Government policy should better accommodate renting as a lifestyle choice

We need policies that help stabilize tenancy and facilitate renters saving for retirement.

The US government treats renters like second-class citizens. Our current policies make it very difficult for renters to stabilize their housing costs or save for a comfortable retirement. Perhaps in an era where homeownership was attainable for everyone, such policies were tenable, but now with coastal states restricting new construction, significant portions of the population simply can’t afford a home. Current government policies irreparably harm these renters.

Politicians believe that high rates of homeownership foster social stability because people won’t loot and riot if they feel invested in the community. Social engineering aside, there is one particularly strong financial reason politicians favor widespread homeownership: it allows them to maintain a less expensive social safety net for retirees.

Imagine a world without homeownership. There would be no mortgages and no home equity. The forced savings feature of amortizing mortgages and the steady appreciation of home values would not provide a nest egg for people in retirement. Without this pool of savings, the government would need to provide more retirement benefits, which in turn would raise taxes on the working class. Widespread homeownership allows the government to keep retirement entitlement spending to reasonable levels.

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Unfortunately, the old system no longer functions.

First, not everyone is able to own a home. Historically, financing was the barrier to homeownership, so the government got deeply involved in mortgage finance, to the point that it now directly insures over 80% of the home mortgage market. Most government housing policy over the last 60 years revolved around lowering financing barriers to homeownership. The culmination of these policies, along with some private-sector foolishness, was the elimination of all qualification standards and an epic housing bubble and bust in the 00s, followed by a 7% decline in homeownership rates.

Despite complaints to the contrary from realtors, mortgage finance is no longer a real barrier to homeownership. Access to credit among those with the skills to manage it fails to limit homeownership. In many parts of the country, the real barrier now is a lack of supply that causes home prices to become inflated above the reach of many hard-working Americans.

When local land use decisions promote an excess of commercial, office, and industrial job generating uses while simultaneously limiting residential construction, an imbalance creates a shortage of housing units within a reasonable driving distance of employment centers. As a result, many people endure brutal commutes, and many others get priced out of homeownership entirely by those with higher wages. Under those circumstances, which are prevalent on the coasts, lower- to middle-income Americans simply can’t own a home.

This creates a secondary problem related to the first: renters can’t save enough to enjoy a comfortable retirement. A few years ago, I noted that Renters can acquire wealth as well as homeowners. And while renters can acquire wealth, the system of tax incentives and government policies doesn’t make it easy.

Perhaps now that the idea that real-estate-always-goes-up is exposed as a dangerous illusion, the family home can no longer be relied upon to anchor the middle class’s retirement and wealth-building plans. The middle class learned painfully the folly of putting their entire nest-egg in the wrong basket.

Perhaps we should subsidize savings by giving it a tax break. We already do this with retirement savings to some degree, but it has many caps and restrictions that could be relaxed.

What if we had retirement savings matching up to some threshold paid by the government, similar to 401K employer plans?

We could exempt the interest on savings from income tax up to certain thresholds.biggest_saver

I don’t necessarily advocate any or all of these ideas, but it demonstrates that there are many ways we could encourage saving and wealth building without subsidizing or encouraging home ownership.

If US politicians want to think outside the box, perhaps they can learn from their counterparts in the United Kingdom who are reexamining how renting as a lifestyle choice fits within the system.

Theresa May to offer more security for renters

White paper will promise greater rights for tenants as Tories accept the system is ‘broken’

Toby Helm Political Editor, Saturday 4 February 2017 18.44 EST

A major shift in Tory housing policy in favour of people who rent will be announced by ministers this week as Theresa May’s government admits that home ownership is now out of reach for millions of families.

Can you imagine either California or the US admitting such a thing?

In a departure from her predecessor David Cameron, who focused on advancing Margaret Thatcher’s ambition for a “home-owning democracy”, a white paper will aim to deliver more affordable and secure rental deals, and threaten tougher action against rogue landlords, for the millions of families unable to buy because of sky-high property prices.

Isn’t that exactly the problem we have in California?

They will also announce incentives to encourage landlords to offer “family-friendly” guaranteed three-year tenancies, new action to ban unscrupulous landlords who offer sub-standard properties, and a further consultation on banning many of the fees that are charged by letting agents.

A senior Whitehall source said: “We want to help renters get more choice, a better deal and more secure tenancies.” They added that the government did not want to scare people off from renting out homes, but offer incentives to encourage best practice and isolate the worst landlords. By emphasising the rights of renters, as well as trying to boost house building, the white paper will mark a turning point for a party that since the 1980s, and the first council house sales, has promoted home ownership as a badge of success, while neglecting the interests of renters.

The NAr would strongly resist any admission that homeownership was not the only acceptable option. Fortunately for those renters in Great Britain, they don’t have a strong realtor lobby to screw up their laws.

“These measures will help renters have the security they need to be able to plan for the future while we ensure this is a country that works for everyone.”

Councils will be told to put more emphasis on rental schemes, particularly in towns and cities, while making it easier for “build to rent” developers to offer affordable rented properties.

The proportion of people living in private rented accommodation has doubled since 2000 and ministers will accept that housing costs “are hurting ordinary, working people the most”. The average couple in the private rented sector now hands over roughly half their salary to their landlord each month and 2.2 million working households with below-average incomes spend more than a third of their incomes on housing.

This is what government should do when confronted with a problem like ours. Compare what they are doing in Great Britain with what we are doing in California or the US. It’s shameful how our politicians continue to favor a broken status quo.

Kate Webb, the head of policy at Shelter, said: “Ordinary families up and down the country are struggling to keep their heads above water with sky-high rents and short-term, unstable contracts which can make it nearly impossible to save and plan ahead.

See: Potential homebuyers can’t save for down payments with high rents

If the government really is serious about fixing this problem at its source, then they quite simply need to build more homes.”

Where have we heard that before?