H2.0-Fennell Response, Part I
Thanks so much, Rich, for these very insightful comments. In this first post, I'll take on your first two comments. I'll post later on your other points.
So why not just build a better leasehold? First, let me put labels aside and briefly cheer—if I've convinced you that there's a gap on the current tenure spectrum, that's much more than half the battle. Now let's consider what attributes that missing entry should have. I think we agree on at least two things: a long-term option to remain in the home at a fixed price, and tax advantages similar to those available to homeowners. If a tenure form is to provide consumption benefits that rival those of homeownership, it would also need to offer access to a wide array of housing choices (including plenty of single-family housing stock in good condition), and some reasonable measure of freedom with respect to matters like occupants, pets, and decorating. How to get there? First, we'd need Congress to remove the tax advantages for homeowners (I'm all in favor of that, by the way, as I've written elsewhere). That indispensable step probably already shifts us into the realm of the impossible. Still, let's forge ahead.
Next, we must get landlords to make available a lot more (and a lot better-maintained) rental housing than is presently available, with fewer restrictions on tenant behavior, and much, much, longer terms (even 30 or 40 years might be too short). Note that, as a practical matter, these long terms would have to be asymmetric—fully binding the landlord, but terminable on perhaps a half-year's notice by the tenant. It is difficult to imagine many landlords leaping to offer such deals. Of course, the law could force them to do it. But the law cannot force people to be landlords, and if the terms are unfavorable enough, landlords may stop landlording. Perhaps a system of subsidies could be developed to entice people into offering these idealized leaseholds. Still, serious moral hazard problems remain regarding the upkeep of the property (landlords will be tempted to shirk on factors that primarily affect consumption, while tenants will be tempted to shirk on factors that primarily affect the long-term value of the property). We can try to address these problems by letting tenants internalize the gains and losses associated with their own choices on the property and by giving them greater latitude to address on-site matters. But as we continue down that path, we begin to reach something very like H2.0, with landlords serving in place of investors. If a tenure form with these attributes sounds sensible as a matter of substance, scaling down traditional homeownership to generate it seems like a much more psychologically attractive and politically feasible approach.
I don't disagree with your second point, but I don't see how it's an argument against H2.0. Suppose onsite factors had absolutely no effect on the home's investment value or on the consumption value that residents could derive from living there (imagine all homes are identical, indestructible, self-cleaning stainless steel cubes). This would eliminate the moral hazard problems associated with leaseholds, and (tax issues aside) there would be no reason for the person who lived in the cube to also invest in the cube (because nothing she does to the cube will matter, either to her own comfort or to the cube's resale value). H2.0 merely translates that lesson to the messier world in which onsite actions do matter to some degree, by suggesting that the person who owns the rights to gains and losses associated with onsite activities need not also own the rights to the gains and losses associated with offsite occurrences.
I'll be back soon with more. Thanks again for giving me so much to think about!