There are many great debates in American pop culture.
Tupac or Biggie? Boyz II Men or Dru Hill? LeBron or Jordan? Mayonnaise or Miracle Whip?
One of the most intriguing debates finding traction in the world of Millennials and finance is the debate of whether to buy a home or to continue renting.
The Great Recession
Upon my graduating from Syracuse University in 2010, I was welcomed into the working world during the heart of The Great Recession. Caused in large part due to a bubble in home values and irresponsible subprime loans, The Great Recession left a scar on the hearts and minds of Millennials over what it means to own a home.
Seeing the incredible loss of value in homes during that period and shouldering a collective $1.4 trillion dollars in student loan debt, many millennials are asking whether it’s responsible to sign-up for an immovable asset and 30-year mortgage tied to owning a home.
A Case for Renting
The Millennial generation is the “own nothing” generation. You can rent a car from the curb nearest you. You can hail a taxi using an app and get a ride to brunch in a car you do not own. I’ve heard there’s a website that allows you to rent tools from nearby neighbors. Even companies founded in more recent years are making strides to own less to reduce or eliminate overhead.
A shift has happened wherein Millennials are considerate of the fact that ownership implies liability, and liability often means added costs.
Renting an apartment or home offers you the benefit of not being responsible for breakdowns or repairs. Renting provides a fixed monthly cost to factor into your monthly budget that does not change based on repairs or failure of appliances. For many, this lack of long-term responsibility presents peace-of-mind in not having to be concerned about the long-term welfare of your living space. It also absolves you from the imperative of maintaining your living space for the sake of keeping and increasing its value.
A Case for Owning a Home
Homeownership has long been the pinnacle of American life. Aside from the status boost one enjoys from becoming a homeowner, it also provides you with a space that is undoubtedly yours. You can modify it, rent out a room and typically avoid many of the rules and regulations imposed upon those who rent.
Homeownership and the maintenance of a mortgage also provide you with the opportunity to “build equity,” creating a new and growing line of credit to borrow against later. There is undoubtedly a strong value in ownership, such that you cannot, without incredible measures and nonpayment on your mortgages or property taxes, be removed from your dwelling.
A Case Against Renting
The greatest and most referred to case against renting in perpetuity is that you are “throwing money away.” Renting a space does not entitle you to anything beyond which you have paid for. You can be evicted if you fail to pay your rent. A developer can buy the property you live in and decide they want you out in six months. Your rent amount can be bumped up, year after year without regard to your income, influenced entirely by the local rental market.
There are no guarantees with your dwelling when you are renting precisely because the property is not yours. For many, the risks and insecurity of this fact are too great to bear.
A Case Against Homeownership
Many wanting to prosecute our national salvation over home ownership say homes have long been misrepresented as investments. They would contend that homes are large, immovable, illiquid assets, which suffer decay and require upkeep over time, making it a terrible “investment.”
It’s been said on Manage Your Damn Money, when you buy a stock, you don’t continue to pay maintenance fees on that stock to maintain your ownership stake. Once you buy it, you own it. Period. That is not the case with a home. If you miss a payment or are late on your property taxes, your ownership stake will soon be in jeopardy.
Some would also point out (myself included) that the concept of “building equity” is a sham. Your “equity” is your being able to borrow against what you’ve already paid. Equity isn’t money, wealth or even owned. It’s a financial construct used to loan more money to people. Some would argue those obsessed with building equity misunderstand what equity actually is.
Like whether LeBron James’ having taken lesser teams to the finals and going eight times is not totally comparable to Michael Jordan’s having won six NBA championships, always with superior teams, the debate around renting and homeownership is almost unresolvable. But like Lebron and Jordan, sometimes having the debate is all you need to come to an answer that works for you.