Renters vs. Homeowners under the "Own-to-Rent" Plan

Yves Smith defends Rep. Raúl Grijalva's (D-AZ) "own-to-rent" proposal (see text of the bill here). The proposal would allow homeowners whose mortgages have been foreclosed to petition a judge to allow them to stay in the home as renters, paying a fair market rent, for a period of up to 20 years. Dean Baker originally proposed an "own-to-rent" plan as a solution to the housing crisis; in fact, conservative economist Andrew Samwick has since promoted the plan with Baker. Rep. Grijalva's bill is substantially similar to Baker's proposal.

I must admit, when I first read Baker's proposal, it struck me as a gross interference with property rights to give tenants the right to rent the property for so long (especially after foreclosure). But the more I thought about it, the more comfortable I became with it. Yves Smith, in defending the proposal against Ken Bunnell's charge that it will degrade communities because renters tend to make bad neighbors, captures it perfectly: "Give people property rights, and they act like they have property rights."

Since Smith bases her claim about renters on anecdotal evidence and personal experience, I thought I'd provide some empirical support. In a 1999 paper, "Incentives and Social Capital: Are Homeowners Better Citizens?", Denise DiPasquale and Ed Glaeser found:

[A] large portion of the effect of homeownership on...investments [in social capital] comes from lower mobility rates for homeowners. ... The most important effect of homeownership may be its role in increasing community tenure. The results confirm that homeownership works both directly and indirectly through lowering the probability of changing residence. Between 4 and 92 percent of the effect of homeownership on citizenship is operating primarily because homeownership is associated with lower mobility rates. This finding suggests that policies that act to limit mobility would end up having similar effects to homeownership-enhancing policies on increasing the level of investment in local amenities and social capital.

In an earlier paper, Richard Green and Michelle White examined the benefit that homeownership has on children. Comparing renters and homeowners, they found:

The length of tenure and the homeowning variables interact with each other, so that longer tenure mitigates the adverse effect of renting on the probability that youths stay in school.

The average tenure of homeowners is roughly 11 years, so giving renters the right to rent the property for up to 20 years essentially allows them to stay in the community for just as long as homeowners. And if the renters under Grijalva's plan are equivalent to homeowners in terms of tenure, then communities will receive most of the same benefits from the renters that they would have received if the renters were homeowners. In other words, the own-to-rent plan would preserve most of the vaunted benefits of homeownership for the surrounding community.