Should unemployed renters face homelessness while loanowners don’t?
The fear of homelessness is the essential motivation to get people to work to produce goods and services in our society.
Modern American culture can trace its roots on the North American continent to pioneering English settlers. Life on the frontier is harsh, and each family unit is self-reliant. In a frontier society, if people didn’t work, and if they didn’t produce their own food and shelter, then they died. Fear of death from starvation or exposure was very real, and anyone who wasn’t motivated to produce something of value to themselves or others faced the near certainty of painful death. In a frontier society, there are no bailouts.
We have made much progress over the last four centuries, and the fear of death from lack of food has been largely eliminated. Private and public shelters have lessened the fear of death from exposure, but America still has a problem with homelessness largely because as a society, we have been unwilling to provide individually-controlled private shelter as an entitlement. The reason we do this is simple. The fear of homelessness is the essential motivation to get people to work to produce goods and services in our society. Take away this fear, and you create an underclass of dependency: the welfare state.
As a society we can and should debate whether or not the fear of homelessness is a desirable motivator. Perhaps we may decide to devote the resources to provide more shelters or private living accommodations for those unable or unwilling to work and produce goods and services. Until then, homelessness is a very real possibility for anyone unwilling or unable to find work. During times of full employment, the system works well and seems just. During times of persistent unemployment when motivated people are unable to find a job, the system works poorly and seems unjust.
The last five years have been very stressful for many people, certainly anyone in the real estate industry. As a renter and a sole breadwinner, I faced the very real possibility of losing my source of income and being forced to move back to my parents house or move in with friends. I am fortunate to have family and friends who would give my family shelter. If I didn’t have that support — and many people do not have those resources — if I had not been one of the fortunate ones, I could easily have ended up homeless. Any renter faced that fear during the recession, and many still do.
This is one area of public policy related to the housing bubble that angers me the most. Loan owners didn’t face the fear of homelessness. If a loan owner lost their job, they were allowed to squat indefinitely. If a renter lost their job, they were out in the street in 30 days. The endless sob stories on the internet about loan owners losing their homes because they fell on hard times never resonated with me. Each of them generally accompanied some call for a loan owner bailout — actually a banking bailout — but never was such compassion extended to renters. Do any of you remember reading a sob story about a renter becoming homeless during the recession? Apparently, renters are a subclass that really don’t matter.
Perhaps if I had been a loan owner struggling through the recession, my perspective may have been different. I might have empathized more with the other loan owners struggling with onerous payments, and like all loan owners, perhaps I too would have ignored my own bad decisions that put me in that state. However, that wasn’t my experience. I was a renter because I recognized the fallacies of the housing bubble for what they were. And for my wisdom, I faced the very real threat of homelessness. I never had the option to quit paying my housing costs and squat.
In retrospect, perhaps this stress was good for me. Faced with declining income, a shifting job situation, and the near certainty of a calamitous loss of support, I found the motivation to raise money for an entrepreneurial endeavor, and I found the strength to see it through the tough times and reach a level of success where I worry far less about paying my bills month to month. Had I not faced such dire consequences for inaction or failure, I don’t know if I would ever have attempted what I accomplished. But then again, I didn’t enjoy working as if a gun were to my head and the lives of my family depended upon what I did.
Something must be done to level the playing field for renters and loan owners. As it stands, one of the strongest reasons to buy a home, any home at any price, it to have an emergency flophouse to squat in if times get tough. This new unemployment entitlement granted only to loan owners is a huge benefit of loan ownership. To be quite honest, when I bought my first property in Las Vegas, I had a small sense of relief knowing if everything fell apart, I had a place to crash indefinitely. With a long queue of loan owners in front of me, it would be easy to get lost in the sea of delinquent loan owners in Las Vegas. However, even though I know I am taken care of, the system still isn’t right. Renters should not face such a huge disparity in treatment simply because they were unable or unwilling to sign loan documents and become a bank’s debt slave.
I believe we have two options: (1) eliminate the squatter’s benefit for loan owners, or (2) provide rental assistance for renters who are unable to find work. Conservatives in Congress are loathe to extend unemployment benefits because paying people to do nothing encourages people to do nothing. Paying them to do nothing and paying for their housing, puts moral hazard on steroids. But that’s exactly what we are currently doing for loan owners. Lenders and landlords certainly wouldn’t mind the government subsidy, but I question whether or not taxpayers are prepared to pay the bills.
Public policy debates are going the wrong way. California passed a loan owner’s bill of rights to increase loan owner entitlements. Of course, renters are not being provided for in any way. We need to eliminate the squatter’s benefits for loan owners by clearing the way for foreclosure. We need to force lenders to go back to mark-to-market accounting so they can’t hid their insolvency by pretending bad loans are good ones. If lenders had to recognize their losses, the wouldn’t fool around with squatters. Instead, lenders would foreclose quickly to recover their capital. The current system is broken, and the actions we are contemplating will break it further.