A Publicly Funded Third Way in The Housing Crisis?

Andrew Donaldson

Andrew Donaldson

Born and raised in West Virginia, Andrew has since lived and traveled around the world several times over. Though frequently writing about politics out of a sense of duty and love of country, most of the time he would prefer discussions on history, culture, occasionally nerding on aviation, and his amateur foodie tendencies. He can usually be found misspelling/misusing words on Twitter @four4thefire and his writing website Yonder and Home.

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24 Responses

  1. Avatar Oscar Gordon
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    says:

    Related, and just to give Chip something to rant about:

    CA to start building the first 3D printed community.Report

  2. Avatar North
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    says:

    It’s a fun mental concept but; since it utterly ignores the questions of regulation, zoning and NIMBYism that are at the root of the American housing crisis; it’s basically just policy wank. It won’t address the actual problem in the least. No doubt if such a program were instituted the lefties would sing its praises and the handful of buildings they eventually managed to erect would promptly develop a waiting list just as long as the line for rent controlled apartments.Report

  3. Avatar Kazzy
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    says:

    Renting is terrible and owning is worse? Renting is a waste of money? Owning is only affordable in the suburbs? Um… what?

    Renting isn’t a waste of money. You are paying for something of remarkable valuable: a place to live.

    And the suburbs are affordable precisely because they aren’t the city. What you gain in affordability you sacrifice in location and convenience.

    None of this is to say that there aren’t problems with housing. But if the goal is, “Let’s help everyone own property in the city,” well, methinks that would only make things worse in the long run.

    Maybe we need to stop treating property ownership as some sort of moral good that everyone should strive for.

    Renting in a city is not a waste of money. Hell, renting ANYWHERE is not a waste of money. You might not be getting good value for your money. But we really need to rid ourselves of the oft-cited notion that renting is just flushing money down the toilet. And we also need to remind people that owning property involves tens if not hundreds of thousands of dollars in taxes and interest.Report

    • Avatar North in reply to Kazzy
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      says:

      In fairness Kazzy, renting also involves taxes and interest, it’s just your landlords taxes and interest and it’s tucked into the cost of your rent.
      That said I do agree with you. I don’t think owning is particularly superior to renting.Report

      • Avatar Brandon Berg in reply to North
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        says:

        Incidence of property taxes depends on elasticity of supply. In cities where supply is heavily constrained due to building restrictions and supply cannot respond to rising rent, then the incidence of property taxes will fall mostly or entirely on owners and not be passed through to renters.Report

        • Avatar North in reply to Brandon Berg
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          says:

          Hmmm, that seems backwards. If the supply is constrained then why on earth wouldn’t you pass your property tax cost on to your renters via raised rents?Report

          • Avatar Brandon Berg in reply to North
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            says:

            Let’s say there are no property taxes. How much do you charge in rent? Whatever maximizes revenues. Now a property tax is levied. We’ve already established that you’re charging the revenue-maximizing rent, so what can you do? If you raise rent further, you’ll make less money. Your best option is to keep rent where it is and pay the tax out of your profits.

            Conversely, consider what happens if the property tax is repealed. Do you pass the savings on to your renters? Not if you’re trying to maximize profits. If the supply of housing can’t increase in response to the reduced costs, then the market-clearing rent stays the same.Report

            • Avatar North in reply to Brandon Berg
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              says:

              Ah, yes, well landlords certainly would -like- to be at maximum market clearing rent but it’s a process finding it. Certainly they’ll try to pass it on to their tenants and only absorb it themselves to the extent they’re unable to pass it on to their prospective tenants.

              Either way, my original point stands: the rent a person pays is paying for taxes and interest for the landlords property taxes and financing (at least in proportion to the the units share of the building). If they aren’t -at least- covering those costs then either the landlord is insane or we’re looking at some kind of idiotic rent control arrangement.Report

      • Avatar Kazzy in reply to North
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        says:

        Yes but that is baked into the money that folks already describe as being thrown away.

        When renting, you pay $X/month, build $0 equity, and have a place to live.

        When owning, you pay $Y/month, $Z goes to taxes and interest, you eventually build $T equity, and you have a place to live.

        Folks often like to act like $Z doesn’t really exist.Report

        • Avatar InMD in reply to Kazzy
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          says:

          I think that the main sleight of hand going on from ownership evangelicals is that $T is a bit of a gamble, not something that is guaranteed. Obviously it is not a gamble on the order of a craps table, and I think it’s fair to say that generally most people who do it come out ahead, not everyone does and sometimes it’s a total disaster.

          To me Oscar’s list is right but maintenance cost is the huge underestimated con. The biggest change when I went from renter to owner was spending every other weekend at Home Depot dealing with some minor issue or another. Add to that every few months having to get someone out to repair/maintain this or that. Then the perpetual decision-making about cost/benefit to improvements.

          Sometimes I long for the days where all I had to do if something went wrong was make a phone call to the office and if I wanted to walk away from a place for whatever reason I could.Report

          • Avatar Oscar Gordon in reply to InMD
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            says:

            Maintenance costs, yeah, that’s a big unknown. It’s why I put previous owners at the top of the con list, because when I think back to my biggest maintenance costs (I’ve owned 3 houses so far, one built in 1926, one in 1952, and one in 2001), the crap previous owners did because they were clueless or cheap cost me more than normal wear and tear. Ideally, a rental property is maintained up to code*, and it’s someone else’s headache.

