You’re essentially talking about decommodification of housing, which is the only correct answer. It is necessarily impossible for a house to be both affordable and a good investment, and the current status quo means that housing will be used as an investment. Whatever mechanism used to fix the housing affordability problem will require that housing no longer be subject to commodity market forces.
The value of a house should be in reduction of costs, not increase in real value.
When you rent, you pay for maintenance of your residence, some amount of furnishings, and the risk tht property owner takes in renting to you (i.e. the likelihood that you’ll destroy the property, fail to pay, etc).
When you own, you take that risk on yourself. You can choose to delay, DIY, or preempt repairs. You can choose what level of furnishings you have, and you are responsible for any loans or taxes due on the property. You don’t need to worry about unplanned vacancies.
Housing should keep pace with demand so property values stay roughly consistent with normal inflation. Unfortunately, cities tend to grow, making existing property more valuable.
When you rent, you also pay for the flexibility of being able to pick up and move in a short while if you get a new opportunity somewhere else, or just want to move for whatever reason.
Some people rent because they don’t want to worry about repairs, or mowing lawns, or any of that stuff.
They’d rather spend $3,500 taking a nice vacation than on a new furnace.
When you rent, you still pay for that $3500 furnace, you just pay for it in monthly installments through your rent instead of all at once.
You can accomplish the same thing with home ownership by using sinking funds. Basically, if you expect that furnace to last 20 years and cost $3500, you’d set aside ~$15/month, assuming your furnace is new. If you expect repairs in that time, set aside enough to cover that cost as well. If you do that for enough of your major repairs (roof, major appliances, driveway, etc), you should always have enough in the fund to meet any house related emergency, assuming your estimates are accurate enough on average. I do this in my budget by using online estimates for expected lifetime and cost to replace, and I do my best to make things last longer than that estimate. I do the same for cars and other large expenses so I’m always prepared.
That’s what landlords do, and homeowners can do it too. Budget for repairs just like you’d budget for a vacation.
Your first point is more important though. Selling a house is expensive and time consuming, so it absolutely makes more sense to rent if you expect to need to move with short notice. You’ll pay a premium for that convenience, and you’ll also not have to worry about repairs. For some people, renting is less expensive on net vs owning even if they don’t need to move quickly, e.g. if they know they’ll overspend on renovations and repairs. There’s absolutely an argument to both, I’m just pointing out that the value in a house isn’t in the appreciation imo, it’s in potential cost savings by taking ownership of repairs, vacancy, etc.
The problem is not that the furnace is $15/mo, it’s that it requires having $3500 all at one time. Newer furnaces have circuit boards on them and seem to require more repairs and maintenance. Everything does really. Appliances, water heaters, etc. There’s lots of expenses to home ownership and expenses that happen suddenly instead of being able to plan neatly for them.
Right, and those can be anticipated and mitigated. Options:
home warranty - essentially forces you to save for larger expenses
be pessimistic about expected lifetimes - i.e. only assume your appliances will live while they’re under warranty (most can last more than double that with proper maintenance)
forego most or all other savings until you can pay for the highest ticket item in cash - it’s extremely unlikely that everything will fail at once
If something truly out of the blue comes up, you’re usually in appliance warranty or home owners insurance claim territory. The vast majority of the time, “unexpected” expenses could’ve been planned for, but the individual didn’t do their due diligence. A 20 year old furnace going out isn’t an emergency, that’s its expected lifetime (and with maintenance, a high quality furnace can last double that).
Owning a home is expensive, and so is renting. If you’re paying more owning a home on average vs renting for the same size of place (after, say, 6 years or so), you’re doing something seriously wrong.
Again, not everyone who owns a home saves up for those things. Case in point, one of my friends budgets for an annual furnace tuneup at the end of summer. Well, they discovered that the furnace is dead and won’t start up once it gets cold. So her plan is to work a second job for a month to be able to afford getting a new furnace since it’s close to winter.
If she was renting, the owner would simply replace the furnace and she wouldn’t have to worry about it.
Does she budget for other longer term expenses, like car replacement and repairs, retirement, or college for kids (assuming she has kids)? If not, this should be a wakeup call that she needs to get her finances in order, because working a second job shouldn’t be the solution to every periodic expense.
I don’t know where you live, but at least in my area, I had to finish a new homeowner packet to get my mortgage, which laid out common expenses. AFAIK, that’s a pretty common thing because banks don’t want you to default due to an unexpected repair cost.
But maybe renting is better for her if she is unable or unwilling to plan ahead. My point is that, in most cases, owning ends up being cheaper than renting for the same space.
