The edges of home ownership – the borders of sustainability

Abstract

In many Western countries the edges of ownership form a neglected zone between the majority tenure, sustainable owner-occupation, and the minority experience, long-term renting. In these tenure-divided societies, it is surprising that so little attention has been paid to the zone of transition between styles of accommodation, not least because the edges of ownership are now so precarious. The six papers included in this special issue advance empirical and conceptual understandings of these neglected zones, showing how, increasingly, they compromise the sustainability of housing solutions. Some approach this by developing an understanding of how the changing fungibility of housing wealth has transformed its welfare role, while at the same time exposing those on the edges of ownership to heightened levels of risk. A second set of papers report from a variety of jurisdictions to show how the structure of the edges of owner-occupation vary across cultures and countries, and change over time.

Keywords:

• edges
• home ownership
• housing systems
• intergenerational transfers

In housing systems worldwide, the boundary between owning and renting has become a key marker of difference – not just socially, culturally, and in the quality and range of accommodation that is available (Flint, 2003; Forrest & Hirayama, 2015), but also in the opportunity to manage and accumulate wealth (Smith, 2008). This latter (financial) divide is not new (owner-occupation has always had an investment as well as a consumption dimension), but in scale and magnitude, it is a relatively recent development. Owner-occupation has only really come to dominate a majority of housing systems in the last half century, with the unprecedented and relentless expansion of mortgage markets. Nevertheless, the potential (for some, indeed a majority) to accumulate wealth into owned homes has had game-changing implications for governments seeking to bolster personal spending power, and create ‘self-insuring’ households, through turbulent economic times (Murphy & Rehm, 2016; Smith, 2015; Watson, 2010).

The considerable flaws in this strategy were exposed, in the English speaking economies at least, by the Global Financial Crisis (GFC) (Immergluck, 2009). There is, indeed, a large literature documenting the extent to which an overheating housing market undermined economies, bankrupted individuals, and compromised proper stewardship of the housing stock (Aalbers, 2015; Mian & Sufi, 2014). Less well understood is the fact that, far from promoting inclusion, expansionist policies created a zone of occupation at the edges of ownership where households’ fiscal and wider well-being was, and remains, at risk. These spaces are curiously neglected in the literature, whether pertaining to the established home ownership societies, or to some other world regions where expansionist visions still prevail.

Collectively, the papers in this issue advance empirical and conceptual understandings of the neglected edges of home ownership, where life chances and opportunities are shaped, in part, by the changing role and relevance of housing wealth. Some approach this by developing an understanding of how the increasingly fungible nature of housing wealth has transformed its welfare role, while at the same time exposing those on the edges of ownership to heightened levels of risk. A second set of papers report from a variety of jurisdictions to show how the meaning, use and institutions – and therefore the structure – of the edges of owner-occupation vary across cultures and states and change over time.

All of them profile the edges of ownership as a precarious border in which households juggle their savings, spending and debt in order to attain or retain a foot on the housing ladder. Theoretically, this zone not only contains opportunities to use mortgage debt creatively to mitigate adverse shocks and support home ownership, but also harbours financial risks that precipitate arrears and repossession. In expressing the balance of these forces, the edges of ownership contain some important signals about the functioning of housing systems as a whole, and the papers in this issue help identify these.

The six papers that follow thus enlarge our understanding of the challenges that changing home ownership structures are posing for housing policy. All the papers pick up on a neglected zone ‘in-between’ sustainable owner-occupation and long-term rental in which the dilemmas of tenure-divided housing systems, especially in urban areas where wealth gradients are particularly steep, are played out. They build both on themes developed in an earlier IJHP special issue, The Ongoing Financialisation of Home Ownership -- New Times, New Context, with guest editor Ray Forrest (Forrest, 2015), and on ideas set out in an exploratory review of the edges of ownership by Wood, Smith, Ong, and Cigdem (2013).

As well as advancing theoretical understandings of the edges of ownership (both at the boundary of owning and renting, and in the zone of transition between the margins and mainstream of owner-occupation), this collection embraces the challenge of establishing the extent and robustness of the evidence base. There are papers which between them have conducted innovative analyses of major national datasets drawn from all jurisdictions that produce them. Qualitative data resources are also drawn on where they shed light on these marginal spaces. Some address the determinants of access to and exit from ownership; others profile the changing use and distribution of housing wealth within and between generations. As a whole, the collection is concerned with normative as well as analytic theory – it is about both critiquing the present and creating the future (Olson & Sayer, 2009). The contributions yield important insights that can guide governments seeking to: improve the lives of disadvantaged and debt impoverished households; transform tenure-divided housing systems; and advance some key housing and urban policy aims.

