The Consequences of Home Ownership Becoming Increasingly Difficult to Attain Leading to what I call a Renter Nation
Homeownership has long been a symbol of financial stability and wealth building. However, the U.S. and many other developed nations are experiencing a decline in homeownership rates, leading to what I call a “renter nation.” Understanding this shift is crucial, affecting economic mobility, housing policies and investment strategies.
Homeownership Trends: Then vs. Now
Homeownership rates peaked in the U.S. at 69.2 percent in 2004 before dropping to their lowest point in 2015 at 63.7 percent, a difference of approximately eighteen million people moving from ownership to renting. While the rate rebounded slightly to 64.6 percent in 2019, historically low interest rates in 2020 and 2021 helped push the figure up to 65.7 percent, where it remains steady. However, I predict a gradual decline as the younger generation progresses into a home ownership age and cannot afford the down payment that is required to get into a home.
Why Homeownership is Declining
Over the last five years, home prices have surged 40 percent nationally along with an increase in 11 percent true inflation on daily goods. Alongside this, rents have gone up significantly. Wages have not kept up with this massive inflation, making it more difficult for people to save money for their everyday needs, let alone a home.
On top of home prices increasing, mortgage rates have also increased, doubling since 2021. This combination of price and rate increases has created a serious problem with affordability.
The Long-Term Impact of a Renter Nation
With these barriers in place, renting has become the default option for many. While rents are rising, they are still often cheaper than homeownership because of the high interest rates and high price tags of homes. The American Dream has always had a firm, rooted base on owning a home. If America turns into a renter nation, there will be long-term implications and policy changes relating to that difference.
To start, homeownership is the primary way in which Americans build wealth. Eliminating homeownership will make it more difficult to retire, as housing is usually 28-33 percent of someone’s budget. Social Security is already being pressed thin with inflation, but rent added on top of that inflation will make it hard to live on this income for many older adults.
Secondly, there will be more investment in rental units for the U.S. consumer. We are already seeing that with build-to-rent communities and the large level of multifamily investing that has happened over the last few years. Blackstone announced that they are creating an $8 billion dollar fund to invest in commercial real estate, indicating they see growth in this area and it will be a good investment opportunity. The truth is that our population will continue to grow, and if people can’t afford to buy a home, they will have to rent. The large institutions are taking note of this.
If you look at it economically, the government is in a bind. They don’t want to build and manage housing developments, but if they put strict laws on rental income, it will disincentivize building, which we are already seeing in New York, Los Angeles, Portland, etc. If there aren’t enough units in an area, this leads to massive rent growth because there is no supply to help with the increasing demand.
Expanding of Section 8
One tool in the government’s toolbelt is to expand the Section 8 program. That is why I think what you will see is the Section 8 program expanded to not just service the lower class, but also the middle class to help them with rent. This will be especially true into retirement.
Currently, 61 percent of boomers in the US own their homes, while 54 percent of that percentage own their home outright with no mortgage attached. That is significant as it means the government doesn’t need to worry about 61 percent of the population in retirement. These figures will be much lower moving forward to future generations. Each generation will be leaning on the government more and more for housing needs. That is why the Section 8 program will likely be expanded beyond the low-income class that gets those benefits now.
Conclusion
Homeownership is becoming increasingly difficult to attain, pushing the U.S. toward a rental-driven housing market similar to Europe. Without policy changes, housing affordability will continue to decline, exacerbating wealth inequality and economic instability. This can be good for real estate investors, but hard on income earners who need to afford housing in retirement.