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For Rent

May 10, 2012 by John Prestbo

A new book is out with a startling (to me, at least) message: Many people in the United States are shedding the desire to own their homes, cars, etc. and are happy to rent them instead. If this trend is lasting and not just a post-recession fad, it has important implications for boosting U.S. economic growth to 4% annually. The name of the book is “Better, Stronger, Faster: The Myth of American Decline and the Rise of a New Economy,” published this week by the Free Press. The author is Daniel Gross, economics editor at Yahoo Finance and a former senior editor at Newsweek. An excerpt from the book appeared in The Wall Street Journal last Saturday. I personally relate to Gross’s observation that “in the American mind, renting has long symbolized striving — striving, that is, well short of achieving.” In my day, renting was what newlyweds did until they saved up enough for a down payment on their first house. Owning a home and a recent-model car was the evidence of success at work, financial prudence, and general all-purpose respectability. Now, Gross writes, “Americans are getting over the idea of owning the American dream; increasingly, they’re OK with renting it.” He cites declining home ownership, increased demand for rental units, the advent of Zipcar and other by-the-hour car renters, and the mushrooming of entrepreneurial outfits that rent everything from college textbooks to clothes to that spare bedroom in your empty-nester house. The stock market reinforces the thesis. Since the bottom of the bear market in early 2009, stocks generally have recovered 25.6% on an annualized basis. But apartment-building developers are up 51% and self-storage operators are up 42%. Homebuilders, on the other hand, are underperforming with only a 22% gain. Should the “Rentership Society,” as Gross calls it, persist and expand, sea changes are in store for mortgage lenders and banks, among others. But on a macro level, would these changes be good or bad for the U.S. economy? Gross argues it would good, asserting that for many people renting is a more efficient use of family cash flow. The question is, what will people do with the money they aren’t spending on owning (and maintaining) things? They will have more disposable income, which has to be good for an economy that is 70% dependent on consumers. In addition, people will have more money to save and invest, which would be good for markets that will see outflows as Baby Boomers cash in their chips. In Gross’s view, “The U.S. economy needs the dynamism that renting enables as much as — if not more than — it needs the stability that ownership engenders.” Maybe so, but are we ready for the change?


Author

John Prestbo
John Prestbo

2012 Economic Growth Fellow

John Prestbo is retired as editor and executive director of Dow Jones Indexes. Previously he was markets editor at The Wall Street Journal. He has co-authored or edited several books over the past 30 years. The most recent is “The Market’s Measure: An Illustrated History of America Told Through the Dow Jones Industrial Average,” published in 1999 by Dow Jones Indexes. His column, Indexed Investor, appears on the highly regarded “MarketWatch” business and finance website. He received his bachelor's and master's degrees from Northwestern University.

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