Now for some thoughts on the third and fourth points in Rich's post.
Rich worries that giving investors stakes in home values will lead to a cascade of damaging consequences: exclusionary zoning, racial segregation, and the perpetuation and privileging of homogeneous white suburban enclaves. Such consequences might come about either through investor pressures on the local political process or through private business practices such as "redlining." These are serious concerns, and ones that I share. However, I think H2.0 would lead to fewer of these problems than the present homeowner-driven system of local control.
First, investors are likely to be better bearers of risk than the homeowners who would choose H2.0. Not only are investors likely to be more diversified, they will have affirmatively self-selected into the investment rather than falling into it simply because they wanted to own a home. As Bill Fischel has argued in The Homevoter Hypothesis, homeowners tend to be extremely risk averse about their home values, given the importance of the home in their portfolios, and they vote accordingly. They may, therefore, oppose changes that actually have positive expected values, simply because they are unable to bear any significant variance in outcomes. Second, the fact that investors are often at a remove from the neighborhood (both physically and emotionally) may make them less likely to be swayed by inflammatory rhetoric about the purportedly negative impacts of what are in fact benign or beneficial land use proposals. Third, investors are more likely than individual homeowners to hold offsetting interests in other properties or entities, including those in neighboring localities. Having a stake in many communities rather than just one is likely to rein in the NIMBY impulse to push externalities onto outsiders.
Of course, it would be unrealistic to imagine that self-interest alone will always cause investors to act in socially optimal ways. Law will need to play a role. Just as discriminatory practices carried out by landlords, mortgage companies, and insurers are prohibited, so too law must prohibit discriminatory practices carried out by investors. We can do other things as well: for example, if we worry that big investors will capture local political processes, we can restrict the concentration of investment in a given locale. This points to another advantage of H2.0: where curtailing exclusion-minded homeowners has often proved politically difficult, regulating investors should be comparatively easy.
Finally, the subprime crisis should make us more interested, not less interested, in innovative adjustments to the mix of risks that homeowners accept. Protection against downside risk is likely to be of increasing interest to both homeowners and lenders, and tightening credit standards are likely to trigger new interest in the sale of upside potential as an affordability tool. And, while I've focused primarily on distant, diversified investors, the H2.0 model is sufficiently open-ended to accommodate local actors and institutions that would like to invest, quite literally, in their communities.
Comments