Why Has Rent-to-Own Housing So Often Failed Tenants?

Rent-to-own has repeatedly failed the households it was sold to, and the failure is architectural rather than conceptual: when the credit a tenant accumulates is held by the operator as a promise, one missed payment can erase it. France's 1984 location-accession law shows the legal half of the fix, by obliging a refund of the credited share when the sale does not happen. Recording the accumulated share as an interest the household itself holds addresses the other half, though it does nothing for affordability and depends entirely on the legal wrapper behind it.

The concept is simple. A household that cannot assemble a mortgage deposit starts paying a monthly amount on a home, and part of each payment is credited toward buying it. There is no lump sum at the start and no point at which the household must choose between paying for housing and building wealth. Over time, through ordinary monthly payments, the tenant becomes the owner.

The idea is old and it keeps returning. Instalment contracts for land were already a common way to transfer property in the United States by the middle of the nineteenth century (Kershen, Oklahoma City University Law Review, 1990), and in 1856 the sewing-machine maker's own gazette asked: "Why not rent a sewing machine to the housewife and apply the rental fee to the purchase price of the machine?" (I. M. Singer & Co.'s Gazette, 1856, via Baker Library, Harvard Business School). The need it answers has not gone away either: the Pew Charitable Trusts estimated in 2022 that about 36 million Americans, roughly one in five people who have borrowed to buy a home, have used some form of alternative home financing at least once, and that about 6 percent of home borrowers had used a lease-purchase agreement (Pew Charitable Trusts, April 2022).

What does the historical record actually show?

The most thoroughly documented case is Chicago in the 1950s and 1960s. Black families shut out of mortgage lending bought homes "on contract": the seller kept legal title until the final instalment, and the buyer carried the obligations of ownership without its protections. A May 2019 report by Duke University's Samuel DuBois Cook Center on Social Equity found that between 75 and 95 percent of the homes sold to Black families in those decades were sold this way, and that "failure to make even one payment on time could result in a buyer's eviction and loss of any money paid up to that point." The main channel of extraction was price: homes sold on contract carried an average markup of $71,727 over fair market value, and the report estimates the total extracted from those families at between 3.2 and 4.0 billion dollars in April 2019 dollars (Samuel DuBois Cook Center on Social Equity, May 2019). Forfeiture turned that overpricing into a trap: a family that fell behind lost the home and everything it had already paid toward it.

The pattern did not end with that era. In August 2024 the US Consumer Financial Protection Bureau stated that contracts for deed "have much higher failure rates than mainstream mortgage loans" and that sellers "can generally kick buyers out immediately if the buyers miss even a single payment" (CFPB, August 2024). The advisory opinion published alongside that statement was withdrawn in May 2025 (Federal Register, 90 FR 20084), so it is a record of the regulator's 2024 assessment rather than of current US policy. State enforcement tells the same story: Pennsylvania's Attorney General sued a "rent to own" operator in 2019 in a case affecting more than 650 families, describing contracts under which consumers faced immediate ejection if they fell behind on payments (Pennsylvania Office of Attorney General, October 2019).

Why is forfeiture the equilibrium rather than an aberration?

Look at where the accumulated value sits in a traditional arrangement. The operator sets the purchase price. The operator decides how each payment divides between rent and "option credit". And the credit itself is not held by the tenant: it exists as the operator's contractual promise, enforceable only by legal action that the households most likely to sign these contracts can rarely afford.

That structure creates an information asymmetry that does not depend on bad actors. The operator can observe, across its whole book, how often households fail to complete; the household sees only its own contract. An operator can price expected forfeiture into the terms while marketing the product as a path to ownership, and one that is more candid about completion rates competes against one that is not.

The outcome data are thin, which is itself a finding. The Pew Charitable Trusts compiled the conversion rates that three US lease-purchase companies have disclosed, and they span a wide range:

Pew's own reading is careful: it "remains unclear whether these agreements expand homeownership." Its survey found that only 64 percent of people who had previously used a lease-purchase agreement owned a home in 2021, compared with 80 percent of former mortgage users, that option fees are sometimes nonrefundable, and that only five US states directly regulate lease-purchase agreements (Pew Charitable Trusts, August 2025). A product whose central promise is ownership, sold for decades, still cannot say how often it delivers it.

Is there a version of rent-to-own that protects the household?

There is, and it is instructive because it fixes the problem with law rather than technology. France regulates rent-to-own as location-accession, under a law of 12 July 1984 (BOFiP, French tax administration, 2017). The household pays a monthly amount made up of a rental part and a part credited toward the price. If the sale does not take place, the seller must refund the credited share within three months of the occupant leaving, net of sums still owed (Assemblée nationale, ministerial answer published 24 May 1999). Forfeiture of the accumulated credit, the defining failure of the US contracts above, is ruled out by statute.

The social variant financed through the PSLA loan goes further. It carries a buy-back guarantee that the household can invoke for up to fifteen years after buying, on events such as death, divorce or unemployment lasting more than a year, and a rehousing guarantee under which the seller must make three rehousing offers within six months if the household does not buy. Operators benefit from a 5.5 percent VAT rate and fifteen years of exemption from property tax on the building (ANIL, Prêt social location-accession).

