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Housing markets and innovation: It's the worst and the best of times
Sunday, December 4, 2011
Richard Florida pointed out this piece in Knoxville's Metro Pulse, in which local developers describe how "the nature of home ownership has changed for good." Line after line, I sense the dismay in these developers' words, yet I can't help but hear opportunity for new, better housing models.
There’s no such thing as a good loan... Getting credit to do developments is virtually impossible.
As a non-developer and a lover of existing landscapes, both built and natural, my kneejerk response is: good! Of course, not all new development is bad -- far from it -- but we have so many unused and under-used buildings in our cities that could be retrofitted to higher-density and/or more mixed uses. My hope is that imaginative entrepreneurs and communities will take this time to explore making the most of what we already have, before knocking it or a forest down to build something new.
America is going back to being a renter nation. Up until the 1950s, the percentage of homeowners stayed at 40 percent. Aggressive government subsidies drove the percentage in recent years to above 65 percent... We will likely return to being maybe a 55 percent homeowner nation.
Historically there were reasons for a national push to homeownership. First it was to settle and secure the continent (and/or steal it, depending on one's point of view), and later it was to accumulate middle-class wealth. Today the former cause is no longer relevant, and the latter is largely discredited (so to speak) by the mortgage market implosion. Especially in light of recent events, it is worth asking whether it's in the public interest to have even as much as half of our housing owner occupied.
The owner-occupation model reduces geographic mobility, it may dampen mass adoption of sustainable engineering solutions, and it is probably not, after all, a more reliable family piggy bank than a decent mutual fund. Add to this the trend of rapid urbanization. As our population migrates to dense, mixed-use neighborhoods, having a higher proportion of renters may be preferable simply for reasons of engineerng. In a dense urban setting, "self-reliance" approaches meaninglessness with respect to water, energy, waste, and transportation systems. So too with housing. Dense urban housing lends itself to integrated multi-unit engineering and professional management -- so what's wrong with becoming more of a renter nation? It may work out better for all parties.
The housing model of the future will be investors buying up existing housing stock and renting the houses or selling them to the occupant and financing the purchase themselves.
Now what if those investors were cooperatives of residents, in effect renting the properties to ourselves? The investment opportunity would be available to all who wanted it, without requiring anyone to single-handedly assume the responsibility and expertise of house maintainenance. There would be a local ownership stake, not an absentee landlord. And bank financing wouldn't stand in the way of willing residents who can clear the monthly costs. Those with cash get an investment with a steady return, and those with income get a home without mortgage debt.
There are many interpretations out there for what the current housing market crisis represents -- too little government, too much government, undereducated consumers, scheming banks -- but I want to propose one more: Our paradigm for homeownership, especially in the US, may itself be an obstacle. By convention, we deem all adults to be Owners or Renters, with the expectation that renters are transient and irresposible, while owners are rooted and hyperresponsible.
Dividing our communities so simplisticly may do them harm. Residents without adequate time, knowledge, or resources for all the responsibilities of homeownership may be pressured into it, for status, for self-respect, for access to good schools and neighbors. Meanwhile more cautious residents with much to offer a neighborhood will hold back and, treated like renters, choose to behave like renters, withholding investments they may otherwise have made in the community.
Owning and renting each have strong virtues. A community of ownership has stability, security, and an eye to the long term. A community of rentership has vitality, adaptability, and no crippling mortgage debt. Is there a space between strict ownership and rentership combining the best of both worlds? One possibility is to pursue ownership at a communal level, encouraging various forms of individual investment while also encouraging a healthy degree of individual independence. I rent, but we own.
There has never been a housing industry in America without heavy government subsidies and tax incentives for home loans.
Those subsidies contributed to the gross overbuilding of suburban areas that are becoming a ball and chain around our economic ankles. Now that the giant ponzi scheme has collapsed, there is perhaps unprecedented opportunity to invent a housing system that's sustainable without the artificial lift of government or cheap oil.
I, for one, am excited!
%s1 / %s2
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