tag:theconversation.com,2011:/uk/topics/homeowners-18555/articlesHomeowners – The Conversation2023-08-13T13:34:33Ztag:theconversation.com,2011:article/2098322023-08-13T13:34:33Z2023-08-13T13:34:33ZHow Airbnb may be fuelling gentrification: A case study in Toronto<figure><img src="https://images.theconversation.com/files/541098/original/file-20230803-27-7ead3f.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C3610%2C2399&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A new study sheds light on how short-term rentals like Airbnb make housing less affordable.</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><p>The average asking price for a rental unit in Canada <a href="https://www.ctvnews.ca/business/average-asking-price-for-canadian-rental-unit-hits-record-high-in-june-rentals-ca-1.6478222">reached $2,042 in June</a>, marking a 7.5 per cent increase from 2022. Metropolitan districts are particularly affected by rising rental costs, with some local families forced to <a href="https://www.cbc.ca/news/canada/british-columbia/single-dad-affordable-housing-vancouver-1.6899715">relocate due to a lack of affordable housing</a>.</p>
<p>While several factors may contribute to this, some have pointed to <a href="https://hbr.org/2019/04/research-when-airbnb-listings-in-a-city-increase-so-do-rent-prices">Airbnb as one of the reasons</a> for the rental crisis. Airbnb <a href="https://globalnews.ca/news/9758708/airbnb-short-term-rentals-affordable-housing/">says it is not the cause of the housing affordability crisis</a>.</p>
<p>Despite the significant public interest in how short-term rentals like Airbnb might make housing less affordable, empirical evidence of exactly how, and to what extent this is happening, is sparse.</p>
<p>Our preliminary study of Toronto’s rental market (which will be submitted later this summer to the <a href="https://www.ssrn.com/index.cfm/en/">Social Science Research Network</a>, an open-access repository of academic research papers), used data from Toronto Regional Real Estate Board and <a href="http://insideairbnb.com/get-the-data/">Airbnb listings from 2015 to 2020</a>, and suggested there were two ways Airbnb was affecting the rental market during this period: reducing the number of available rentals and contributing to the gentrification of neighbourhoods.</p>
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Read more:
<a href="https://theconversation.com/airbnbs-adverse-impact-on-urban-housing-markets-109772">Airbnb's adverse impact on urban housing markets</a>
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<h2>How Airbnb may lead to gentrification</h2>
<p>Short-term rentals, like those offered by Airbnb, bring in outsiders, often with little regard for local community norms, <a href="https://www.businessinsider.com/how-an-airbnb-guest-trashed-a-penthouse-2014-3">leading to conflicts and complaints</a>.</p>
<p>While dealing with these temporary disturbances is usually possible with <a href="https://www.cbsnews.com/news/airbnb-anti-party-crackdown-tip-line/">traditional policing and communication</a>, such short-term rentals can have lasting impacts on neighbourhoods.</p>
<figure class="align-center ">
<img alt="A map displaying a number of available rental properties at various prices" src="https://images.theconversation.com/files/541099/original/file-20230803-27-km6l0a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/541099/original/file-20230803-27-km6l0a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=431&fit=crop&dpr=1 600w, https://images.theconversation.com/files/541099/original/file-20230803-27-km6l0a.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=431&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/541099/original/file-20230803-27-km6l0a.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=431&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/541099/original/file-20230803-27-km6l0a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=541&fit=crop&dpr=1 754w, https://images.theconversation.com/files/541099/original/file-20230803-27-km6l0a.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=541&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/541099/original/file-20230803-27-km6l0a.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=541&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Airbnb affects the rental market by reducing the number of available rentals and contributing to the gentrification of neighbourhoods.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
</figcaption>
</figure>
<p>When homeowners convert their properties into Airbnb rentals, it may reduce the long-term rental supply in their neighbourhoods. This could increase rental prices, <a href="https://www.acto.ca/a-new-poll-shows-the-majority-of-ontario-renters-are-having-to-choose-between-food-and-paying-their-rents-when-it-comes-to-housing-affordability-this-province-is-on-fire/">stretching the budget</a> of lower-income families.</p>
<p>The lucrative short-term market may also attract new housing <a href="https://journals.sagepub.com/doi/10.1177/0308518X18778038?icid=int.sj-full-text.similar-articles.2">investments targeted at Airbnb rentals</a>. This could further squeeze local families, who may find themselves in bidding wars. Eventually, the economic pressure could force these families out of their neighbourhoods, leaving only the wealthier population in place.</p>
<p>Property values could increase as vacated homes are filled by wealthier families moving in from outside, who can afford the high prices. Over time, the neighbourhood could change to comprise mostly relatively wealthier citizens in a process called <a href="https://theconversation.com/centring-race-why-we-need-to-think-about-gentrification-differently-199168">gentrification</a>.</p>
<h2>Is Airbnb driving up prices in Toronto?</h2>
<p>With <a href="https://news.airbnb.com/about-us/">6.6 million active listings spanning over 220 countries and 100,000 cities</a>, Airbnb offers three types of accommodations: entire homes or apartments, private rooms and shared rooms.</p>
<p>Our analysis focused on the entire homes or apartments category. In the time period of the study, owners of these accommodations were able to choose between the long-term and short-term rental markets, but those who only rented out a portion of their residence were less likely to be part of the long-term market.</p>
<p>We found that Airbnb rentals can squeeze out long-term rentals in neighbourhoods. As the number of Airbnb rentals in a neighbourhood increased, the availability of long-term rentals decreased and vice versa.</p>
<figure class="align-center ">
<img alt="A graph illustrating that long-term rental supply decreases when new Airbnb listings increase" src="https://images.theconversation.com/files/540203/original/file-20230731-24-u4e3ln.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/540203/original/file-20230731-24-u4e3ln.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=308&fit=crop&dpr=1 600w, https://images.theconversation.com/files/540203/original/file-20230731-24-u4e3ln.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=308&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/540203/original/file-20230731-24-u4e3ln.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=308&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/540203/original/file-20230731-24-u4e3ln.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=388&fit=crop&dpr=1 754w, https://images.theconversation.com/files/540203/original/file-20230731-24-u4e3ln.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=388&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/540203/original/file-20230731-24-u4e3ln.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=388&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A graph comparing a) excess supply in the long-term rental market to b) the ratio of new Airbnb listings relative to the supply of long-term rentals.</span>
<span class="attribution"><span class="source">(Iman Sadeghi and Sourav Ray)</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>On average, we estimate that an increase of one per cent in Airbnb listings per square kilometre in a district, is associated with a 0.09 per cent increase in long-term rental rates. A <a href="https://pubsonline.informs.org/doi/abs/10.1287/mksc.2020.1227">similar study</a> conducted in the United States, estimated an average increase of 0.018 per cent. While the numbers may not be easily comparable since one is for a metropolitan area and another is for the whole country, they are indicative of the potential impact.</p>
<p>We found evidence that Airbnb may be leading to higher potential rent income for property owners. This difference in income between the potential short-term rentals and traditional long-term rentals, known as the rent gap, draws investors to properties that can be used for short-term rentals.</p>
<p>The reduced availability of long-term rentals can lead to bidding wars for housing, which can lead to even higher rents. As telltale evidence we found that a 10 per cent increase in this rent gap is associated with a 3.1 per cent surge in long-term rental prices. This is equivalent to a $80 monthly rent hike for the average one-bedroom property in Toronto. </p>
<p>These results offer tentative evidence of the potential impact of Airbnb on long-term rental rates during the time period of the study.</p>
<figure class="align-center ">
<img alt="A graph showing the rent gap in Toronto increasing from 2015 to 2020" src="https://images.theconversation.com/files/540204/original/file-20230731-21-vlfbz7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/540204/original/file-20230731-21-vlfbz7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=262&fit=crop&dpr=1 600w, https://images.theconversation.com/files/540204/original/file-20230731-21-vlfbz7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=262&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/540204/original/file-20230731-21-vlfbz7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=262&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/540204/original/file-20230731-21-vlfbz7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=330&fit=crop&dpr=1 754w, https://images.theconversation.com/files/540204/original/file-20230731-21-vlfbz7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=330&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/540204/original/file-20230731-21-vlfbz7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=330&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The average rent gap in Toronto from 2015 to 2020.</span>
<span class="attribution"><span class="source">(Iman Sadeghi and Sourav Ray)</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<h2>Mixed social impact</h2>
<p>Despite evidence that Airbnb may be associated with rising rents, its <a href="https://www.epi.org/publication/the-economic-costs-and-benefits-of-airbnb-no-reason-for-local-policymakers-to-let-airbnb-bypass-tax-or-regulatory-obligations/">broader social impact</a> remains <a href="https://www.cbc.ca/news/canada/british-columbia/airbnb-study-vancouver-1.3830803">controversial</a>.</p>
<p>For homeowners, Airbnb offers a new income source. Travellers can boost local employment opportunities as retailers, restaurants and other businesses cater to their needs. A flow of young people can energize neighbourhoods with their joie de vivre and creativity.</p>
<p>Yet affordable housing is a basic need for our society. With almost 40,000 total listings in <a href="http://insideairbnb.com/toronto/">Toronto</a>, <a href="http://insideairbnb.com/vancouver/">Vancouver</a> and <a href="http://insideairbnb.com/montreal/">Montréal</a>, Airbnb is a big player in the economy, but is only one part of the larger picture affecting the availability of affordable housing.</p>
<p>Attempts to mitigate Airbnb’s effect on housing affordability have had <a href="https://www.cbc.ca/news/canada/edmonton/canadians-are-being-crushed-by-a-housing-crisis-are-short-term-rentals-to-blame-1.6911344">challenges</a>. <a href="https://www.cbc.ca/news/canada/toronto/toronto-airbnb-ruling-1.5364775">Toronto’s short-term rental bylaw</a>, which was upheld in 2019, limits Airbnb stays in principal residences to a maximum of 180 days per year. The city subsequently began <a href="https://www.toronto.ca/legdocs/mmis/2021/cc/bgrd/backgroundfile-163225.pdf">enforcing the licensing and registration of short-term rentals in 2021</a>.</p>
<p>Narrowly focused policy interventions may not only be ineffective, but may have unexpected negative impacts. In fact, there is also evidence that <a href="https://hbr.org/2021/11/research-restricting-airbnb-rentals-reduces-development">restricting Airbnb rentals reduces the development of new housing units</a>, leading to less housing availability. These factors illustrate how Airbnb is part of a bigger picture and addressing this complex issue will require more studies and creative policy measures.</p>
<p><em>This is an updated version of a story originally published on Aug. 13, 2023. The updated version makes clear the context of the research cited in the article is for the period 2015-20 only and does not analyze the rental market since then.</em></p><img src="https://counter.theconversation.com/content/209832/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Iman Sadeghi received funding from MacData, an institute affiliated with McMaster University, in 2020. The current project, while related, is distinct from the aforementioned MacData-funded initiative.</span></em></p><p class="fine-print"><em><span>Sourav Ray does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Do you ever worry about how Airbnb rentals might be affecting your neighbourhood? Your concerns might not be misplaced.Iman Sadeghi, PhD Candidate, DeGroote School of Business, McMaster UniversitySourav Ray, Lang Chair and Professor of Marketing, University of GuelphLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2080452023-07-03T16:02:50Z2023-07-03T16:02:50ZHow the UK’s mortgage rescue deal could help or hurt you – in part depending on where you live<figure><img src="https://images.theconversation.com/files/535288/original/file-20230703-272664-aa70gw.jpg?ixlib=rb-1.1.0&rect=39%2C55%2C5268%2C3469&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Many mortgage borrowers are expecting their repayments to rise rapidly.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/tired-stressed-young-woman-entrepreneur-office-2234106907">KucherAV/Shutterstock</a></span></figcaption></figure><p>Millions of UK mortgage borrowers could experience <a href="https://www.telegraph.co.uk/personal-banking/mortgages/mortgage-rates-rise-after-inflation-shock-nationwide/">significant payment shocks</a> this year. This is happening due to a steep rise in the Bank of England’s base rate over the past year to the highest level since 2008. This rate feeds through to many of the mortgage deals taken out by homeowners around the UK. </p>
<p>To attempt to alleviate some of the pain for homeowners that will see large spikes in their payments this year and next, major UK lenders agreed <a href="https://www.reuters.com/business/finance/uks-hunt-agreed-measures-with-banks-ease-mortgage-payments-strain-2023-06-23/">to provide limited help</a> to those struggling with the mortgage repayments. </p>
<p><a href="https://www.gov.uk/government/news/chancellor-agrees-new-support-measures-for-mortgage-holders">Among other measures</a>, lenders that participate will agree to allow borrowers to switch to interest-only payment terms or to extend the duration of their mortgage. Borrowers will be able to return to their original deal within six months without any impact on their credit rating. Lenders have also been asked to sign up to a 12-month repossession break to provide a grace period to people at risk losing their homes due to arrears.</p>
<p>But while these measures will help some borrowers, they could cause unintended consequences and create further mortgage payment issues. First of all, the Bank of England’s base rate is already <a href="https://www.theguardian.com/business/2023/jun/22/markets-predict-uk-interest-rate-bank-of-england#:%7E:text=The%20financial%20markets%20are%20predicting,by%20half%20a%20percentage%20point.">expected to rise to 6%</a> by the end of 2023 and could go higher next year. </p>
<p>Interest-only borrowers’ repayments only include the interest charged on the loan and nothing towards the principal amount. So, after six months (and at the same level of income), they could face much higher payment shocks. If rates are still relatively high after 12 months, many households could still be at risk of losing their homes. </p>
<p>There is also the question of which lenders will participate in mortgage rescue plan – it is a voluntary scheme. According to the FCA, <a href="https://www.gov.uk/government/news/chancellor-agrees-new-support-measures-for-mortgage-holders">around 75% of lenders</a> will join. Those borrowers with nonparticipating lenders would not be able to use the grace period or other measures. </p>
<h2>How mortgages differ by region</h2>
<p>Another overlooked issue in the rescue plan is that, <a href="https://www.tandfonline.com/doi/full/10.1080/00343404.2012.750426?casa_token=QTqWW5oKqEQAAAAA%3Al3ct0-6LoeiDXEXei78C1AdARczKDEa1AOKil7xYvsrQoHXPdsSPxuBqV20Zs_9Jenk2lwOPqYIYsw">according to my research</a>, households across the various regions of the UK will be affected differently by the mortgage crisis. Payment shocks will be amplified for those in the areas with higher house prices and higher average loan amounts. </p>
<p>The table below shows the difference in the increase in repayments for an average loan amount across the UK, based on different types of mortgage product. These figures show what repayments would have been in June 2022 versus June 2023, when the Bank of England had increased rates from 1.25% (for June 2022) to 5.00% (for June 2023) – repayments will be even higher if it goes to 6%, as expected by financial markets.</p>
<p><strong>Repayment increases by region, June 2022 vs. June 2023:</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/535330/original/file-20230703-269585-sackvp.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/535330/original/file-20230703-269585-sackvp.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/535330/original/file-20230703-269585-sackvp.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=261&fit=crop&dpr=1 600w, https://images.theconversation.com/files/535330/original/file-20230703-269585-sackvp.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=261&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/535330/original/file-20230703-269585-sackvp.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=261&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/535330/original/file-20230703-269585-sackvp.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=328&fit=crop&dpr=1 754w, https://images.theconversation.com/files/535330/original/file-20230703-269585-sackvp.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=328&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/535330/original/file-20230703-269585-sackvp.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=328&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Borrowers’ exposure to an increase in average monthly mortgage payments for an average loan amount, by region and mortgage type (SVR, 3-year fixed rate).</span>
<span class="attribution"><a class="source" href="https://www.gov.uk/government/statistics/quality-assurance-of-administrative-data-in-the-uk-house-price-index/regulated-mortgage-survey-data-provided-by-the-council-of-mortgage-lenders">ONS Regulated Mortgage Survey, BSA Statistics (2023)</a>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>The monthly mortgage repayments of households in London on <a href="https://www.nerdwallet.com/uk/mortgages/what-is-standard-variable-rate/">standard variable rates</a> (SVRs – the rate borrowers tend to automatically switch to after a fixed or tracker deal period ends) increased by £1,398 and by £1,142 for those on three-year fixed rate mortgages, for example. In the East Midlands, in comparison, average SVR repayments have increased by £587 and by £429 for three-year fixed rates since last year.</p>
<p>Taking current base rate changes into account, borrowers making interest-only mortgage payments will be even more exposed to future payment shocks when only repaying the interest on their principal loan amount. These borrowers will not have been chipping away at the equity part of their loans, like those on repayment mortgages, keeping their loan larger than it would have been if they hadn’t taken advantage of the rescue measure.</p>
<p>For the average principal loan amount of £250,000, for example, monthly interest-only repayments on the average UK SVR would be £587, compared to a total interest payment of £323 for a repayment mortgage (plus an additional amount towards paying off the borrowed amount, called the equity). </p>
<p>This is because when repayment borrowers pay interest plus equity, the total interest charged on a mortgage falls as the remaining debt decreases. So while repayment borrowers pay less interest as their equity builds and the principal debt falls, they still have to make higher payments overall.</p>
<p>So, for a three-year fixed rate deal, average total interest payments would be £497 per month for the six months for interest-only borrowers, compared to a similar repayment deal for which total interest payments would be £226. This means the exposure to overpayment when choosing to pay interest-only for the six-month rescue period would be:</p>
<ul>
<li><p>Three-year fixed rate 6x(£587-£323) = £1,584</p></li>
<li><p>SVR: 6x(£497-£226) = £1,626</p></li>
</ul>
<p>That is, choosing to pay interest only for six months could add at least £1,500 to a borrower’s bill over the life of the average home loan versus what they would pay if they remained on a repayment mortgage.</p>
<p>Regional differences will also come into play here when considering exposure to payment shocks and excessive mortgage payments. This is because households in regions with higher house prices borrow larger loans and so repay more over the life of the loan. </p>
<p>So, both base rate changes, but also the negative impacts of the mortgage rescue initiative will disproportionally affect households in areas with higher houses prices, such as London or East Anglia.</p>
<figure class="align-center ">
<img alt="Hand slotting piece with text mortgage into wooden model of a house." src="https://images.theconversation.com/files/535291/original/file-20230703-215550-wvds62.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/535291/original/file-20230703-215550-wvds62.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=234&fit=crop&dpr=1 600w, https://images.theconversation.com/files/535291/original/file-20230703-215550-wvds62.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=234&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/535291/original/file-20230703-215550-wvds62.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=234&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/535291/original/file-20230703-215550-wvds62.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=294&fit=crop&dpr=1 754w, https://images.theconversation.com/files/535291/original/file-20230703-215550-wvds62.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=294&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/535291/original/file-20230703-215550-wvds62.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=294&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Solving the mortgage repayment shock problem will not be this easy.</span>
