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Comment by iamthepieman | Hacker News Reader

This is true even in rural areas. I bought a house 2.5 years ago and have a monthly payment (including taxes and insurance) that is about 20% less than an equivalent monthly rental.

I didn't want to buy a house. I wanted to keep renting and retain the flexibility and freedom that renting gave me. It just no longer made sense financially.

What are the underlying reasons for the disparity between rental and home ownership costs? Obviously low interest rates are one and rented houses that were bought by their owners at higher interest rates reflect that in their price. But surely this would eventually normalize if rates stay low.

There must be something else since the relatively low cost of home ownership should be putting downward pressure on rental rates.

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It is always the case that the monthly cost to buy is lower than rent. It has to be, because the rent is covering the cost of repairs and depreciation which isn't included in your mortgage payment. And then there needs to be some left over to cover vacancies, and some profit for the landlord. Clearly in some markets buying is legitimately a better deal. But most people do a fairly cursory and incomplete analysis before coming to that conclusion.

20% is actually not a very large margin. Depending on how much your house cost, and how much your rent was, it may have actually been cheaper to rent.

I forgot to mention, it's 20% less with a 15 year mortgage. A 30yr mortgage would have made it closer to 40% less than renting.

That's a theory but in very dense markets it's sometimes the exact opposite, I suspect because people understand rent as "lost money" vs. loan repayments as "invested money".

Where I live, in Paris, if you take a mortgage today for 20 years, your repayments are going to be around x2/x2.5 the monthly rent of the place. The returns on real estate are notoriously very low. That's because speculation and foreign investment drive prices up while rents can't really increase because the people who live in the flats are already spending 40-45% of their income on rent.

I live in a one-bedroom for which the rent is 1200€, and it would cost around 480,000€ to acquire. With a good interest rate on 20 years, that's 2600€ monthly repayment.

Keep in mind that with a mortgage you're still renting -- you're just renting money instead of the house. I know this is a simplified view, but some of your points (e.g., profit for the landlord) have equivalents for a mortgage (profit for the bank, via interest). Also, you're going to be paying for maintenance in either case. In the case of owning it may not be literally baked into your mortgage payment, but that doesn't mean you're not going to be responsible for repairs on your own house.

Also, keep in mind that a landlord isn't entitled to profit just because they're attempting to make a profit. It is entirely possible (and it does happen in reality) that a certain rental market is such that the landlord will not be able to turn a profit or may in fact even lose money. Being a landlord is just like any other business -- it can fail.

Finally, rental markets are often just different. Here in Houston, I could not buy an apartment like the one I rent for the same price that I pay. There aren't many condo buildings for one thing, and the ones that do exist charge exorbitant monthly maintenance fees. These fees would bring the monthly cost of owning such a condo to about $500-$1000/month more than what I currently pay in rent. At the same time, any townhouse or SFH that I might buy which is larger than what I rent is naturally going to cost more -- often times significantly more. In other words, the rental market sometimes has options that don't exist in the for-sale market. (The opposite is of course true as well.)

Fair enough, I did not sufficiently qualify my statement. But my main point is that looking at just mortgage vs rent is leaving a lot of costs out of the equation.

If you can get rent for less than the monthly mortgage payment, then the landlord is basically subsidizing you to live there and it's a pretty great deal. Buying in those conditions is a sucker bet.

Before the housing crash being a landlord was a bad deal, practically anyone could go to the bank and get a new house. We are on the other side of the pendulum from the housing boom currently.

I don't know if I'd agree with you. For as far back as I can remember, renting has been cheaper than buying when I did the math. Only very recently, with skyrocketing rents and nearly-zero interest rates, has buying become cheaper month-to-month.

But by buying you are, you know, buying the actual house, and paying interest. While by renting you are just paying to use the house, and maintenance.

You are actually arguing that a house will fully depreciate in less time than it takes to pay for it. Well, it's not an extraordinary claim, but it's still not what I'd expect.

No, I'm arguing that just comparing mortgage payments to rent payments leaves out a lot of the expenses involved in owning the property, such as maintenance.

Maintenance is only cheaper than acquisition is the good will completely depreciate during the period you are maintaining it.

As I said, it's not an extraordinary claim.

I can't even parse that sentence.

Sorry, you shouldn't be.

I meant: maintenance is only more expensive than the acquisition if the good will completely depreciate during the time you are maintaining it.

Not in Bay Area.

It is always the case that the monthly cost to buy is lower than rent. It has to be, because the rent is covering the cost of repairs and depreciation which isn't included in your mortgage payment.

