Was Home Ownership Overrated? Is Renting Better?
Who can forget poor Mr. and Mrs. Martini in It's A Wonderful Life, given the opportunity of home ownership in Bailey Park. They got to leave Mr. Potter's dense, mixed rental community.
A few years ago on TreeHugger, right at the beginning of the Great Recession, I wrote a few posts suggesting that people might consider renting instead of following the Great American Dream of owning a house. When I wrote Is Home Ownership a Good Thing?, I listed some of the problems and quoted some well known thinkers:
Lack of mobility. James Surowiecki in the New Yorker: "
Homeownership also impedes the economy's readjustment by tying people down. From a social point of view, it's beneficial that homeownership encourages commitment to a given town or city. But, from an economic point of view, it's good for people to be able to leave places where there's less work and move to places where there's more. Homeowners are much less likely to move than renters, especially during a downturn, when they aren't willing (or can't afford) to sell at market prices.
Housing tenure is not a given. It is associated with particular modes of production. Homeownership was a critical cog in the fordist economy - stimulating purchases of everything from cars and washing machines, spurring the large-scale development of infrastructure. But it is a significant institutional impediment to the flexibility, adjustment and mobility the creative economy requires. NYC and London will derive even greater benefits over time from high rates of renters.
Commenters generally disagreed, calling home ownership a great long term investment and suggesting that stable homeowners build stable communities.
Hmmmm, Bailey Park is lovely, but now I need a car to get to the bar. Maybe two, so that Mrs. Martini can go shopping.
Two years later, and a bit too late, a lot of others are writing about the benefits of rental. Chris Suellentrop writes in Wired this week:
You know the story by now: The rate of homeownership climbed to almost 70 percent, sellers walked out of closings trundling wheelbarrows full of cash, and the phrase "granite countertops" seemed to hold as much promise as "plastics" did in The Graduate. Then it all fell apart. We woke up in a Rentership Society, and it's starting to look permanent. And you know what? Thank goodness. Ownership, it turns out, is for suckers.For renters today, finding a new apartment on craigslist is almost as easy as streaming a movie. (OK, not quite, but you get the point.) Homeowners don
That is perhaps harsh, and a bit flip.
At the Atlantic, Daniel Idiviglio points out that it all happened because of government policy and subsidy, much of which might be lost in the great retrenchment.
At this time, most of the advantages for buying instead of renting are provided by the U.S. government, like the mortgage interest tax deduction. If you take out the government's influence, then homeownership and renting begin to look a lot more similar in terms of financial advantage. In fact, if you aren't in a very stable place in your life, then buying a home can actually make matters worse, as it could limit your labor mobility, and your closing costs and fees might not be covered if you must move only a few years after buying.
The Martini Mansion. Here is salt so that life will have flavour, bread so you will never go hungry, and a mortgage.
Finally, Joe Plemon sums up a lot of the reasons on a site called Christian Personal Finance.
Some of his key points:
1. Less Risk. That's obvious; there is almost no risk compared to having a house and a mortgage.
2. Less Hassle. "Sewer backed up? Call the landlord. Roof leak? Call the landlord." Joe clearly has not landlords like some I have heard of, but the concept is right, if you don't own it, you don't fix it.
3. Flexibility. This is one we have stressed all along: mobility. You are not tied down to one spot. Commenters have pointed out that people are still tied down by family, schools, relationships, but one is still more flexible.
There is more, including that the tax advantages are not as great as they are thought to be, and that you are not "throwing your money away on rent" when in fact if you have a mortgage, you are throwing your money away on interest. Good points all at Christian PF.
There was a line that was used in the last boom about how far you had to go to get a house you could afford: "drive until you qualify." With the tightening up of lending, buyers have to drive an awful lot farther. A lot of young people are not interested in that any more (New Study Says Young People Want Apartments, Not Houses; iPhones, Not Cars), even those with kids. Renting makes more sense than ever.