Are Homeowners Happier than Renters?

A look into our unhealthy relationship with housing

Dec 09, 2022

man in black and white floral button up shirt wearing brown sunglasses — Photo by Gordon Cowie on Unsplash

Choosing where to live is the second most important financial decision you’ll ever make.

How much you pay for a home and whether you choose to rent or buy that home has massive implications for your finances—which you know already because every financial writer—myself included—won’t stop talking about the financial importance of housing.

A criminally under-discussed issue when it comes to housing is how it impacts your happiness.

In this post, I look at what the research says about how renting vs. owning a home impacts your happiness.

For more articles on using money to live a happier life, check out my ongoing series, “Buying Happiness.

Why People overestimate the benefits of homeownership

A 2020 study examined an annual survey in Germany asking people how happy they are today and how happy they believe they will be in five years.1 They focus on those who have switched from renter to homeowner—Tracking these people over time allowed the researchers to measure the actual vs. perceived impact of homeownership on happiness.

Here’s a quote summarizing their finding.

“Our results reveal that moving as a result of property purchase is associated with higher life satisfaction. However, people, on average, are overly optimistic about the positive long-term satisfaction gains.”

We overestimate how happy we will be as homeowners because we underestimate how quickly we will adapt and normalize our new living situation. There is an initial jolt of excitement when you buy a home—but after a few months and certainly, after a few years, that excitement wears off, you adapt to your new reality of where you live and derive no additional happiness

The reason you want to own a home plays a major role in your future happiness as a homeowner.

The researchers found that people with extrinsic goals like wealth and high social status significantly overestimated the happiness they would feel as homeowners compared to those who focus on intrinsic goals like personal growth and relationships.2

The dream of homeownership is not one most people come up with organically; it’s drilled into our heads our entire lives by our parents, friends, the financial industry, and the government. Seemingly, everyone tells us that we need to own a home to be considered a successful person.

Many people want to buy a home because they believe it will be an elevator to wealth, success, and social status. When they buy their home, the reality begins to kick in that owning a home is not the rocketship to success they thought it would be.

However, if you want to buy a home because it’s associated with an internal goal like raising a family and providing a stable living condition, you’re much more likely to be a happy homeowner.

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The under-discussed pain of homeownership

While the financial benefits of owning a home tend to be overhyped, few people talk about the amount of time and money homeowners spend on their houses and their impact on day-to-day happiness.

A 2011 paper titled “The American Dream or The American Delusion?” examined the relationship between homeownership and well-being.3

The researchers used a unique data set that provides information on housing consumption, well-being, and time use patterns for over 600 women in Columbus, Ohio.

The study explored three issues surrounding women and homeownership

The relationship between homeownership and well-being
Time of use patterns such as how much time they spend doing work on their house versus engaging with the community and leisure activities, AKA enjoying life.
The differences in neighborhood ownership rates among women of similar economic status.

Here’s the headline result of the study.

After controlling for household income, housing quality, and personal health homeowners were not any happier than renters. In fact, they derived more pain from their home than renters.

The reason is obvious to anyone who owns a house; Owning a house is a massive pain in the ass!

The time-of-use patterns in the study revealed that homeowners spend a significant amount more time doing chores and house maintenance and a lot less time engaged in leisure activities than renters.

Having owned a home for seven years, I can confirm that owning a home is a part-time job. Like any physical structure, it’s constantly falling apart, and I find myself constantly engaged in tasks I hate doing.

I’ve told this story before, but I’ll tell it again because it’s the first thing I think of when I consider how much of my time I spend doing things I hate because I own a house.

My wife and I are very busy people; we both work full-time jobs and work together to build Making of a Millionaire, which is another full-time job. In addition to our work, we have a three-year-old who is a ball of kinetic energy.

We have little time as it is for leisure activities, AKA doing fun stuff.

When our son was 18 months old, he took a two-hour nap every day, and on weekends this is one of our prime windows to relax and spend time together.

One weekend we spent that 2-hour window installing an over-the-range microwave after our old one finally died on us.

