The study compares housing-related expenditures between renters and homeowners with a mortgage, revealing significant differences in costs and miscalculations that can increase foreclosure risk. It highlights both obvious and hidden expenses of homeownership, emphasizing the importance of consumer education, especially for low-income renters. The analysis is based on data from the Consumer Expenditure Survey from 1995 to 2005, covering over 162,000 households.

1. TENANT AND HOMEOWNER
EXPENDITURES: UNCOVERING THE
TRUE COSTS OF HOMEOWNERSHIP
Russell N. James
Andy Carswell
Cliff A. Robb
$$$$

3. The standard economic model of
consumer behavior and some problems
with it

4. THE PROBLEM
• Housing = largest budget category in household.
+ Other Expenses:
home maintenance
repair costs
water & trash
property taxes
insurance expenses
Can = Big Money / Miscalculations

5. OBJECTIVES OF THE STUDY
• Comparison of Housing Related Expenditures:
Renting vs. Owning
• Percentage of Housing Costs:
Renting vs. Owning

6. RESEARCH QUESTIONS
ADDRESSED
• In what areas do tenants’
housing-related expenditures
differ from housing-related
expenditures of homeowners
with a mortgage?
• How do total housing costs
differ (absolutely and as a %
of income) for similar tenants
and homeowners with a
mortgage?
• Misjudging homeownership
costs can lead to increased
foreclosure risk.

7. SOME OF THE OBVIOUS EXTRA
COSTS OF HOMEOWNERSHIP
• Mortgage interest
• Property taxes
• Property insurance

8. SOME OF THE NOT-SO-OBVIOUS
EXTRA COSTS OF HOMEOWNERSHIP
• Home maintenance
• Utility costs
• Excess energy
costs
• Furniture and
appliances

9. RESEARCH PROCEDURES
• Consumer Expenditure Survey (CE)
• 1995-2005 Data

10. DATA AND METHODOLOGY
• Consumer
Expenditure Survey
• N = 162,610
• Direct comparison of
renters and
homeowners with a
mortgage
• Analysis of rent vs.
non-principal
mortgage payments
• Additional expenses
related to housing
also analyzed

11. Figure 1
Total Housing Expenditures as a Percentage of Pre-Tax Income
1995-2005 Consumer Expenditure Survey (n=162,610)
10%
15%
20%
25%
30%
35%
40%
45%
50%
$10,000-$19,999
$20,000-$29,999
$30,000-$39,999
$40,000-$49,999$50,000-59,999
$60,000-$69,999
$70,000-$79,999
$80,000-$89,999
$90,000-$99,999over$100,000
Pre-Tax Income (inflation-adjusted to 2005 dollars)
PercentageofIncometoHousingExpenditures
Owner w/ Mortgage
Renter

12. Variable Unsubsidized
Renter
Homeowner w/
Mortgage
n 62,803 89,479
Rent / mortgage (non-principal) $1,236 ($1,040) $1,239 ($1,302)
Property tax n/a $358 ($519)
Maintenance, repairs, insurance $3* ($79) $249 ($928)
Household furnishings & equipment $134* ($467) $336 ($985)
No gas/electric/oil (included in rent) 18% n/a
No water (included in rent) 74% n/a
Gas/Electric/Oil (not included) $160* ($177) $326 ($248)
Water (not included) $22* ($57) $84 ($102)
Total housing expenditure $1,826* $3,103
Rent or mortgage interest as a % of total
housing expenditures
67.7%* 39.9%
Total expenditures $4,878* $8,852
Housing as % of total expenditures 37.4%* 35.1%

13. SHARE OF HOUSING EXPENDITURES
DEVOTED TO MAINTENANCE
(homeowners w/ mortgage)
5.50%
5.70%
5.90%
6.10%
6.30%
6.50%
6.70%
6.90%
7.10%
7.30%
7.50%
10k to
<20K
20K to
<30K
30K to
<40K
40K to
<50K
50K to
<60K
60K to
<70K
70K to
<80K
80K to
<90K
90K to
<100K
100K+
Household Income

14. Rent v.
Mortgage Gap
PINK = Share of housing expenditures to rent (renters)
BLUE = Share of housing expenditures to mortgage
interest (homeowners w/ mortgage)
YELLOW = Gap
25%
30%
35%
40%
45%
50%
55%
60%
65%
70%
75%
10k to
<20K
20K to
<30K
30K to
<40K
40K to
<50K
50K to
<60K
60K to
<70K
70K to
<80K
80K to
<90K
90K to
<100K
100K+
Household Income

15. Variable Unsubsidized
Renter
Homeowner w/
Mortgage
Liquid assets $2,436* $10,843
Married 32.6%* 71.7%
Single male 29.5%* 10.9%
Single female 37.6%* 17.4%
White 78.3%* 86.8%
Age 39.7* (16.6) 45.9 (12.6)
No. of household members 2.3* (1.5) 3.0 (1.5)
Bedrooms 2.0* (1.03) 3.2 (0.86)
Bathrooms 1.2* (0.47) 1.8 (0.70)
Half Bathrooms 0.1* (1.24) 0.4 (0.55)
Other rooms 2.3* (1.05) 3.6 (1.55)
Est. % using deduction (income <$40k) 0 27%
Est. % using deduction (income >$40k) 0 79%
Net deduction benefit (income<$40k) $21.30
Net deduction benefit (income>$40k) $374.44

16. IMPLICATIONS FOR CONSUMER
EDUCATION
• Educating consumers
about the “hidden costs” of
home ownership is crucial.
• Emphasis should be
toward low-income renters
transitioning to home
ownership.

17. DISCUSSION POINTS
• Do first time
homebuyers accurately
project costs?
• Does the increase in
foreclosures add even
more to HO costs?
• Do homeownership
counselors accurately
incorporate such costs
into their sessions?