8/31/2010 9:00 AM ET|
Renting gets a new lease on life
Millions of Americans going through foreclosure will become renters by necessity. Many others will rent by choice. Should the government keep subsidizing owners?
The dust is settling from the nation's housing disaster, and the verdict is in: Renting is the new green.
"We're going to take 5 million to 6 million homeowners and turn them into renters because they're going to lose their house to the bank," says housing analyst John Burns, the CEO of John Burns Real Estate Consulting.
Homeowners, he predicts, soon will make up just 62% of the population, putting the own-vs.-rent balance back where it was in 1960, as the "ownership society" was ramping up. Homeowners are at 66.9% right now but falling fast.
The federal government has been pushing homeownership since before World War II. By 2004, almost 70% of Americans owned homes. Experts can't put a finger on exactly where we crossed the line from supporting homeowners into outright craziness.
Some say the government pushed mortgages like crack. Others blame lenders for products such as no-income, no-asset loans. Still some blame borrowers for violating the simplest rule of personal finance: If you can't afford it, don't buy it.
Although the emphasis may be changing, we're unlikely to completely cut off housing's IV drip of tax money, because withdrawal could flatten the economy. The mortgage-interest deduction alone ($131 billion) far exceeds the cost of the Afghanistan war ($105 billion) and dwarfs the $48 billion being spent on all Housing and Urban Development programs this year.
"We have a fixation on ownership," says Dean Baker, a co-director of the Center for Economic and Policy Research in Washington, D.C. "The idea is, if you're not an owner, you're a second-class citizen."
Are you better off renting?
Homeownership is thought to give communities greater safety and stability, and to help individuals build wealth. But the government is going to expensive extremes in the name of homeownership, Baker says.
Take the Obama administration's Home Affordable Modification Program: It has paid lenders $22 billion to modify troubled mortgages but has actually rescued relatively few homeowners. "I'm very sympathetic to helping people trying to stay in a home," Baker says. "But we're giving the banks money, and people end up losing their homes anyhow."
The government's fixation with homeownership isn't likely to disappear. Politicians use tax subsidies to manipulate the economy and appease their campaign contributors and other constituents. And, motives aside, homeownership is what many people believe makes America America. Federal Housing Administration Commissioner David Stevens recently told USA Today, "We have to be very pro-homeownership." He added, "We strongly believe in a balanced housing policy. . . . Not everybody was prepared to own a home."
Most tax money spent on housing favors owners. Last year, federal tax breaks and subsidized mortgages cost $230 billion; just $60 billion went to making renting more affordable.
It's not like this everywhere. In Germany, for example, nearly 60% of people rent their homes. The family and neighborhood stability that's supposed to come from encouraging homeownership comes instead from laws protecting renters, Baker says. Carefully written laws take landlords' rights into account as well, he adds.
'Could' does not mean 'should'
Not everyone should be a homeowner -- not even if, because of plunging prices and record-low interest rates, it's cheaper in many cities to buy than to rent.
No, the reason it's smarter for many people to rent is because it's flexible. With buying, you're stuck if you can't sell. You should rent if you're just starting out, haven't saved much, may get divorced or have several job moves or life changes ahead. People in their 20s, for instance, change jobs an average of seven times. One-third change homes in a given year, and 40% return to their parents' homes at least once.
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