Comment Of The Day: “NOW What? The Most Discouraging News Of All”

The post a week ago regarding the depressing stats tracing black economic progress over the last 50 years deserves examination indefinitely, until some answers besides “It’s all discrimination!”  are identified and confronted. I remain puzzled that the EPI study received such paltry coverage and discussion in the mainstream media, but to be fair,  there were more important stories, like a porn star suing the President.

Chris Marschner opened the topic for focus here, starting out with one area only, home ownership. I said I would post his comment as aq Comment of the Day to prompt similar exploration by the brain-trust here. Chris starts with home ownership. Other categories African Americans still lag in: health, wages,  educational achievement, wealth, employment, and staying out of prison. As Chris says,

“Each one of these issues must be examined individually and the solutions must be integrative.”

This should be a beginning of a discourse, not the end. (I apologize to Chris for taking so long to post it.)

Here is his  Comment of the Day on the post, NOW What? The Most Discouraging News Of All

On home ownership.

I once suggested that certain select section 8 housing voucher recipients be allowed to use the subsidy to offset mortgage payments. Currently, we are transferring wealth from taxpayers to landlords. Why should existing owners of capital be subsidized? Create an approximation of a reverse mortgage in which taxpayers buy a property and the housing voucher is used to amortize the equivalent of a mortgage back to the taxpayer. In this manner we put up the money upfront and the reciepient retires a mortgage equivalent using the voucher, their contributions, and behavioral requirements not much different than what currently exists for section 8 vouchers. Over time this would increase the rate of ownership, increase vesting in all neighborhoods, and at some point the total subsidy is ended for an individual when the mortgage is fully amortized.

Establishing effective criteria regarding eligibility is key. Criteria could include:

  • Must be a married couple,
  • Children, if any must attend school regularly
  • No illicit drug use
  • Recipients must be employed, with at least one full time.

Planning and execution of such a plan requires more than I can develop here.

19 thoughts on “Comment Of The Day: “NOW What? The Most Discouraging News Of All”

  1. Jack,

    I appreciate this. I would like to say Other Bill gave me a great deal of food for thought. More specifically, he commented that when his ancestors landed ( I am not using his Irish references) they saved until they had enough to afford their first home.

    Home ownership has historically been the manifestation of the American dream.
    An owned home is where most household’s wealth is stored. The family home is often used as collateral for other investment opportunities; without it entrepreneurial activities are extremely limited.

    While my focus was on a potential idea for existing housing subsidy recipients, OB’s comments focused on non-subsidy renters. My ideas focused on getting people off subsidies, allowing them the ability to amass wealth that can be passed down to their offspring, and perhaps create a positive incentive for all subsidy recipients to aspire to eventual home ownership. Currently, we stymie savings and wealth creation among low income subsidy recipients because they have limitations on liquid assets. As a result, they cannot ever amass enough to invest in themselves. We force them to consume. That should change.

    OB is quite correct that people should save like their parents and grandparents did. As he said ” one step at a time”. As I contemplated his perspective, I wondered if it was even possible to compare previous generations to todays.

    I did some research on median home prices and median household incomes since 1950 through today. In 1950 the median home value was about $7,300 with median household incomes of $5,000. The ratio of home to income then was about 1.5. Today, the median income is $51,000 but median home values are over $230,000 resulting in a home to income ratio is over 4.0. It is readily apparant that home affordability today is substantially lower than it was for our parents and grandparents. This affects all races.

    The inflationary period from 1970 – 1980 caused home prices to spike so existing home owners won the inflation lottery and made home ownership harder for all races to become first time home buyers. Obviously, if black income gains lag behind all other races it will exacerbate the problem of home affordability.

    When we couple the above with the many other things that compete with our available income today, it is unlikely that savings rates will increase to a point where homeownership rates rise for any racial group who lack private subsidies from parents and grandparents in the form of cash or proceeds recieved from the sale of the parental home upon their passing.

    I want to thank OB for stimulating me to think deeper on this subject.

    • Followup

      While researching these issues I ran across several anti-capitalist / anti- consumerism themes that actually suggested we should ” own less, do more, rent the rest”. They don’t seem to grasp the idea that someone has to own the things that are rented. This is a causal factor in wealth accumulation disparities. We have an entire generation being told to spend their available dollars on experiences rather than accumulating things. Perhaps, if that is to be the objective criteria for human satisfaction, we should stop measuring home ownership rates, wealth disparity, and other historical measures of upward mobility and instead compare differential in rates of experiences obtained.

      • Ugh. Sounds like a great plan for the guys who are forming REITs and building huge apartment buildings all over the country for young kids to move into while they’re playing video games and sitting at Starbucks drinking over priced coffee (talk about inflation).

