New Hybrid Rent/Own Models Could Remodel the Housing Market

A relatively new arrangement, combining the advantages of renting and buying, could help people keep their homes and help millennials enter the housing market. But hidden within that idea is a danger.

As home owners and renters look for more affordable living solutions, entrepreneurs are offering new products that could give them the right option, but that may also forever change the housing landscape. Here, The New York Times discusses new rent/ownership models and their potential impact.

For the time being, this arrangement is mostly happening alongside traditional financing of the home. In other words, companies are taking an ownership stake in homes bought with cash or with a mortgage.

But at least one firm, San Francisco-based Haus, is already co-investing most of a home’s value, eliminating the need for a mortgage altogether. It requires monthly payments that can dial up or down the occupant’s ownership share, or keep it steady. And it allows people to roll over the co-investment with new terms at 10-year intervals. (The current practice is to require people to sell or refinance the home after several years so the co-investor can cash out).

Setups in which the occupant never attains full ownership amount to a new way of financing shelter — an owner-renter hybrid. The occupant of the home, without fully owning the property, simultaneously enjoys some of the benefits of homeownership and rental living. Specifically, occupants have some of the security of a homeowner. They need not worry about the landlord’s renewal of the rental contract or about rising rents for an extended period — nor must they come up with funds to ultimately acquire ownership, such as principal payments on a mortgage.

The idea of an owner-renter hybrid isn’t entirely novel. It resembles rent-to-own arrangements, including those of some high-profile new start-ups, as well as some more esoteric financial arrangements for shelter that have cropped up in the past, such as shared appreciation mortgages. In fact, if occupants keep their ownership share steady, it achieves the same end as a very long-term rental contract.

This hybrid also has much in common with rent control. Like rent control, it guarantees a predictable flow of housing costs for the long run and affords the resident protections — from eviction, for example — that provide a degree of permanence.