Saturday, May 15, 2010

In Praise of Renting

Homeownership has long been central to the American dream. At the very founding of our country, ownership of land and civic virtue were seen as intertwined:

"I think our governments will remain virtuous for many centuries; as long as they are chiefly agricultural."- Thomas Jefferson

Homeownership is often seen as the key to individual financial stability and strong communities.

I think it may be time to start thinking differently (of course Central Dallas CDC is mostly a developer of multifamily properties—a landlord—so you may want to take that into account in considering what I say). In the United States today, less than 3% of us work in agriculture. For most of us, our home is only a place to live, not to grow our food. In 1930, when we had less than half as many people as we do now, we had more than six times as many farmers.

The recent housing crisis has brought home the risks of homeownership. JPMorgan Chase issued a warning just yesterday that 29% of homeowners in the United States may owe more on their home than it is worth. (See here, for example, There are a lot of cool calculators on the Internet that purport to show whether it’s better to buy or to rent a home. Here is one from The New York Times, with great graphics:

The problem with all these calculators is that in order for them to work you have to tell them how much home prices and rents will increase or decrease over the number of years for which you want information. I don’t know about you, but I don’t have a clue what will happen to the economy tomorrow, let alone in thirty years. In general home prices have risen over the long term—but not for the last couple of years. Government tax policy also generally supports homeownership, if you are in the right tax bracket, but government policy can always change.

There is something to be said for renting, however. Renting allows us to be mobile. We Americans tend to move a lot. One in six of us move every year, and as a group we average almost twelve moves in a lifetime. My wife and I have lived in the same house for twenty-three years now (but we are moving this year) and almost everybody else I know has moved once or more during that time.

Each move makes homeownership less financially attractive. We may be at the end of a time period in which housing prices always rose at more than the inflation rate. That doesn’t mean that people still won’t want to buy homes and live in them and, hopefully, pay them off. It might mean, however, that it won’t make sense to buy a house until you are done moving. Too many people now would like to move for a new opportunity and can’t because they can’t sell their house.

Two great American loves, owning our own place and the freedom to pick up and start again somewhere else, have always been in conflict. That conflict may be getting worse.

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