Homeownership boom widens the wealth gap, leaving renters in financial instability

By Stacy M. Brown
Contributing Writer

(NNPA Newswire) — A Profile on the Wealth and Financial Well-Being of Renter Households highlights that renters today have a median net worth of just $10,400 – a mere fraction of homeowners’ nearly $400,000 median net worth. According to the Aspen Institute Financial Security Program’s report, “From Rent to Riches,” the disparity is not solely due to home equity. While home equity makes up $200,000 of homeowners’ median net worth, the remainder comes from other assets that renters typically do not own, such as stocks, bonds, retirement accounts, and business equity. The report notes that 78 percent of homeowners own a potentially appreciating asset beyond their primary residence, compared to only 48 percent of renters.

Just 39 percent of renter households have income exceeding their monthly expenses, compared to 54 percent of homeowners. The limited cash flow makes it difficult for renters to save, pay off debt, and invest in assets that can build wealth.

Renters saw a 43 percent increase in net worth between 2019 and 2022, outpacing the 34 percent increase for homeowners. Pandemic-era support measures helped to spur the growth, allowing many renters to reduce debt and invest some of their earnings, researchers said.

However, the end of support programs and rising housing costs reversed those gains.

Rent prices surged by 27 percent from early 2020 to August 2022, exacerbating financial strain. Half of all renter households now spend a reported more than 30 percent of their pre-tax income on rent, while 27 percent spend more than half of their income on housing. Experts said these rent burdens leave little room for saving or investing, perpetuating the cycle of financial instability.

The report identifies several systemic obstacles preventing renters from building wealth. Renters are more likely than homeowners to be burdened by student loan debt and late payments. Even though renters’ median debt decreased slightly in recent years, 18 percent still struggle with overdue payments, double the rate for homeowners. The median savings for renters is just $3,000, compared to $20,000 for the average household. Only 31 percent of renters have enough emergency savings to cover six weeks of expenses. Renters are also more likely to have subprime credit scores, limiting their ability to secure favorable loans for homes or businesses. Half of renters reported being denied credit or receiving less credit than requested, compared to 28 percent of homeowners.

The report unveiled several strategies to help renters achieve financial stability and build wealth, including increasing wages, expanding rental assistance programs, and boosting the supply of affordable housing. Policies like the Housing Choice Voucher program and Low-Income Housing Tax Credits (LIHTC) can help ease the rent burden. Another pathway to building wealth is encouraging renters to save through retirement accounts and innovative asset classes like shared real estate ownership. Programs like HUD’s Family Self-Sufficiency program have shown success, with participating families saving an average of $9,500.

The report authors noted that with down payment assistance, improving credit scoring models, and increasing the supply of starter homes could assist in renters transition to homeownership.

The report’s authors have called on policymakers, financial institutions, and community leaders to prioritize renter-focused wealth-building strategies.

“We cannot achieve a more equitable economy without addressing the financial instability of renters,” the report concludes. “All households, regardless of homeownership status, deserve the tools and resources to achieve financial security and resilience.”

This article originally published in the December 23, 2024 print edition of The Louisiana Weekly newspaper.