Homeownership, rental and other matters: a distributist defence

The following was submitted by yours truly as an answer to one of the final exam long-answer questions in his neighbourhood planning and community development course. Hopefully it will manage to be thought-provoking!

The question of whether homeownership should continue to be encouraged over rental in the United States is both a contested and needful one at this point in our history as a nation, particularly in light of a financial crisis centred around the securitisation of risk in a speculative housing market. Quite understandably, a number of authors and commentators in the fields of planning, development and policy studies have weighed in on the topic. John Landis and Kirk McClure pose the problem most directly, and link the systemic problems in the current housing market to an ideologically-driven desire on the part of federal policymakers under Clinton and Bush 43 to expand homeownership as broadly as possible – they advocate instead a return ‘to what works’: a mix of rental housing vouchers, tax credits and federal housing initiatives (including HOPE VI) which have met with success under different administrations and economic conditions (Landis and McClure 2010, 340). Susan Saegert, Desiree Fields and Kimberly Libman answer this question – that homeownership has certainly been ‘oversold’ – and go on to pose a deeper one: to what extent is homeownership construed as a social duty in an ideological environment which privileges autonomy and consumption as central to the ‘American Dream’, and to what extent does it serve interests other than those of homeowners and prospective homeowners?

Though both papers are in some respects persuasive – the one from a pragmatic and the other from a more radical perspective – they each tantalisingly but only briefly touch on what this author believes to be the central issue. Landis and McClure believe that part of the current problem is that government assistance to homeowners is diverted in various ways away from those who need it most, and that renters find themselves systematically excluded under the current regime. Saegert et al. see the problem in a financial-government system that supports homeowners only to the extent that it serves the interests of lenders and insurers (Saegert et al 2009), and only to the extent that it ensures that risk is passed on to the ‘end consumer’, i.e. the homebuyer. These are both useful insights, but they both point in a direction partially belied by the conclusions of both authors: toward the heterodox economic philosophy of distributism. A third-way political-economic philosophy inspired by Pope Leo XIII’s 1891 social encyclical Rerum Novarum (‘Of New Things’), distributism was developed by the work of several ex-Fabian socialists and radical Catholic thinkers, with Arthur Penty, Gilbert Chesterton, Fr Vincent McNabb, Hilaire Belloc and Fr José María Arizmendiarrieta being the primary authors and theorists associated with the movement. In short, it calls for the broadest possible distribution of productive property; economic protection of small and cooperative businesses; restructuring of the wage and banking systems; and generally a more direct relation between the laws and social norms governing property and the right purposes of that property (Distributist Review 2011).

As planners and developers of communities, we are, first and foremost, interested in creating and developing places balancing public and private affairs, where people can live, work and play. We are – or should be – normatively very closely concerned with the right use of property, and our policy agendas should certainly reflect that. To paraphrase contemporary American distributist John Médaille: the purpose of public policy is ‘to provide the conditions under which all… communities that make up the social fabric can flourish’, beginning with the family unit (Médaille 2010). Issues such as gentrification and sprawl, as well as the fatal cupidity of various agents in the financial sector which eased (perhaps too greatly) but did not support people’s acquisition of homes, arise primarily from lenders and insurers – as well as homeowners, to be sure – considering housing as something other than a place for a family to live.

It is noteworthy that the 30-year mortgage, enabled by the National Housing Act of 1934, was a working assumption of some of the most successful federal housing programmes of the past century: the loans insured by the FHA and VA were targeted primarily at new families in the wake of WWII. Homeownership was successfully expanded under these programmes and default rates were very low; and though these developments were plagued by the inequalities resulting from discriminatory practices such as redlining, the extension of the same opportunities to families of colour was accomplished under the 1968 Fair Housing Act (Landis and McClure 2010). During the 1970’s, however, houses became instead investments and objects of resale. There was a paradigmatic shift from the real estate as a place for a family to settle down and for a community to thereby develop to real estate as an instrument for making money. Not only homebuyers were affected by this shift, either – because speculation in land creates only rising prices in the long-run (until the bubble bursts), renters are also adversely affected by an intolerable rising pressure on rent (Médaille 2010).

In addition, the concomitant relaxation of the mortgage regulations targeting single-person, divorcee and other non-family households for the federal subsidy programme had a double consequence: the market for homes could steadily increase (and private lenders and insurers thereby benefit immensely) and federal money was made accessible to people whose primary interest in houses was, in fact, speculation. Further relaxation of housing-mortgage regulations followed on ideological grounds, beginning under the aegis of the Reagan Administration (Carlson 2009; Sternlieb and Hughes 1980; Saegert 2009). Though it is shamefully common for lending institutions and the ideological partisans of the neoliberal innovations of the past 30 years (e.g. CNBC’s Rick Santelli’s 2009 on-air rant) to lay the blame at the feet of undereducated consumers (Saegert 2009), it should be quite obvious to the astute observer that there is a path dependency at work involving far more systematic elements.

On the surface, therefore, it does appear from a policy perspective as though ‘homeownership’ as such is a problem, and privileging it over rental more so. But it is important to note that the reason for this is not that ‘homeownership’ qua homeownership is something overrated – rather the regulatory structure governing mortgage practices encouraging homeownership has been stripped not only of its powers but also of its normative content. At the same time, the interests both of eligible, working-class first-time homeowners and of underserved populations for whom rental may be a more viable option are paid lip-service but not truly served. To give just one example, research has been done at the University of Pittsburgh’s economics department suggesting that loosening local-level regulation against subprime lending and usurious lending practices, ostensibly in the name of ‘spur[ring] financial innovations that broadly benefit low-income households’, not only do not widen the total amount of credit available to homebuyers, they also have the undesirable effect of increasing default and foreclosure rates (Xu 2011).

