Written by guest contributor Jeffrey Yuen. This post initially appeared in URBAN Magazine’s Spring 2012 issue. Many of the alternative housing options noted below – limited equity cooperatives, mutual housing, land trusts – exist in New York City. The views expressed herein do not necessarily reflect the views of the Urban Homesteading Assistance Board.
The discourse around the housing crisis has seriously missed the point. It has been five years since the onset of the financial meltdown and the housing sector is still in tatters. Since 2007, banks have foreclosed on over eight million homes with another 11 million households currently underwater and at serious risk of default. Meanwhile, housing affordability is worsening due to declining wages. According to the Joint Center for Housing Studies, 50 percent of renters and 37 percent of homeowners are now cost burdened (paying over 30 percent of income on housing.) Despite this grim reality, the focus has been on the misplaced notion of a housing “recovery” and a speedy return to a “healthy” housing market. But what does a “healthy” housing market look like?
A good description can be gleaned from President Obama when he announced the Home Affordable Mortgage Modification Program in 2009. “It will prevent the worst consequences of this crisis from wreaking even greater havoc on the economy. And by bringing down the foreclosure rate, it will help to shore up housing prices for everyone.”
Thus a “healthy” housing market is one where prices go up, and in essence, housing recovery = expensive homes. This myth must be dispelled if we are to address the roots of the housing problem.
There’s a general consensus that excessive greed led to the housing crisis. The Right blames greedy homeowners who took out mortgages they couldn’t afford, either to flip, or to refinance for easy cash. The Left blames the greedy financial industry whose predatory practices pushed exotic and unnecessary loan products onto unwitting families. Curiously missing from the discourse is a deeper critique of the roots of this pervasive “greed” incentive. Residing at its core is a housing system that treats the home primarily as a vehicle for private profiteering, and only secondarily as accommodative shelter.
Let us be clear: The housing crisis is not about declining home prices, but the fundamental and ongoing failure of the housing system to provide adequate shelter for all. This is the root of the subprime crisis, the foreclosure crisis, and the housing affordability crisis.
Rather than address the underlying issue through systematic reform, current policies are designed as a crutch to artificially prop up home values. This simply is not sustainable. The following are three tenets that support this misplaced faith in a “healthy” housing market.
- There is a pervasive, culturally-ingrained ideology of homeownership as an embodiment of the American Dream. But homeownership has many dimensions and the primary benefits – security, autonomy, and legacy – can be separated from speculative profiteering. The idea that “housing is always a good investment” has clearly been proven wrong, especially for lower income households. Further, a fundamental contradiction arises when the profitability for one homeowner comes at the direct expense of affordability for the next. Part of the problem stems from our bifurcated system of homeownership and rentals that has few options in-between. This is not a competitive scenario. Many alternative forms of tenure exist that can augment the range of choices in our housing system.
- Housing is the primary wealth accumulator for many families, especially for moderate income and elderly households, but that wealth stems from two distinct sources. First, mortgage payments are in effect a forced savings account. A homeowner “deposits” equity into a mortgage that can be accessed later (as with seniors who sell a home for retirement.) This is an ineffective savings system, as the first five years of the mortgage – about the average duration that Americans stay in a mortgage – is mostly payments towards servicing interest with almost no equity being accrued. Savings accounts can be managed in many other ways that are more liquid and don’t require excessive mortgage interest servicing rates. Second, profits also stem from land speculation, which are essentially private appropriations of socially-created wealth. Land speculation also tends to fluctuate wildly, just look at Las Vegas where the Case-Schiller home price index has dropped 60% from peak. Policymakers are rightfully concerned about families with equity lost in their homes, but it isn’t logical to simply re-inflate housing prices. There are alternative schemes that can transition distressed homeowners into decommodified housing, but we cannot discuss them until we relinquish the “recovery” myth.
- Housing is widely seen as a driver for the national economy by boosting consumer spending and “creating” jobs. In effect, the housing sector is a perpetual stimulus package – with ample government subsidy – that systematically overinvests in speculative housing with very real opportunity costs to the rest of the economy. For example, highly regressive tax expenditures for homeowners accounted for $185 billion in 2010 alone.
At its core, our belief in a “healthy” housing market is tautological; we need housing to be profitable in order to extract profits from housing. But what if our assumptions are misplaced? What if we could limit the speculative component of homeownership, and instead focus on security, autonomy, passing property to heirs, and building limited equity? What if we could move beyond superficial stopgap measures and address the roots of the crisis? Our insistence on dogmatic ideology has led to ineffective policies that tinker at the edges of a flawed system.
If we are serious about a truly healthy housing sector, one that serves the needs of all Americans, it must be decommodified in a way that prioritizes accommodation over accumulation. There are many alternatives – community land trusts, mutual housing associations, limited equity coops – that can preserve the best aspects of homeownership while removing the notion of unlimited profiteering. But the public discourse cannot debate the relative merits of these alternative strategies until we relinquish the myth of the housing “recovery” and focus on the roots of the crisis.