“Owning your own home made sense when people cold hope to hold a job for all of their lives. But in an economy that revolves around mobility and flexibility, a house that can’t be sold becomes an economic trap, preventing people from moving freely to economic opportunity.”

Excerpt from Richard Florida’s new book entitled The Great Reset: How New Ways of Living and Working Drive Post Crash Prosperity.


Earlier this month, my 19-year-old stepdaughter moved to her own apartment. As a parent it was a bittersweet moment: On the one hand, a sense of trepidation; on the other, the knowledge that all young people must undergo this rite of passage to develop and mature as individuals.

Once the dust settled from her move, I began to reflect on my own early apartment experiences, including noisy neighbors and a diet of top ramen noodles. My first rental was during my sophomore year at the Ohio State University. Three roommates and I lived in a rat-trap house just off campus. My portion of the rent was $69.13, which underscores the condition of the property. In the ensuing years, I rented two more off-campus apartments in seedy parts of town. Looking back, I consider myself fortunate to have lived to talk about it.

After graduating college and accepting a job that paid $18,700, I decided to upgrade my living accommodations to a fancy apartment on the northwest side of Columbus. Having not yet received my first paycheck, my mother cosigned on a $500 loan for me from Ohio National Bank — a move that not only covered my deposit and first month’s rent but also allowed me to establish my first source of credit.

For many years thereafter, I continued to rent my living spaces, bucking the often prescribed route of home ownership. And, despite the loss of tax advantages, this lifestyle has served me well by providing geographical flexibility and unencumbered career mobility. Nevertheless purchasing a home remains an alluring prospect — the proverbial American dream. That being said, we are not the savers we once were. Instead, we have become a nation of “homeloaners” versus “homeowners,” mortgaged to the hilt and susceptible to the whims of a nationwide home investment frenzy.

Today's Uncertain Economy Has lead Many Americans to Closely Examine the Risks of Purchasing a New Home

As growing numbers of Americans find themselves trapped and underwater compliments of the recent housing bubble, an interest in renting as a housing option has taken on new life. Paul Krugman and Edward Glasser are among the growing choir of economists who argue that more Americans should relinquish the prospect of purchasing a home in favor of a lifetime of renting.

According to the National Low Income Housing Coalition, there are currently 38 million renters in the U.S., comprising one-third of all households. In California, where I currently reside, renting is in vogue, with approximately 45% of households renting their home, the second highest level in the nation.

The notion of a burdensome mortgage is one factor contributing to the uptick in renters. Another is that some states allow renters to treat all of their rent or at least a portion as a tax deduction or credit. However, according to the aforementioned National Low Income Housing Coalition report a family must earn $38,500 a year (or $18.44 an hour) to afford a simple two-bedroom apartment at the 2010 National Fair Market Rent of $959.00. According to housing advocates, this fact alone justifies the need for a greater supply of low-income units, as well as rent controls. To the contrary, free-market advocates such as Hoover Institution scholar Thomas Sowell beg to differ, arguing that these practices place unfair market restrictions on the owners of these properties, at times to their demise.

Denver's LoDo District Has Seen Growing Numbers of Condo Units Converted to Rental Housing as a Hedge to the Tepid Real Estate Market

Perhaps the most controversial issue in the rental housing sphere is a concept referred to as section 8, where the federal government subsidizes rental payments for families with very low incomes. The U.S. Department of Housing and Urban Development serves as a funds distribution portal for local housing agency authorities—also known as public housing agencies—with rent prices regulated through a government-instituted standard called Fair Market Rent.

In light of increasing public scrutiny on the cost of the federal government’s involvement in social programs, politicians and society overall should consider a new business model for low-income housing residents. Frankly, the long-term sustainability of funding for low-income housing has a greater likelihood of success if the monies are used as a bridge to a better life versus just a resting place.

Similar to the Welfare to Work program championed by former President Bill Clinton in the ‘90s, residents should be permitted to rent for only a short duration, while they receive federally funded career training and dependent care services. The goal would be to encourage residents to pursue a self-sustaining lifestyle where they can reach a reasonable standard of living, allowing them a larger set of housing options over the long run.

While we’re on the topic of best interests, college graduates would also benefit greatly if they were to consider renting as a first option. Here’s why: Young professionals that pursue a path of home ownership prematurely can find themselves weighed down by a mortgage, restricting any career options that require a geographical move. Why not enjoy the freedoms inherent at this time in a young person’s life? Trade in the tired mindset of homeownership in favor of something more realistic. This generation’s new mantra should be: Go to college, get a good job, and rental sweet rental.

Actually, demographic trends suggest that young professionals will be the primary drivers of the rental surge. To this point, Harry Dent in his book “The Great Depression Ahead: How to Prosper in the Debt Crisis of 2010-12,” suggests that the needs of this demographic will be a major driver of apartment demand in the foreseeable future, a boom to developers in this area.

For now, though, the jury is still out as to whether more Americans will embrace the notion of renting as a legitimate housing option. On the surface it does make sense, as we have all watched homeownership develop into a nightmare for those who could not afford one in the first place. And amid today’s uncertain economic times, being able to relocate quickly without the shackle of a mortgage is a blessing in and of itself.

Michael Scott is the Editor of Urban Engagement Webcity. He can be reached at michael@vdowntownamerica.com

Advertisements