Home ownership

Shelter, or burden?


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Readers' comments



Lets be careful to be clear that many of the studies noted here, regarding the psychological aspects of renters, their lifestyle, their family, their political position, their economic position, their civic participation, the educational habits of their children and the encouragement provided regarding same, are not only unsubstantiated but have been vehemently disproved in many cases and through many other studies. Including so many personal biases about renters might give one the impression that it is a shared bias.


Another factor you need to look into is demography of your locale: In Europe and Japan, we are facing rapid ageing of society, and in Japan the total population is already on the decline. Therefore, we are likely to have more and more empty properties that will either be rented out or redeveloped for sale/rent in these areas. That means both rent and sale prices are likely to go DOWN in the long term.
Home ownership makes sense only if the long term price trend is UP, and that is no longer true in most G7 countries (except US) due to falling birth rates leading to lower population and lower demand for houses.


a simple way of looking at a property is the price paid for it ... not the down payment. you PAY interest (even if net of tax benefits) and you dont get interest on the downpayment. So the net 'interest' on a $1000 value is usually $80/yr (currently though more like $50/year), ie: on a $1M property about $80K/year. Add taxes to that (in Calif about 1.3% per year, $13K), and add insurance /maintenance (about $6K/year on a reasonably new structure). So total per year: ~$100K, which at ~50% tax bracket works out to about $4K/month. I am currently renting a property that is estimated by all 'experts' to be 'worth' about $2.7M (high-end, stable prices etc). My rent should be about $11K/mo; it is actually $5.5K. If I am even half way smart I can save that additional $5.5K/mo and make enough on it to keep up with any growth in real estate prices. And we forgot about the transaction costs upon selling the property, as well as the taxes on gains. The ONLY justification to 'ownership'(even though the mortgage is steep) is that some people THINK the OWN their 'home'.

Yorkshire Lad


I've actually just bought a house for about £130,000 and, as you pointed out, I had to make a down payment. In my case it was about £16,000. OK, so, if I'd invested this £16,000, you reckon I could have enough in 30 years' time to buy a house outright. Interest rates at the moment are artificially low, but even before the current crisis, you'd have been lucky to get 5%. I've been investing in shares and bonds (via diversified investment funds) for about ten years and hardly made any money at all. If you know where I can be confident of where I could get £16K to earn enough to buy a house outright in 30 years' time, I'd love to hear about it....

david rohn

Another factor of increasing importance in the US is the cost of insurance and above all , property tax.
In the US property tax is used to pay for public education, state-sponsored health care, local criminal justice costs and prisons, and pet local projects like sports stadia.
With the enormous influx of illegal immigrants, property taxes have swelled to meet the added costs of large numbers of needy people at the bottom of the economic ladder.
And government has added more unfirable, benefit-rich government workers to it s employment rolls.
In California, figures estimate that 30% of the schools, hospitals, prisons are occupied by illegals.
In Florida the public defenders office, the school system and the health care system are overloaded with 'visitors'-some of whom come for expensive operations and then return to their countries with huge unpaid bills.
Property owners are paying for it.
We will leave our home because of the $12,000. for our $557,000. house (now worth about $375000. and dropping), annual property taxes, not because of the mortgage.
Many local governments are increasing property taxes by large percentages this year to meet their expenses.
All this is going to cause middle class flight to areas without large urban centers that they can afford to live in.
And these urban centers look destined to become vast squalid concentrations of poor and needy people with overloaded and under funded schools, hospitals and government service agencies.
An illegal who works as a nanny or a construction worker doesn t get benefits and doesn t earn enough to pay for them- so it must be covered by others.In the meantime low and unskilled labor wages have been flat for years.
The illegal immigrant open door policy is great for busineses but a losing one for America s lower middle class- too bad they don t have a lobbyist or two.
Will Florida or Arizona be the next state to go the route of California? I d guess both.


Everyone keeps forgetting the down payment! Yes, assuming your rent is roughly equal to your monthly ownership expenses including mortgage, maintenance, taxes, etc..., at least part of that monthly payment is going to pay off a portion of the principal, and eventually you will own the home free and clear (except for maintenance and taxes).

