Is Homeownership a Solution to Skyrocketing Rents?

 KELLY O’DONNELL, PH.D. | CHIEF RESEARCH AND POLICY OFFICER, HOMEWISE 

Whether you rent your home or own, you’ve likely noticed that rents are going up, fast. In May 2020, median rent in the United States topped $2,000 for the first time. July rents were up 14 percent from the previous year, a decided improvement from the 17 percent year-over-year increase recorded in March 2022, but no cause for celebration.

The current housing crunch was intensified by the pandemic, but its origins pre-date the emergence of COVID-19. According to the National Low Income Housing Coalition, in January 2019 the United States was short 7 million affordable homes for low-income renters, resulting in only 37 affordable rental homes for every 100 low-income renter households. America’s current rental crisis is part of the larger housing crisis, which is the product of decades of under-investment and under-supply.

The US housing crisis impacts some communities far more than others. 50 percent of Black and Hispanic renters are cost-burdened, meaning they must devote more than 30 percent of household income to housing, compared to 38 percent of White non-Hispanic renters. Among families that rent, the likelihood of being cost burdened increases with the number of children and is especially prevalent among households with children under five. Renters with young children are 2.5 times more likely to experience housing cost burden than parents of young children who own.

Low income households also bear a disproportionate burden from housing cost inflation. Cost- burdened households are far more likely than households with manageable housing costs to be severely impacted, or even rendered homeless, by even modest rent increases. According to the St Louis Fed, the typical home costs more than double what it did in 2012, but the earnings of the typical US worker have increased only 38 percent.

Ultimately rising housing costs are hitting renters harder than homeowners. Renters are far more likely than owners to be cost burdened, with 44 percent of US renters cost burdened compared to 19 percent of homeowners. Homeownership provides families financial security and consistent, stable housing costs that don’t increase with inflation the way rents do. Homeownership also builds equity, resulting in assets that can be used to facilitate upward mobility and/or be passed down to future generations.

Rental vacancies in the second quarter of 2022 averaged 5.6 percent, the lowest they’ve been since 1984. Rental vacancy rates measure the share of rental housing that is readily available to prospective renters. Low rental vacancy rates translate into higher rents, making it even harder for families to find housing they can afford. And, the shortage of rental units is closely tied to the homeownership housing market. The homeowner vacancy rate is the proportion of the homeowner housing inventory that is vacant for sale. In the second quarter of this year, the US homeowner vacancy rate hit 0.8 percent, the lowest rate since 1957. When there aren’t enough homes to purchase, would-be home buyers are forced to stay in their current home (keeping supply tight) or move into the rental market (putting upward pressure on rents).

Is homeownership the solution to the rental crisis? Partly. Making sure that there are enough affordable homes for modest-income households to purchase and providing the homebuyer coaching and down payment assistance households need to become successful homeowners will help relieve pressure on the rental market. At Homewisdom, a new research and public policy initiative established by Homewise, we are committed to fully leveraging the power of homeownership to address pervasive problems such skyrocketing rents and wealth inequality.