Renting Is Terrible. Owning Is Worse.
A third option is necessary: a way to rent without making someone else rich.
America conceives of itself as an “ownership society.” Nearly two-thirds of U.S. households own their home, and the idea of renting is inseparable from ownership in the U.S. context. Renting is given meaning by its relationship to ownership—it’s how you live if you can’t afford, or aren’t yet ready, to own. America treats renting as it has treated the minimum wage for the past several decades: unworthy of serious concern, just a phase in young people’s lives, and a long-term outcome only for those unwilling to pull themselves up by their bootstraps. This perspective is a big part of why renters enjoy so few protections, and why the U.S. showers roughly $150 billion on homeowners each year but only a fraction of that on renters, despite renters having about half the median household income of owners.
Yet look no further than the Great Recession—or the declining home values in much of the Rust Belt over the past half century—to see the tremendous drawbacks of homeownership. Those losses aren’t equitably distributed, either: Nearly 2 million mortgages are underwater in the U.S., and they’re disproportionately concentrated in Black and Latino communities. Tenants in coastal cities, meanwhile, know the pain of forking over more and more rent every year, unable to save for a down payment and living at the mercy of sometimes unscrupulous landlords.
The housing situation is only getting worse—more expensive, more inequitable, more precarious. As prices have continued their climb in the country’s most economically dynamic regions, it’s no longer feasible for working-class residents to seek out the best opportunities there. Instead, younger and lower-income residents are being pushed out to places where jobs are less plentiful and lucrative, but where housing, at least, is relatively affordable. Largely as a consequence of housing prices, Generation X held less than half as much wealth in 2019 as Baby Boomers of the same age did two decades earlier, and Millennials are on course to hold even less. Something has gone catastrophically wrong, and the problem won’t be solved by doubling down on homeownership; we’ve seen where that leads. But our current model of renting—a lifetime of uncertainty only to make someone else rich—won’t do the job either. We need something new, an innovation on par with the government’s development of 30-year mortgages nearly a century ago. We need a housing option that combines the accessibility, flexibility, and limited risk of renting with some of the stability and wealth-generating potential of homeownership.
Renting carries certain intrinsic advantages over ownership, for individuals as well as society. One is flexibility, and the access to opportunity that accompanies it. Think of a woman who buys a home in one part of town, takes a new job in another area a few years later, and is then stuck with a 90-minute commute, or of a man who turns down the better job because he doesn’t want to sell his home or be saddled with a long commute. Now multiply that by millions of households across the country. Homeownership locks people in place, in large part because of the high transaction costs of buying and selling property.
Renting offers diversification of risk. Renters are able to invest their resources in a wider array of assets, and they aren’t stuck holding the bag if their regional economy dries up and home prices fall. Mutual funds would not be seen as a worthy investment if they had a 10 percent chance of permanently losing much of their value at some unspecified date, yet that’s very similar to how our housing-as-retirement-vehicle system currently works. The investments renters might make, moreover—stocks, bonds, mutual funds, etc.—support the growth and innovation that strengthen the economy, whereas buying a home takes that money out of circulation.
Most important, more renting may improve housing politics and make the nation’s affordability crisis easier to solve. We need to build more homes in order to stabilize home prices, yet stabilizing home prices runs counter to the financial interests of most homeowners. In California, the epicenter of the crisis, 75 percent of renters support building more homes in their community; only 51 percent of the state’s homeowners support this goal. A research paper by the political scientists William Marble and Clayton Nall similarly found that support for building new apartments is consistently higher among renters than homeowners; it’s higher even among conservative renters than liberal homeowners. (Conservatives overall are less supportive of new multifamily housing than liberals are.) The effects of this opposition extend beyond affordability. Pushing new housing into remote places that offer poor access to good jobs and schools contributes little to economic growth and productivity, increases emissions of greenhouse gases and other harmful pollutants, and destroys agricultural and undeveloped lands. Homeowner politics is putting the squeeze on our economy, our youth, and our environment.
By themselves, these are rather abstract reasons for promoting more renting. They won’t be persuasive unless we also address renting’s most obvious disadvantage: the lack of wealth-building potential.
In some U.S. cities, middle-class households are paying $30,000 in annual rent and have nothing to show for it but the prospect of paying $31,000 next year and $32,000 the year after that. This is why people buy suburban homes even when they’d prefer to stay in the city. Spending so much on a rental feels wasteful—irresponsible, even—when you could pay a similar price on a mortgage, at a constant level for the next 30 years, while also building substantial wealth. America’s challenge is to create comparable opportunities in cities, and to make them accessible to people who can’t save $100,000 or more for a down payment.
A public-ownership rental option might solve this problem, at least in part. The foundation of the program would be quite simple: public ownership of housing, acquired or built with government loans—though run by local for-profit or nonprofit property managers—and rented at market prices. No saving for a down payment (or being given one by family) and no qualifying for a mortgage. The only requirements for participation in the public-ownership option would be (1) move in, and (2) pay rent.
As the loans were paid down, the equity would accrue to the tenants, minus the cost of operating and maintaining the building, administrative costs, and so on. Unlike rent-to-own programs, however, this option would never require that the tenant take out a mortgage. A renter would never truly “own” her unit. But she would claim a stake in the public portfolio of properties and be able to draw on that asset, perhaps in the form of monthly payments after a few years of renting, or larger dividends later in life, much like Social Security. The benefit could be transferred to any publicly owned apartment, allowing tenants to build wealth without being locked in place. After 35 or 40 years, a tenant might no longer owe any rent at all. There are many more things to say about the logistical details, and I have said them elsewhere, but that’s the core of the idea.
Public ownership would give younger households the opportunity to begin generating wealth immediately, from the minute they form their first household—a leap forward for both racial and generational equity. People who have spent the past five or 10 years renting an apartment in high-cost cities such as New York, Los Angeles, and Seattle will understand the clear benefits. The program is simple, accessible, and fair.
Public ownership can appeal to the middle class, a quality missing from virtually every other government housing program. Existing programs tend to focus either on the poor, as with affordable-housing construction and housing vouchers, or on the rich, as with mortgage-interest tax deductions and capital-gains exclusions. Renting in a public-ownership building would be an option for the large number of middle-income individuals who lack the resources or the immediate desire to become homeowners. And the system could be managed without subsidies, avoiding tension with programs that assist low-income households. Low-interest government loans would be sufficient to finance the program.
Many people would find that they appreciate the freedom, flexibility, and predictability of renting their way to public ownership, and prefer it to private ownership. This would increase demand for publicly owned housing, driving the program’s expansion, and it would also change our politics. As a larger share of households became renters, and many decided they wanted to stay renters, support would grow for policies that improve housing affordability and stability—not just infill development but also stronger tenant protections and financial support for poor households.
A program of this nature would be a massive political undertaking, without question. But it could be expanded incrementally; governments—or even NGOs—could acquire or develop one building at a time, and the program could work in tandem with related efforts to support low-income households. Shifting the balance between renters and homeowners could lay the foundation for different and even bolder future reforms.
Homeownership isn’t going anywhere. Ending it shouldn’t be America’s goal, and trying to would be silly. But mass homeownership shouldn’t be our societal objective, either—it fails too many people and perpetuates too many historical inequities to remain the sole symbol of success in the housing market. We deserve better than the two flawed choices available to us: unstable and unprosperous renting or risky, inaccessible, and inequitable private ownership. We deserve another option, and public ownership could be it.