Renting Beats Owning, But Both Take a Bigger Slice
Renting is still cheaper than owning—by an average of $6,000 a year in 2010, according to a report released by the Bureau of Labor Statistics. But the BLS's study also turned up a curious side effect of the housing crisis: as rates fell after the recession, homeowners paid less in mortgage and interest, while rents continued to rise.
This anomaly has occurred only twice since 1986, when the bureau began keeping records on housing expenses. The last time a rise in rents outpaced home borrowing costs was in 2004, when interest rates fluctuated in the wake of the 2001 downturn. "The decrease in interest rates in 2004 and again in 2010 had no discernable effect on rent," the BLS report notes.
Landlords, in other words, don't appear to have passed on their savings on borrowing costs to their tenants.
The study compared homeowners' and renters' housing-related expenses in 2010 versus 1986 — both times of recovery, but with big differences. Twenty-five years ago, the country was four years past an unemployment peak of 9.7 and a recent housing boom was slowing gradually. In 2010, unemployment was still above 9 percent, and housing was still suffering the after-effects of a bubble.
Yet home ownership has grown some 36 percent in the intervening years, with some 67 percent of the BLS's "consumer units" owning a home in 2010. They spent an average of $18,503 on housing overall, while renters spent $12,843.
Maintenance and utility bills represent the bulk of the difference. While paying some $1,600 more to maintain their houses, homeowners also paid $1,654 for electricity on average that year, to renters' average of $952.
Homeowners also paid more for telephone service. While both groups paid more than $700 a year on average on cellphones, homeowners spent twice as much for landlines than renters did—suggesting that two years ago landlines had already become dispensable for those staying in a residence for a short time.
If homeowners profited unequally from declining interest rates, the study found that housing is still taking a larger share of their expenditures than it did during the Reagan recovery.
While spending about the same overall in today's dollars, homeowners spent 11 percent more for their housing than they did in 1986, while pulling back on clothing (down 41 percent) and food (down 14 percent). While homeowners spent less overall on transportation, they spent 15 percent more on gas and oil for their cars.
Renters, who are paying 16 percent more for housing than they did a quarter-century ago, have had to reduce their clothing and food spending as well, though by smaller percentages.
As might be expected, the most significant added expense for both homeowners and renters was health-care, in both direct expenses and in what each group paid for insurance. Health-care premiums cost homeowners $943 on average in 1986 and $2,413 in 2010, a 145 percent increase. Renters paid 124 percent more.
The report doesn't say whether homeowners' increased spending on their houses was a matter of choice or a function of higher market prices. One possible indicator: spending on non-food entertainment was up from 1986 to 2010 by 11 percent—the only discretionary category that homeowners spent more on. Which suggests that after paying for houses and soaring insurance premiums consumers needed a good, stiff drink.