Benefits of homeownership: unpacking the bundle
Because we in the US have a well developed and mature financing system, in America ‘homeownership’ confers a cluster of benefits that we think of as intrinsically good, immutable, and in fact all seamlessly connected with one another. In actual fact, the benefits can be unpackaged, into at least six very distinct elements, not all of which are possessed by each type of owned home.
You can count them on a polydactyl’s hand!
I’ll present them in descending order — that is, most advanced first, most basic last, and for each one, will list a counter-example — a
1. Unlimited appreciation. If prices rise, the ‘typical’ homeowner reaps all of the benefits, with no other private party thrusting out a grasping hand for a share of the upside, and no quibbling or complaining from government at any level.
“Where’s my share of the upside?”
US counterexamples are community land trusts, or limited-equity co-operatives, where the appreciation is capped by a resale formula.
2. Right to sell. Again, the typical single-family homeowner may sell to whom, and whenever, he or she wants. The right to sell not only makes unlimited appreciation monetizable, it enables homeowners to extract equity even as they are shifting their housing consumption, such as when they want to move up (bigger family) or down (empty nesters).
More bedrooms, please.
US counterexamples are co-operatives, many of which are famous for being persnickety to the point of capriciousness about to just whom one can sell … which, by the way, has the effect of depressing resale values, and group ownership, whether secular or religious, such as an eruv.
3. Financeability. We take for granted that one can readily obtain very large amounts of money by borrowing against the home, and that one may periodically refinance the home to change the interest rate or to take out equity. That ready access to low-cost debt capital gives American homeowners (and those in similarly developed housing finance ecosystems) tremendous flexibility in their capital planning — which people use for all the vital purposes of life, whether educating the next generation or starting a new business.
Something like three-quarters of all new
If you’ve got title, you can finance
US counterexamples include the aforementioned co-operatives.
4. Controllable occupancy cost. As compared with rent, which rises whenever the landlord’s whim and the market’s dynamic will support it, the cost of homeownership rises more slowly over time, simply because the mortgage payments, which constitute at least half the total occupancy cost (real estate taxes, capital improvements, repairs and maintenance consuming the rest), are normally fixed at inception. That level payment debt service is one of the many reasons homes are price-drop-resistant: compared with other large purchases, people may rue the buying bargain they made, but they are less frequently forced to sell.
US counterexamples, albeit only to some degree, are properties financed with variable-interest rate or variable-payment loans. While the payments do not rise willy-nilly, borrowers who get into a property with such a loan face a risk not experienced by those of us conservatives who take out the traditional fixed-rate, level-payment, self-amortizing loan.
If you’d borrowed fixed, you wouldn’t be worrying about this.
5. Improvability. “A man’s home is his castle,” and that gives the homeowner the right to add battlements, additions, turrets, or some just about other improvement, garish or tasteful, wise or foolish, that comports with the zoning. Just as tattooing or other bodily modifications are assertions of selfhood, so too is the right to paint one’s home a truly hideous color a testament of individuality: my house, my paint job.
Winchester House, San Jose, continuously improved and never ‘completed’
US counterexamples abound, some many indeed that we are coming to accept intrusions into improvability as part of urban living. Historic districts or conservation districts represent the taste police. Homeowners’ association handbooks or condo bylaws spell out in detail what can and cannot be done. Co-ops may have the Officious Committee. And mobile home owners, living as they do inside a fixed and sealed envelope, have the least improvability of all.
6. Secure tenure. A castle always has a moat and drawbridge to keep the world outside. So too is the right of a homeowner to live inside the home secure from the world’s intrusions one of the most fundamental principles of property rights and law. Even delinquency and foreclosure, which allow lenders to regain that right, are heavily circumscribed. Security of tenure, that sense that no one else is entitled to a key into one’s home, is psychologically powerful, and a right of privacy that most of us fiercely defend.
You got a warrant, bub?
For much of the world, in fact, this simple goal — security of tenure, a place to come home to every night — is the principal, and most valued, benefit of homeownership. For much of the world, improvability is ad hoc, financeability or the right to sell are distant gleams if not wholly impractical, and appreciation is something too far in the future or too uncertain to be given much weight. But that security of tenure — that right to avoid dispossession — is the most absolutely fundamental right of homeownership, and the one that all of us at some level instinctively crave and value.
US counterexamples, as we have seen, are in mobile homes, which sit atop land leased to the home owner by the mobile home park operator. It should be no surprise, therefore, that some states and localities have adopted anti-eviction laws or relocation benefit requirements, or even rights to buy at negotiated or formula prices. To do otherwise places the mobile home owners at risk of the most cruel blow of all — being evicted.
The role of land. Noteworthy in the foregoing list is the role of land ownership as influencing appreciation, marketability, and improvability.
In long-term affordability, as we will see in other posts, land is the key. Control its price and its use, and you can control, or at least delivery, long-term affordability.
