America’s crisis of real estate values and negative home equity has many urban theorists wondering whether home ownership is bad for the economy and bad for many individuals and families.
Richard Florida is one of them:
Two American dreams – of homeownership and of unfettered economic mobility – may be in conflict, as homeownership, especially in downturns like today, impedes mobility and makes it harder for individuals to move to work and the labor market on the whole to adjust….My hunch is it’s time for new hybrid forms of housing tenure which mix the benefits of ownership with the flexibility of renting.
So what might we see in the future? Here are a few ideas, but I want to hear your thoughts as well.
First, lets assume that future cities will see more use of “multi-family”dwellings. That is duplexes, townhomes and apartments. These often smaller homes allow for higher density and lower energy use. This opens up options.
Idea #1: Renting with a long-term lease of three, five or even 10 years. In this scenario, homes would be rented in the way office space is today: by the square foot, not by the number of rooms. And, as part of the lease the tenant and landlord would agree on an allowance for “improvements” or building out the space into the desired apartment/townhome. The costs of creating the tenant’s ideal space would be rolled into the monthly lease costs.
So, you lease 1000 square feet, and can decide if you want one, two, or three bedrooms, and how big a kitchen compared to other spaces, and one bathroom, or two. You could also decide on features: tile or linoleum; laminate or hard wood; granite counters or not (and how big). All choices would affect the monthly rent (for example, having tile instead of lino might be a difference of $6/month). There would, of course, be a cost of breaking the lease — because of the expense the landlord incurred upfront — and only people with good credit ratings and “tenant” ratings would be able to participate in this type of arrangement.
There may also be the option to expand. Suppose a couple rents 600 s.f. for a one bedroom place, has a child and plans another so now wants 1000 square feet. If another adjacent unit became available 400 square feet could be carved from that, allowing for two more bedrooms and a larger living space. This again, is just like how office space lease works. Certainly, some architectural planning would be required — buildings that could accommodate this style of tenure would need to be purpose built to handle it.
While some people rent because they need flexibility to move on a month’s notice, most don’t. Many people know they want to stay put for a certain number of years: for example, the five years while the children are enrolled in a good, nearby school; or, the first 5 years of a child’s life, before school becomes an issue; or, the five years between empty-nest statsus and retirement.
In all cases, a longer lease term in return for a custom space might be a welcome option.
#2 – a new style of strata ownership What if you bought a share of a building, rather than an individual unit (a little bit like how some housing co-operatives work). For example, purchase a 2% share of the building in which you live. Perhaps a professional apartment-owner-manager organization would own 51% of the building and rent out suites to non-owners as well as owners and provide top quality amenities and services.
One advantage to the purchasor is that even if you need to move for your job, you might have an option to retain ownership of the building allowing you to wait for a better market in a recession and in the meantime reap the benefits of rental income from ownership without the hassle of renting any suite yourself. So other residents could own a share, a rule on the length of time one can be an absentee owner might have to exist.
An advantage for the community is that having owners as well as renters helps to create a sense of ownership in the broader area — of being a stakeholder.
Owners in the building would have priority as suites became available if they wanted a larger or smaller place or a different view.Under this scenario there might be a “rent to own” option as well.
#3 – what are your ideas?
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I’ve wondered about a longer lease (not too long but longer), should be an option that would allow a renter to lock in a price, but essentially insure a stable occupancy rate for landlords.
There are a lot of legal issues involved in these concepts that will make them very hard to structure/document, along with complications in how real estate is financed that will involve other parties in these arrangements. But in general agree that real estate ownership/investment/lending will change in structure, location, size, etc. in creative ways as we come out of the downturn.
I don’t like these ideas, sorry. Sounds more like government or corporate ownership.
The 30 year mortgage is one of the biggest scams ever created. It really wasn’t that long ago that families owned their homes outright, and mortgages were not commonplace. Wonder why that changed?
This is a really interesting article and I’ve been thinking about this very topic myself recently.
The problem I have is that I’m highly attracted to the idea of permanent ownership. That is, when you buy your home, you own it forever and can leave it to your legacies. So when I see, for example, in the UK that 99-year leases are common place, I’m a bit put off.
