The other day I was reading an article in the September 6, 2010 issue of TIME magazine, titled “The Case Against Homeownership” by Barbara Kiviat. I finally felt motivated to add my two cents on the subject – including my ideas for possible solutions. For someone like myself, who has always dreamed of designing and building my own home, this subject is of particular interest and equal frustration as I realize evermore that my dream (as well as many others like myself) will not come true – at least not the same way it has for previous generations. Below I provide a synopsis of the article and then follow-up with some conclusions. I would appreciate any feedback and ideas for improvement.
Historically, homeownership has been viewed as a means to create safer communities and better citizens. Politically, it was heralded as a means to “save babies, save children, save families and save America.” The theory has always been that homeownership ensures socioeconomic stability where the residents are actively involved and rooted in their communities. It’s a place where you know your neighbors and your kids do better in school because everyone feels safe and secure. According to Kiviat, there has been a growing fetish for Americans to buy and own a house, which has been mythologized into a panacea for all the nations’ problems.
The 19th century glamorized the notion that anyone who could ‘rough-it’ could go out West, buy a piece of land and create a homestead – it was a time to explore, discover and conquer. The 20th century, however, marked the beginning of a concerted effort to make homeownership available for everyone. Soon after the Great Depression, political pressure began forcing banks to lend again and the 30-year mortgage was born (how ironic that now there is economic and political pressure to restrict bank lending and reduce mortgage repayment periods). Even after the economic stability of post-WWII America, there was always a reason to encourage homeownership. First, it was a means to create jobs in a labor-heavy industry. Next, it was a means to combat housing shortages for returning veterans. Next, it was a means to transform unsanitary and cramped multi-family living conditions in the dense urban cities into the spread-out tree-lined cul-de-sacs of single-family housing in the suburbs. Beyond the social and cultural pressures to own a home, Washington helped to subsidize the homeownership addiction. For example, homeowners could deduct mortgage interest and property tax from annual income taxes. Regardless of the situation or the incentive, there has always been a reason to own your own home and it was a win-win situation for everyone – well, at least that’s what we were led to believe.
So, what are the pros and cons of homeownership compared to renting? First, it is worth defining what this means exactly. Homeownership in the U.S. is typically in the form of single-family detached dwelling units, which comprises 89% of all homeowners, while only 17% of homeowners live in apartments or multi-family housing units. For the purposes of simplification, let’s assume we are comparing single-family detached dwelling units to multi-family apartment rental units, since this is the majority situation. One advantage of owning versus renting is that it has the potential to be a smart investment in the long-run when compared to paying rent over the same period of time. Along with the freedom of owning your own home comes the ability to do what you want with it – you don’t have to worry about a landlord keeping your deposit because of stains on the carpet or holes in the wall. And if you want to remodel your kitchen or build a fence, you are free to do so. In addition, homeowners are more likely to invest time and money into the physical upkeep of their home and use their yard for gardening.
However, as the past few years have demonstrated, there are risks associated with homeownership. First, there are the obvious financial risks involved. Most families can’t afford to pay the cost of a house upfront in full, so loans and mortgages are the preferred alternative. In a stable and controlled economy, this method is perhaps not a bad idea, but when lenders become greedy and families purchase beyond their means, it is only inevitable that homeownership will become more of a problem rather than a solution. Another risk (and irony) of homeownership is that while it can be liberating, it can also be restricting. For example, let’s say a couple are paying off a 30-year mortgage on a home and without warning one of them loses their job. Now, they are at risk of not being able to make their monthly payments. To make matters worse, they can’t easily sell the house and move somewhere else with better job prospects – especially if the property value is less than the mortgage amount. This is a common situation many families still find themselves in since the housing bubble burst in 2008.
Perhaps the biggest problem with homeownership is that it can restrict mobility and create areas of economic stagnation. According to Andrew Oswald, professor of economics at the University of Warwick, there is a correlation between areas of high homeownership and high unemployment. Americans are becoming more mobile and transient than ever before, yet our idea of housing has changed very little. Decades ago it was expected that workers would stay with one company for decades and that a family would live in one house for most of their lives. Today, that notion is being flipped on its head – the workforce is demanding workers to change companies and even professions several times throughout their career and it’s not uncommon to have lived in many places in one’s lifetime. The fact is that homeownership – at least in its current form – is not for everyone. Before the housing bubble burst, banks and lenders were convincing everyone that a owning a home was within their reach, even if they couldn’t afford it. This myth must be dispelled and change must occur with the way homes are financed and built if we ever hope provide adequate housing opportunities to all Americans, while avoiding a similar housing bust in the future.
Before reading this article by Barbara Kiviat, I have had my own thoughts about homeownership and how it could be improved. Moreover, I’ve been involved with a few housing initiatives which have been specifically focused on affordability and high-performance ‘green’ design. My list of proposed solutions below addresses housing improvements from multiple facets.
