In our weekly Hustlin' series, we go beyond the pitying articles about recession-era youth and illuminate ways our generation is coping. The last few years may have been a rude awakening, but we're surviving. Here's how.
When I moved into my first apartment, my roommate's mother came to help settle us in. As we hashed out our finances, she wondered aloud, as only a loving mother could: “Why are you paying so much for something that isn’t yours?”
I recall thinking she had a point. We were signing up to fork over thousands a month, only to leave empty-handed once the lease expired. And then there was the broker's fee, that unexpected punch. My parents had paid a monthly mortgage for 30 years, but once they were finished, the house was theirs. My monthly bills were going nowhere.
That was August of 2008. In a short time, the economy would tank, bringing the value of my parents' house with it and kicking it further down for years to come every time a foreclosure sign appears on their block. Yet my father still imagines a time when I'll buy a home. Once I'm financially stable, he says, I need to consider the investment.
On paper, I should. Home prices and mortgage interest rates are extremely low. There’s a growing consensus that housing has hit rock bottom; if you have good credit and a steady income, it's the time to buy since home values can only go up.
But I don't plan on it, now or anytime soon. And I'm not alone: in unprecedented droves, our generation is opting to rent. We’re doing it in major cities, where renting has always been plentiful, and in smaller ones, where it hasn't. A stream of recent articles has arrived wondering why Millennials aren't buying homes. The stories paint us as victims of rising rents, saddled with student debt and a crappy economy that keeps the American dream out of our reach.
But what if renting wasn't our curse? What if, instead, we celebrated and embraced it? By many counts, renting is a financially savvy move. It can free us up for careers and lives in ways that ownership cannot. And the more of us who rent, the more opportunity we have to alter a system that is stacked horrendously against renters.
Marie Brandon is a history teacher and part-time freelance writer, whose housing story mirrors many others. She lives with her husband, a 28-year-old technician, and their two young sons in Las Vegas. They bought a home there with a low, adjustable-rate mortgage, something that many first-time buyers did. When the crisis hit, their mortgage nearly doubled.
“We got so far behind on everything else in our efforts to save that house,” she wrote to me. When they had to take out a $100 loan for their son's third birthday, the couple realized they had enough. They walked away. It's a risky move, but one that makes sense in a state where 61 percent of homeowners are "underwater"—owing more on their mortgage than their home is worth.
“Being able to rent has taken a huge weight off our shoulders,” she says.
The housing crisis starkly revealed that homes aren't the guaranteed wealth creators they were advertised to be. Yet it's not clear that, even in good times, they ever were.
A recent study tracked thirty years of data, creating a sort of advanced calculator to determine if buying or renting pays off more. The verdict? Renting almost always ekes out on top. Richard Arzaga, a personal finance professor at U.C. Berkeley, combed through hundreds of properties and came to a similar conclusion. “It's the American dream to own a home, but whoever said that didn't do the analysis on it,” he told Reuters. “100 percent of the time it was better to rent, rather than own.”
Back in 2007, Erik (not his real name), then 28, took his father-in-law's advice and bought a house in San Jose “to build some equity.” He's now convinced that he didn't run the numbers well enough.
“I wish that when we had thought about buying,” he wrote in an email, “we had instead figured out what a likely mortgage would have been and socked away the difference between the mortgage and the rent.” By paying a regular rent, you can avoid nagging ownership costs—appliances maintenance, insurance—and steer savings to other investments, he says. “I wish we had rented for longer.”
Renting is not without its plights. After leaving their house, the first place Marie and her husband rented hit foreclosure within a year. (One group estimates that around 40 percent of families affected by foreclosures at the height of the crisis were in rental units where the owner fell behind on mortgage payments, with poor and minority communities bearing the brunt of the impact.) Nearly anyone who has rented can quickly summon a story of an absentee or shoddy landlord. And rents are leaping up quickly.
These skyrocketing rents aren’t just due to greedy landlords. They’re because of a system that has turned a blind eye to renters. During the boom years, we built far fewer multi-family properties, where renting typically goes. Rent stabilization is disappearing. And many cities have set up zoning rules that prohibit denser development, constricting the supply of rental units and jacking up prices.
But much more significantly, ownership is simply lavished with more goodies. Stretch back eighty years, and you cannot find a sector of our economy more heavily subsidized than single-family homes. We've heaved all kinds of perks, cuts and breaks in efforts to shuttle people into owning. The biggest of these is the mortgage interest deduction, a federal tax break that is skewed spectacularly toward wealthier Americans. Overall, breaks for homeownership are roughly five times greater than those for rentals.
Meanwhile, responses to the foreclosure crisis at the national and local levels have almost exclusively aimed at stitching back together one half of the housing market. “Many of the programs are all about homeownership,” explains John Bartlett, the executive director of the Metropolitan Tenants Organization, an advocacy group in Chicago. That's slowly changing, he says, noting the government plan to convert some foreclosed homes into rentals.
But a bulk of the policies is still geared toward families and owners, at the expense of renters. A tax break for a single renter, Bartlett says, “is going to be the most difficult subsidy to find.”
Behind this housing system is the pervasive idea that owners are somehow better citizens—they care for their properties, and that, the logic goes, extends to a concern for a neighborhood. Back in 1999, a pair of researchers looked into this question of whether homeowners store up more social capital than renters. To a certain degree, they do. Owners are more likely to jump into civic engagement: they vote in local elections, sit on school boards and get involved in neighborhood non-profits.
But this isn't something innate about owners. Almost all of the effect, the researchers found, came merely from the fact that homeowners tend to stay in communities for a longer time. There's no reason a renter who sticks around can't coach little league or join the PTA.
If the rental trend continues apace, our generation will be the one to put the better citizen question to rest. And we’ll have the power to change the rules on housing, since pretty soon, members of Generation Rent will be the ones running for office.