But at the same time, I really enjoy the flexibility that renting offers. You can pack up and move to another city.
I think we’re going to need to find a balance and come up with new ownership structures, like you’re suggesting. We’re becoming way to mobile to only live in one city/place, forever.
[...] Waters, over at All About Cities, raises an interesting issue about owning vs renting — a topic that Richard Florida [...]
Great discussion so far. Maybe a key to thinking about this is not as an “either … or” dichotomy, but as adding options to the home tenure spectrum.
Thus, for some people and places, ownership really makes the most sense. In other situations, traditional month-to-month renting would still win out. But in some expensive, dynamic cities and for some highly mobile talented people, a hybrid might work best.
Bob – thanks for the legal thoughts. I’ve suspected some new legal and financial innovation and legislation may be required to make new types of home tenure a reality.
Jesse – good question. I think things changed because more people wanted to live in the same place (cities) and because people want modern amenities that cost money (building a home today costs much more than most of us make in a year or 10!). If you want a 250 s.f. cabin with no indoor plumbing or electricity a long distance down a dirt road from any urban amenities, it’s possible to own without a mortgage.
One of Richard’s points has been that homeownership results in a reduced willingness to move and take advantage of better job opportunities elsewhere. If the individual does not own the property this presumes that a landlord does own it and the landlord appears to be left with the risk of declining property values if a community is losing population. It seems landlords will need to price this risk into the rent which will push up rental costs to equal homeownership costs
What about renting the land and moving on movable/modular housing. Not trailer parks, but an arrangement that allows ‘home owners’ to invest in the home, not the land.
I like the idea of longer-term leases with improvement allowances. One of the problems that I’ve seen with short-term rentals is that it doesn’t encourage the same relationship with the home that people develop when they own. Improvement allowances and the option to live in a more personalized space would allow renters to identify better with their homes and in turn treat them better, which would decrease the risk that all landlords take of tennants trashing the place.
I think homes would be much more affordable and would not need fancy financing if people would just downsize. I’ve lived in a 150 sqft room in San Fran for years and would be willing to pay ~150k for it – that’s on-par for the average condo cost here.
The problem is that there has been a stratification in lifestyle expectations between renters and owners. Owners are expected to spend a lot more and thus they tend to be wealthier, so everything that’s for sale is much higher-end.
Richard Florida is wrong: home ownership doesn’t reduce mobility, living outside our means and paying out the arse for crap we don’t need like 200 sqft bathrooms and granite countertops are what tether us with debt and make us feel stuck. Simple living (including avoiding the expensive ‘fabulous’ creative life Florida wishes everyone had) is the key.
I think in discussions of housing, we should be careful not to underestimate the non-monetary reasons for owning a home – things like increased social standing, the satisfaction of owning something, and the security of knowing that in 20 (or 30…) years when the mortgage is paid off, there will be one less bill to pay.
One form of “home tenure” that might develop is similar to that of time-share vacation home ownership. Under such a system, you would buy a unit at a given location, but if your job (or any other reason) took you somewhere else, you could trade your unit for another in a different city. Thus, assuming the exchange system is well enough developed, you could move whenever needed, but maintain ownership.
I don’t understand why a renter would want to pay more in rent in order to basically custom build his rental space. It would seem that constantly updating units to meet the ever-changing needs of renters, would be significantly more expensive than keeping a rental apartment in good repair.
It would seem this barely addresses housing as a wealth creator (at least where people don’t buy houses that are out of their price range and in inflated real estate markets). I moved out of Boston to Durham, NC in part because of the much lower cost of living while maintaining a high quality of life. In Durham my mortgage is half what I spent in Boston for twice the space. In my home I am choosing to have nicer fixtures, whereas in Boston I found the cheapest apartment I could find because I was giving away cash instead of building equity. And lastly I bought in an area that I was confident that I would be able to resell in if need be based on current market conditions.
Anyway, I don’t understand why most consumers would choose one of these options. It is potentially understandable for those making a comfortable living in a city like NY, SF, or DC where buying is prohibitively expensive but even then.
In my experience I wouldn’t consider one of those options.
Why would