The Society of the Owned: Renters Owned

In a post-9/11 America that no longer "does" irony — or nuance, for that matter — it's not surprising that one of the significant ironies of the George W. Bush era went largely unnoticed. Six years after declaring the dawn of an "ownership society," intended to create more homeowners (who would theoretically support conservative economic policies), and in the same month that president Bush declared National Home Ownership Month [1] we learned that increases in home ownership have been erased [2] — particularly among minorities — as a direct result of conservative economic policy.

Driven largely by the surge in foreclosures and an unsettled housing market, Americans are renting apartments and houses at the highest level since President Bush started a campaign to expand homeownership in 2002.

The percentage of households headed by homeowners, which soared to a record 69.1 percent in 2005, fell to 67.8 percent this year, the sharpest decline in 20 years, according to census data through the end of March. By extension, the percentage of households headed by renters increased to 32.2 percent, from 30.9 percent.

The figures, while seemingly modest, reflect a significant shift in national housing trends, housing analysts say, with the notable gains in homeownership achieved under Mr. Bush all but vanishing over the last two years.

…The confluence of factors has largely derailed what Mr. Bush called "the ownership society," his campaign to give millions of people — particularly minority and lower-income families — a shot at homeownership by encouraging lenders to finance more home purchases.

"We're not going to see homeownership rates like that for a generation," said Mark Zandi, the chief economist at Moody's Economy.com, a research company.

(We'll address the full impact of the subprime mortgage debacle on minorities a bit later in this series.)

Plainly put, policies that were supposed to create more stakeholders in the U.S. economy have actually pushed more people to its margins, and many out of it entirely. Whether that was the intention probably depends on who you ask. But it raises some important questions, one of which was recently posed by New York Times columnist Paul Krugman [3].

“Owning a home lies at the heart of the American dream.” So declared President Bush in 2002, introducing his “Homeownership Challenge” — a set of policy initiatives that were supposed to sharply increase homeownership, especially for minority groups.

Oops. While homeownership rose as the housing bubble inflated, temporarily giving Mr. Bush something to boast about, it plunged — especially for African-Americans — when the bubble popped. Today, the percentage of American families owning their own homes is no higher than it was six years ago, and it’s a good bet that by the time Mr. Bush leaves the White House homeownership will be lower than it was when he moved in.

But here’s a question rarely asked, at least in Washington: Why should ever-increasing homeownership be a policy goal? How many people should own homes, anyway?

Deeper into a relatively short column, in which length is no reflection of depth, Krugman questions the very gospel of what Dean Baker [4] terms the homeownership ideologues.

But there is one group that still needs to be singled out for their role in bringing about this disaster: The ideologues of homeownership. These are the folks who push the ideology of homeownership as an end itself. They insist on lavish government subsidies, even in situations where homeownership is not a good solution for the people affected.

To be clear, homeownership is often desirable. It can be a mechanism for providing good secure housing and, also, for accumulating wealth. It is, therefore, reasonable to have policies like a limited mortgage interest deduction or credit that make it easier for low- and middle-income people to become homeowners.

However, homeownership should not be viewed as an end in itself. One of the reasons millions of families face foreclosure and/or the loss of their life's savings is the ideologues of homeownership continued to promote homeownership even when it was clear buying a home would be financially detrimental.

There are indeed risks inherent in home ownership, as both Krugman and Baker point out, but not all of those risks are simply part of the "nature of the beast." Some of them were, to borrow a phrase from another conservative movement, intelligently designed. That intelligently designed reality, however, wasn't and could never be compatible with the essential core of the home ownership gospel.

For many minority and lower-income families who viewed homeownership as a stepping stone to building wealth and passing it on to their children, the transition from owning to renting has been the unraveling of a dream. Burdened now by debt and bad credit, some of these families are worse off than they were before they bought.

“The bloom is off of homeownership,” said William C. Apgar, a senior scholar at the Joint Center for Housing Studies at Harvard University who ran the Federal Housing Administration from 1997 to 2001. “We’re seeing more dramatic growth in renters and a decline in the number of owners. People are beginning to understand that homeownership can be a very risky venture.”

