The Great Recession plunged untold numbers of former homeowners back into the ranks of those who rent. And as housing prices skyrocket, wages remain largely stagnant, and "lost" good jobs continue to be replaced with jobs that just barely let a person scrape by, the seemingly basic goal of home ownership--and the stability and confidence that come with it--appear increasingly out of reach. The recession has created a generational wealth gap that many economists say will never heal for millennials. Home ownership among those under 40 is at a historic low, and even households with two steady incomes don't see any viable path to affording a house in many parts of the country. For example, one recent report found that there was not a single home for sale in the city of San Francisco that the average San Francisco teacher could afford.
Since 2013, there have been frequent reports of how the housing market is "recovering." But far too many of these sales are to investors and "flippers"--those looking to buy up hot property so they can turn around and sell it to deep-pocketed investors at an even higher price. This creates false scarcity, and drives the price of home ownership out of reach for the average family. Homes are rapidly becoming something that only the well-heeled can afford, a luxury for the upper class and a commodity to be rented out to the rest for massive profit. Like money, homes are being hoarded by the wealthy.
Much has been written about the emerging housing divide. Many potential reasons have been explored, and most such pieces conclude by stating that, due to the numerous factors in play, finding a way to course-correct is tricky if not impossible.
But what if it isn't?
The problem is that housing is being treated as a high-value financial investment, rather than a basic necessity. Even comfortably middle-class homeowners are taught to treat their homes as investments; we leverage debt against them, we factor them into calculations of our "value," and they often play a substantial role in our retirement plans.
But a house isn't an investment; it's a basic, essential resource. Everyone needs somewhere to live--shelter is second only to food and water on the list of basic survival needs. And by most standards, ownership is far preferable to rental: it's more stable both economically and socially, it creates more stable neighborhoods and your money is gaining you a permanent shelter rather than a rented service (your money is no longer being thrown down a "black hole," so to speak). There are plenty of cases where rental makes sense, and some people would rather forego the hassle of home ownership. But given a choice, most people would rather own; they just can't afford to, despite the number of homes in the United States. Why?
The price is driven up by the number of homes for sale in relation to the number of people who would want to buy. Homes for sale are more scarce because of how many are bought as investment properties. The price is further driven up by the deep pockets of these investors, who frequently outbid families looking for a home, thus establishing a higher average market value.
So how do we make home ownership more affordable?
Destroy the value of homes.
More specifically: impose a national cap on home ownership. If a single person (or couple, or business interest) is restricted from owning more than, say, three residential properties, speculators and investors will be forced to sell en masse. Three homes is still enough for someone to have a primary residence, a secondary home, and even a so-called "investment" or rental property. It's even enough for a small, local business to operate two or three properties. But it would make large-scale residential property investment impossible. Big investors would have to liquidate their holdings to comply with the new law, freeing a wealth of supply onto the market. And, since deep-pocketed investors can't buy up properties in bulk, sellers will be forced to lower prices until they find buyers who CAN afford them.
As with any such drastic change, pitfalls are plentiful. Anyone who has already made a significant investment in property stands to lose a lot of equity, and that includes plenty of regular folks who will wake up to find that their homes are worth a fraction of what they paid. A home still has a baseline intrinsic value, based on the cost of materials and labor that went into its construction, as well as the value of the land itself... but this figure is far, far lower than what most houses sell for in today's market. And because so much wealth is being destroyed, the law would likely have to be phased in over a period of years, with restrictions increasing each year and a detailed set of guidelines for how to handle the sale and transfer of property during the implementation period.
And in order to be effective, such a law would need to be constructed very carefully. Set to lose a great deal, real estate investors would look for any possible loophole to exploit. Means of sidestepping the cap (split ownership, holding companies, etc.) would have to be taken into account and blocked, efforts to reclassify residential property to prevent it from "counting" would also have to be addressed, and a series of court challenges would be all but inevitable. And the penalties for noncompliance would have to be stiff and severe, so that it doesn't become just another "cost of doing business," allowing large firms to keep operating while only driving out the smaller businesses that can't afford the fines. On the other hand, incentives and subsidies for sale may be helpful to keep current homeowners from being left completely empty-handed.
Of course, anything like this would be a prickly pear to set up on the first place. Anything that smacks of the government telling people how to handle their own property would be very unpopular in the public eye, at least until the benefits begin to manifest. Undoubtedly, the first battle cry against such a change would be "The government's after our land!"
Well, no, actually. The whole idea is to make the land MORE accessible to MORE people, to help more folks become homeowners in a real, lasting way, not through the predatory financial tricks that defined the home ownership drive of the George W. Bush years.
The beginnings of a draft proposal appear below the fold.