Tag Archives: homeownership

Argument: the rise of the American rental economy

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Even though ownership seems engrained in the American psyche, Daniel Gross argues that recent economic troubles are pushing the United States to a rental economy which may just thrive in the years to come:

In the American mind, renting has long symbolized striving—striving, that is, well short of achieving. But as we climb our way out of the Great Recession, it seems something has changed. Americans are getting over the idea of owning the American dream; increasingly, they’re OK with renting it. Homeownership is on the decline, and home rentership is on the rise. But the trend isn’t limited to the housing market. Across the board—for goods ranging from cars to books to clothes—Americans are increasingly acclimating to the idea of giving up the stability of being an owner for the flexibility of being a renter. This may sound like a decline in living standards. But the new realities of our increasingly mobile economy make it more likely that this transition from an Ownership Society to what might be called a Rentership Society, far from being a drag, will unleash a wave of economic efficiency that could fuel the next boom.

While downgrading the place of ownership in the American psyche may sound like a traumatic task, the cold, unsentimental fact about the American dream is that Americans never really owned it in the first place. For the past three decades, especially, consumers haven’t so much bought their quality of life as they’ve borrowed it from banks and credit card companies. And since the Great Recession, Americans have been busy rebuilding their balance sheets and avoiding new financial encumbrances. When American consumers can’t—or won’t—borrow to purchase the goods and services they’ve come to consider part of their standard of living, how does the economy get back on its feet?…

It’s tempting to view the rise of rentership as an economic step backward. Renters can’t build up equity, and they have less control over their living standards than owners. Renting is generally seen as something you do when you’ve failed as a homeowner or are not yet ready to be one. But I’d argue the rise of rentership is a sign of a system adapting—albeit too slowly—to new realities.

The U.S. economy needs the dynamism that renting enables as much as—if not more than—it needs the stability that ownership engenders. In the current economy, there are vast gulfs between the employment pictures in different regions and states, from 12% unemployment in Nevada to 3% unemployment in North Dakota. But a steelworker in Buffalo, or an underemployed construction worker in Las Vegas, can’t easily take his skills to where they are needed in North Dakota or Wyoming if he’s underwater on his mortgage. Economists, in fact, have found that there is frequently a correlation between persistently high local unemployment rates and high levels of homeownership.

An interesting argument.

I wish Gross would explore the implications of this further. Perhaps for the “average” American, renting will make sense  in the future. It has several clear advantages: it doesn’t require one to take on a lot of upfront debt. This is most clear with mortgages: how many people will want to take on that amount of money when conditions can change quickly? (Does this idea about renting have any application for the other popular debt topic these days: college loans?) Second, it allows consumers to pick and choose more. If you are renting with a yearly lease, you have some freedom to adapt to changing circumstances. (There also could be some negative pressures due to rising rents, actions of landlords, etc.) If there is something that Americans like even more than ownership, it is choices. You can also see this trend in media options: we are moving away from a system of ownership to buffet or a la carte models where you can access thousands upon thousands of songs and movies on demand. Third, this seems like a classic American argument: the times are changing and there is money to be made by more quickly seizing on the new realities!

But there could also be some downsides to this. First, someone must still own things like housing units and rights to digital media. Will ownership be consolidated in the hands of a few? What happens if the few want to restrict access to their products? Does a society based more on the renting of housing units inevitably require things like rent control? Second, there is a long cultural history in the United States that ties renting to transience and lack of concern for the local community. For example, many suburban communities have resisted the construction of apartments because the perception is that people who live in apartments don’t contribute long-term to a community in the same way that homeowners do. (Of course, there are other reasons suburbanites resist apartments, including issues of race, class, and property values.) At its most blatant, homeownership was seen as a bulwark against Communism. These cultural biases can be overturned but it won’t necessarily come quickly or easily. Third, are there other aspects of life that would have to change to accommodate a shift to renting? Can widespread renting of homes work in suburbia? Can Zipcar exist in less dense areas? In other words, is this just about renting or about large-scale adjustments to American society based on new realities?

This bears watching. Is this the end of the dream of some of an ownership society?