But you've still got to put down a substantial portion in your down payment, and you don't see that money again until you sell your house! If you consider housing an investment, you've just sunk 20% of the purchase price into an illiquid, completely non-diversified asset. Meanwhile, a comparable renter is free to take that down payment and invest it as he wants, in liquid and hopefully diversified assets that will bring more stable and probably higher returns.

By the time the 30-years of your mortgage term passes, there should be enough earnings on that non-down payment for a renter to buy a home outright, or to just keep paying rent and offsetting it with his investment returns forever!


when you buy a home you do not own it, the banking system owns you. debt=slavery and you have sold yourself into serfdom. the exception being, a property where the rental income can cover the holding costs, whereas you have reached the position of overseer.

also, no discussion of mortgaging is complete without a mention of inflation. since the US government in particular is intent on constantly expanding the supply of fiat money, long term homeownership does not particularly build "wealth" however it does serve as a hedge against inflation. and an opportunity for profit-making during periods of cheap credit.


By the way, I don't buy because I like the mobility and don't plan on living in any one place for more than 3-4 years...but discrepancies like the ones I'm seeing now between renting and owning certainly make me reconsider!


To C Rowan; while you may be right when you say that "On the whole, Rents are always cheaper than the costs of ownership in a functional housing market." I can tell you that it doesn't seem that way from my present circumstances. In the neighborhood I'm in I can currently buy a condo a couple of blocks away from where I am that is roughly comparable to what I'm renting, (a little smaller, but newer and with nicer appliances and features). Including common charges and property taxes and I'd still lower my monthly housing costs by ~$500 per month...and from my search of rental properties in my area it looks like I'm actually paying a little below the market for rent. So if I buy I have $500 more a month in my pocket that I can invest, and this is before taking into account interest deductions or the 1st time home buyer credit (which are certainly debatable as good policy decisions), but certainly make things move more decisively in the home ownership direction.

In addition, I tend to agree with other comments that property management groups should be looking to make a return on their investment, which should indicate that the cost of renting should be slightly more expensive than buying all other things being equal.


The article touted the renter’s freedom to relocate. So, they can continue to be wage slaves in a different city? This is not freedom.

What about the freedom to cut back on your working hours? How much is this worth?

The best way to safely do this is to be able to fix and account for your monthly expenses. Housing is the largest living expense for the vast majority of us. With the exception of rent controlled apartments (often unpleasant for the lack of incentive towards landlord maintenance) Once the home is paid off, the requirements for monthly income are greatly reduced as is the pressure of the unknown. Pick a wise location and transport costs are reduced, permanently. You will not be priced out of your neighborhood like a renter.

What about the freedom to modify your surroundings as you see fit? To create a sense of place for your family and to invest in long term improvements?

Why would you be content to be surrounded with the blandness of a rental in the space in which you spend the most time? Pick a decent southern exposure and invest an greywater system, drip irrigation and in long term composting. Invest in green technologies and construction in the home; the utilities can be eliminated, permanently.

When you want a new venue, take your extra savings and flexible time and take a trip.


I would want to make another point:
Which country/city you live has a huge effect on the decision to rent or buy.

For ex: in the US or most developed countries, I would live on rent forever. Because there is always supply of rental homes, and as long as you can afford to pay rent (and don't look like Marlin Manson) you can get any rental home you want (in general).

In India, especially in Mumbai where supply of any kind of space is scarce, there is another reason FORCING people to buy homes (even if buyers know it is economically worse than rent) - your name or caste or religion ensures you are able to rent a home or not. People with some names or castes cannot get a rental home even if they pay TWICE the rent due to age old prejudices. These people are forced to buy from builders who (luckily) just want to sell property and make a fat profit. And even then, these guys pay a premium on the home price because builders know these guys have no choice. If they have to work in Mumbai, they need to live, and the ONLY option is buying an expensive home.

In such a case, ALL economic theories and rationalizations and emotional arguments etc are thrown out of the window, and the decision is simple: buy a home and live in debt or leave and be jobless.


