For example, rent makes up 19% of household income for those making less than $50,000 a year, and 15% for those making $50,000 to $89,000 a year, the analysis found. By comparison, residential landlords who make more than $200,000 a year derive about 5% of their annual income from rent.
Despite all the emphasis on owning a home as the American Dream, renting is better for the poor, according to a Rutgers University economist.
The reason, renting is flexible. A lease is over in a year and some families have month-to-month tenancies. A family can move up or down in the renting ladder as it needs to, depending on its financial circumstances.
Homeownership, in contrast, is inflexible. The mortgage payments, taxes, and insurance are all fairly fixed. When tough economic times come along, home-owning families get pinched by these high fixed costs.
The current financial crisis was caused by owner-extended homeowners who went into foreclosure. But the government programs has not adjusted its policies to reflect the hazards of homeownership. Government programs have been established to adjust mortgage payments to help keep people in their homes. These programs, however, may be misguided. A significant portion of families who have their mortgage adjusted still end up in foreclosure. The burden of homeownership is just too great.
Even if foreclosure is averted, the problem I see of low-income Americans is that all their possible savings are absorbed by the financial demands of homeownership. Other savings goals – such as saving for children’s higher education or for retirement – well, get ignored.
The ultimate goal is not the American Dream of homeownership, that this Rutgers economist suggests, but the upward mobility for a family and its children. In this view, I agree, renting is not just only okay, it’s downright beneficial.