<span class="attribution"><span class="source">Jirsak/Shutterstock</span></span>
</figcaption>
</figure>
<h2>Searching for a solution</h2>
<p>There is no straightforward solution to this situation, particularly since mortgage rates operate at the national level. A light-touch intervention, such as temporary caps on lenders’ profit margins could help. For example, if lenders were not allowed to make more than 2 percentage points above the bank base rate for certain mortgage products. </p>
<p>But the government also needs to consider the significant differences in payment shock levels across the country, particularly as it is likely to face a general election by January 2025, <a href="https://uk.news.yahoo.com/next-uk-general-election-why-172826087.html">if not before</a>. This is important when evaluating the robustness of the economy to recession, which already has <a href="https://theconversation.com/three-charts-that-explain-why-falling-living-standards-could-deepen-the-uks-north-south-divide-196088">an uneven effect</a> on different locations and households.</p><img src="https://counter.theconversation.com/content/208045/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alla Koblyakova works as the Property Investment and Finance Course Leader at the Nottingham Trent University</span></em></p>Recent measures introduced to help struggling UK homeowners aren’t as helpful as they seem at first.Alla Koblyakova, Senior Lecturer in Property Finance, Nottingham Trent UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2016192023-03-23T14:57:12Z2023-03-23T14:57:12ZWhy mortgage rates will not return to recent lows any time soon<figure><img src="https://images.theconversation.com/files/517182/original/file-20230323-18-o6h8zl.jpg?ixlib=rb-1.1.0&rect=206%2C98%2C5730%2C3799&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Mortgage rates are set to stay high for some time.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/housing-cost-red-house-british-currency-642056482">Ink Drop/Shutterstock</a></span></figcaption></figure><p>The Bank of England base rate <a href="https://www.bankofengland.co.uk/monetary-policy/the-interest-rate-bank-rate">has increased steeply</a> from 0.25% in January 2022 to 4.25% in March 2023. More than <a href="https://www.bankofengland.co.uk/financial-stability-report/2022/december-2022">4 million UK households</a> now have significantly higher mortgage costs as a result, while also dealing with the impact of soaring prices for other items such as food and energy. </p>
<p>This pain will only continue as those households that secured low fixed rates before the recent rake hikes start to roll off their current mortgage deals in the coming months and years. But <a href="https://www.bankofengland.co.uk/statistics/research-datasets#:%7E:text=Inflation%20Attitudes%20Surveys-,Bank%20of%20England/NMG%20household%20survey%20data,-This%20annual%20survey">Bank of England data</a> shows that many UK borrowers expect rates to fall back to recent lows again by 2027. Signals from central banks, continued rising inflation and a relatively improved economic picture, however, mean that such expectations are unlikely to be met any time soon, if ever.</p>
<p>Commercial banks look at a range of factors when setting mortgage rates, particularly for fixed-rate mortgages. For example, mortgage lenders tie their rates closely to long-term (typically five-year) government bond rates because this is where they would invest despositors’ money if they weren’t lending it out to mortgage borrowers. Therefore, when the cost of borrowing for government increases, so do mortgage rates.</p>
<p>Banks also factor in additional risk (called a risk premium) to their mortgage rates. Unlike the Bank of England or the government, households and individuals can default as their mortgage repayments hinge on their financial wellbeing. When calculating this risk, lenders typically consider how much they are lending you versus the deposit you have for a home (called the loan-to-value or LTV ratio), as well as your credit history, ability to make your repayments and future job stability. </p>
<p>The Bank of England’s base rate also plays a key role in your mortgage rate. This is <a href="https://www.bankofengland.co.uk/monetary-policy/the-interest-rate-bank-rate">the single most important interest rate</a>
in the UK economy because it determines how much the central bank pays the commercial banks that hold money with it. As such, it sets the benchmark for the cost of borrowing and lending and so it determines how banks calculate what you must pay in mortgage interest.</p>
<p>For the 13 years between 2009 and 2021, interest rates were historically low. The Bank of England base rate has not been at this level at any other time in its <a href="https://www.bankofengland.co.uk/-/media/boe/files/monetary-policy/baserate.xls?la=en&hash=EEB8729ABFFF4B947B85C328340AE5155A99AD0F">325-year history</a>.</p>
<p><strong>UK base rate over time:</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/516809/original/file-20230321-2560-twi6a4.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Line chart showing changes to the Bank of England base rate over time." src="https://images.theconversation.com/files/516809/original/file-20230321-2560-twi6a4.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/516809/original/file-20230321-2560-twi6a4.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=204&fit=crop&dpr=1 600w, https://images.theconversation.com/files/516809/original/file-20230321-2560-twi6a4.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=204&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/516809/original/file-20230321-2560-twi6a4.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=204&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/516809/original/file-20230321-2560-twi6a4.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=257&fit=crop&dpr=1 754w, https://images.theconversation.com/files/516809/original/file-20230321-2560-twi6a4.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=257&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/516809/original/file-20230321-2560-twi6a4.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=257&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.bankofengland.co.uk/monetary-policy/the-interest-rate-bank-rate">Author provided using Bank of England data.</a></span>
</figcaption>
</figure>
<p>Similarly, rates for new mortgages had <a href="https://www.bsa.org.uk/BSA/files/5c/5c180498-5e52-4a41-b022-5821c25f3cbd.pdf">never been below 4%</a> before this time, at least since banking records began in 1853.</p>
<p><strong>Changing mortgage rates:</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/516810/original/file-20230321-3754-zw9gr2.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Line chart showing changing mortgage interest rates over time." src="https://images.theconversation.com/files/516810/original/file-20230321-3754-zw9gr2.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/516810/original/file-20230321-3754-zw9gr2.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=200&fit=crop&dpr=1 600w, https://images.theconversation.com/files/516810/original/file-20230321-3754-zw9gr2.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=200&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/516810/original/file-20230321-3754-zw9gr2.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=200&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/516810/original/file-20230321-3754-zw9gr2.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=252&fit=crop&dpr=1 754w, https://images.theconversation.com/files/516810/original/file-20230321-3754-zw9gr2.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=252&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/516810/original/file-20230321-3754-zw9gr2.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=252&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">Author provided using Building Societies Association data</span></span>
</figcaption>
</figure>
<p>People that bought their first home during this period have never experienced anything other than historically low mortgage rates. This means that the current soaring prices and increasing mortgage costs has been even more of a shock to the system for this group.</p>
<p>There also seems to be an expectation among many borrowers that interest rates will return to historical lows. In a 2022 <a href="https://www.bankofengland.co.uk/statistics/research-datasets#:%7E:text=Inflation%20Attitudes%20Surveys-,Bank%20of%20England/NMG%20household%20survey%20data,-This%20annual%20survey">survey by the Bank of England</a>, 40% of the participants (excluding “don’t know” responses) said they expect the base rate to be below 2% by 2027 – a level rarely seen even in previous low rate periods.</p>
<h2>Why mortgage rates will defy expectations</h2>
<p>So what should you expect from mortgage rates in the coming months and years? Certainly not a return to low rates.</p>
<p>Central banks across the world have been <a href="https://www.bis.org/statistics/cbpol.htm">increasing</a> their interest rates to tackle the sharp surge in inflation. <a href="https://www.stlouisfed.org/open-vault/2019/january/fed-inflation-target-2-percent">Many central banks want inflation to be around 2%</a> but it has been recently five times that in the UK and in the European Union. While inflation (caused by recovering economic activity <a href="https://www.imf.org/external/pubs/ft/ar/2022/in-focus/covid-19/">post-COVID</a>, supply chain bottlenecks and the Ukraine invasion) has started to <a href="https://www.ft.com/content/088d3368-bb8b-4ff3-9df7-a7680d4d81b2">slow down</a>, interest rates are unlikely to fall soon for three reasons.</p>
<p>First, at least in the UK, the Bank of England will need to monitor inflation in the coming months – particularly after the most recent unexpected increase in the headline rate <a href="https://www.ft.com/content/c3a1726b-1724-41d8-bde4-94a11d5f5996">to 10.4% in March 2023</a>. </p>
<p>Second, central banks have <a href="https://www.ft.com/content/5d020eb0-eace-4654-907c-b88498056bcd">already been criticised</a> for failing to react quickly enough before last year to suppress inflation. Rather than large interest rate hikes that we saw in the late 1970s, they have chosen to steady increases. Changing this course too quickly could cause credibility issues because it might make them seem indecisive and erratic.</p>
<p>Third, if central banks reduce rates from where they are by a small margin it could make very little difference on the ground for borrowers, but could give mixed signals to the markets. Again, this would dent their credibility. </p>
<figure class="align-center ">
<img alt="Couple calculating bills at home using laptop. Couple working on computer while calculating finances." src="https://images.theconversation.com/files/517192/original/file-20230323-17-k5up58.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/517192/original/file-20230323-17-k5up58.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/517192/original/file-20230323-17-k5up58.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/517192/original/file-20230323-17-k5up58.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/517192/original/file-20230323-17-k5up58.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/517192/original/file-20230323-17-k5up58.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/517192/original/file-20230323-17-k5up58.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Financial planning.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/mature-couple-calculating-bills-home-using-2003674967">Ground Picture/Shutterstock</a></span>
</figcaption>
</figure>
<h2>Fighting inflation</h2>
<p>So does this mean central banks’ have completely given up on the effectiveness of rates as their most trusted inflation-fighting tool? Two recent incidents suggest they are certainly more willing to try methods other than rate cuts at the moment.</p>
<p>When the Bank of England had to <a href="https://www.bankofengland.co.uk/news/2022/september/bank-of-england-announces-gilt-market-operation">intervene</a> following the UK’s <a href="https://theconversation.com/emergency-budget-announcement-expert-reaction-to-new-uk-chancellors-attempt-to-calm-financial-markets-192669">mini-budget saga</a> to support financial institutions, it used other means, namely quantitative easing. It purchased sovereign bonds to increase the flow of money into the financial system rather than lowering rates.</p>
<p>More recently, amid the ongoing financial turmoil around the Credit Suisse <a href="https://www.bloomberg.com/news/features/2023-03-20/credit-suisse-ubs-takeover-how-a-166-year-old-bank-collapsed?leadSource=uverify%20wall">takeover</a>, the European Central Bank and the US Federal Reserve have gone <a href="https://theconversation.com/the-european-central-bank-seems-to-have-got-away-with-raising-interest-rates-in-the-middle-of-a-banking-crisis-heres-why-202052">ahead with increases</a> in their key policy rates. </p>
<p>Further, the ECB has <a href="https://www.ecb.europa.eu/press/pr/date/2023/html/ecb.mp230316%7Eaad5249f30.en.html">continued to scale back</a> its quantitative easing programme and declared the European banking sector to be <a href="https://www.bankingsupervision.europa.eu/press/pr/date/2023/html/ssm.pr230320%7E9f0ae34dc5.en.html">resilient, with robust levels of capital and liquidity</a>. These announcements reflect a lack of desire to use rate cuts to ease market turmoil.</p>
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Read more:
<a href="https://theconversation.com/silicon-valley-bank-biggest-us-lender-to-fail-since-2008-financial-crisis-a-finance-expert-explains-the-impact-201626">Silicon Valley Bank biggest US lender to fail since 2008 financial crisis – a finance expert explains the impact</a>
</strong>
</em>
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<hr>
<p>So, there is no sign that any of the major central banks plan to lower interest rates any time soon. While the governments’ cost of borrowing in some of these countries have come down lately, compared to the last decade they are still <a href="https://uk.investing.com/rates-bonds/uk-5-year-bond-yield">relatively high</a>. Since interest rates for businesses and households are decided partly based on these bonds, it means mortgage payments may not come down significantly in the foreseeable future either.</p>
<p>And of course, the improving economic outlook in both the <a href="https://obr.uk/efo/economic-and-fiscal-outlook-march-2023/">UK</a> and <a href="https://www.ecb.europa.eu/press/pressconf/shared/pdf/ecb.ds230316%7E34822c9f1d.en.pdf">Europe</a> – with better growth figures now expected for later this year versus four months ago – also reduces pressure to cut interest rates.</p><img src="https://counter.theconversation.com/content/201619/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>UK borrowers are expecting mortgage rates to fall again. Here’s why this looks unlikely in the current economic environment.Alper Kara, Professor and Head of Department - Accounting, Finance and Economics, University of HuddersfieldMuhammad Ali Nasir, Associate Professor in Economics, University of LeedsLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1961912023-03-02T13:23:11Z2023-03-02T13:23:11ZCOVID-19’s housing crisis hit many Asians in the US hardest – but only after government aid began flowing<figure><img src="https://images.theconversation.com/files/512743/original/file-20230228-784-m5nxpk.jpeg?ixlib=rb-1.1.0&rect=198%2C53%2C3036%2C2100&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The pandemic put millions of people on the edge of eviction.</span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/RentReliefNewYork/d39802bf7d5e4a0c8aa067e473708ed2/photo?Query=eviction%20housing&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=888&currentItemNo=29">AP Photo/Mary Altaffer</a></span></figcaption></figure><p><em>The <a href="https://theconversation.com/us/topics/research-brief-83231">Research Brief</a> is a short take about interesting academic work.</em> </p>
<h2>The big idea</h2>
<p>People of Asian descent living in the U.S. experienced an increase in housing vulnerability in 2021 – as measured by the share who said they had fallen behind on their rent or mortgage payments – even as the government <a href="https://www.nytimes.com/interactive/2022/03/11/us/how-covid-stimulus-money-was-spent.html">spent over US$5 trillion</a> trying to relieve the COVID-19 pandemic’s burden on Americans. Meanwhile, housing vulnerability among white people, Black people and Hispanic people all fell during this period. </p>
<p>These are the main findings of <a href="https://www.iza.org/publications/dp/15835/in-need-of-a-roof-pandemic-and-housing-vulnerability">our recent working paper</a> that examined housing vulnerability during the pandemic. </p>
<p>The <a href="http://doi.org/10.1007/s41885-021-00092-5">massive upheaval sparked</a> by the pandemic in early 2020 put millions out of work and made it harder for many people to afford basic necessities like rent amid government-imposed lockdowns. In December 2020, over 2 million homeowners were <a href="https://files.consumerfinance.gov/f/documents/cfpb_Housing_insecurity_and_the_COVID-19_pandemic.pdf">more than three months behind</a> on their mortgage payment, and 8 million renters were behind on their rent, according to a March 2021 Consumer Finance Bureau report.</p>
<p>We wanted to better understand what was driving this degree of housing vulnerability, how that changed during the pandemic and across ethnic groups, and how it differed between renters and homeowners. To find out, we examined data from the <a href="https://www.census.gov/data/experimental-data-products/household-pulse-survey.html">Census Household Pulse Survey</a>, which has sought to quickly measure the social and economic toll from the pandemic in frequent surveys, for three different periods: April/May 2020, April/May 2021 and April/May 2022. </p>
<p>We found that housing vulnerability was high for all groups in early 2020 as the first financial shock of the pandemic struck, though people of color and renters were especially hard hit.</p>
<p>Among homeowners, the overall share of people who said they were not caught up on their mortgage payments was elevated in 2020 but declined in 2021 as <a href="https://www.nytimes.com/interactive/2022/03/11/us/how-covid-stimulus-money-was-spent.html">government aid helped relieve</a> household hardships. An exception was for homeowners of Asian descent, who reported even higher levels of housing vulnerability in 2021 – and more than any other group. By 2022, housing vulnerability had come down for all groups. </p>
<p><iframe id="DZFgX" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/DZFgX/3/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>The picture was much worse for renters. About 25% of Black renters reported being behind on rent in 2020, compared with 18% for Hispanic respondents and 9.5% for Asians. While the figure fell slightly in 2021 for Black people and Hispanics, the share soared for Asians to 17.1%. The figures stayed elevated in the double-digits for all groups except for white people in early 2022. </p>
<p><iframe id="vR5RX" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/vR5RX/3/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>An additional econometric analysis we conducted, which adjusted the data for levels of education, income levels and other factors, confirmed our results.</p>
<h2>Why it matters</h2>
<p>Housing vulnerability is an important measure to look at because it signals someone may be at risk of losing their home, whether they’re an owner or a renter. In addition, research shows there’s a link between housing vulnerability and other negative health outcomes, such as <a href="https://jech.bmj.com/content/73/3/256">higher stress levels</a> and <a href="https://doi.org/10.1136/jech-2021-216764">mental distress</a>.</p>
<p>Our own research uncovered disparities in how different groups experienced this vulnerability during the pandemic, when the government was <a href="https://www.nytimes.com/interactive/2022/03/11/us/how-covid-stimulus-money-was-spent.html">spending trillions to support families and businesses</a>. It suggests some groups benefited more than others from these relief efforts. </p>
<h2>What still isn’t known</h2>
<p>Our study didn’t reveal why Asian housing vulnerability increased from 2020 to 2021 and why this group of people didn’t seem to benefit as much from the federal aid as other groups did. </p>
<p>An August 2020 <a href="https://www.mckinsey.com/industries/public-and-social-sector/our-insights/covid-19-and-advancing-asian-american-recovery">McKinsey report</a> suggested aid to Asian small businesses would likely lag behind other groups due to language barriers or a lack of understanding of the system. The same thing might be true for aid to households as well.</p>
<h2>What’s next</h2>
<p>In our future research, we plan to investigate what factors contributed to the rise in housing vulnerability among Asians relative to other groups. We believe it’s important for policymakers to examine these issues in hopes of making future aid programs more equitable.</p><img src="https://counter.theconversation.com/content/196191/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>While all groups experienced increased housing vulnerability after the pandemic hit, only people of Asian descent continued to see their situations worsen in 2021 as the US spent trillions trying to soften the impact.Kusum Mundra, Associate Professor of Economics, Rutgers University - NewarkRuth Uwaifo Oyelere, Associate Professor of Economics, Agnes Scott CollegeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1973832023-01-12T19:34:31Z2023-01-12T19:34:31ZCanada’s ban on foreign homebuyers is unlikely to affect housing affordability<figure><img src="https://images.theconversation.com/files/503906/original/file-20230110-5012-e6jept.jpg?ixlib=rb-1.1.0&rect=545%2C427%2C5051%2C3297&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A new act in Canada bans non-citizens, non-permanent residents and foreign commercial enterprises from buying Canadian residential properties.</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><iframe style="width: 100%; height: 100px; border: none; position: relative; z-index: 1;" allowtransparency="" allow="clipboard-read; clipboard-write" src="https://narrations.ad-auris.com/widget/the-conversation-canada/canada-s-ban-on-foreign-homebuyers-is-unlikely-to-affect-housing-affordability" width="100%" height="400"></iframe>
