June 24, 2015
In one week, my family will no longer be homeowners. We are downsizing.
With daughter #1 leaving the nest this year, and daughter #2 all set to move to your campus in 2017, our family's housing requirements have evolved.
In our move from homeowners to renters ,we are adding our single data point to a larger national trend. Household homeownership rates have fallen from a peak of 69 percent in 2004 to below 64 percent today.
In More Americans Are Renting, and Paying More, as Homeownership Falls, the NYTimes reports this shift from owning to renting as a worrying trend. Referencing the growing costs of renting (up 3.2 percent lasty yea), as rental supply has not kept up with the demand, the Times worries that the decline in homeownership has left, “millions of Americans unwillingly stuck in rental housing”.
There are many good reasons to own one’s home. Owner occupied housing is, on average, of better quality than rental housing. The home mortgage deduction is a huge gift from all taxpayers to the homeowners, the home building industry, and real estate agents throughout the land. Homeownership, however, should never be confused with an overall investment strategy.
The real cost of homeownership is illiquidity. In a dynamic job market, the ability to relocate for a better job (or any job), is what really matters. We are tied to our locales for other reasons than the time it would take to sell our homes (community, friends, networks, family, support, etc.), but the time it takes to sell a home is certainly a rate limiting step on geographic mobility.
So I wonder if the Times’ worry about the fall in homeownership is fully justified. Could it be that at least some of those making the decision to rent or buy are making a positive and proactive choice? Have cultural assumptions around the benefits of owning started to shift?
One hypothesis that is at least worth exploring is if the decline in homeownership is part of the uberification, cloudification, streamification, and airbnbification of the economy. Why takes on all the fixed costs of owning when you can consume a good as a service? Moving from a fixed to variable cost structure almost always means that you pay more per-unit for each thing consumed, but in exchange you gain flexibility and are able to avoid lock-in.
If I lived in a city that Uber served I doubt that I’d own a car. Airbnb has made owning a vacation home less attractive. I stream rather than own my music. My institution consumes our e-mail and LMS platforms as a service from the cloud.
The shift from fixed to variable costs are all around us in higher education. Sometimes this story plays out well, sometimes not so much.
On the good side of the variable costs ledger, the move to consuming rather than owning our services is a positive development. Colleges and universities should stick to their core competencies. We teach. We research. We serve. We should be as good as we can be at these 3 activities. We don’t need to be the world’s best provider of e-mail services, learning management platforms, or data storage. When the last university data center will close I do not know, but the odds are not bad that this event will occur at some point in my working lifetime.
On the bad (very bad) side of higher ed moving from fixed to variable costs is the adjunctification of the professoriate. This trend is obviously bad for all of those educators who, in a different system, would be tenure track rather than contingent. What is also true is that failing to make long-term investment in faculty is a bad long-term institutional strategy. When it comes to a core competency like teaching and learning, following a short-term austerity strategy is the most direct path to long-term decline.
If we believe that institutional investments in faculty should be long-term, then we need to also make the case for what costs on campus should be variable.
Too often, those of us on the side of the argument for making long-term investments in faculty have failed to also make the argument about where those resources can be found.
We need to understand the higher education industry’s retreat from tenure-track and tenured faculty as part of a larger economic and labor market story towards flexibility.
This trend, from owning to renting, is not going to go away. It is not going to going away in the housing market or the technology market, and it is not going to go away in the higher education labor market. This is not a story of heartless executive leadership. Nor is it a story of climbing walls and administrative bloat. What we are seeing play out in faculty labor markets is the result of good people trying to make hard choices in a context of scarcity and rising demands.
It just so happens, however, that some higher ed choices to move to variable costs (contingent faculty) are bad decisions. And some choices to move to variable costs (servers, data centers) are good decisions.
Sometimes it makes sense to buy your home. (Say if you know you will be staying for at least 5 years, you are not buying the most expensive home on your block, you are not thinking of your house as an investment, and buying gives you access to amenities and benefits - such as better schools - that renting will not allow). Sometimes it makes sense to rent your home. The key is knowing when to do what.
The heuristic, that when it comes to housing that owning always trumps renting, should be laid to rest.
In higher ed, we need a new heuristic.
We should be making long-term investments in everything related to core competencies. In teaching and in research and in service. Everything else we should look to rent.
Are you an owner or a renter?
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