Tenure Forms and the Household Economic Ladder


The utility of a diversified range of legal forms [1] of tenure

Most households rate homeownership an important family goal: it provides tenure security, it builds wealth, and it signals permanence and community engagement.

Short of homeownership, many households rent, which is less demanding both economically (occupancy cost) and operationally (tenants merely pay rent, homeowners maintain property, argue property tax rates, and make improvements).

All urban societies have both homeownership and rental in some proportions and in some variations. But the gap from pure rental to homeownership is large: down payment, financial literacy, mortgageability, and family situation/ stability all can represent obstacles to households seeking to move to homeownership.

To bridge these gaps, many nations have developed intermediate legal forms, usually as part of an overall affordable housing or community development strategy and frequently involving government incentives, regulatory schemes, or subsidies.

 

Ranges of tenure used broadly and successfully

In rough descending order by capacity required of the householder, ranges of legal tenure successfully and broadly used throughout the world include:

 

1. Home ownership

The most common approach and the one best suited to an economically viable, financially literate, aspirant class.

Works best in environments with long-term financing in a stable (preferably fixed rate) interest environment and in a context of reliable electronic information flow and electronic banking.

 

2. Condominium/ sectional title

Multiple apartments or homes on a single stand or building. Each owner/ householder owns (a) its apartment or home, and (b) rights of access/ participation in control over common spaces.

Creates economies of scale (construction, operation, maintenance) and enables improved or more professional management, while providing economic benefits of ownership for the sectional unit. (In the US, a very common form of first home for urban professionals in high-cost environments.)

 

3. Co-operative

Similar to condominium/ sectional title - multiple homes in a single property development - except that property ownership is held via a group entity in which each household is a shareholder and each shareholder has rights of occupancy on a single unit.

Used in a variety of situations where it is appropriate to circumscribe the shareholder/ unit occupant's rights. May be differentially taxed than straight homeownership or condominium/ sectional title. (The dominant joint ownership vehicle in New York City.)

 

4. Limited-equity co-operative

Same as co-operative except equity buildup is regulated so that on resale, the exiting household captures some appreciation but the next incoming household also has a bargain element.

Almost invariably has a government involvement, both in providing resources (to reduce cost and increase affordability) and in regulating the property or individual unit transfers and prices over time.

 

5. Right-to-buy

Rental but where the occupant gains the right to buy the unit (probably from a condominium/ sectional title ownership entity that developed the property) for a formula price at specified intervals.

Right to buy was used with dramatic effect in the UK under PM Thatcher, when vast quantities of social housing stock owned by local authorities was (and in some cases is still) sold to sitting tenants at stipulated prices. UK right-to-buy revolutionized a moribund UK system but at an enormous cost to the Treasury, a windfall wealth transfer to some fortunate households, and with a huge loss of affordable stock. It remains politically charged in the UK.

 

6. Shared ownership

Effectively, an economic joint venture between a sponsor (landlord, lender) and a household (renter, buyer) whereby the household both owns a portion of the unit (with down payment and higher debt service requirements) and rents the remainder (usually at a stipulated or formula rent).   The householder normally also has a series or continuous (open-ended option) to acquire increments of ownership (again, normally on a formula basis) until eventually full ownership is transferred.

Used extensively in the UK, often as part of mixed-tenure schemes or in urban regeneration environments.

 

7. Rental (conventional)

An essential (if minority) component of all healthy housing ecosystems because it reflects the reality that households need and desire to consume more or less housing over a person's life; particularly before children arrive (family formation, job mobility) and after they leave (reduced need for space, less interest in equity buildup).

Represents approximately 26% of all household tenures in the United States. [2]  In the last decade, has undergone an enormous consolidation as corporatized capital (via REITs) has brought economies of scale to all aspects.   A significant contributor to the US's labor mobility.

 

8. Resident controlled non-profit rental

Analogous in goals to limited-equity co-operative, a multi-home property is owned by a legal entity that is itself non-profit, and thus the entity either delivers affordable rentals (via formulas designed to assure financial viability but limited cash return) or redeploys its profits into resident services or benefits.

Very common in the US among existing properties, especially if they have been preserved for permanent affordable use.

 

9. Affordable rental

From the resident's perspective, straight rental except that rents are held to an affordability standard (myriad formulas and structures are possible) via a combination of government ownership, regulation, authorization, financial incentives, or financing.   Owners may be for-profit, non-profit, or government.   Experience has largely discredited the direct-government model in favor of regulated public-private partnerships.

Used for 35 years in the US, where it has resulted in over 4,000,000 homes (via over a dozen major programs) representing about 6% of all US tenures.

 

10. Informal rental

Rental of apartments (frequently substandard or sub-size) by a local occupant-owner.   The tacit bargain is that the household gains maximum affordability (lowest cost) while the landlord provides minimal product and minimal if any services.   Superior to homelessness (and frequently used in fusion and developing nations).

Very common in developing and fusion countries.

 

Notes

 

[1] Here we are distinguishing between legal forms (namely, the manner in which a unit is held and the legal-economic relationship between owner and householder) and physical forms (namely, the type of unit, its amenities, configuration, and so on). Physical-form variation (including single-room-occupancy, group or assisted living, multi-household occupancy, and so on) is a second form of variation that we believe should be encouraged.

 

[2] US household tenures are 68% homeownership (including condominium/ sectional title, which is not separately counted), 26% conventional rental, and 6% affordable rental in all forms.