Owning a home has been the keystone of the American dream for generations, but a growing number of people expect to rent one their entire lives.
These “forever renters” vary widely in their reasons for not pursuing home ownership.
Some have simply given up on buying a home due to affordability, as house prices have climbed to record levels, mortgage rates have surged to multi-decade highs, and saving for a down payment has become unfeasible as living costs soar. Others prefer the flexibility to move and freedom from ownership costs that renters enjoy.
Homeownership and renting have numerous pros and cons, making it hard to say whether forever renters are acting shrewdly or making a big mistake.
Business Insider asked four experts to weigh in on the trend. Here are their comments, lightly edited for length and clarity:
1. Grant Wilson, assistant professor of marketing and innovation, University of Regina
“There is a misconception that all renters can’t afford to purchase a home or condo. In fact, there is a growing trend toward individuals and families choosing to rent versus buy. Some rent-versus-buy decisions reflect larger market conditions such as inflation, interest rates, and downpayment requirements, but certainly not all.
“My research finds that lifestyle renters — those that choose to rent over buy — ‘perceive renting to have affordability, flexibility, location, and limited liability benefits over home ownership.'”
2. Eunjee Kwon, assistant professor of real estate, University of Cincinnati
“Home ownership is important because rent payments do not build equity, and there is always the potential for rent increases, making renting less affordable over time. Renters also face less stability due to eviction or non-renewal risks, especially in major US cities.
“However, renting could offer several advantages over homeownership. It provides greater flexibility for relocation, which is beneficial for younger adults seeking job opportunities. Renters avoid large down payments and the varying costs of homeownership, such as mortgage payments, taxes, maintenance, and repairs. Additionally, real estate is a less liquid asset and a large portion of household assets, exposing households to market fluctuations.”
3. David Brasington, Kautz chair in political economy, University of Cincinnati
“The historical return to homeownership over the last 50 years in the US is about 4% per year, and the average return to stock ownership over the same time is 10%. On the surface, stock ownership is a no-brainer, but stock returns are more volatile, and the biggest return to home ownership is that you get your rent back when you sell the house: it’s like living there rent-free.
“But then you have to calculate all the costs of owning a home, like maintenance and repair, lawn upkeep, insurance, and so forth. There’s also a question of financing. To rent, you have to come up with monthly rent plus a deposit. To buy, you have to come up with a down payment of 20%. It’s also cheaper to change the place you’re renting than the place you’re buying because of real-estate agent fees.”
4. Colin Lizieri, professor of real estate finance, University of Cambridge
“In the Anglosphere, there seems an unspoken assumption that owner-occupation is the ‘natural’ form of housing tenure — the ‘American dream’ of owning a house and a car — that is reinforced in the media and reflected in public policy.
“But in other successful Western economies, many adults remain in rental housing for much or all of their lives: Germany or Switzerland, for example, where over half of households rent, with a much higher proportion in cities.
“If markets were efficient, then households would be able to choose freely between renting and buying, with the lower capital costs and greater mobility of the former set against any investment potential of the latter. Housing affordability is essentially about supply, not tenure.”
An age-old question
Forever renters, whether they’ve been priced out of buying a home or they’re choosing to rent for the long run, stand to lose by handing cash to their landlord each month. They could be paying down a mortgage to gradually gain ownership of a home, which they would likely be able to sell for a profit or pass on to their loved ones.
Renters often have less control and certainty over their living situation as well. But at the same time, they can more easily pick up and move; they avoid a massive downpayment and tying up a huge chunk of their net worth in a single asset; they escape ownership costs like maintenance and insurance; and they might be more able to save and invest each month and earn better returns than a homeowner.
The right option clearly depends on personal and financial circumstances and goals, and people’s local rental and housing markets.
But it’s worth questioning whether home ownership should hold such primacy in people’s minds and propel the nation’s housing policies when that isn’t the case in other countries.
Government incentives can drive up housing demand far beyond the available supply, pushing up prices and exacerbating the affordability crisis. That’s a concern that should live rent-free in all our minds.
