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TechnoratiOwn to Rent: Yes, We Can!
It seems to work for Barack Obama, why not progressive housing policy? Just to remind everyone where we left off, we are at the beginning of a recession induced by the collapse of an $8 trillion housing bubble.
The bubble burst because high prices led to oversupply, which eventually led to downward pressure on house prices. (Economists used to understand this is the way markets work.) The immediate impact of the collapse of the bubble was on the housing sector itself, with sales down by almost 40 percent compared to 2005 peaks, and housing starts down by almost 50 percent.
The downturn in housing was a big hit to the economy, however, the cause of the recession is people can no longer borrow money against their home. For the last six years, millions of homeowners used their houses as ATM machines, withdrawing equity almost as fast as their homes went up in price. This allowed consumption to sustain a rapid growth rate even with weak job growth and stagnant real wages.
Now this process is working in reverse. With house prices falling, millions of homeowners no longer have any equity against which to borrow. This is the cause of the sharp decline in car purchases and retail sales we have seen in recent data. This is leading to a downward spiral in which lower sales lead to layoffs, which in turn force further cutbacks in consumption and sales.
This is what a recession looks like, and there is probably nothing that can be done at this point to prevent a recession, although an aggressive stimulus package can help to ameliorate the effects of the downturn. The measure going through Congress is a positive step, even if it is inadequate for the size of the downturn facing the economy.
While we can't prevent the recession, we can try to do something about the millions of people who face the loss of their home. The latest data show houses are now being foreclosed at a rate of almost 170,000 homes a month, a record high.
The government can't shield every homeowner from the collapse in house prices, but it can help out the most vulnerable among this group. The simplest way to help moderate-income homeowners facing foreclosure is to adopt an "own to rent" policy under which the rules on foreclosure would be temporarily changed to allow moderate-income homeowners the option to remain in their home as renters.
Under this own to rent plan, the judge handling a foreclosure would call in an independent appraiser, who would determine the rental value of a house in the same way an appraiser determines the sale value of a house before a bank issues a mortgage. The homeowner would then have the option to remain in the house as a tenant, paying the rent determined by the appraiser.
This policy would provide some security to millions of moderate-income homebuyers. They would have the assurance they would not be thrown out on the street by a foreclosure. More importantly, this own to rent policy would provide the mortgage holder with a very strong incentive to negotiate terms that allow the homeowner to keep ownership of their house because banks are not interested in becoming landlords.
This is a very simple policy that can be carefully targeted to help those most in need. For example, the option to rent can be limited to homebuyers who purchased a house that sold for less than median house price in an area. That way, the policy doesn't help people who bought million-dollar houses. This policy also has the benefit that it will not help speculators or those who committed fraud in getting their loans. The option to rent is of no value to these people.
In the run-up of the housing bubble, millions of moderate-income families purchased homes, following the advice of politicians, investment advisors, economists, community groups, and a lot of other people who should have known better. The poor should not again be forced to pay for the bad judgment of the policy elites. Own to rent is a very simple policy that can make a huge difference for millions of people. In the absence of a better proposal, Congress should have it at the top of its agenda.
Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer ( www.conservativenannystate.org). He also has a blog, "Beat the Press," where he discusses the media's coverage of economic issues. You can find it at the American Prospect's web site.
27 Comments so far
Show AllBuying up wouldn't have been possible for the bottom 90% without a mortgage. Rampant lending encourages rampant speculation.
Let's be clear: the bailout will NOT help realize the dream of homeownership in the United States.
The bailout will not allow the 33% of Americans who are currently renters to transition into homeownership. In fact, it will have the unintended (or perhaps it *is* intended?) consequence of locking that 33% out of the housing market for the foreseeable future.
Why? The housing market was driven up to unsustainable heights by greedy and gambling people of all socioeconomic backgrounds who insisted on buying more house than they could afford. That drove housing prices through the roof, cutting the lower income and more financially responsible people out of the market completely.
Housing prices won't come back to earth until those who overspent are foreclosed on. Allow it to happen and then the hard-working Americans who are currently renting will be able to buy.
I can't decide whether so-called advocates for the poor -- who limit their arguments to "rent" -- just haven't thought this through carefully, or are shills for wealthy developers and real estate tycoons, slum lords. Probably yes and yes.
The very existence of rental property drives real estate up in price. It causes POORER potential buyers to be excluded from the potential ownership market, thereby raising prices on everyone.