<p>As of Jan. 1, 2023, foreign buyers are banned from buying homes in Canada for two years under the <a href="https://laws-lois.justice.gc.ca/eng/acts/P-25.2/page-1.html">Prohibition on the Purchase of Residential Property by Non-Canadians Act</a>. The ban was passed in June 2022, but only came into effect this month.</p>
<p>Under the act, non-citizens, non-permanent residents and foreign commercial enterprises are banned from buying Canadian residential properties. The act also has a $10,000 fine for anyone who knowingly assists a non-Canadian and is convicted of violating it.</p>
<p>The law does not include recreational properties or larger buildings with multiple units. It exempts individuals with temporary work permits, refugee claimants and international students if they meet certain criteria. </p>
<p>It also excludes homes outside of the <a href="https://www12.statcan.gc.ca/census-recensement/2021/ref/dict/az/Definition-eng.cfm?ID=geo009">Census Metropolitan Areas (CMA) or Census Agglomerations (CA)</a>. A CMA has a total population of at least 100,000, of which 50,000 or more live in the core area. A CA has a core population of at least 10,000.</p>
<h2>The housing crisis</h2>
<p>The two-year ban is part of the federal government’s effort to ease Canadians’ struggle to afford homes. According to the <a href="https://stats.crea.ca/en-CA/">Canadian Real Estate Association</a>, the average home price in Canada was above $800,000 in 2022, compared to $500,000 in 2015. </p>
<p>Meanwhile, <a href="https://www150.statcan.gc.ca/n1/pub/11-627-m/11-627-m2022040-eng.htm">median after-tax household income</a> in 2020 was $73,000, up from $66,500 in 2015 — a meagre annual growth of two per cent compared to the seven per cent annual growth in average house prices. Canadians were eyeing houses with prices more than 10 times their incomes.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/503902/original/file-20230110-26-qebcyc.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/503902/original/file-20230110-26-qebcyc.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/503902/original/file-20230110-26-qebcyc.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/503902/original/file-20230110-26-qebcyc.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/503902/original/file-20230110-26-qebcyc.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/503902/original/file-20230110-26-qebcyc.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/503902/original/file-20230110-26-qebcyc.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Houses for sale in a new subdivision in Airdrie, Alta., in January 2022.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Jeff McIntosh</span></span>
</figcaption>
</figure>
<p>In a <a href="https://www.gensqueeze.ca/straddling_the_gap_2022_housing_affordability">recent report published by his think tank</a>, Paul Kershaw, a policy professor at the University of British Columbia, found that average home prices would need to fall $341,000 — half of the 2021 value — to make them affordable for a typical young person at current interest rates. Either that or full-time earnings would need to increase to $108,000 per year — 100 per cent more than current levels.</p>
<h2>Who’s the culprit?</h2>
<p>Some believe that foreign investors and speculative activities have fuelled Canada’s surging housing prices and spurred the affordability crisis.</p>
<p>“Homes should not be commodities,” Housing Minister Ahmed Hussen said in a <a href="https://www.cmhc-schl.gc.ca/en/media-newsroom/news-releases/2022/housing-market-remains-available-canadians">December 2022 news release</a>. He continued: </p>
<blockquote>
<p>“Through this legislation, we’re taking action to ensure that housing is owned by Canadians, for the benefit of everyone who lives in this country. We will continue to do whatever we can to ensure that all residents of this country have a home that is affordable and that meets their needs.”</p>
</blockquote>
<p>How many foreign homeowners are there in Canada? Data that tracks foreign buyers and owners in Canada are scarce and patchy. The <a href="https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=4610002701">Canadian Housing Statistics Program</a> shows that non-residents only own about two to six per cent of Canadian residential properties in 2020.</p>
<figure class="align-center ">
<img alt="A middle-aged South Asian man in a suit and tie gestures while speaking" src="https://images.theconversation.com/files/503897/original/file-20230110-13-l4i24f.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/503897/original/file-20230110-13-l4i24f.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=395&fit=crop&dpr=1 600w, https://images.theconversation.com/files/503897/original/file-20230110-13-l4i24f.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=395&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/503897/original/file-20230110-13-l4i24f.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=395&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/503897/original/file-20230110-13-l4i24f.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=496&fit=crop&dpr=1 754w, https://images.theconversation.com/files/503897/original/file-20230110-13-l4i24f.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=496&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/503897/original/file-20230110-13-l4i24f.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=496&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Housing Minister Ahmed Hussen rises during Question Period in November 2022 in Ottawa.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Adrian Wyld</span></span>
</figcaption>
</figure>
<p>The number of foreign participants is scantly relative to the volume of transactions in the market. Foreigners’ contributions to the housing crisis are puny and paltry in comparison with everyone else’s, many of whom have eagerly traded up for bigger homes or down for smaller ones and benefited from the lucrative market.</p>
<h2>Is the policy justified?</h2>
<p>The law is more of a political gesture than an effective tool. The fact that foreign owners represent a tiny segment of the market suggests the new law is unlikely to exert much impact on making homes more affordable to Canadians.</p>
<p>This gesture, however, does send a signal to Canadians that the government is willing to impose heavy-handed policies to address the housing crisis. The gesture, together with rising interest rates, will cool down the red-hot housing market in the short run.</p>
<p>When a policy aims to push one group into a corner, it is likely to create new challenges elsewhere. Foreigners, for example, can still buy recreational properties in less populated areas. It would be interesting to see if and how the policy might stir up challenges in these exempted areas.</p>
<p>More importantly, the ban is a form of restriction on foreign direct investment in domestic assets and the flow of foreign capital into the housing market. The question is: are we using the policy’s minute impact to justify protectionism?</p>
<h2>Encouraging home ownership</h2>
<p>The <a href="https://theconversation.com/housing-is-both-a-human-right-and-a-profitable-asset-and-thats-the-problem-172846">housing crisis is a tricky issue</a>. There is no single policy that could address the affordability issue without introducing other challenges. In fact, most policies would essentially lead one to rethink about what “affordability” actually means. </p>
<p>For one, any housing policies need to achieve a balancing act between two notions of affordability. One notion is based on prices; the other, which tends to receive less attention in the conversation about housing affordability, is about maintaining home ownership status.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/canadas-housing-crisis-needs-answers-but-first-we-need-to-ask-the-right-questions-162745">Canada's housing crisis needs answers — but first we need to ask the right questions</a>
</strong>
</em>
</p>
<hr>
<p>Take the <a href="https://theconversation.com/the-bank-of-canada-just-hiked-interest-rates-for-the-sixth-time-is-it-too-late-193371">recent interest rate hikes</a> as an example. On the one hand, increasing interest rates have lowered house prices to become slightly more affordable to home buyers. On the other hand, the same interest rate hikes have burdened existing homeowners with a heavier mortgage expense alongside other costs in their daily budgets.</p>
<p>Buying a home, and being a homeowner, is not like buying a piece of fine art, which often stays with the owner with little maintenance. Instead, home ownership — a crucial piece of the affordability puzzle — requires people to maintain their cash flow. If we consider affordability from this broader view, it is not surprising to see that the ban is unlikely to affect housing affordability.</p><img src="https://counter.theconversation.com/content/197383/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Diana Mok does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Since foreign owners only represent a tiny segment of the housing market, it’s unlikely that Canada’s new ban on foreign homebuyers will make homes more affordable for Canadians.Diana Mok, Associate Professor of Real Estate Finance and Economics, Western UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1919052022-10-20T16:01:37Z2022-10-20T16:01:37ZWe asked homeowners what they need to make homes greener – here’s what they said<figure><img src="https://images.theconversation.com/files/490055/original/file-20221017-21-hm8kgt.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C6900%2C2293&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/3d-illustration-houses-high-low-energy-1437864464">DesignRage/Shutterstock</a></span></figcaption></figure><p>As winter approaches, and with energy bills at record highs, insulating the UK’s leaky homes has never been more urgent. With <a href="https://www.theccc.org.uk/2019/02/21/uk-homes-unfit-for-the-challenges-of-climate-change-ccc-says/">14% of greenhouse gas emissions</a> coming from heating and powering homes, it would also help the country meet its climate change targets – a genuine win-win.</p>
<p>Yet current policies to encourage more efficient energy use (and so, lower emissions) are failing. The UK’s housing stock is one of the <a href="https://wunderflats.com/page/reports/en-greenlivingindex2022">worst insulated</a> of all advanced economies. </p>
<p>Installation rates for loft, cavity wall and solid wall insulation all need to grow by an order of magnitude by the middle of this decade. Installation rates for electric heat pumps need to reach <a href="https://www.theccc.org.uk/publication/sixth-carbon-budget/">one million a year</a> in new and existing homes by 2030, up from around 54,000 in 2021. </p>
<p>There is currently little or no help for the roughly 64% of households who own their own home to make these improvements, unless they qualify for schemes targeting those on very low incomes. </p>
<p>The government assumes they will find the money to invest in better insulation and replace their gas boilers with heat pumps, but this is reckless. The government’s own advisory body, the Climate Change Committee (CCC), has <a href="https://www.theccc.org.uk/publication/2022-progress-report-to-parliament/">criticised</a> the current lack of support for homeowners.</p>
<figure class="align-center ">
<img alt="An engineer in red uniform tweaks a large, white unit with an in-built fan." src="https://images.theconversation.com/files/490050/original/file-20221017-22-pc3w8q.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/490050/original/file-20221017-22-pc3w8q.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/490050/original/file-20221017-22-pc3w8q.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/490050/original/file-20221017-22-pc3w8q.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/490050/original/file-20221017-22-pc3w8q.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/490050/original/file-20221017-22-pc3w8q.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/490050/original/file-20221017-22-pc3w8q.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Not enough homeowners will invest in a heat pump without government support.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/backyard-swimming-pool-heat-pump-maintenance-2202142905">Virrage Images/Shutterstock</a></span>
</figcaption>
</figure>
<p>So how could we design better policies to help homeowners make their homes fit for the future? We teamed up with the CCC to try to find out. Rather than relying just on the economic modelling and technical analysis that policymakers normally reach for, we wanted to try a new approach: asking homeowners what would work best for them. </p>
<h2>What our panel said</h2>
<p>As part of our project on public engagement and climate change at Lancaster University, we set up and oversaw a citizens’ panel.</p>
<p>The panel consisted of 24 people, demographically representative of UK homeowners in terms of age, ethnicity, housing type and attitudes to climate change. Participants spent 25 hours over seven sessions, both online and in person, learning about how to eliminate carbon emissions from homes and designing solutions they thought would work for owner-occupiers. </p>
<p>CCC analysts, whose day job is to analyse how well government policy aligns with the UK’s legally binding climate targets, took part in the discussions and helped to shape the findings. </p>
<p>The panel told us that they care about tackling climate change and want to act, but the government’s assumption – that homeowners will take the initiative and make the investment their homes need – is wide of the mark. Instead, panellists stressed that they would need guidance, and help with costs, if they were to make changes. </p>
<p>The panellists designed a comprehensive package of support based around the life cycle of owning a home: buying it, living in it and renovating it. This would include a logbook provided to all home buyers with reliable information on what the house needed and what the costs and benefits would be. </p>
<p>Financial incentives would help homeowners make changes at each stage, such as stamp duty rebates and cheap financing for cosmetic renovations when rolled together with energy retrofits. Regulations would ban the most polluting products, such as gas boilers. </p>
<figure class="align-center ">
<img alt="Rooftop solar panels." src="https://images.theconversation.com/files/490052/original/file-20221017-22-zp1w3z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/490052/original/file-20221017-22-zp1w3z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/490052/original/file-20221017-22-zp1w3z.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/490052/original/file-20221017-22-zp1w3z.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/490052/original/file-20221017-22-zp1w3z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/490052/original/file-20221017-22-zp1w3z.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/490052/original/file-20221017-22-zp1w3z.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Installing solar panels, and other energy efficiency measures, could lower household bills.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/solar-panels-on-generic-house-roof-1947161221">Tupungato/Shutterstock</a></span>
</figcaption>
</figure>
<p>We have now published these <a href="https://climatecitizens.org.uk/wp-content/uploads/2022/09/Lancaster-University.-2022.-Addressing-emission-from-owner-occupied-homes.pdf">findings</a> and the CCC has <a href="https://www.theccc.org.uk/publication/letter-homeowner-support-for-policies-to-decarbonise-uk-homes/">written</a> to Graham Stuart MP, the UK climate change minister, to inform him.</p>
<h2>The benefits of deliberation</h2>
<p>Getting policy experts to talk with members of the public seems to be an effective way to make climate policy. There have been efforts to try this before, most notably Climate Assembly UK, which asked ordinary people about their support for different climate policies. We went a step further by asking panellists to work with analysts to design a policy from scratch. </p>
<p>Our panel showed that giving people the opportunity to consider options and weigh up the evidence can result in workable solutions which chime with the views and life experience of the people most affected. Neglecting this perspective while designing policies can invite a backlash. Expecting people to make significant changes to their lives without adequate support could threaten the UK’s ability to meet its climate targets.</p>
<p>The standard tools of policy analysis, such as economic modelling and technical forecasting, are not obsolete. But they must be complemented by a more sophisticated understanding of how policies affect lives. Deliberative exercises like our panel, which include informed discussion, are quite different to other ways of taking the public’s temperature – like polls or surveys with a large sample size. </p>
<p>When it comes to complex problems and their solutions, many people lack stable or well-informed preferences about what they want to see happen. It is not the initial reaction to an idea captured through a poll that counts, but whether people actually support it once it is affecting their lives. </p>
<p>In Switzerland, where many policies are put to a referendum, <a href="https://econ-papers.upf.edu/papers/1334.pdf">research</a> has shown significant differences between what people say their preferences are in surveys and what they end up voting for. Deliberation offers people enough information and time to develop their understanding of how different policy solutions will affect them and those like them. </p>
<p>The same approach we used could be applied to designing low-carbon transport in cities and towns, or reforms to the food system that balance the need for sustainability with thriving rural economies. We would like to see a much wider use of deliberation by organisations developing and delivering climate policy, from government departments, to local and regional authorities, to thinktanks and civil society groups. </p>
<p>With ever-pressing emission reduction targets, every policy misstep costs precious time. Why would policy makers not want to ensure they get it right the first time around?</p><img src="https://counter.theconversation.com/content/191905/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jacob Ainscough receives funding from UK Research and Innovation (UKRI).</span></em></p><p class="fine-print"><em><span>Rebecca Willis receives funding from UK Research and Innovation (UKRI). She is a trustee of the New Economics Foundation.</span></em></p>Members of the public devised a raft of measures to make homes greener.Jacob Ainscough, Senior Research Associate in Environmental Governance, Lancaster UniversityRebecca Willis, Professor in Energy and Climate Governance, Lancaster Environment Centre, Lancaster UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1537142021-02-10T20:02:40Z2021-02-10T20:02:40ZWhy it matters that British Columbians buy earthquake insurance; Washingtonians don’t<figure><img src="https://images.theconversation.com/files/383412/original/file-20210209-21-1mfc33b.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C2048%2C1490&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Seattle earthquake damage is seen in 2001. </span> <span class="attribution"><span class="source">Seattle Municipal Archives.</span>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>The Pacific Northwest is a region that is both blessed with staggering natural beauty and cursed with <a href="https://www.newyorker.com/magazine/2015/07/20/the-really-big-one">extreme risk from powerful earthquakes</a>.</p>
<p>But even though Canadians and Americans living in the region share virtually the same risk from a major quake, the 49th parallel that demarcates the boundary between Canada and the United States also marks another line — more than 60 per cent of homeowners in the lower mainland of British Columbia purchase earthquake insurance protection for their homes and belongings, while less than 14 per cent of those in western Washington State do the same.</p>
<p>In insurance lingo, this means there is a “<a href="https://www.swissre.com/risk-knowledge/mitigating-climate-risk/natcat-2019.html">protection gap</a>” in both B.C. and in Washington State, though the gap appears to be more of a gaping chasm for Americans.</p>
<h2>What is the ‘protection gap?’</h2>
<p>As <a href="https://www.reinsurancene.ws/the-u-s-endured-a-record-22-billion-dollar-nat-cats-in-2020-noaa/">losses from natural hazards</a> are on an upward trajectory, both globally and <a href="https://www.theglobeandmail.com/business/article-insurers-see-hefty-payout-from-severe-weather-in-2020/">in Canada</a>, the protection gap has been a popular topic in the insurance industry in recent years. </p>
<p>This gap is defined as the portion of total losses generated by an event like a hurricane, flood or earthquake that is not covered by insurance. Globally in U.S. dollars, this gap came in at <a href="https://www.aon.com/global-weather-catastrophe-natural-disasters-costs-climate-change-2020-annual-report/index.html?utm_source=prnewswire&utm_medium=mediarelease&utm_campaign=natcat21">$171 billion in 2020 for all natural disasters</a>, as only $97 billion of the total $268 billion in damage was insured. </p>
<p>Over the past decade, only $102 billion of $535 billion in losses were covered by insurance for earthquakes alone.</p>
<p>This is problematic because, essentially, the bigger the gap, the greater the disaster-related costs that are borne out-of-pocket by society. <a href="https://www.munichre.com/topics-online/en/climate-change-and-natural-disasters/resilience/resilience-overcoming-natural-disasters.html#">According to research</a>, when more people buy insurance, society tends to be more resilient, prompting it to bounce back faster after a catastrophic loss than in places where fewer people buy purchase coverage. </p>
<figure class="align-center ">
<img alt="An earthquake simulator" src="https://images.theconversation.com/files/382790/original/file-20210205-13-j8epy9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/382790/original/file-20210205-13-j8epy9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=426&fit=crop&dpr=1 600w, https://images.theconversation.com/files/382790/original/file-20210205-13-j8epy9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=426&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/382790/original/file-20210205-13-j8epy9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=426&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/382790/original/file-20210205-13-j8epy9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=535&fit=crop&dpr=1 754w, https://images.theconversation.com/files/382790/original/file-20210205-13-j8epy9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=535&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/382790/original/file-20210205-13-j8epy9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=535&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">People experience what a earthquake would feel like as they stand inside a earthquake simulator in Vancouver in May 2015.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Jonathan Hayward</span></span>
