Shouldn’t we have more rent-to-buy in housing?

HUD resources for rent-to-own

Mortgage rates are the lowest they have been in decades, unemployment and underemployment are so high that people are dipping into their savings to live, housing is sitting unsold on a stagnant market, and the over-all economy is suffering. In these conditions, it is often prohibitively difficult for people to save up 20 percent of the cost of a house for a down payment.

Dodd-Frank: Rejected house buyers can find out why

So why isn’t the rent-to-buy approach being pushed more often in real estate, as is often used with automobiles? The general idea is simple: Dependable customers who have the income for payments but not the lump sum for cash down agree to continue paying monthly for an agreed-upon length of time. We call this kind of arrangement a contract. Car dealerships use it. After a specified length of time or number of payments, an agreed-upon percentage of the total price is reached. At that point, the monthly payments become no longer rent, if the buyer elects, but house payments. If the buyer cannot or will not purchase at that point, the seller then has the option of going another way.

Why not? As said, the principle is like car leasing, something the markets are already familiar with.

The benefit to any householder trying to sell one house in order to move into another is obvious; the older house is no longer sitting unsold on the market and uninhabited on the block. The benefit to other owners in the neighborhood follows from the first; this is one house no longer depressing house prices in the area and/or suffering from lack of maintenance. Benefits to the general economy include chipping away at the backlog of unsold houses in the real estate inventory, fewer people competing for substandard apartments at inflated prices, and less instability and relocating/shifting in the hunt for affordable housing. In the long run, there should be some perceivable effect in the number of homeless people or people in jeopardy of becoming homeless in the foreseeable future.

For all the press devoted to the ills of ‘easy credit’ since 2008, some relaxation of credit restrictions still helps an actuarily identifiable percentage of the population, and those people with the income to make monthly rental/mortgage payments look like customers it would be a good idea to help. They in turn would help boost the over-all economy. Homelessness, meanwhile, does not benefit anyone. Having citizens move from one crummy apartment to another does not benefit anyone except a negligent landlord, and that only in the short term.  A move can have its benefits, but even in the best of circumstances it involves cost to what might be called Gross Household Product–packing, selling, unpacking, maintenance, paperwork, etc. In less than the best of circumstances, it is simply hellish.

Obviously there would have to be safeguards, particularly for the prospective buyer. People eager, or desperate, to move into a house of their own are only too easy to take advantage of, as we know from the likes of Countrywide. But assuming the possibility of instituting adequate standards for the leasing—analogous to lending, but with less risk and less fraught with abuses than recent forms of lending—it is hard to see a downside in the arrangement. It’s not for everyone. That is a given. Why argue about it? It surely could work for some people, as demonstrated by the fact that it already does work for some people; the UK has used it for years.

Typical UK approach

The housing market always needs to be sustained and supported. More fundamentally, the need of a huge population for safe and healthful housing always has to be met. Anything less would be disaster. Only ‘failed states’, in the somewhat presumptuous term so embraced by the previous administration, fail to meet needs of such magnitude. It behooves us to adopt multi-valent approaches to meet the need, and boosting and encouraging rent-to-own looks like an approach whose time has come.

Other viable ways to boost householders and, through housing, the economy are also available. More refinancing should be encouraged by the public sector and by the private sector. A better class of crack-down on lender abuses from the past ten years can recoup some of the money needed to underwrite enforcement of better standards from here on. Some of the money recouped could be used to help people in danger of foreclosure, especially people in jeopardy of foreclosure through no fault of their own, like people laid off or having to pay off massive medical bills. Community banks that actually kept an eye on their loans and on their lending could be reinforced. As previously written, states should start collecting transaction fees from the multi-billion-dollar entities that bundled thousands of home loans without paying the state taxes that an individual has to pay in buying or selling a house.

Obviously there will be political opposition and impediments to any proposal that has a chance of actually helping the general U.S. population. The major party bent on protecting the financial sector from having to pay one iota in recompense or restitution or retribution for its abuses—the GOP–will scream bloody murder at any of the above, in any form, in every state. But no Orwellian sloganeering outweighs the need for livable neighborhoods.