So, we had the pleasure of paying full price for a new microwave and then spending the entire two-hour window we had to relax, installing the microwave into the wall.

Did I feel pride that we installed this ourselves and improved our home?

No. All I felt was momentary relief the damn thing was installed. Then our son woke up as if he patiently waited for us to finish before telling us that break time was over.

This is homeownership in a nutshell.

Any pride I take in owning my home is washed out by all these tasks that consume time and money.

I told that story in a post where I skewered the FIRE movement and shared research that showed paying someone else to do a task for you that you hate doing increases happiness.

Most of us are raised to believe it’s a waste of money to pay someone else to do a job “you could do yourself.” This is a perfect example of how many of our financial decisions are dictated by other people foisting their beliefs onto us.

One of the greatest benefits of renting is that you are forced to pay someone—your landlord—to handle most of the home improvement projects on your behalf. Renters can spend their Sunday afternoons at the park while their landlords repair the leaky toilet.

Homeowners could outsource many of these tasks, but few of them do. If they did, they would have more time to enjoy life.

Selling your home to become a renter is an underrated life choice

A 2019 study by researchers in Switzerland wanted to answer the question, “are homeowners happier than tenants?”4

Here’s a summary of the findings, which teach us a lot about wealth, happiness, and homeownership.

On the surface, it appeared that homeowners were slightly happier than tenants.
Once they included variables like wealth, age, health, and other relevant variables into the model, a funny thing happened. They found that owning a home did not make someone happier. In fact, owning a home had a negative impact on happiness.
Increases in wealth had a significant positive impact on happiness.
An interesting result was that people who sold their homes were happier than people who didn’t.

Homeowners appear to be slightly happier than tenants. But as the research suggests, this is likely because homeowners are wealthier than tenants. It may be the wealth that makes them happier, not that they own property.

As I have written in the past, Homeownership and wealth accumulation is a complicated topic.

Owning a home does help increase wealth through forced savings (paying your mortgage) and price appreciation. However, accessing that wealth can be tricky, especially if you don’t want to move—you’re left with the option of taking out another mortgage or debt against your home.

To quote myself:

“You need to own assets. You don’t need to live in them”

If you want to build more financial flexibility and one day make work optional, you need to own assets that you don’t live in— Like stocks and bonds.

That is true whether you own or rent a home.

The bottom line is that you have to own assets that make money for you while you’re sleeping, or you’ll never be able to stop working yourself.

Owning a house can have financial benefits, but it’s not the only way to build wealth.

We are beginning to build a clear theme: Neither owning nor renting is inherently better, each of benefits and drawbacks when it comes to happiness.

Homeowners have an easier time building wealth, but they need to pay close attention to how much time they invest in their homes.
Renters have more free time, but they need to be very disciplined savers and investors to accumulate the same levels of wealth over time.

Homeowners who sell their homes for a nice profit and become renters might be happier than any of us because they have wealth and flexibility of time.

One thing is clear: Buying big houses are often a big mistake

When I drive by the older neighborhoods in my city, I see many tiny bungalows built after World War 2. When I drive by the new subdivisions, I see a sea of McMansions.

This anecdotal evidence is backed up by the reality of the housing market in North America. We continue to build bigger houses even though fewer people live in them.

Here is a fact that might blow your mind. Adjusting for inflation, the average housing cost per square foot has only increased by 4.6% in the U.S. between 1973–2015.

It turns out we want to live in bigger houses.

In 1973 the average house size was 1,660 square feet
In 2015, the average house size was 2,687 square feet

The average home was 62% bigger in 2015 than in 1973. This becomes laughable when we consider that fewer people occupy these ever-growing houses.

In 1971 three people occupied each house
In 2015 only 2.5 people occupied each house

We have an increasing population, demand for bigger houses, and fewer people occupying each house. And for some reason, we remain mystified that the price of housing has exploded.

One of the biggest problems with the housing market is our demand for such big houses. We don’t have enough usable land to accommodate a 3,000-square-foot detached house for every family.

If we accept that reality, the logical question to ask is, what is causing the demand for increasingly large houses?