</figcaption>
</figure>
<h2>The risk is there, so why not the coverage?</h2>
<p>Several theories exist as to why the number of people who buy earthquake insurance in earthquake-prone countries tends to be low considering the significant risk.</p>
<p>Our team (including <a href="https://twitter.com/stevebowenwx?lang=en">Steven Bowen</a>, head of catastrophic insight at Aon, a global professional services firm) looked at several potential influences on the decision to purchase earthquake insurance, including socioeconomic factors (such as age, education, income), perceptions of seismic risk and expectation of government bailouts via disaster assistance programs, as well as issues pertaining to the cost of the product and the <a href="https://content.naic.org/cipr_topics/topic_earthquake_insurance.htm">unattractiveness of the policy design</a>.</p>
<p><a href="https://content.naic.org/sites/default/files/inline-files/JIR-ZA-39-11-EL.pdf">Our work</a> finds very little difference in most of these factors in the U.S. and Canada, so these small differences don’t explain the significant variance in take-up rates in B.C. and Washington. </p>
<figure class="align-center ">
<img alt="Rubble is seen in front of a damaged building." src="https://images.theconversation.com/files/382815/original/file-20210205-14-1ifm6mi.jpg?ixlib=rb-1.1.0&rect=8%2C3%2C684%2C513&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/382815/original/file-20210205-14-1ifm6mi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/382815/original/file-20210205-14-1ifm6mi.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/382815/original/file-20210205-14-1ifm6mi.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/382815/original/file-20210205-14-1ifm6mi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/382815/original/file-20210205-14-1ifm6mi.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/382815/original/file-20210205-14-1ifm6mi.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Earthquake damage to Seattle’s Pioneer Square is seen after the 2001 Nisqually earthquake.</span>
<span class="attribution"><a class="source" href="http://archives.seattle.gov/digital-collections/index.php/Detail/objects/155035">Seattle Municipal Archives</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<p>The only significant difference found between the two locales is the broader availability of government disaster assistance in Washington over B.C. While there are numerous aid and grant programs to help uninsured or under-insured people in the U.S., the <a href="https://www2.gov.bc.ca/gov/content/safety/emergency-preparedness-response-recovery/emergency-response-and-recovery/disaster-financial-assistance">B.C. government has publicly stated</a> that it will not pay assistance for earthquake damage because of the availability of private insurance.</p>
<p>We believe this and issues centring around national culture are two main reasons why earthquake insurance take-up rates are so low in Washington. </p>
<p>The Canadian Constitution heralds Canada’s “peace, order and good government” while the U.S. Declaration of Independence emphasizes “life, liberty and the pursuit of happiness.” Because Americans tend to be individualistic and less likely to trust information provided by authorities, they are more likely to underestimate the potential risk. </p>
<p>This has resulted not only in low take-up rates for earthquake insurance in western Washington, but also in California, where roughly only <a href="https://www.npr.org/2019/07/09/739999709/why-only-13-of-california-homeowners-have-earthquake-insurance">10 per cent of households have proper coverage</a>. </p>
<figure class="align-center ">
<img alt="Visitors cross a highway with a large crack caused by an earthquake." src="https://images.theconversation.com/files/382798/original/file-20210205-14-1e23030.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/382798/original/file-20210205-14-1e23030.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/382798/original/file-20210205-14-1e23030.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/382798/original/file-20210205-14-1e23030.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/382798/original/file-20210205-14-1e23030.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/382798/original/file-20210205-14-1e23030.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/382798/original/file-20210205-14-1e23030.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Visitors cross a highway with a large crack caused by an earthquake in July 2019 near Ridgecrest, Calif.</span>
<span class="attribution"><span class="source">(AP Photo/Marcio Jose Sanchez)</span></span>
</figcaption>
</figure>
<h2>Narrowing the gap</h2>
<p>Given the worldwide increase in economic losses due to natural catastrophes, it’s essential to narrow the insurance protection gap. When losses are insured, people and institutions don’t need to pay for losses out of pocket. Reducing the protection gap reduces the burden on taxpayers and promotes societal resiliency.</p>
<p><a href="https://www.insblogs.com/natural-disasters/narrowing-gap-insured-economic-damage-natural-hazards/727">While the protection gap exists for many reasons</a>, potential solutions have been explored worldwide to reduce it. For example, mortgage lenders could require, or governments could mandate, the purchase of insurance. </p>
<p>Changes in product design could also motivate more homeowners to purchase earthquake insurance, <a href="https://www.soa.org/globalassets/assets/files/research/projects/2017-02-discussion-homeowners-insurance.pdf">from bundling all potential disasters into a basic insurance policy</a> to changing policy duration from the typical one year to multiple years and providing “<a href="https://knowledge.wharton.upenn.edu/article/dealing-with-natural-disasters-and-beyond/">insurance vouchers</a>” to high-risk but low-income households. </p>
<p>There may also be a role for governments to act as insurers, provide a liquidity or solvency backstop to insurers or offer coverage through property taxes.</p>
<p>Our findings go beyond the issue of earthquake risk and are relevant when considering the impact of climate change, because the phenomenon will increase in the face of extreme weather events around the world.</p>
<p>The increased risk will require both insurers and governments to take steps to ensure that adequate protection against catastrophic losses is in place.</p><img src="https://counter.theconversation.com/content/153714/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Glenn McGillivray works for the not-for-profit Institute for Catastrophic Loss Reduction (ICLR).</span></em></p><p class="fine-print"><em><span>Mary Kelly is a professor at Wilfrid Laurier University and a board member at Heartland Farm Mutual Insurance Company. She has, in the past, consulted with the Property and Casualty Insurance Compensation Corporation and the Insurance Bureau of Canada. </span></em></p>Even though Canadians and Americans living in the Pacific Northwest share the same earthquake risk, far more Canadians than American homeowners buy earthquake insurance. Why?Glenn McGillivray, Managing Director, Institute for Catastrophic Loss Reduction, Western UniversityMary Kelly, Chair in Insurance and Professor, Finance, Wilfrid Laurier UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1347352020-04-01T18:11:25Z2020-04-01T18:11:25ZCoronavirus pandemic is an opportunity to create affordable cities<figure><img src="https://images.theconversation.com/files/324370/original/file-20200331-65547-1tuhn0l.jpg?ixlib=rb-1.1.0&rect=40%2C56%2C5115%2C3290&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Rent strikers from Toronto's Parkdale neighbourhood and fellow protesters gather outside Social Justices Tribunal Ontario in February, 2018. The group refused to pay rent after the landlord applied for an increase in rents</span> <span class="attribution"><span class="source">THE CANADIAN PRESS/Chris Young</span></span></figcaption></figure><p>Every crisis shows cracks in the current system and points a glaring spotlight on the inequities that were overlooked before. As rents are due at the end of each month, Canada’s rising neighbourhood and income inequality is hard to ignore.</p>
<p>The COVID-19 pandemic has exacerbated these problems as cities become less affordable. Will the country continue the mistakes of previous decades, leading to even more unequal cities? Or will this crisis offer an opportunity to create truly <a href="http://dx.doi.org/10.1080/12265934.2013.834643">just cities?</a></p>
<p>Through the <a href="http://neighbourhoodchange.ca/">Neighbourhood Change Research Partnership</a>, academics, NGO advocates and municipal policymakers teamed up to document and analyze inequality, income polarization and poverty across seven Canadian cities. <a href="https://www.ubcpress.ca/changing-neighbourhoods">The team’s findings</a> show that as governments shifted from traditional welfare state supports to neoliberal policies, cities became increasingly unequal and segregated.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/324373/original/file-20200331-65522-1le4hwl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/324373/original/file-20200331-65522-1le4hwl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/324373/original/file-20200331-65522-1le4hwl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/324373/original/file-20200331-65522-1le4hwl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/324373/original/file-20200331-65522-1le4hwl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/324373/original/file-20200331-65522-1le4hwl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/324373/original/file-20200331-65522-1le4hwl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Prime Minister Justin Trudeau (right) stands with Jason Chen, development director at Toronto Community Housing, during a visit to a housing development in Toronto’s Lawrence Heights neighbourhood ahead of a policy announcement, on Nov. 22, 2017.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Chris Young</span></span>
</figcaption>
</figure>
<h2>Rising housing prices</h2>
<p>As the country transitioned to a service and knowledge economy during the 1980s and 1990s, it drew more Canadians to cities for work. At the same time, governments deregulated labour, land and financial markets, and promoted private housing construction — all while abandoning the building of social and rental housing. </p>
<p>Old warehouses and urban cores were gentrified during that period. Construction, real estate and finance became <a href="https://doi.org/10.1016/j.geoforum.2013.06.010">increasingly important</a> to the Canadian economy — especially for large Canadian cities.</p>
<p>After the <a href="https://www.theglobeandmail.com/report-on-business/the-2008-financial-crisis-through-the-eyes-of-some-major-players/article14322993/">global financial crisis</a> in the late 2000s, low interest rates and federal government guarantees for private mortgage lenders removed financial risk from banks and stimulated a <a href="https://doi.org/10.1111/j.1468-2427.2012.01184.x">real estate bubble</a> that increased consumer <a href="https://doi.org/10.1080/02723638.2013.778647">debt levels</a>. </p>
<p>Housing prices rose with these changes, and a greater share of new residential units became small condominiums or apartments. This was particularly the case in downtown neighbourhoods. Meanwhile, buyers in suburban areas continued to prefer detached houses that became more expensive and harder to afford.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1242923224855228416"}"></div></p>
<h2>Increasing inequality</h2>
<p>As a result, <a href="https://www.ubcpress.ca/asset/38254/1/9780774862042_Excerpt.pdf">income inequality across cities</a> increased. <a href="https://stats.oecd.org/glossary/detail.asp?ID=4842">Gini coefficients</a>, the gold standard for measuring inequality by social scientists, show this among individuals and among neighbourhoods between 1980 and 2015.</p>
<p>Inequality, however, is experienced differently across Canadian cities. Toronto saw increasing neighbourhood incomes in its urban core, and declining incomes in its aging inner suburbs that have been outflanked by growth in newly developed areas outside Toronto. Similar patterns were seen in Vancouver and Calgary. </p>
<p>In other cities, things are less extreme. Halifax, for instance, experienced <a href="http://perceptionsofchange.ca/Hotspotsofincomeinequality.pdf">hot spots of inequality</a>.</p>
<p>Across the seven cities studied by the Neighbourhood Change Research partnership, between 13 per cent and 32 per cent of neighbourhoods lost ground. That is, the incomes in those neighbourhoods decreased relative to the average income of a city’s neighbourhoods between 1980 and 2015. Winnipeg had the lowest share of neighbourhoods experiencing decline, while Calgary had the most. </p>
<p>Neighbourhoods losing ground tended to house racialized groups and immigrants in larger cities like Montréal, Toronto and Vancouver. Neighbourhood decline tended to occur in areas with urban Indigenous peoples in Winnipeg, refugees in Hamilton and seniors in Halifax.</p>
<h2>Social housing</h2>
<p>Government policies affect what is built in neighbourhoods and how income inequality is experienced across cities. Until the 1970s, federal programs supported the building of <a href="https://www.innovations.harvard.edu/sites/default/files/hpd_0401_dreier.pdf">affordable housing</a> in Canada, but a growing faith in the market to address housing needs undermined that commitment to affordability. By the 1990s, responsibility for social housing was transferred to the provinces. Many of them lacked the resources and the political commitment to invest in social housing. </p>
<p>The federal government instead encouraged building <a href="https://www.ubcpress.ca/changing-neighbourhoods">owner-occupied housing</a>. Provincial policies also pushed urban growth and increased pressures on local governments to allow developers to build luxury units. </p>
<p>By the 2010s, Canada transitioned from having some of the most affordable housing markets around the world to among the <a href="https://onlinelibrary.wiley.com/doi/pdf/10.1111/j.1468-2427.2012.01184.x">least affordable</a>. Many Canadians now find themselves shut out of living in the country’s largest cities.</p>
<p>Planning policies and regulations played a key role. As early as the 1970s, Toronto and Vancouver encouraged urban infill and densification in downtown areas that inadvertently stimulated gentrification. It is a trend followed by other cities. </p>
<p>Canadian planners increasingly promoted urban revitalization and regeneration, supported by planning philosophies associated with <a href="https://www.jstor.org/stable/43030662">new urbanism</a>, sustainability, social mix and smart growth — all of which contributed to income polarization across neighbourhoods. </p>
<p>In recent years, programs have been created to renew public housing as seen with <a href="https://www.theglobeandmail.com/real-estate/article-final-phases-of-regent-park-redevelopment-to-be-open-to-tender/">Toronto’s Regent Park</a>. These initiatives apply a mix of neoliberal and new-urbanist ideas to generate massive neighbourhood change. The effectiveness of this approach is yet to be seen.</p>
<h2>A future housing strategy</h2>
<p>In 2017, Canada announced a <a href="https://www.cmhc-schl.gc.ca/en/nhs">National Housing Strategy</a>. Since then, $55 billion spread over 10 years has been promised to pursue it. In the face of the COVID-19 outbreak, the federal government implemented new stimulus policies, including a new <a href="https://www.cmhc-schl.gc.ca/en/finance-and-investing/insured-mortgage-purchase-program">Insured Mortgage Purchase Program</a> that allows the federal government to buy up mortgages. </p>
<p>The stimulus money aims to ensure that the banks, lenders and construction companies remain profitable during the COVID-19 recession in the hopes that finance and real estate can continue to drive economic growth in the country. But this promotes additional risky lending to buyers of owner-occupied housing with the potential to further imbalance housing markets in Canadian cities, increasing debt levels and making rental housing even less affordable.</p>
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<iframe width="440" height="260" src="https://www.youtube.com/embed/bI3I1Fw7gvo?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Affordability was a key issue in the federal election for many Canadians who rent their home.</span></figcaption>
</figure>
<p>A better policy would be to immediately build social housing and affordable rental units. Governments should also continue pandemic-induced policies like limiting loopholes for <a href="https://www.cmhc-schl.gc.ca/en/rental-housing/covid-19-eviction-bans-and-suspensions-to-support-renters">eviction from commercial and private rental housing</a>. Otherwise, we will face a wave of “<a href="https://www.cbc.ca/news/canada/renovictions-housing-shortage-1.5400594">renovictions</a>” and rents will continue to be out of reach as entrepreneurs buy up properties in the economic recovery period of the outbreak.</p>
<p>Canada is ripe for implementing bold policies that build affordable housing to meet the diverse needs of its population. </p>
<p>Stimulus spending can have long-term impacts if it protects workers, allows tenants the right to remain in their units and invests in new public transit lines that make cities more sustainable. To fix inequality, we should also consider adopting a <a href="https://www.cbc.ca/news/opinion/opinion-universal-basic-income-1.5501938">universal basic income</a> and other redistributive policies. </p>
<p>We have a real chance at building socially just cities. Let’s not waste it.</p><img src="https://counter.theconversation.com/content/134735/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Howard Ramos receives funding from the Social Sciences and Humanities Research Council. </span></em></p><p class="fine-print"><em><span>Alan Walks receives funding from the Social Sciences and Humanities Research Council of Canada (SSHRC). He is affiliated with the University of Toronto, the Canadian Association of Geographers, the Associate Collegiate Schools of Planning, and the Urban Affairs Association.</span></em></p><p class="fine-print"><em><span>Jill L Grant receives funding from the Social Sciences and Humanities Research Council of Canada.</span></em></p>It’s time to reset Canada’s housing policies to make cities more affordable and more socially just places to live.Howard Ramos, Professor of Sociology, Dalhousie UniversityAlan Walks, Professor, Geography, University of TorontoJill L Grant, Professor Emeritus, School of Planning, Dalhousie UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1158302019-05-20T11:10:35Z2019-05-20T11:10:35ZHow millennials are affecting the price of your home<figure><img src="https://images.theconversation.com/files/272846/original/file-20190506-103045-pp5uj3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Millennials are less likely to own a home than previous generations were at the same age.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/sold-home-sale-real-estate-sign-168053771?src=MyyBDZW8tOfFl2Au5es9xg-1-2">Andy Dean Photography/shutterstock.com</a></span></figcaption></figure><p>It used to be that everyone wanted to buy a home, seeking pleasure and security, as well as the potential for future wealth. </p>
<p>But younger Americans are buying homes far less often than their elders’ generations did, and that puts a large sector of the U.S. economy at risk.</p>
<p><a href="https://www.urban.org/sites/default/files/publication/96221/homeownership_and_the_american_dream_0.pdf">Millennial home ownership levels</a> are dramatically lower than the those of previous generations at a similar age. In 1985, 45.5% of 25- to 34-year-olds owned homes in the U.S. By 2015, this had fallen about 25%.</p>
<p>Since the housing industry currently accounts for <a href="https://www.nahb.org/en/research/housing-economics/housings-economic-impact/housings-contribution-to-gross-domestic-product-gdp.aspx">15% to 18% of the nation’s gross domestic product</a>, any change in established behavior could have substantial consequences on the larger economy. </p>
<p><a href="https://scholar.google.com/citations?user=rBUYZnsAAAAJ&hl=en">Researchers like me</a> who are interested in the future of the U.S. economy are faced with some difficult questions about how millennials’ behavior is changing the housing market. </p>
<p>My recent research suggests that both increases and decreases in home prices can be directly tied to where millennials choose to live. If a long-term behavioral change is afoot, and this generation continues not to buy homes, it will very directly impact GDP. </p>
<h2>Homeownership</h2>
<p>Research has shown that younger generations <a href="https://www.stlouisfed.org/publications/regional-economist/second-quarter-2018/accounting-age-financial-health-millennials">lag behind</a> previous generations in terms of milestones like homeownership and marriage.</p>
<p>One of the assets that set previous generations apart is home equity. In 2001, Gen-Xers held an average of US$130,000 in assets, compared to millennials in 2016 that held almost 31% less. </p>
<p>However, assets attributed to home equity are subject to the whims of the housing market. Just ask anyone <a href="https://www.washingtonpost.com/business/economy/a-guide-to-the-financial-crisis--10-years-later/2018/09/10/114b76ba-af10-11e8-a20b-5f4f84429666_story.html">still underwater</a> on a home purchased before the financial crisis. </p>
<p>And home equity isn’t just vulnerable to large-scale economic upheavals. In fact, it’s constantly fluctuating. </p>
<h2>Age and cost</h2>
<p>I analyzed data from the U.S. Census Bureau and American Community Survey from about 800 of the most populous counties in the U.S., or about 85% of the population, in a study that has not yet been published. The data show a rather disconcerting trend.</p>
<p>If no one ever moved from one county to another, almost all counties would gradually grow older in terms of average age. </p>
<p>However, the migration of primarily younger individuals has caused an escalation in this aging shift. Some areas are aging much more quickly than expected. In those areas, home prices have been vulnerable to long-term declines. </p>
<p>In other words, the trend of rising or falling home values follows patterns of migration in the U.S. </p>
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<p>From 2010 to 2016, counties with aging populations were about 50% more likely to have experienced a decline in home values than those counties that were becoming “younger.” Not surprisingly, counties that were becoming younger were often experiencing increases in both populations and in the prices of homes.</p>
<p>Two areas that provide an illustration of this are key to the oil and gas industry: the Midland-Odessa area of Texas and Ward County, North Dakota. Both areas have experienced not only a net decrease in the age of residents, but also a net increase in population. </p>
