Homeownership Study: Renting Often a Better Choice Financially Over the Last Three Decades

  • Share
  • Read Later

In a study of 28 communities around the country comparing the net costs of owning versus renting between 1978 and 2009, more often than not renting was the better financial choice.

The study was conducted by a pair of college professors who described their findings (but didn’t publish all that many specs) in the Miami Herald. To get fair net-cost comparisons, the study balanced the benefits of homeownership (such as appreciation in value) versus the costs (maintenance, taxes, etc.), and compared these numbers to what renting would have cost in the same neighborhood (adding in investment earnings the renter should have made with the money not spent on a mortgage, property taxes, and such). The main results?

In the majority of the surveyed years, renting turns out to be the better choice financially.

So there you have it. Only you don’t. Because, as the profs admit, you can’t assume that renters would have actually saved and invested the money they weren’t spending on homeownership costs:

This is not to say that renters became wealthier than home owners. Home ownership is, after all, a forced savings plan. You are putting money into a house. Although renters save money by paying less in rent than they would on a mortgage, those savings will often be spent in a “cloud of consumption” — on consumer goods rather than on a financial instrument that brings a return.

Herein lies one of the underrated virtues of homeownership. You can’t expect to get rich by buying a home, but you can expect it to force you to save—and plenty of consumers need to be forced to do so. The profs say that over the three decades studied, many homeowners probably grew wealthier than their renting counterparts, but …

not because of the financial superiority of ownership but rather due to the discipline of saving imposed by the requirement of making a mortgage payment.

Forced or otherwise, it is discipline, then, that’ll help you save and help make you rich.

Related:
Is Renting Smarter Than Buying a Home?
Homeownership: More Nightmare Than Dream?
How Homeownership Is Like Marriage

0 comments
Sort: Newest | Oldest