April 1, 2010
Chase on Rethinking the Homeownership Society
Arlo M. Chase (Brooklyn) has posted Rethinking the Homeownership Society: Rental Stability Alternative on SSRN. Here's the abstract:
This paper radically challenges two of the dominant theories about housing policy: (a) that promoting homeownership is the best way to achieve household and neighborhood stability; and (b) that rent regulation has no place in competitive and thriving rental markets.
I argue that our national housing policy has failed by overemphasizing and over-subsidizing homeownership and by neglecting the rental market. These policies have not served the purported goals of individual and community stability. Indeed, over-subsidizing homeownership and home borrowing incentivized millions of households to overstretch their budgets in order to purchase homes, thereby contributing to the foreclosure crisis. The resulting housing instability has been further exacerbated by the failure of the rental markets to provide affordable and stable housing for low- and moderate-income households.
To address this increasingly untenable situation, I propose a rental stability program that would offer tenants an option for longer lease terms, rights to lease renewal, temporary regulation of rents, and federal rental subsidies to cover rent increases for rent-burdened low- and moderate-income households, while maintaining market-based incentives for owners to create new rental housing units and maintain existing ones. While my program takes pains to avoid many of the pitfalls of some “strict” rent regulation schemes, I do not shy away from the need to regulate rents for some finite period.
While they are not as dire as predicted by economists, I acknowledge that there are costs to rent regulation and my program is designed to minimize those costs. The specific consequences of rent regulation that often result, and that my proposal seeks to minimize, include: (i) the emergence of a “shadow” or “black” market for rental units; and (ii) incentives for landlords and tenants to litigate. My program would mitigate these and other unintended consequences by making the rent regulation time limited and subjecting all units in a jurisdiction to its purview. In the final assessment, states and localities considering my program would likely accept any small costs in market inefficiencies because of the gains achieved by increasing tenant stability.
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