President Obama vs. Mitt Romney on dealing with housing crisis

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Even though President Obama and Mitt Romney are not officially running against each other yet, they have presented contrasting plans to deal with the housing crisis. Yesterday, President Obama offered a new “revamped refinancing program” that would help 1 to 1.5 million homeowners:

Under Obama’s proposal, homeowners who are still current on their mortgages would be able to refinance no matter how much their home value has dropped below what they still owe…

At the same time, Obama acknowledged that his latest proposal will not do all that’s not needed to get the housing market back on its feet. “Given the magnitude of the housing bubble, and the huge inventory of unsold homes in places like Nevada, it will take time to solve these challenges,” he said…

Presidential spokesman Jay Carney criticized Republican presidential candidate Mitt Romney for proposing last week while in Las Vegas that the government not interfere with foreclosures. “Don’t try to stop the foreclosure process,” Romney told the Las Vegas Review-Journal. “Let it run its course and hit the bottom.”

“That is not a solution,” Carney told reporters on Air Force One. He said Romney would tell homeowners, “‘You’re on your own, tough luck.'”

How much of these proposals is about looking for votes versus actually seeking out a plan that will help ease dropping home values, foreclosures, and a housing glut?

At the same time, the Washington Post reports that government efforts in recent years haven’t helped much:

President Obama pledged at the beginning of his term to boost the nation’s crippled housing market and help as many as 9 million homeowners avoid losing their homes to foreclosure.

Nearly three years later, it hasn’t worked out. Obama has spent just $2.4 billion of the $50 billion he promised. The initiatives he announced have helped 1.7 million people. Housing prices remain near a crisis low. Millions of people are deeply indebted, owing more than their properties are worth, and many have lost their homes to foreclosure or are likely to do so. Economists increasingly say that, as a result, Americans are too scared to spend money, depriving the economy of its traditional engine of growth.

The Obama effort fell short in part because the president and his senior advisers, after a series of internal debates, decided against more dramatic actions to help homeowners, worried that they would pose risks for taxpayers and the economy, according to numerous current and former officials. They consistently unveiled programs that underperformed, did little to reduce mortgage debts owed by ordinary Americans and rejected a get-tough approach with banks.

Too risky meaning that it was politically untenable when more people are concerned with risk and deficits?

The conversation about housing could play an interesting role in the 2012 elections as both parties look to claim the mantle of defenders of the American middle-class dream of homeownership.

Conservatives getting behind mortgage modifications?

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A journalist argues that conservatives are starting to argue that the federal government should step in and help homeowners stay in their homes:

Mortgage modifications have been a key pillar of the progressive response to the economic downturn–and they’ve been one focus of the Occupy protests that have sprung up across the country lately. The Obama administration offered its own such program in 2009, though it has helped far fewer homeowners than anticipated, thanks to a flawed design. But until lately, conservatives had by and large opposed the idea, arguing, as Santelli did, that taxpayers shouldn’t be forced to pay for borrowers’ bad decisions, and that banks shouldn’t have their actions constrained by government.

So what’s changed? By and large, policy hands and political leaders alike recognize that the economy isn’t going to get better on its own, at least not any time soon,. There’s a widespread consensus that until the United States tackles the massive overhang of housing debt–American homeowners’ wealth has fallen by a stunning 40 percent since 2006–the economic recovery won’t gain steam. As Feldstein wrote: “The fall in house prices is not just a decline in wealth but a decline that depresses consumer spending, making the economy weaker and the loss of jobs much greater.” Rogoff, too, views the crushing volume of personal debt as an unaffordable drag on growth. “Simply put, you can’t operate an economy where huge numbers of people are desperately in debt and have no real way out,” he argues.

Hubbard originally offered a modification plan in 2010 as a way to avoid another “costly stimulus package” designed to spur consumer demand. But he, too, may also recognize that mortgage modification, though necessary for the health of the economy, is likely to be politically unpopular. If so, better to have President Obama take the hit, rather than a future Republican president—like, say, President Romney.

Of course, right and left don’t see entirely eye-to-eye on the issue. Dean Baker, an economist with the liberal Center for Economic and Policy Research, last week slammed Feldstein’s plan as too soft on banks and a bad deal for struggling homeowners. And it’s hard to imagine that Republicans in Congress would react favorably to an aggressive mortgage modification proposal from the Obama administration.

