New, Improved Housing

February 27, 2005
William Apgar

The Boston Globe
Red states versus blue states. Liberals versus conservatives. Owning versus renting. Sharp contrasts may energize an electorate, but framing national housing policy as a simple choice between owning and renting can force many families to settle for housing that doesn't meet their needs. And this is exactly what national housing policy does today.

Clearly, purchasing a home is a good choice for most, but it is not the right choice for all. When families take on debt that they are unable to repay, homeownership does not build wealth. Struggling to buy a home they can barely afford can trap families in modest homes located in declining neighborhoods with limited potential for equity buildup. For all too many, the dream of homeownership dissolves into the financial nightmare of missed mortgage payments and eventual foreclosure.
Yet these individual nightmares are not simply bad luck -- they are the inevitable consequence of a national housing policy that extols homeownership and cuts the funding needed to expand other affordable housing options. The result of this unbalanced focus on homeownership is clear: In the pursuit of decent housing many families play Russian Roulette with their financial security. Hoping they end up in the group of owners that grow equity and live happily ever after, families might suffer, instead, the harsh financial death of foreclosure.
Homeownership is not a cure-all. What the nation needs are new housing options that blend the best aspects of owning a home with the low financial risks of renting. The Netherlands provides a good example of this: There are government and nongovernmental housing organizations that provide good affordable housing that also protects residents against arbitrary evictions and still holds open the promise of promoting equity buildup on less risky terms. For example, to protect families from eviction linked to sharp declines in rent paying ability, some Dutch housing associations lease housing with rents set at a fixed proportion of family income. These same residents also have the right to purchase their unit at the current market price, but with a guarantee that limits the loss of home equity should housing prices decline.
Here at home, there are numerous examples of alternative tenure forms as well. These range from Langham Court, an award-winning limited equity cooperative in Boston's South End, to the community land trusts that dot the Vermont landscape. These alternative models place restrictions on the future sales price of units while enabling lower-income families to enjoy some equity buildup. At the same time, they create a permanently affordable stock of units for sale in the future.
Alternatively, by recognizing that a poor credit history can prevent a family from securing low-cost mortgage financing, rent-to-own programs -- including the federally funded Homeownership Voucher Program -- allow participants to improve their credit record and be in a stronger position to purchase a home at a later date. Though they present helpful alternatives to simple renting, these and other innovative housing options have yet to reach any significant scale in the United States.
New housing options are also needed for homeowning seniors. Expanding the supply of affordable, service-enriched rental housing could help resolve the equity rich/cash poor dilemma that undermines the standard of living for many homeowning seniors. For example, assisted living facilities can provide residents both individual rental units and access to common space that promotes active socializing and facilitates provision of in-house dining and health services. Unfortunately, lack of government funding to support the social service component puts assisted living units out of the financial reach of most seniors.
Alternatively, allowing older owners to rent out space in their home would bring in monthly income and the watchful eyes of a tenant to look out for the aging owner. But these options are severely restricted by local zoning regulations that limit the creation of ''accessory apartments" in areas zoned for single-family occupancy.
The irony of the current excessive focus on promoting homeownership is that many seniors get stuck in homes that don't meet their needs and are therefore unable to benefit from the home equity they have accumulated over the years.
Finally, national policy must also expand the consumer education needed to help families to make wise financial decisions. There are already enough TV ads trying to encourage borrowers to take on more debt than they can afford. National policy should refrain from adding to the chorus of voices that push homeownership. Rather, public policy should focus instead on expanding the range of affordable options available in the marketplace and give the American public the tools needed to make wise decisions about where and how to live.
Given the divisiveness of our current national political environment, we may or may not need electoral choices that go beyond Republican versus Democrat. But we certainly do need more choices than just owning or renting, just as we need consumers with a greater capacity to make wise choices among the housing alternatives that are available.
In short, we need to move beyond the simple dichotomy of owning versus renting and explore the exciting world of alternative tenure forms and new affordable housing options.
William C. Apgar Jr., Lecturer in Public Policy, returned to the Kennedy School after leave to serve as Assistant Secretary of Housing at the U.S. Department of Housing and Urban Development. He currently serves as Faculty Chair of the Kennedy School's Senior Executive Program for State and Local Government Officials.


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