The impact on communities as well as their working-class residents generally likewise continues to be severe. Urban sprawl had already become a problem in the post-war society, due in part to the ascendant ubiquity of the private automobile and the demise of the family farm under subsidised agribusiness, and definitely due in part to white flight, but it was certainly intensified and accelerated by a housing market increasingly characterised by speculative practices and short-term leasing rather than long-term mortgaging – by the early 1990s, ‘unprecedented’ amounts of what was previously farmland were still being developed for new housing tracts in the United States (Pendall et al. 2005). Among the responses aimed at conservation of the traditional community (particularly in an urban setting) have been the ‘smart growth’ and the ‘new urbanist’ movements, which call for mixed housing as well as zoning practices which encourage more active community life. Obviously, the issue of the neoliberalisation of housing policy has very far-reaching implications and not just for individual homebuyers.

Thus, the response to the question of how government agencies are best to provide assistance to homeowners and renters is best addressed not necessarily by one or two isolated policies, however subtle and pragmatic such policies may be. Instead, it appears that a broader policy platform – a distributist platform – is needed, one which reforms lending practices and specifies a proper use for real estate. Smarter regulation of the financial sector along the lines outlined above – and tougher enforcement of existing regulations – would appear to be a start.

Going further, however, encouraging more local, place-based, cooperative alternatives to traditional credit sources (such as credit unions) would ensure that property is disposed in ways which are actually beneficial to the community, as well as ensuring that the well-being of the person(s) or family purchasing the property is respected. Creating a subsidy system that privileges small farmers over-against large agribusinesses will also help to naturally constrain the onslaught of sprawl and discourage speculative housing markets in greenfield construction areas (though this must be accompanied by a legal reform which discourages abuse of eminent domain laws, at the expense of farmers in the interests of housing-and-transportation developers). Supporting mixed-use zoning initiatives will likewise encourage greater and more responsible homeownership by creating more opportunities for small, specialised home businesses – so much the better, if they are organised in the cooperative-syndicalist model of the mediaeval guild! Devolving more financial and economic regulatory powers to the local level (and preventing state-mandated deregulation such as happened in Cleveland) could also be of massive help in encouraging and protecting local development. Dismantling the highway system would be a bad idea at this point in our economic history, though we could certainly do with creating a system of weight-based tolls on public highways to eliminate the non-competitive advantage enjoyed by ‘big box’ stores and strip malls (Médaille 2010). In addition to rethinking public-sector subsidies for homeownership and rental, creating alternative housing schemes which discourage speculation, such as resale restrictions, cooperative land trusts, mutual housing associations or even something as simple as an option for outright purchase of rental property by instalment remain tantalising alternatives to the status quo (Carlson 2009; Stone 2008).

The question of homeownership vis-à-vis rental in public policy terms, then, is still an important one. However, though Saegert et al. identify a number of salient problems with the current system and though Landis and McClure set out what appears to be a good direction with regard to a fair and egalitarian policy agenda, that policy agenda could be greatly enriched by again placing a normative emphasis on the ends of homeownership – to benefit families and to allow the communities which make up the fabric of our society to flourish – and adjusting policy to meet those ends. It could also be further enriched by being made a part of a broader policy platform whose ultimate aim is the widest possible redistribution of the means of production.


Bibliography

• Carlson, Allan. 2009. ‘Servile World: How “The Big Business Government”, “The Loathsome Thing Called Social Service” and Other Distributist Nightmares All Came True’. Front Porch Republic. http://www.frontporchrepublic.com/?p=4903#_edn7 (accessed 12 December 2011).
  
  
• Distributist Review. 2011. ‘Classic Reading List’. The Distributist Review. http://distributistreview.com/mag/test-2/recommended-reading/ (accessed 12 December 2011).
  
  
• Landis, John and Kirk McClure. 2010. ‘Rethinking Federal Housing Policy’. Journal of the American Planning Association 76(3): 320-1, 335, 340-1.
  
  
• Leo XIII. 1891. ‘Rerum Novarum: Encyclical of Pope Leo XIII on Capital and Labour’. English translation online at Libreria Editrice Vaticana. http://www.vatican.va/holy_father/leo_xiii/encyclicals/documents/hf_l-xiii_enc_15051891_rerum-novarum_en.html (accessed 12 December 2011).
  
  
• Médaille, John. 2010. Toward a Truly Free Market: A Distributist Perspective on the Role of Government, Taxes, Health Care, Deficits and More, pp. 110-1, 155, 188-9. Wilmington, DE: Intercollegiate Studies Institute.
  
  
• Pendall, Rolf, Arthur Nelson, Casey Dawkins and Gerrit Knaap. 2005. ‘Connecting Smart Growth, Housing Affordability and Racial Equity’, in The Geography of Opportunity: Race and Housing Choice in Metropolitan America by Xavier de Souza Briggs. Washington, DC: Brookings Institution Press.
  
  
• Saegert, Susan, Desiree Fields and Kimberly Libman. 2009. ‘Deflating the Dream: Radical Risk and the Neoliberalisation of Home Ownership’. Journal of Urban Affairs 31(3): 299, 300, 309-10, 312.
  
  
• Stone, Michael. 2008. ‘Social Housing’, in The Community Development Reader by James DeFilippis and Susan Saegert, pp. 67-78. New York, NY: Routledge Press.
  
  
• Xu Yilan. 2011. ‘Does Mortgage Deregulation Increase Foreclosures? Evidence from Cleveland’. University of Pittsburgh Department of Economics: Job Market Paper, presented 18 November 2011 at the University of Pittsburgh Centre for Social and Urban Research.