An interesting development has been sweeping away the iconic ideal of homeownership in the US. It isn’t a new idea, but in recent years it has certainly been an unpopular one: renting. With the housing market so unstable, many Amerians are turning to renting for an affordable and, surprisingly, more stable housing type.
Mark Whitehouse reported in the Wall Street Journal (“Default, then Rent”, December 16, 2009) that many homeowners have recently discovered that “giving up on the American Dream has its benefits”. If this sounds shocking, read on: Whitehouse writes that even as the housing bust “tarnishes the near-sacred image of homeownership, it may be clearing the way for economic recovery.” This is mostly because of mortgages that by far exceed the value of homes and bargain-basement rents, which free up lots of money for struggling families. As the US sees is lowest homeownership rates in twenty years (currently 67.6%), homeowners are seeing major benefits from shedding their mortgage debts and starting over. In fact, even efforts by the Obama administration to get banks to lower mortgage rates to keep households from foreclosing have been criticized as influencing families to make decisions that are not in their best interests.
In many places, such as Palmdale Arizona, luxury homes are being converted to rental properties using the federal Making Homes Affordable program. Former homeowners note that some of the benefits of renting include: not paying property tax, homeowners’ insurance, or dealing with repairs or maintenance.
While foreclosure still carries a stigma, and many feel taxpayers are paying for those who foreclose and can afford to pay their mortgages, these new renters are transforming the real estate market in many areas. Rental managers are being more flexible about who they take on as tenants, knowing the majority are “good people who just got loans or bought at the wrong time,” to quote a rental agent in Palmdale. Since the Obama administration committed $4.5 billion in economic stimulus money to the creation of these types of rental units, renting has become more commonplace.
Housing prices are stabilizing in the US but experts say they will not reach their boom levels again for years, if not decades. In his New York Times blog, Edward L. Glaeser, a Harvard economics professor, writes that the price of a house should be about the cost of building a home in most parts of the country where land is abundant and there’s less regulation. In the denser, larger cities, land is more restricted and regulations are stricter. Glaser writes that Americans should “stop thinking of your home as an investment that will yield comparable returns to the stock market. Housing is a form of consumption that yields benefits in the form of a more pleasant life, not a bigger balance sheet.” With so many houses glutting the market, it will be awhile before prices start to rise.
These are fascinating developments in the US, where homeownership has been the mantra for sixty years. It’s too early to predict if the changes in housing tenure will last, but they certainly give us food for thought. In Canada, the affordable housing bill (C304) has again been stalled by the Prime Minister’s proroguing government, but as a private member’s bill (Vancouver East MP Libby Davies introduced it) the committees will resume their discussions once Parliament restarts in March. We still have a long way to go, but breaking away from a one-size-fits-all model for housing is a good start.