Bite-Sized Home Buying
Earlier this week, Emily Badger posed a tough problem in our regular The Big Fix feature: Despite her awareness that home ownership is a riskier investment than ever, she's still frustrated by the limitations of renting:
In this way, we are the quintessential young professionals of the new economy – restless knowledge workers who deal in “projects,” not “careers,” who can no sooner commit to a mortgage than we can a lifetime of desk work. Our attitude is a national epidemic. It’s harder to get a mortgage today than it was 10 years ago. But a lot of people also just don’t want one any more. At the height of the housing boom, 69 percent of American households owned their homes. Housing researcher Arthur Nelson predicted to me that number would fall to 62 percent by 2020, meaning every residence built between now and then will need to be a rental.
I haven’t been able to figure out in my own household, however, how this aversion to permanence can coexist with our rising ire about renting. And I don’t know how whole cities will accommodate this new demographic: the middle-class forever renter.
New York University economics professor Andrew Caplin has one idea: What if you could buy just part of a house?
Caplin imagines a housing system that works something like the stock market. Instead of putting down the entire cost of a home, potential homeowners could split the cost with co-investors. The homeowner would still live there, and they could change the space as they liked, painting walls or buying new refrigerators.
But each investor would own a certain percent of shares in the home. And when you moved out, you and your investors would each keep a share of the selling price.
For first-time home buyers, such an arrangement would significantly reduce the financial risks of taking on a huge mortgage. They would also have allies when they wanted to sell, making moving easier.
But investors could benefit too: default rates would go down, and investment opportunities would increase. Further, investors could be anyone. A company could buy up some housing stock for its workers so they can live close to work. Parents could invest in housing stock that might one day benefit their children.
Caplin calls these "housing partnerships," and he can't understand why they aren't more popular. He first proposed the idea 15 years ago in the book Housing Partnerships: A New Approach to a Market at a Crossroad, and has written papers about the idea ever since.
The problem, he says, is that our current laws make this impossible. Caplin has worked with the IRS and politicians to try and change them, but so far there's been little action. Which means we're stuck with single entity mortgages for the foreseeable future. "It's not like building a nuclear power station," Caplin says. "If people cared, this would have happened."
Photo credit: Lucy Nicholson