The adage “there’s no place like home” has never rung truer than right now amid a global pandemic which has seen those fortunate to have a place to call home take solace and refuge there.
While human beings were nomadic for many centuries, the desire to settle permanently in a place of our own is now deeply innate. Evolution has seen us structuring homes in cities and suburbs and building the necessary infrastructure around them to sustain our progress as a species.
On top of that, property ownership has emerged as a fundamental way people build wealth. Untapping that shored up value in cash to free homeowners from the many stresses of modern life, many of them unthought of years ago—the COVID-19 pandemic for instance—is now a viable and practical option to consider.
The real—above inflation—rise in property prices, and therefore the storing of wealth that this affords is a relatively new phenomenon. From about 1870 until the 1950s, house prices were stable, and renting was standard practice. In the U.S., for instance, government policies post-World War II were designed to make homeownership more attainable as an alternative to public housing. For a start, Congress enacted new federal policies and programmes that institutionalised the long-term, fixed rate, fully amortising mortgage, which, in turn, fuelled the housing boom.
Consequently, residential property is now the largest asset class in the world (more than 2.5 times the stock market) but many retired homeowners are languishing in less-than-ideal living circumstances.
The value dammed up in dormant home ownership assets is massive, according to home equity release financer Water Financial. The company estimates that South Africa is home to 320 000 cash-strapped retirees in mortgage-free homes, representing R450 billion worth of unutilised potential that could significantly improve the lives of occupants if accessed. This ultimately was the reason governments incentivised home ownership in the first place (as financial cover in the event of financial difficulties during retirement), but we seem to have lost sight of this in the residential property maze.
An infatuation with home ownership, “…[has] caused one of the rich world’s most serious and longest-running economic failures,” writes The Economist in a January 2020 special report.
Additionally, we have a new generation struggling to own their own homes owing to the difficulty of securing mortgages, the unaffordability of homes, and in many cases, high levels of debt—from student loans, for example. A report by property portal Zillow puts the percentage of people between the ages of 25 and 34 who lived in their current home for less than two years in 2017 at 45.3%. In 1960 it was 33.8%.
Clearly then, the concept of home ownership is ripe for disruption. The founder of the cryptocurrency Ethereum, Vitalik Buterin—a voice of his generation if ever there was one—has stepped into the fray, writing last year: “The concept of home ownership in its current form is a notable double-edged sword, and the specific ways in which it’s actively encouraged and legally structured is considered by many to be one of the biggest economic policy mistakes that we are making today.”
“There is an inevitable political tension between a home as a place to live and a home as an investment asset, and the pressure to satisfy communities who care about the latter often ends up severely harming the affordability of the former.”
As if to underscore this, the World Economic Forum asked experts from its Global Future Councils for their opinions on what the world will look like in 2030, and topping the list is the belief that all products will have become services by then. Danish MP Ida Auken adds her voice to this call: “I don’t own anything. I don’t own a car. I don’t own a house. I don’t own any appliances or any clothes,” she states. The times – they are a-changing.
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