What are advocates of the poor going to suggest next? Tenant farming for rural people? Be a good little peasant, and leave matters of ownership to the crown?
Renting is the most despicable concept in our society, a vestige of serfdom. I'd take either affordable real estate to-own OR full socialism before renting!
Any progressive worth his salt has read Kropotkin, the Absentee Landlord problem, understands that Big Boxes are a modern extension of this (one-way economic pumps or siphons which pull wealth out of communities, and into non-local economic systems).
Renting is despicable. IMHO, there are no genuine progressives advocating for it. Cheap real estate to-own -- based on supply/demand -- or communal property. The middle-ground is where all the indignities occur. Think for a moment what so-called advocates of the poor are promoting when they limit their arguments to "affordable rent". The flipside of that coin is the ownership society. They're advocating FOR wealthy owners of complexes, speculators, distant owners of real estate, distant control of local economics, the whole nine yards. The West went down that path over a century ago. Look no further than Kropotkin.
HAR!
This is just so 'opposite of everything' that is going to follow, soon...!
Does this guy REALLY think all of that deliberate/hard-'work' of decades of planning/crafting the destruction of the 'American middle-class that wasn't' is going to result in something actually "sensible, and good for the Economy or/and the People"?
What a 'dreamer'...!!
>http://www.globalresearch.ca/index.php?context=va&aid=8032
this is THE article you need to read regards your/my State
>>pension-'ratings' of "AAA" and these related-schemes...read that, then this:
>http://www.globalresearch.ca/index.php?context=va&aid=8033
Then Click My Name (this all started a LONG time ago!).
In the subprime housing crisis one can see how sane the system is that tries to make us believe they are capable of running the planet. Even respectable institutions like the Credit Suisse had to write off substantial losses. Since more than 2 years subprime credits, the housing bubble and the inevitable bursting of the bubble has been discussed broadly in the media. Everybody knew what's wrong: Credits given to people without security, a rise in prices for housing that had to have an end etc. But greed and lying prevailed and so the housing crisis exposed finance institutions, banks etc. as what they are: Incapable of doing anything for the greater good, incapable and unwilling to look beyond a short-term profit, lying to each other and to themselves, dominated by the dynamics of greed. These are the institutions we trust in ? Whatever the problem, if it cannot be solved by short term profit and greed, it cannot be solved by our financial institutions. Make a fast buck by betting on oil prices ? They can do that. Prevent the worst effects of climate change ? They cannot. The first step is the realization that financial institutions including banks with a good name are the enemy of the world of the many (they are good for the few who can sit out climate change for generations on their island, thanks to the massive amounts of money they have earned while creating climate change). The second step would be to take the power away from the financial institutions. Here ideas would be really welcome.
We are all Renters on this Planet. The difference is if I am going to work and pay the largest part of my money to rent I want to leave what little bit of what was worked for over a lifetime to my child, so he can startout with a place to call home.
MiMiCcS February 13th, 2008 2:19 am
http://www.webofdebt.com/articles/dollar-deception.php
MiMi,
Thanks for the link. Hope everyone will read it.
PaulM: rents in the UK at least, are historically more than mortgages. The reason they work, is that there are no conditions in place - wage allowance, credit checks, numbers of people living in the property and contributing to the rents. A greedy developer can take a three bedroom house, and rent it to three different people, and make 30% - 50% more profit this way.
By adopting this system, you are again inflating the property prices, because potential landlords can scour the repossession market for cheap properties, to fund their buy to let schemes.
Paul Bramscher: I feel that we have to keep hammering away at the regulation side of things, because this is the only way in which we will see change. You are quite right, when you stress the need to introduce these changes gradually, because this is the only way in which we will start to see the increasing availability, of affordable housing.
So the bank is going to pick up the insurance and property taxes in return for rent and maintenance costs to be paid by someone with bad credit. Ha ha. Too funny.
Also, if I remember, its hard to evict those renting property when they do not pay their rent. If I was the bank, and wanted to go into the rental business, Im would want to pick my own tenant. besides, if property prices recover, the banks will want to sell and having a renter who may not have kept up the property because they no longer owned it makes it difficult.
