Rent Vs. Own: What’s the Best Pathway for Low- and Middle-Income Households?

The housing crisis in the United States far predates the COVID-19 pandemic. Although the past few years have been particularly rocky for housing, most of the existing challenges are residual from the Great Recession of 2007 to 2009.

One thread remains constant, however: Homeownership is the cornerstone of building generational wealth and advancing long-term stability.

Unfortunately, owning a home today is immensely difficult due to the lack of housing stock, the high costs of homes, and inflated interest rates. Between 2020 and 2023, for-sale home prices jumped by 37.5 percent, pushing many individuals and families with middle or low incomes out of the running.

Because of the high barrier to entry, many families with lower incomes are forced to rent—even as rent prices continue to rise, resulting in cost-burdened renters.

The debate between renting vs. owning in the United States is certainly not new. But in the recent aftermath of the COVID-19 pandemic, with more and more families priced out of homeownership, policymakers and experts need to draft new policies that prioritize homeownership and make it possible for Americans to purchase quality, affordable homes.

Understanding the realities of the U.S. rental market 

For families with low incomes, options for affordable, high-quality homeownership are staggeringly slim—but the rental market is equally unaffordable.

In 2020, 46 percent of American renters spent more than 30 percent of their income on housing, thus meeting the Department of Housing and Urban Development’s definition of being cost-burdened. Of that percentage, 23 percent spent at least 50 percent of their income on rent meaning they are severely cost-burdened.

To make matters worse, rent continues to rise: The average U.S. rent has increased by 18 percent between 2017 and 2022, even outpacing the rate of national inflation. In the West and the South, rent prices rose by 21 percent and 20 percent respectively.

Of course, the demographics of those renting homes or apartments are not equitable. In 2019, six-in-ten Americans in the lowest income quartile rented their homes as well as 88 percent of people with net worths below the 25th percentile. Black and Hispanic Americans were also more likely to be renters: compared to White households, Black households are 57 percent more likely to rent while Hispanic or Latino households were 52 percent more likely to rent.

The long-term impacts of renting vs. owning 

Challenges meeting daily needs 

Renters generally are more at risk of not being able to afford their basic needs, according to an Urban Institute study.

The research found that nearly 4 in 10 nondisabled, nonelderly adults faced difficulties in meeting their basic needs. Of those surveyed, renters were more likely than owners to report trouble paying for at least one of their basic needs. Thirty percent of renters experienced food insecurity, 20 percent had an unmet medical need because of costs, and 13 percent reported trouble meeting rent payments.

Renters with lower incomes also face greater financial uncertainties, which can fuel additional difficulties. When compared to homeowners, renters expressed lower confidence in their ability to produce a $400 savings cushion to cover an emergency expense.

Owning a home can provide stability and wealth-building opportunities 

Owning a home has historically helped families accumulate wealth for two primary reasons: home equity increases with value appreciation, and the stability of monthly mortgage payments compared to the volatility of rent. Additionally, homeownership substantially increases wealth. In 2019, the median net wealth of homeowners at $255,000 was 40 times that of renters at $6,300.

However, it is important to note that Black and Hispanic households accumulate significantly less wealth than white homeowners. The U.S. median household net worth for white families was $122,000 in 2019. For Black families, however, it was just $24,000, and for Hispanic households, it was $36,000.

Homeownership is not created equal

Owning a home is a powerful stepping stone to long-term economic stability for families—however, in the U.S., owning a home has increasingly become an option only for families with high incomes.

But for all families, and particularly for families of color and families with lower incomes, owning a home serves as a catalyst for accumulating wealth through equity and appreciation, tax advantages, secured borrowing, and built-in savings.

In addition, federal tax policies tend to give special preferences to owner-occupied housing: take the mortgage interest dedication and capital gains exclusion, for instance.

Expanding opportunities for affordable, for-sale homeownership 

At Smith NMTC Associates, we were the very first organization to use the New Markets Tax Credit (NMTCs) program to facilitate affordable, for-sale housing opportunities. Since our founding, we have structured and facilitated funding for 123 transactions in over 30 states using more than $500 million in New Markets Tax Credits and other financing tools to create more than 4,200 homes.

What is the New Markets Tax Credit (NMTC) program?

The federal New Markets Tax Credit (NMTC) program offers incentives for investment in low-income communities. Nonprofit developers, business owners, and other mission-driven companies can use the NMTC program to dramatically increase the availability of for-sale housing.

This program can transform lives and communities—and with the continued use and expansion of the NMTC program, it is possible to affect the national affordable for-sale housing shortage.

Interested in learning more?

We offer transparency with our affordable homeownership NMTC models because we believe so deeply in homeownership—and its ability to enact sustainable change in the lives of low-income families across the country. You can access our available resources, including our three models, by clicking here.

We’re also committed to serving as a resource and a collaborative partner for anyone interested in utilizing the NMTC program for affordable for-sale homeownership. Reach out to us at info@smithnmtc.com to schedule a call or learn more.