The End of Home Ownership and the Rise of Rents
The Atlantic published an article yesterday on why the rents are too high all over the United States. This is a problem beyond San Francisco. The Wall Street Journal reports that the minimum wage is not enough to afford rent in U.S. Cities.
The Atlantic’s theories on why the rent is skyrocketing are a bit new. This is not just an issue for the poorest and youngest Americans but people with median and above-median incomes and Generation Xers and Boomers who never left the rental market for a variety of reasons according to the article. The Atlantic sees the problem as being that fewer people are buying houses for a variety of reasons. Banks and Regulations have gotten a lot tougher on who gets loans since the fiscal crisis. There are also fewer starter homes on the market because people are not upgrading and developers are not building start homes. There is still too much of a market for luxury housing. This seems especially true because a lack of investment opportunities are causing the global one percent to put their money in real estate.
I don’t have any strong opinions on whether mass home-ownership is a good policy or not. There are many wealthy countries where most people remain renters for their entire lives. There is a school of fiscal thought that believes home-ownership creates bad policies.
The issue is that for my entire life and many generations before me, American policy was built on the concept that home-ownership was an unmitigated good. This was done with maximum racism and many minorities were excluded from home ownership though through active and passive prejudice and decisions. Concepts of homeowenership changed right before and during my lifetime. I remember an old episode of MASH where it was a big deal that one of the characters finally paid off his 30-year mortgage. Meaning housing was for life. Sometime before I was born or during my early childhood, housing became seen as more of an investment. You weren’t just buying a home to raise a family in, you were buying something that you were expected to outgrow but also make money on. My maternal great-grandparents grew up in NYC and bought a modest Cape Code on Long Island in 1951. They remained in that house until my grandmother died in 2000. By contrast, I lived in three houses from the time I was 10. Whether this is good or not is up for debate but I doubt the real estate agents called my grandparents house a starter home in the 1950s. There is also the dream of being a flipping tycoon even if it screams scam and fraud to more sensible people.
There is still a vague stigma that renting is a sign of financial failure in the United States. The problem is that we are entering a time when the old policies and laws designed to encourage home-ownership are no longer applicable but we are not working on developing policies and laws for the new reality or current situation. Home ownership was based around the concept of long-term if not life-long employment with one company and a steady stream of raises and a healthy pension. It is very easy to save for a mortgage when you are reasonably secure in your position. As more and more Americans work in contingent labor or as freelancers, saving for a downpayment or being qualified for a mortgage becomes much harder. The issue with freelance work is that it is irregular. Maybe you might work steadily for several years but then go through a months long dry spell. This means you are saving more for the dry spells than a down-payment.
Now what needs to be done to get laws and policies for a rent heavy reality is probably Sisyphean.