House Rental - Simulating The American Dream

For when you don't have a bounty of gold and a spare organ for a down payment

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We've come a long way since the 1930s. It's 2022 at the time of writing and I'd be willing to bet that your average person walking the street would sooner associate "The 30s" with the soon to be 2030s as supposed to a decade few people alive today have experienced. Time is a tricky thing (we are closer to the year 2050 than the release of the first episode of Seinfeld back in 1989!) and yet some ideas are strong enough to remain relevant long after they first appear.

Stop me if you've heard this before. Picture yourself with your family (likely of four, with you, your spouse, and two kids) standing on the front lawn (which is perfectly mowed) of your two story house. A white picket fence lines the sides of your property and your golden retriever bounds happily across the flowerbed. Your two vehicles are neatly tucked inside the garage, and you're ready to take on the day at your 9-5 job.

It's an old concept, but I'm willing to bet that pretty much everyone has seen or heard some version of that description. I'm also willing to bet that a good portion of people measure where they are in life against that description. And though it may not be the bar everyone wants to reach these days, it also represents a bar that not everyone will be able to reach. United States house prices have gone up by about 20% depending on where you live, and Canadian prices are matching that rate. Not everyone can afford to buy $750k houses (yes, that's the number in a lot of places), especially the generations reaching the age where they would enter that market. For those seeking independence, house rental becomes the most viable option, but it only serves as a reminder that the American Dream is destined to remain just that: A dream.

But why is house rental such a big deal? Why does it seem like it's becoming a more common option? And what will it take to get home ownership back on the table without breaking the bank?

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What even is the American Dream?

In 1931, James Truslow Adams wrote the book "Epic of America". If you want the exact version of what he wrote, it's here. If you're like me and prefer the TLDR version, it boils down to the idea that "Stuff should be improved on and if you work hard you should be rewarded for it". Let's be honest, neither of these is exactly catchy. We gravitate towards lists, checkboxes, and other ways of being able to say "Yeah I got that" or "No I don't got that".

So while the "House with the White Picket Fence" isn't the perfect description that Mr Adams envisioned, it has been adopted as the benchmark for the American Dream because it's easy to figure out. I own a house, I own a car, I have a family, I have kids, etc. But look again at the material things in the description. I own a house, I own a car. House rental is very definitively not on the list. Not only that, it fundamentally means you have not fully achieved the goal set by this lofty checklist.

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So why is house rental even on the table if it's so bad?

In the United States and Canada, it's generally accepted, if not actively encouraged, that once you turn 18 years old, you're seeking to move out. Be it college or university, work, or a general desire for a little independence, millions of young adults every year uproot and find their own place. Fast forward a half decade and life... well... happens! Freshman become graduates, apprentices become journeymen, and people find each other! People generally have more life skills, perspective, and stability. And they're probably starting to realize that those three roommates they moved in with a half decade ago are more annoying than their parents.

So begins the real move out. A place with a little permanence. Perhaps you're making the move with that person you want to spend the rest of your life with. The pieces are in place to start building that American Dream. For some, it's an apartment. For others, it's selling all but the basics and traveling the country in an RV. For many, all eyes are on the housing market. These prospective home buyers open the listings and oooohhh man this costs how much?! Turns out that with the increasing prices in the housing market over the last few years, what was once difficult is now impossible, and many first time buyers find themselves priced out of a market that left them with no options.

Well, there is one option. Find a property and strike up a house rental agreement with the owner. It's an option out of necessity; Rent the house or downsize to an apartment. Moving back in with the parents is largely off the table for many in this position, and buying at these rates is just not going to happen.

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Future by Design

As with so many other things in a post 2020 world, we find ourselves staring down a new normal. House rental is set to become an increasingly common reality and the new standard by which people will learn to measure success. It's a supply and demand issue, but the supply is only going down even as new houses are going up. It's by design.

Houses are now viewed as highly valuable assets and being picked up in droves by those looking to rent them out in search of passive income, while others still are being bought up by investment companies such as BlackRock. New property is snapped up at the already inflated price and old property is sold to the highest bidder in an increasingly competitive space. The barrier for entry between house rental and house ownership is only getting wider and the ability for new home owners to purchase is only becoming more limited.

It's important to keep in mind at this point that house rental is not intrinsically bad. It serves as a good bridge between apartment rental and home ownership, and gives those who may want to buy a home the experience of ownership without any of the risks. The bummer is that for many, the option of ownership (and achieving that American Dream) is gone, doomed to only be simulated through a monthly installment to whoever oversees the property.

And when options are taken away, that's not a good thing.

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Waiting for the Drop

As more people turn to house rental, it begs the question of how long they keep renting. There is a group on both sides of the table, with one saying renting is fine and the other saying it's a waste of money (in that you're not paying towards your own investment). You'll still find people in both camps waiting for the second half of "What goes up must come down" to happen. Prices have shot up, and now we wait for the crash. And in fact that what's happening. Many young adults and future first time home buyers are waiting for a housing market crash.

It's not a sure fire solution. There's going to be lots of competition amongst not only each other but the aforementioned investment companies. As well, the bubble may only burst for a very brief window of time. Even with the prospect of this crash, many still do not believe they will ever clear the gap between home rental and home ownership. Yet still, it represents the best chance to break into a market where the train seems to have left the station years ago.

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One Size does not fit all

Ultimately, strive for what makes you happy. Home ownership is not for everyone, and even house rental isn't many people's cup of tea. The old version of The American Dream is almost 100 years old, but maybe it's now time to retire it. People have proven to be resilient, and we're becoming increasingly aware that the cookie cutter formula that everyone must abide by is becoming a thing of the past. At the end of the day, make your own checklist and go after it! Your biggest competition is yourself.

~IR

Any ideas on how to crack into the housing market? Maybe you're a pro at living in a rental environment? Or maybe you just have a comment to add? Check out the Facebook, Twitter, Instagram, or LinkedIn page and let everyone know. Don't forget to follow or like the page for updates! And share this article if you feel others should give it a read!

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