Buying and selling rooms can solve the affordable housing crisis.
Combatting poverty - Part I
This post is about an innovative approach to allow young people to get on the property ladder, even in major cities where real-estate is scarce and housing prices are out of reach.
The idea is to create a property market for rooms.
Many low-income earners currently spend a large part of their income renting rooms.
This happens either through co-renting (property owner is aware) or through an unofficial sublet (property owner is not aware).
At the end of the day, the rent is used to pay off the property purchase. (Illustrated simplified)
Note that for simplicity I will ignore the maintenance of the shared spaces, utilities and how to keep the peace inside those apartments.
The person barely able to afford the 300 EUR/month room will never be able to buy this apartment.
The inability to buy the room you live in is a poverty trap
This person may never have the earning capacity to save enough to buy this apartment, yet he’s spending a lot of his money on renting which could be used to build equity.
The proposal is to enable people to become owners of the room itself and the legal rights that come with property.
It would look like this:
This would enable them to replace rent with equity and over time they can trade up the property ladder by either selling the room or renting it out to somebody else.
The reason this does not exist is because of the legal challenges to treat rooms as separate property for lending.
I’ve looked at creating this type of property, but in order for banks to be able to fund this they need to be able to foreclose on a room instead of a property. Today, the only way to do this is when all 4 tenants co-sign a mortgage. This creates a situation where non-payment of one tenant has to be covered by the others.
There’s also no legal framework for managing neighborly (roommate) disputes such as building administrators.
For a bank, they can only foreclose on the entire property and not on the rooms itself and as such it doesn’t give them the same level of security as underwriting the entire property.
It would have to make sure that rooms are treated similar to apartments in legal terms.
Proper recourse against apartment mismanagement
Decision-mechanisms for joint decisions similar to buildings
Very quick resolution channels for disputes
Can sell their room to anybody
Can mortgage their property
Can rent out their property
Can create rental contracts for rooms
Income from rooms is treated similar as income from apartments
Can be foreclosed by the court and be forced to sell
Tenants can be evicted through courts
Have a system of record to establish ownership and liens
It’s a radical idea but for lower middle class people who are stuck being lifelong renters it is a solution.
A European directive would be a great way to remove those hurdles.