Have you recently seen this headline or something similar to it? According to a study (there have been a few studies over the years linking these two ideas), countries with lower home ownership have lower unemployment. The study compared Switzerland in particular with 34% of their population being home owners to a low unemployment rate of 3%. The idea is that a more mobile work force can move when needed for employment.

Of course, with all studies, there’s a devil’s advocate perspective: perhaps there’s absolutely no correlation between the two rates or maybe something else is going on in countries like Switzerland and Germany where the percentage of renters is high and unemployment low. For example, owning a home in Switzerland is expensive. Not only is property pricey, but the Swiss are taxed on the amount they could be making to “rent” their property.

Here in America, depending on which state you live in, property prices and taxes vary allowing many people the luxury of owning a home. Since the 1920’s there’s also been a big push from the government towards home ownership in the United States. It was seen as a gateway to wealth and savings. (*side note: think about how the government benefited from more people owning homes.)

Yet, this isn’t the case with all sectors of the population. In particular, lower income families may not reap the benefits of owning a home due to various factors: spending too much of their income on housing, buying in a low-income area that doesn’t see much appreciation, or losing a job.

Getting back to the idea of home ownership as a means to building wealth, it’s not the be all, end all of saving money. Looking at the Swiss culture, their population of renters seem to do just fine with saving a large portion of their Ā income. And that’s the key to building wealth: saving money!

From a personal perspective as a renter, I’m consumed by the idea that “I must own a home” to be viewed as successful. But the truth is I live in an incredibly expensive area where homes are more than six times my income (and my income is much more than the national average). My take away from all of this information is that maybe owning a home is out of reach, but saving isn’t. There are various ways to build wealth such as:

  • Investing in mutual funds and stocks. I like to play it safe, so I lean more towards mutual funds.
  • Earning passive income from P2P lending. This is something I’m investigating and would like to do in the near future.
  • Saving at least 15% of my income. I’m working on this one. I’ll soon be able to do this early next year when my debt is paid off.
  • Stay out of debt! This is the biggest hurdle for many Americans and limits the amount they are able to save.

I don’t think the concept of home ownership will fade in America any time soon, it’s too ingrained in our belief of the “American Dream.” But perhaps in time renters won’t be seen as irresponsible. And if the government wants to get in on changing the perspective on saving more money (like they did about owning a home in the 1920’s), they could offer more education on saving money and investing, they’d just have to figure out a way to financially benefit from people’s savings accounts.

Do you think renter’s can be as financially successful as home owners? Is owning a home the only way to build wealth?

7 Comments

  1. Money Beagle Reply

    I think it could be more advantagous to own than rent if people moved less often. It seems that people move for the sake of having a different house, versus addressing a true need. You add up all the costs involved with that with realtor fees, moving costs, and the like, and definitely adds up to a pretty big drain on savings and such. Unfortunately, I don’t see the behaviors of Americans changing anytime soon with regards to housing, so it’ll be interesting to see how it tracks over time.

    • @Money Beagle – Forced savings was one incentive in the 1920’s during the “own your own home” day sponsored by the government. If Americans saved more, especially in more expensive cities, owning a home wouldn’t be such a “must have” for most adults. I think my perspective is coming from a very expensive town where people get in over their heads to afford a house. It will be interesting to see how recent economic trends affect home owning.

  2. Owning a home is a dream in many parts of the world, not just the US. It’s just not as easy to get a mortgage in other countries. I think a mortgage is generally good for the US public. It’s forced saving. Most people can’t save any money. When they have a mortgage, they have to set some money aside. That’s my opinion anyway.

    • @Midlife Finance – Definitely. That’s one reason home ownership is so low in Switzerland; it’s very expensive to own a home (I don’t know much about acquiring a mortgage there). But yes, it does force Americans to “save” as long as you live in the house long enough and in an area where real estate appreciates.

  3. I think it depends on the situation – sometimes renters can do as well or better, other times they might fare much worse. If a person is going to stay put in a home for a while, it can be a big advantage over renting, but the purchase price can’t be excessive as it’s a liability that provides less flexibility in the event of changing circumstances.

    • @Tie the Money Knot – I’d guess that currently renters fair much worse because, generally speaking, our money habits aren’t so great. If we (Americans) were more informed when it came to finance and were better at managing money, renters would be equally as well off. More finance education is needed!

  4. krantcents Reply

    People rent for a variety of reasons. There some times that renting makes sense such as in New York City, if you have a rent control apartment. I rented the first year, I moved to California because I did not know where I wanted to live. I had a sizable down payment and excellent credit.

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