The bloom is off homeownership, alright; pruned, plucked, or wilted as a direct result of the policies that drove not just the subprime mortgage disaster, but various other aspects of our economy to a point where homeownership — risky as it is — became almost the only way to build wealth.

But how does one "create wealth" when the price of just about everything has gone up. Health care is cutting into already stagnant wages [5]. (Even the Federal Reserve chairman [6] has declared health care — health care costs specifically — to be our biggest economic challenge.) the cost of gas is driving up prices [7] of fuel-related and fuel-dependent goods. In other words, almost all of them. The prices of milk and bread, for example, were up 14.7% and 13.3%, respectively, in April. Meanwhile, low- and middle-income families face utility costs that have increased by 40% in the past year [8], forcing some to between keeping the lights on and keeping food or the table, buying the medicines they need, and changing plans for their or their children's education. Gas prices alone are causing some families to move [9] closer to work and shopping.

Here is another disadvantage of homeownership: it's renters who are moving, because it's easier to break a lease than it is to sell a house. That may be the only advantage renters enjoy, however. Though some "angry renters" — like those backed by Dick Armey's organzation, FreedomWorks — are railing against the foreclosure relief bill [10] that now appears to be stalled in Congress, the subprime debacle and its wave of foreclosures have put renters is a tight spot as well. It turns our renters aren't immune to foreclosure. Responsible renters get eviction notices [11] when their landlords end up in foreclosure.

Charles Nelson has paid about $30,000 in rent since moving into a spacious four-bedroom home in August. He was stunned when a real estate agent knocked on his door recently and said the home was in foreclosure.

His landlord had not paid the mortgage since he moved in and the bank is now demanding the house back. Nelson will also lose his $7,700 security deposit.

When he confronted the landlord, he says, he was given a terse response: "That's none of your business."

"I said, 'I beg your pardon. It is my business. I mean, is somebody going to knock at the door and throw me out -- throw my family out, or what?' " he said.

…More than 100 miles away in the working-class city of Palmdale, Fai Nomaaea -- a 35-year-old mother of eight -- can relate. The single mom was cleaning the yard when a man handed her a notice of foreclosure. Like Nelson, she had been paying her rent on time every month.

She now lives in fear every day.

"I don't know what's going to happen the next day," she said. "I don't know if they're going to come to the door and tell us that we have to move, and I don't have anywhere to go."

For Nomaaea, getting booted from the home presents another hardship: She lives on a fixed income and can afford about $1,200 a month in rent. It also means finding a new school for her children.

The ripple effect [12] goes much further than a single eviction notice, of course.

The rise in foreclosures isn't just affecting homeowners, it's also putting pressure on renters, according to a report released Wednesday by the Joint Center for Housing Studies at Harvard University.

For one, the uptick in foreclosures is prompting more households to compete for low-cost rentals. Also significant is the number of renters who face sudden eviction when properties they're living in are foreclosed on, the report found.

…The number of renter households rose by nearly one million last year, which is more than four times the pace of renter growth between 2003 and 2006, according to the center's report, "America's Rental Housing: The Key to a Balanced National Policy." The U.S. median monthly gross rent reached a record high of $775 last year. Read the report.

Plus, the turmoil in the credit markets has raised the cost of financing rental-housing construction and preservation, causing completions of multifamily units to fall to 169,000 -- two-thirds of the number seen in 2002, according to the report.

In some areas, a "perfect storm" has hit the rental market [13]. Foreclosures simultaneously increase the demand for rentals when homeowners and renters evicted from foreclosed properties enter the market, and reduce supply as rental properties are foreclosed. For renters, that means more difficulty finding vacant units and higher rents for those that are available. In places communities caught between the pincers of joblessness and foreclosures, it means more people are living in their cars [14].

Having lost her job and her three-bedroom house, Darlene Knoll has joined the legions of downwardly mobile who are four wheels away from homelessness.

She is living out of her shabby 1978 RV, and every night she has to look for a place to park where she won't get hassled by the cops or insulted by residents.

"I'm not a piece of trash," the former home health-care aide said as she stroked one of five dogs in her cramped quarters parked in the waterfront community of Marina del Rey.

