Homeownership 2.0

Abstract

Current legal arrangements make homeowners high-stakes gamblers. Homebuyers routinely take on crushing debt loads to put huge sums of money into risky, undiversified ventures that are utterly out of their personal control - local housing markets. That these markets typically post positive returns over time is of little comfort to those caught on the downside of housing market volatility. Moreover, because rights to these expected gains are priced into the home, many would-be buyers are priced out of the market. The shortcomings of the homeowner's standard investment package have not escaped notice, and for decades scholars and innovators have tried to devise better ways to manage the upside and downside risks of owning a home. Derivatives markets for such risk have recently begun to emerge, due in large part to the collaborative efforts of Karl Case, Robert Shiller, and Allan Weiss. As the technical capacity to slice, dice, and trade homeownership risk advances, this paper steps back to examine how a reduced-risk version of homeownership fits together with property theory, human cognition, and the social dynamics of neighborhoods and metropolitan areas. To explore these questions, I present a new tenure form - Homeownership 2.0 - that seeks to optimally unbundle certain investment components from the core homeownership package.

Keywords: homeownership, tenure choice, property forms, risk, derivatives, housing indexes, home equity insurance, cognition, local governance