So if this is true – and “three instances” doesn’t a trend make even as this journalist suggests – what is happening?

1. Conservatives are recognizing that the mortgage debt is holding up the larger economic recovery. If people can’t move, they can’t go to the open jobs. The debt doesn’t allow them to spend on other consumer items. If government involvement can move people past this logjam, then the “free market” can work again. Desperate times mean that political ideology has to be bent a little.

2. As the journalist suggests, they only back this when a Democrat is in charge.

3. This is pandering for votes. American culture has a dream of homeownership – neither party wants to be against that.

This bears watching. Of course, the devil is in the details: who is actually going to support what? Who is going to pay for this? How many homeowners could be helped?

President Obama and Republicans fighting over the votes of the “monied burbs”

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President Obama’s campaign is looking to target voters in the “monied burbs” as part of their broader election strategy:

In his 2008 victory, Mr. Obama broke through among several important voter groups. Exit polls showed that he carried suburbanites, college graduates and those earning more than $200,000.

Mr. Obama won handily in areas that the research organization Patchwork Nation calls “Monied ’Burbs.” Residents of these high-income suburbs, which add up to roughly a quarter of the United States population, tend to be less religious and more tolerant of homosexuality and abortion rights, said Dante Chinni, Patchwork Nation’s director.

They narrowly backed Republicans in the 2010 House elections. Their disappointment over the economy cloud Mr. Obama’s 2012 re-election prospects.

But their distance from the Republican right on social issues gives Mr. Obama a tool for fighting back…

Republicans have their own strong economic arguments for upscale suburbanites, including Mr. Obama’s proposals to raise taxes on households earning more than $250,000. Those will echo Democrats’ 2004 warnings to working-class voters — that social issues obscured how Mr. Bush had hurt their pocketbooks.

The idea of the “monied burbs” was covered in more detail in Our Patchwork Nation. The description in this particular NYT article sounds suspiciously like David Brook’s Bobos, educated suburbanites who are attracted by the suburb’s good schools, single-family homes, and emphasis on family but are more liberal on a number of social issues.

I wonder if we could go so far as to suggest that the suburbs will decide the 2012 elections: will the independent voters in “monied burbs” and inner-ring suburbs vote for President Obama or a Republican challenger? We have some evidence (also here) that these voters helped decide the most recent elections. Does this mean we will have an uptick in rhetoric about the American Dream and homeownership?

The guilt of over living in a McMansion

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While it is clear that a number of people think that owning a McMansion is a negative thing, I haven’t seen as much reaction from the people who actually live in the homes that others would derisively call McMansions. Amidst a farewell to an “environmental pioneer” who recently passed away, here is one person’s experience of owning a McMansion:

Linda tried to live sustainably long before it was chic and was always health conscious. More than a decade ago, she was reading food labels to avoid eating anything with high fructose corn syrup. She was the first person we knew to drive a Prius.

When Alex and I bought a McMansion nine years ago in McLean, Va., after living in a small bungalow, I felt self-conscious inviting her over, as if we had somehow let her down.

Linda became an informal adviser after we sold what Alex called our BAH (big a– house) in December 2009 and embarked on building an energy-efficient home half the size in the neighboring, walkable town of Falls Church. She, John and their son, Eli, were the first friends we had for dinner in June once the house was habitable. We had talked so much about the project that I knew she’d share my enthusiasm. Besides, she’d understand our green house better than I do.

When she saw the spray foam insulation in the unfinished storage room, she lamented that she didn’t have any in her house, which she had retrofitted as best she could. Yes, she had spray foam envy!

While this is just one story, I wonder if it hints at a broader explanation. Are tastes for or against a McMansion be primarily dictated by one’s reference group? Once you are in a McMansion subdivision (not the teardown variety where there could be other home sizes), presumably there is less judgment about the other houses. But if your friends and family don’t approve of such homes, there would be some dissonance.

The key moments for understanding who does or does not buy McMansion would come at two points:

1. When moving into a new house. While it ultimately is a decision made by the future homeowners, all sort of other people include family members, real estate people, and friends have input.
2. When hosting people from outside the neighborhood in the house. This could get particularly interesting if the homeowners and visitors have differing views about suburbs and home styles.

