Lee Fennell’s Homeownership 2.0 is provocative and deeply interesting—as with all her work, it is a pleasure to read. The idea that we could separate on-site and off-site factors in the home purchasing decision is attractive. For me, it is primarily attractive because it might reduce (in Lee’s language) “costly basket-guarding behaviors”: the homeowner’s extreme risk aversion to newcomers and the NIMBY(“not in my backyard”)ism that accompanies it. But I am skeptical that this proposal can get us there for a number of reasons:
First, why slice and dice homeownership when we have a form of tenure – the leasehold – that is better positioned to deal with on-site and off-site risk? I wasn’t quite persuaded that we shouldn't make renting a more robust form of ownership rather than making homeownership somewhat less robust. Why aren't renters the ideal since they only have the consumption interest in homeownership? I agree that homeownership has tax advantages and psychological ones, but my immediate reaction to the idea of bifurcating the risk in ownership is to encourage long-term leaseholds and give renters some of the tax benefits that owners currently enjoy.
Second, I wonder if off-site factors swamp on-site factors, conceptually. All houses are really bundles of off-site characteristics, i.e., location, location, location; the on-site amenities and maintenance mean almost zero if the house is located on the North Pole. These locational factors are huge, it seems to me—particularly if you factor in access to employment markets.
Third, I worry about giving absentee investors a stake in controlling off-site factors. Most investors will want a say in community governance, which introduces a lot of complications. What kind of pressure can these investors apply to local governments to adopt new zoning rules, deny development permits, prevent unwanted uses, or disfavor racially-heterogeneous neighborhoods? In an H2.0 regime, I'd predict increased neighborhood homogeneity as investors (like big developers) create standardized products while trying to limit their risk—investment money would flow to expanding white suburbs, the problem of redlining would reemerge under the guise of this new financial product. Perhaps Lee is betting that investors will be more rational than risk-averse homeowners, but I’m not persuaded. There is no reason to think that new H2.0 investors will operate any differently than the traditional investment partners of homeowners: banks and mortgage companies.
This leads me to my last comment. Perhaps, in light of the subprime mortgage debacle, this is not the time to create new fungible investment vehicles that will operate on a national scale. One could make the argument that the local savings and loan, investing in the local housing market, kept capital in the community and maintained the stability of neighborhoods (in part because the investors in the savings and loan often lived there). Coops and other forms of collectivized equity seem to try to recreate that community-investment link; it is interesting to note that Lee’s proposal tries to dilute that link.