"But those arguing against ownership, are your dwellings rented? "
YES, actually. Although I'm not arguing against home ownership, this is not a philosophical question for me now, as I am sitting on a pile of cash trying to decide whether to spend it to buy a house, or save it for my 1-year old son's education costs and find a long-term rental somewhere else.

So, I am following the discussions here with more than a little personal stake in the outcome.


But those arguing against ownership, are your dwellings rented? There. There may be something - economically irrational satisfaction about "ownership".

Tir Tairngire

Whatever your belief in this discussion, it's still not justice to take money from intelligent non-bubble headed homeowners who did not join the housing-bubble bandwagon and give it to the idiots that did, whether they were poor or rich. Let them pay for their idiocy. Rewarding them seems a more than a bit odd.


Yorkshire-lad you state "that after say, 25 years of mortgage repayments, the house is yours. Nothing more to pay. What do you get after 25 years' renting? Another rent book."

I'm sorry but that just is not correct. Here are a few things you forgot:

- Property tax is forever so you pay that every year even after the mortgage is done (at least in the US, not sure where you live). It may also be variable depending on the property tax laws where you live. So it behaves like rent.

- Maintenance. That also goes on forever and that is variable (roof = $15,000) and unpredictable. So it also behaves like rent but much more violent in its swings. Sure renters implicitly pay maintenance but it is more smoothed out through the rent and periodic rent increases.

- Your mortgage may go up depending on how you financed it. A very large percentage of mortgages done in the past 8 years were adjustable-rate. That could swing way above rent or way below depending on the interest rate environment.

The simple answer about whether to own or rent is hard. Neither one is necessarily financially better based on a lot of “it depends.” Anyone who says categorically that owning is better than renting (or vice-versa) from a financial perspective is full of it until she actually runs the numbers. This argument is really a moot one until you are in the very specific situation.

For more on this see www.invisiblerenters.com


WatchingMarcist has it right respecting home ownership:

1. Forced savings may not occur due to refinancing and home equity lines - people tend to remain in debt to the limit of their capacity unless their income, liquidity or discipline is high;
2. Mortgage deductions only increase market prices, cancelling the tax advantage utterly;
3. Social benefits may be delusory.

Respecting the 3rd point, any married couple going through a divorce who happen to own a home in the US and have children, will probably have one partner at least who wishes they had never even seen the home they were once so excited to buy. Renting families will never suffer anywhere near the contention on average brought about by fighting over this plum. Most families simply are not wealthy enough to make a smooth divorce transition around home ownership. Sombody gets hurt, and most of the time both parties wind up broke for years, no matter who won the prize.

Ultimately, "To own or not to own," is a question only answered by one's crystal ball and Lady Luck. Unique opportunities will present themselves in both rental and ownership, and each will have an effect on one's total expenses, after tax earnings and alternate investments.

Will one's after-tax equity maximize over time with a home investment or with market investments? It depends what kind of deals you get and how quick you flip.

Lacking from the article is a real dynamic analysis comparing choices for the average earner with average money on hand to invest (if any), who could be a potential home-buyer. If real estate is at a bottom and can only go up, buy with no money down and make money out of zero investment. If you are sitting on tons of equity with no mortgage, the RE market is at maximum and market equities are undervalued, sell the white elephant and buy equities! If choices were only so clear...

Are you feeling lucky...? The question of ownership cannot be answered one way or another. It all depends on best guesses about investment opportunities and opportunity cost calculations.

The answer lies in pure cost/benefit analysis of any rental/ownership/alternative investment mix of deals given one's circumstances and projections, continuously subject to change.


Interesting article. Recent occurances clearly explode the long-standing myth that homeownership is a great investment instrument.

Obviously there are pros & cons to owning your own "castle". But what happened in the US in the last few years can be explained by two words: "Unbridled Greed", by all parties involved.


Your article misses a point : everybody needs a home and must decide if their housing budget should be an investment or an operating expense. So the tradeoff is really between renting, ie losing 100% of the allocated funds, or purchasing a home and recovering at least a fraction of what you spent no matter how ugly the market gets. You also eventually have a home which costs you virtually nothing.



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