Rethinking the American Housing Dream

Issue 28, Summer 2005

In a recently published op-ed piece, two former assistant secretaries of HUD during the Clinton administration offered the following interesting perspective on the American Dream of homeownership:

Rethinking the American Housing Dream
Nicolas Retsinas and William Apgar
Scripps Howard News Service
July 15, 2005 Copyright 2005 Scripps Howard, Inc.

CAMBRIDGE, Mass.

Take this American Dream quiz: True or False?

Everyone should own a house.
Everyone wants to own a house.

Notwithstanding the "ownership society" rhetoric, the answers are False.

People who move frequently should not buy homes. Nor should people who loathe the hassles of maintenance: cutting the grass, finding a roofer to fix the elusive leak. People with no financial cushion - as well as people who cannot save - should also abstain (that leaky roof will force low-income owners to tap into nonexistent savings). Indeed, a lot of Americans quite rationally do not want to own, nor should they.
Yet politicians, policy makers, and lenders consider the "home-ownership rate" the sole barometer of housing success.

Admittedly, there are benefits to home ownership: Home equity anchors the financial security of most Americans; some owners enjoy freedom from seemingly intrusive landlords; most tend to settle into a community, and the resulting stability helps explain why children of home-owning families perform better in school than children of families that rent. And there are even some owners who actually enjoy working on their property, basking in pride at having a well-kept yard.

Nevertheless, legions of Americans are dreaming - or could be dreaming - different dreams. Today, 1 in 3 households - 34 million - rents the primary residence, paying nearly $250 billion annually. And property owners spend about $50 billion annually to maintain and improve that rental-housing inventory, valued at over $2.5 trillion.

It is time to rethink rental housing.

Step one in this rethinking is to discard the simple tenant/owner dichotomy. Think of housing as a continuum. At one end is the detached, mortgaged single-family house. The owner can build equity. She or he pays property taxes, is responsible for maintenance, and more often than not lives in one place for several years.
At the continuum's other end is the tenant in an apartment, with no lease. S/he builds no equity, but has no maintenance responsibilities, bears less financial risk associated with unexpected declines in property values, and is able to enjoy a more mobile life style.

Between these two continuum ends are hybrids. Though limited in scale, condominiums, limited-equity cooperative housing, manufactured housing on leased land, community land trusts, and neighborhood associations all demonstrate the blurry line between renting and owning.
Many condominiums look like apartments (five years ago some were). In a manufactured-home community, the owner often buys the building, but not the land. The owner who signs on the bottom line of an interest-only mortgage may end up losing equity, while the renter with an option to buy is amassing equity. Neighborhood associations can foster a stronger sense of community than can exurban developments.
The limited options in today's marketplace largely reflect the tendency of public-policy discussions to frame housing choice as the owning-versus-renting dichotomy.

Step two in rethinking the situation is to see what Americans actually want. Although some yearn for a home of their own, many simply want a) the chance to build financial security, b) a safe, pleasant neighborhood, c) stability (tenants suffer from rapid rent spikes, often because owners sell the buildings), d) well-maintained units (tenants suffer when landlords view their units as investments, not as people's homes), e) good schools, and/or f) affordable housing. Indeed, the low-income homeowner paying 50 percent of income toward a mortgage and property taxes - as 4 in 10 such owners do - is not living a dream, but a nightmare.
The above goals are not synonymous with home ownership. They can also be achieved by living in good-quality and affordable rental housing.

The final question in the American Dream quiz: True or False? The market, without government assistance, can improve housing for the millions of non-owners. Even conservatives would concede False.
Politicians, policy makers, and financial institutions must look at a new barometer: the number of Americans in a "decent home and a suitable environment." That was the goal Congress articulated in 1949; it remains salient today.

Toward that goal, we must increase the supply of good-quality and affordable rental housing.
We are now losing rental units: For every 3 built between 1992 and 2001, 2 have been demolished or converted into owned units. And as our aging housing stock deteriorates, land-use regulations have made it increasingly difficult to build rental housing.

Not surprisingly, rents are high. The restricted supply of housing and the soaring demand inevitably drive up rents.

Without government prodding, these barriers will not go away.
We also need more choices in the housing market. Our housing policy and tax code should not only bolster home ownership for people eager to own; they should also expand choices for people who do not want to own.

Finally, we must invest in community policing, education, and municipal services, so that people do not have to buy homes in order to escape crime, trash, and abysmal schools.
The "decent home and a suitable living environment" of 1949 is the dream of all Americans - whether they own or rent.

(Nicolas P. Retsinas, formerly U.S. assistant secretary for housing and the federal housing commissioner at the Department of Housing and Urban Development, is the director of Harvard University's Joint Center for Housing Studies; William Apgar, also a former assistant housing secretary, is a senior scholar at the center.)
(Distributed by Scripps Howard News Service, www.shns.com.)