A Publicly Funded Third Way in The Housing Crisis?
Over at The Atlantic, Shane Phillips advocates for a third way besides renting and owning to solve the ever-worsening housing crisis. Here is an excerpt from Renting Is Terrible. Owning Is Worse. A third option is necessary: a way to rent without making someone else rich.
In some U.S. cities, middle-class households are paying $30,000 in annual rent and have nothing to show for it but the prospect of paying $31,000 next year and $32,000 the year after that. This is why people buy suburban homes even when they’d prefer to stay in the city. Spending so much on a rental feels wasteful—irresponsible, even—when you could pay a similar price on a mortgage, at a constant level for the next 30 years, while also building substantial wealth. America’s challenge is to create comparable opportunities in cities, and to make them accessible to people who can’t save $100,000 or more for a down payment.
A public-ownership rental option might solve this problem, at least in part. The foundation of the program would be quite simple: public ownership of housing, acquired or built with government loans—though run by local for-profit or nonprofit property managers—and rented at market prices. No saving for a down payment (or being given one by family) and no qualifying for a mortgage. The only requirements for participation in the public-ownership option would be (1) move in, and (2) pay rent.
As the loans were paid down, the equity would accrue to the tenants, minus the cost of operating and maintaining the building, administrative costs, and so on. Unlike rent-to-own programs, however, this option would never require that the tenant take out a mortgage. A renter would never truly “own” her unit. But she would claim a stake in the public portfolio of properties and be able to draw on that asset, perhaps in the form of monthly payments after a few years of renting, or larger dividends later in life, much like Social Security. The benefit could be transferred to any publicly owned apartment, allowing tenants to build wealth without being locked in place. After 35 or 40 years, a tenant might no longer owe any rent at all. There are many more things to say about the logistical details, and I have said them elsewhere, but that’s the core of the idea.
Public ownership would give younger households the opportunity to begin generating wealth immediately, from the minute they form their first household—a leap forward for both racial and generational equity. People who have spent the past five or 10 years renting an apartment in high-cost cities such as New York, Los Angeles, and Seattle will understand the clear benefits. The program is simple, accessible, and fair.
Public ownership can appeal to the middle class, a quality missing from virtually every other government housing program. Existing programs tend to focus either on the poor, as with affordable-housing construction and housing vouchers, or on the rich, as with mortgage-interest tax deductions and capital-gains exclusions. Renting in a public-ownership building would be an option for the large number of middle-income individuals who lack the resources or the immediate desire to become homeowners. And the system could be managed without subsidies, avoiding tension with programs that assist low-income households. Low-interest government loans would be sufficient to finance the program.