Amid the foreclosure crisis and the shaky economy, some California cities are seeing an increase in the number of people living out of their cars, vans or RVs.

It means cities are now providing services such as parking lots reserved for homeless people, living in their cars [15].

Barbara Harvey climbs into the back of her small Honda sport utility vehicle and snuggles with her two golden retrievers, her head nestled on a pillow propped against the driver's seat.

A former loan processor, the 67-year-old mother of three grown children said she never thought she'd spend her golden years sleeping in her car in a parking lot.

"This is my bed, my dogs," she said. "This is my life in this car right now."

Harvey was forced into homelessness this year after being laid off. She said that three-quarters of her income went to paying rent in Santa Barbara, where the median house in the scenic oceanfront city costs more than $1 million. She lost her condo two months ago and had little savings as backup.

...There are 12 parking lots across Santa Barbara that have been set up to accommodate the growing middle-class homelessness. These lots are believed to be part of the first program of its kind in the United States, according to organizers.

The lots open at 7 p.m. and close at 7 a.m. and are run by New Beginnings Counseling Center, a homeless outreach organization.

It is illegal for people in California to sleep in their cars on streets. New Beginnings worked with the city to allow the parking lots as a safe place for the homeless to sleep in their vehicles without being harassed by people on the streets or ticketed by police.

Renters have reason to be angry, though not because of the possibility that some homeowners — perhaps some of their landlords — might avoid foreclosure if the government steps in, but because — as Krugman points out — while homeownership has been an article of faith, renting has been treated more as kind of agnosticism, if not heresy.

Listening to politicians, you’d think that every family should own its home — in fact, that you’re not a real American unless you’re a homeowner. “If you own something,” Mr. Bush once declared, “you have a vital stake in the future of our country.” Presumably, then, citizens who live in rented housing, and therefore lack that “vital stake,” can’t be properly patriotic. Bring back property qualifications for voting!

Even Democrats seem to share the sense that Americans who don’t own houses are second-class citizens. Early last year, just as the mortgage meltdown was beginning, Austan Goolsbee, a University of Chicago economist who is one of Barack Obama’s top advisers, warned against a crackdown on subprime lending. “For be it ever so humble,” he wrote, “there really is no place like home, even if it does come with a balloon payment mortgage.”

And the belief that you’re nothing if you don’t own a home is reflected in U.S. policy. Because the I.R.S. lets you deduct mortgage interest from your taxable income but doesn’t let you deduct rent, the federal tax system provides an enormous subsidy to owner-occupied housing. On top of that, government-sponsored enterprises — Fannie Mae, Freddie Mac and the Federal Home Loan Banks — provide cheap financing for home buyers; investors who want to provide rental housing are on their own.

And Dean Baker [16] points out that the current foreclosure relief bill — the one all-but-written by the banking lobby [17], and that's now stalled in the house [18] — will not only leave many of the homeowners it's supposed to help vulnerable to second foreclosure, but will essentially be paid for by renters. Kind of like a rent party [19] in reverse.

It would be possible to prevent this problem by restricting the guarantee prices to some multiple of rents. Rents never got out of line with fundamentals even at the peak of the bubble. For example, if the guarantee price was set at a multiple of 15 times the appraised rent on a property, it would offer greater assurance the homeowner was not paying too much on their mortgage and might also accumulate some equity in their home.

Congress has shown little interest in ensuring the new guarantee prices reflect fundamentals, making it likely many of the people "helped" under the program will end up facing foreclosure a second time. However, to make matters worse, they came up with the idea of financing the plan by taking away a stream of funding that had been dedicated to help low-income renters.

That's right; Congress wants to take away money from low-income renters to help bankers that made bad loans in the housing bubble. As we all know, when the banks are in trouble, it is not the time to talk about the free market.

The real painful part of this story is it would be very easy to help the real victims in this story: the low- and moderate-income homeowners, who were suckered into buying homes at bubble-inflated prices with bad mortgages. Congress could just temporarily change the rules on foreclosure to allow moderate-income homeowners facing foreclosure the option to stay in their home paying the fair market rent.

One of the likely results will be more stories of renters caught up in a wave of foreclosures [20]; a second wave.

