Let them rent homes
Owning a home in Boston is about 70 percent more expensive than renting an essentially identical home. Therefore the government should stop trying to keep owners in homes and instead let more people return to renting. Those families could spend the extra money on other needs. So says a new study from the National Low Income Housing Coalition.
The study joins a growing chorus making the point that home ownership is a misnomer in many cases. Many "homeowners" are people with little equity, no equity or even negative equity who are basically making monthly rental payments to a mortgage company -- rental payments much higher than they would pay if instead they were tenants in the same home.
The point is particularly directed against government efforts and proposals to help owners stay in homes by rewriting the terms of unaffordable mortgages. The housing coalition views this as misguided in markets where renting is significantly cheaper than owning, because it means families will keep spending a needlessly large portion of their incomes on housing costs.
The coalition compared a government calculation of the "fair-market rent" -- rent and utilities for a 'decent and safe' unit -- in 20 cities with the cost of a mortgage on a home valued at 75 percent of the median housing price in those cities. In Boston, the fair market rent is $1,353. The monthly cost of owning a comparable unit is at least $2,340, assuming an interest rate of 7 percent.
Encouraging people to remain as homeowners, even with substantial write-downs from their original mortgage terms, is likely to lead to situations in which they pay far more of their income in housing costs than necessary. The result could be that these families forego health care insurance for their kids or quality child care, since they will be forced to continue to make extra sacrifices to remain homeowners, with considerably less likelihood of a long term financial benefit relative to renting.
The last point is crucial. The group argues there is little long-term benefit to ownership because prices in cities including Boston likely will continue to decline -- remember that we're talking about the lower end of the market -- meaning there's little chance for the "owner" to accumulate equity. And even if they could, they'd be better off paying half as much and investing the difference in stocks.
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