That is demonstrably not true if you just look at monetary costs. Buying often does not outperform renting and investing the remainder. Of course people value home ownership for reasons other than its financial value.

>> What are the underlying reasons for the disparity between rental and home ownership costs?

Massive implicit and explicit government distortions in favor of home ownership. Starting with the type of mortgage available in the US and virtually nowhere else (i.e. 30 year fixed rate, no prepayment penalty, 10-20% down, and in some states no recourse -- all at less than 100 bps over the risk free rates), continuing with an even more comprehensive version of the infamous Greenspan put for equities, and big tax incentives.

>Massive implicit and explicit government distortions in favor of home ownership. Starting with the type of mortgage available in the US and virtually nowhere else

Which ones? The horrible interest-only ones, or the horrible variable interest with balloon payment ones, or the horrible fixed 5% interest ones?

Now look at Japan. I can get a home there with a 1-2% fixed mortgage rate and that comes with a 5% discount at the local mall/grocery (Aeon). I could actually make the 1% back just on my food spending.

http://www.bloomberg.com/news/articles/2015-01-07/record-low...

4% may not sound like much, but it is huge over the course of a 30 year loan.

100,000=>115,000@30yr,1% 100,000=>193,000@30yr,5%

What a rip off... Nearly double the principal, just in interest. Mortgages here seem like legalized financial slavery to me.

I rent here in the USA. I haven't seen great changes in my rent in the past few of years. This story seems very suspicious to me. Is it an advertisement paid by the mortgage industry?

That is because the Japanese currency has been moribund for about 15 years. There have been many periods where you could actually make a profit by lending someone money at 0%. A 1% interest rate in the US would not even keep up with inflation; the lender would lose money on every loan.

I'm willing to put my money on credit, after the subprime mortgage bubble burst in '08 lenders are a lot tighter on who qualifies for a mortgage, even for FHA loans. Since there's a rather large number of people who have no choice but to rent right now due to credit it's very much a sellers market, especially in Boise where I live as it's been a hot target for people moving from more expensive areas to 'invest' in the rental market.

You used to be able to find a nice 3-bedroom house for around $800-900/mo here, now that's jumped to $1000-1300 unless you want to live in some really seedy areas of town. And a lot of this is because these 'investors' want to make a profit ASAP, rental housing used to be a long-term investment, which paid minimal returns until the property was paid off - now we have a bunch of people wanting to make their $600/mo right off the bat.

In other words, they're acting rationally.

If the market clearing price for rental accommodations increases, why shouldn't landlords raise their rents in concert with that changed market dynamic?

There is a lot more to housing cost than monthly payment (for P&I), taxes and insurance. Landlords also must pay for repairs, hedge against costs to evict those who do not pay and or trash the place, pay for water, sewer, garbage disposal, lawn care, snow removal - unless the lease puts those responsibilities on the tenant. People often underestimate these other costs when buying a home and become what we used to call "house poor."

There are other good reasons to be cautious about homeownership. Typically, one must stay in a home for 5 years to break even on closing costs. Jobs typically are not that stable these days. It is often less expensive to sublet/get out of a lease than it is to find a willing, qualified buyer.

Even very cheap houses still require a mortgage. If mortgages are harder to get since the sub-prime crisis, more people will be forced to rent than to own. By the law of offer and demand, that would raise rents and lower housing costs.

If you live in an area where a mortgage is 20% below rent, how are you losing any flexibility? You should be able to move and rent your place out at an 18% profit and have it filled almost immediately.

Good point, but it's not just about limiting one's ability to move. Tying up most or all your savings in a down-payment plus taking out a large credit line sometimes means not having the freedom to invest elsewhere, go back to school, start a company, or start a family.

Honestly, the "freedom to move" thing is a red herring in these discussions. There is a whole lot of friction to moving that is not tied up in how you pay for your residence. For most people, loss of social networks, loss of nearby family, and disruption to children are much bigger barriers to moving than owning their residence.

That said, the other features you mention are much better examples of limits that come from buying. It really depends on how stable real estate pricing is and what direction the market is trending.

I guess on paper that's true. But management and opportunity costs are certainly not insignificant in that case.

Property management services typically charge 5-7% off the top plus a new tenant/lease renewal fee that varies by market.

Unless the amount of capital I have invested in my home is small compared to my total assets (it's not) then having that much money tied up in a non-liquid asset is certainly not contributing to my personal flexibility.

Yep, PC86 didn't take in effect the 'risk' factor. Some renters are highly destructive to property and you will never recoup losses from them. A significant policy change by the government can change the metrics that home buying is a better choice for your renters. A significant change in local behavior makes that neighborhood worthless to rent from.

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