Last week I spent a while discussing the troubling issue of scarce affordable housing and how that has hurt a generation of would-be first time home buyers in the D.M.V (yes, again I know this isn’t a word but I believe it might as well become one big area…and if you think I’m referring to a place where you renew your driver’s license then you are also probably not aware the term “heading to the mall” usually has nothing to do with retail).
Either way, one session of clicking around on the web and you know the housing in this area will cost you more than you feel comfortable spending unless you have a really unique situation or want to live with 3 other people.
Quick diversion…When I was younger I rented a house with 4 other dudes, but the house only had 1 full bathroom. I may have been able to afford the rent but somewhere during that year I truly lost my dignity. Having 1 full bathroom in a group house just opens the door to a lot of weird and desperate stuff that can only be understood by people who have been through it.
But anyway, the housing here is pricey, and with a generation of potential first time buyers struggling to decide where to live and how much to spend on housing, the elusive goal of fiscal responsibility can seem unfairly difficult to obtain. So if you haven’t read Thursday’s posting (seen below this one) I encourage you to do so before reading any further otherwise I may sound like I’m coming from right field (no disrespect to RF because, Bryce Harper…enough said). As promised, here are my ideas on how we can spur some affordable housing development in the D.M.V. I will elaborate on each of these points with future posts because there isn’t enough time to explain everything in great detail here. I just wanted to start floating some ideas to get the conversation moving.
I know we live in a world where unfortunately most ideas are somehow politically polarizing and subsequently offensive to someone in nature. What I’m floating below is pro everything and hates no one…Like for real. We’re talking people, business, government, industry, communities, life, prosperity, dogs, sunsets, mac n cheese, and everything else normal and cool. So short of you being a complete monster I trust there should be no great opportunity for offense. Also I am operating under the basic assumption that most people would buy a house if it financially made sense, though I realize there are people that exist who prefer renting forever. That said most people I talk to still think home ownership is part of the American Dream, or at minimum a financially rational decision, so therefore I am rolling with it.
Developers should build more rent-to-own communities where rents paid will be applied towards future down payments. You don’t really see rent-to-own projects anymore, and for good reason. Honestly under the current RTO model really no one wins for a number of reasons, though what I am proposing could work fundamentally different then it has in the past. Under my RTO proposal people would enter in to contracts on an apartment as renters for a timetable of (let’s say) 2 years for conversation’s sake. The tenants will either purchase their place at the end of the two years or be forced to move and allow someone else the opportunity to purchase the apartment and have their down payment already in place. The developers and project would be 100% financed by the city, state, county, or whatever jurisdiction the community falls under. The catch here is first two years are interest free to the developer, meaning the money they were forced to borrow to construct and run the community would be supplied by the local government interest free so the developer uses and loses nothing during the 2 year rental period. At the end of the 2 years the renter(s) get to make a purchase with the down payment they now have (courtesy of the rent they paid), the developers get to make their money, and the government is made whole by the developer who has just bought them out of the project. Everyone wins.
States, counties, and cities all own land, and not the kind that makes DC such a beautiful town. I’m talking fucked up cesspools of wasted space and garbage-filled parking lots, unavailable to developers or people. This land that is basically sitting there and costing the city or county millions of dollars to maintain, not including the lost revenue from property taxes they could be collecting if someone lived there. It’s a classic case of uncalculated opportunity costs (thanks ECON 100). Let’s use some of that land and build affordable apartments and single family homes designated for people that earn under a certain amount and would otherwise qualify for a mortgage if they had a reasonable down payment. Give them a maximum 3 year lease so they have an opportunity to save while paying the reduced rent. Also attach a few strings to ensure everyone is on the same page (but at risk of getting lost in the weeds, I’ll wait to elaborate on this crucial point). If you able to save people’s money while going through the process of saving and qualifying for a mortgage, many of those people would buy a place at the end of their lease. I promise to elaborate on this point in the future because I can imagine some of you may be thinking that I am referring to housing projects, or something potentially discriminatory. I am not nor is this idea discriminatory in any way, rather it is there to help people get ahead and responsibly inject first time homebuyers back in to the markets (see housing collapse of 2008-2009 for questions pertaining to irresponsible ways we’ve tried to make everyone a homeowner).
We all have a vested interest in taking better care of the people that work in positions of public service. I am talking teachers, fire fighters, police officers, hospital workers, and the many other public servants we have living in the area. There should be a housing voucher courtesy of the state, which subsidizes their housing payments to a degree. You will get more people living closer to work, spending less time comminuting and more time living, and subsequently investing in their communities. This supplies a lot of auxiliary benefits but mainly would allow those who earn a modest salary because of their public service to thrive in this area and afford to buy property. I know a lot of cops and teachers that do not even live in the county or city they work in because their compensation cannot keep up with the growing costs of living (mainly housing), or really even come close. Bring them back in to the fold and you’ve just given the entire area an upgrade in many ways and supplied a huge wave of buyers.
Give first time homebuyers moving to areas where the median home prices are above a certain amount (we’ll say 400k) the ability to secure a traditional 30 year loan, but at a reduced interest rate for the first 5 years. The majority of a mortgage payment during the first 15 years of a traditional 30 year loan is interest, which is great because it allows our banking/borrowing system to function properly. But that said we can do a lot to help 1st time buyers if the government helps on the interest portion of the payment for the first few years. This will help younger people to enter the markets sooner, allowing them to begin building equity and share the wonderful aspects of home ownership.
Before you start feeling terrible for the government, realize they get a huge chunk of cash called “transfer and recordation taxes” at settlement (the day someone transfer title to the new buyer), plus an average of $4,000-$8,000 per year in property taxes, and a lot of other tax opportunities every single day because someone is now living, earning, and investing in their new spot. To the government, it is advantageous to have more people living in their jurisdiction so why not kick-in on a plan that still is a net positive for them..?
I know I left out a number of details. I also realize there are a few arguments against the government being involved in this transaction on any level, and as a tax payer you definitely have a claim to that opinion. To that I would say the government is already very much involved in housing on so many levels. Also subsidizing is literally happening on much larger scale across a broad range of industries, so the government helping an affordable housing crisis is not without tremendous precedent. The government largely exists to collect taxes and allocate those funds where they believe the best economic impact can be made so more taxes can be levied (I know the government is often not that smart, but in theory this is how they view their investments). Last I will say that we all have tremendous stake in homeownership on many economic and social levels. I will do a number of posts on the benefits of owning v. renting, and the impact both have on society and our economy, so check back later and we’ll have that discussion.
So those are 4 things I can quickly come up with that could start making a dent on this crisis for people living in the D.M.V. while eating breakfast. If you have an idea, share that shit because no one is a mind reader and we could all get a lot done working together. I really look forward to expanding on all of them but I need go and actually do my job now.