The Upside of the Housing Crisis

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Turning America into a rental nation may actually make our economy more flexible and resilient.

Back in 2009, Warren Buffett lamented that he wished there was a way to buy a million single-family homes because there was quite a bit of money to be made in that market as the housing market recovered after the recession. It appears that Mr. Buffett’s wish has finally come true. Homebuilders are now selling entire neighborhoods to companies so that they can rent them out. Many regular people are getting outbid by investors and others who are snatching up housing stock for long-term rentals. Homeownership was already declining over the past 13 years since the Great Recession and thanks to the pandemic, America is becoming a rental nation more than ever before. Nearly 50% of Americans rent rather than own. For some, this is a tragedy; it’s a loss of the American dream as we have known it. However, this is not the end of the American dream. In fact, I posit that it will help people get ahead by making the economy much more flexible than it has been in the past.

Housing Shortages

The American housing market right now is very broken. It has rarely worked for most working people. Right now, due to the demand from people who are moving out of cities to the suburbs and the rise in materials costs, prices are skyrocketing throughout the nation. Real estate is selling within days, often for all-cash offers from investors. Normal people with mortgages who need approval lose out on these homes. Many younger buyers have been shut out of homeownership for years due to rising prices and punishingly high rents and stagnant wages. Pile on top of that, developers are now selling entire neighborhoods to hedge funds who intend to rent them out. This works for developers as they don’t have to find people who can afford houses starting in the low 400s. All of this had added up to a major crisis in housing: there’s simply not enough of it. No matter where you look, the housing market has been tight and this has driven prices higher. This adversely impacts the working poor.

This situation has been decried in the media, but the reality is that developers buying up whole neighborhoods isn’t necessarily a bad thing long-term. It’s actually better for most working people to not own their home. This actually could lead to more housing units, which would solve the other problem in housing, supply. The reduction in homeownership, while perhaps psychologically difficult, is actually a better deal. Homeownership holds people back and the entire economy.

Time to Move; Follow the Money

When I was growing up, I read a series of books about economics. The first of which was called, “Whatever Happened to Penny Candy?” Written by Richard Maybury, It explained economics in a series of letters between “Uncle Eric” and his nephew. In all the books, the author used this format as a vehicle to encourage his fictional nephew to basically own nothing and be willing to move where the “cones” of money were flowing. His explained that when the government released new currency into the system it wasn’t over the entire country (helicopter money) but in specific sectors. Although this isn’t quite the case, it is true that new wealth is created in some places and not in others. His advice was that if the nephew wanted to take advantage of this, he needed to be able to move to wherever the money was flowing quickly and easily. He recommended against buying a house or even a car. Everything should be rented so that you can drop it quickly and move to a new area or reduce expenses. It was also a great hedge against inflation, which Uncle Eric saw as the ultimate enemy of wealth.

One of the ways in which the American economy is rather inefficient is homeownership (see video). The problem with homeownership is that workers cannot easily move to take advantage of new opportunities. During the height of the 2008 crisis, ABC profiled a man who was driving back and forth between his new auto manufacturing job in Tennessee and his family in Ohio because he had chosen to take a transfer within General Motors rather than be laid off. His family was unable to come with him because they were unable to sell their home. If, instead, the man was renting, he could end his lease early, sublet, or end a month-to-month arrangement.

The reality is that in a fast-moving economy where opportunities are shifting and jobs can move, remaining flexible is key. The inability of workers to move around costs the economy dearly. If people were able to move to better opportunities without having to sell a house (and possibly lose money) or lose their home (and all the equity) then people would not end up stuck in locations with poor opportunities. Some rightfully argue that people still might not move because of connections to friends and family, and that “simply moving” is not always an option. However, people are often pragmatic. If they can’t find a decent paying job where they are, and they can easily leave to a nearby or new location to find work and economic success, many will do so.

Sprawling America

The other problem, of course, is that homeownership is expensive. Pipes can burst, electrical wires can go out, floors can go out, the myriad of structural issues with homes can go on and on. For many regular people, repairing these things can be an expense that is nearly unreachable. This also represents money that is being drained away from the rest of the economy.

Homeownership has also focused American housing on single-family homes and the resulting sprawl, rather than other types of homes that would be more dense. Denser housing would solve a variety of problems facing Americans. Commute times would be shorter and mass transit would be more practical for more people. It would also fix the environmental impacts of suburban sprawl that is about the worst use of land anyone can imagine.

People owning their homes also has an effect on local policies. It’s harder to raise property taxes to properly fund services. Many homeowners don’t want new multi-family buildings going up in their neighborhood. If the people in the area don’t own, they might be more welcoming to a wider variety of housing. The age-old of argument of “but what about property values?” wouldn’t be the beginning and end of every discussion about housing and urban planning in our communities.

Of course, being able to own a home can still be difficult, and one of the ways in which it can be so is that it is often tricky to find the right mortgage. For this, an individual needs the ability to know exactly how much they need to borrow and who they should approach for it, which means shopping around with different providers as best as they can. Looking at this website, you can see that there are plenty of regulations that such providers will need to follow – this should be considered a basic for such lenders to be used and their services to be respected.

Still others argue that renters aren’t invested in their communities in the same way owners are invested. Someone who has been at the same address for 10 years as a renter cares about their community as much as someone who has been at their address for 10 years and owns their dwelling. It’s not about ownership, it’s about where people want to live and if they want that area to improve over time. The best part is that if a city can’t keep their neighborhoods up, then people can vote with their feet and leave for somewhere else. The people or organizations who do own the buildings will be invested in making sure that rental income stays flowing, which means pressure will be on to keep neighborhoods in a decent condition. However, regular people don’t have to be the ones making the demands.

America: Renter Nation

Moving Americans away from ownership and toward renting is simply a better deal for most working people. It’s also better for our economy. People can move to take advantage of opportunities, and they can follow jobs and economic growth. They don’t have to wait to sell their house or worry about being upside-down on their home. People can use other vehicles to build wealth. People can also avoid having to come up with tens of thousands of dollars in down payment to buy homes and live with massive debt for decades. They can avoid the repair bills of owning a home and all the other problems that go along with it. Owning property is a considerable commitment, and the reality is that most people don’t need that burden in their life. There aren’t many upsides to the present housing crisis, but the increase in people renting is not one of them.