Should America become a “nation of renters”? A widely circulated Bloomberg article from last month made the case that the country is heading in that direction, and that it is a good thing. While the first point is debatable, the second point is not: A nation of renters is an undesirable outcome.
Let’s take an unhappy trip down memory lane. In the early 2000s, President George W. Bush settled on the idea of an “ownership society” as a theme of his domestic agenda. One major policy component involved making it easier for Americans to own their homes. Bush spoke of homeownership as an integral part of the American Dream, and said it ought to be more widely accessible. Laws and regulations making homeownership more achievable would be a way, as he said in his second inaugural address, to “give our fellow Americans greater freedom from want and fear and make our society more prosperous and just and equal.”
But the loosened-up regulations and government incentives combined with several other factors to make homeownership too easy, worsening a housing bubble. Millions of Americans bought homes they could barely afford. They were enabled by banks offering mortgages with terms that would only attract the gullible: credit for the credulous. And then the bubble popped, and the mortgage crisis—and a wave of foreclosures—led to the global Great Recession.
More than a decade later, we are still dealing with the effects of that crisis. Among the economic consequences: Many millennials have found their hopes of homeownership delayed or diminished. Among the psychological consequences: The once-solid belief that homeownership is important, almost necessary, for financial independence has been shaken.
Which brings us back to Karl W. Smith’s Bloomberg article making the case that a “nation of renters” is not something to fear. He starts his piece by talking about modest shifts in the percentages of American homes that are owned vs. rented—noting that the rate of homeownership dropped from its high of 69 percent in 2004 (during the bubble) to a low of 63 percent in 2016. Last year, it stood at about 67 percent.
One way to think about what it would mean for there to be a major increase in the percentage of Americans who rent their homes is to imagine if the numbers were flipped. Right now, about a third of American homes are occupied by renters and two thirds are occupied by their owners. If the proportions were reversed, with two thirds of homes rented, one swift political consequence would be that support for rent control and other anti-landlord measures would spike as more Americans than ever would stand to gain from them (in the short term, that is).
The knock-on effect would be substantial. First, real estate development nationwide would screech to a halt, as rent control and regulations would make it unprofitable. With practically no private development, it would fall upon local cities to provide housing. Rationing of housing, using some type of queuing system, would likely follow. Want to know what that would look like? Consider my own country: In Stockholm, Sweden, the average waiting time to get an apartment is over 9 years—16 years if you want to live in the city center. As of early 2019, 636,000 people were waiting for a rental contract in Stockholm (that’s 6 percent of Sweden’s population).
This, in turn, would create a polarizing political debate over who, if anyone, should be allowed to jump the line. In Sweden, this is a matter for local city councils, which may grant priority to different groups including everyone from the homeless, newly arrived refugees, domestic abuse victims, the disabled, workers who have secured a job in another city, couples who are divorcing, students, the elderly, and people currently living in cramped accommodations.
Many landlords, desperate to make money, would repurpose their properties, for example by offering vacation rentals through Airbnb or its competitors. This would further reduce the supply of housing, and would likely also impact the quality of life of tenants remaining in buildings mainly consisting of vacation rentals, who frequently complain about noise and inappropriate behavior from partying tourists. In response, policymakers would be all but certain to restrict or outright ban Airbnb and similar services, something that is already happening in certain cities. One could even imagine regulations being passed against landlords repurposing apartments into office space, which would be another “loophole” that would allow them to make a profit in the face of extreme rent control.
Beyond all those ripple effects in the real estate market, there is the problem of equity. The Bush-era talk of the ownership society may have been discredited by the economic calamity that followed, but fact remains that many millions of Americans would have very little equity were it not for homeownership. Owning a home and paying back a mortgage every month is among the easiest ways of building major equity. Even in areas where homeownership is not a great investment in terms of return, it’s still a relatively easy way of saving money.
Proponents of renting point out that homeownership is often more expensive than it looks, as owners have to carry costs—especially for repairs and maintenance—that for renters are carried by their landlords. That’s true. In response, a philosophically inclined conservative might point to the many virtues that flow from oikophilia, love of one’s home—but for present purposes let’s just note that those investments of money (and time) can also help build equity, and that, from a behavioral point of view, paying your mortgage every month is a discipline-imposing way to save money for a rainy day.
A nation of renters would have less equity and thus less security. While this is arguably a bad thing in and of itself, the political consequences would also be dire: With a lowered ability to fend for themselves during hard times, voters’ support for government safety nets and government spending in general would almost certainly increase. Voters who feel unsafe are more likely to vote for those who promise safety. (Welfare-state utopians are the most likely beneficiaries of a less economically secure populace, but dangerous demagogues would likely also smell opportunity.)
A nation of renters would be nothing short of a big government nightmare. Owning a home can be messy, frustrating, and expensive, but it can also be enriching, disciplining, and opportunity-creating. Homeownership is part of the American Dream for a reason—and there it should stay.