1) Change the financial structure from home-ownership to home-investment
One potential solution to achieving homeownership is to enroll everyone in a type of home-investment plan, where families – whether renting or owning – invest a fixed percentage of their annual income towards the future purchase of a home. A ‘home’ in this sense does not necessarily imply a single-family detached dwelling unit in the suburbs, rather it refers to a long-term living condition – this could be rural, urban, single-family or multi-family. For example, let’s assume a typical family income is 100k/year and that 10% of that annual gross goes directly to a federally insured savings account. And the invested amount could be more if there was added interest. The idea here is to do away with any kind of long-term loan repayment plans (30-year mortgages, for example) and instead it would be like setting up a savings account specifically for purchasing a home. The benefit with this financing model is that the risk is much lower and the benefits of homeownership are still achievable – it just might take longer to acquire a minimal amount of equity, but a family could own their home sooner. In the case of low-income families, federal subsidizes could be set aside for those who qualify.
If a family decides to relocate, the money from selling the home would go back into the savings account. But this doesn’t really solve the mobility issue does it? Well, let’s say that home owners had the option to sell directly to banks or the federal government instantly without having to wait for a private buyer. With this option, the sale price might be lower compared to what a private buyer would be willing to pay, but it allows for faster turnover, which could be advantageous for a family needing to move quickly because of opportunities elsewhere.
2) Ensure that renters and owners are treated equally
This may seem like an obvious notion, but the fact is that renters are typically discriminated against in favor or homeowners. Part of the problem can be attributed to landlords and property managers who are more concerned with making a profit than they are with the well-being and safety of home-renters. The other major problems can be traced to political pressures. For example, cities will purposefully zone a neighborhood area to exclude multi-family dwellings, which are commonly associated with minorities, poverty and crime. Cities also exclude or charge additional fees for providing services for apartments or multi-family dwellings, such as recycling.
There seems to be a negative connotation associated with renting – we instantly conjure up images of small apartment units occupied by minorities located in poor neighborhoods plagued with crime and drugs. When we think of a single-family home, however, we picture a middle-class neighborhood and a house with a yard and a white picket fence…etc, etc. Obviously this is not always the case, but it is quite common nonetheless. But whether renting or owning, everyone who is legitimately paying for a place of habitation should be treated equally from an economic, social and political perspective.
Part of the solution requires changing social perceptions of rental housing and renters. The other solution (and perhaps more direct approach) is to change city zoning ordinances and building codes to better integrate rental housing to create diverse, but equal, communities. You want to get renters involved in the community and create safer neighborhoods? Give them the same opportunities and benefits as homeowners – simple as that.
3) Require higher standards for housing design and construction
Finally, we need to improve the quality of design and construction of housing for both single-family and multi-family units. According to U.S. Energy Information Administration, the residential building sector consumed 22% of the total energy use in the United States in 2008. Other sectors include commercial (19%), industrial (31%), and transportation (28%). Buildings alone in the United States consume 39% of total energy use; emit 38% of the total carbon dioxide emissions; use 40% of raw materials; consume 14% of total potable (drinking) water; and produce 30% of the total waste. Based on these figures, it is clear that if these unsustainable trends continue, future generations will face increased hardship, decreased quality of life, and unnecessary destruction to the environment in order to meet their basic needs. On a more positive note, according to McGraw-Hill Construction, approximately one-third of all new construction in the U.S. meets some form of ‘green’ building standards. While this trend is holding steady during the recession and is anticipated to increase in the coming years, the quality of construction and overall building performance still has a long way to go – especially for housing, which tends to have the least stringent building code requirements out of all building types.
So what does this have to do with homeownership? Well, homeownership is a long-term investment, yet our building and construction practices for housing do not reflect this fact. The purchase of a home isn’t a one-time cost – there is also the cost of annual utilities and periodic repairs/maintenance, otherwise known as operational costs. These long-term costs can sometimes make or break a family’s ability to afford keeping their home, especially during tough economic times. If these homes are designed and built to higher standards, then the long-term operational costs will be lower and less frequent. Today, homes are built to last maybe 15-20 years before needing major repairs. In general, most homes aren’t designed appropriately for the local climate and site conditions. This includes addressing solar orientation, diurnal temperature variation, humidity, ventilation, wind direction/speed, surrounding vegetation and light/noise pollution among other considerations. Specifically, the building envelope is where most of the problems arise due to air infiltration, thermal bridging and minimal insulation.
Most of the housing infrastructure problems could be avoided if city governments required more stringent building standards for residential development, such as the U.S. Green Building Council’s LEED for Homes Rating System. I would even suggest that architects should be required to design and oversee construction of all residential projects to ensure higher quality and performance standards. Currently, housing design and construction is typically managed by local builders or contractors. While this has perhaps been sufficient in the past, our buildings are being more complex and have a greater impact than ever before. The bottom line is that if unsustainable housing development continues, it will surely make home-investment harder to achieve and maintain for generations to come.
Kiviat, Barbara. “The Case Against Homeownership.” TIME Magazine. 6 September 2010: 42.
Kiviat, Barbara. “The Case Against Homeownership.” TIME Magazine. 6 September 2010: 44.
Kiviat, Barbara. “The Case Against Homeownership.” TIME Magazine. 6 September 2010: 43.
U.S. Green Building Council. “Green Building Research.” U.S. Green Building Council. 17 March 2010. <http://www.usgbc.org/DisplayPage.aspx?CMSPageID=1718> (17 March 2010).
Carter, Franklyn. “Green Building: A Real Estate Revolution?” NPR. 8 September 2010. <http://www.npr.org/templates/story/story.php?storyId=129699450> (7 September 2010).