Housing shortages and skyrocketing prices are creating crises in regions across the globe. The human impact is devastating, particularly for renters. When housing prices rise, landlords often raise rents to match market rates, forcing long-term residents to relocate to more affordable areas—disrupting their social bonds, employment, and community ties.

A frequently proposed solution is the construction of additional housing. However, while new construction may help overall supply, it does not protect existing residents from being priced out of their neighborhoods. This raises a crucial question: How can we ensure housing stability for both owners and renters?

The True Risk of Renting

Many people hesitate to buy homes due to concerns about market timing—worried that prices might drop after purchase. However, the greater risk lies in renting. When housing markets appreciate, renters face either increasing rents or higher purchase prices when they eventually buy. In investment terms, renters are effectively “short” on real estate by default. Only homeownership provides insulation from market fluctuations.

The Limitations of Rent Control

While many countries implement rent control laws, these measures often backfire. When market prices rise significantly above controlled rents, property owners often choose to sell rather than continue renting, reducing rental supply. The Netherlands provides a stark example: after announcing increased rental regulation in 2022, the rental market contracted severely. Properties now regularly receive hundreds of applications, and desperate renters frequently bid above asking prices. Some resort to expensive temporary solutions like hotels or short-term rentals, ultimately paying more than unregulated market rates.

Government Housing: Promise and Limitations

Government-provided housing can address supply shortages in controlled markets. The Netherlands uses this approach through “social housing,” restricted to lower-income residents. However, despite subsidies, demand far exceeds supply, with typical waiting periods exceeding a decade.

Singapore offers a more successful model, with the majority of citizens living in public housing allocated through rule-based criteria. While effective at preventing displacement, rule-based systems lack the flexibility and efficiency of market mechanisms. We propose a hybrid approach that combines market dynamics with protective measures. Importantly, this market-based approach does not preclude housing equality between economic classes—such equality can still be achieved through redistributive tax systems or income-dependent housing subsidies.

A New Approach: The Mandatory Housing Fund

We propose requiring renters to contribute a portion of their rent—a housing premium—to a dedicated housing fund. This fund would invest in residential properties for rental purposes, making renters partial owners of the rental market. This arrangement provides several benefits:

1. Renters gain exposure to real estate appreciation
2. Contributions scale with rental costs, maintaining affordability
3. Accumulated funds can later support home purchases
4. The system maintains market efficiency while providing protection

Regional Flexibility

Fund participants can specify their preferred investment regions. Someone committed to a particular city can concentrate their investment there, while those with uncertain future locations can opt for broader geographical distribution.

Purchase and Sale Mechanics

When buying a home, individuals can access their housing fund balance. Upon selling, they must reinvest a portion equal to or greater than their initial withdrawal, maintaining long-term market participation.

Leveraging with Safeguards

The system can incorporate leverage through government loans, similar to traditional mortgages. The housing premium and rental income would cover interest payments. To manage the risk of loans, leverage would be limited, with government backing to protect against potential losses.

Conclusion

The mandatory housing fund represents a novel approach to housing security that balances market efficiency with resident protection. By making renters partial owners of rental properties, it provides returns on their housing expenses while creating a path to homeownership. Through careful leverage management and regional flexibility, the system can adapt to individual needs while maintaining stability. This market-based solution offers a promising framework for addressing housing affordability without sacrificing economic efficiency.