What the French framework does not do is turn the credited share into something the household owns before the purchase. Until the option is exercised, the credit is a claim on the seller: it earns nothing, it is rarely accepted as security, and it does not travel if the household has to move for work. The law protects the credit. It does not make it an asset.

What changes when the accumulated stake is recorded as an asset the household holds?

Tokenization addresses that remaining gap, and only that gap. In a tokenized structure, the property sits in a dedicated legal vehicle and ownership of the vehicle is divided into interests recorded on a shared register. A rent-to-own arrangement built on that structure splits each monthly payment into two parts: one pays for occupancy under an ordinary lease, and the other acquires a fractional interest in the vehicle, recorded in the household's name at the moment of payment.

Three consequences follow. First, a missed payment affects future accumulation and, under the lease, the right to occupy; the interests already recorded cannot be forfeited under the contract, because they are held by the household rather than owed to it. Like any asset, they remain exposed to enforcement for unpaid debts and to losses in the vehicle. Second, those interests participate in the vehicle's net rental income in proportion to their size from the moment they are recorded, rather than sitting as an idle credit. Third, the position persists if the household relocates, and it can in principle be pledged as collateral to a lender willing to accept it.

Each of those consequences carries a condition that the marketing of tokenization tends to skip. The interest is only as strong as the legal chain behind it, from the register to the vehicle to the title, which is why the structure matters more than the technology. The ability to sell the interest depends on a compliant secondary venue with real depth, and in an early market that depth is thin. Pledgeability depends on lenders choosing to accept the interest as security. And none of it makes rent cheaper: a household paying more than it can afford is not rescued by owning a fraction of the building.

What does this mean for a foundation working on housing wealth?

The strategic distinction is between subsidising occupancy and building assets. A grant that lowers rent is consumed as it is spent; its effect ends when the funding does. Capital that helps a household accumulate a protected, recorded interest in the home it lives in leaves something on the household's balance sheet that persists after the programme ends.

That is a real difference, but it is a narrow one, and a foundation should test any programme against the failures documented above rather than against the concept. Who sets the purchase price, and on what independent valuation? What happens to the accumulated share on a missed payment, a move or a death? Which legal vehicle holds the property, and under which regulator? Is there any realistic way for the household to sell the interest, and at what cost? A rent-to-own structure that answers those questions well is a meaningful tool. One that answers them with a token and nothing underneath it reproduces the old architecture in a new format.

The bottom line

Rent-to-own did not fail because the idea was wrong. It failed, in the cases that are well documented, because the price and the household's accumulated credit were both controlled by the party that benefited from forfeiture. French law shows that the forfeiture can be prohibited. Recording the accumulated share as an interest the household holds shows that it can be removed by design. The two together, a protective legal framework and a household-held record, are what a serious version of the model requires. Either one alone leaves a gap that the history of rent-to-own suggests will be found and used.

This article is part of DeReal Perspectives on real-estate access, liquidity, and tokenization. It is analysis of the market, not investment advice or an offer of any kind.

Sources

• Samuel DuBois Cook Center on Social Equity, Duke University, The Plunder of Black Wealth in Chicago: New Findings on the Lasting Toll of Predatory Housing Contracts (May 2019): samuelduboiscookcenter.org

• Pew Charitable Trusts, When Mortgages Are Unavailable, Potential Homebuyers Turn to Lease-Purchase Agreements (Aug 2025): pew.org

• Pew Charitable Trusts, Millions of Americans Have Used Risky Financing Arrangements to Buy Homes (Apr 2022): pew.org

• Consumer Financial Protection Bureau, CFPB Takes Action to Stop Contract for Deed Investors from Setting Borrowers Up to Fail (Aug 2024; related advisory opinion withdrawn May 2025): consumerfinance.gov

• Federal Register, 90 FR 20084, withdrawal of the CFPB advisory opinion on contracts for deed (12 May 2025): govinfo.gov

• Pennsylvania Office of Attorney General, action against Vision Property Management (Oct 2019): attorneygeneral.gov

• Baker Library, Harvard Business School, Easy Payments: The Rise of Installment Selling (quoting I. M. Singer & Co.'s Gazette, 1856): library.hbs.edu

• Kershen, Contracts for Deed in Oklahoma: Obsolete but Not Forgotten, 15 Okla. City U. L. Rev. 716 (1990): nationalaglawcenter.org

• BOFiP (French tax administration), BOI-ENR-DMTOI-10-90-30, citing loi n° 84-595 du 12 juillet 1984 définissant la location-accession à la propriété immobilière (2017): bofip.impots.gouv.fr

• Assemblée nationale, written question no. 18808 (11th legislature), ministerial answer published in the Journal officiel on 24 May 1999: assemblee-nationale.fr

• ANIL (Agence nationale pour l'information sur le logement), Prêt social location-accession: anil.org