The truth about rental
Yesterday’s post about the prejudices against rental naturally invites the question, what is true about rental?
A. Rental is always disfavored in political resources.
You wouldn’t find the answers in a 1922 booklet by M. W. Folsom, “The Facts about Home Owning“, from A Home of Your Own.
Rental always wishes it got as much political love as homeownership
I’ve never yet found a government that devoted more political resources to rental than homeownership. Partly this is simple political calculus – most modern societies (both rich and poor) are predominantly homeownership, so promoting homeownership is where the votes are. Yet even on a per-capita basis, homeownership is favored.
The deductibility of home mortgage interest is a tax expenditure of $85 billion annually equal to roughly 2½ times the aggregate HUD budget. Add to that the deductibility of real estate taxes ($14 billion a year), and the capital-gains exclusion on sale of a principal residence ($30 billion) and as a nation we spend about $130 billion annually on Federal incentives for homeownership, about four times the entire HUD budget.
The disparity is even greater outside the
B. Everybody needs rental at some time in their lives. While there are plenty of benefits of homeownership, in our modern world – and this is true both for the developed, economic world and the emerging nations and cities of the global south – some part of everyone’s life is spent in rented accommodations.
Most people start their families in rental and move to owned homes
* If we don’t need rental and roommates immediately after high school or college, we need rental when we’re a young single or couple trying to minimize our monthly expenditures.
* We need rental when we care about labor mobility to follow the jobs and to create our careers.
* We need rental when we want to cut our housing expenditure and our housing consumption.
* We need rental when the children are grown and we want to move out of a too-big house and back into urban living, for a short walk to a longer life.
* We need rental as our physical and psychological horizons shrink, and we want others to take care of us.
Home builder propaganda, with remarkable reasoning – see below
The pamphlet’s logic notwithstanding, rental is cheaper than home ownership. Partly this is ecosystemic, partly it’s economic – renters consume less housing per family than do homeowners. What’s amusing about the1922 pamphlet are the lengths it goes to manufacture a favorable comparison:
The Owned Home Reduces the Cost of Living
If you can’t read the fine print in the image, here’s some of the cost savings in family expenses claimed for 1922 homeownership:
C. Rental is harder to do right. Compared with homeownership, rental is more complex to own, to manage, and to finance, for numerous reasons:
Longer use and risk periods. In homeownership, the financier and developer are in the transaction only from groundbreaking trough sale. The long-term loan is an investment in the owner-occupant, and personal home mortgages are recourse. Recent subprime developments notwithstanding, lending for owned homes is generally safe.
Making the economics work. Market apartments have one goal – maximizing NOI. Affordable apartments, which balance economics and affordability, have an ongoing inherent tension, and it’s easier to slip.
The perfect balance seldom arises naturally
Public-private partnership. Affordable rental, with its dual mission, requires public-private partnership because government makes a much better regulator than owner.
Means-testing can be a poverty and dependency trap. Over the last eighty years, as we have worked continuously on the eternal problem Why are people poor?, we’ve tried multiple approaches to housing and family assistance. None of them have worked very well, and some – like well-intentioned means-tested and means-adjusted rents – have very nasty unintended consequences, like creating high barriers to employment.
Let’s make sure the incentives work right in rental, too
Each of these challenges requires a time-and-place-specific solution, and ongoing vigilance and operational capacity. All this makes rental a harder tenure to make work in policy terms.
When urbanites think happy, do they think apartments?
D. Poor people require more government help than rich ones. Affordable housing always costs money – and the amount rises as people get poorer. Because housing effective demand is elastic, people can afford to pay about 30% of their income for housing costs; they always have to choose whether to pay more or consume less.
Meanwhile, you are what you live in, and if we wish to grow responsible adults and healthy families, we have to give them quality housing. That costs money – more money for poorer people.
As a society, as a polity, we often shrink from paying what we should.
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