Our envious nature and our need to flex our economic status—which, as I already pointed out, is a terrible reason to buy a home.

A 2019 paper titled “The McMansion Effect: Top House Size and Positional Externalities in U.S. Suburbs” explains why we have been stuck in this endless loop of building bigger and bigger houses.5

The researcher combined data from the American Housing Survey and geolocalized data from more than three million suburban houses. The paper found that every time someone builds a big house, it sets off a chain reaction of the other homeowners in the neighborhood wanting a bigger house too, which they referred to as “the McMansion effect.”

The McMansion effect was strongest in homeowners who (previously) had the biggest houses in the neighborhood. Then, someone builds a new McMansion, and their house becomes the biggest one on the block. Suddenly, the existing homeowners don’t feel so great about their home, which now feels small in comparison.

So, what do the existing homeowners do?

You guessed it; they upscale their houses. Either by buying a new, bigger house or building an addition to their current home. I see your McMansion, and I raise you a new floor onto my house.

Upsizing your house beyond what you need to live comfortably can be a terrible life choice.

A bigger home means:

A bigger mortgage
Higher property taxes
Higher utility bills
Increased maintenance costs.
More money spent on furniture

In short, upscaling your house takes your biggest fixed cost and makes it even bigger.

A bigger house is a financial anchor tied around your feet for two reasons.

First, it increases the floor on the minimum amount of money you need to make to survive, which in turn greatly reduces financial flexibility.

Maybe you are feeling burnout, and you want to switch from your current high-stress job to a slower-paced job that makes less money but is a better fit for you right now.

Good luck making that math work if you just decided to double the amount of money you spend on housing.

Second, it leaves less (if any) money to invest and build future financial flexibility.

Unless you get a promotion or pick up a side hustle, money is a zero-sum game. Every extra dollar you spend on your new big house is a dollar that is not invested. The opportunity cost of spending more money on housing is less wealth and, as a result, a long road to financial freedom.

The saddest part of the McMansion effect

You give up a lot to move into a big house, so owning a McMansion must make people pretty happy, right?

Wrong.

The research found that the neighbors who upscaled their homes after the McMansion was built reported only a temporary increase in happiness.6 If that sounds familiar, it's because that's exactly what happens when someone goes from being a renter to a homeowner.

Much like buying your first home, buying a bigger house is something you adapt to pretty quickly leaving you about as happy as you were in your smaller house, So, no lasting boost in happiness and less financial flexibility. If that sounds like a terrible trade-off, trust your instincts.

The most important thing to remember about money and happiness is that money buys happiness, but it does so indirectly.

Having more money buys us more control over our lives. It’s this feeling of control and freedom that makes us happy.

The opposite is also true. The more we increase our fixed expenses, the less control and freedom we have. This makes us feel like we are “stuck,” which is a very unpleasant feeling.

One of the best financial decisions you can make is to learn to be happy in the home you live in right now.

Next time someone builds a McMansion down the street from you, understand that you will probably feel envious, and that is a perfectly human response. Try and reframe the situation in your mind. Instead of feeling bad that you have a smaller house, feel good that you have lower fixed costs, which means you have an easier road to financial freedom and control over your life.

Prioritize your intrinsic goals

Happiness with where you live is less about buying or owning and more about making a decision that’s in line with your intrinsic goals.

Buying a house—or upsizing your house—based on extrinsic goals like social status is an expensive way to feel “accomplished” and will likely lead to disappointment.

You’ll likely be much happier if you focus on your intrinsic goals, like family or doing things you love.

Buying a house to make it a long-term home where you watch your kids grow up is a great reason to buy a house.

If your biggest priority right now is getting out of the house and engaging in social leisure like eating out, going to the park, and traveling, then that is a great reason to rent a home.

Forget what society thinks you should do. Make a decision that best fits your personality and intrinsic goals, avoids social comparison, and never forget that you’re not locked into any decision for life.

Your goals will evolve as you transition into new phases in life, and your choice of whether to buy or rent will likely evolve too.

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