Renters get owned

Ben Walsh
Dec 19, 2013 23:15 UTC

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In 2012, the federal government spent $240 billion on housing aid, according to a new study by the Center on Budget and Policy Priorities. Despite the fact that 65% of American households are homeowners, 75% of housing aid, or $180 billion, is set aside for homeowners. Not only is federal housing aid disproportionately targeted to homeowners, it’s disproportionately targeted to the wealthiest homeowners. Here’s the CBPP:

The bulk of homeownership expenditures go to the top fifth of households by income, who typically could afford to purchase a home without subsidies… More than half of federal housing spending for which income data are available benefits households with incomes above $100,000.  The 5 million households with incomes of $200,000 or more receive a larger share of such spending than the more than 20 million households with incomes of $20,000 or less.

At the same time as housing aid focuses on relatively well-off, home-owning Americans, more renters need aid. HUD data show that the number of renters with household incomes that are 30% or less of the local median income (that’s about $19,000 nationally) has risen from just over 8 million in 1999 to 11.8 million in 2011. A recent Harvard study pointed out that for these 11.8 million renters, there “just 6.9 million rentals affordable at that income cutoff—a shortfall of 4.9 million units”. Affordable, at 30% or less of the local median income, means $375 a month or less. The Harvard study also pointed out that the problem is getting worse: the number of extremely low-income renters is rising, and 2.6 million of the affordable rentals are being occupied by higher-income households.

Felix looked at that data, combined with the “inexorable rise of rents”, and concluded that there “is an unprecedented squeeze on the people who can least afford the shelter they need”. The rest of America is starting to look more and more, he wrote, like San Francisco.

The Washington Post’s Lydia DePillis reports that San Francisco’s unaffordable housing problem is beginning to be taken seriously by at least some of the city’s tech elite. Peter Thiel thinks “the way rent and housing costs have gone through the roof in a number of cities where people go to start companies is a tremendous problem”. Thiel’s solution is to loosen zoning regulations. Surveying housing-related startups, DePillis observes that the focus is “on helping people navigate what’s already a terrible situation, not ameliorating it”.

Emily Badger points to a longer-term demographic shift that may drive even more demand for rentals: baby boomers downsizing. After moving to bigger and bigger houses in further and further afield suburbs and exurbs, boomers are beginning to reverse that trend by moving into smaller urban homes. And they are increasingly likely to be renters: “between 2002 and 2012, the number of renters ages 55 to 64 increased by 80%”. Badger points out that the big unknown is whether anyone will want to buy the McMansions boomers are moving out of. — Ben Walsh

On to today’s links:

Servicey
Maybe don’t name your group chat “The Mafia”, Wall Street traders – Bloomberg
In case of a real war on Christmas, here’s how to invade the North Pole – Mother Jones

Trends
The cult of Vitamix – Bloomberg Businessweek

New Normal
The 49 states of rising child poverty – WaPo

Wonks
The MIT group researching how to decrease long-term unemployment – Evan Soltas

New Normal
How cities and states royally screwed up the staid, old-fashioned pension fund – James Surowiecki

Wonks
Is the safety net just masking tape? The problem of “pity charity” liberalism – Thomas Edsall
Previously: Are we at the completion of the liberal project? – Mike Konczal

Health Care
An interactive map of nearby ERs with the shortest wait times – ProPublica

Takedowns
20 things DC journalists can do to be happy besides moving to Kentucky – Jason Linkins

Primary Sources
The CFPB just won a $2 billion settlement with Ocwen over shoddy loan servicing – CFPB

Investing
“You would be better off letting a cat manage your money” – The Economist

Explainers
How to shutter a bank in Europe. It’s so simple! – FT

Financial Arcana
The difference between risk premia and “behavioral craziness” – Noah Smith

Oxpeckers
The Hack List 2013: the best entry in Alex Pareene’s brilliant takedown – Salon

FYI
An apple a day could save thousands of lives a year – BBC

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Housing market rising

Jul 24, 2013 22:40 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to Counterparties.Reuters@gmail.com.

The US housing market continues to gain steam: New home sales for June were up by 8.3% to a rate of 497,000 units annually — the highest level in five years — despite rising mortgage rates. Compared with June last year, single-family home sales were up 38.1 percent, the largest increase since January 1992, writes Reuters. Bill McBride notes that the supply of new homes has also returned to normal (after peaking in 2009) and, furthermore, even with the increases, sales rates are just at the low levels of previous recessions, which “suggests significant upside over the next few years”.

Who, though, is doing all of this buying? Back in May the buy-to-rent business was exploding, fueled by Wall Street-backed institutional investors like the Blackstone Group and the aptly named American Homes 4 Rent, the latter of which announced an IPO last week. Barry Ritholtz argues this can’t possibly continue, pointing to the massive surge in rental properties on the market in Scottsdale, Arizona in the last four months: “How the hell can they be making money when there are so many empty houses cooking in the desert sun?”

The Los Angeles Times reported last week that investors continue to buy, albeit at a slightly slower pace, even after a nearly 30% average price increase in Southern California in the last year. Buyers who don’t intend to live in the home accounted for 29% of purchases in June, and more than 30% of purchases in the region were in cash. But that seems to be changing: “The smart money has left the building,” broker Glenn Kelman told the LA Times.

Meanwhile, individuals seem to be taking more risks in the housing market. CNBC reports that 136,184 homes were flipped in the last six months, up 19% from this time last year, and 74% from the first half of 2011. Adjustable-rate mortgages, in which rates change after a fixed period of 5-10 years, are also more popular than they have been since 2008, according to Bloomberg.

