Solution to Housing Crisis
So I think a lot about how to solve the root problems that end up spiraling out of control… for example, if minimum wage would increase, does that actually do anything to help people with their bills? Not at all, as we know there will always be managers trying to pay the least possible, even in the realm of impact. (For example, average VC fund where I live in Israel pays their investor relations manager ~$30,000/year...and standard of living is still high, so half your money goes to rent..)
If healthcare is universal, does that solve many problems? In many cases, to a certain degree, but white-collar people can still live stressful lives.
(advanced) Education, ehhh, not a subject to discuss because it’s all relative.. what matters most is inspiration and the people you team up with anyways.. (however I do envision everyone being able to pursue advanced degrees in my nearest future)..
So what about housing? Prices still increase, renting/buying, it definitely pushes white-collar people to live stressful lives (from teachers, to startups, to NPOs & sales), or to push them to live in the periphery, so expect 1-2 hour commutes to work, or to move to another city/country all together (if even possible). Let alone, people at the bottom of the pyramid will be stuck at the bottom...
Now there are opportunity zones, which who knows if it will help the people living in them, because as gentrification has happened, it still doesn’t really say the investors will actually lower the rents of where the people are living, nor does it really help them improve their situation.. unless the equity was shared a little.. or forget a little, unless it was complete win-win for both parties.
So the solution is rent-to-own (I call it Rent2Deposit2own, R2D2own [just made this up right now]), transferable via a, yes I’m going to say it, blockchain, network. This solution I believe is a universal solution until the time we will have Star Trek-style world peace, with 3d replicating food and growing cleanmeat in every 1/10th building. Why?
On the base level, I have only thought so far as how to help people at the bottom of the pyramid purchase their first home/rent it out and purchase a second.. No longer do you waste half your money on rent, you are investing in it to purchase your future home. It gives you an incentive to repair the place yourself, as you are investing in it, and thus keeping the place looking great. This is stored and added to your record book to be traded in for your future abode. This saves the landlord time, creates more responsibility and entrepreneurship upbringing, as well as making people a little more smart (unless they still outsource the work themselves, was just giving an example for people living at the bottom of the pyramid)
Now, say you get another job in another city, but of course most rent-to-own contracts say you leave the place, you lose the contract. And you can’t rent it out, or let a family member live there, etc. This is rectified by being a network of properties that are all abiding by the same rules. An impact investor who purchases several apartment buildings has nothing to lose as their is no locked-in-contract, with them potentially losing money in the long term. Of course if they were a “true” impact investor, they would keep rent low to begin with and just expect 2% returns. But there aren’t many of those really out there.
And blockchain because of transparency and immutable ledger… let everyone in the world see what someone is paying for their building, then others can say whether they are being ripped off, or that no billionaire is renting a shack in the desert to their son for so much money, just so they can rip others off on the network, etc.
Now you have spent $40,000 after 6 years, and the apartment you live in to purchase costs $100k, yes you can get a loan.. now, but there’s really no rush. Yes no rush to buy a home, because you are investing anyways. No stress here. Or you could do what many investors do and take loans and buy another apartment on the other side of town that costs only $50k, and is in the same network, let it be… who knows...
But with this in mind, I presume people will be saving at least 33% of their long-term income, be less stressed, perhaps have more of a community, and ensure their increased wealth.
Then they can focus on other parts of their life more, like improving their education, their health, get into politics more, volunteer etc.
Looking forward to hear your thoughts.
You seem to be trying to analyze these things with personal intuition, imagining what will happen when people get something like housing or a minimum wage. I’d say it’s better to look at reliable studies and surveys. Here are some sources:
Economists generally agree that rent control reduces housing availability and raises housing prices. http://www.igmchicago.org/surveys/rent-control
Cities’ restrictions against building new housing reduces housing availability and slows the general economy. Study 1: https://faculty.chicagobooth.edu/chang-tai.hsieh/research/growth.pdf?fbclid=IwAR0Cf2QNNlEDI96gn76oc47AJ5BSVH2qbyOHhEl6GHANQVI2HyCADt5Ke-8 Study 2: https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.32.1.3
Additionally, you seem to be looking at this as a matter of consumer choices, recommending rent to own instead of buying or regular renting. I’d say it’s usually better to trust that consumers are making smart choices on their own, and instead worry about government policies to empower them.
I’m not promoting either rent control or building new housing complexes.
I’m promoting a new type of community, a new type of banking, an option for landlords to create a win-win situation. Don’t need to build new buildings, just purchase them, like WeWork, consumers still have the option of just taking their own mortgage, or just to rent, but in reality, there is no reason ‘just to rent’ with digital technologies available.
Foundations & impact investors can purchase apartment buildings, and still make money renting out the properties. I’m not saying they have to reduce the rent, and take a longer ROI (though feel they should based on a renter’s income). I’m saying, rent-to-own should be the norm. And it should be credit transferable, not locked-in to a single property.
Consumers don’t have this choice, because even thinking 10 years ahead is so daunting, almost impossible to do. Even today, to think you will be in the same job for 5 years, in the same place, is almost unfeasible. You have no faith for most corporations that you will keep your pension.. And most people aren’t even offered rent-to-own to begin with. With a global rent-to-own market, it allows landlords to sell the property for current/future value of the property, without locking it at a given value, the number one reason they don’t even consider rent-to-own in the first place.
Renting is not throwing away money. Though markets vary, rent approximately equals the interest on the mortgage plus taxes plus insurance plus maintenance. The reason you could make money buying (or renting to own) is because of appreciation. US average appreciation for the same house (not new houses!) is around 2%, but since you only have to put 20% down, that could be a 10% ROI, at least initially. Markets with restrictions on building have been a lot higher appreciation than this, but there is the risk that there will be reform or autonomous vehicles, and then you could not just lose the money invested, but actually have negative value (as happened to many people around 2009).
