Some have recently suggested that in the wake of the housing foreclosure crisis, America should become a society whose housing is more centered on rental units than homeownership. A move in that direction would be a mistake.
One of the persistent and unfortunate myths of the housing crisis is that a push to expand homeownership was culpable for the housing crash. This is plainly and demonstrably false. In fact, the vast majority of the bad loans that got us into trouble and led to the foreclosure crisis and the great recession were refinances or loans to people who were already homeowners. Unfortunately, this misplaced blame has given wake to arguments in some quarters that the government should get out of mortgage finance altogether, and that housing industry must now turn to offering rentals for more Americans.
The reality is that homeownership has historically been the number one way for working Americans to pull themselves into the middle class. Homeownership offers an opportunity to build wealth, through equity, that renters simply do not enjoy. It needs to be done right; the loans need to be responsible and sustainable. But make no mistake: Homeownership is an irreplaceable engine of class mobility.
America is a place that holds the promise that if you are willing to work hard, and give your best, that you should be able to have the opportunity to prosper and build a better life for your family. We believe in giving everyone a fair shot. We believe everyone should have a place at the table. But without robust and responsible opportunities for homeownership, the climb for working Americans to enter the middle class gets a lot steeper.
We must not allow homeownership as an idea to be abandoned because of the irresponsible, malfeasant lending that led to the collapse of the housing market. It was primarily industry greed in an under-regulated industry that drove America's economy off of a cliff. Let's not scapegoat homeownership just because we had a period of bad lending.
We need to take a hard look in the mirror in coming years. Do we want America to become a two-tiered society, where working and middle class families are consigned to rent for life, and homeownership is exclusively available to the wealthy? Or do we want to restore and maintain the opportunity for hardworking, responsible Americans to own their own homes and build a better future?
Recent polls and surveys have shown that even in the wake of the devastation from the foreclosure crisis in America, "an overwhelming majority favor homeownership." Americans have every reason to distrust banks and financial institutions after this crisis, but they also have every reason to want to own a home.
Unfortunately, even retiring Representative Barney Frank recently stated in an interview that he has "always been pushing for rental housing," and opined that Americans have a "cultural bias that homeownership is better." The reality is that Americans are right to value homeownership. No other option for working-class families provides an equal or better opportunity to share in our country's economic progress. The equity built up from decades of responsible homeownership has resulted in many businesses being started, many first generation college students going to college, and many families saving a nest egg for their children to build upon. The tax laws reward homeowners, not renters. Renting, while it is an option needed by many, should not be the preferred or only option for those who could otherwise afford homeownership.
Jed Kolko: Buying a Home Is 45% Cheaper Than Renting
"the vast majority of the bad loans that got us into trouble and led to the foreclosure crisis and the great recession were refinances or loans to people who were already homeowners."
and then...
"We must not allow homeownership as an idea to be abandoned because of the irresponsible, malfeasant lending that led to the collapse of the housing market."
So who was to blame? Existing homeowners that took out loans they shouldn't have or bankers lending in an irresponsible manner? It wasn't existing homeowners signing on to ballooning ARM's or stated income loans (the irresponsible lending).
The fact is that the government created policy that inevitably led to irresponsible lending. That does not absolve the lenders who engaged in those practices, but the fact is that someone would have stepped into the role that government policy created.
And people taking out excessive loans was a product of policy as well. The excessively and artificially suppressed interest rates of the 2000's made taking loans against equity in a home excessively enticing. Again that does not absolve people for behaving irresponsibly, but policy made excessive borrowing an inevitability.
You cannot absolve government of its responsibility. Its policies made both the credit and housing bubbles inevitable.
I have middle-class relatives in Germany who have rented their entire lives (in PUBLIC housing, no less! It's very different there.) They have no more interest in owning their apartment than they would in owning an airplane for vacation travel. Their overall standard of living is far better than mine.
Finally, it pays to remember that you never really own your home, you rent it from the government. If you don't think so, try neglecting your property taxes for a while and see what happens.
Some comments on here are pointing out that buying can actually be cheaper than renting (not including equity build up). I know where I live, it is about $300/month cheaper to buy than rent (including tax and insurance payments). Problem is, in many areas the property tax is so high that it has caused this equation to flip - many areas are cheaper to rent than buy because of taxes alone.
