There has been a long- standing debate over whether it makes more sense for lower- income people to rent rather than own, and this has gained even more traction since the housing crisis began in 2007. Some argue that renting is less expensive than owning, but this had not been analyzed for lower- income households.
Sarah Riley and Hong Yu Ru studied data from participants in the Community
Advantage Program from 2003 to 2010 to put this theory to the test. They
calculated costs of both owners and renters. For owners, the included mortgage
payments (including property taxes and insurance), the opportunity cost of
holding equity in the house, mortgage closing costs and origination fees,
homeowners association fees, maintenance expenditures, annual depreciation, the
observed net property appreciation, and the tax benefit received each year.
The results may surprise you. The study found that the median
owners’ user cost was $36,000 from
2003 to 2010. The median cumulative equivalent cost for renters was $41,000. Riley and Ru found that “the
initial period of house price appreciation was sufficient to offset the
subsequent higher owners’ user costs as a whole.” They estimated that it was
necessary for the house price to appreciate about 2% annually to ensure that
owning was not more costly than renting for this time period.
It is important to remember that CAP borrowers all received
fixed rate, fixed payment, and competitively priced mortgages. Another factor
is the cost of renting, which has been increasing in recent years. As the cost
of renting continues to rise, Riley and Ru suspect that “homeownership may actually be gaining relative financial advantage over
renting.”
For more information, check out Riley and Ru's study, "The User Cost of Low- Income Homeownership: 2003- 2010."
When you own your own home you can paint it, put pictures on walls, plant your garden in the backyard, add on to it, etc. It is home not a place to stay. I often sit on my front porch and speak to my neighbors as they walk by and admire my trees, my yard, my bushes, and I think how fortunate I am to own my home. This is a home my children will always remember, where they are rooted and they and myself know we are part of a much larger community. Homeownership is about pride.
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