Housing has now gone full circle. President Bush's "Ownership Society" has morphed into the "Rentership Society". The attitude applies to more than houses as noted in the Wall Street Journal article Renting Prosperity by Daniel Gross.
Americans are getting used to the idea of renting the good life, from cars to couture to homes. Daniel Gross explores our shift from a nation of owners to an economy permanently on the move -- and how it will lead to the next boom.
In the American mind, renting has long symbolized striving -- striving, that is, well short of achieving. But as we climb our way out of the Great Recession, it seems something has changed. Americans are getting over the idea of owning the American dream; increasingly, they're OK with renting it. Homeownership is on the decline, and home rentership is on the rise. But the trend isn't limited to the housing market. Across the board -- for goods ranging from cars to books to clothes -- Americans are increasingly acclimating to the idea of giving up the stability of being an owner for the flexibility of being a renter. This may sound like a decline in living standards. But the new realities of our increasingly mobile economy make it more likely that this transition from an Ownership Society to what might be called a Rentership Society, far from being a drag, will unleash a wave of economic efficiency that could fuel the next boom.
The reaction to extended leverage and foolish borrowing isn't to stop consuming and buying; it is to consume and buy more intelligently. That's what the Rentership Society is all about. And it starts at home. Literally. Housing is the biggest single component of consumption in the U.S. economy and the source of much of our present misery. According to the Bureau of Labor Statistics, the typical consumer spends about 32% of his or her budget on shelter. In the last decade, that generally meant borrowing a lot of money to take "ownership" of a home.
For an increasing number of Americans, though, it simply makes more sense to rent these days. According to Moody's, by late 2011 it was cheaper to rent than to own in 72% of American metropolitan areas, up from 54% a decade ago. And the more people who do it, the more socially acceptable and desirable it becomes. The decline in the ownership rate means that about three million more households rent today than did at the height of the bubble.
Zipcars and College Textbooks
Gross points out that students are increasing renting books as opposed to buying them. Of course there are also Kindle and other electronic ways of purchasing or renting books as well.
The same holds true for cars, and not just long-term leases either.
Gross writes ...
The Bureau of Labor Statistics says that private transportation -- owning and running a car -- is the second largest cost for a typical American household, accounting for 16% of expenditures. Factoring in finance costs, depreciation, repairs, insurance, taxes and gas, AAA calculates that an owner of a midsize sedan who drives 15,000 miles a year spends $8,588 a year on his car.
Enter auto-sharing firm Zipcar. Founded in 2000, it grew by focusing on cities and college campuses. It uses information technology to manage its fleet, and control access -- people get cards that let them into garages where cars are kept and into the cars themselves. Users in New York pay a $60 annual fee and then $8.75 per hour on weekdays and $13.75 per hour on weekends -- no extra charge for gas or insurance or miles. As the U.S. economy contracted, Zipcar went into hyper-growth: from 225,000 members in 2008 to 650,000 members and 9,500 cars in November 2011. Zipcar, which went public in 2011, has had success in the predictable big cities like Boston, New York and San Francisco, but its vehicles can also be found on 350 college campuses and in smaller cities like Providence, R.I., and Portland, Ore. Large rental agencies like Enterprise and Avis have responded by rolling out similar services.
Will Rentership Fuel the Next Boom? When? Why?
Gross put together a nice article explaining what is happening but the article falls far short of the opening premise "how it will lead to the next boom".
I see no reason renting Zipcars, textbooks, or houses will lead to a boom in anything. Every dime Zipcars makes is a dime lost by GM, Ford, and Toyota.
Kindle is going to put numerous bookstores out of business.
Younger Americans are not buying cars and houses because they cannot afford them. Collectively saddled with a trillion dollars in student loans, many cannot afford to buy much of anything, especially poor job prospects and falling wages.
I see no boom from this. Rather, I see pressures on profits in multiple places for multiple reasons.
What About Housing?
Renting cars and textbooks is the start of a trend that makes perfect economic sense. However, Zipcars, textbooks, clothes, and electronics are one thing, and housing is another.
When sentiment on houses reaches the widespread belief "It's Better to Rent", prices are bottoming. I expressed that thought on numerous occasions since 2005.
This is how I currently see things.
This is how I have called the housing bubble and bust in real time over the years.
- March 26, 2005: It's a Totally New Paradigm
- June 07, 2005: It's time to shift the arrow
- April 10, 2006: US vs. Japan Land Prices Pictorial Update
- February 15, 2008: Housing Bottom Nowhere in Sight
- December 01, 2008: Housing Update - How Far To The Bottom?
- July 13, 2009: Housing Update - How Far To The Bottom?
- June 20, 2011: When was the Housing Peak and How Far to the Bottom?
- March 13, 2012: How Far Have Home Prices "Really" Fallen? HPI Upcoming Changes; HPI and the CPI
The first four links above are quite humorous. The denial from Bernanke and others is stunningly funny.
Some cities are further from the bottom than others, but it is likely some cities have now finally bottomed.
That said, I do not think home prices are going much of anywhere "in general" because there is still years of shadow inventory and years of foreclosures to work through.
Moreover boomer demographics suggest much downsizing is ahead (and who will boomers sell their mansions to?)
Finally, generation Y has far different attitudes than boomers regarding wealth, debt, and possessions and will carry those attitudes for a long time having seen firsthand the trouble their parents and grandparents got into with too much debt, and how they are in the same boat with student debt.