The holiday season brings out in many of us the desire to give. What is gifted can be personal and often benefits the giver as much or more than the gifted. While often envisioned as a charitable endeavor, giving can be an economic gift to the community as well. One particular segment of the market that you don’t hear much about during the holidays is housing. The housing market in its bare essence is shelter.
When one has shelter, other avenues can be advanced. If giving people free shelter would solve the homeless problem, then it would already be solved. In the U.S., those of low income who qualify can rent an apartment at a subsidized rate they couldn’t otherwise afford. The thought has merit but cannot succeed as the renter has little or no stake in the property. When one thinks of Section 8 housing, images of gated communities with pools and tennis courts don’t come to mind.
More often than not these are neighborhoods that would be considered run-down and poor. It goes without saying that one would take better care of something they owned as opposed to something they rented. If you rent a car, you are less likely to care what happens to its transmission while you are driving it, than you would to a car of your own. Housing is the same way.
The economics of home ownership for the poor are beneficial. Not just domestically, but the U.S. will be at the crux of our model. “Investment in low-cost housing has a powerful multiplier effect, including the creation of many jobs,” says economist Cielito F. Habito. Housing can be one of the most effective ways of stimulating consumption and production activity in other sectors of the economy as well. According to Paul Krugman, a Nobel laureate for economics, “Everyone understands that the great recession, the worst since World War II, started with transatlantic housing markets, and has, in turn, had a dramatic impact on them.” As such, a model to be looked at is that of Habitat for Humanity.
The global nonprofit housing organization works in local communities across all 50 states in the U.S. and in approximately 70 countries. The Habitat model provides an ownership incentive, where homeowners help build their own homes alongside volunteers and pay an affordable mortgage. Yes, it is subsidized as well, but owning property is one of the linchpins of capitalism, as opposed to property owned by the state and subsidized and rented by the government.
Housing and public policy should be more in line with a Habitat type ownership model. One that would serve as a microeconomic stimulus, foster community development, and support family self-sufficiency and advancement. According to Dr. Eric Belsky, managing director, Joint Center for Housing Studies of Harvard University, “I think that the nature of people’s lives is that their housing is more than shelter; it provides a place from which they can get to other opportunities. It provides a place for them to have a home business. It provides access to resources. It is very fundamentally engaged with the type of health conditions under which one lives.”
Once again, no equation is complete without incorporating China. From the time of the great recession to present, Krugman and fellow economist Robin Wells argue that transatlantic trade surplus countries like China were at the crux of the housing bubble. They state, “The resulting explosion of housing construction, in turn, fed the trade deficit with China, creating a self-reinforcing bubble. U.S. imports from China, of both housing materials and wage goods, rose steeply, but Chinese purchases of U.S. Treasury bonds kept the Yuan artificially weak and U.S. long-term interest rates low.”
The trickle-down effect of home ownership for the working lower class is significant, as it is for the economy as a whole. If you weigh the success and failures of the government section 8 model versus the private sector Habitat model, which one would you choose?