Is It More Cost-Effective To Rent Or Buy? The Answer Depends On Circumstance
Whether you are a recent college grad or a seasoned professional, making the move to a new place can be daunting. Among the many difficult decisions a transplant must make is whether to rent an apartment or buy a property.
There are more American households headed by renters today than there have been in the last 50 years, but homeowners still outnumber renters two to one, according to Pew Research Center. But, when it comes to determining whether renting or buying is cheapest, data shows the answer isn’t cut and dry. Instead, it depends on a variety of factors, from financial standing to location preference.
In major cities like New York and San Francisco, where rental prices have skyrocketed over the last decade, it is becoming increasingly expensive for residents to afford their rent. With the cost of rent continuing to rise, buying can offer residents more bang for their buck. But buying in the city isn’t feasible for everyone.
“There are a lot of unrealized costs associated with buying a home,” CohnReznick Partner Cristi Lewis said. “You have to deal with homeowners’ insurance, property taxes and certain utilities that may not be a cost if you’re renting. Homeowners also have to pay for maintenance, repairs, homeowners association fees and a lot of other costs that can add up. That’s not to mention the upfront costs of buying a home.”
Lewis has worked on CohnReznick’s Real Estate practice for the last 20 years. She says that a growing number of millennials are reluctant to buy, as they do not know how long they will be in one place.
“People often change jobs, get transferred to different offices and have unexpected circumstances that cause them to change locations,” Lewis said. “If you’re only going to be in an area for a short period of time, it might not make a lot of sense to buy. But if you plan to be there more long-term, buying is often the more rational approach.”
While more millennials are opting to live in dense, metro areas than generations before them, city life isn’t for everyone. Many millennials and their families are moving to the suburbs with hopes of homeownership. In fact, millennials now account for 34% of homebuyers, making them the market majority. Still, many young people are struggling to find a house they can afford.
“There are several barriers making it difficult to buy a home in the suburbs,” Lewis said. “People are dealing with higher home prices; interest rates are now rising and there is a smaller supply of affordable homes. Many millennials are also still in student debt, so that makes it difficult to pay for a more expensive home.”
One short-term solution to this problem, Lewis said, is suburban single-family home rentals. Residents can reap the benefits of traditional suburban living without having to pay a significant down payment upfront.
When it comes to city rentals, one challenge that developers are working to solve is a high demand for affordable units. Especially in dense markets, finding the land to build affordable housing units while remaining profitable can be difficult. This problem has also been magnified with rising construction costs and the shortage of skilled labor, resulting in delays in project delivery.
“Finding the space and the resources for affordable housing continues to be problematic,” Lewis said. “We are seeing local government entities get more involved in zoning and permitting for affordable housing projects, and developers are adding an affordable component to many of their market-rate apartments. There is still a long way to go, but these preliminary steps are putting us on track to make our communities more affordable for both buyers and renters.”
This feature was produced in collaboration between Bisnow Branded Content and CohnReznick. Bisnow news staff was not involved in the production of this content.
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