I think we need some research into this topic: what is the lived experience of McMansion owners and what happens when they encounter criticism for their choice in homes?

Americans want smaller homes but are still looking online at big ones

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There have been several indicators in recent months that Americans are interested in smaller homes. But what if they say they would purchase smaller homes but are still looking at bigger homes? An economist for Trulia.com discusses this:

We asked people to tell us their ideal home size. They’re shunning super-sized homes, the McMansions. Only 6 percent of Americans say their ideal home size is more than 3,200 square feet. Thirty-two percent said they see the ideal home at 1,401 to 2,000 square feet. About 27 percent said 2,001 to 2,600 square feet.

This is partly due to the economic troubles of the recession and recovery. But this could be part of a permanent shift toward smaller homes. And it could reflect baby boomers wanting to downsize and increasing environmental awareness, with some people wanting a smaller environmental footprint.

On the other hand, when we look at the homes that people view on our site — even though only 6 percent of the people in our survey said the McMansion size range was ideal — 27 percent of the property views people are looking at are of that size. So even though people aren’t saying those large homes are their ideal size, they want to see what these homes look like and want to dream big.

This disconnect could be explained in several different ways:

1. Americans look at bigger houses online because it is free. These days, one can look at hundreds of homes and get a good idea what is on the market. Perhaps we would need to ask realtors about what sized homes people actually ask to see.

2. Americans actually do want to buy bigger homes but they know the economic realities and perhaps even the cultural shift and so say they would want a smaller home. As the economist suggests, Americans simply like to dream big. This certainly wouldn’t be the first time that self-reported actions and aspirations don’t match up. If the economy picked up, we could then figure out whether the shift toward smaller homes is real or was a reaction to the economic crisis.

3. Americans want to look at bigger homes because they want the features of the bigger homes in a smaller home.

Time will help us figure out which of these interpretations is most accurate as would more data.

You can read Trulia.com’s press release concerning the survey here and a more  interpretation here. The web survey involved some weighting:

Figures for age, sex, race/ethnicity, education, region and household income were weighted where necessary to bring them into line with their actual proportions in the population. Propensity score weighting was used to adjust for respondents’ propensity to be online. These online surveys are not based on a probability sample and therefore no estimate of theoretical sampling error can be calculated. For complete survey methodologies, including weighting variables, click here.

“Not based on a probability sample” is usually a problem for surveys, even if proper weights are assigned to results. I would like to see some more thorough survey data on some of these issues.

Misleading Chicago Tribune headline about Illinois foreclosures being up 18% in August?

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Here is a prominent headline featured on the front of the Chicago Tribune‘s web page early yesterday: “Illinois foreclosures surge nearly 18% in August.” Based on the headline, this sounds like bad news for the Illinois housing market. However, if you read into the story, the news isn’t all bad and perhaps some of it could even be interpreted as being good:

Illinois home foreclosure activity rose 17.6 percent in August compared to the previous month…

The filings represent one in every 424 housing units in the state. That rate is almost 26 percent lower than in August of last year and eighth-highest nationally.

RealtyTrac says the increase in many states likely is due to lenders resolving paperwork processing problems that had delayed many foreclosures. And it may signal more bank repossessions in coming months…

The number of U.S. homes that received an initial default notice — the first step in the foreclosure process — jumped 33 percent in August from July, foreclosure listing firm RealtyTrac Inc. said Thursday.

The increase represents a nine-month high and the biggest monthly gain in four years. The spike signals banks are starting to take swifter action against homeowners, nearly a year after processing issues led to a sharp slowdown in foreclosures.

There are a couple of trends going on here. First, foreclosures may be up nearly 18% from July 2011 to August 2011 and this sounds bad. But, compared to last August, the rate of foreclosures is down just over 25%. Isn’t this good news for Illinois homeowners?

The second trend is that it appears the rate of foreclosures might be picking up because lenders may now be moving more quickly against residents behind in their payments. This would be bad for these residents but might also be good as it means that foreclosures might be more quickly removed from the market rather than dragging out the process and having a longer negative effect on nearby housing prices.