Turbulent transitions

The first section of three papers examines transitions on the edges of home ownership, identifying the role played by intergenerational wealth transfers in lifting beneficiaries into home ownership. Collectively they deal with key features distinguishing the boundaries between home ownership and renting. Köppe's (2017) paper takes a comprehensive look at transitions across the edges in all directions from a UK perspective. Sequence analysis is applied to describe the housing wealth pathways travelled along by mortgagors as they strive to achieve outright ownership, as disclosed by the unit records of the British Household Panel Survey. The study identifies and describes the risks that mortgagors are exposed to, and the tactics they employ to mitigate risk as mortgage managers. Multinomial regression model estimates suggest that a minority is trapped on the edges of ownership; individuals caught in this trap are more likely to be female, younger, experience a relationship breakup, have high mortgage-to-income ratios and children present in the household. Home ownership is no safety net for those on the edges of ownership; it is rather a liability that exposes mortgagors to new social risks.

Wood, Smith, Cigdem, and Ong (2017) focus on two countries with debt-funded ownership-centred housing systems, Australia and the UK, and, like Köppe (2017), the focal point of the empirical work is transitions at the edges of ownership. They conceptualise the edges of ownership in these countries as a precarious, permeable, and contested border zone. The edges are then spaces that new entrants seek to vacate, as they establish their housing asset-base; positions to which those who struggle with housing costs may be forced to return; and locations where households actively juggle their savings, spending and debt as they attempt to retain a foot on the housing ladder. Using panel survey data for Australia and the UK for the decade to 2010, the authors focus specifically on the risk of exit from ownership. The analysis considers in hitherto unprecedented empirical detail how, why, when, for whom, and in what way the edges of ownership proved precarious in the decade to 2010. Curiously, while the macro-economic environment of the later 2000s pushed many households to the very edges of ownership, the majority in both countries managed to cling on. Despite some similarities, however, Australian and British home owners responded very differently to the shocks of the early twenty-first century, in ways that testify to important institutional differences between jurisdictions. The Australian housing system better accommodates those who wish to exchange the costs of owning for those of renting, and are willing to move home in order to do so. In contrast, as British mortgagors’ payment difficulties climbed to levels higher than those in Australia, support for mortgage interest (a social benefit), the extent of lender forbearance and limited opportunities to use the rental sector to adjust to financial pressures kept British exit rates at relatively low levels over the study period. This may, however, have come at considerable psycho-social cost.

Cigdem and Whelan's (2017) paper takes up some of these themes, pointing to the diverse ways in which housing wealth is experienced and used by different owner cohorts at the edges of home ownership. Wood et al. (2017) find that although recent young home buyers are especially precariously positioned on the edges, their parents, if home owners, will have ridden a wave of house price gains that replenished wealth portfolios. Mortgage innovation has delivered new instruments that allow established owners to make equity withdrawals that can finance intergenerational transfers. This is one route for the children of mainstream owner-occupiers to get a foot onto the housing ladder. Cigdem and Whelan (2017) shed light on this, documenting the extent to which intergenerational wealth transfers facilitate moves across the boundary between renting and home ownership, and aid transitions from the edges and into mainstream ownership. Their empirical work is based on an Australian longitudinal dataset, with a large sample of survey participants, which is unusual in identifying inter-vivos parental cash transfers, as well as bequests. They find that children that are the beneficiaries of intergenerational transfers have a higher probability of subsequently transitioning into home ownership. A second important finding, however, is that bequests are typically received later in individuals’ housing careers, so that their main effect may be to help shift mortgagors away from the edges and into mainstream home ownership. In that sense, intergenerational transfers have a stabilising role.

Convergence or differentiation?

The second group of three papers examines the edges of home ownership within different policy and institutional contexts. These highlight differences in the space separating longer term renting from mainstream ownership across countries with different cultural affinities and policy settings. They offer case studies from the perspectives of European countries with varying institutional structures as represented by Hungary (Csizmady, Hegedüs, & Nagy, 2017), Spain (Pareja-Eastaway & Sánchez-Martínez, 2017), and one developed East Asian economy, as represented by Japan (Hirayama, 2017). Home ownership has become the dominant housing tenure in all three countries, though nowadays more so in Hungary and Spain, than Japan. While all three countries’ home ownership societies are at risk, the threats to that status emerged earlier in Japan with the collapse of its land and housing markets in the 1990s following the spectacular burst of a speculative bubble in those markets. Hungary and Spain both experienced very serious housing market disruption in the aftermath of the GFC. But these countries’ housing systems evolved along very different paths in the decades preceding the GFC.

Csizmady et al. (2017) chart the transformation in Hungary's post-communist era housing institutions. The 1990s witnessed a wave of privatisations as the municipal housing stock was sold off. Moreover, in the early years of the new millennium deep subsidies to mortgagors, and an open housing finance circuit in which foreign currency denominated mortgages flourished, were important planks supporting a pro-home ownership policy that succeeded in establishing Hungary as a ‘nation of home owners’. The lack of rental housing options also helped propel lower income households into home ownership (Hegedüs, Horváth, & Tosics, 2014). These marginal home buyers formed the edges of ownership, a group that the GFC revealed as over-exposed to the risks posed by house price slumps, interest rate increases and serious personal setbacks such ill health, divorce or unemployment. Csizmady et al. (2017) offer an absorbing narrative explaining how Hungarian housing policy evolved post-transition, and its role in precipitating a housing system crisis once the GFC struck.

