In the U.S., the attitude towards renting versus homeownership has been changing for years now. With this year’s tax reform shifting and reducing some of the benefits of owning a home, we’re seeing more and more change in the narrative around purchasing a home versus renting debate. And everything points to good news for real estate investors.
Historically, owning a home was a crucial part of the American dream as it is here in Australia. As a mark of success, you hadn’t “made it” until you owned a home. Even recently, homeownership was still a goal, and the only reason the real estate market was lagging was due to financial woes in other areas that caused first-time homebuyers to put off their home purchases.
Renting, by and large, has been seen as an inferior option, often touted as simply throwing one’s money away year after year, versus actually investing in a long-term asset.
But we’re seeing the conversation change.
Freedom and Flexibility of Renting
Traditional wisdom tells us not to buy a home unless we plan to live somewhere for five years or more. Renters are understanding more and more about the commitment of buying a home and how it can affect their lifestyle. Today, people are less inclined to commit to careers for 20 or 30 years, are more likely to work from home, and value mobility and flexibility. People now are more mobile than ever and actively choose to rent because it fits their lifestyle.
When we look at modern millennials (who are now in their 20’s and mid-30’s) we see people who are highly connected, community-minded, and…not all that interested in buying a home, even if they were able to save for the down payment.
Realising How Costly Home Ownership Really Is…
Over the past several months, Forbes has published several articles on the shifting opinions on renting and homeownership in the US. In one such article, it points out just how costly homeownership really is in a variety of ways. Typically, most Americans have only considered the mortgage payment and compared it to their rent payment when comparing what it costs to be a homeowner versus being a renter. We make the same mistakes here in Australia too.
But the article points out this is not an apples-to-apples comparison.
Homeowners have to worry about many one-time costs like closing fees, Realtor fees, mortgage origination fees, and lawyers’ fees, on top of costs like buying new furniture, moving, and purchasing equipment associated with homeownership, like lawnmowers.
Then there are the ongoing costs: property taxes, mortgage interest payments, utilities, insurance, possible homeowner’s association fees (like our body corporate fees, and more.
While many are quick to argue that a rent payment is flushing money down the toilet, the costs associated with buying, owning, and selling a personal residence are high for most Americans today.
When you take into account the increasingly transient lifestyle of modern families and the uncertainty on the return on investment in owning a home, choosing to buy over renting for its own sake just doesn’t make sense to an increasing percentage of the population. There are far better investments to make than a personal home.
A Renter’s Explosion
The rise of the renter is not just in debate or in public sentiment. It’s very tangible. In the United States between 2006 and 2016, the number of people renting versus owning increased by 5% nationwide. In 22 of the 100 largest cities in the US, “rentership” (if that’s a word?) beat homeownership. See below the top 22 cities in the US where renting has overtaking homeownership! This data is a few years old now, but in fact, it has only got stronger in rental terms…I will source the recent data and post it next week!