From today’s The Washington Post story on how the economic crisis is shifting Americans’ attitudes toward housing and consumption:
“Our attitudes, particularly toward homeownership and housing, are changing, and they are changing quickly,” said Richard Florida, an urban studies professor at the University of Toronto, who explores the phenomenon in his book The Great Reset, which will be released April 27 by HarperCollins…
Florida is among a growing number of researchers who think that these are signs that the United States is becoming a nation of renters, and that the shift could be good for our pocketbooks, the economy and even our happiness. It’s a radical idea, one that goes against nearly a century of tax policy, not to mention the fact that owning a home has long been central to middle-class American identity.
According to Florida, every time the country experiences a great financial upheaval, the way we house people changes. In the 1870s, following the hardships of the Civil War era, Americans moved from farms to cities in droves. In the 1950s, during the postwar baby boom, we populated suburbs and reenergized the economy by purchasing houses, appliances, cars and fuel. Now, he said, people are moving back to cities and renting rather than buying homes. That will free them up to spend money on things other than mortgages and gas, he said.
“To grow a new economy that is going to allow… people to buy new experiential goods, to consume more art, culture and leisure, and buy all these new technologies, we are going to have to enable people to spend less money on housing,” Florida hypothesized…
“The American dream, for many years, was about economic opportunity… before it got redefined as owning a single-family home in the suburbs,” he added. “Now, those two things are rapidly coming into conflict for many people.”
April 9th, 2010 at 5:17 pm
“That will free them up to spend money on things other than mortgages and gas, he said.”
I know homeownership restricts peoples mobility and that after factoring in the cost of owning they are only so so investments; however, ownership does provide an opportunity to acquire an asset – as long as one does not keep tapping into the accumulated equity to live beyond ones means. Becoming a nation of renters who tend to spend every cent saved from the cost of owning eliminates even the chance of acquiring an asset.
Rents are cheap now. If investors put money into rental property without the expectation of capital gains, they will expect income from rents and thus rents will go up. If you expect capital gains to continue then savvy potential homeowners will be better off owning.
April 9th, 2010 at 8:52 pm
Obviously…the rental housing market has to be decoupled/protected from rampant ‘freemarket’ speculation.
April 9th, 2010 at 8:53 pm
RF, an informal comparison of my relatives who chose to buy with those who chose to rent reveals that the “buyers” have more discretionary income and definitely buy more “things” – even if only to maintain their homes. The “buyers” are also more likely to buy things that they will only use occasionally, such as exotic electric appliances. And the “buyers” are also more likely to own cars.
Perhaps the migration to renting is one reason for our slow economic recovery … ???
April 11th, 2010 at 2:28 pm
Mike L
I believe you are thinking of this the wrong way….as if they didn’t spend money on all those things made in China that they wouldn’t spend any money. Instead, renters will spend their money on restaurants and entertainment… where things *will* help the local economy.. and farmers.
April 12th, 2010 at 10:10 am
Here are several alternative thoughts: after a financial shakedown, banks will recover losses by raising interest rates, so perhaps people don’t want to fall into the mortgage trap until the altered financial landscape is known. Home ownership is also increasingly being used by governments as a means to privatize social welfare and perhaps people just don’t want to play that game when they can lose disposable income to rising mortgage payments and also risk negative equity down the road. Additionally, if the economy is perceived as precarious, labour mobility becomes very important.
April 13th, 2010 at 9:27 pm
I have theorized that with growing economic mobility, there might be a trend towards owning a vacation/retreat home but renting a residence in the primary location(s) of one’s work/business.
This would allow stability and mobility to coexist peacefully. Of course travel costs would have to remain reasonably cheap as they are now, and real estate on quiet lakes in rural areas will have to remain cheap.
Certainly, the real estate market will change dramatically over the next 10 years – something, such as interest rates, earnings, cost of consumable items, etc will affect the price of real estate.
April 14th, 2010 at 8:10 am
1. If a landlord choose to sell his/her house that you rent, you have whatever notice period is in your contract to find a new place. That’s really great security isn’t it?
2. You pay a deposit on a rented property and then no matter how much you protect your back by taking photographs witnessed by the rental agent of the property, the landlord always finds “evidence” of damage and then keeps your deposit when you move out.
3. If you do manage to get your deposit back, you can be guaranteed that there’ll be no interest on it, which your landlord will keep.
4. Many people see property assets as an alternative to pensions. Company private pension schemes are being rapidly closed to new starters, so private sector workers are reliant on bank products at a much less favourable rate. If people rent more and still have no pension, they are well and truly screwed when they retire (especially if they have no children, which is also increasibly likely).
Renting is bullshit. It could be better if parasite landlords are regulated better to keep their properties in a decent state, to improve the energy efficiency of their properties and to protect tenants’ deposits.
April 14th, 2010 at 6:25 pm
My experience has been that owning has been better than renting — for someone who wants to stay in the same city. I’ve owned 3 houses for extended periods of time. The first appreciated 400% between 1972 & 1979, a period of high inflation. The second from 1981 to 1987 was basically flat, I think I lost a little on it. Then I rented for a few years. We bought our current house in 1992, the tax assessor says it’s worth 300% of what we paid.
Plus in the current house we’ve been able to choose our neighborhood, remodel what was an inadequate kitchen, do other smaller remodels, landscape and paint colors we like. We’ve also been able to have pets without worrying about a landlord or deposits. It probably improves our credit rating and net worth, although those don’t have much affect on our day to day lives. We certainly have an asset we could borrow against if needed. It will be a significant part of our estate for our kids.
On the downside, we’re responsible for all repairs and have had to pay for a new furnace, roof, etc.
From a purely financial standpoint it probably has been worthwhile. But the main advantages are quality of life because of living in a house we love in a great neighborhood in a great city. A house is a qualitatively different investment than stocks, because it effects how you live every day.
If I were in my 20’s or anticipated moving to another city in the near future I’d rent. I think mobility and age are major factors (along with affordability of course).
And to quote Richard above: “The American dream, for many years, was about economic opportunity… before it got redefined as owning a single-family home in the suburbs,” he added. “Now, those two things are rapidly coming into conflict for many people.” If it were a conflict for me, I’d have to weigh it more carefully.