Homeownership has long been known as a tool for building wealth and lifting Americans into the middle class. But a new report highlights other ways in which renting burdens many households, keeping them from financial stability and wealth creation.

“Less positive cash flow, fewer savings, and lower credit all highlight the challenges renters often face in trying to build stronger financial well-being,” notes the report, from the Aspen Institute, a nonpartisan think tank.

Some public programs have mitigated many of those issues, the report says suggesting that there are policy solutions available. In a housing market as strained as this one, that might be crucial, since the wealth-building opportunities offered by homeownership may not be achievable for as many people in the future as they were in the past.

What’s more, many renters are satisfied with their current arrangement, the report says, noting that “a Federal Reserve study revealed that 57% of renters find renting more convenient and flexible than homeownership and 36% simply prefer to rent.”

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Still, the scope of the problem – renters have a median net worth of just $10,400 compared to about $400,000 for homeowners with only about half of that accounted for by home equity – suggests there’s a lot of work to do to ensure financial stability for those who can’t, or don’t want to, access homeownership.

Renters struggle with positive cash flow

Consistently positive cash flow, or excess income after all household spending, is critical to achieving financial stability and building wealth, the report argues. But renters are disadvantaged in many ways. Among them:

• Half of all renter households spend more than 30% of their pre-tax income on housing costs, compared to less than one-third of homeowners, the report finds. Some 27% of renters pay more than half their income for housing.
• As of 2023, 54% of homeowners had incomes that were higher than their expenses. Just 39% of renters had positive cash flow.
• Renters at all income levels save less and have recently started cutting back on their spending due to the high cost of food, gas, energy, housing, and more.
• As of 2022, only 48% of renters owned any asset that might gain in value, such as retirement accounts, business equity, stocks and bonds, or other real estate not including their primary residence. Over 78% of homeowners owned such "appreciating assets."
• Renters are more likely than homeowners to struggle with debt: about 18% of renters had a late debt payment of any sort as of 2022, about twice as high as the percentage of homeowners who did.  Renter households have higher debt-to-income ratios than homeowners, and are more likely to hold student loan debt than homeowners. Since having student debt makes it harder to save for a down payment and skews the debt-to-income metrics that mortgage lenders use to qualify a loan, it is more likely that student loan borrowers will stay renters, the report says.
• While the report stresses that Americans from all income levels rent their homes, just over half of renter households earned under $50,000 a year in 2022. “Many renters under this income threshold live in fragile housing situations, unable to access housing assistance but still at risk of eviction,” the authors wrote.
• Renters tend to have poorer credit profiles than homeowners: in data from 2010 to 2015, 84% of renters had scores below 550, while only 27% of those with scores over 750 were renters. That makes it harder to access credit for things like mortgages and business loans.
• Rent prices increased by 27% from early 2020 to August 2022, and while they have ticked down since then, they remain challenging for many renters, especially those who are trying to save to buy a home. That’s even as the cost of homes to buy “have exceeded the reach of all but the most financially well-off buyers (including those with family wealth), forcing many renters to reconsider their approach to building financial resilience for their future,” the authors wrote.

How can renter households achieve financial stability?

What can be done? The report outlines several policy paths to help renters, including higher minimum wage laws, lower-cost education and training, and tax credits designed for low- to moderate-income households, such as the Earned Income Tax Credit (EITC) and the Child Tax Credit.

“Local markets need substantial increases in housing supply generally,” the authors write, “but especially for efforts that maintain and increase the supply of affordable rental housing.” Rental assistance such as vouchers for affordable housing can help some of the most vulnerable households.

Expanding programs that already exist, like workplace retirement savings plans, can help households without home equity build wealth. And making it easier for more renters to become owners – by increasing the supply of starter homes, easing credit score requirements, and bolstering down payment programs, among other steps – can also help.

“A strong and healthy country needs all of its people to have access to the conditions and tools that will enable wealth-building, regardless of whether they own the place where they live,” the report concludes.