I know headline space is limited understanding the nuances about this particular foreclosure statistic seems quite important. The news about a “surge nearly 18%” will catch people’s attention but there has to be a better way in the headline to reflect what is behind this number.

The Atlantic declares “The Beginning of the End for Suburban America”

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While this is not the only recent claim that the suburban era in America is coming to an end, this piece still has a bold headline and claim:

In the years following World War II, the United States experienced an unprecedented consumption boom. Anything you could measure was growing. A Rhode Island-sized chunk of land was bulldozed to make new suburbs every single year for decades. America rounded into its present-day shape.

Along the way, there were three inexorable trends at the base of the societal pyramid. First, we plowed more energy into our homes each and every year. We cooled and heated our houses more (sometimes wastefully, sometimes not), brought in more and more appliances, added televisions and computers and phones. Per capita electricity shot up from about 4,000 kilowatt-hours per US resident to over 13,000 kilowatt-hours by the 2000s. Second, we needed more electricity because our houses got huge. The median home size shot up from about 1,500 square feet in the early 1970s to more than 2,200 square feet in the mid-200s. Third, we drove more and more miles every year to get around and between our sprawled-out cities. Back in 1960, Americans drove 0.72 trillion miles. By 2000, that number had reached 2.75 trillion miles. In 2007, vehicle miles traveled hit 3.02 trillion…

Taken together, the end of growth in residential electricity consumption and vehicle miles traveled form a momentous signal. The United States we all grew up with is changing, or rather, it’s changed and the numbers are beginning to reflect that. The growth in housing size, electricity demand and miles traveled were the hallmarks of the suburban/exurban era. They were the statistics of sprawl — but also of economic growth. Now that their relentless upward march has stopped, what happens? We need a new model for American prosperity that doesn’t require ever greater injections of fossil energy. That’s a generational challenge that hasn’t been captured by the pro- or anti-green jobs rhetoric here in Washington.

Two quick thoughts come to mind:

1. I wonder if these are symptoms regarding sprawl and don’t really tell the full story of what is happening. None of these factors alone makes sprawl happen. Many would argue that certain government policies, stretching back to the New Deal and decisions made to spend government money on interstates and roads and make mortgages more affordable. Such policies are still in place: more money is spent on roads than mass transit, there is much talk about how to boost home sales and write off mortgage debt, and how to lower the price of gasoline. Could these figures cited in this article simply be reactions to certain market factors and not reflect deeper cultural and political shifts?

2. We’ve heard this story about the end of sprawl before. I was reminded of this when my American Suburbanization class recently finished Kenneth Jackson’s 1987 classic Crabgrass Frontier. In the final chapter, Jackson also suggests that American suburban growth will eventually slow, probably due to energy problems. This article in The Atlantic and Jackson are not the only people predicting this: many more have said that the suburbs are unsustainable and eventually Americans will have to pursue other development forms. But harkening back to my first point, whatever crisis may arise still has to be big enough to overcome an established cultural and political ideology that supports suburbs. In terms of miles driven, what if electric cars make driving cheaper (or, “Is a Car Battery Subsidy Just a Sprawl Subsidy?”)? What if new technology can ensure that McMansions are energy efficient? Who wants to be the first politician to tell voters that the suburban dream of a single-family home on at least a little yard in a good neighborhood is no longer attainable? What if the economy picks up again and homes get larger again?

In the end, how do we know that this is really the point where we have turned a corner and the American suburbs are now on the decline? Could the future suburbs be more dense, a la New Urbanist developments, and more energy efficient while retaining their key suburban traits? These three statistics do suggest something has changed – but there is a long way to go before we can write off the American suburbs.

More difficulty with housing vacancy data

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I’ve written about this before but here is some more evidence that one should be careful in looking at housing vacancy data:

In early 2009 the Richmond, Virginia press wrote numerous articles after quarterly HVS data on metro area rental vacancy rates “showed” that the rental vacancy rate in the Richmond, Virginia metro area in the fourth quarter of 2008 was 23.7%, the highest in the country. This shocked local real estate folks, including folks who tracked rental vacancy rates in apartment buildings in the area. The Central Virginia Apartment Association, e.g., found that the rental vacancy rate based on a survey of 52 multi-family properties in the Richmond, VA metro area was around 8% — above a more “normal” 5%, but no where close to 23.7%. And while the HVS attempts to measure the overall rental vacancy rate (and not just MF apartments for rent), the data seemed “whacky.”

