For most of us, owning a home has played a central role in our vision of the American Dream. Big living rooms and big yards for barbecues on a suburban cul-de-sac have been standard goals for many generations.
Both government and industry have provided substantial support and incentives to enable many to purchase the home of their dreams. This strong incentive structure has made home ownership a financially sound decision for many. From tax deductions and low interest rates, to first time homebuyer incentives from lending banks, there are many reasons to continue the pursuit of financial stability through home ownership. But what if this standard path is getting in the way of our pursuit of happiness? What if renting was the best choice?
Housing Preferences Through History
In early civilizations, most of the inhabitants of cities and town centers were wealthy aristocrats and nobles. Cities were, and still are, the centerpiece of civilizations where community leaders gathered to design and direct their nations. Also, when it came to leisure activities, the many amenities of concentrated wealth were at their fingertips.
Modern suburban living first came into existence during the industrial revolution when there was a rapid migration of the rural poor into urban environments. The rich, both old and new, began to purchase estates on the outskirts of cities to get away from overpopulated urban centers. As industrialization accelerated, so did the influx of workers into city centers, and so did the reverse-migration of the prosperous into the suburbs.
With the introduction of modern transportation suburban living increased exponentially. Whole new sectors of the economy were born and for many, getting out of the overly populated urban centers meant a big step up in quality of life.
Fast forward to today, we now have expansive suburban communities surrounding all major metropolitan areas. For some a better quality of life is still obtainable through suburban living but, after decades of suburban expansion we are beginning to realize the “costs” of suburban living are outweighing the benefits.
A recent study by the New York City Comptroller determined the average American worker spends about 50 minutes of each day commuting to and from work. Commutes are now roughly 30 minute longer than they were in 1990. Studies have also shown that commuting, especially long commutes, takes a toll on peoples relationships, physical health and overall well-being. It also comes with large economic cost. According to research by the Brookings Institution, American workers spend 4.1% of their income on commuting costs.
Our time and our health are two of our most valuable assets, so no wonder the suburban lifestyle has begun to loose appeal.
The Urban Renaissance
The trend back to urban living is currently strongest amongst the Millennial generation. But all generations have much to benefit from participation in the Urban Renaissance blossoming in cities around the globe. Civil engineers in most of the world’s modern cities have been hard at work designing more livable city environments for the past decade and the fruits of their labors are now paying off. Some of the many benefits of urban living include:
- Walkable & bike friendly communities
- Wonderful restaurants
- Beautiful parks and city/town centers
- Great public transportations options
- Wide array of events and entertainment including movies, live theatre, live music, festivals, professional sports and museums – many within walking distance or very short drives.
- Excellent educational and cultural programs for children
- Easy access to airports for both business and vacation travel
- Shorter commutes, meaning more precious time with family and friends and less stress on the roads. Add up the number of hours you spend commuting per week, per month and per year. What is all that time worth to you?
- Another benefit of shorter commutes is less risk of car accident. Over 1.2 million people die in road crashes each year, while an additional 20-50 million are injured or disabled. (Source: asirt.org, based on global data)
Quality of Life Through Renting
The standard supply and demand equation is alive and well in urban real estate. Not all neighborhoods are made equal when it comes to quality of life. Therefore, as we all know, housing costs in the most desirable areas are high. So how can you get in on the best benefits of urban living when there’s no way you can afford to own property in these areas? Rent!
Yes, this approach is unconventional and, yes, you may be accused of breaking some rules of frugal living and foregoing some financial prowess that comes with owning your home. This approach also may not apply to those of you who thoroughly enjoy owning your home and are not set back by your current commute.
Both my wife and I have had jobs in the heart of the city for most of our careers. So, after weighing the costs and benefits for our situation, we’ve consciously chosen to be renters, and for us it’s been wonderful. We’ve lived in multiple locations in Southern California, depending on where our career has taken us, and we’ve never lived further than ten blocks from the beach. Our daughter is currently in a top ranked public school located one block from our apartment and everything we need from entertainment to groceries is within a short walk from our home. Also, without the costs of commuting, home repairs and remodeling, we’ve been saving generously, so are in good shape for retirement.
Here’s a list of just some of the many benefits that come from being a renter:
- Portability: people need to re-locate much more often in todays work environment then was the case for past generations. Renters can re-locate with ease and without concern of the current state of the housing market.
- Maintenance free: if anything (almost anything) needs fixing, just have the landlord send over the appropriate “fix-it” service, which is both a time and cost saver.
- Adjustable cost of living: What happens if one of us gets laid off or if for any reason we need to downsize? We can move any time. The sense of security that comes from knowing we can adjust our cost of living without having to risk our nest egg is great.
- Investment Security: Although at times the housing market has paid off for homeowners, many have also lost greatly. Strong encouragement for home ownership has caused many to have the majority of their capital, that would otherwise be available for investment, tied up in their home. Renting can allow for a more diversified investment strategy, which may even include ownership of a rental property.
- Location! Location!: Renters can afford to live in amazing places with huge quality of life benefits they would not be able to afford as owners.
Of course there’s a lot of financial benefits and security that come with owning, but this is about taking a moment to consider the many benefits of renting. It’s not conventional, but for a lot of people it would be the better choice.
Below are a few important considerations for those of us that choose to rent rather than own our homes:
- Current tax incentives in the US are geared towards home ownership, so it’s important that renters invest generously in tax-deferred accounts such as 401(k), 403(b) and Traditional IRAs.
- Come time to retire, you may choose to re-locate to a more affordable location, in-which case you may buy a home, or you may choose to stay a renter into retirement. In either case, you’ll have monthly mortgage or rental payments that you would not have if you had paid off the mortgage on a home you owned over the years. It’s important to account for this while considering your monthly living expenses during retirement.
With careful selection of rental properties within your means, allowing for generous monthly investments to be made into your retirement savings, the neighborhood of your dreams and added time in your day to enjoy it may actually be within reach. From the many commuting hours re-claimed for exercise, friends and family, to the reduced risk of highway accidents, to substantial reduction of day-to-day stress levels, choosing to rent in a desirable area that you could not afford to buy really could save your life.
Do you have any examples of housing choices you’ve made, or are considering, to better your quality of life?