As mentioned earlier by Paul, the interest being charged is usury interest. Why? Because the banks create the money they loan you out of thin air, why would they be charging those most at risk of defaulting a much higher interest rates than those with good credit (after the subprimes reset). It is not like they are loaning out gold. The money that came into existence did so as a result of the borrower applying for the loan, so why should they be required to pay interest equalling and even exceeding the principal amount of the loan over a 15-30 year period.
There was a court case in Minnesota in 1968 over this issue of "money creation" in a foreclosure suit.
http://www.constitutionalconcepts.org/creditriver.htm
"The above entitled action came on before the Court and a Jury of 12 on December 7, 1968 at 10:00 am. Plaintiff appeared by its President Lawrence V. Morgan and was represented by its Counsel, R. Mellby. Defendant appeared on his own behalf.
A Jury of Talesmen were called, impaneled and sworn to try the issues in the Case. Lawrence V. Morgan was the only witness called for Plaintiff and Defendant testified as the only witness in his own behalf.
Plaintiff brought this as a Common Law action for the recovery of the possession of Lot 19 Fairview Beach, Scott County, Minn. Plaintiff claimed title to the Real Property in question by foreclosure of a Note and Mortgage Deed dated May 8, 1964 which Plaintiff claimed was in default at the time foreclosure proceedings were started.
Defendant appeared and answered that the Plaintiff created the money and credit upon its own books by bookkeeping entry as the consideration for the Note and Mortgage of May 8, 1964 and alleged failure of the consideration for the Mortgage Deed and alleged that the Sheriff's sale passed no title to plaintiff.
The issues tried to the Jury were whether there was a lawful consideration and whether Defendant had waived his rights to complain about the consideration having paid on the Note for almost 3 years.
Mr. Morgan admitted that all of the money or credit which was used as a consideration was created upon their books, that this was standard banking practice exercised by their bank in combination with the Federal Reserve Bank of Minneapolis, another private Bank, further that he knew of no United States Statute or Law that gave the Plaintiff the authority to do this. Plaintiff further claimed that Defendant by using the ledger book created credit and by paying on the Note and Mortgage waived any right to complain about the Consideration and that the Defendant was estopped from doing so.
At 12:15 on December 7, 1968 the Jury returned a unanimous verdict for the Defendant.
Now therefore, by virtue of the authority vested in me pursuant to the Declaration of Independence, the Northwest Ordinance of 1787, the Constitution of United States and the Constitution and the laws of the State of Minnesota not inconsistent therewith;
IT IS HEREBY ORDERED, ADJUDGED AND DECREED:
1. That the Plaintiff is not entitled to recover the possession of Lot 19, Fairview Beach, Scott County, Minnesota according to the Plat thereof on file in the Register of Deeds office.
2. That because of failure of a lawful consideration the Note and Mortgage dated May 8, 1964 are null and void.
3. That the Sheriff's sale of the above described premises held on June 26, 1967 is null and void, of no effect.
4. That the Plaintiff has no right title or interest in said premises or lien thereon as is above described.
5. That any provision in the Minnesota Constitution and any Minnesota Statute binding the jurisdiction of this Court is repugnant to the Constitution of the United States and to the Bill of Rights of the Minnesota Constitution and is null and void and that this Court has jurisdiction to render complete Justice in this Cause.
The following memorandum and any supplementary memorandum made and filed by this Court in support of this Judgment is hereby made a part hereof by reference.
BY THE COURT
Dated December 9, 1968
Justice MARTIN V. MAHONEY
Credit River Township
Scott County, Minnesota"
The verdict was never overturned.
I strongly suggest the book "The Web of Debt" to anyone who wants to understand the financial fraud being perpetuated against Americans today.
http://www.webofdebt.com/articles/dollar-deception.php
Also, the "Return from Jekyll Island" and "The Case Against The Fed".
When people realize the fraud that has been committed by the money changers soiling our temple, aided and abetted by the crooked politicians, then maybe, just maybe will they will wake up.
I think alot of the people that got hurt in this current crash are the low and moderate folks who saw their chance to own. There are tremendous hoops for someone to go through to become a buyer - to take all that away and even the opposite - going from decent enough credit rating to purchase a house to ones credit rating going down drastically with a foreclosure. That person unable to even approach the subject again for up to 7 years until when their credit clears up. Talk about Renter's Hell: go try and Rent a place with crappy credit. You get what you pay for in this society. There are very nice crappy places to rent for people with crappy credit.