When I talked to Census folks back then, they said that there quarterly metro area vacancy rates were extremely volatile and had extremely high standard errors, and that folks should focus on annual data.

However, “annual average” data from the HVS showed MASSIVELY different rental vacancy rates in Richmond, Virginia than did the American Community Survey, which also produces estimates of the vacancy rate in the overall rental market…

There are several other MSAs where the HVS rental vacancy rates just look plain “silly.” Some Census analysts agree that the HVS MSA data aren’t reliable, and even that several state data aren’t reliable, but, well, er, the national data are probably “ok” – which they are not.

If you want to read more on the issue, there are a number of links at the bottom of the story.

If the estimates are so far off from other estimates generally regarded as being reliable like the American Community Survey or the decennial Census, it would look like a new system is needed to calculate the quarterly vacancy rates.

I wonder how much these figures could hurt a particular community. Take the case of Richmond: if data suggests the vacancy rate is the highest in the country even though it is not, is this simply bad publicity or would it actually affect decisions made by residents, businesses, and local governments?

Stereotypes of apartment renters

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Americans who are homeowners, whether they own single-family homes, condos, and townhomes, are typically regarded as respectable, hard-working, and upstanding citizens who have sought after the American Dream. But there are different opinions regarding those who rent apartments. Here is an example from Manteca, California:

You rarely see landlords for single family homes that stringent and quite frankly, not all homeowners could pass such muster.

That is why it is a tad absurd that a number of homeowners when confronted with news that someone is proposing a $30 million apartment complex in their neighborhood believe it will be allowed to be occupied by rowdy, inconsiderate slobs, who will park cars all over the adjoining neighborhood and pursue a lifestyle that will drive home prices down.

If you want to see such behavior, there are plenty examples in Manteca neighborhoods – including those built since 2000.

No one is debating that there aren’t examples of somewhat trashy older apartment complexes that let everything go to hell. In Manteca, though, they are fairly rare due to the aggressive stance the city has taken. And in fairness to many owners of smaller and older apartment buildings in town where rents definitely are more affordable they are doing a good job of keeping their complexes in shape and devoid of problem tenants.

To go after single family homes whose tenants create such problems is much more difficult as often a landlord will have only one or two homes and live out of the area.

It is also true that the much more stringent construction and development standards of today make it next to impossible for rents for new complexes to be relatively low. That is why Paseo Apartments starts out at $975 a month for a one bedroom and one bathroom apartment.

In my research on suburban development, I found a number of examples where suburbanites were opposed to apartments because of the type of people who live in apartments. One complaint was about the transient nature of apartment living. The assumption was that single-family homeowners are more rooted in a community while apartment dwellers move more frequently and care less about individual municipalities. Having too many apartments would mean that a greater proportion of residents wouldn’t really care about the community. This was commonly tied to the disruption of a community’s single-family home character

But a second complaint included thoughts about low-income residents and seemed tied at times to race and ethnicity. Since these suburbs were heavily white, apartments were seen as places where less wealthy and non-white residents could live. Such residents might engage in more uncouth behavior, sullying the reputation of idyllic, white suburbs. Apartment complexes are viewed as crime magnets because lower-income, non-white residents are assumed to be more prone to crime.

It sounds like both issues might be taking place in Manteca: even nicer apartment complexes with high rents and amenities are not granted the moral equivalency of a nice single-family home neighborhood. Additionally, the author tries to point out that there is anti-social behavior in single-family homes as well as apartment complexes but this isn’t often recognized.

With all of the talk about more multi-family housing construction, these issues will need to be overcome in many communities.

(Side note: a third complaint about apartments I found is the argument that apartments don’t generate enough tax revenue for the services that will be required. This commonly is tied to school funding as apartments, depending on their price and size, might attract more families who will overburden the schools. So senior apartments might be more likely to be approved than three or four bedroom apartments that will likely draw families to the community.)