For generations, a key element of the American Dream has been to own one’s home. This mentality was ushered in at scale during the 1950s when the Federal Housing Authority created attractive financing that led to the suburban housing boom. These homes housed many of today’s 76 million Baby Boomers. Not only has ownership been a goal for many, it has also been a key source of wealth creation, particularly in environments with low interest rates, reasonable leverage and appreciating home values. Why would anyone rent?
As it turns out, there are a number of reasons to rent. For some, it is simply a matter of economics: they do not have the means to own. However, for many, the housing bust of the last decade was a reminder that home ownership was not risk-free. Home ownership currently stands at 64%, down from the peak of 69% in 2004. Some of this drop is a result of the Great Recession, ongoing economic challenges for Millennials and rising housing costs, particularly in major metropolitan markets. But, there is another trend at work: the emergence of renters by choice.
Emergence of Renters by Choice
Renters by choice, by definition, can afford to either own or rent a home. They constitute a wide range of consumers. It can include young professionals and couples looking for flexibility, a desirable location and convenience. It can include single parents or transient families that do not wish to commit to homeownership. Or, it can involve empty nesters and retirees who see the benefit of downsizing and simplifying life and appreciate the financial benefits of renting, particularly in an era of increasing longevity.
What We Learned
We recently asked the question ‘Why Rent?’ to residents of The Stories at Congressional Plaza, a Smart Living 360 community in Rockville, Maryland. We sought out nearly a dozen renters by choice and sat down with them one-on-one to learn about why they chose The Stories and what have they have most appreciated at the community. Attributes mentioned were wide ranging but three key dimensions emerged: location, apartment design and financial sense.
Location, Location, Location
Like much of real estate in general, location reigned supreme. A parent indicated that “my life revolves around this area – my extended family, my job, my place of worship” and praised the convenience that a central location provides. One woman, who works in the area, liked her proximity to work as she is one of those people who “likes to live and work close together.” One retired couple has lived much of their lives in the area and had “no desire to leave” an area they know so well and have established connections. Others extolled the benefits of having walkable access to restaurants, retail and the metro.
Home is My Castle
One of the frequent criticisms of apartment living is that it does not feel like home. However, residents we interviewed expressed the opposite: they have made The Stories their home. One female resident downsized from a larger apartment in Washington D.C., painted every room and selected custom fixtures and describes her living environment as “her sanctuary.” In another case, a retired couple selected wall paper, added technology features like the Nest and customized their closets. They signed a multi-year lease as they see the “community as their home”. A single male who has moved many times over his life indicated that he and his dog prefer this environment to the single family house he previously lived in.
Renting Makes Good Financial Sense
A number of these renters by choice were confident renting was the best financial decision for them. One retired couple, who has both owned and rented over their lives, were convicted that “renting costs less”, pointed out the energy efficiencies of apartment living and saw renting as an “insurance policy against bad things that can happen to the real estate industry or a particular home”. Another resident, who is a financial advisor by trade, identified the “option value in renting” as well as the value in freeing up time from home maintenance. One resident sold her townhome to move into The Stories, in part, because of high condominium fees and other maintenance costs. One particularly financially astute resident lives in a one bedroom but owns property in the area. She has “rightsized her living space but is still part of the real estate investment game.”
Shifting Focus from Ownership to What’s Best for Personal Well-Being
For renters by choice, the question is less whether renting or buying is better but what living environment is best for personal well-being. We asked this question of residents surveyed, too. We were pleased to hear that most residents self-reported an improved sense of well-being. For some, it was increased physical activity with the convenience of a well-equipped fitness center or increased walking by living in a walkable area. For others, it was being part of a friendly community where you know your neighbors and opportunities exist to engage in community events. Perhaps the American Dream should be less about realizing home ownership and more about finding a home that helps each of us thrive.