Since
WW2 governments across the developed world have been weighed in on home
ownership. It’s political, it’s the economy, it’s business and it’s social. It’s
political since home ownership gives citizens “roots” to their homeland and
equity wealth for home owners. It’s economy because developing new housing
schemes/towns involves land, labour, capital and entrepreneurship. Governments
also earn property taxes. It’s business because entrepreneurs make 25% or more
with those developments. It’s social because it reduces income/wealth
inequality.
So
what is the problem?
In
the U.S., 70 years of appreciation of housing values with near stagnant real
wage growth (except for the ultra-rich) has caused a nationwide crisis of
affordability and widened income and racial inequality.
Housing,
like student loans and health insurance, has fallen into a free market trap.
There’s an inelastic demand - everyone needs housing, an education and to be
healthy - and people will pay almost anything to acquire these basic needs. In
1950, the median home price was 2.2 times the average yearly income. In 2013, a
few years after the worst housing market crash in a century, median home prices
had already risen to 3.7 times the average income. Largely, this inflexible
cost has been paid for with greater private debt. Between 1949 and 2018,
mortgage debt as a percentage of GDP grew from 15% to 80%.
As
with higher education and preventive medicine, those with the earliest
headstart and least barriers to entry reaped the greatest rewards. While
homeownership rates among white Americans have increased from 50% to 70% since
1950, African American homeownership has only risen from 30% to 40%. As a
result, the median white American family’s net worth is now 12 times that of
the median African American family, with two-thirds of that net worth
attributable to home equity. And the racial wealth gap is growing: by 2053,
African Americans will see their median household wealth fall to zero, just
from being on the wrong end of housing appreciation.
Where
do we go from here?
Improving
renter protections, expanding social housing and more tightly regulating the
mortgage market would slow down housing appreciation. Cutting down on
short-term rentals and vacation homes also has a dramatic impact on housing
affordability. In a recent study, MIT, UCLA, and USC found that for every 10%
growth in Airbnb listings, a zip code’s average rent increased by 0.4%.
Another
solution would be to limit foreign investment and speculation. When Vancouver
passed a 15% tax on all sales to foreign home buyers, the price of single-family
property dropped 20% before rebounding, giving housing appreciation a
short-term respite.
A
more dramatic intervention would be to reverse the trend of corporations
getting into the housing market and reintroduce public land ownership. From
2013 to 2015, corporations purchased almost $2 trillion worth of land and
buildings in the world’s top 100 cities. Middle and lower-class families aren’t
able to compete with corporate property investors, but local governments and
community organizations could use collective buying power to play an active
role in repurchasing large quantities of housing stock.
The
Dutch constitution has a provision for providing adequate housing to its
residents. As a result, the Netherlands currently has the highest share of
social housing in the EU, accounting for about 32% of the total housing supply
and 75% of the rental market. As the largest housing supplier, the Dutch public
housing system is well-positioned to set market rates and address the country's
growing housing needs. It is an interesting example of a functioning
large-scale social housing system in a developed country.
What
about Malaysia?
There
are several agencies supposed to increase supply of affordable homes. But the
outcome has been miserable. The new PN government could do well to increase appreciably
number of affordable homes and implement rent-to-own schemes for the B40 and
M40. Private developers are more inclined to homes costing RM0.5m and above. And
with Covid-19, is this a “deadpan” market?
Reference:
1. The cost of housing is tearing our
society apart, World Economic Forum Annual Meeting 2019
2.
How
an obsession with home ownership can ruin the economy, The Economist, 22 Jan
2019
3. Housing is at the root of many of the
rich world’s problems, The Economist, 16 Jan 2020
No comments:
Post a Comment