” economy prices are the result of demand and supply, hot market being more demand than supply and vice versa.
The ‘usually’ there would suggest the exercise of will.
They can and do raise rent at will. Many landlords will “remodel” an apartment unit, whether major or minor fixes and use that as an excuse to raise the rent for everybody else when it comes time to renew their leases.
I take it you haven’t sold anything in real life.
Maybe you should try to sell smth on craigslist and increase the price at will and report back how it goes.
The price is determined by the buyer, not the seller.
If you feel your landlord is charging you too much, move out, by law the landlord has to give you ample notice before a rent increase so you should have enough time to find a cheaper place.
do you think comparing the sale
of second-hand chattel goods with contracts for real property is a sound basis for an analogy?
My two cents:
Transaction costs (5% sales fees, etc) are a problem for the highly mobile and usually educated sections of the population. Willingness to move long distances has gone down steadily in the US for 40 years. A small percentage of young people (~10%) leave home at 18, go to a high-end residential college and then follow the crowd and the jobs for a decade-or-so before nesting. For them renting makes sense. But for those who are rooted in a place, with grandma nearby to help with childcare and a network of old friends doing everything from lawyering to plumbing, home ownership makes good sense.
Marx talked of “the period of primitive accumulation”, the period when would-be capitalists earn a salary, ruthlessly under-consume, save, and invest the money saved. Young, educated, parent- backed kids today rarely do that, so unless mom and dad fork over the down-payment they don’t buy a house- or found a business- early. For them mom and dad are the key. The inter-generational transfer of wealth is our true national sport. And me? I lived in a rooming house for one year after college, watched my pennies and saved ½ of my income. That was the down-payment of my first house at 23. I promptly rented out two rooms and lived for free.
I’ve lived in a NYC 33rd St fifth floor walk-up as the “heir” to a rent controlled apartment in the 1970s-80s ($68/month), rented in Arlington, VA for more than a decade, purchased 40 acres of land 24 miles from downtown Austin while the land was still cheap and built my own house, and now live in my second 650 sq ft condo near the U of Texas. I sold the first one for a minor fortune because the land was rezoned for 300 ft tall towers to house students. Condos, for me right now, provide the best of both possible worlds; I control the inside and can lock the door and walk away for months at a time. But if I were about to have kids… suburbs here I come. The decision is the usual mix of hard-headed common sense and emotion.
As Mark Twain said “Buy land. They’re not making any more of it.” As long as population growth and immigration are allowed to continue, real-estate in the U.S. is a good investment as well as a nice, cozy place to hang out. What will happen in places like Korea, where the average women is having .8 children? Real-estate price drops are most likely. And listening to the varied histories represented in the NP postings reminds me that the personal situation is what drives both our decisions and our feelings of greed, envy and “how it should be”.
Thank you Yves for my favorite website.
I am still trying to piece together what this post advocates. My impression from a first read is that it ranges — paints a strange picture of why people want to own their own homes and suggests various critiques of home ownership suggesting home ownership is a bad idea. As it spirals to conclusion:
“We have to dream big to solve housing problems.”
“What we would need is a new sense of home.”
I am not sure what these statements are intended to mean.
I think I may need to sleep on this post and try again tomorrow. It left me with an eery feeling conjuring recall of a strange post on one of the pages of the World Economic Forum related to the Great Reset that the Archdruid linked to several weeks ago:
“Welcome to the year 2030. Welcome to my city — or should I say, “our city”. I don’t own anything. I don’t own a car. I don’t own a house. I don’t own any appliances or any clothes.” [“Here’s how life could change in my city by the year 2030”, https://www.weforum.org/agenda/2016/11/how-life-could-change-2030/ ]
Rather than pick through this post, I will begin with what it concludes:
“We have to dream big to solve housing problems.”
“What we would need is a new sense of home.”