<p>This is far from a rural phenomenon. In Allegheny County, the Pennsylvania county that’s home to Pittsburgh, a similar increase in population has also decreased the average age of its residents.</p>
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<h2>The cost of a home</h2>
<p>Millennials’ migration to particular counties has fueled <a href="https://www.corelogic.com/downloadable-docs/marketpulse/the-marketpulse-vol-8-issue-4-april-2019-screen-041719.pdf">speculative real estate transactions</a>. </p>
<p>In 2018, such transactions are reaching levels just below the pre-crisis highs, accounting for almost 11% of all homes sold last year. The prices are inflated by buyers looking to “flip” houses. This forces younger buyers to compete with the professionals, pushing them out of the markets they are migrating to.</p>
<p>Younger buyers are further frustrated by the cost of what economists refer to as frictions. Frictions include <a href="https://www.realtrends.com/wp-content/uploads/2018/06/RT_0618News.pdf">commissions that average 5% to 6%</a> of the purchase price, myriad inspection and appraisal fees, as well as mortgage and title insurance. All of this runs counter to the transparency and ease of access many millennials have become used to in the modern world.</p>
<p>Since the younger generation is <a href="https://www.urban.org/sites/default/files/publication/96221/homeownership_and_the_american_dream_0.pdf">better educated</a>, one might expect significant wage increases to counter some of these frictions. But recent graduates between the ages of 22 and 27 <a href="https://www.newyorkfed.org/research/college-labor-market/college-labor-market_wages.html">earn about 2% less</a> than their predecessors did in 1990. </p>
<p>If <a href="https://www.multpl.com/case-shiller-home-price-index-inflation-adjusted">home prices</a> had also stayed relatively flat, this likely wouldn’t be an issue. However, from 2000 to the present, average home prices have increased by about 3.8% annually, though this varies dramatically from county to county.</p>
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<p>As urban areas continue to attract more new residents, many young people may need to reassess the true value that home ownership offers. Meanwhile, older generations are likely just becoming aware of the impact of millennial migration on the American dream. If you live in an area that is aging faster than the natural rate, the probability of your home value decreasing is very real.</p><img src="https://counter.theconversation.com/content/115830/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jimmie Lenz receives funding from Manhattan Institute.</span></em></p>As millennials flock to certain parts of the US, home prices in those areas are surging.Jimmie Lenz, Clinical Assistant Professor of Finance, University of South CarolinaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1144772019-04-08T10:19:57Z2019-04-08T10:19:57ZWhite British homeowners more likely to move out if Pakistanis buy houses nearby<figure><img src="https://images.theconversation.com/files/267142/original/file-20190402-177167-8ft1py.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/gee01/9974208744/sizes/l">_gee_/flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>Few of us make a bigger financial decision than buying a house. Where we live and choose to bring up our children is something that implies emotional commitment and investment. So house moves can be a powerful way to reveal what people really think and value – including about their neighbours.</p>
<p><a href="http://eprints.whiterose.ac.uk/130437/">Previous research</a> on the UK has tended not to find evidence of “white flight” – a term borrowed from mid-20th century North America, where the large migration of people of colour from the rural south to metropolitan areas resulted in white households leaving inner cities for the suburbs. </p>
<p>While there has so far been limited evidence of white flight in modern Britain, there have been some shortcomings with the previous studies that have looked into it. One of the problems is that the areas studied have been too large to detect what impact people’s immediate neighbours have on their decisions to move house.</p>
<p>In <a href="http://eprints.whiterose.ac.uk/139611/">recent research</a> that I published with my colleague Sue Easton, we wanted to take a closer look at what was happening when people with ethnic minority names moved next door or very close to homeowners with white British names. While you might be oblivious to who moves into a house a street or two away, you’re likely to be very conscious, and much more concerned about, who moves in next door. It’s at this level that our true conviviality or prejudices are revealed. </p>
<h2>What’s in a name?</h2>
<p>In our study, we used property registration data for the 40% most deprived census areas of Glasgow in Scotland. We created a longitudinal dataset – one that follows individual homeowners over time – constructed from the population of homebuyers recorded in all property transaction records from 2003 to 2014.</p>
<p>Crucially for our purposes, the property registration data we used recorded the names of both buyers and sellers in each house transaction. How people respond to particular sorts of names can reveal certain prejudices. <a href="http://www.tariqmodood.com/uploads/1/2/3/9/12392325/racism_muslims_and_the_national_imagination.pdf">One 2009 study</a> based on in-depth interviews with “white” and “non-white” participants in Glasgow, for example, found that white residents responded with racialised or prejudiced attitudes when faced with the hypothetical scenario that a person with a stereotypically Muslim name was thinking of moving into the house next door. Respondents associated such names with Islamic terrorism and with stereotypes of Asian neighbours being loud, inconsiderate, and living in overcrowded conditions.</p>
<p>Analysis of particular name groups has become a lot more feasible as a result of the <a href="https://www.ncbi.nlm.nih.gov/pubmed/21907365">growing literature</a> on combining forenames and surnames to impute ethnicity. And now sophisticated software is being designed to do this too, such as the <a href="http://www.onomap.org/">Onomap software</a> which can assign ethnicity to names in a large dataset based on <a href="https://www.springer.com/gp/book/9783642454127">linguistic and cultural analysis</a>. </p>
<p>We used Onomap in our study to categorise the names of the house buyers in the millions of transactions in our dataset. Doing this allowed us to monitor whether the likelihood of somebody moving house is associated with buyers with particular ethnic name groups purchasing houses in the immediate neighbourhood. </p>
<p>Our results suggest that, on average, the length of stay of homeowners with white British names is significantly reduced if house buyers with Pakistani or other Muslim names move within 50 metres. For example, for every household moving in with a “non-white other” name, primarily Muslim in origin, the average length of stay of existing homeowners with white British names halved. We also found evidence, however, that the effect diminished somewhat as the number of those moving in with Pakistani or Muslim names increased. </p>
<p>In our statistical analysis, we were careful to control for the housing market conditions in the neighbourhoods. We did this by including the monthly change in mean property price in the surrounding area. So the effect we found is unlikely to be explained by fluctuations in local demand. Nevertheless, we can’t say for sure that those homeowners with white British names who chose to move did so because of anti-Pakistani or anti-Muslim sentiment. Our study was observational, and we didn’t interview people about the choices they’d made. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/267151/original/file-20190402-177184-1y09elv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/267151/original/file-20190402-177184-1y09elv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=404&fit=crop&dpr=1 600w, https://images.theconversation.com/files/267151/original/file-20190402-177184-1y09elv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=404&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/267151/original/file-20190402-177184-1y09elv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=404&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/267151/original/file-20190402-177184-1y09elv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=507&fit=crop&dpr=1 754w, https://images.theconversation.com/files/267151/original/file-20190402-177184-1y09elv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=507&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/267151/original/file-20190402-177184-1y09elv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=507&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Who is moving in next door?</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/download/confirm/710705557?size=medium_jpg">Tana888/Shutterstock</a></span>
</figcaption>
</figure>
<h2>Neighbourhood churn</h2>
<p>It’s also worth bearing in mind that the effect is very likely to be partly driven by “neighbourhood churn”. When people move into your neighbourhood, it usually means others are moving out. If you’ve built up strong friendships with your neighbours, when any of them move, you might feel less tied to the neighbourhood. So even when newcomers have white-British names, we found that the chances of existing homeowners with white-British names moving out increased. Still, this didn’t happen as much as when the people moving in had Pakistani or other “non-white” (primarily Muslim) names. </p>
<p>Another possible explanation is that some of the buyers with Pakistani and Muslim names are landlords, rather than owner occupiers. We know, for example, that the length of stay for homeowners is <a href="https://www.jrf.org.uk/sites/default/files/jrf/migrated/files/rented-accommodation-private-sector-full.pdf">more than seven times that of renters</a>, meaning they have a higher turnover of residents. If homeowners are averse to living near rental properties because of this impact on neighbourhood churn, they may be more likely to move out when a neighbouring house is purchased by a landlord. Although we couldn’t guarantee that we’d remove all landlord purchases from our analysis, we did go to considerable lengths to exclude them. </p>
<p>One alternative explanation of “white flight” is that white owners are moving out in order to move up the housing market. But this doesn’t explain why we found white British homeowners were more likely to move when the people buying nearby have Pakistani or Muslim names rather than white-British names.</p>
<p>Another explanation is that those moving out are doing so not because of the name or ethnicity of the new house buyers, but because those moving in are from a lower social class. To address this, we controlled for the deprivation level in the neighbourhood and the property price at the time of purchase. The more expensive the house, the more affluent the buyer needs to be in order to purchase the property. So it’s unlikely that house buyers with Pakistani names were significantly poorer or wealthier than existing residents. </p>
<p>This left us with the uncomfortable possibility that some homeowners with white British names were more likely to relocate if homeowners with Pakistani and Muslim names moved in within 50 metres. </p>
<p>In comparison to the white flight of 1950s America, the effect is probably pretty small and much more localised. But it nevertheless suggests house moves in Glasgow may be partly driven by latent aversion to having neighbours with Pakistani or Muslim names.</p><img src="https://counter.theconversation.com/content/114477/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gwilym Pryce currently receives funding from the UK Economic and Social Research Council (ESRC). This research was funded by the ESRC Understanding Inequalities project (Grant Reference ES/P009301/1) and the ESRC AQMeN Research Centre (Grant Reference ES/K006460/1).
.</span></em></p>A new study in Glasgow suggests latent anti-Pakistani sentiment may affect the house-moving decisions of white British homeowners.Gwilym Pryce, Professor of Urban Economics and Social Statistics and Co-Director of the CDT in Data Analytics & Society, University of SheffieldLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1103342019-01-28T12:29:00Z2019-01-28T12:29:00ZHow renting could affect your health<figure><img src="https://images.theconversation.com/files/255363/original/file-20190124-135151-1u819lm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/house-key-on-yellow-background-minimal-1014728863?src=10WOo7YZCl4xbwljjLEKgg-1-2">Nednapa/Shutterstock.com</a></span></figcaption></figure><p>Our homes play a number of vital roles in our lives. They are where we rest, spend time with friends and family, and can be most ourselves. Given this central role it is not surprising that researchers have found a number of important relationships between the homes we live in and our health. </p>
<p>A lot of this evidence uses subjective measures, where people are asked in surveys to rate their health, usually on a scale from poor to excellent. Our <a href="https://jech.bmj.com/content/early/2019/01/05/jech-2018-211431">recent paper</a> added to this evidence by exploring the association between housing and health using an objective <a href="https://www.understandingsociety.ac.uk/documentation/health-assessment">indicator</a>: C-reactive protein (CRP) level. CRP is a marker found in the blood that is associated with infection and stress, and at high levels with increased risk of cardiovascular disease. </p>
<p>We found that private renters have higher levels of CRP, indicating worse health, than owner occupiers. People who lived in detached houses had lower CRP compared to people living in other types of housing, such as flats or semi-detached homes. Surprisingly, we found that people paying high proportions of their income on housing costs had lower CRP levels, although only if they were renting. These findings have important implications for current housing debates, particularly in England.</p>
<h2>Home quality</h2>
<p>The poorer health of private renters in our study may reflect the average <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/705821/2016-17_EHS_Headline_Report.pdf">lower</a> quality of homes in the sector. Private rented homes, for example, are more likely to have damp than social rented or owner occupied homes, and less likely to have central heating. </p>
<p>Efforts to improve home quality in UK rented sectors have tended to <a href="https://fullfact.org/economy/did-mps-vote-against-homes-having-be-made-fit-live-in/">struggle</a> in parliament, raising questions about conflict of interest for MPs who are <a href="https://www.independent.co.uk/news/uk/politics/tories-vote-down-law-requiring-landlords-make-their-homes-fit-for-human-habitation-a6809691.html">also landlords</a>. Despite this, from March this year UK landlords <a href="https://services.parliament.uk/bills/2017-19/homesfitnessforhumanhabitation.html">will be required</a> to maintain the condition of their properties throughout the tenancy to a habitable standard, with new routes of <a href="https://www.insidehousing.co.uk/news/news/bill-giving-tenants-power-to-take-action-against-landlords-becomes-law-59593">redress</a> for tenants where these standards are not met. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/255366/original/file-20190124-135154-11wc6a8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/255366/original/file-20190124-135154-11wc6a8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/255366/original/file-20190124-135154-11wc6a8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/255366/original/file-20190124-135154-11wc6a8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/255366/original/file-20190124-135154-11wc6a8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/255366/original/file-20190124-135154-11wc6a8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/255366/original/file-20190124-135154-11wc6a8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Privately rented homes are more likely to be damp than owned or social housing homes.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/mold-corner-window-516787591?src=T7x60f76Ww-LFYMM9AJ_rA-1-19">Burdun Iliya/Shutterstock.com</a></span>
</figcaption>
</figure>
<p>That our analysis did not find a similarly negative health association for tenants in social housing, where a statutory minimum standard for housing (the <a href="https://england.shelter.org.uk/housing_advice/repairs/what_counts_as_a_decent_home">Decent Homes Standard</a>) is already in place, suggests that these new protections may improve the health of private tenants.</p>
<h2>Affordability</h2>
<p>We also found that paying high proportions of income on housing costs was positively associated with renters’ health. This was a surprising finding given the substantial evidence linking more <a href="https://academic.oup.com/aje/article/184/6/421/2576058">affordable</a> <a href="https://academic.oup.com/eurpub/article/26/5/788/2197597">housing</a> with better <a href="https://academic.oup.com/aje/article/174/7/753/115870">health</a>, but likely further emphasises a link with housing quality. </p>
<p>Renters seem to have to place themselves under financial strain to access decent quality housing and avoid the negative health impacts of poor housing. This finding supports efforts to improve housing affordability, challenging the move from social to more <a href="https://www.z2k.org/about-us/latest/an-end-to-affordable-rents/">expensive</a> “<a href="https://blog.shelter.org.uk/2015/08/what-is-affordable-housing/">affordable</a> <a href="http://researchbriefings.files.parliament.uk/documents/CBP-7747/CBP-7747.pdf">rent</a>” <a href="https://www.insidehousing.co.uk/comment/comment/lets-stop-converting-social-rented-homes-to-affordable-rent-54922">homes</a>, and <a href="https://academic.oup.com/aje/article/184/6/421/2576058">reductions</a> to <a href="https://academic.oup.com/jpubhealth/article/38/2/197/1752995">housing benefit</a>.</p>
<h2>Social housing</h2>
<p>In support of this, the charity <a href="https://england.shelter.org.uk/support_us/campaigns/a_vision_for_social_housing">Shelter</a> recently argued for significantly more social housing to be built. Although expensive, at £10.7 billion per year, the savings from reduced housing benefit expenditure (currently costing the UK government around £21 billion per year) and increased productivity mean the building of 3.1m homes is estimated to pay for itself within 40 years. </p>
<p>Our results suggest further potential savings due to improved health. Additionally, increased building could tackle the significant lack of housing suitable for <a href="https://www.equalityhumanrights.com/sites/default/files/housing-and-disabled-people-britains-hidden-crisis-main-report_0.pdf">disabled people</a>, with implications for health, well-being and employment. </p>
<p>Of course, as the <a href="https://theconversation.com/uk/topics/grenfell-tower-39675">Grenfell fire</a> starkly demonstrated, social housing is not without its flaws, but the regulation and enforcement suggested in the report, alongside improvements due to the Homes (Fitness for Human Habitation) Act, should make significant improvements.</p>
<h2>Right to buy</h2>
<p>Meanwhile, a <a href="https://tomcopley.com/wp-content/uploads/2014/01/Tom-Copley-AM-Right-to-Buy-Wrong-for-London-report-January-2019.pdf">recent report</a> found that over 40% of homes in London sold through the <a href="https://righttobuy.gov.uk/">Right to Buy</a> scheme are now in the private rented sector. This level is similar to <a href="https://publications.parliament.uk/pa/cm201516/cmselect/cmcomloc/370/370.pdf">previous findings</a>. </p>
<p>As well as the important implications for social housing stock and government spending, our results indicate that this shift may well be having a significant impact on health, and provides additional support for <a href="https://labour.org.uk/press/communities-losing-conservatives-right-buy-john-healey/">calls</a> to <a href="http://www.cih.org/resources/PDF/Policy%20free%20download%20pdfs/Final%20Rethinking%20social%20housing%20report.pdf">suspend</a> or <a href="https://theconversation.com/renting-rights-what-england-can-learn-from-fairer-systems-around-the-world-103779">end</a> Right to Buy in England, rather than <a href="http://researchbriefings.files.parliament.uk/documents/CBP-7224/CBP-7224.pdf">extend</a> it, as the government currently plans (Right to Buy has already been suspended in Scotland and Wales).</p>
<h2>Security</h2>
<p>Housing quality is not the only way in which which housing affects health. The poorer health associated with private renting and better health associated with detached homes points to previous evidence linking housing security, <a href="https://www.tandfonline.com/doi/abs/10.1080/14036090120617">autonomy</a>, and <a href="https://www.tandfonline.com/doi/abs/10.1080/02673037.2011.559724">control</a> with health. </p>
<p>Tenants in the private rented sector are typically living in homes with tenancies of only six to 12 months, and can be evicted without having done anything wrong (“Section 21” evictions), undermining their sense of security and control. Section 21 evictions are sometimes used for “<a href="https://www.citizensadvice.org.uk/about-us/how-citizens-advice-works/media/press-releases/complain-and-youre-out-research-confirms-link-between-tenant-complaints-and-revenge-eviction/">revenge evictions</a>”, leading to tenants living in substandard homes <a href="https://theconversation.com/private-tenants-are-putting-up-with-dangerously-cold-homes-scared-of-eviction-if-they-complain-72438">scared</a> to ask for improvements. Given these conditions, it is unsurprising that private renters are less likely to feel that where they live is their <a href="https://england.shelter.org.uk/support_us/campaigns/a_vision_for_social_housing">home</a>.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/255367/original/file-20190124-135163-h3g2u2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/255367/original/file-20190124-135163-h3g2u2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=417&fit=crop&dpr=1 600w, https://images.theconversation.com/files/255367/original/file-20190124-135163-h3g2u2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=417&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/255367/original/file-20190124-135163-h3g2u2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=417&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/255367/original/file-20190124-135163-h3g2u2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=524&fit=crop&dpr=1 754w, https://images.theconversation.com/files/255367/original/file-20190124-135163-h3g2u2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=524&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/255367/original/file-20190124-135163-h3g2u2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=524&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Surprise!</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/old-vacant-house-eviction-notice-on-387715486?src=54WLtEWO_Pu1J5Smt45Ltw-1-3">Zimmytws/Shutterstock.com</a></span>
