Oct262015

Is shelter a basic human right, or exclusively for homeowners?

During the housing bust, every effort was made to keep homeowners in their houses. Renters were mercilessly thrown in the street with little or no fanfare.

Our real property system functioned well for centuries with very little change. Prior to the housing bubble, it was widely accepted that people borrowed money to buy houses and if they didn’t pay it back according to the terms of the promissory note, the mortgage agreement allowed the lender to call an auction to get their money back. Housing was an earned reward, not an entitlement.

The basic dilemma is simple, most people don’t have the cash to buy a house, and it would take them most of their adult lives to save for one, so lenders designed loan programs to allow people to occupy and “own” a house while they were working and earning to pay for it.

Without modern lending, demand for housing, as measured by actual dollars and not mere desire, would be far too small to accommodate population growth and household formation. The result would be either government owned housing or privately funded rental units and extremely low home ownership rates. Houses would be far less expensive, probably hovering around replacement costs, but ownership would be available only to the very few with the cash to pay the construction cost of a house.

In modern politics, Progressives want to make every human want and need an entitlement, and Conservatives want people to earn everything. Progressives want a compassionate society whereas Conservatives want an industrious one.

There is a relentless push by Progressives and Conservatives fight an ongoing but losing battle to hold back the tide. The latest battle lines between Progressives and Conservatives relates to housing. Shelter is a basic human need, and Progressives have sound arguments why this should be an entitlement; however, shelter comes in many forms, and fee-simple ownership of a private dwelling unit is a form of shelter Conservatives argue should not be an entitlement, and I for one, agree with Conservatives on this point.

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Should shelter be an entitlement?

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.homeless

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.

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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.

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