The Problem of Rent

In the United States, just over a 1/3 of people rent with 38% of them paying more than 30% of their income for rent. About 17% of renters pay more than 50% of their income for rent.

When you consider the cost of rent, it is not surprising that half a million people are homeless. What else will happen when you get sick or lose a job and have no emergency fund to pay for rent?

But, the more interesting question is why is the rate of home ownership so high? David Harvey provides an explanation worth considering in his talk: The Crises of Capitalism. Below, I link to the relevant section, but the whole talk is worth a listen. It’s 11 minutes long.

In sum, he says that the United States has home ownership rates of 68%, which is an outlier when you consider Switzerland has rates around 22%. These rates of ownership have been supported by the Mortgage Interest Tax Deduction, which is a huge government subsidy for housing. It has been promoted since the 1930s because “debt-encumbered homeowners don’t go on strike.”

He goes on to talk about the excessive power of finance capital and how wages of workers have been driven down and debt has become the means to cover the gaps for various goods. Housing is the single greatest source of debt for individuals and households, and it is central to how this all plays out.

David Harvey’s comments suggests that from the perspective of individuals, home ownership and renting is a trap that it would be wise to think about differently. One approach is to reduce the size and quality of the living space, such as living in mobile homes, sheds, RVs and other kinds of smaller houses. Another approach is to share larger living spaces with others, whether that be through apartment cooperatives, intentional communities, multi-generational homes, or some other method.

We have been seeing one example of this playing out with the Millennial generation.  In the last decade or two, younger people have been deciding to stay and live with their parents after finishing school. It is a smart financial strategy and addresses the problem of rent for people newly entering the work force. If the social problems of a multi-generational household can be navigated, it could be a long-term solution that takes advantage of a housing market geared toward selling more square feet of space than is needed.

Rethinking our approach to housing is imperative for individuals looking to get on firm financial footing. It is impossible to accomplish this when half your income (or even a third) is being spent on rent. Of course, this is precisely the argument to buy a home, since paying a mortgage builds equity.

The one thing you can be sure of is any solution for society at large that involves paying less rent will involve less movement of capital, which will result in lower profits for people financing housing debt. Every instrument of influence is being used to counteract movements in that direction and to promote the “American Dream,” which always includes some modern version of a home with of the white picket fence.

Rent is a trap meant to keep people selling their labor. However, it is a trap easily circumvented with innovative thinking and/or the help of family and other like-minded people.