Housing Recovery Is Leaving Behind First-Time Buyers
Two Policies That Would Make Life Better for Renters
| Speculators have been waiting for this moment but one writer knows what to do about it. We excerpt from two 2012 articles from (1) CNBC, Nov 28 on newbies by D. Olick, and (2) Curbed, Nov 15, by J. Geeting (Editor, Keystone Politics). |
by Diana Olick and by Jon Geeting
- Housing Recovery Is Leaving Behind First-Time Buyers
First-time home buyers are left out of the recent surge in sales and prices. Their share of the market, usually up in the 40% range historically, fell to 34.7% in October, the lowest in the Campbell/IMF survey's three-year history. The National Association of Realtors put their share even lower, at 31%.
Either way, they are the only group of buyers that have not seen their share of non-distressed home purchases rise over the past five months. The mortgage of choice for these buyers, FHA-insured loans, are increasingly tough to obtain.
The recent hike in FHA mortgage insurance premiums is hitting first-time buyers harder because some sellers are refusing to accept offers that include FHA financing. Adding insult to injury, the FHA, after reporting a major shortfall in its insurance reserve funds, announced it would raise premiums yet again, another 10 basis points early next year.
Lower priced, distressed properties, like foreclosures and short sales, would seem like the best answer for first time buyers, but hungry, all-cash investors are proving to be too much competition. Investors purchased one fifth of all homes that sold in October, up from 18% the previous month, and all-cash buyers (largely investors) made up 29% of all sales.
So would-be first time home buyers are forced to rent. This is why, despite increasing household formation, rental occupancies continue to fall and rents to rise.
Policies That Would Make Life Better for Renters
Here are some ideas that would make life a little cheaper and easier for renters.
Renter's Tax Credit. The more expensive your mortgage, the bigger your deduction from the income tax. Instead, imagine a cash payment everybody gets each year for housing, that doesn't discriminate between mortgage payments and rent payments. There are some related ideas being kicked around Washington like CBPP's Renter's Tax Credit proposal.
Land Value Tax. The conventional real estate tax taxes land value and building improvements at the same rate. The tax on improvements discourages building new housing, while just a slight tax on locations encourages speculation in land. When neighborhoods start getting more popular, renters get bit by price increases. Lot owners hoard sites and wait until prices go up even more.
Under a land value tax, more demand would bite vacant land owners first, since rising land values would mean they owe more taxes. This would reduce the lag time between when neighborhoods start getting popular and when they start adding more housing, keeping prices stable.
JJS: Ironically, such policies for renters would actually reduce the number of renters. Area residents would enjoy less outgo and more income -- more income from the cash payment and less outgo from more affordable housing. It’s not just rental housing that becomes more affordable from greater supply, as noted above, it’s also housing for sale that costs less when land-costs get carved out of mortgages. Not only would owners get busy and develop, increasing supply, but also speculators would lose interest and not bother to bid, precluding their inflating the cost of housing and land.
Further, the cash payment for residents, proposed above, needs a more secure source of funding than closure of a tax loophole. A reliable source would be the value of land, especially high in downtowns. And regional residents are entitled to a share since it’s society in general that generates the value of locations.
Beyond affordable housing there are numerous benefits, and not just economic ones. People get to live in a more just society and in a healthier environment, as compact cities use fewer resources. It’s called geonomics and it has worked wherever tried.
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Editor Jeffery J. Smith runs the Forum on Geonomics and helped prepare a course for the UN on geonomics. To take the “Land Rights” course, click here .
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Also see: The Rich Get More From Government Than Anyone
A Lone Landlord Demands Rent For Nothing
What's the Fair Price for Land Rent? |
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