</figcaption>
</figure>
<p>Section 21 evictions are now the <a href="https://www.nao.org.uk/wp-content/uploads/2017/09/Homelessness.pdf">most common</a> reason cited by households seeking homelessness assistance in England. Private renters can end up moving so often that some have suggested that they have been forced to become <a href="https://journals.sagepub.com/doi/10.5153/sro.3491">nomadic</a>. Ending Section 21 evictions would improve private renters’ sense of security and control – and potentially health. </p>
<p>Similarly, organisations such as Shelter have <a href="https://england.shelter.org.uk/support_us/campaigns/longer_tenancies">campaigned</a> for a switch to landlords providing longer tenancies as standard as one way to improve security for private renters. This idea appears to be gaining some ground: the UK government <a href="https://www.gov.uk/government/consultations/overcoming-the-barriers-to-longer-tenancies-in-the-private-rented-sector">consulted</a> on introducing three-year tenancies last year. </p>
<p>Together our findings, alongside those from previous research, highlight the importance of thinking about housing policy holistically. Policy should recognise the diverse and important roles housing plays in people’s lives, and prioritise its function as home, rather than asset.</p><img src="https://counter.theconversation.com/content/110334/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Amy Clair is supported by funding from the Economic and Social Research Council (grant number ES/L009153/1). The data used in our analysis covered Great Britain in 2010-12. Since this time, a number of changes have been made to housing policies by the devolved governments of Wales and Scotland, for instance ending Right to Buy and, in Scotland, introducing new tenancies that do not permit no fault evictions unless certain grounds are met. For this reason our discussion here is primarily focused on England.</span></em></p><p class="fine-print"><em><span>Amanda Hughes does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Housing policy needs to prioritise housing’s function as a home, rather than an asset.Amy Clair, Research Fellow in Social Policy, University of EssexAmanda Hughes, Senior Research Associate in Epidemiology, University of BristolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1030582018-09-12T18:46:34Z2018-09-12T18:46:34ZWhat is flood insurance and why the system is broken: 6 questions answered<figure><img src="https://images.theconversation.com/files/236092/original/file-20180912-133877-1n9qad0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">High tides, whipped in by Hurricane Hazel in 1954, shattered boats and buildings in Swansboro, N.C.</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Tropical-Storms-Carolinas/b64046ffe46546e58ce4a10b2021697e/1/0">AP Photo, File</a></span></figcaption></figure><p><em>Editor’s note: Homeowners generally rely on insurance provided by the federal government to cover the costs of rebuilding their lives after a flood. We asked an insurance expert to explain the government program and its challenges.</em></p>
<h2>1. What is flood insurance?</h2>
<p>Homeowners’ insurance does not cover damage to a home caused by flooding. A homeowner must have a separate policy to cover flood-related losses, defined as water traveling along or under the ground.</p>
<p>Most such policies are underwritten by the <a href="https://www.fema.gov/national-flood-insurance-program">National Flood Insurance Program</a>, which is part of the Federal Emergency Management Agency. The program was established in 1968 to address the lack of availability of flood insurance in the private market and reduce demand for federal disaster assistance. It also contains <a href="https://www.fema.gov/floodplain-management-requirements">provisions</a> intended to reduce flood risk.</p>
<p>The National Flood Insurance Program’s activities are funded largely by the premiums and fees paid by its policyholders, supplemented by a little from the federal budget to help pay for flood risk mapping. Because the program serves the public interest, <a href="https://morningconsult.com/opinions/save-national-flood-insurance-investing-nature/">some</a> believe that more of its funding for flood risk management should be borne by taxpayers. </p>
<p>Homeowners can purchase a federal flood policy directly from the program or through a private insurer. Separately, some private insurers sell their own flood policies on a limited basis for properties that are overcharged by the government’s program.</p>
<h2>2. How many homeowners have flood insurance?</h2>
<p>It is difficult to determine exactly how many homeowners have flood insurance. </p>
<p>The National Flood Insurance Program <a href="https://www.fema.gov/policy-claim-statistics-flood-insurance">had just over 5 million policies in force</a> as of May 31. Of these policies, approximately 69 percent were on single-family homes and 21 percent on condo units. There is no source on how many private flood policies are in force, but my sense is that it is comparatively small.</p>
<p>In recent years, the number of such policies has been dropping across the country over concerns about the cost and an underestimation of the risks. Some of the counties hardest hit by Hurricane Harvey in 2017, for example, such as Harris (which includes Houston), <a href="http://abcnews.go.com/Politics/wireStory/flood-policies-plunge-houston-years-harvey-49513946">have experienced significant declines</a>. </p>
<p>A more revealing – and <a href="https://bsa.nfipstat.fema.gov/reports/1011.htm">more difficult to ascertain</a> – stat is the share of homeowners in a disaster area who actually have flood insurance. In Harris County, for example, <a href="http://abcnews.go.com/US/consumer-flood-insurance-wake-hurricane-harvey/story?id=49535161">experts estimate</a> that only about 15 percent of homeowners were insured for floods – though the percentage is likely higher in areas near coastlines.</p>
<p>Real estate data company <a href="https://www.corelogic.com/news/wildfires-and-hurricane-related-floods-were-most-destructive-natural-hazards-in-2017.aspx">CoreLogic</a> estimated that approximately 75 percent of flood losses from Harvey were uninsured, a figure that rises to about 80 percent for Hurricane Irma.</p>
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<h2>3. Why do people at great risk forgo insurance?</h2>
<p>A <a href="https://riskcenter.wharton.upenn.edu/publications/">number of factors</a> affect a homeowner’s decision to buy flood insurance – or not. </p>
<p>People who perceive that their exposure to floods is high are more likely to buy it, all other things equal. While a <a href="https://www.fema.gov/faq-details/Mandatory-Purchase-of-NFIP-Coverage/">mandatory purchase requirement</a> is intended to force owners of mortgaged homes in areas at high risk of flooding to buy insurance, <a href="https://www.bloomberg.com/news/articles/2017-09-13/hurricanes-highlight-failure-to-enforce-flood-insurance-rules">it’s estimated</a> that only about half of them do. </p>
<p>One reason might be that 43 percent of homeowners <a href="http://www.iii.org/sites/default/files/docs/pdf/pulse-wp-020217-final.pdf">incorrectly believe</a> that their homeowners’ insurance covers them for flood losses.</p>
<p>Other factors also come into play, such as a lack of information, the difficulty of calculating flood risk and the expectation that the government will provide disaster assistance that will fully cover a homeowner’s uninsured flood losses – which is in fact <a href="https://www.nytimes.com/2017/08/30/business/harvey-aid-sba-disaster-loans.html?mcubz=1&_r=0">rarely the case</a>.</p>
<h2>4. What does flood insurance cover?</h2>
<p>With a <a href="https://www.fema.gov/media-library-data/20130726-1620-20490-4648/f_679_summaryofcoverage_11_2012.pdf">National Flood Insurance Program policy</a>, a homeowner can purchase coverage on a dwelling up to US$250,000 and the contents of a home up to $100,000. It does not cover costs associated with “loss of use” of a home. </p>
<p>These limits have been in effect since 1994 and are no longer high enough to account for the increase in the replacement cost of homes and the actual cash value of their contents. As a result, some homeowners buy additional flood protection from private insurers to make up any shortfall. </p>
<h2>5. Why is the federal program underwater?</h2>
<p>The National Flood Insurance Program <a href="http://www.gao.gov/assets/690/684354.pdf">has faced considerable criticism</a> over its underwriting and pricing of policies, which have resulted in a substantial debt. Essentially, its premiums are not high enough to cover how much it pays out on claims and its other costs. </p>
<p>Part of the problem is that <a href="https://www.fema.gov/media-library-data/1382115115666-0fba8b9a68fef69d546513c6da105bbe/BW12_AgentWhat_to_Know_Say_Sect205_Sept2013.pdf">about 20 percent of the properties</a> the program insures pay a subsidized rate. But many other National Flood Insurance Program policyholders are also paying premiums <a href="http://www.foxbusiness.com/politics/2017/08/29/key-flood-insurance-underwriter-sinks-further-into-debt-as-harvey-slams-texas.html">substantially less</a> than what it costs to insure them because the rates do not adequately account for the catastrophic losses incurred during years when more major storms than normal strike, such as Katrina and Rita in 2005 and Sandy in 2012. </p>
<p>To show how much single storms can cost, the National Flood Insurance Program <a href="https://www.fema.gov/significant-flood-events">paid out $8.7 billion</a> to cover Harvey-related flood losses, $16.3 billion for Katrina and $8.8 billion for Sandy. </p>
<p>These inadequate rates also exacerbate the <a href="http://blogs.colgate.edu/economics/files/2014/09/McGee-2014-Moral-Hazard-and-the-National-Flood-Insurance-Program.pdf">moral hazard created by flood insurance</a>. People are more likely to buy, build or rebuild homes in flood-prone areas and have diminished incentives to invest in flood risk mitigation, such as by elevating their home, if they can buy insurance at below-cost rates. </p>
<p>Although Congress <a href="https://www.businessinsurance.com/article/20171027/NEWS06/912316843/Trump-signs-disaster-relief-bill-forgiving-16-billion-dollars-NFIP-debt">forgave</a> $16 billion in debt last year, the National Flood Insurance Program still owed <a href="https://www.treasury.gov/initiatives/fio/Documents/FACIFebruary2018_FEMA.pdf">$20.5 billion</a> to the U.S. Treasury as of February. </p>
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<p>Hurricane Florence and other storms that may follow will substantially increase this debt – and may require more forgiveness.</p>
<h2>6. What can be done to fix the program?</h2>
<p>Legislative efforts to reform the National Flood Insurance Program to put it on firmer fiscal footing have produced mixed results. </p>
<p>The <a href="https://www.fema.gov/media-library/assets/documents/31946">Biggert-Waters Act of 2012</a> made a number of changes to the program, such as increasing premiums, to make it “<a href="https://www.fema.gov/media-library-data/20130726-1912-25045-9380/bw12_qa_04_2013.pdf">more financially stable</a>.” While that would have gone a long way to restore its fiscal solvency, an outcry from homeowners in high-risk areas led to the 2014 <a href="https://www.fema.gov/media-library/collections/414">Homeowners Flood Insurance Affordability Act</a>, which limited or rescinded many of the Biggert-Waters rate increases. </p>
<p>Currently, there is a <a href="https://www.congress.gov/bill/115th-congress/house-bill/2874/text">bill</a> in Congress that would fix some but not all of the problems with the program, such as by making it easier for private companies to sell their own policies and tightening the rules for properties that suffer repetitive losses.</p>
<p>But its prospects are dim to opposition from legislators concerned about some of its changes, particularly its rate increases and the repetitive loss provision.</p>
<p>Fundamentally, the program millions of Americans rely on to help them rebuild their lives after a devastating flood <a href="http://www.rff.org/research/collection/reforming-national-flood-insurance-program">needs to be fixed</a>. Its dire financial straits could be resolved by either making taxpayers foot more of the bill or increasing premiums closer to full-cost rates for most homeowners, while also raising total coverage levels.</p>
<p>At the same time, I believe the government needs to do more to convince or compel more at-risk homeowners to buy flood insurance – which would be harder to do if it were to raise rates. To me, this suggests that increasing taxpayer support for the the program will have to be part of the solution so that pricey premiums don’t become a deterrent to someone buying insurance. </p>
<p><em>This is an updated version of an <a href="https://theconversation.com/how-flood-insurance-works-6-questions-answered-83187">article</a> originally published on Sept. 7, 2017</em></p><img src="https://counter.theconversation.com/content/103058/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Robert W. Klein does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>As Hurricane Florence is expected to pound the Carolinas with significant flooding, an insurance expert explains how the program designed to help the millions affected recover.Robert W. Klein, Director, Center for RMI Research, Associate Professor, Risk Management and Insurance, Georgia State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1002962018-07-27T10:43:51Z2018-07-27T10:43:51ZApartments rarely come with access to charging stations. But electric vehicles need them<figure><img src="https://images.theconversation.com/files/229478/original/file-20180726-106496-1tlnlkq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Most garages can double as EV charging stations.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/man-charging-electric-car-outlet-home-1092177395">Shutterstock.com/riopatuca</a></span></figcaption></figure><p>Americans have now purchased more than <a href="https://insideevs.com/monthly-plug-in-sales-scorecard/">800,000 electric vehicles</a>, counting both plug-in hybrids and all-electric models. That may sound like a lot of EVs, and it is a <a href="https://insideevs.com/monthly-plug-in-sales-scorecard/">big jump from the less than 5,000</a> that were on the road in 2010. But this is still <a href="https://www.fhwa.dot.gov/policyinformation/statistics/2010/mv1.cfm">less than 1 percent of all U.S. registered vehicles</a>, despite the recent availability of <a href="https://theconversation.com/range-anxiety-todays-electric-cars-can-cover-vast-majority-of-daily-u-s-driving-needs-63909">longer-range, more affordable</a> EV models like the <a href="https://www.motortrend.com/news/chevrolet-bolt-ev-2017-car-of-the-year/">Chevrolet Bolt</a>. </p>
<p>Policymakers nonetheless see EVs as having great potential to <a href="https://about.bnef.com/electric-vehicle-outlook/">reduce carbon dioxide emissions</a> and other forms of pollution, and are supporting tax credits and other policies to encourage people to buy EVs. California, for example, aims to have <a href="https://www.gov.ca.gov/2018/01/26/governor-brown-takes-action-to-increase-zero-emission-vehicles-fund-new-climate-investments/">5 million of them</a> on its roads by 2030.</p>
<p>But to meet ambitious goals like that, EVs will need to stop being a niche product and appeal to as many drivers as possible.</p>
<p>I am an <a href="https://scholar.google.com/citations?user=4YjEZY4AAAAJ&hl=en&oi=ao">energy economist</a> working on transportation policy, and I’ve looked at newly available data to try to understand why people purchase EVs. It turns out that renting a home may be one of the biggest barriers. </p>
<h2>A striking difference</h2>
<p>New <a href="https://nhts.ornl.gov/">federal data</a> show that homeowners are more than three times more likely than renters to own an EV. And since <a href="http://www.pewtrusts.org/en/research-and-analysis/reports/2018/04/american-families-face-a-growing-rent-burden#0-overview">43 million</a> U.S. households – 37 percent of all households – rent their homes, it is worth thinking hard about why this gap exists. </p>
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<p>By analyzing the Transportation Department’s newly released 2017 <a href="https://nhts.ornl.gov/">National Household Travel Survey</a> data, I found striking differences in EV ownership between homeowners and renters. In California, homeowners are three times more likely to own an EV than renters.</p>
<p>The gap is even wider for the rest of the U.S., where homeowners are six times more likely to own an EV than renters.</p>
<h2>Income isn’t everything</h2>
<p>You might be thinking that this gap is caused by income. It is true that EV ownership is <a href="https://energyathaas.wordpress.com/2015/07/20/are-clean-energy-tax-credits-equitable/">higher for richer people</a>, which is only natural since <a href="https://www.energysage.com/electric-vehicles/costs-and-benefits-evs/evs-vs-fossil-fuel-vehicles/">EVs cost more to buy</a> than comparable gasoline-powered vehicles although <a href="https://www.energy.gov/articles/egallon-what-it-and-why-it-s-important">charging them is cheaper</a> than filling a tank. </p>
<p>But I learned that homeowners are more likely than renters to own EVs, even when they have similar income levels. For example, among households earning between US$75,000 and $100,000 per year, 1 in 130 homeowners owns an EV, compared to 1 in 370 renters.</p>
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<h2>Parking and charging</h2>
<p>The other big difference between homeowners and renters is having a place to park.</p>
<p>Most homeowners have a garage, a driveway or both. That makes charging extremely convenient for them because they can charge their vehicles at night. </p>
<p>It’s not so easy, however, for many renters. Renters are more likely to live in multi-unit buildings and parking spots may not be assigned, or there may not be any parking spots at all. The federal data doesn’t provide any information about parking availability, but this likely helps explain the disparity between homeowners and renter EV ownership rates. </p>
<p>There is also the related question of charging equipment.</p>
<p>For homeowners, it is relatively straightforward to invest in a <a href="https://www.greencarreports.com/news/1098401_electric-car-charging-the-basics-you-need-to-know">240-volt outlet</a>, electric panel upgrades and other improvements to speed up charging. These investments can cost $1,000 or more, but are a good investment for a homeowner planning to stay put.</p>
<p>Making this investment is trickier for renters, however. They may not want to invest their own money in a property they don’t own and their landlords may be unwilling to let them do it in any case due to liability and other concerns. </p>
<p>This quandary is what economists call a <a href="https://econpapers.repec.org/article/eeeenergy/v_3a5_3ay_3a1980_3ai_3a4_3ap_3a355-371.htm">landlord-tenant problem</a>. In theory, a landlord could make investments like this, and then charge higher rent to recoup the cost. In practice, however, this can get complicated.</p>
<p>Even if the current tenant has an EV – the next tenant may not. And if future tenants don’t have EVs then they won’t need – or appreciate – having charging equipment handy. Several studies, including work by <a href="https://ei.haas.berkeley.edu/research/papers/WP246.pdf">economist Erica Myers</a>, show that renters tend not to value the energy-related investments their landlords make.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/229486/original/file-20180726-106499-vgrme2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/229486/original/file-20180726-106499-vgrme2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/229486/original/file-20180726-106499-vgrme2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/229486/original/file-20180726-106499-vgrme2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/229486/original/file-20180726-106499-vgrme2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/229486/original/file-20180726-106499-vgrme2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=565&fit=crop&dpr=1 754w, https://images.theconversation.com/files/229486/original/file-20180726-106499-vgrme2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=565&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/229486/original/file-20180726-106499-vgrme2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=565&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Electric car charging station in a Miami, Fla., garage.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/miami-florida-october-02-2017-electric-732461311">Shutterstock.com/Rudy Umans</a></span>
</figcaption>
</figure>
<h2>Public support for charging</h2>
<p>California policymakers are well aware of these challenges and that is a big reason why they are investing heavily in charging stations. The state is spending <a href="https://www.gov.ca.gov/2018/01/26/governor-brown-takes-action-to-increase-zero-emission-vehicles-fund-new-climate-investments/">$2.5 billion</a> to bring 250,000 charging stations statewide by 2025. Each of these stations will support several EVs, so this will make charging much easier for EV owners. </p>
<p>Much of this funding will cover the cost of building charging stations in communities with a lot of renters. The big utility Pacific Gas & Electric, for example, is making <a href="https://www.utilitydive.com/news/pge-taps-evbox-to-build-up-to-25k-charging-stations/523093/">multifamily residences</a> a high priority as it builds thousands of new charging stations across the state. As this charging infrastructure grows, the EV market is bound to expand as well. </p>
<p>I’m eager to see whether these investments will narrow the homeowner-renter gap.</p>
<p>While writing this article, I searched on the <a href="https://www.zillow.com/homes/for_rent/San-Francisco-CA_rb/?fromHomePage=true&shouldFireSellPageImplicitClaimGA=false&fromHomePageTab=rent">Zillow real estate website</a> for rental listings in San Francisco and could find only four apartments that mentioned EV charging as an amenity. </p>