However, lest your takeaway from today’s email be “Have we learned nothing?” just remember that attempts to bring back the synthetic CDO in the past couple of months have failed miserably. – Shane Ferro

On to today’s links:

Be Afraid
“One of FratPAC’s top priorities is a tax break for fraternities” and stopping anti-hazing legislation – Bloomberg

New Normal
Welcome to the lucky-take-all society – Economist

Alpha
The Justice Department expects to charge SAC Capital on Thursday – Matthew Goldstein and Emily Flitter

EU Mess
Is the euro zone recession over? Not quite yet… – Open Europe Blog
“Europe’s recession has either come to an end, or it’s about to” – Joe Weisenthal

Popular Myths
Summer vacation was a response to urban squalor, not rural necessity – Grand Rapids Press
What sequester? Defense on contractors are doing just fine – WaPo

Greats Minds
SAC’s lawyer channels Jerry Seinfeld channeling Kevin Costner – Bess Levin

Longs Reads
Inside Al-Shabaab, the Al Qaeda affiliate in Somaliland – Mark Hay

Data Points
54% of U.S. adults think we’re still in a recession – WSJ

Legalese
The federal court fight over Detroit’s right to declare bankruptcy has begun – Reuters
The US killed an IMF amicus brief in favor of the Supreme Court taking up Argentina’s pari passu case – Joseph Cotterill

Charts
Who works the longest days – NYT

China
Chinese hospitals depend on bribery to keep running – Kazunori Takada

Strange Bloomberg Headlines
“Humans Beating Robots Most Since ’08 as Trends Shift: Currencies” – Bloomberg

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COMMENT

It’s amazing house flipping has increased by 74% since the first half of 2011. People are obviously feeling much better about the housing market to take the risk and make a house flipping investment. Even with some people freaking about the rise in mortgage rates, other indicators of improvements in the housing market prove that things are on the right track- increased new home sales, new home construction increases, rising home prices. We’ll eventually get back to where we want to be! ~Christina, Current Mortgage Rates Today

Posted by ChristinaCMRT | Report as abusive

from Shane Ferro:

The dark side of homeownership

Jun 6, 2013 17:06 UTC

Owning your home, long a pillar of the American dream, could actually be bad for the economy. In a new paper, economists Andrew Oswald, of the University of Warwick, and David Blanchflower, at Dartmouth, found that rates of high homeownership lead to higher rates of unemployment in both the United States and Europe.

Not only do high rates of homeownership keep people from moving to areas with good jobs, it also turns out that they tend to stunt job creation where the people live. What’s more, because suburbanites are unlikely to have a jobs in the same place that they live, they often spend a lot more time in traffic than they need to  -- time that could surely be used more productively.

This is not a new idea for Oswald and Blanchflower. They’ve been working on this area of research for the better part of two decades, although this is the first time they’ve had the hard data to show how the labor market in the US is affected when homeownership rates increase. Even though individual homeowners aren’t necessarily more likely to be unemployed than their renter counterparts, a doubling of the homeownership rate leads to more than doubling of the unemployment rate, the researchers find.

High rates of homeownership lead to fewer businesses being formed, says Blanchflower. The authors aren’t fully able to explain this correlation, though they hypothesize in the paper that it could be a result of zoning restrictions in residential areas and/or a NIMBY (not in my backyard) attitude from homeowners. Fewer businesses in the area mean fewer jobs, which lowers the employment rate. People who cannot find a job near their home, but are tied down by a mortgage, then end up commuting long distances for work.

Switzerland is a prime example of low homeownership and low unemployment. Only about 30% of the Swiss own their homes, and unemployment in the country hovers just above 3%. Spain is at the opposite end of the spectrum, with 80% homeownership and more than 25% unemployment. The paper shows that OECD countries and every state in the US fall somewhere in between Spain and Sweden. Here’s the scatter chart: the higher the homeownership rate, the higher the unemployment rate, generally.


As the subprime crisis hit, Oswald’s ideas became somewhat popular, as various people began to argue that perhaps homeownership shouldn’t be the bedrock of our economy. Clive Crook argued back in December 2007 that the focus on housing could be holding our economy back. “If investment in housing goes up, investment in things that would expand the economy and improve future living standards—such as commercial building and business equipment—goes down”.

As Free Exchange added, putting people to work efficiently means having a labor force that can move around to where the jobs are. “Roots are for vegetables”, as the article puts it.

In a panel discussion on the Canadian television show The Agenda back in 2010, both Yale economist Robert Shiller (of the Case-Shiller home price index) and urban studies theorist Richard Florida argued that homeownership should be less idealized, and the government shouldn’t promote homeownership through tax breaks. As Crook notes in his piece, the UK abolished mortgage tax breaks and saw no change in housing prices. “In the US, labor mobility and residential mobility tend to go hand-in-hand, and it’s really put a crimp in the US ability to adjust to this time of economic restructuring”, said Florida.

There are reasons to argue for homeownership, of course. Not only is it a leveraged investment that can pay off handsomely (if prices go up), it’s a commitment device, “which forces people to build wealth rather than fritter away their income on consumer products”, as Felix Salmon pointed out, also back in 2007. Shiller responds that if you have the discipline and self-control to put that money in the stock market, you’d likely get a better return.

In 2007, as the economy was spiraling downward, no one really wanted to talk about taking action that might further collapse the housing market. But perhaps now that the economy is slowly marching towards recovery, it’s time to bring it up again and ask ourselves whether being a nation of homeowners is worth the price we pay in stunted economic growth. It may be time to do away with the mortgage-interest tax deduction, rezone the suburbs, or simply embrace Blackstone’s quest to own as many single-family homes as possible.

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