Renters Are Not The Problem

Posted by Tony Roshan Samara on December 16, 2014

Alan Mallach concludes his recent commentary on the problem of declining homeownership (Do Urban Neighborhoods Need Homeowners?) with the important reminder that cities and policymakes should not neglect renters.

Yet, his argument leading up to this point is a prescription for continuing a century-old approach to housing that structurally advantages homeowners and disadvantages moderate- and low-income renters. More worryingly, his argument includes misleading statements about the benefits of ownership that indirectly stigmatizes renters.

Mallach is right to stress the massive loss of wealth many already struggling communities have experienced as a result of the foreclosure crisis and the decades of predatory lending that preceded it. By some accounts the loss of wealth for black and Latino communities in particular is unprecedented in scope. Mallach is also right to point to the threat posed to communities where large scale private equity investors are buying up formerly owner-occupied homes and converting them to rentals. This trend has received widespread media coverage and was the subject of a recent report, which I contributed to, by the Right to the City Alliance, The Rise of the Corporate Landlord.

Where he runs into trouble is in listing a series of correlations that don’t necessarily mean what he takes them to mean, which he offers as evidence of the many benefits of ownership compared with renting.

First, he equates the decline of ownership in some neighborhoods with an increase in poverty. While the decline in ownership, and the loss of wealth that came with it, certainly contributed to increases in poverty in many neighborhoods, it does not follow that increasing ownership is a solution to that poverty. Most, if not all, of these neighborhoods were already struggling long before the housing market crash as a result of decades of deindustrialization, disinvestment, and more recently, displacement. When the recession hit, these vulnerable communities of renters and homeowners alike, were hit hardest. The decline in ownership simply reflects much deeper problems that ownership did not, and will not, address.

Low-income communities and communities of color were disproportionately targeted by predatory lenders in the run up to the crash. The unprecedented rise in homeownership and wealth in these communities over the past 20 years was real but precarious. It is unclear how a new round of ownership expansion, under the same racially biased market model would lead to any difference in outcome years or decades from now.

Second, Mallach argues that homeownership is good in its own right because of the many studies showing correlations between ownership and positive social and economic outcomes. To see how misleading the implication here is, consider its opposite: renting, to sample from his list, is correlated with higher rates of juvenile delinquency, fewer positive child outcomes, less involvement in neighborhood activities, and less readiness to become involved in tackling the neighborhood’s problems, such as crime or disorder.

True? Perhaps. But does renting cause these outcomes? Unlikely. Renting simply is more prevalent in communities that struggle with these issues, and for reasons that boosting rates of homeownership don’t address, and may even worsen. Increasing rates of ownership, for example, raises property values and can contribute to gentrification and renter displacement.

My primary concern with Mallach’s commentary, though, is that in presenting misleading information about the benefits of ownership, he indirectly, and I’m sure inadvertently, contributes to the continued stigmatization of renters. His list of ownership’s virtues frames renters as bad neighbors and evokes an old but still powerful narrative, rooted in 1920s anti-communism, of homeowners as models citizens. I see the power of this narrative every day in my own work, in the dismissive attitudes of many local governments and others towards renters, who are often treated as second-class citizens. In one recent example, a local Realtors association here in Silicon Valley, where housing costs are unsustainable for most of the population, made the exact same argument that Mallach does in attacking rent control in a local paper. I responded to his argument here.

The bias toward homeowners extends beyond local discrimination. In the wake of the housing market crash, for example, the state of California passed a Homeowners Bill of Rights. No such concern has been shown to renters by the state, which has in fact limited, rather than extended, protections for renters in recent years. The bias is firmly embedded in federal policy as well. Federal spending supporting homeowners has at times outstripped spending on affordable rental housing at a rate of 4:1, and disproportionately benefits more affluent households.

Mallach is right that the decline in ownership is a problem, but he mistakes a symptom for the cause. Low- and moderate-income households, renters as well as homeowners, face multiple pressures that undermine their own tenure security as well as community health and stability. The obsession with ownership obscures more comprehensive solutions to the crisis of housing insecurity, solutions that must embrace rather than fret over the rise of renter households across the country. There is no reason renters cannot be a foundation of strong communities, as an examination of renters in societies where social policies don’t systematically undermine them reveals. Renters must be at the center of any genuine solution to the housing crisis and to broader efforts to address the deep social and economic inequalities that have come to define the country.

