A recent study published by the Joint Center for Housing Studies of Harvard University concluded that from a consumer spending point of view, owning a home is cheaper than renting.

With the exception of the three recession years of 1980 through 1982, it has been cheaper in every year since 1975 (on an after-tax basis) to own a home than to rent. In many years, and especially recently, the difference in cost between owning and renting has been quite large.

For the last year studied, 2003, it cost a mere 18.6 percent on an after-tax basis to own a home and 25.7 percent to rent. In 2002, it cost 18.4 percent to own and 25.7 percent to rent. The cost advantages of home ownership have been a factor in the increase in the nationwide percentage of households who own homes. The cost factor is also the reason some housing experts predict that home ownership will rise from the 68.3 percent of households as reported at the end of 2003 to well over 70 percent in the next decade.

Despite the lower comparative cost of owning a home, the affordability of housing is becoming a growing concern, according to the Harvard study, due to price increases throughout the U.S.

The study points out that "Home prices were up in nominal terms in all 163 metropolitan areas tracked by Freddie Mac's Conventional Mortgage Home Price Index. Even after adjusting for inflation, only four metro areas posted home price declines last year. Some 34 metros-15 of which are in California-saw double-digit increases."

Higher housing prices are forcing prospective buyers to come up with larger down payments, choose less expensive homes, or increase the amount they borrow. In the short run, strong home price inflation has not seriously eroded affordability because lower interest rates have allowed home buyers to borrow more without impacting their monthly payments.

Over the long run, however, the erosion in affordability is much greater for home buyers unable to keep up with increasing down payment requirements. Despite the obstacles brought on by higher home prices, the home ownership boom has been broadly based and is likely to continue.