I’m not talking about the landlord/property owner, I’m speaking for the side of the renter… the people at the bottom of the pyramid… 36% of people ‘throw money away’ renting someone else’s apartment/home.
I’m talking reforming this thought process where we are taking money from people, instead of making money together. Not “for profit”, but “with profit”. Share the wealth in a non-socialist way
I’m talking about the same side—I’m saying that if you can invest well, you can be better off overall putting the money for a down payment into the stock market and renting instead of buying a house. I know less about renting to own, but I would be surprised if it were better (you are still putting money into something with a marginal ROI of the interest rate on the mortgage, which is significantly lower than long term stock returns). Now if one were the type of person to spend the money if it were not going into a home, then the forced savings of owning a home could be better.
The problem with rent to own is the downpayment, and the locked in contract. Today’s society simply doesn’t allow the second to occur due to how often people switch jobs, remote working, etc, and too many scams have dissuaded people from doing the first.
The reason why the whole debate of is renting better than buying a home, is more so because of the added interest than the maintenance. Yes back in the day it was probably more of a fair trade, and of course I remember what happened back in 2008 (whole city blocks in Arizona were boarded up)..but there’s so much money around now a days, and banks have so many other ways to make money, I think we can move past this stage in life…
It’s a broken system, like a pyramid scheme, and I can’t believe it’s not talked about here. Especially considering 36% of the world is renting their housing. For example, a single parent bank teller makes $16.50/hr @ JP morgan chase, paying less than median rent for a 1 bedroom in a city in california ends up being almost half her income, doesn’t even make enough money to support a child’s lunch..let alone clothes… teachers, let’s not go there...because it’s not the wage that doesn’t matter, it’s that wages don’t increase nearly as much as housing costs.
But then again it’s not the banks fault for this, they give the opportunity to landlords to offer fair rents, and to not make as much profit, right? Just give out more mortgages, they’ll just raise the rent higher to pay them off… And then you can just bail out the banks again...
What is the best way to seriously help the most amount of people living in poverty? Make more money and donate to ‘more effective charities’? Seriously what is trump doing to America right now? Keeping people in poverty, keeping people stupid, so they worry more about their bank account not going below $0 this month or next, instead of policies, or climate change, or AI taking over, or the health of people in Africa, etc...
I feel as if most people here don’t *really* care about this here, almost like what anand giridharadas talked about the biggest problem with the philanthropists is they don’t really want to change the way the system works.. and just seeing how many negative votes I’ve been getting here on this post, about an idea to improve real estate, makes this all the more true. (but thank you denkenberger for hashing this out with me)
Back to my original post idea, and to use a venture capital analogy, real estate should be a way to provide some sort of equity share for all stakeholders[and please don’t say new buildings being built increases land value which improves economic conditions, because we all know about gentrification]. Yes some startups don’t give equity to employees until they’ve been there 2 years. SO why not do this with housing? The value of all stakeholders, simple ESG metrics… the same tragedy that happens to X (coffee, chocolate, cobalt, lithium, etc) still living in poverty in Africa, while the top of the production line are living life of luxury.. well what good is it to donate against malaria, if you would be more effective by paying the X resource harvesters in Africa enough income to begin with to support a clean home, clean water, clean infrastructure...?)
So my idea goes along the idea of the sharing economy, the wealth + some of the appreciation of the asset over time is distributed between money lender/aka investor, to asset manager/aka home owner, but what really matters most is the renter, which could be called an interim asset manager. Even giving them 60% equity… to be debated...
With this mindset, makes renters feel more inclusive in the community, perhaps they would take care of the buildings and neighbourhood more, care about the laws in the city, perhaps be inclined to take part in a circular economy for furniture/electronics..
There has been a lot of previous discussion within EA about systemic change; see here for an example. Many people think that the reason that places like San Francisco are so expensive is that they are desirable places to live. But actually it is this and that there are restrictions on building. There are lots of cities that are growing rapidly but do not have many restrictions on building, like Nashville (where I used to live), Houston, Denver, etc. that have relatively moderate long-term real estate inflation. There have been Open Philanthropy Project grants looking at land use reform, which would be the sort of systemic change that could reduce cost for both renters and buyers.
As for why EAs have deprioritized helping people in developed country poverty, it is generally because they are an order of magnitude richer than the global poor.
I think it’s kind of ridiculous, goes back to the emotional aspect of philanthropy in people will donate to something that makes them feel good instead of doing the biggest bang with their buck. Like Anand talks about..
Donating to distributing drugs in Africa is one such thing. You could impact invest in an application that sends people in Africa a reminder to take a TB shot, and save millions of lives… but Prevention is exponentially better. Stop donating money sending americans on trips to africa for ‘aid’, just build better homes and infrastructure there, you solve many problems at once.
But if we can solve poverty in developed countries, there is just so much more money available for them to also become donors as well. Not even discussing ‘poverty’, lets just imagine if the 80% of people in the US who are living paycheck to paycheck, could loosen the amount of debt they have (which is mostly due to real estate). They wouldn’t then all of a sudden take on more debt by buying more assets, they would save up. They would not have to work multiple jobs. They would volunteer, and donate.
Of the 100 million ‘near relative poverty’ in the US, 43 million are yes below poverty lines.
Just imagine if we had 100 million people now who were making good money, didn’t waste half their income on rent, could now also get a better education, learn about causes, and join us in donating (or impact investing) to the best cause around the world, for prevention.
It would be exponential. More so than half the causes here. And it’s systematic change that doesn’t require a massive shift in politics. There are already opportunity zones, but they are still in the same field of extracting money. They aren’t creating wealth for low-medium income populations. This is systematic change that can be done by investing.