The New York Times headlined its article: “Biggest Defaulters on Mortgages Are the Rich” (David Streitfeld, front page, July 9, 2010). It seemed surprised. It shouldn’t have been.
There’s an important point that needs to be stressed in the account: these are largely investors engaging in strategic defaults. not “homeowners” defaulting on mortgages. They are, to put it simply, landlords; these aren’t their homes that they are so heedlessly giving up. They are speculators in real estate, assuming, as the article says, that “real estate would never drop.” When the plain-talking owner of a $2 million house in Houston, quoted as a “plain-talking exception,” says, “I just decided to let it go, give it back to the bank. I just didn’t feel like it was a good investment,” this isn’t a homeowner speaking, but a businessman talking about making or losing money.
The ownership of housing has two characteristics: it provides a home, shelter, privacy, hoped-for safety, a reflection of personality, for a resident homeowner, and it is an economic asset for the person having title to it. While the two are usually the same person, these two attributes of “ownership” are quite separate, although often confused. If you consider a house only as an asset, of course you would let it go if that’s the most profitable way of dealing with it. If you live in it as your only residence, your considerations are quite different.
If we could only keep these two aspects of ownership separate: protect homeowners who have mortgages on homes that they need to live in, and take a quite different position as to landlords who own housing only on the speculative hope its value will rise, we’d be way ahead of the game. Of course resident homeowners also would like to make a profit when they sell; but that’s a different order of priorities from being secure in having a place to live. Limited equity ownership, community land trusts, and similar forms of ownership might be one answer.