The Stench of Renting, Cont.
Published: Thursday, November 20, 2008 10:27 AM PST
So the last post, in which I pivoted off some comments by City Councilman Ben Hueso to plea with readers to stop stigmatizing renters, generated some pretty passionate responses. I'm going to deal with a few of them now.
First, reader Larry, who's never had much patience with me, directs some of his signature irritation toward Hueso.
Come on, Scott. Do you really think that Hueso has the intellectual capacity to differentiate between those who have to rent vs those who choose to rent?
Yes, Hueso is smart enough. But here's the thing: The housing market panic we're in the midst of now was caused in large part by the fact that there was little or no difference between those who have to rent and those who choose to rent. Lenders, Wall Street and politicians created a system wherein the assets and wages of potential mortgage borrowers became unimportant when deciding whether to help people buy homes.
Anybody could get a loan for a house no matter how much money they actually made. Everyone therefore had the opportunity to choose whether to buy or not. You didn't even have to prove how much money you made to buy a home.
In this new reality, the price of the home became unimportant as well. Greedy lenders hooked buyers by adjusting the payments to whatever level they needed to ensure that the borrower could make them -- at least for a while. Because of this obsession with homeownership, we pushed people to take on these loans, some of which didn't even require payment of the full interest of the loan.
Some justified this by praising this culture of ownership, like our city councilman just did, and talking about how the community benefited when more people were "owners." But really, saddling people with loans they had little chance of being able to pay back was far from a public service. It was near criminal. And the victims are being forced from their homes in droves right now.
A loan is not a loan if, at some point, the lender doesn't plan on getting paid back. And they did plan on getting paid back. It's just that all these people obsessed with promoting homeownership had no plan to give the people who were expected to pay these loans off more money.
Hence the ongoing crisis and the panic. We're supposed to be shocked that this money just isn't there.
Well, if you are, you have no business leading this country out of this mess.
Now, about homeownership. A few readers turned to the old mantra about the American dream of owning a home.
Reader Homeowner had this response:
Take a trip around District 8. Look at the areas that are primarily rented and those that are long term homeowners, particularly in the South of the District. There is no comparison of the standards of the neighborhoods. Homeowners generally take significantly more care of a neighborhood they are invested in. Encouraging home ownership for people intending to stay for long periods of time is a great strategy. The current financial meltdown has created an atmosphere of unmatched opportunity for particularly first time buyers who thought that they would never be able to get on the homeowner ladder. Scott, HYPER sensitive. [Hueso] stated a simple fact that neighborhoods with owner-occupied properties are generally better maintained, creates a higher buy in to long-term community buy in and "pride of ownership". I have never heard "pride of rentership" banded about.
I never thought of that. Apparently some neighborhoods are better off than others.
Wild.
To be sure, "pride of rentership" was exactly what I was promoting.
Of course owning a home has its benefits. And, of course, a world where everyone owned a home and took care of their neighborhoods with the pride of an owner would be a beautiful one.
My point was that only those who have the assets and means to purchase a home can benefit from owning a home. And the community will only benefit from that if these people can afford to stay in those homes.
I agree -- wholeheartedly. We must work to create this world where more and more people own and they are invested in the community. Encouraging people to buy homes they can't afford and artificially keeping home prices at unaffordable levels doesn't accomplish that. It would be better, in my mind, if we focused on priming the economy and creating jobs and raising wages to the point where more people could afford to buy a home. And, in the meantime, we let home prices settle to a realistic level.
This may not raise the percentage of homeowners as fast as some dream, but it's more sustainable.
Unfortunately, the focus over the last several years was not on building infrastructure, creating jobs, innovation or making the economy stronger. The focus was on manipulating home loans to artificially boost home ownership and trap people into unsustainable personal finance conundrums. And this was the culture of a few years ago that Hueso was talking about so nostalgically.
We shouldn't be nostalgic about it. We should find it repugnant and never let it happen again.
Finally, many readers ripped me personally.
Yes, it's true. I'm a renter.
Reader Basic Civics challenges my "absolute" declaration that renting right now is more economical than buying.
It is hard for me to buy that Hueso genuinely views renters as inferior constituents and I wonder if you, a renter, are just being a bit sensitive about the matter. However thought I would illustrate something about your use of absolutes. Renting is a rational choice for many but so is owning... Take for example the following... a house (same floor plan as mine) on my street recently rented for 2400.00 a month or 28,800/yr. The annual nut on my house 8 doors down is 38,400 (including p tax). The tax benefit on my house (yes I am in a high bracket) is approximately 10,400. So effectively my cost of ownership is 28,000/yr or 8 hundred less than I would pay for renting the same house (which actually has nicer landscaping). I bought at the highpoint (in 2005) with a conservative loan (fixed rate).
I'm the one being sensitive? Look, Basic Civics is not who I am talking about. This person is in a very high tax bracket. Basic Civics could afford a traditional fixed-rate loan to enable the purchase of what sounds like a single-family home -- all this, apparently, at the height of the housing market no less.
This is not the type of person I'm talking about. If these homeowners can afford to stay in the home for 10 years or longer, they almost certainly will be OK. Unless we have a Japanese-style mega housing depression. I agree. They may in fact be better off in the ultra-long term than had they avoided buying a home.
Basic Civics employs the common response to my argument about the disparity of rental rates to home prices. It goes like this: Though rents are demonstrably cheaper now than monthly mortgage payments, the federal income tax break one realizes from paying mortgage interest more than bridges the gap.
In response, I would still argue that the money renters save monthly can be invested in safe interest-bearing accounts and that, over time, have the possibility of turning out much better than the declining value of the asset Basic Civics owns. But, that's just a different calculation based on a different view of the future. It assumes a further deterioration of the housing market where homes like Civics' continue to lose value.
We'll know in the future who was correct.
I was worried about those who aren't as well off as Basic Civics. I'm talking about the people who still can't afford to take on a fixed-rate traditional loan for a home right now. The last thing we need to do is try to somehow bring back the excesses of the past few years where we lured them into homeownership with the incentive of low rates and low initial payments.
And this, I'm afraid, is exactly what politicians like Hueso seem to be longing to do.
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