 

(Photo credit: Flickr user Michael Hicks, CC BY 2.0)

About the author more »

Tony Roshan Samara is senior program manager of Land Use and Housing at Urban Habitat in Oakland, CA, and serves on the steering committee of the Right to the City Alliance. He is also the author of Rise of the Renter Nation: Real Solutions to the Affordable Housing Crisis. He also runs the Cities and Globalization Twitter account at twitter.com/CGWG2, and most of his publications are available at independent.academia.edu/TonyRoshanSamara.

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COMMENTS

Spencer Wells
21 Dec 14, 8:05 am

Tony.  Thanks for your insightful rebuttal.  The US has drunk the homeownership kool aid for way too long, as if renters don’t have homes too.  At best, in the old lexicon promoted by the realestate financial complex, renters were HOUSEholders.  Time for a change in how we think and speak.

Abbott Gorin
23 Dec 14, 9:57 am

Dear Shelterforce:

  As someone who did not see his parents realize home ownership until I was college educated and well out of the house I must agree with Tony Roshan-Samara’s critique that home ownership by itself will not serve urban neighborhoods any better than being a renter and a good citizen.  I am often particularly surprised about attacks on municipal rent control ordiances.  Even so progressive an economist as Paul Krugman of the NY Times has been critical of the New York City Rent Stabilization scheme. 
  A well constructed rent control scheme will do much to stabilize neighborhoods and keep working people in cities.  Further the suggestion that rent controls artifically set rents lower than the market will is not emprirically supported. 
    If the New York City experience is any example the legaly determined rents in most New York neighbrohoods, except Manhattan and “Brownstone Brooklyn,” exceed the rents that landlord’s charge.  This is usually the result upon the increases that landlords are allowed upon the turnover of an apartment from one tenant to another. 
  Rather than rent control tax abatements and lower fuel costs are the fiscal devices that spur new development or existing building renovation.  Protecting tenants through rent control will not undermine development.

                                          Abbott Gorin

Justin Collins
23 Dec 14, 10:32 am

If renting came with security of tenure, controlled monthly housing payments (i.e., rent control), and a vehicle for building equity, it would indeed be more desirable.  Until such components are part of our definition of “rentership,” however, renting is not particularly desirable for one who lives on a fixed income and no nest egg.

The problem is our binary framing of housing choices (rentership vs. homeownership). As a person who works within the world of shared-equity homeownership, I am routinely frustrated by this.  I find myself in most cases simultaneously agreeing and disagreeing with most articles, such as this one, on housing.  It is time to re-frame the question entirely.  Should not the questions be “What rights should be associated with our housing?” and “What rights do low-to-no-wealth households, in particular, need in order to have a happy and secure life within our society?”  From the answers to these questions we can build a model of tenure that works.  This model would look neither like renting or “owning” as we know it in the U.S.  No land"lords” and no under-water homeowners.

Stan
23 Dec 14, 10:48 am

Wealth building is a dynamic process. Homeownership may be prestigious and invest people in communities but is not sustainable if people are not connected to the economy by living wages and an acceptable social safety net. Homeownership also assumes that people will stay in one place for reasonably long periods, which requires levels of secure employment. Our present system of mortgage financing assumes reasonably steady incomes and sufficient savings, which are inconsistent with declining wages, insecure and sporadic employment, underfunded pensions and high consumer debt levels.  The assumption that home values would always increase, which was eventually abused to fuel predatory lending and the housing bubble, is based largely on either a shortage of housing to meet increased demand, or on the vagaries of “location, location and location,” often the location of people of color and limited incomes. Ultimately the issue is whether the society is organized to spread the wealth, responsibility, and power or to concentrate them in the hands of a few. Housing and homeownership issues are just a piece of a huge web.

Rick Rybeck
23 Dec 14, 11:55 am

Excellent article and good comments.  I particularly appreciate the comments of Justin Collins.  Moderate rent control in the District of Columbia has had mixed results in terms of keeping rent levels low.  However, it has had a huge impact (often overlooked) in providing security of tenure to tenants to pay their rent and abide by their lease.  Security of tenure, more than homeownership per se, helps determine whether people will get involved in their community.

Peter Werwath
23 Dec 14, 1:04 pm

Tony, 
I agree with your analysis and want to add a few more points to it.  I have worked on the redevelopment of the housing stock of low-income neighborhoods for over 30 years. Since the 1980s, I have helped to design and start up counseling and 2nd mortgage financing programs for low-income first-time homebuyers in a number of cities.  When I got out on the streets, met potential homebuyers, saw the homes they wanted to buy and read the market data, it quickly became apparent that the pursuit of homeownership made sense only for certain low-income people, buying in certain areas. In other words, for low-income people who by definition have limited buying power, no generalizations about homeownership make sense. You have to look at micro-markets.

