Housing shortages and subsequent skyrocketing house prices are recurrent issues in regions across the globe. The human impact of these crises is substantial. Escalating housing prices not only affect aspiring homeowners but also lead to increased rental costs, making it increasingly difficult for renters to afford housing in their desired areas.

A frequently proposed solution to tackle overheated housing markets is the construction of additional houses. However, since this construction typically takes place in undeveloped areas, it fails to address the escalating real estate prices in existing regions. Consequently, individuals who are unable to afford the rising costs are forced to relocate farther away from their familiar neighborhoods, disrupting social bonds and established employment.

Home ownership

A group unaffected by the impact of rising real estate prices are those that already own a home.

One method governments have used to promote home ownership is by using tax incentives, such as allowing part of a mortgage to be tax deductable. These incentives increase the relative price of renting compared to owning, even though the latter is already cheaper. However, despite such cost reductions, many individuals continue to opt for renting due to several factors, such as uncertainty about preferred location, financial constraints in meeting upfront costs, and a lack of awareness regarding the long-term benefits of homeownership.

Mandatory home ownership

We propose implementing mandatory real estate investment, which may initially seem like an extreme measure that restricts people’s freedom to allocate their funds as they choose. However, it is important to recognize that similar systems exist worldwide for various purposes, such as pensions and medical insurance. For instance, in the Netherlands, individuals are obliged to contribute to medical insurance if they have an income, and a portion of an employee’s earnings automatically goes towards a pension fund. These systems are rationalized by the fact that healthcare and retirement provisions are necessities for everyone. By compelling individuals to participate, we prevent them from making the potentially detrimental mistake of neglecting these essential aspects.

Considering that housing is a fundamental requirement for everyone, it begs the question: why aren’t we enforcing the ownership of a home?

Housing fund

Our proposal entails mandating individuals with an income and residing in rented homes to allocate a portion of their earnings, referred to as the housing premium, to a designated housing fund. The housing fund will subsequently invest these contributions in residential properties that will be made available for rental purposes. This unique arrangement ensures that renters become partial owners of rental properties, simultaneously benefiting from the returns generated by these investments.

To maintain affordability and flexibility, the housing premium will be calculated as a percentage of the rental price paid by individuals. This approach empowers individuals to control the amount they contribute, enabling them to align it with their budgetary constraints.

Region

A person may specify into which areas they desire their housing fund should be allocated. A person who is confident they will live in a particular city their entire life can allocate the entire investment their, while someone who has no idea where on the planet they might end up, may choose a global allocation.

Buying & Selling

When an individual intends to purchase a house, their housing fund becomes accessible for the transaction. However, when the same person decides to sell their property, they are obligated to reinvest a portion of the sale value back into the housing fund, equal to or greater than the amount initially contributed when they purchased the property.

Leverage

When individuals purchase a house, they typically utilize a mortgage, which is a form of leverage in investment terms, allowing them to increase their exposure to the property. While buyers contribute a deposit from their own funds, a significantly larger amount, such as ten times the deposit, is borrowed from a bank to finance the purchase. If the homeowner fails to make mortgage interest payments, the bank has the option to sell the house to recover the loan. The buyer’s deposit serves as a safeguard, ensuring that the bank can recoup the loan even if the property’s value has declined since the purchase. This leverage is beneficial as it enables buyers to fully acquire the house they require for residence, protecting them from housing price fluctuations.

In the housing fund scheme, a similar concept of leverage can be introduced. The government can augment individuals’ exposure to real estate by providing loans, acquiring additional housing assets, and using the individual’s housing premium and rental income to cover the interest. This approach works effectively as long as the housing premium remains stable. However, if the premium decreases below the interest rate, the interest becomes unaffordable, necessitating the sale of housing assets to repay the loan until the interest can be met once again. While this scenario is manageable when housing assets have appreciated in value, it becomes problematic if the assets have depreciated, leading to a loss of the individual’s investment. To mitigate this risk, the government can limit the interest rate from leverage to ensure it is unlikely to exceed the housing fund premium. In the event of such a situation, the government can assume responsibility for covering the loss, safeguarding citizens’ investments and preventing harm.

Conlusion

In response to housing shortages and skyrocketing prices, we propose the implementation of a mandatory housing fund for individuals with an income living in rented homes. This fund would make renters partial owners of rental properties, offering them returns on their investments. Participants can influence the allocation of their contributions, and accumulated funds can be used towards home purchases. Leveraging can be introduced cautiously, managing interest rates and mitigating risks. Through these measures, we aim to address affordability, facilitate renters’ path to homeownership, and ensure housing market stability for the benefit of individuals and communities.