As the U.S. teeters at the edge of mass evictions and foreclosures; as the precarious employments of the Populace become more precarious and lower paid; as many service jobs in the U.S. ‘service economy’ have disappeared; as rents and house prices strangely flux across markets — I suppose it is definitely time that:
“What we would need is a new sense of home.”
Skip arguments about psychology and the sociology of the sense of what a home is — most economists, including the authors of this post are not especially well-trained or gifted at psychology and sociology, and most economists have all but expunged history from their discipline.
While rethinking our sense of home, perhaps we should rethink our sense of the family, employment, education, stability, and the distribution of wealth and income. With so many homeless already wandering our streets we can rethink housing — providing shelter for the homeless — separately from concerns about single family dwellings. As for impacts of the single-family home and the suburbs on Climate Chaos and inequality — though definitely impacting Climate Chaos and inequality — the single-family home is hardly the first culprit on which I would focus my attentions.
Recall a vision of the good life from the 1930s: “The cities will be part of the country. I shall live 30 miles from my office in one direction, under a pine tree; my secretary will live 30 miles away from it too, in the other direction, under another pine tree. We shall both have our own car. We shall use up tires, wear out road surfaces and gears, consume oil and gasoline. All of which will necessitate a great deal of work . . . enough for all.” – Swiss architect Le Corbusier from The Radiant City (1935). Seems like that worked well-enough to juice the post-War economy of the 1950s. Now we need to find a new vision of a good life in a world of housing owned by Private Equity and frequent moves to chase after gypsy-employment as it wanders around the country before it eventually leaves for foreign shores.
#1 reason to own a home in the USA is that if it is your primary residence for two years you can take up to $250k capital gain for a single person or up to $500k for married couple in capital gain WITHOUT OWING TAXES on the gains. It is the best tax avoidance break available to the average person.
I wish I could remember where I read it, but I remember reading that the ideological underpinnings of starting the FHA and the drive toward modern home ownership in the US was that debt-encumbered home owners were less likely to go on strike. If that’s right, it’s honestly one of the biggest success stories in undercutting radical labor action in the US; it just took a while to materialize.
Likewise, suburban sprawl was allegedly a strategy to keep enough people from dying in a nuclear strike that the nation would continue in the cold war.
Neither were designed for the good of any single person, much less the environment so the argument makes a lot of sense here. I thought it was pretty accepted that cities subsidize the per capita rural energy use to keep the state food-secure.
There’s nothing particularly sacred in home ownership, but ideologically, it’s been incredibly effective at making the belief seem biological. We just got the unintended side-effects of a bunch of mid-century political decisions that made a wasteful, useless system: the suburbs.
The author is certainly right that we’d have to dream big, though. I’m not convinced that the current neolib order is particularly capable of governing much of anything, much less giving people rentals at the same stability and control of home ownership without giving all of the houses to their buddies to asset strip badly.
Back in the 19th century, the dream was 40 acres and a mule, which sure beat being a share cropper. Some settled in small towns, and built an apartment for themselves on top of their shops. In the 20th century there was massive movement into the big cities, where apartment buildings and row houses predominated. The suburbs are a strange hybrid, as hinted at in their name. I think the suburbs would have been a better idea if they had adopted the city idea of row houses, instead of a quasi-farm detached house model. My wife and I bought one of those detached houses in 1979, and by good fortune are still in it, “free and clear.” Yes, we still spend plenty on taxes, maintenance, and insurance. What I see as having virtually no value is the large amount of dead space between our house and our neighbors’ houses. If our neighborhood were made up of row houses, all that land could have been added to the park system nearby, or more houses could have been built on the same land, cutting costs for all. Then there are the maintenance and energy efficiencies to be gained from losing two of four outside walls.
I bring this up, because comments raged over people being for and against houses, with a net effect of making a case for having good options for both owning and renting. Unfortunately, in America, we have created a situation where neither is working well. It does not appear we will unleash Bernie Sanders anytime soon to fix neoliberalism, so each of us needs to proceed carefully to plan our futures. I agree with someone’s advice above to consider housing a utility, not an investment. If you do buy, check out schools, parks, cultural resources, weather, and anything else you might find important; because the cheapest thing you can do if you do buy a house is stay in it. Even then, eventually you will be where I am, figuring out what to fix up so that I can sell it and move someday to a better place for a senior citizen.