This article seems timely because this is happening in droves and the houses are sitting there- empty- and -For Sale. They are looking for another buyer, not a renter at this stage until they admit to the author's suggestion for making these houses accesible.
Keeping home costs artificially high by bailing out those who overspent will only serve to keep *more* people in serfdom. The best way to break the class divide in homeownership is to let housing prices return to earth, thereby allowing lower and moderate income folks a chance to become homeowners.
Bailing out the greedy and the gamblers who bought more house than they can afford just keeps housing prices out of reach of average Americans and traps them in the perpetual serfdom that other posters have warned about.
Stop the bailout and let housing prices return to normal. This will give average-income Americans a fair chance at the American dream.
I don't understand why my fellow progressives keep promoting the same flawed understanding of the housing problem. Why do some of you keep insisting that someone is either a *homeowner* or *homeless*? What ever happened to renting?
Part of the evidence for the housing bubble is the fact that renting is so much cheaper than owning. Here in Seattle, it costs about 2.5 to 3 *times* as much to own when you factor in a 30-year fixed-rate loan, insurance, property taxes, and a couple thousand a year for maintanence and repairs.
Most who are facing foreclosure can easily go out and rent a comparable place for less money--a lot less if they are willing to move into a large apartment instead of a house.
As for allowing foreclosed on owners to continue on as renters, this seems like a good idea--until you consider that an even more vulnerable group is likely to be hurt: the terminal renters.
It seems unfair to give special rights (i.e. first dibs on good rental properties) to former homeowners while leaving the less-advantaged, long-term renters to fight over the remaining rental stock.
Obviously no one on this board has been homeless. If faced with the option of having to move -and often times children are involved and schools and friends - or stay but as reduced to a renter. It seems like a win-win for the banks too who earn nothing when a house sits empty. There are empty houses everywhere and families living on the edge. I think it is a good option for the people who are facing potential homelessness or loss of a decent neighborhood and back to the bad place/ ghetto with their kids.
Of course, Americans seem to have lost a sense of empathy.
I think because it is painful when you really open your eyes and see anothers pain. It is bravery. Holy people and heroes are the only ones brave enough to look at the poor and unfortunate and see them in their true state and even love them and want something basic and humane and uplifting for them.
It could be much worse, 10 to 20 people in a dorm owned by a multinational corporation.
http://www.iht.com/articles/2006/05/03/business/jordan.php
Some rents are indeed more expensive than mortgages. There are demographics who actually prefer to rent, but lack of equity isn't their rationale. They don't have to worry about maintenance, might get an apartment very close to their workplace, are single/professional, aged/retired, don't like yard work, or they work a highly mobile career.
Still, they'd be better off financially if they owned a condo rather than rented an apartment.
The logic is simple. When you die, you can will the equity to your children, nieces/nephews, or to charity. Even in today's declining market, that's still probably $200,000+ on average. Nothing to sniff at.
Sure, there are better models (for instance, communal community-owned land), perhaps small scale socialism, etc. But affordable real estate to-own is the next best thing, and comes with a tax advantage.
Perpetually renting, with nothing to hand down to your children or charity is the stuff of serfdom. Who'd want to be a serf?
"This is "Twinkle Bunny Economics." Rents generally exceed mortgage payments or mortgages could not be paid by the owners."
One doesn't wish to throw aronud the word "stupid", but ...
If rents were more than mortgage payments, then no-one would rent. Generally, rents do not cover the entire cost of the mortgage, and the owner makes up the gap by some other means (often a day job). Eventually the accumulated equity will pay for itself - eventually - but you do need that extra cash to make the game work.
"I own outright but if I don't pay taxes, water or sewer in time they could foreclose on me and sell "my" house at any price they can get for it."
Here in Oz you cannot own land - you can at most freehold it. It's a formal recognition of a simple fact: countries do not sell off chunks of themselves.
exactly Mijari
I own outright but if I don't pay taxes, water or sewer in time they could foreclose on me and sell "my" house at any price they can get for it.
Home "ownership" is just a lower rent.
at least renters can move at will. This house is a ball and chain.
"Owning" your own home is one of the greatest illusions, and frauds, in this country, even if it's paid for lock, stock and barrel. If your mortgage is paid in full, just stop paying the property taxes and you'll find out who really owns your home.
There is an online petition asking the DNC to choose the candidate with the most votes and delegates rather than take the chance on a secret backroom deal.