<p>This isn’t many compared to the more than 1,000 of the apartments on the market, but I have no doubt that there will be many more landlords giving their tenants a place to plug in their cars as more renters buy EVs in the near future.</p><img src="https://counter.theconversation.com/content/100296/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Lucas Davis does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>As EVs make more inroads, giving tenants somewhere to plug in their cars could become a selling point.Lucas Davis, Professor at the Haas School of Business, University of California, BerkeleyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/870662017-11-14T02:43:41Z2017-11-14T02:43:41ZMortgage interest deduction is a terrible way to help middle-class homeowners<figure><img src="https://images.theconversation.com/files/194439/original/file-20171113-27616-160kcch.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Middle-class homeowners need credits, not deductions.</span> <span class="attribution"><span class="source">Konstantin L/Shutterstock.com</span></span></figcaption></figure><p>Republican lawmakers’ plans to rewrite the tax code <a href="https://www.washingtonpost.com/realestate/gop-tax-proposal-contains-major-headaches-for-homeowners/2017/11/07/31a62c40-c328-11e7-afe9-4f60b5a6c4a0_story.html?utm_term=.3e745caf9a68">would make it harder</a> for most Americans to take advantage of the mortgage interest deduction, which <a href="https://www.housingwire.com/articles/41796-nar-breaks-down-cost-of-house-tax-plan-to-homeowners">has angered many</a> who claim <a href="https://www.huffingtonpost.com/entry/the-tax-bill-placing-a-dagger-in-the-american-dream_us_5a06edcae4b0ee8ec36941b9">it’ll push homeownership</a> out of reach for millions of middle-class Americans. </p>
<p>Actually, evidence shows the deduction already <a href="http://www.nber.org/papers/w9284.pdf">disproportionately benefits</a> the highest-income homeowners while doing <a href="https://www.mercatus.org/system/files/Fichtner-Reforming-Mortgage-.pdf">little to promote homeownership</a> for middle- and low-income taxpayers. </p>
<p>I’ve been researching, writing and teaching on the effects of tax policies and their economic effects for almost three decades. Based on this work and my understanding of progressive taxation, I recommend something bolder than merely tinkering with the existing mortgage interest deduction. </p>
<p>Republicans should repeal it entirely and replace it with something that may sound the same but is in fact very different and would be much more effective in promoting homeownership. </p>
<h2>Importance of homeownership</h2>
<p>It makes lot of sense for government tax policy to favor homeownership. <a href="http://www.nber.org/papers/w9284.pdf">Research shows</a> neighborhoods with more residents who own their own homes offer many <a href="https://www.sciencedirect.com/science/article/pii/S0094119096920100">societal benefits</a> and lead to <a href="https://www.mercatus.org/system/files/Fichtner-Reforming-Mortgage-.pdf">stronger and better-cared-for communities</a>. </p>
<p>For example, a <a href="http://www.nber.org/papers/w9284.pdf">2002 paper</a> by economists Edward Glaeser and Jesse Shapiro found that homeowners tend to work harder at making their communities more pleasant, take better care of their properties and get more involved politically. </p>
<p>And a <a href="http://econweb.ucsd.edu/%7Emiwhite/gw-jue-reprint.pdf">1997 study</a> by economists Richard Green and Michelle White showed that children of homeowners were 9 percent more likely to stay in school than the children of renters.</p>
<h2>How the mortgage interest deduction works</h2>
<p>So naturally, the federal tax system <a href="https://economix.blogs.nytimes.com/2013/08/06/the-sacrosanct-mortgage-interest-deduction/">offers a number of ways</a> to promote homeownership, including the mortgage interest deduction, perhaps the most prominent among them. Here’s how it works and who benefits. </p>
<p>First off, only taxpayers who itemize their deductions can take it, so long as they tally more than the standard deduction, currently US$12,600 for a married couple. If you’ve met that threshold, then your benefit from the interest deduction will depend on how much greater it is than the standard deduction and what your marginal tax rate is. A higher rate will lead to greater tax savings. </p>
<p>For example, let’s imagine three couples filing jointly in 2016. Couple A has a modest income of $50,000 and pays $7,300 a year in interest but has only $4,000 in other expenses that can be itemized. This couple would have chosen the standard deduction and received no benefit from the mortgage interest it paid. </p>
<p>Couple B has the same mortgage but earns a lot more with a taxable income of $80,000. As a result, the couple paid $7,300 in state and local taxes the previous year, which can be itemized on its federal tax return. That gives the couple $14,600 in itemized deductions or $2,000 more than the standard. At a marginal tax rate of 25 percent, that means the couple would get a tax benefit from the mortgage interest deduction of $500. </p>
<p>Lastly, consider Couple C, with the same mortgage but a taxable income of $200,000, which puts it in the 28 percent tax bracket. The higher earnings mean it paid $12,600 in state and local taxes the previous year, which gives the couple $19,900 in itemized deductions. Since that’s $7,300 more than the standard deduction, it would be able to take advantage of all the interest it paid, reducing its tax liability by $2,044 (28 percent x $7,300). </p>
<p>From the above, it is clear that the higher a homeowner’s itemized deductions and marginal tax rates, the higher the benefit from the mortgage interest deduction will be. </p>
<p><a href="https://govinfo.library.unt.edu/taxreformpanel/final-report/TaxPanel_5-7.pdf">Abundant evidence</a> shows that the tax benefits from this deduction, which <a href="https://www.cbo.gov/publication/43768">cost $70 billion</a> in 2013, are highly skewed to high-income homeowners. <a href="https://fivethirtyeight.com/features/the-tax-deductions-economists-hate/">Just under three-quarters</a> of that went to the wealthiest 20 percent of earners, while the poorest 20 percent got nothing. </p>
<h2>Further favoring the rich</h2>
<p>So how would the latest versions of the plans working their way through Congress change this? </p>
<p>Under current law, <a href="https://www.zillow.com/research/mortgage-interest-deduction-taxes-17195/">44 percent of homes</a> are valuable enough to make itemizing and taking the deduction worthwhile, according to Zillow, which operates several real estate listing portals including Trulia and StreetEasy. This would fall to 12 percent under the House plan and to 7 percent under the Senate proposal.</p>
<p>Both plans would double the standard deduction, thereby increasing the threshold before the interest deduction becomes useful, while eliminating the ability to deduct state and local income or sales taxes, thus making it harder to reach that much higher bar. </p>
<p>There are two key differences between the plans: The House bill would lower the cap on which mortgages are eligible from $1 million to $500,000, while the Senate plan would eliminate the deduction of state and local property taxes. </p>
<p>Under either plan, however, the mortgage interest deduction would become essentially worthless to middle-income taxpayers.</p>
<h2>A better way to promote homeownership</h2>
<p>Replacing the deduction with a tax credit would be a much better way to promote homeownership in the U.S., particularly among lower- and middle-income Americans. And <a href="https://govinfo.library.unt.edu/taxreformpanel">bipartisan commissions</a> formed by the <a href="http://momentoftruthproject.org/sites/default/files/TheMomentofTruth12_1_2010.pdf">last two presidents</a> have supported doing just that. </p>
<p>Generally, while a tax deduction reduces only your taxable income and its value is a function of your marginal tax bracket, a credit offers a dollar-for-dollar reduction in your tax liability. That doesn’t mean a homeowner who pays $7,300 a year in mortgage interest would get that much back but rather that she would get a fixed percentage of it back as a credit. </p>
<p>So unlike the mortgage interest deduction, whose value depends on whether a taxpayer itemizes her deductions and what her marginal tax rate is, a tax credit would reduce any homeowner’s liability, regardless of income level. </p>
<p>For example, let’s say the tax credit is set at 10 percent. Our three couples who received as little as nothing or as much as $2,044 from the deduction would instead all receive a $730 credit, which would reduce how much they owe in taxes by that amount. </p>
<p>Thus, a mortgage interest credit would offer all taxpayers with mortgage interest some tax relief. Millions of lower-income borrowers would benefit, most of whom do not currently use the mortgage interest deduction. The tax credit would make the tax code simpler (a <a href="https://www.forbes.com/sites/taxanalysts/2017/09/11/trump-wants-a-simple-tax-system-history-says-he-wont-get-it/#696c00187c1c">stated objective</a> of President Trump) and would end the <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2038638">disproportionate benefit</a> enjoyed by higher-income taxpayers. </p>
<p>A credit would also be easier to tailor to reflect the <a href="https://www.nar.realtor/research-and-statistics/housing-statistics/metropolitan-median-area-prices-and-affordability">wide disparities in housing costs</a> across the U.S., for example, by using average housing prices to adjust the maximum credit in a given region or urban area. </p>
<p>President Trump <a href="http://www.cnn.com/2017/09/27/politics/donald-trump-tax-reform-indianapolis/index.html">argues</a> we have a “once-in-a-generation opportunity” to get tax reform done right. This may be a rare chance to get tax incentives for homeownership right as well.</p><img src="https://counter.theconversation.com/content/87066/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gil B. Manzon Jr. does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Rather than tinkering with the deduction, Republicans should get rid of it altogether and replace it with something that would actually help more Americans afford a home.Gil B. Manzon Jr., Associate Professor of Accounting, Boston CollegeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/807212017-07-13T01:53:50Z2017-07-13T01:53:50ZCherishing stuff with a photo can help you let go of it<figure><img src="https://images.theconversation.com/files/177952/original/file-20170712-19701-1952jks.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Years from now, she'll probably be ready to part with her photo assistant.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/little-child-photographer-taking-photo-her-381904279">Angela Waye/Shutterstock.com</a></span></figcaption></figure><p>Picture your favorite childhood stuffed animal. Are you clinging to it even though neither you nor anyone else in your household has played with that creature in years?</p>
<p>If so, you’re not alone. Parting with possessions we don’t need is a struggle for many Americans. We have an average of at least <a href="http://www.businesswire.com/news/home/20070426005614/en/Average-U.S.-Household-50-Unused-Items-Worth">50 unused items in our homes</a>, including clothing, electronic devices and toys. Just as common: our desire to ditch this excess baggage, which has fired up the market for <a href="https://www.nytimes.com/2016/07/10/magazine/marie-kondo-and-the-ruthless-war-on-stuff.html">Marie Kondo’s best-selling books</a>, <a href="https://www.sparefoot.com/self-storage/blog/7525-decluttering-blogs-to-follow/">blogs</a> and a <a href="https://www.realsimple.com/home-organizing/organizing/professional-organizers">magazine called Real Simple</a> devoted in part to helping people ditch their clutter.</p>
<p>As consumer psychologists, we wanted to know why people have so much trouble parting with possessions they no longer use. To gain some insight, we zeroed in on items with sentimental value in a series of studies recently published in the <a href="https://doi.org/10.1509/jm.16.0311">Journal of Marketing</a>. </p>
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<iframe width="440" height="260" src="https://www.youtube.com/embed/qxG25DkiF88?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">An old pair of basketball shorts, acquired in junior high school, inspired this research.</span></figcaption>
</figure>
<h2>Storing memories</h2>
<p>Things that are tied to <a href="http://www.theminimalists.com/sentimental/">emotionally significant memories</a> may represent a piece of your identity. When you struggle to part with that jersey you wore on the junior varsity basketball team, for example, you are not really clinging to the shirt itself. Instead, you’re hanging onto the memories represented by that now-tattered item of clothing you probably won’t wear again. Its sentimental value may make giving the jersey away feel like giving up a piece of your own identity.</p>
<p>We set out to test ways to help people donate goods that are meaningful to them. In studies conducted online and in person, we found that participants reported that they would experience less identity loss from donating a cherished item if they had photographed it or preserved the memory of it some other way.</p>
<p>Initially, in an online study, we let our subjects choose how to handle this. Nearly two out of three opted for photography, by far the most popular method. The other most common techniques included creating a scrapbook page or making a video about it – the approach taken by 22 percent of our participants – and writing a note or making a journal entry – selected by 13 percent.</p>
<figure class="align-left zoomable">
<a href="https://images.theconversation.com/files/177953/original/file-20170712-19649-xoe1ks.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/177953/original/file-20170712-19649-xoe1ks.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/177953/original/file-20170712-19649-xoe1ks.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=436&fit=crop&dpr=1 600w, https://images.theconversation.com/files/177953/original/file-20170712-19649-xoe1ks.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=436&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/177953/original/file-20170712-19649-xoe1ks.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=436&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/177953/original/file-20170712-19649-xoe1ks.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=548&fit=crop&dpr=1 754w, https://images.theconversation.com/files/177953/original/file-20170712-19649-xoe1ks.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=548&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/177953/original/file-20170712-19649-xoe1ks.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=548&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">People can have trouble discarding stuff they don’t use any more because of the memories associated with those items.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/young-girl-playing-stuffed-animal-teddy-301530881">Angela Waye/Shutterstock.com</a></span>
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<p>Given how easy smartphones make digital photography, our results perhaps should come as no surprise. Many of us already rely on our phones to “<a href="http://fortune.com/2015/07/21/smartphone-memory/">remember</a>” all kinds of information, ranging from birthdays to where we have parked our cars.</p>
<h2>Saving sentiments</h2>
<p>The findings supported <a href="https://doi.org/10.1509/jm.16.0311">our theory</a> that photographs can preserve the memories tied to sentimental items and make people more likely to donate them. In other words, people don’t want these things – they just want to keep the memories they represent intact. When grownups capture the memories they associate with their favorite stuffed animal in a photograph, they often stop fearing they will lose those memories and feel free to let go of the item.</p>
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<a href="https://images.theconversation.com/files/177947/original/file-20170712-19642-1s2fdlq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/177947/original/file-20170712-19642-1s2fdlq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/177947/original/file-20170712-19642-1s2fdlq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=788&fit=crop&dpr=1 600w, https://images.theconversation.com/files/177947/original/file-20170712-19642-1s2fdlq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=788&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/177947/original/file-20170712-19642-1s2fdlq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=788&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/177947/original/file-20170712-19642-1s2fdlq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=991&fit=crop&dpr=1 754w, https://images.theconversation.com/files/177947/original/file-20170712-19642-1s2fdlq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=991&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/177947/original/file-20170712-19642-1s2fdlq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=991&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Flyer the researchers distributed for this study.</span>
<span class="attribution"><span class="source">Rebecca Walker Reczek, Julie Irwin and Karen Winterich</span></span>
</figcaption>
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<p>To test whether photographing objects with sentimental value actually increases donations, we studied the behavior of <a href="http://www.psu.edu/">Pennsylvania State University</a> students. First, we placed signs <a href="http://sites.psu.edu/trash2treasure/">for a donation drive</a> for discarded stuff at the end of the school year in eight dorms housing a total of more than 800 male and female undergraduate students. In four dorms, the signs suggested that students photograph items with sentimental value that they no longer used before donating them. The rest had signs that just solicited donations.</p>
<p>Students who were encouraged to photograph things before giving them away donated 35 percent more items than in the dorms where they didn’t get that prompt. We tallied 1,098 items donated in the dorms where students were encouraged to shoot photos of their stuff, versus 815 items in the other dorms.</p>
<p>We repeated this exercise at the end of the fall semester in six all-female dorms about the same size as the prior study. Though fewer than half of the students were moving out, the rate of donation was still 15 percent higher in the dorm where they saw the suggestion about photographing items of sentimental value – a statistically significant difference.</p>
<p>We also conducted research outside a university setting by asking donors dropping off items at a <a href="https://www.svdpusa.org/">St. Vincent de Paul</a> thrift store near the Penn State campus to see if any of the stuff they were donating had sentimental value. About half of the donors dropping off items with sentimental value received pictures of their donated goods that our research assistants snapped with a Polaroid-style instant camera while the other half did not get a picture.</p>
<p>Afterward, we asked these donors whether they felt like they had lost a piece of themselves when parting with their items. Those who got the photos reported significantly less identity loss, suggesting that the photography truly helped them purge.</p>
<p>Taken together, our studies suggest that shooting pictures can help people get rid of possessions with sentimental value.</p>
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<span class="caption">These are some of the things the Penn State students who participated in this clutter-reduction study gave away.</span>
<span class="attribution"><span class="source">Karen Winterich</span></span>
</figcaption>
</figure>
<h2>Other clutter</h2>
<p>Our findings also suggest that photography is no universal cure for clutter. </p>
<p>For example, when we asked people in our studies to take pictures of these items before selling them, that action didn’t help. The idea of placing monetary value on these things appeared to turn them off, as <a href="http://www.sciencedirect.com/science/article/pii/S1057740805700875">previous research</a> suggests it might. One possible explanation: consumers are reluctant to monetize cherished possessions. </p>
<p>Participants were reluctant to sell sentimental items regardless of whether they were prompted to photograph them or not. </p>
<p>Similarly, we found that shooting photos of stuff lacking sentimental value didn’t make people more likely to get rid of it. We believe that was because the pictures didn’t preserve emotionally significant memories. Consumers often keep things without sentimental value out of a desire <a href="https://doi.org/10.1016/j.jcps.2011.05.003">to be frugal</a>.</p>
<p>Of course <a href="http://www.amazinggoodwill.com/donating/donor-guidelines">charities won’t take</a> everything people should discard, including that worn-out teddy bear in your attic. Although we didn’t look into whether photography makes it easier for people to chuck stuff with sentimental value, we suspect that it wouldn’t work. Trashing prized possessions could feel too much like throwing out the memories that photos of them would help preserve.</p>
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<a href="https://images.theconversation.com/files/177954/original/file-20170712-19675-1p7mhq1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/177954/original/file-20170712-19675-1p7mhq1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/177954/original/file-20170712-19675-1p7mhq1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/177954/original/file-20170712-19675-1p7mhq1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/177954/original/file-20170712-19675-1p7mhq1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/177954/original/file-20170712-19675-1p7mhq1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/177954/original/file-20170712-19675-1p7mhq1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/177954/original/file-20170712-19675-1p7mhq1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Americans tend to have too much clutter in their homes, but having this much luggage would be unusual.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/many-travel-bags-133004567">keattikorn/Shutterstock.com</a></span>
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<h2>The takeaway</h2>
<p>Many nonprofits like <a href="http://www.goodwill.org/donate-and-shop/donate-stuff/">Goodwill</a> depend on donations of all kinds. But some specialize in attire that is bound to have some sentimental value. <a href="http://www.beccascloset.org/">Becca’s Closet</a>, a charity that distributes used prom dresses, and <a href="https://www.dressforsuccess.org/">Dress for Success</a>, which gives secondhand professional clothing away to low-income women, are two good examples.</p>
<p><a href="https://doi.org/10.1509/jm.16.0311">Our research</a> suggests that charities like those could glean more donations by encouraging people to photograph meaningful items as they purge their closets.</p>
