As the annual joust dubbed the Federal Budget Battle looms in the nation's capital, special interest groups are rushing to flesh out their agendas and shore up support for their political positions. Real estate organizations are no exception, and one such group may have a case for a complete reversal of federal policy over the coming years.

For decades, multi-family housing firms have lamented the fact that Uncle Sam subsidizes low-income families, helping them move out of rental units and into heavily mortgaged houses. This redistribution of tax dollars, in the form of grants and low-interest loans, has been justified by the claim that the government is helping families achieve the American dream.

And while the dream may be ideal for homeowners, it reduces occupancy and profits for multi-family housing projects.

But the idyll of home ownership now may not be as American as apple pie. According to a new Fannie Mae "National Housing Survey," more than 40 percent of renters lease their homes "as a matter of choice," rather than out of necessity. This number is up strongly from 32 percent in 2000 and 28 percent in 1999.

"The fact that a growing number of households choose to rent clearly refutes the conventional wisdom that homeownership is a universal dream of all Americans," said Doug Bibby, president of the National Multi Housing Council (NMHC).

This trend toward rental by choice may bode well for the multi-family housing industry, which has been overshadowed by still-rising home sales and prices.

A recent NMHC survey analysis also points toward improved prospects for the sector. Despite the country's historically high home ownership rate, the number of apartment renters has actually grown. Much of that growth has been in the luxury apartment sector serving the highest-income groups.

For the past three years, households making $50,000 or more have been the fastest-growing segment of the apartment market. After growing an average of 8 percent annually for several years, there are now 5.6 million apartment renter households making more than $50,000.

Bibby credits changing demographics with causing the increase in apartment demand. According to the U.S. Census Bureau, the population groups most likely to rent an apartment are on the rise. These include young adults, one-person households and married couples without children. Another factor is job-hopping. Home ownership is less attractive for professionals who quickly leaving one job for another in a different geographic location.

"Financial factors also play a role in creating new apartment renter households," says Mark Obrinsky, NMHC vice president of research and chief economist. "Tax law changes passed in 1997 have caused many Americans to question the assumption that owning a home is better from an economic standpoint than renting.

"Under those changes, the first $500,000 of capital gains on homes sold by joint filers ($250,000 for single filers) are now exempt from taxes," Obrinsky added. "Freed from the prospect of incurring a huge tax liability, many empty nesters are choosing to leave cutting the grass, repairing the furnace and shoveling snow behind in favor of renting. Having paid down their mortgages, many members of this group are now able to re-allocate their wealth -- completely tax free -- into a broader array of investments."

If these statistics and survey results do, in fact, paint an accurate picture of housing in the United States, policy-makers and taxpayers must question our government's current mission of pushing home ownership. As more Americans choose to rent, rather than buy, should they be taxed so that others can be gifted with a mortgage?

The multi-family housing industry would do well to ask these questions, as well as point out that such subsidies interfere with market forces which would otherwise lead to low vacancies and big profits.

Alternatively, questions and facts may not be sufficient to overcome a baseline political reality: Who on Capitol Hill wants to reduce or end mortgage interest deductions for local homeowners -- and voters?

For more articles by Lesley Hensell, please press here.

Published: September 7, 2001

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Lesley Hensell covers commercial real estate and financial issues for Realty Times. Based outside of Dallas, Lesley works with high-tech and real estate clients as an independent marketing and public relations consultant. She also writes for several publications, including the Dallas Morning News. E-mail Lesley at: lhensell@earthlink.net