On the buyer side of the equation, there has to be stable employment, a strong ethic of paying all bills on time, and affordable financing. I differ from many colleagues on “how low you can go” in terms of buyers’ income. I have studied the records of homeownership assistance programs and found a surprising number of owners at or below 30-40% of area median income who had being doing just fine for long periods of time. This was an indication that the home prices and financing were affordable, and that the very low income buyers were properly counseled and underwritten. 

On the property/location side of the equation, the home should be affordably priced, in a relatively safe area, with at least adequate schools (if the buyer has children), and an excellent chance of appreciation. A very large proportion of homes in urban neighborhoods do not meet these criteria, despite the hopes, dreams and (sometimes) blind faith of well-intentioned redevelopers.  Where home purchases make sense and the redevelopers succeed, gentrification is usually occurring in some degree (for better or worse). Generally, home prices in a micro-market have little chance of appreciating unless the average income of the buyers is increasing. A low income family is obviously much worse off owning a depreciating home than renting and, if possible, building equity through cash savings. 


Lastly, I wonder about the degree to which low-income urban neighborhoods are victims of “large scale private equity investors [who] are buying up formerly owner-occupied homes and converting them to rentals.” From what I have read and seen, this is occurring mainly with condos and suburban homes in areas with fairly strong demand—albeit for rentals and not home purchases—and where average income of residents is quite a few notches higher than in the most distressed urban neighborhoods.  In my experience, owner-occupied homes in distressed neighborhoods predictably transition to investor-ownership when average incomes decline, homes become more run-down, the areas become less safe, and the performance of neighborhood schools decline. The investors I’ve encountered in these areas aren’t private equity firms but mostly a mixed bag of mom and pop real estate operators who think they can’t go wrong buying a home for $30,000 or $40,000 or even $150,000 in some markets. The passive investors, such as doctors and dentists using property management firms, tend to have a higher failure rate.  Some of the more hands-on operators survive and make money owning just small portfolios. And a few of these operations succeed and grow into larger firms—some of them reasonably responsible but others clearly acting as slumlords. Both the good and bad firms tend to get their equity capital from passive investors—typically local and known to the rental operators personally.  I would be interested in learning any facts to the contrary, but in my experience, the Wall Streeters are not to be seen in the rough and tumble bottom strata of the single-family rental market.

Eric
23 Dec 14, 3:16 pm

What’s wrong with 50/50?

Carol Ott
25 Dec 14, 1:05 pm

To address Peter Werwath’s comment above about the ‘degree to which low-income urban neighborhoods are victims of “large scale private equity investors [who] are buying up formerly owner-occupied homes and converting them to rentals’—it’s happening more than you’d think, in large cities on the East Coast, and I’m sure elsewhere.

Baltimore and Philadelphia, in particular, seem to be awash in low-end investor-types who are buying up homes in foreclosure and municipal tax auctions, in order to convert them to rentals. In my neighborhood in Baltimore, one investor now owns an entire block of homes, and my guess is the majority of these homes will be converted to section 8 rentals, and therefore add to the already growing concentration of poverty in an increasingly unstable neighborhood.

As a renter myself, I’m finding it harder and harder to find rentals priced less than HUD’s FMR, despite living in a city where the “recovery” hasn’t touched most middle- and low-income residents. Until “fair market” is determined by local standards and not the MSA, which includes wealthy suburbs, it will be come increasingly difficult for working families to afford rents without a government subsidy.

We need to stop thinking of renting as a Plan B, and understand that many people rent by choice, for an array of valid reasons, and provide rental housing that people can afford, in all neighborhoods.

Casey Sien
26 Dec 14, 11:07 am

Each has their relevant and irrelevant arguments. My thoughts are: Rent versus Own.
Own:
Build equity with rent, but high taxes and other fees negates the advantages.
Equity depends on market conditions.
Not flexible to move during a market downturn, especially in bad neighborhoods and schools.
Rent:
No Equity
Flexible to move, especially when neighborhoods go downhill.
There are advantages and disadvantages to own or rent. Also, subsidized housing in one form or another will affects the market values. Good neighborhoods should have both. Largely, it all depends on the school systems, jobs, safe neighborhood and ethnic preferences.

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