Rise of the renting class

By Nin-Hai Tseng, reporterJuly 28, 2010: 9:33 AM ET

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FORTUNE -- Modern America has long paired the "American Dream" with home ownership. The idea of staying put, paying property taxes and periodically mowing the lawn belonged to citizens who were somehow more American than the poor saps who could only afford to rent the place they called home.

The notion isn't accidental. Ownership and the American Dream are deeply linked in government policies that favor mortgages over rent payments, dating back before Herbert Hoover was elected president in 1929. As secretary of commerce, amid the Red Scare, Hoover trumpeted homeownership, believing that if one had an equity stake in the country, they'd less likely fall under the spell of Communism. What followed during the Great Depression were a spate of federal measures to help troubled homeowners, at a time when half of all mortgages were in default.

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diggEmail Print CommentMassive government programs supporting ownership still exist today, but record home foreclosures and spiraling prices have forced a redefinition of the American Dream -- one that includes renting.

In today's weak housing market, ownership has ceased to be an investment vehicle that millions used to trade up into the houses of their dreams in the boom years. And it's not an ATM machine for constant refinancing, either. Instead, for the past four years, ownership has been a culprit of distress. In June, one in every 411 housing units received a foreclosure filing, according to RealtyTrac Inc. Between 2006 and 2009, home prices fell more than 32%, according to the S&P/Case-Shiller Home Price Index.

Renting on the rise

With homeowner markets stressed, it appears renting has become more appealing than owning. Between 2004 and 2009, the number of renter households rose nearly 10% or by 3.4 million, according to a 2010 study of the Joint Center for Housing Studies of Harvard University. The rise was most dramatic in the Midwest, where growth of renter households swung upwards by 15.4% between 2004 to 2009. The South added the biggest number of renter households with a 1.2 million increase from 2004 to 2009, the study states.

All that has made Capitol Hill rethink its definition of the American Dream. As recently as the Clinton and George W. Bush administrations, the mantra of homeownership was almost synonymous to civic duty, but top policymakers now say that homeownership isn't necessarily good for everyone.

In May, U.S. Housing and Urban Development Secretary Shaun Donovan testified before a House committee that the financial crisis proved the need for a better balance between ownership and rental housing. And HUD senior official Raphael Bostic last week told the Washington Post: "In previous eras, we haven't seen people question whether homeownership was the right decision. It was just assumed that's where you want to go," Bostic said. "You're not going to hear us say that."

Owning a home wasn't always as easy as the liar loans of 2000's made it. When the economy went bust during the Great Depression, legislation intended to stimulate plummeting housing starts and defaulting mortgages laid the foundation for a bigger role of government over the housing market. Hoover signed the Federal Home Loan Act, and in 1933, Franklin D. Roosevelt created the Home Owners' Loan Corporation to provide low interest loans.

And the government was just getting started: a flurry of legislation was passed over the ensuing decades, helping veterans, minorities and the populace as a whole secure mortgages. But it appears the pendulum has swung.

"The government shouldn't blindly encourage homeownership," says Joe Gyourko, real estate finance professor at University of Pennsylvania's Wharton School. "If the government does anything the government should encourage people to make the right decision."

Gyourko says that he's not entirely against the idea of homeownership. After all, as a father of two, the 53-year-old professor owns a home. But he stresses that ownership should be looked at more broadly -- beyond any kind of long-term investment or cost benefit over renting.

Owners don't pay the landlord, but they pay taxes and maintenance costs on their house, and Gyourko says those costs can end up being roughly the same.

As far as buying a house as a smart long-term investment, Gyourko says that's not always true. He says between 1975 and 2008, the price for houses of similar quality and size appreciated an average of about 1% per year after inflation. Investors could have earned more by buying Treasury bills.

The post-crisis role the federal government decides to play in the housing market remains to be seen. In response to plunging home prices and record foreclosures rates, the Obama administration is pursuing an overhaul of policies that could put much less focus on homeownership. The administration could also scale down government support of home loans and put more focus on affordable rentals, but it isn't clear what direction officials will take.

The issues with Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500), the mortgage-finance giants seized by the government in September 2008 amid huge problems with bad loans, remain a touchy topic with lawmakers.Their combined bailout, according to some estimates, could reach $1 trillion -- a figure some might pin as the ultimate cost of generations of policies geared to favor home ownership.

Many blame the agencies' loose lending practices for contributing to the financial crisis. Republicans wanted the mortgage giants' fates to be addressed in the recently approved Dodd-Frank bill overhauling the nation's financial regulations, but that didn't happen.

However lawmakers define the government's role in the housing market, consumers have already begun redefining the American Dream: One where it has become socially OK to mail in a rent check rather than a mortgage coupon.