Sorry to do the maths on this, but minimum $2000 per months times 22 years = $528,000 :/
/me *spits mouthful of beer at screen*
If that was put into a home/mortgage, that same amount of money would at least have contributed to gaining ownership of a significant portion of a valuable asset, no? (which is transferable elsewhere, even if it doesn’t cover the full cost of the home)
My personal story, is that I’m from Dub like PlutoniumKun, yet I moved to a decent part of Belfast in 2018, due to house prices in decent areas being one half to one third the price of Dublin (with significant thanks to Naked Capitalism, in keeping me informed on Brexit through all of that time, so I could weigh up the risks – it turns out, I may be screwed in the end, but for unexpected reasons: UK IR35 rules may lose me my present contracting client next month).
The situating for me now is that, despite the uncertain work situation (I have other contracting options so am likely ok) – I’ll have a house fully paid off in a couple of years, that I would never have been able to get in Dublin – and after that, I can build up savings while waiting (probably futilely) for the housing market in Ireland to sort itself out, so I can buy in Dub. All of this working part time – but in a pretty decent job (games).
Ireland is particularly bad with rentals, nothing like Germany – Ireland is the perfect example of a rentier economy tbh – but even with an ideal rental market, I don’t understand how rentals can work out better financially, long-term.
I don’t have an answer to the problems the article presents, though. Strong land value taxes (largely absent), and strong government spending (bolstered by a Job Guarantee) aimed at both housing and transport infrastructure (among more) can ameliorate the problem, though.
Idealistically (but maybe unrealistically), a Job Guarantee which guarantees the ability to both build your own home in a reasonable location, at an affordable price, and the infrastructure needed to serve it and transport infrastructure to access other locations necessary for work etc. – should completely solve the problem? It is certainly idealistic – but I have a strong hope that the JG can solve this problem.
The primary problem – from the point of view of Ireland – is that planning/development corruption and financial corruption that follows it, is archetypal and persistent throughout generations – and the politicians in Ireland are only getting better and more subtle at it, each generation (frankly, they seem to be world experts at it, there may be even a lot to learn from them, as precedent for the rest of the world).
It is a good point in the article that homeownership (imo particularly landlordship) generates ‘buy-in’ to the current state of affairs with regard to support of capital and finance – especially due to AirBnB and such.
I also proverbially spit at the screen when I think about rent adding up over 20+ years. Author mentioned the “time sink” factor multiple times. To each his own, I guess. I say bring on the power saw and paint cans. It is easy for someone in urban area to scream renting is great. My renting experiences (non-urban) have been awful, and I will never look back. Whatever happened to spend within your means.
Please see this thread for an Irish sentiment:
https://www.reddit.com/r/ireland/comments/lrkx9a/the_lives_of_an_entire_generation_have_been/
I think renting is fine if there are strong tenant rights and strong rules for raising rent.
I’ve had a couple of good experiences renting in a variety of cities but a lot more bad experiences. My husband and I rented in Adelaide, Australia before finally buying a small house in a country town, which was all we could reasonably afford. In Adelaide, we had to move three times because each time the rental house was sold. We were conscientious tenants improving the run down gardens and keeping the house clean and tidy. For the most part, were not treated very well. In many places, renters are simply cash cows. And moving is expensive and quite frankly, setting up in a new house is exhausting, especially if you are forced to move. While owning our own home has headaches and the unexpected expenses were sometimes a shock (for example our septic system collapsed and we had to have to be connected to the sewer system. All said and done, it was about $8500 we struggled to pay.) However, as we approach retirement and a modest retirement income, it will be good to know we don’t have to pay a rent that might be constantly going up.