You’re essentially talking about decommodification of housing, which is the only correct answer. It is necessarily impossible for a house to be both affordable and a good investment, and the current status quo means that housing will be used as an investment. Whatever mechanism used to fix the housing affordability problem will require that housing no longer be subject to commodity market forces.
The value of a house should be in reduction of costs, not increase in real value.
When you rent, you pay for maintenance of your residence, some amount of furnishings, and the risk tht property owner takes in renting to you (i.e. the likelihood that you’ll destroy the property, fail to pay, etc).
When you own, you take that risk on yourself. You can choose to delay, DIY, or preempt repairs. You can choose what level of furnishings you have, and you are responsible for any loans or taxes due on the property. You don’t need to worry about unplanned vacancies.
Housing should keep pace with demand so property values stay roughly consistent with normal inflation. Unfortunately, cities tend to grow, making existing property more valuable.
When you rent, you also pay for the flexibility of being able to pick up and move in a short while if you get a new opportunity somewhere else, or just want to move for whatever reason.
Some people rent because they don’t want to worry about repairs, or mowing lawns, or any of that stuff.
They’d rather spend $3,500 taking a nice vacation than on a new furnace.
When you rent, you still pay for that $3500 furnace, you just pay for it in monthly installments through your rent instead of all at once.
You can accomplish the same thing with home ownership by using sinking funds. Basically, if you expect that furnace to last 20 years and cost $3500, you’d set aside ~$15/month, assuming your furnace is new. If you expect repairs in that time, set aside enough to cover that cost as well. If you do that for enough of your major repairs (roof, major appliances, driveway, etc), you should always have enough in the fund to meet any house related emergency, assuming your estimates are accurate enough on average. I do this in my budget by using online estimates for expected lifetime and cost to replace, and I do my best to make things last longer than that estimate. I do the same for cars and other large expenses so I’m always prepared.
That’s what landlords do, and homeowners can do it too. Budget for repairs just like you’d budget for a vacation.
Your first point is more important though. Selling a house is expensive and time consuming, so it absolutely makes more sense to rent if you expect to need to move with short notice. You’ll pay a premium for that convenience, and you’ll also not have to worry about repairs. For some people, renting is less expensive on net vs owning even if they don’t need to move quickly, e.g. if they know they’ll overspend on renovations and repairs. There’s absolutely an argument to both, I’m just pointing out that the value in a house isn’t in the appreciation imo, it’s in potential cost savings by taking ownership of repairs, vacancy, etc.
The problem is not that the furnace is $15/mo, it’s that it requires having $3500 all at one time. Newer furnaces have circuit boards on them and seem to require more repairs and maintenance. Everything does really. Appliances, water heaters, etc. There’s lots of expenses to home ownership and expenses that happen suddenly instead of being able to plan neatly for them.
Right, and those can be anticipated and mitigated. Options:
If something truly out of the blue comes up, you’re usually in appliance warranty or home owners insurance claim territory. The vast majority of the time, “unexpected” expenses could’ve been planned for, but the individual didn’t do their due diligence. A 20 year old furnace going out isn’t an emergency, that’s its expected lifetime (and with maintenance, a high quality furnace can last double that).
Owning a home is expensive, and so is renting. If you’re paying more owning a home on average vs renting for the same size of place (after, say, 6 years or so), you’re doing something seriously wrong.
Again, not everyone who owns a home saves up for those things. Case in point, one of my friends budgets for an annual furnace tuneup at the end of summer. Well, they discovered that the furnace is dead and won’t start up once it gets cold. So her plan is to work a second job for a month to be able to afford getting a new furnace since it’s close to winter.
If she was renting, the owner would simply replace the furnace and she wouldn’t have to worry about it.
Does she budget for other longer term expenses, like car replacement and repairs, retirement, or college for kids (assuming she has kids)? If not, this should be a wakeup call that she needs to get her finances in order, because working a second job shouldn’t be the solution to every periodic expense.
I don’t know where you live, but at least in my area, I had to finish a new homeowner packet to get my mortgage, which laid out common expenses. AFAIK, that’s a pretty common thing because banks don’t want you to default due to an unexpected repair cost.
But maybe renting is better for her if she is unable or unwilling to plan ahead. My point is that, in most cases, owning ends up being cheaper than renting for the same space.
I’m willing to bet there’s a lot of homeowners like this. Why do you think there have been so many foreclosures?
New homeowners get the house then they think that’s it.
But it’s not.
Homeownership isn’t for everyone. Not everyone is financially responsible to own a house.