The focus in Pareja-Eastaway and Sánchez-Martinez (2017) is Spain. In contrast to Hungary, where government promotion of home ownership was the driving factor establishing a home ownership society, the family and intergenerational transfers of property were, until the 1980s, important planks supporting Spain's home owning society. Despite the different paths taken by these two countries’ housing systems, the edges of home ownership in Spain proved no more resilient after the GFC. The authors indeed conclude that the edges have become more precarious. The strong focus on home ownership stimulation policies before the GFC which, allied to ‘easy’ access to credit, had been driving the Spanish economy, culminated in serious affordability problems for those households living on the edges. They were often compelled to buy housing because there were few rental alternatives, be they private or social. Those most affected by affordability problems were low-income households and those with mortgage loans to service. Pareja-Eastaway and Sánchez-Martinez (2017) draw attention to low income households’ precarious position on the edges of ownership, as evidenced by higher mortgage debt service-to-income ratios and higher shares of those households with mortgage arrears, as well as arrears on other debts. The authors discuss whether the crisis can be considered a wake-up call signalling Spain's need to ‘change the current obsolete housing policy model’. (Pareja-Eastaway & Sánchez-Martinez, 2017). They also conclude that the GFC has undermined the role of the family as a platform supporting resilience of the home ownership model.

The expansion of home ownership in post-war Japan was closely associated with the rise of nuclear ‘male-breadwinner’ families, and the apparent decline of the once dominant extended family. In our final paper, Hirayama (2017) offers an intriguing account of how Japan's economic decline has combined with demographic changes, as well as neoliberal reforms in housing and social policies, to undermine home ownership's dominance in recent times. Individualisation is the key demographic change; it has led to a significant increase in one-person households living in the private rental sector, with little prospect of independently achieving property ownership. Enduring economic stagnation, abandonment of the lifelong employment system, and neoliberal policy reforms emphasising market processes have accelerated individualisation by depriving younger people of opportunities to get married and establish their own families. But the challenges these developments pose for Japanese home ownership have also promoted a return to familisation that is changing the boundaries separating ownership from renting, and extending a safety net for many of those precariously positioned at the edge. As Hirayama (2017) points out, this is evidenced by an increase in unmarried adults continuing to live with their parents, but also by growth in the number of singles returning to the parental home following economic shocks, and/or biographical disruption. Inter-vivos asset transfer has also begun to play a more important role in enabling younger generation households to attain home ownership. Nuclear family households in Japan are increasingly dependent on parents’ financial support in purchasing houses, as Cigdem and Whelan (2017) also confirm in their paper dealing with this issue in an Australian context. But these trends could widen social inequalities as lower-income households that do not get parental support, and are increasingly excluded from secure employment, are also permanently locked out of home ownership.

A liminal zone

Together the papers in this theme issue conceptualise and profile a hitherto neglected area of the housing system -- a space which is neither fully owned nor wholly rented, and which is replete with both pitfalls and opportunities. Mostly, however, we see that life around the edges of ownership is precarious, with owner-occupation, even where attainable, not fully sustainable for many. Governments have over-egged the ownership pudding, looking to housing assets, even when highly leveraged, to provide much more than shelter for both households and whole societies.

There is, nevertheless, one other opportunity that might be exploited. For scholars, the margins of ownership may be thought of as a liminal zone: a space in which to think differently about the terms and conditions of occupation of the housing stock as a whole, unfettered by old ideas about tenure and what it represents. In truth, if there is, at the edge of a marginal zone, a sharp divide between owning and renting it has to do with how contracts are prepared and policies structured. Most marginal home buyers have little to differentiate themselves from renting, except that they hold a small real stake in their property (including a material interest in its future price). In a more flexible housing system, however, this stake could be harnessed to reduce the stress of over-indebtedness, and minimise the risks of flipping from one sector to another. Equally, most renters could, with more imaginative thinking about rental contracts and sometimes better security of tenure, have a greater stake in the housing market without the costs and risks of whole home ownership. In short, as a platform for innovation, the edges may have a lot to offer.

For households in the twenty-first century, the edges of ownership are precarious; for analysts they may be prescient, offering a platform for new thinking. At the very heart of what looks like a tenure divide, there is perhaps, after all, an imperative to imagine, and create, a housing system for the future that is radically different to the now.

Acknowledgements

This theme issue is indebted to ideas developed during a two-day workshop on ‘The Edges of Ownership’ held in Delft in September 2014, and supported by the Urban Studies Foundation. Papers were prepared and shared in advance, revised following the meeting, and submitted to International Journal of Housing Policy for peer review. The editors and the authors are indebted both to the funding body and to the intellectual vitality and generosity of all those who attended the workshop.

Disclosure statement

No potential conflict of interest was reported by the authors.