<p>If you, like most Americans, have dozens – if not hundreds – of surplus things, you should try this yourself. Letting others benefit from your stuff will extend its usefulness while helping them <a href="https://www.greenamerica.org/green-living/finding-new-life-old-clothes">save money</a>. Besides, you’ll surely feel happier in a <a href="http://www.expertrain.com/blog/happiness/why-cleaning-is-good-for-you.htm">less cluttered home</a>.</p><img src="https://counter.theconversation.com/content/80721/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Karen Winterich is affiliated with the Alzheimer's Association. This association does not represent a conflict of interest for this research.</span></em></p><p class="fine-print"><em><span>Julie Irwin and Rebecca Walker Reczek do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Most Americans cling to things with sentimental value that we no longer need. Taking pictures of these possessions may make it easier to give them away.Karen Winterich, Associate Professor of Marketing, Frank and Mary Smeal Research Fellow, Penn StateJulie Irwin, Marlene and Morton Meyerson Centennial Professor of Business, Department of Marketing and Department of Business, Government and Society, The University of Texas at AustinRebecca Walker Reczek, Associate Professor of Marketing, The Ohio State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/661062016-09-29T00:46:20Z2016-09-29T00:46:20ZThe U.S. economy is in desperate need of a strong dose of fiscal penicillin<figure><img src="https://images.theconversation.com/files/139651/original/image-20160928-27054-17016pi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The U.S. could do with a shot in the arm too.</span> <span class="attribution"><span class="source">Bear syringe via www.shutterstock.com</span></span></figcaption></figure><p>Despite six years of “recovery” from the Great Recession, America’s middle class still struggles financially amid sluggish economic growth and middling job creation. </p>
<p>The <a href="https://theconversation.com/us/topics/fomc-12831">Federal Reserve’s near-zero interest rates</a> have helped stabilize the economy after it nearly went into freefall in 2008 and 2009, but that policy is coming to an end, with at least one quarter-point hike expected this year and more in 2017 and 2018. </p>
<p>So what will support the economy once the Fed’s largesse begins to disappear? </p>
<p>I’ve been exploring the key economic data – from productivity and housing to wage growth and consumer spending – to better understand where we’re headed and what is needed to get out of this no-to-low growth environment, a pernicious state some economists call <a href="http://larrysummers.com/category/secular-stagnation/">secular stagnation</a>. The data show clearly why serious attention is needed to foster faster growth, a more competitive economy and more opportunities for American families. </p>
<p>And only one institution, I would argue, is able to do something about it: Congress. </p>
<h2>Stagnant growth and productivity</h2>
<p>For most of the recovery, economic growth has been lackluster. </p>
<p><a href="http://www.bea.gov/iTable/index_nipa.cfm">Gross domestic product has expanded</a> at an average annual inflation-adjusted rate of just 2 percent since the <a href="http://www.nber.org/cycles.html">recession</a> ended in the second quarter of 2009, far below the rate of 3.4 percent from December 1948, when the first recession after World War II started, to December 2007, when the most recent recession began. And in just the past three quarters through June, the economy has barely budged, growing at an <a href="http://www.bea.gov/iTable/iTableHtml.cfm?reqid=9&step=3&isuri=1&903=1">anemic 1 percent or so</a>. </p>
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<p>Productivity growth, measured as the increase in inflation-adjusted output per hour, is key to propelling strong economic growth because it means that workers are getting better at doing more in the same amount of time. Yet <a href="http://data.bls.gov/pdq/querytool.jsp?survey=pr">productivity</a> rose only a total of 6.6 percent from the second quarter of 2009 to the second quarter of 2016. That amounts to an average rate of 0.9 percent a year, a fraction of the 2.3 percent we experienced from 1948 to 2007. </p>
<h2>Housing hasn’t recovered</h2>
<p>When considering what’s keeping the recovery from taking off, housing deserves particular attention since it <a href="https://books.google.com/books?id=MplpAgAAQBAJ&printsec=frontcover&dq=epstein+wolfson+handbook+of+political+economy+of+financial+crisis+oxford&hl=en&sa=X&ved=0ahUKEwjr3areorDPAhXELB4KHcKfA3gQ6AEIHDAA#v=onepage&q=epstein%20wolfson%20handbook%20of%20political%20economy%20of%20financial%20crisis%20oxford&f=false">generally boosts economic growth</a> after a recession. Not this time.</p>
<p>Sales of new single-family homes have been on the rise in recent years, but they’re still well below the historical average before the Great Recession, pushing homeownership down to a 50-year low. Sales averaged about 400,000 a year from 2011 to 2015, compared with 698,000 before the recession – from 1963 through 2007.</p>
<p>Although the pace has picked up in recent months – reaching an annual rate of <a href="https://www.census.gov/construction/nrs/pdf/newressales.pdf">609,000</a> in August – it’s still not enough to stop the slide in the homeownership rate, which was <a href="http://www.census.gov/housing/hvs/files/qtr216/tab5.xlsx">62.9 percent</a> in the second quarter, down from <a href="http://www.census.gov/housing/hvs/files/qtr216/tab5.xlsx">67.8 percent</a> at the end of 2007.</p>
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<p>And spending on housing fell <a href="http://www.bea.gov/iTable/iTable.cfm?reqid=9&step=3&isuri=1&903=141#reqid=9&step=3&isuri=1&903=141">7.7 percent</a> in the second quarter of 2016, compared with the first three months of the year.</p>
<p>One of the reasons housing has been slow to recover – the market’s collapse was the primary cause of the Great Recession – is that employment growth has remained mostly moderate. Many are still looking for good jobs despite the sharp drop in headline unemployment to an <a href="http://data.bls.gov/pdq/querytool.jsp?survey=ln">eight-year low of 4.9 percent</a>.</p>
<p>The average annualized employment growth rate from June 2009 to August 2016 was just 1.4 percent, well below the long-run average of 1.9 percent from December 1948 to December 2007.</p>
<p>While there were <a href="http://data.bls.gov/pdq/querytool.jsp?survey=ce">13.6 million more jobs in August</a> than in June 2009 – meaning that the economy regained all those lost during and immediately after the recession – these gains and the comparatively low unemployment rate obscure that many people still cannot find the jobs they want. The jobless rate means about 7.8 million individuals were unemployed in August, yet <a href="http://www.bls.gov/news.release/pdf/empsit.pdf">another 7.8 million</a> were either employed part time for economic reasons (they would have preferred a full-time job) or out of work and wanted a job but weren’t counted in the official rate because they hand’t looked in the preceding four weeks.</p>
<p>And communities of color <a href="http://www.bls.gov/news.release/pdf/empsit.pdf">still have higher unemployment rates</a> than whites. The African-American unemployment rate stood at 8.1 percent, while for Hispanics it was 5.6 percent, compared with 4.4 percent for whites. </p>
<h2>Wage growth, income inequality and debt</h2>
<p>These lackluster job gains have meant there’s less pressure on employers to raise wages. And sluggish wage growth has meant less consumer spending – which typically makes up <a href="https://www.stlouisfed.org/publications/regional-economist/january-2012/dont-expect-consumer-spending-to-be-the-engine-of-economic-growth-it-once-was">more than two-thirds of GDP</a>.</p>
<p>Wages, in fact, have barely kept pace with price increases. <a href="http://data.bls.gov/pdq/querytool.jsp?survey=ce">Inflation-adjusted hourly earnings of production and non-supervisory workers</a> – about 80 percent of the labor force – have increased only about 4.5 percent since June 2009. This amounts to an annualized growth rate of merely 0.6 percent above the rate of inflation over the past seven years. </p>
<p>Low wage growth has kept income inequality at very high levels. A recent report offered some good news: Real median household income grew at <a href="http://www.census.gov/newsroom/press-releases/2016/cb16-158.html">5.2 percent,</a> from US$53,718 in 2014 to $56,516 in 2015 – the <a href="https://www.whitehouse.gov/blog/2016/09/13/income-poverty-and-health-insurance-united-states-2015">fastest annual growth on record dating back to 1968</a>. But inflation-adjusted <a href="http://www.census.gov/newsroom/press-releases/2016/cb16-158.html">median income was still higher in 2007</a> than in 2015.</p>
<p>Middle-class Americans are only slowly gaining ground as wealthier ones had seen bigger gains, leaving <a href="https://theconversation.com/us/topics/economic-inequality-15917">income inequality</a> persistently high. In 2015, the <a href="http://www2.census.gov/programs-surveys/demo/tables/p60/256/table4.xls">top 5 percent</a> of earners captured 22.1 percent of total income, compared with 11.3 percent for the bottom 40 percent. In 1967, those at the top took home 17.2 percent, versus 14.8 percent for the bottom 40 percent.</p>
<p>This lack of wage growth also makes it difficult for households to dig out from under a mountain of debt, which further contributes to limited spending on housing and other items. <a href="http://www.federalreserve.gov/releases/z1/current/z1.pdf">Household debt equaled 105.2 percent of after-tax income in the second quarter of 2016</a>. While that’s down from a peak of 135 percent in the fourth quarter of 2007, the current level is still much higher than any level of debt observed in the 50 years before 2002. </p>
<p>Moreover, some especially costly forms of credit have grown. Installment debts – mainly student and car loans – have grown from 14.6 percent of after-tax income in June 2009 <a href="http://www.federalreserve.gov/releases/z1/current/z1.pdf">to 19.2 percent this past June</a> – the highest share since records began in 1968.</p>
<p>Unsurprisingly, consumer spending growth has been middling as a result, increasing an average of just 2.3 percent a year since the end of the Great Recession, far below the long-term average of 3.5 percent from 1948 through 2007. </p>
<h2>Companies on the sidelines</h2>
<p>With their consumers still mired in debt with little gain in their pocketbooks, businesses have very few reasons to invest. </p>
<p>Net investment – what companies spend on new capital assets rather than on replacing obsolete items – has averaged 1.9 percent of GDP since the recession started at the end of 2007. This is the lowest since World War II. </p>
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<p>To be clear, companies have the money. <a href="http://www.federalreserve.gov/releases/z1/current/default.htm">Corporate profits</a> recovered quickly toward the end of the Great Recession and have stayed high since.</p>
<p>So where is all that money going? Cash reserves and shareholders. </p>
<p>Nonfinancial corporations hold an average of <a href="http://www.federalreserve.gov/releases/z1/current/default.htm">5.2 percent of all of their assets in cash</a> – a high rate by historical standards. At the same time, they spent on average <a href="http://www.federalreserve.gov/releases/z1/current/default.htm">99 percent of their after-tax profits on dividend payouts and share repurchases</a> to keep their shareholders happy since the start of the Great Recession.</p>
<h2>Breathing room</h2>
<p>With consumers not spending money because they can’t and businesses not spending money because they don’t want to, the onus falls on Congress to bolster the economy and the labor market. </p>
<p>Yet <a href="http://www.bea.gov/iTable/iTableHtml.cfm?reqid=9&step=3&isuri=1&903=94">federal</a>, <a href="http://www.bea.gov/iTable/iTableHtml.cfm?reqid=9&step=3&isuri=1&903=94">state and local</a> government spending has been falling. Their total spending on goods and services as a share of GDP was 17.7 percent in the second quarter of 2016, the smallest share since 1998. </p>
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<p>Congress, though, now has room to maneuver. The nonpartisan Congressional Budget Office estimated in August that the federal government will have a deficit of <a href="https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/51908-2016_Outlook_Update-2.pdf">3.2 percent of GDP</a> for fiscal year 2016. This is much smaller than in recent years, including 2009’s deficit of <a href="https://www.cbo.gov/publication/50974">9.8 percent of GDP</a> – the widest since World War II. </p>
<p>The shrinking deficit, as well as the government’s near-record-low borrowing costs, could provide enough breathing room to focus on targeted, efficient policies that promote long-term economic growth and shared prosperity, for instance, through <a href="https://www.americanprogress.org/issues/economy/report/2016/07/14/141157/an-infrastructure-plan-for-america/">investments in infrastructure</a>. </p>
<p>The economy and American families need Congress to use this breathing room to create real economic security.</p><img src="https://counter.theconversation.com/content/66106/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Christian Weller is a senior fellow at the Center for American Progress. </span></em></p>Although the Fed delayed raising rates this month, it has signaled it intends to wean the U.S. economy off its unprecedented monetary stimulus. Now the question is whether Congress will take the handoff.Christian Weller, Professor of Public Policy and Public Affairs, UMass BostonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/444712015-07-09T14:51:57Z2015-07-09T14:51:57ZBudget 2015: housing reforms do not add up to more homes<figure><img src="https://images.theconversation.com/files/87892/original/image-20150709-10876-jf78d7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A budget without bite for tackling a shortfall of homes.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/freddiebrown/8636473869/in/photolist-2CsJBR-eabbMT-bUJbLk-5saozc-9C8iH5-4rN583-DvShj-DvShi-4rJ1Gv-quBug2-cc6qSA-u468Hn-bBuFoX-ucMV3Q-7kcHTx-7kcHP8-DvSha-5SorfG-pYeMSr-4rN59C-4rJ1Jz-4rJ1Kn-4rJ1HP-4rJ1EX-4rNbJQ-4rN8eJ-4rN8fs-KKvHo-vVSjt">FreddieBrown</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span></figcaption></figure><p>Let’s start with a reminder: it is universally <a href="https://theconversation.com/housebuilding-promises-are-pie-in-the-sky-heres-why-40930">recognised that</a> we do not build anywhere near enough homes. Successive governments and oppositions have been completely unwilling to take on the vested interests and chronic problems that go with volatile and rising <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/439700/HPIReport20150626.pdf">real house prices</a>. There is undoubtedly insufficient social and affordable housing to meet need. </p>
<p>Paradoxically, at one and the same time, <a href="http://housingandwellbeing.org/documents">we have</a> too little investment in new housing and too much in unproductive second-hand private housing. <a href="https://www.gov.uk/government/topical-events/budget-july-2015">The budget</a> has done nothing to address any of these problems. But that is certainly not to say that housing has not been significantly affected by George Osborne’s latest announcement. On the contrary, the extent of the possible repercussions takes one’s breath away. </p>
<p>Tax proposals included two important changes for private housing. One, of course, was <a href="http://www.telegraph.co.uk/finance/personalfinance/how-budget-affect-me/11722864/Budget-2015-How-inheritance-tax-changes-might-affect-you.html">inheritance tax</a> and giving families up to £1m of exemption (including help for those trading down in the housing market). These reforms were expected but continue to stoke demand for what are unproductive assets and also privilege housing insiders over outsiders. </p>
<p>As part of the benefit cuts, the chancellor <a href="http://www.mortgagestrategy.co.uk/news-and-features/sectors/products/products-news/budget-support-for-mortgage-interest-to-become-a-loan/2022413.article">decided to</a> convert social-security help with paying mortgage interest into a loan – a retrograde step back to the 1990s, which like many of these reforms awaits clarification in the detail. On the other hand, there will be widespread support for the <a href="http://www.thisismoney.co.uk/money/buytolet/article-3153541/Profits-slashed-wealthy-buy-let-landlords-Budget-crackdown-mortgage-tax-relief.html">tax-relief cuts</a> to buy-to-let landlords – though they may be more concerned by the <a href="http://www.newstatesman.com/staggers/2015/07/budget-2015-what-welfare-changes-did-george-osborne-announce-and-what-do-they-mean">four-year freeze</a> on local housing allowances for working-age benefit recipients. Despite all this, there is nothing new on housing supply, other than promises about planning reforms to come.</p>
<h2>Welfare and social housing</h2>
<p><a href="http://www.theguardian.com/politics/2015/jul/05/george-osborne-cut-benefits-cap-20000-year-outside-london">Reducing the</a> benefit cap to £20,000 per family (£23,000 in London) will of course hit larger families disproportionately hard. It is also <a href="http://www.theguardian.com/housing-network/2015/may/18/housing-benefit-cuts-disaster-young-people">proposed that</a> most 18-21 year olds will be ineligible for the housing-cost element of universal credit that will replace housing benefit. </p>
<p>The <a href="http://www.theguardian.com/housing-network/2015/jul/08/osborne-high-earners-social-housing-rent-rise-budget">decision to</a> finally go for the market rent for those in work in social housing will meanwhile continue the process of breaking up previously mixed-tenure communities, already signalled by the <a href="http://www.theguardian.com/society/2015/apr/14/right-to-buy-housing-associations-your-questions-answered">right-to-buy proposals</a> for housing-association properties (that <a href="https://www.housing.org.uk/media/blog/right-to-buy-extension-estimated-to-cost-12-billion/">don’t add up</a>) announced earlier in the year. The devil will again be in the details of how this is all supposed to work, but it is <a href="http://www.insidehousing.co.uk/policy/pay-to-stay-measure-slammed-by-landlords/7010685.article">estimated that</a> the market-rent proposal may affect up to 300,000 tenants. Councils will have to repay the higher rents to Whitehall but associations will be allowed to recycle them for investment.</p>
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<a href="https://images.theconversation.com/files/87931/original/image-20150709-10904-7mdxue.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/87931/original/image-20150709-10904-7mdxue.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/87931/original/image-20150709-10904-7mdxue.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/87931/original/image-20150709-10904-7mdxue.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/87931/original/image-20150709-10904-7mdxue.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/87931/original/image-20150709-10904-7mdxue.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/87931/original/image-20150709-10904-7mdxue.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/87931/original/image-20150709-10904-7mdxue.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Housing association right to buy looks very wobbly.</span>
<span class="attribution"><a class="source" href="http://www.shutterstock.com/pic-11110234/stock-photo-house-of-cards-on-a-wooden-table-very-shallow-depth-of-field.html?src=csl_recent_image-1">Sean Nel</a></span>
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<p>The housing rabbit in the budget hat was not the <a href="http://www.bbc.co.uk/news/uk-politics-33437115">living wage proposal</a> but rather the <a href="http://www.theguardian.com/housing-network/2015/jul/08/social-housing-rent-fall-chancellor-budget">decision to</a> impose four years of 1% cuts on social-housing rents as a way of cutting the housing-benefit bill. This is uncharted territory. I presume <a href="https://www.gov.uk/government/organisations/homes-and-communities-agency">the regulator</a> has been consulted, but it raises all sorts of questions for landlords with the loan covenants, business plans and the like that one would expect of any long-term business based on security and equally long-term funding. </p>
<p>Landlords in England increased rents precisely because of the previous round of policy – the <a href="https://www.gov.uk/government/collections/affordable-homes-programme-2011-to-2015-guidance-and-allocations">affordable homes programme</a>. This cut subsidies to tenants, so it is small wonder that rents were rising above inflation. We will see how the new move pans out, but it is certainly not a proposal to encourage new investment in social or affordable housing. The Office for Budget Responsibility <a href="http://budgetresponsibility.org.uk/economic-fiscal-outlook-july-2015/">reckons the</a> rent reductions will cumulatively reduce housing association output by 14,000. The National Housing Federation <a href="http://m.insidehousing.co.uk/rent-reduction-will-lead-to-14000-fewer-homes-built/7010694.article">thinks it will be</a> more like 27,000. </p>
<p>The Office of National Statistics has <a href="http://www.insidehousing.co.uk/business/finance/watchdog-warns-of-association-reclassification-threat/7010691.article">meanwhile raised</a> another issue in this regard. It wonders whether the government taking more control over housing associations through the right-to-buy policy and now control over their rental income should lead the sector to be reclassified as a public-sector activity on the national balance sheet.</p>
<p>It suits the government for associations to be treated separately to the public-sector because they hold £60bn of housing debt, which in the event of a reclassification would be added to the public national debt (ironically, the rent reduction would add to the deficit because it would be treated as a fall in publi -sector income). To be fair, this classification issue is a longstanding controversy, but the government’s latest moves may yet force the issue.</p>
<p>So the process of concentrating the poorest people in social housing continues apace. The housing policy changes are redistributional in a number of different ways but they do nothing to increase housing supply or make a major contribution to tackling unmet need. Meanwhile the policies for the buy-to-let sector and social renting will likely reduce investment in rented housing. The chancellor said in his budget statement that he is “against unfair subsidies wherever he finds them”. It is hard to see how such logic applies to housing when these reforms broadly push the sector away from either fair or arguably more rational approaches to subsidy.</p><img src="https://counter.theconversation.com/content/44471/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kenneth Gibb currently receives research funding from ESRC, Joseph Rowntree Foundation and the Commission on Local Tax Reform. He is a committee member of Sanctuary Scotland housing association.</span></em></p>The budget contained some major housing reforms, but the chancellor had no answer to the sector’s number-one problem.Kenneth Gibb, Professor of Housing Economics, University of GlasgowLicensed as Creative Commons – attribution, no derivatives.