        You can always start with a crappy house, Chris. Funny watching HGTV and seeing all these young couples that are buying their first home and want it to have their dream kitchen. Give me a break. My wife and I were delighted to have a house that had a kitchen. One thing at a time. We remodeled our dream home in our fifties. Yes, housing’s not cheap, but money is right now. When we bought our home in Phoenix in the early ’80s (Jimmy Carter and stagflation), our first mortgage was twelve percent and our second (seller carry back) was fourteen percent. Current rates are back to what they were in the ‘fifties when our parents were buying houses, the purported golden age of home acquisition.

        Anyway, thank Chris for the tip of the hat. Not really deserved but thank you. You’re doing all the hard work and thinking. I’m just up here in the peanut gallery tossing squibs. Cheers.

        • OB. You are on point with the HGTV reference. I still live in my first home 860 square feet 2br duplex. While I own it outright my equity potential is limited because there is an expectation among new home buyers that it is too small relative to what their required image must project. You mentioned it would be a boon fir builders and Reits but I see no reason to build more when cities have an existing supply of housing.

          Sure, it would be easy to simply end subsidies but that would mean we have to deal with the consequences of that choice. Where will those people go? What will happen to home values when the rental market collapses? Perhaps these are good things. A rental market collapse drives all home values of like grade down making them more affordable.

          Maybe we should stop collecting data on this matter and simply let people make their own choices without governmental influence. Then they can reap what they sow. Why does it matter if one group chooses to save and invest and another chooses to consume all they have

          Keeping up with the Jones’ created a situation in which consumer debt exploded and savings rates plummeted. Some blast the moneychangers who reap huge profits at consumer expense – even though it was the consumers choice to add to their carrying costs.

          Comparative worth when measured in terms of things is harmful. In the 70’s kids were being shot for their branded tennis shoes. Today, drug trafficking helps those with limited skills to get the stuff they see that others have. Gold chains, brand name clothing, high end cars, or the latest cell phones are visual methods to demonstrate to the world that they are successful. This affects almost everyone.

  2. It’s a terrible idea. You can’t replicate success by replicating the markers for success. People buy houses because they are successful; buying a house doesn’t make you successful.

    There’s an easy way to get people off subsidies: end the subsidies. House subsidies increase housing prices, rental rates, and objectively increase poverty. They are a terrible idea and they need to stop. You will never get people off of charity by giving them more of it. This idea would only increase people’s demands for entitlement. It also adds to the already excessive enforcement and monitoring costs of Section 8. Who reviews the applicants? Who sets the policies? Who does the regular inspections? Who makes the decisions to toss people out? All these processes consume time and government dollars, all will be inefficient and wasteful, and all will be subject to extreme political pressure.

    If you look at that graph and feel embarrassed because you’re part of an arbitrary group that is more successful than another arbitrary group, I don’t know what to tell you. That’s your problem, not mine, and certainly not the government’s. It’s just manipulation.

    • Rob, the point is giving people the ability to build equity… and home ownership (and mortgages) are one of the classic ways for people in lower income brackets the ability to do so.

      And no, race is not an “arbitrary group” in this context. There’s entirely too much (cultural and historical) baggage there.

    • Thank you! The universe has a perfect justice system that doesn’t bend up our whim. Just look at the graph: all the combined brainpower and work and desire of generations of well meaning people have not dented the issue. How in the hell does anybody think a few new rules are going to fix it?
      Nothing but a return to principles, and personal responsibility will conquer all these obstacles. When people are ready to stop whining and look for their own solutions, and quit blaming others, and not wait for a hand out, they can do just fine.
      And while I’m ranting: who gave you the right to decide how to help someone out with someone else’s money? Some of us can see through this sham “help”. If you think it’s right, you’re welcome to be the life support system for some set of humans you obviously consider not to be your equal.

    • You make a well reasoned argument. However, to be fair eliminating subsidies would require us to eliminate FHA, VA and other home ownership programs that are in effect a subsidy. Please see my response to OB.

      To answer your points on administration that bureacracy already exits. The crux of the idea is that instead of perpetually giving a handout that results in the reciever being never able to save and invest because rules limit the dependant citizens assets. Their option is to remain a dependent on the system or default on the unaffordable rent. People are rational. They will protect against loss. The other outcome of our present system is that property owners are the recievers of the outlays we make through our taxes on behalf of others. Their (property owner) wealth grows while the tenant is forced to consume rather than save because of the rules we impose on them so they don’t scam us.