Lower property taxes is the key to increasing home ownership, especially for low to middle income families.
estate industrial complex to keep the billions flowing.
-- the whole industry thrived and made billions on abusive practices. Unfair trade practices and False claims and no one NOT one government agency stepped up and tried to correct it
I would just ask all of the respondants to consider this: When you reach retirement would you rather have a nil payment and own where you live? Or would you rather be more secure at the whims of a landlords ever increasing rates? (not to mention right to sell the place out from under you...or manage the property condition on their preferences and schedule) Furthermore, do it on a social security check? I posit that only those who are mega-savers or wealthy should go the rental route...
Locations and mileage will (and do) vary ....
I would also recommend renters get insured as well, but like homeowners (after mortgage is paid off) this is optional...
Here in Boston (and I presume most places) the landlord either passes on those costs to the renter, or, as I personally experienced here in Boston, line items it above and beyond the rent.
Rarely a year goes by where the rent has not grown by a minimum of 5% (usually 10%!)...that simply won't happen if you own, and personally I think that is why buying, locking in a rate, is safer and better...in the LONG run.
example: my current payment is about $1700 month. a similar unit in my neighborhood now rents well above $2200 month. I am getting the equity (and already have a lot). The renter is buying someone else's equity/investment...so they can either cash out later, or whenever THEY want...or just keep raising the rent each year and continue to milk the rental cows.
Meanwhile, renters are more vulnerable when their economic conditions worsen, as they are likely to be evicted or lose their abode in some other ways.
In some of the countries with low home ownership (such as Germany or Switzerland) a good chunk of real estate is owned by the real estate managing branches of banks and insurance companies, as they invest their profits in real estate and get extra income from rents to supplement their activities. Some other countries (such as the UK) make a point of earmarking public funds to develop affordable housing estates to counter homelessness and provide their disadvantaged citizens with suitable dwellings. And that also helps the economy by providing jobs to construction firms and maintenance crews.
Home ownership should be incentivated and not discouraged, like it is happening now in the US...
If you had purchased a home in a west coast city circa 1960 for $10,000, you were able to sell that home 40 years later for $200,000. Not bad.
In order for this same return, the young couple who purchases that home in year 2000 for $200,000, in the year 2040, that home will have to sell for $4,000,000 for the same multiple in earnings. Ouch, it is hard to imagine that forthcoming change in home value in the upcoming decades. Yet....that is what we are confronting and the whence from our current position.
And an even MORE important economic question that nealry cancels out the first: If Americans wages have been stagnant for the last two generations, how have Americans been able to afford skyrocketing home prices?
The problem is, with every change they enacted, they ran out of borrowers. When the market was saturated they had no ability to move money, so they'd change laws and develop new products to reinvigorate the market. The problem is, none of that is as sustainable as a steady market and stable incomes. With the boom and bust cycle they perpetuated in the market, incomes were constantly eroding or failing to keep pace with the cost of living. Again, you get to a tipping point where there is nowhere else to go. The last round of products they developed were engineered for short term profits only. The heavy betting on failure is further evidence that they knew the economy was inflated to an unsustainable level.
In short, Americans haven't been able to sustain home ownership for much of the past thirty years except by use of smoke and mirrors and heavy credit borrowing to keep up with their expenses.
If you don't own your place at retirement.....good night nurse!
Of course for young mobile and transient workers, people without roots yet, temporary needs etc, renting is fine. Beyond that, renting just makes landowners, banks, and other investors rich landed aristocrats. You would find an even greater divergence of the 1% from the 99%...
But to answer your question YES! Yet another BS tax code writeoff as "income loss"...
I know this when we moved our business due to crazy rents. The economy was beginning to tank, the locale was not particularly viable for a diversity of business operation (ours was manufacturing so we didnt need street traffic etc) and the landlord wouldn't budge an inch on compromising the rent...and I just asked not to raise it, not to actually lower it!
The landlord, who like most owned several properties, just patly stated he didn't care, if it sat empty (which it did for over three years!) he'd just write it off!
(luckily we just left and moved to a lower rent place)
Renting only takes money away from the middle-class and gives it to the wealthy.