Please sign the petition and pass it on to your friends.
Petition http://www.petitiononline.com/Superdel/petition.html
The crux of the problem is a society based on usury, too many "industries" which make money by simply having money, without any exchange of real goods or services rendered. The only way out of this mess is to look honestly at the full amortization of interest paid on a standard 30 mortgage, against the principle. It's insane.
We need laws which progressively, over time, make it illegal to (a) offer more than like a 15 year mortgage, (b) no more than 50% the cost of the property, and (c) no more than like 1% interest (only to cover administrative costs) on the principal of the loan. No hidden usury in amortization.
Sure, values will drop. But the buying power of your dollar will rise. It'll boost genuine industries (those that actually produce tangible goods and/or services), it'll make it easy for people to spend much more on tourism, be willing -- and able -- to start their own businesses, work only part-time if they desire, etc. Only a small number of people benefit from artificially racketeered real estate prices.
The problem is the economy is based on what I call "Cancer Theory"...any system that depends on constant growth, like cancer, will eventually kill the host.
This is "Twinkle Bunny Economics." Rents generally exceed mortgage payments or mortgages could not be paid by the owners.
Could rapid changes in the Earth's polarity be affecting brain waves? Something is!!!
The simple way to help these people is to convert their loans to fixed rate loans and "buy down" their interest rates by front end payments of cash to the point where the family can afford the payment. Investors must participate by accepting lower returns on their bundled mortgage investments to keep from losing even more money on their investments. We can't do this and fight expensive war's too or inflation will rise and lead to a devaluation of the dollar. Borrowing money to stabilize economic conditions is like cutting a vein to stop blood flow.
The economic elites led by Alan Greenspan allowed greed to color their judgment by allowing the securitization of B and C rated mortgages and insuring those mortgages by vastly underrating the risk. The belief was that if the mortgages led to a meltdown that the risk would be shifted to the American people. The American People are structurally broke because of job losses and declining income, so they cannot now rescue the rich from their excesses.
The failing banks are turning to foreign wealth funds for a bailout. The foreign wealth funds are obtaining large interests in ownership of the banks by providing money to them. The result is that New York and the United States are losing the title of the "financial capitol of the world." That title is now shifting to Europe and the Middle East.
Don't look for any bail-out's because there is no money for a bail-out. The American Financial System is in free-fall and a hard recession is in our near future. Washington does not yet understand that they have already sucked the liquidity out of the middle class and that the lower middle class and the poor have been in default for years. People can't even afford the cost of a bankruptcy. Once they realize that we are turnips and not consumers, the elites, in their privileged Darwinian fashion, will dismiss the people as lazy louts undeserving of any governmental assistance. Washington is a sewer, not a savior. Plan for the worst and you will not be disappointed.
IS THIS SERIOUS?--"..'own to rent' policy under which the rules on foreclosure would be temporarily changed to allow moderate-income homeowners the option to remain in their home as renters."
UM, I was laughing my head off thinking it was a joke. Is that the best we can do?
Soon, someone will be suggesting handing out cardboard to millions of homeless people as a "stop gap" measure.
Am I the only one who believes that the impeachment of Cheney and Bush would be good for the economy? Just think: the renewed spirit, the feeling of freedom, the just punishment of evil-doers--and NEW opportunities for investment! Besides Bush and Cheney, Pelosi and Reid also would be unemployed, yes, but that's two new jobs for other, more dignified people.
Growth industries from impeachment: prosecuting war criminals, education, new jobs in journalism, renewable energy . . .
andersdl makes the key point above that "deregulation" has encouraged speculation and started a lot of our
"crises".
As for own-to-rent, maybe it's a good stopgap idea. As for tagging Obama's "Yes we can" on it in an editorial, not so much. "Yes we can" right now stands for a lot more.
At best this will be a short term fix to hopefully smooth things over.
Unfortunately worse problems are on the horizon unless the financial industry is immediately re-regulated. Deregulation of the industry over the past 30 years has created an environment that encourges speculation at the expense of the US taxpayers. The savings and loan "crisis" during the Bush 41 Administration was the first major "crisis" resulting from deregulation and was "solved" by taxpayer-financed bailouts and more deregulation. Now we have a bigger "crisis" that is being "solved" by bigger taxpayer bailouts and more deregulation, that will in turn result in a bigger "crisis" with even bigger taxpayer-financed bailouts.