All you need to know about leases

You shouldn't rent without a lease. A lease is the contract between you and a landlord (or management company), spelling out the financial and other conditions governing your time living in the landlord's property. Laws regarding enforcement of leases and tenants/landlord's rights vary by state, and it's worth contacting your state or local tenants' advocacy organization for general information about red flags to look for in local leases and legally enforceable language common in most leases. Search Local Rentals HERE

Generally speaking, regardless of where you live, a lease will include the following features and elements:

Signature by both parties - Both you (and any roommates or cosigners) and the landlord or management company need to sign the lease and you should receive a copy of the lease to keep for your files.

Details about the property and who is occupying it - The lease should name the property you're renting and who, specifically, is living there.

Details about the length of the lease - Leases are generally for twelve months, with a specific beginning and end date. However, some leases in resort, seasonal, or university communities may have three-month and nine-month terms. Other leases may be open-ended, meaning you rent month-to-month and can end the lease with about a month's notice.

Quiet hours - Some landlords include in the lease rules regarding "quiet hours," when common areas are available, garbage collection protocols, smoke detection, utility usage, guests, pets, parking, and the like. It's worth reading these rules carefully, as the landlord can use your breaking of these rules as grounds for eviction.

Details about security deposit - The lease will include information about the amount of security deposit required, whether it will be stored in an interest-bearing account or not, whether the tenant will receive interest accrued from the deposit during their residency, and how long it will take to get the deposit back once they end their lease.

Rent payment terms - The lease will spell out the cost of rent, where and how rent is to be paid, and any late fees or penalties the landlord will charge if the rent isn't paid on time. If the landlord is offering any kind of rental concessions (rent for a year and get one month free), these should be identified or factored into rent payment terms on the lease.

Utilities cost - The lease will spell out which utilities (electricity, water, heating, air conditioning, sewage) are included with the rental unit and which utilities are to be paid for by the tenant, in his or her name.

Terms of use of the apartment - The lease may place limits on how many people can live in the property, how the property can be used (i.e. as a home, not a business or craft studio), and how many guests can visit at a given time or for a given duration. The lease may also spell out rules about subletting (i.e., renting to a friend or additional person while keeping the lease in your name only) and if it's permitted.

Rent acceleration - In some markets, if a tenant fails to pay rent or doesn't follow other lease terms, the landlord can demand the balance of all rent due for the time period covered by the lease. This is considered a landlord's last resort, however, and doesn't happen often.

Right of entry - The lease should spell out under what conditions a landlord can enter the rental unit. This is necessary so that the landlord or crew can address emergencies, schedule routine maintenance issues, or show the apartment to future tenants in the event you've given notice of plans to vacate the unit. Generally the lease will spell out what times of day the landlord would enter.

Lease renewal terms - Most leases discuss the opportunity to renew at the end of the current lease term, and they may indicate by what date you need to notify a landlord of plans to renew versus move on. Many leases renew for the same time period (say, 12 months) as the initial lease, but some landlords will let a tenant go "month to month" after 12 months. Sometimes, lease renewal terms will favor the tenant picking one type of lease versus another (i.e., a rent increase if they choose month-to-month, a lesser or no increase for a new one-year lease.)

Property Management and Lease Listings

Reduced Stress With Our Professional Property Management & Leasing Services

The Cascade Team Property Management is a team dedicated to providing you with the professional full service property management assistance and expertise you have come to expect from our real estate group. Navigating the rental property management market can be overwhelming. If you are looking for residential property management services, our team will guide you through every step of the process, no matter your situation. We'll share our real estate property management knowledge with you and help you make decisions to stay competitive in the market, while also adding value to your investment. Some of what we provide our clients:

Market analysis containing information on current rental property market conditions.

Professional strategy for setting the right rental price and adjusting to keep pace with changes in the market.

Advice on changes that will make your rental property more attractive to prospective renters.

Full service marketing of the property to find a tenant as quickly as possible.
If after we find you a tenant, you may want to also consider using one of our professional property managers to take care of the relationship with your tenant.

The Benefits of Hiring a Professional Property Manager:

Are you moving out of the area, but having trouble selling your home? Are you purchasing a new home, but don’t want to sell your existing residence? Or maybe you’re an real estate investor who purchases properties, but doesn’t want the hassle of being a landlord? If you fit in either of these categories, then maybe you should talk to one of our professional property managers about leasing your home. Here are some reasons why you want a professional property manager to handle your property:

* Saves you time, work, and stress.
* You don't have to advertise your property, take rental calls, and/or show the property.
* You don't have to screen applicants and worry about who you should pick.
* You don't have to execute the lease agreement, fill out the move-in inspection report and deposit money.
* You don't have to worry about tenants calling you about repairs.
* You don't have worry about collecting rent.
* You don't have to collect NSF checks.
* You don't have to schedule and fill out the move-out inspection report.
* You don't have to coordinate someone to clean, paint, or make repairs.
* You don't have to mail the tenant's accounting report and refund check.
* You don't have to start the process all over again.

We service the great Seattle, Bellevue, Issaquah and Snoqualmie areas and would welcome the opportunity to work with your on your lease or rental property.

Find more information at the links below:

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FOR TENNANTS