Home Ownership vs. Renting One

Home Ownership vs. Renting

One of the major financial debates overtime has been whether to rent or purchase a home. This argument is of particular importance since the American family spends approximately 25-30% of their annual budget on occupancy alone (Shelton, 1968). Home ownership is the single largest investment that most family's make in their lifetime and appears to be a natural expectation throughout the course of life particularly in American culture. Home ownership is deeply imbedded in our social values and expectations of the life course (Kemeny, 1978). However, this issue is not without significant debate. Many people have made persuasive arguments for both sides of the debate with some claiming that home ownership builds equity and allows for tax advantages while others believe that due to the amount of time that it takes for an individual or family to pay off interest and begin to build equity that home ownership is a costly endeavor for which the rewards do not outweigh the risks.

Home ownership has many financial benefits such as a return on investment as equity builds in the property, tax deductions for mortgage interest, and the stability of payments that occur in fixed rate loans. When a family initially purchases a home, the bulk of their monthly payment goes directly toward paying the interest on the loan, however, over time this decreases with additional monies going toward the mortgage balance. Therefore as a family decreases their overall mortgage balance, or principal, the equity in the home begins to increase. In good economic times many home owners also experience an appreciation in the value of their home, building the equity faster than traditional means. The ability to build equity in a home provides families with long-term financial options including use in retirement or for college tuition payments (Leonhardt, 2005). Equity can be borrowed against for unexpected costs incurred by a family or also for planned life events. This money will also be received should an individual decide to sell the home, providing them with money that can be invested in future occupancies.

Tax deductions are also another major benefit to owning a home. Homeowners are able to deduct mortgage interest as well as property taxes from both federal and state taxes (Shelton, 1968). This can result in significant tax savings particularly in the early years of a mortgage loan when the significant portion of the loan payment is directly applied to interest. This is a key time for new home owners who are at times living close to or slightly beyond their means and can benefit from this financial incentive.

The ability to predict monthly payments due to the stable nature of fixed mortgage loans is also a tremendous benefit to homeowners. A fixed rate mortgage ensures that individuals will pay the same monthly payment consisting of principal and interest throughout the life of their loan. Renters can experience increases in rent overtime at the discretion of the landlord which is not the case when one owns a home (Leonhardt, 2005). A homeowner may experience slight increases in their monthly payment should property taxes and insurance costs rise yet these costs should be somewhat predictable and the owner should not experience a significant leap in these costs at any given time.

The debate always starts as a financial one with yet there are also many social benefits that accompany home ownership as well. Home owners experience a greater sense of stability than renters as they do not have a landlord who can decide not to renew their lease, to move back into the apartment leaving them without a place to live, or to sell the building (Leonhardt, 2005). A homeowner is not in danger of losing their home due to the decisions of another party such as a landlord. However, when one rents they may not always be able to renew their lease due to unforeseen circumstances resulting in housing instability. When an individual rents they are utilizing the space of another therefore placing them in a vulnerable situation with the other individual. Any issues related to personality conflicts, financial constraints, or dissatisfaction of either party can result in the individual or family needing to identify alternative housing options.

Homeowners also have the benefit of decorating and making changes to their home as they see if including painting and renovations to meet specific desires or needs of the living space (Leonhardt, 2005). They can modify their home in any way that suits them and that they feel adds value to their experience. Renters do not have the same benefit as they are often not allowed to modify the rented space in any way and any small alterations such as paint must be approved by the landlord.

Even with all of these benefits there still remains the social aspect of home ownership that is deeply imbedded in the American culture. Traditionally it has meant a great deal to American families to own their own homes and has been encouraged through our cultural beliefs and values. In fact this encouragement has taken the form of various political policies throughout history including those aimed at tax relief to homeowners as well as efforts to assist first time homeowners with lower mortgage interest rates. Further, owning one's own property or piece of land is the cornerstone on which our countries democracy was built therefore constituting the "American Dream." It is also believed that home ownership should be encourage because owners take greater responsibility for their families, the communities in which they live, and they seek opportunities to provide better environments for their children (White, 1997).

Home ownership has been described as a force of social stabilization. Research has shown that home owners have an increased sense of community well-being and often advocate for better schools, decreased crime, and neighborhood improvements and upkeep (White, 1997). This is partially due to the fact that homeowners have a greater financial stake in their communities and neighborhoods as a direct result of the large investment of wealth in their home.

It is also believed that homeownership provides individuals with opportunities to learn skills that can be transferable into daily living. Home owners often experience scenarios in which their home requires repairs and they can either learn to make small repairs effectively or they must learn to identify and retain appropriate contractors to do so (White, 1997). These experiences at being good home managers can increase interpersonal skills that can be applied to employment scenarios as well as interactions in the home environment.