Critics who claim that rent payments are a waste either don’t grasp that spending decisions reflect personal values or they’re just projecting their values onto you
Not long after I graduated from college, I moved into an apartment in the center of Washington, D.C. The apartment’s location offered numerous benefits. Humorously, I vividly recall feeling excited that I only needed to walk one block to reach Fuddruckers, California Tortilla, and Potbelly, three national restaurant chains.
While I don’t hold these restaurants in quite the same esteem, the overall idea still stands. I valued the proximity to amenities that the apartment provided. And I didn’t have any other comparable living options — I couldn’t have afforded to buy a house in the area. Many young singles and child-free couples who rent do so for similarly good reasons. Paying rent may not feel like a great financial move, but that doesn’t make the spending decision any less valid.
Home Ownership as a Cultural Ideal
The United States, since around the end of World War II, has placed a high cultural value on home ownership. Young adults seeking to officially mark their transition to adulthood have aspired to own their own home. When our parents’ generation reached this point, along with getting married and having kids, both the economy and government policy supported and encouraged this desire.
Builders constructed new, suburban housing at a rapid pace. The government subsidized mortgage payments. And, perhaps most importantly, our parents and grandparents heard repeatedly that this decision was: The. Right. Thing. To. Do.
As millennials and Gen Z become adults, society continues to encourage — or even expect — homeownership. But economic and financial conditions today look nothing like those when older generations reached this point in life.
A Different Economic Reality
Housing prices in many cities — due to insufficient supply — have grown much faster than inflation. Wages have stagnated. Student loan debt has hurt savings rates, credit scores, and mortgage terms.
This isn’t news to anyone, particularly those who live it. Even so, the popular “rent or buy” housing narrative can’t seem to catch up to reality.
Many young adults still reach an age or life milestone at which they believe they should own a home. Maybe it’s a 30th birthday, an engagement, or first pregnancy. In any case, their interest in homeownership often isn’t grounded in their financial interest, personal values, or shared goals. Instead, subtle pressure from parents and peers may convince you that “you’re just paying someone else’s mortgage when you rent.”
The Financial Case for Homeownership
The financial case for homeownership, centered around building equity, can be strong. Your best choice, though, depends on different variables. For example, housing prices aren’t consistent over time or across markets. As a good “rent vs. buy” calculator can show, the numbers favor renting in certain situations.
Homeownership comes with numerous costs, many of which are unpredictable or difficult to estimate. Closing costs, moving expenses, mortgage interest, property taxes, unexpected repairs, and improvements all chip away at the financial benefit that ownership can provide.
Finally, homeownership often gets credit for acting as a form of “forced savings.” For someone who already has solid savings habits, buying a house includes one other significant cost: opportunity cost. Over the long term, a young adult might build more wealth investing in the stock market, paying off more student loan debt, or starting a business.
There are also less tangible things you stand to gain when it comes to renting.
What about the couple who spends more time together because they don’t have to sit in gridlock traffic on some suburban interstate? Or the ambitious professional who moves across the country on short notice for a new job opportunity? Even the passionate sports fan who holds season tickets, thanks to her apartment down the street from the ballpark, benefits from renting.
The “Rent or Buy” Decision Starts With You
Whether on K Street in D.C. or some other city, renting offers life flexibility and access to unique amenities. Ideally, you spend the money you earn on purchases that allow you to lead the life you want. In this way, money directly reflects what you value. Critics who claim that rent payments are a waste either don’t grasp this fundamental truth or they’re just projecting their values onto you.
When you consider whether you should rent or buy a house, first think about what you value in life. If owning a house is important to you, then that’s a worthwhile way to use your money. If it’s not high on your priority list, though, don’t feel ashamed to celebrate the fact that you’re a renter.
Kevin Mahoney, CFP® is the founder & CEO of Illumint, an independent firm in Washington, DC that offers financial planning for Millennial parents. He specializes in navigating the new financial decisions that arise during our 30s and early 40s, such as repaying student loans, buying a house, saving for college, & investing for the future. In addition, Kevin also leads a financial wellness benefits program for Millennial employees around the country, including group speaking engagements.