A SOLUTION TO THE HOUSING CRISIS
Today’s millennials who are young and prosperous are forced to spend half their working lives saving barely enough―if anything at all, for a reasonable down payment on their first home at a time when they are starting a family―an injustice of the first order.
There are two sources of the crisis, namely speculation and the way in which home purchases are financed.
Our present legislation fails to take into account that incomes vary throughout the life of the mortgage leaving occupants vulnerable to foreclosures and eviction. There is only one way to deal with the problem: payments must vary with income whether the banks or landlords like it or not―to wit, a floating mortgage or rent where payments are pegged to a fixed percentage of a buyer’s income over the life of the mortgage.
Here’s how it would work:
The cost of a dwelling whether rented or purchased must always be pegged by law to a fixed percentage of a dweller’s current income irrespective of any positive or negative change in his income. In a word, a floating payment plan for a person’s residence. If a person’s income rises his payment would automatically rise with it or decrease should his income decline.
So how could we achieve this? We would begin with legislation that prohibits the use of a down payment of any kind whatsoever and apply the entire cost to a floating mortgage where the amount applied to the outstanding principle would be set at a fixed percentage of the buyer’s income. Interest charges would not be allowed to exceed applications to the principle which would float with the buyer’s income. Hence, any increase in the buyer’s income would shorten the life of the mortgage while income reduction or interruption would lengthen the life of the mortgage.
Such an arrangement will easily put the dream of home ownership within the reach of even the poorest of the poor and eliminate the threat of homelessness flowing from the unforeseen such as job loss or illness.
Any politician who works the foregoing into his platform will undoubtedly be ushered into public office in a political landslide.
All that is required on the part of governments is political will.
I often call this the HELSINKI FORMULA on the housing crisis where homelessness is literally unknown due to it’s HOUSING FIRST policy on coping with poverty.