The Problem With Focusing On Affordable Rents
January 25, 2021

City affordability is associated with cheap rent, and not cheap home-ownership. For example, in my city of Hoboken, NJ, there is no mention of home ownership on our Affordable Housing Department's webpage.

2020 has been a struggling year for many, including those who have lost their job and can not make ends meet. One of the common complaints in major American cities is that housing is too expensive, and people are protesting, and most often, this protesting is around rent being too high.


A protest in Massachusetts.

There is no shame in renting. I have been a renter, and a homeowner, and back to being a renter, then back to being a homeowner again. But, the emphasis on renting when talking about affordability has me worried. It is a very consumerist view. Cities should be platforms where residents have equity and the opportunity to build wealth.

I am a big fan of Dave Ramsey's financial planning advice. Home ownership is not for everyone, and Dave Ramsey has a blog post on buying versus renting.

Making a monthly payment, either to a landlord or to a bank, just to have a roof is not very natural. It should be a temporary state, but we accept it as a fact of life as "that is just the way the world is." People need a path to affordable homeownership.


Do you think our tribal ancestors, such of those pictured in Omo Valley, Ethiopia, spent 30 years of debt to repay the rest of the village for helping to build their huts out of local materials?

The end goal of "affordable housing" initiatives should be to get the majority of residents into homes where it is realistic for them not to spend their entire life sending a monthly payment to a bank or a landlord.

"Affordable housing" ≠ just "affordable renting".

Townhomes originally built for working class in Hoboken, New Jersey. Now many sell for over amillion dollars. What are we doing about affordable homeownership?

By treating housing as a cash flow problem (affordable rents) rather than an equity problem (affordable ownership), we doom the lower and working classes to forever being renters, and there are problems with that.

Without a mortgage or rent, you can live quiet cheaply. Even in expensive Manhattan you can find $1 pizza, shop for clothes at thrift stores, free days at the museum, etc.


People lined up for New York pizza!

The problem with expecting the lower-to-middle income households to forever be renters is that they will struggle to ever build wealth. It is one thing to be a wealthy renter, but with the majority of Americans living paycheck-to-paycheck, a home is likely the only valuable asset they will have.

Being a homeowner has its advantages when income disappears. There is going to be a massive problem if we expect the majority of our urban residents to be renters their whole life, paying 50% of their net income to a landlord. How will they retire? Do we expect them to be forced to work till death? What will happen if you get fired from your job?

I am attracted to the idea of "long wealth". Wealth where you can live within your means and start from a little, and built it up over time, and even across generations, much like a castle;


Girnigoe Castle in Scotland was incrementally added to over the centuries, with the final result being more than one generation could ever afford to build themselves.

Think of a home you own as your family's castle. A married couple by themselves does not need much space. As their family grows, so can they incrementally modify their home. The ability to improve your home is a good thing.

A proposal to add a new floor and balcony to a townhome. I do not remember where I found this picture.


An addition being added to a house.

Apartment owners would have more difficulty physically expanding their place, but they are still able to improve their living conditions.


A bathroom remodel.


A kitchen remodel.

When water sprays across the kitchen, a homeowner has to find a plumber and pay to fix the problems themselves (compared to going to your landlord to take care of it), so homeownership comes with trade-offs. But, being able to improve your living conditions is a good thing.

Landlords, especially in a market where there is little competition (anywhere housing is expensive), the property is rent controlled (so the landlord cannot capture the increase in value), or subsidized by the landlord (below market rate housing), there is no incentive for the landlord to improve their tenant's home.

The kitchen of an apartment we used to rent for $3,000/month. It was functional, but outdated. It certainly was not luxurious, despite paying a lot of money. It was frustrating knowing that we could remodel the kitchen with several months rent, but because we were renters, we did not have the ability to do so.

With rent regulated/affordability requirements, everyone eventually suffers. Landlords loose income - they either have to accept the loss, or charge their market rate tenants more to make up for the loss. I have heard stories of people living in the same place for decades because it is rent controlled. The landlord has no incentive to improve their property, the tenant has no ability to improve their home, and cannot afford to move and loose their 1995 rent, so they are stuck with no exit. The tenant gets a cheap place today, but at what cost?


A crappy old kitchen.

A large renting class can lead to economic polarization. A class of renters that have no equity (can not make improvements, capture value gains, etc.) and send 50% of their net income to a landlord, versus and a class of landlords that own everything.

A random graph to demonstrate growing polarization. Imagine the bottom line is the collective wealth of the renters, and the top line is the collective wealth of the landlords who collect a percentage of the renter's income in perpetuity.

A large renting class with a small consolidated class of landlords will lead to class warfare.

Angry renters vs. greedy capitalist landlord?


Renters protesting in Alameda, California.

Or business owners vs. scrounging tenants?


Protests against rent control in Long Beach, California

In a democracy, the former often wins (they are the larger class, thus have the larger angry mob rule), installing tight controls on real estate. Every little control that makes it more difficult to build raises the cost of entry to build, shrinking the pool of players to an even smaller class, further concentrating wealth.


Despite San Francisco having some of the most expensive real estate in the country, the city is so over regulated that they are building homes at near record low levels.

There is no shame in renting. I have rented many times. It is nice having a fixed monthly payment and a landlord that will deal with any problems. It is nice not having to worry about selling if you want to move, or you want to ride out falling property markets.

When we talk about the affordability of cities, let's not limit the conversation to rents. Mass renting is not a long term solution. It is important that cities are a platform for their citizens to build wealth and improve their lot, not just be mere consumers.