Rent or own? Increasingly Americans opt for rental homes.

Homeownership is supposed to be better for neighborhoods and children than renting a home. But the rent or own debate is not so clear-cut?

By , Correspondent

  • close
    In this Sept. 24, 2007 file photo, a rental sign stands sentry outside a home in the Country Club area southeast of downtown Denver. Given a choice to rent or own a home, a rising number of Americans are choosing to rent.
    View Caption

Homeownership – a central part of the American dream – is on the decline.

The bursting of the housing bubble is pushing current owners out of homes. Potential home buyers are putting off a purchase, evidence suggests, and renters are choosing to rent for longer periods of time. After reaching a high in 2004, the share of Americans who own their home has fallen to the lowest level in 13 years – and it's likely to slide more.

"Renting used to be the thing you did until you could afford to buy a house, but this has definitely changed," writes Peggy Alford, president of Internet rental-listing site Rent.com, in an e-mail. "While home-ownership will always be part of some people's American Dream, it's no longer taboo to rent."

Recommended: Nathaniel Hawthorne: 10 quotes on his birthday

This shift toward rentership is certainly a reversal of the "ownership society" articulated by President Bush in 2003, where a rising tide of citizens with homes, stocks, and other assets were supposed to lead to a more responsible society. For decades, homeownership especially was touted as leading to everything from more stable neighborhoods to better-educated children. So is the shift bad for America?

The rent or own debate is not so clear-cut, many experts agree. The tilt toward renting signals instead a return to more normal levels of homeownership. New research suggests that it isn't quite the driver of social good that it was once thought to be.

For starters, the ability of regular folks to buy a home is a relatively new phenomenon in the timeline of American history. "As recently as the 1930s, fewer than 40 percent of adults in American households owned their homes," says Robert Hockett, a law professor at Cornell University in Ithaca, N.Y., who studies organizational and financial law and economics. Only after the Hoover and Roosevelt administration made regulatory changes in the home mortgage industry did the homeownership rate go up.

The housing bubble also exaggerated the rate. From a high of 69.2 percent in 2004, the share of Americans who own their home has fallen to 66.4 percent, which is still a percentage point or two above the rates that predominated from the mid-1960s through the mid-'90s. Renting, meanwhile, appears to be on the rise. With some 39 million rental households already, the United States is poised to add another 3.6 million households by 2020, according to a recent study by the Joint Center for Housing Studies at Harvard University in Cambridge, Mass.

The debate over which is better for community well-being – renting or owning – comes down to stability. The long-held notion is that owners have a stake in the community and therefore contribute to making it a safe, clean, and pleasant place to live. According to Mr. Hockett, this theory is overblown.

"Lots of people rent because they can't afford to buy, but that doesn't mean that they aren't responsible members of their community," he says. "What really matters is whether they think of themselves as stakeholders. What determines whether you think of yourself as a stakeholder is how long you plan on staying. If you are there for the long haul, you're a stakeholder. If you're transient, you're less so."

Real estate speculation and house flipping, while technically homeownership, did little to contribute to community building, he adds. Conversely, "long haul" renting is an everyday occurrence in cities like Manhattan, which is very stable.

Owning a home has also long been touted as a contributing factor to the development of healthier, smarter children. Not so, says research gathered by the Center for Housing Policy in Washington, D.C., which suggests it's the role of parents, not real estate, that determines childhood outcomes.

"Earlier research suggested homeownership led to better health outcomes, educational outcomes, and fewer problematic behaviors," says Maya Brennan, a senior research associate at the center. "But as we've studied it further it's [traits] like having a high motivational level, a desire for consistency and stability, and a determination to set and achieve goals that are responsible. Moving to renting isn't going to change those characteristics in people."

In fact, affordable rental housing could play a role in cleaning up communities blighted by foreclosures, says Christopher Herbert, director of research at the Joint Center for Housing Studies. The center's new study notes that the pace of conversions of homes from owned to rented tripled between the 2001-03 period and the 2005-07 period, then it nearly doubled again in 2007-09 to 1.9 million units, with single-family homes leading the way.

The threat to the stability of rental communities isn't renters themselves, but quickly escalating rent and utility prices, which have outpaced wages, according to the study. Though this has long been a challenge for low-income earners, it's hitting moderate-income workers now, too. Currently, 1 in 4 renters (10.1 million households) spends more than half their income on rent and utilities.

And rents are rising, up in 75 of the 82 markets tracked by Rent.com, in Santa Monica, Calif. Just about everyone rents at some point in their life. Though some are choosing (or are being forced) to rent for longer, for most it's a steppingstone to buying.

"When you choose a home, you don't just choose a home – you choose schools for your children, you choose public safety, you choose access to jobs … all of those pieces that are rungs on the ladder to opportunity in this country," said Shaun Donovan, secretary of the US Department of Housing and Urban Development, in a speech in April. "We must continue to make the case that rental housing is a fundamental building block of opportunity and prosperity in this country."

Share this story:

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.

Loading...

Loading...

Loading...