Tamika Shears says she never missed a rent payment, but she was still forced out of her home.

Her situation reflects a growing number of renters facing eviction because of the widening foreclosure crisis gripping Charlotte along with the rest of the nation.

Shears and her two children had lived in a four-bedroom house in northwest Charlotte for more than a year when their landlord lost the house to foreclosure.

“My first thought was, ‘Where are we going to go?'” she recalled.

Homeowners displaced by foreclosures have received much attention. But legal and housing experts estimate at least one of every four homes in foreclosure in the Charlotte area is non-owner occupied.

Renters were similarly punished during the mortgage industry meltdown in the early 1990s, but this time problems are far more widespread, said Judith Liben, a lawyer with the Massachusetts Law Reform Institute. She testified before Congress last year about the issue.

“It's like you broke a dam,” Liben said.

The impact is swift. Often, evicted renters can't scrape together hundreds of dollars on short notice needed for first month's rent and security deposit for a new place. And the vacant houses they leave behind often become magnets for vandalism, drugs and other crime.

Some may be saved by the return of the boarding hous [21]e.

When Barbara Terry fell behind on her mortgage payments earlier this year, she did the previously unthinkable. Through a local housing organization, she and her daughter, Imani, 9, rented part of their single-family house to a stranger.

“I had to do something,” said Miss Terry, 46, who helps formerly homeless people move into new housing. “I said, I am not going to lose this house. Thinking about having a stranger was not a pleasant thought. I have a daughter. But the positive part was that I needed extra help, and I wanted to help someone.”

With residential mortgage foreclosures still on the rise, more homeowners nationwide are considering Miss Terry’s choice: whether to take in a boarder to keep their homes. Modest but growing numbers are turning to agencies nationwide like the St. Ambrose Housing Aid Center Homesharing Program in Baltimore, which screen boarders to find appropriate matches and relieve some of the fear of strangers.

“We’re seeing greater numbers of marginal people,” said Kirby Dunn, executive director of HomeShare Vermont, one of several hundred programs around the country that have been formed since the 1980’s to help elderly or disabled homeowners exchange spare rooms for income or, more often, help around the house, but now being pressed to meet different needs.

“Historically,” Ms. Dunn said, “the people who come to us have been looking for someone to provide services in the home. But now, money is the bigger issue for folks. There’s definitely an increase in people looking for a revenue stream.”

Ms. Dunn said volume at the agency was up this year, with three or four times as many people seeking rooms as seeking boarders.

That may work, until we see the first wave of boarders displaced by foreclosure; something highly likely in a housing crisis that won't be resolved anytime soon. Beyond all of that, what happens in an economy where

• the prices of basic necessities have steadily gone up,
• wages have not kept pace with prices in more than a generation, and
• the number of blue collar jobs with decent salaries and good benefits has plummeted?

How does one build wealth? By renting and saving? Or by owning a home?

In order for Krugman's suggestions to work, it has to be easier for people to save -- whether for home ownership or for retirement. But we live in an economy where the cost of simply getting by is higher, but wages haven't kept pace with price increases. Part of the result was a "perfect storm" of people wholly embraced the "gospel"of homeownership, but who couldn't afford to save for down-payments (or much of anything else). At the same time, the were no market incentives for building affordable rental housing.

Support for renting, and a renter-friendly economy is only part of the answer. What Krugman doesn't address is that the primary reason for the cult of homeownership is that it has been seen as the first step on the road to building wealth.

That's because in our economy wealth is built by owning assets that appreciate in value. In better economic times, home ownership allowed families to give young couples a leg-up by providing a down payment, or part of a down payment on a home. Parents drew on their home equity to pay for children's education, with the intention of increasing future earning power.

There is risk in homeownership, and there always has been. But there are known risks, unknown risks, and hidden risks. It's the last set of risks that grew more popular, more profitable — and more perilous, both for homeowners and for unsuspecting renters — under the Bush administration. And as a direct result of policies founded on bedrock conservative philosophy about "free markets" and deregulation.

How does one build wealth in an economy where saving is more difficult than ever before, renting has become as risky as homeownership, and the nature of homeownership has changed to the point that it's almost like renting?