You might not think of paying a high rent amount as a savings method. But a new paper from the National Bureau of Economic Research, authored by Princeton University economics professor Esteban Rossi-Hansberg and Ph.D student Adrien Bilal, asserts that renters in expensive apartments aren't just throwing their money out the window.
CityLab writer Laura Bliss discusses the paper, which looks at the ways that housing choices are tied to financial trade offs. Bliss writes:
The paper explains that as with any form of investment, the place you choose to settle or stay has a cost associated with it—i.e., how much you’re paying in rent. And every location pays back on that investment in job opportunities, education for your children, cultural amenities, and so forth. Whether it’s Wichita, Palo Alto, Durham, or the heart of Manhattan, your location should be considered an asset with which you can make different investment decisions. So, when you choose to move to a pricier and amenity-laden city, you’re transferring resources into the future—i.e., saving!—by establishing yourself near opportunities for higher pay and human capital, Rossi-Hansberg and Bilal argue. On the flipside, when you relocate to a community with a lower cost of living but fewer economic advantages, you’re pulling resources into the present that you might have gained in the future—i.e., borrowing.
While the study has many caveats, a wealth of literature shows how the investment pays off when individuals are able to upgrade from poorer to pricier neighborhoods. That concept is the basis for the U.S. Department of Housing and Urban Development’s “Moving to Opportunity” 10-year experiment, where very low-income families given federal assistance to move from super-impoverished urban areas to higher-income neighborhoods showed marked improvements in health. The economist Raj Chetty has found that parents who move to a location where median rents are $176 higher can increase their child’s future earnings by 1 percent.
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