Homeowners vs. Renters

5/4/20

As the economic slowdown continues, more and more households will be unable to meet their financial obligations relating to housing; and while housing is the common denominator, the distinction between homeowners and renters is critical — particularly if we’re considering or evaluating federal legislation that’s intended to address the issue.

The critical difference between owners and renters is that homeowners build equity over time. Thus, the house becomes a savings vehicle; and to the extent that homeowners have built up equity in their homes, they have an asset that could be monetized either via a second mortgage or a reverse mortgage. An analogous funding option simply doesn’t exist for renters.

This distinction highlights an appropriate rationale for deciding who should benefit from Federal support and who should not. It comes down to need. Households without savings should get it; those with savings should not. Those with savings should be expected to use those savings in connection with periods when income is interrupted — like now. It’s important to realize, however, that savings can be held in the form of real assets (like homes), as well as financial assets.

I keep coming back to universal income concept, with a provision written in the tax codes that that claws back increasing portions of distributions at higher and higher incomes. Effectively, this program would address poverty, which, after all, is the root cause of the financial distress that people are feeling. People with reduced incomes and no savings need periodic distributions of money for as long as they’re unable to return to work. These funds need to be structured as grants, rather than loans. Someone without savings is living paycheck to paycheck. Imposing additional payback requirements will just put them further in the hole, down the line.