      The question we should ask is should we even measure comparative economic differences between races when individual choices are a huge determinant in the outcomes

  3. Other Bill’s comments reminded me of a real difference in today’s ideas of “success.” The standard of living and level of consumption that most people today choose to indulge is a prime factor in making success hard to attain. As a child, we were what I call “country poor:” we had plenty to eat and everything we really needed, but there wasn’t much “spendable” cash. My parents raised three children in a three-bedroom, one-bath 1600 square foot house that they bought (with acreage!) for $2500 . My dad worked a factory job and farmed as well, as did many folks in our area. We had only one car until my mother went to work after we kids were all in school. Mom and Dad scrimped and saved always, even after they both began earning good incomes in the early 70s . Dad always paid cash, nothing -including new cars and trucks- was ever financed until they built their 2200 square foot “dream home” in 1975, and that mortgage was paid off in less than ten years. My wife had a similar upbringing. Most people today -even people in this area- don’t and wouldn’t choose to live as we did then. Choices have consequences.

  4. ”How in the hell does anybody think a few new rules are going to fix it?”

    The right people haven’t been in charge…yet?

    Hmmm; where have I heard THAT before?

  5. Chris Marschner wrote, “Create an approximation of a reverse mortgage in which taxpayers buy a property and the housing voucher is used to amortize the equivalent of a mortgage back to the taxpayer. In this manner we put up the money upfront and the recipient retires a mortgage equivalent using the voucher, their contributions, and behavioral requirements not much different than what currently exists for section 8 vouchers. “

    If I’m understanding you correctly this idea would require that some level of “the government” (whether that is local, state, or federal) actually purchases the home up front using taxpayer dollars making “the government” essentially a co-signer on the home loan until the time that the loan can be fully transferred to the occupant; is my understanding correct?

  6. Who knew:
    Apparently, the concept I discussed was part of HUD policy starting in 2005. It was called the flexible voucher program which allowed recipients to apply their subsidy to either one time down payment assistance or mortgage assisistance.

    I knew that HUD offered a program to assist first time buyers with down payment assistance but the person still had to qualify for a mortgage. I did not know it used section 8 voucher dollars. The implementation was left up to the local housing authority.

    HUD estimates it serves 5.5 million households annually. The real question is HUD benefiting potential homebuyers or simply shoring up the budgets of local governments, NGO’s and other organizations. A cursory glance at HUD’s budget suggests there is as much money administering programs – salaries of government workers – than what is used for actual housing.

    Perhaps starting over from scratch makes some sense. We could have bought homes for more people with what has been spent since 1998 ($41B) in that year alone. Holding that value constant we could have purchased 5.46 million, $150,000 homes over the last twenty years and given them away and been done the continued cyle of spending.

    Government, NGO’s and other “self help” organizations are as dependent on the subsidies as are the recipients themselves. The difference is that their incomes are not subject to a bureaucrat’s scrutiny.

  7. For the record, neither the FHA nor the VA offer anything that approximates a subsidy. Both programs offer only loan guarantees, making them, in effect, co-signers of the loan. However, the loan originator reserves the right to require a decent credit rating from the borrower.

  8. It makes a certain amount of sense…

    The reason people pay rent as opposed to paying a mortgage is usually because they can’t come up with the down payment, but the difference after ten years of paying rent as opposed to ten years of paying a mortgage is material in the equity that one builds up.

    We have, however, talked about the black hole that is just giving poor people large sums of cash, how poverty recidivism is depressingly high among people who have, for instance, won the lottery. I wonder if this program is different enough, perhaps in the relative difficulty in house liquidation, to mitigate the bad financial habits of the kinds of people who need housing vouchers in the first place.

    I also wonder how available properties for purchase will be, if the program is bought into… If the vouchers could be applied to mortgage payments, and people were willing to take advantage of that program… I wonder how many landlords will be willing to buy into the program.

    • Maybe this is different, but it sure looks a lot like the programs of the 80s-90s of “no- or low-” down payment programs. Manyof those failed, even when the mortgage payments were less or equal to what rent would have been. Many said that when the owner-occupant was not truly invested, aka- skin in the game, they continued to act as renters and had little incentive to not just walk away when things looked tough.

      Treating home ownership as a means to financial advancement is fine, but it is also seen as an indicator of some level of success. If all this push for home ownership is to make people feel like they are successful, this won’t work.

      Wedging people into home ownership when they don’t have the foundation to make it work sets them up for a bad outcome, not unlike pushing the marginal student into a big name college where it is obvious they will not be able to successfully compete. They fall behind and drop out,

      Let’s face it, a lot of people in the black community are not subscribed to deferred gratification, don’t value education (as do other groups) and engage in behaviors that have them spending time in prison than other groups, per capita. Home ownership is a lot of work. If you cannot fix things yourself it is also expensive. Sometimes you have to skip a weekend ski trip to clean the gutters, etc. You won’t see the fruits of your labor for years, maybe decades.

      One of the few pieces of advice I received in my 20s, and actually paid attention to, was “buy a home as soon as you can.” I did and now 50 years later I still have a mortgage, but it is much smaller than most I had over the years. Ownership is not a *thing*, its a process.

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