Ask the Broker: Why don’t more poor people own their own homes…?

by Greg Swann

Suburban Phoenix Real Estate Broker

Author website

Why isn’t there more opportunity for poor people to own their homes?

If you were to substitute the word “horses” for “homes”, the question would answer itself, wouldn’t it? Poor people rent rather than own because their income is too low, their credit scores are too low, or their debt-to-income ratios are too high. That much is not rocket science, and it would apply to any other expensive financed possession we might name.

People very enamored of coercive charity can imagine circumstances in which financially unqualified people are given homes – or are given heavy subsidies toward buying homes. But this can only happen by taking wealth away from other people – people who have earned that wealth and deserve every penny of it. Poor people might get more home than they have earned, but only because other people are getting less home than they deserve. This kind of redistribution of purported injustice is made possible only by force – and, by my reckoning, that force is the most vicious injustice of all.

But, even so, there are two persistent problems. First, people tend not to respect what they did not have to earn and deserve. This is nicely illustrated by the awful condition of free or subsidized housing all over the world.

Moreover, unless the problem is to repeat itself, the poor recipients of subsidized housing would have to be forbidden from selling it at its true appreciated value – lest it become unobtainable by other poor people in the future.

Many poor people do not buy homes because for whatever reason they don’t develop the attributes of mind, character and behavior that lead to homeownership. And, even if they were to be given free or heavily-subsidized homes, the restrictions that would have to be placed on the sale of those homes would prevent those poor people from profitably developing those same attributes of mind, character and behavior even after they have become homeowners – in name only…

As it happens, we got to see practical examples of these ideas in the housing collapse. We know about CDOs (collateralized debt obligations – big bundles of bad mortgages) and the CDSs (credit default swaps) used to offload all that bad paper, but we forget all about the CRA. That would be the Community Reinvestment Act, the very bad law that resulted in all those bad loans being underwritten to people who, as it turns out, were better off as renters than owners.

I took my first swing at this question in 2006, before we knew any of that. Our brokerage recovered from the housing crash by marketing to people who had been, should have been, and were soon again to be homeowners. The attributes of character that made them owners made them spectacular tenants, in the brief time it took them to regain their financial footing.

But homeownership is not a cargo cult. Giving a person with looser ideas about follow-through a mortgage will not make him a homeowner. But it will delay eviction by quite a while, should the payments stop. Who could have seen that coming?

Not me, so you know. I understood the CRA as an instrument for shaking down banks – and for trying to shake down Zillow – but I was happily bird-dogging comically under-documented loans in 2004 and 2005, just like everyone at that time. My clients were qualified, but, as we saw, the bad loans drove down the good ones anyway.

So why don’t more poor people own their own homes? The ultimate answer would seem to be: Because they shouldn’t. Until you’re adept at every responsibility that goes into owning a horse, you should buy your rides from someone who is. And until you’re prepared to hold up your end as a homeowner – even when there is no one to hold up any other ends – you and your neighbors are better off with you renting, for now.