When there are more people renting apartments or homes, it reduces the opportunities to build wealth, according to some of the basic rules of financial planning.
The latest statistics show that the historic increase in the number of people renting a place to live, as opposed to buying a dwelling, means that one of the main wealth-building engines available to most Americans is now unavailable. Data from Business Insider cite U.S. Census Data that found the homeownership rate slipped to 64.8% in Q1 2014 from 65.0 % in 2013. This is the lowest level since Q3 1995, according to the Census Bureau. .
If renters continue to rent for years, they will fail to build housing equity over time. And given the importance of housing equity linked to the strong benefits of rising home prices, and the ability to access reverse mortgages and equity loans, means these wealth building sources will not be available to millions.
As a result, the most powerful wealth-building engine available to the vast majority of Americans—home equity via home ownership—will elude millions of Americans.
To compound this problem, more renters will be strapped to pay their rents, based on a study by Enterprise Community Partners, an affordable-housing nonprofit group, and Harvard’s Joint Center on Housing Studies. The study found that the number of U.S. households that spend at least half their income on rent could increase by 25% to about 15 14.8 million over the next decade. Over one million households headed by Hispanics and over one million headed by the elderly could pass into those ranks. (The accepted amount of the rent payments to wage ratio is about 30 %.)
In a larger context, a decrease in the wealth created by home ownership means that in order to retire comfortable, Americans will now have to rely more on savings, investments, and rising salaries over the course of their working careers. This is a large number of financial variables that must all work together over decades and go in the same upward direction if people are to attain any modicum of financial security.
Reduced access to the limited number of wealth-building engines has been stalled over the past few decades. This is due to a variety of financial and political factors, the vast majority of which are totally outside of the control of most working Americans.
Consider that no financial planner today has a handle on how the debt crisis in Greece, the refugee problem in Europe, the devaluation of the Chinese currency, the Republican effort to shut down the government, and what the Federal Reserve will do about interest rates. Any one of these is enough to derail the stock market and the economy. So it is no wonder that with real wages stagnant, more people are uncertain about whether they can afford to buy a home and pay for it over time. 
How Bad is the Financial Situation for Most Americans?
Consider:
–In 2014, about half of American households said they would have to borrow or sell something in order to meet an unexpected expense of $400. (The Economist, Sept. 5, 2015, page 31.)
— Rising wages also will not reduce the number of people paying an excessive amount for rent. The Enterprise Community Report cited earlier found that “even in the best case posited by the report, with wages growing a full percentage point per year faster than rents, the number of severely cost-burdened households will barely fall, from 11.8 million in 2015 to 11.6 million in 2025. In the baseline scenario, where rents and wages (and inflation) increase at 2% each year, the researchers expect the number to reach 13.1 million.”
–Real wage growth not rising. According to the Economic Policy Institute, a left-leaning think tank, “ever since 1979, the vast majority of American workers have seen their hourly wages stagnate or decline. This is despite real GDP growth of 149 percent and net productivity growth of 64 percent over this period. In short, the potential has existed for ample, broad-based wage growth over the last three-and-a-half decades, but these economic gains have largely bypassed the vast majority.
In fairness, the conservative Heritage Foundation disputes these results by saying that the EPI and other similar liberal economists relied on different measures of inflation, cost of living, ways of measuring total compensation, mixing household with personal incomes and cherry-picking comparison time frames.
But politicizing a metric as serious as wage growth over time is a magnet for political-motivated economists. Since most Americans have seen their savings eroded as a result of the 2007 recession, compounded by small wage increases compared to productivity gains, it looks like the middle class is very justified to complain about their financial situation.
–Being unemployed still scares many. While surveys have shown that many Americans do not have faith in the economic system or the government, the bigger event which hit millions was being laid-off. . During the 2008 financial crisis, (the recession actually started in the first quarter of 2008, when GDP fell 1.8%) the unemployment rate hit 5.5% in May 2008 and peaked at 10.2% in October 2009, after the recession had ended. In the 2001 recession, unemployment rose from 5.6% in 2002 to 6% in 2003, even though the recession ended in 2002, according to About News.
These are some of the main reasons why Americans feel financially vulnerable, but they also shop why building wealth is so difficult for most Americans.