            I’m a pretty handy guy, so I can fix most issues, which is good, because I won’t touch electrical except to swap out outlets/switches and light fixtures, and I’m happy to pay younger people to do stuff like climb up on my roof, or take care of the tree root that is busy pushing up my patio pavers.

            *When we rented the house in AZ in 2018, I found an electrical bug pretty early on (a wall switch was getting HOT!), got an electrician out the next day, where he found a bunch of mis-wired switches. Owner figured, I already paid for the service call, get them all fixed now.Report

            • Avatar InMD in reply to Oscar Gordon
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              says:

              I’ve had similar experiences renting older homes with all kinds of weird crap I assume was done by the stoner and/or slum lord owners. In terms of what I’ve owned it’s all been newer (condo in a building from the 60s, renovated in the aughts and the new construction I’m in now). I will admit I am not captain handy but am generally willing to take a swing with YouTube videos on more straightforward stuff.

              Beyond the basics though I find that newer construction is kind of like changes to cars over the last 15-20 years. It’s designed to be done by a well provisioned professional, not a tinkerer. And if you tinker you run a good chance of making it way worse. A perfect example is what I would consider to be a minor plumbing issue with our bathtub that I had fixed at previous homes. However at my new place the stuff you need to get to is behind a bunch of tiles with no access panel. Screw up getting in there and suddenly you’re spending thousands re-tiling an entire bathroom. I’d rather pay a few hundred dollars to an insured professional who has done it a million times than risk eating that myself even on what in practice is a 30 or 40 minute job to replace parts collectively costing less than $75. But then you find yourself doing that a few times and it starts to add up in really frustrating ways.Report

    • Avatar Oscar Gordon in reply to Kazzy
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      says:

      Benefits of ownership:

      1) It’s your property, which gives you a lot more freedom and flexibility regarding what you do with the living space. It’s not absolute (building codes and covenants are real things), but it’s much greater than if you are renting.

      2) Equity can be a very useful thing to have, both as an emergency resource, or a credit booster.

      3) There is a very real possibility of not having house payments someday, and only needing to shell out for taxes and maintenance.

      Cons of ownership:

      1) Previous owners (including the builder). The amount of money & time I’ve spent fixing the stupid crap done by previous owners or cheap builders (the kinda stuff that can slip past a building inspector pre-sale)…

      2) Shady mortgage brokers.

      3) Volatile housing markets.

      4) Maintenance costs.

      Benefits of renting:

      1) It’s not your property, which means it’s not your headache (unless your landlord/property managers are crap).

      2) It’s usually a lot easier to break a lease than to sell a house (unless you are selling in a very hot market), so if you need to move for any reason, you can.

      Cons of renting:

      1) No Equity.

      2) Limited ability to alter or upgrade.

      3) Rent payments can rise faster than increases in property taxes would suggest.

      4) If the owner wants you out, they might be able to make your life miserable.Report

      • Avatar Kazzy in reply to Oscar Gordon
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        says:

        I agree with all this. Pros and cons to both. And, again, the main pro to both is YOU HAVE SOMEWHERE TO LIVE!

        Which is why the “Renting is terrible but owning is worse” is just a bunch of crap.

        I mean, imagine someone saying that food is a racket because you either waste money crapping it back out or it ends up as fat on your midsection.Report

        • Avatar Oscar Gordon in reply to Kazzy
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          says:

          Exactly, it’s a cost-benefit analysis. Sometimes, renting makes way more sense than ownership; sometimes ownership is the better call.

          Given the risks inherent in home ownership, if you are uncertain regarding the CBA, you should rent.Report

          • Avatar Kazzy in reply to Oscar Gordon
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            says:

            My finance guy laid this all out for us and really helped rid of us the idea that owning is always superior. He even had some data that showed over most 30-year time frames, it was a wash between building equity and building savings by investing the difference most could find between rent and a mortgage/down payment/etc.Report

  4. Avatar Brandon Berg
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    says:

    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.

    The exact definition of “market prices” here is important.

    If “market price” is the price a comparable apartment one block over would rent for, then this is going to require fairly substantial subsidies, because the actual market-rate apartments don’t give you money back in the form of equity. This also means that there are going to be wait lists.

    On the other hand, if “market price” is setting the rent as high as it needs to avoid wait lists and low enough to keep the vacancy rate at a couple percent, then this is going to be more expensive than a private apartment.

    As North points out, the real problem is supply. If you want people to be able to afford an apartment and save money, then you need to make apartments cheaper, and the way to do that is stop restricting supply. The main appeal of this plan seems to be mainly that some people are just really, really turned on by public housing.Report

  5. Avatar DensityDuck
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    says:

    “[P]ublic ownership of housing, acquired or built with government loans—though run by local for-profit or nonprofit property managers—and rented at market prices.”

    Congratulations, you invented Co-Op City (which didn’t work)Report

  6. Avatar DensityDuck
    Ignored
    says:

    It seems to me that the issue is about wealth, or rather the lack of it, of the people who would normally be buying these places. My condo in California cost me less in mortgage payments than it would have cost in rent, and my income was well above what I needed to cover those payments, but if I hadn’t been able to scratch up six figures for the down payment then it wouldn’t have mattered what my income was.

    I mean, if anything, a return to 100%-financing deals would do more for homeownership in cities than any number of public-private partnerships, but there’s no way to say “only people with high incomes and stable jobs can get 100%-financing deals” because that’s going to lead to a lot of white/asians getting loans and a lot of blacks being denied them, and that is not going to be received well.Report

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