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Comment by codingdave | Hacker News Reader

> ...its price would need to increase faster than the rate of inflation.

If you don't own a home, you pay rent, and rent increases over time. Even if you never made a dime on selling the home years later, the difference between years of rent vs. the total of your mortgage may still come out ahead. Or, keep the house, and live the rest of your live only having to pay property taxes and utilities. Either way, inflation goes up, rents go up, mortgages go down.

I'm not sure that invalidates the larger points within the article. I just worry about the perspective of treating a home purely as an investment when their primary benefit is to be a roof over your head.

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If you’re single or a couple with no dependents who doesn’t mind moving every now and then, renting isn’t so bad. You avoid the risk of dealing with damage to the structure, fixing things, labor markets being disrupted (like factory towns or smaller towns everywhere in the US). Take all that saved up money and put it in a low cost index fund, you very well might come ahead, and be liquid when you need to move because the jobs disappeared. And rents definitely don’t always go up.

> you very well might come ahead

There's a wonderful video[1] explaining just that. The TL;DW is that if you compare a renter & a buyer from day 1 to the end of a 25 year mortgage, both the renter and owner will have roughly the same net worth.

My folks always talked about how renting just pissed away money, but never mentioned how mortgages piss away an obscene amount of money on interest payments. (And repairs/tax/insurance/HOA/etc.)

[1] https://www.youtube.com/watch?v=NZR_vMTLfIk

Well you still own the house after 25 years....

Obviously the comparison accounts for that. The rental owns the equivalent of the value of the house in other assests.

That’s assuming people purchase assets that increase in value over time. And that most people are fiscally responsible and manage their debt properly. Which isn’t the case for probably 90%+ of Americans.

It’s very easily to live a paycheck-to-paycheck lifestyle (even in higher incomes, people adapt to expensive lifestyles very quickly) and spend a lot of money on vacations, cars, eating out etc... and only consider your living costs as a passive constant that you pay no attention to. I imagine most people think of spending and budget allocation in this way, so for them having a mortgage makes more sense.

Rather if you think of every purchase in terms of your total net worth and you spend a significant amount of your income towards saving, investments, and assets that don’t depreciate, then sure, maybe renting is your better option.

OTOH it can also be argued that fiscally irresponsible people should not be taking on mortgages as they are the more likely to end up with a foreclosure.

Hmm, that relies on reasoning that necessarily pegs mortgage above rent by a large margin. That’s a difficult sell.

The down payment on a house is a pretty large opportunity cost. (In the case of a small down payment, then the PMI is the relevant cost.)

Sure. And you also have to replace the roof when it leaks, the heating if it fails, and the water heater when it goes. You may or may not have had to mow the lawn and other such things.

Owning isn't always a benefit nor is renting always a curse. Either one can be a solid choice for an individual and/or their family.

I totally agree, but you at least need a clear fermi approximation to compare. I don't agree off the cuff that renting and buying have equivalent value.

Here is one such app (mine) running said approximations and plotting the results:

https://github.com/radekstepan/buy-vs-rent#buy-vs-rent

Of course there's the problem of being unable to improve a rental- the landlord doesn't reap any reward and the renter doesn't have a stake to be willing to invest- so rental stock tends to be uninsulated, uncomfortable, poorly designed, rarely renovated, etc.

Last summer I spent $900 in materials to build a pergola that I carefully planned as passive solar management. It made a huge difference in comfort and slashed cooling loads. In rentals, I just suffered.

Landlords improve rentals when they think it will allow them to raise the rent enough to make back more than the renovation cost in the long term.

Or when they think it will allow them to attract a “better” type of tenant who’s more likely to pay rent on time and take care of the space instead of damaging it.

Or because the real estate is their nest egg and they want to maintain and increase its value. Or because they live in the building and the improvements will improve their own quality of life.

Every apartment I’ve rented in NYC has been in a building over 75 years old. Even at fairly low rents (by NYC standards), every one had been gut renovated less than 10 years before I moved in.

I know there are scenarios where rentals do get improved. But insulation, efficiency & comfort is really hard to value, and so I've not really seen it happen. This is specifically called out by government & eco groups as a major challenge going forward to improving energy efficiency of the housing stock.

I've known a few families over the years in California who rented detached houses. They rented houses (didn't have the down payment) to get the benefits of more space (ex: 3-bedroom place), yard (well small yard, this is California), garage, and washer/dryer.

Every single one of them had to move out before their kids grew up old enough to go to college. In fact they didn't last more than a few years at each house because every landlord would come around and ask the renters to move out.

The excuses given were: - I'm selling the house (turned out it wasn't sold years) - I'm remodeling the house (nope, not true)

Pretty much in all cases, the owner of the house was forcing the renter out so that they could raise up the rent much higher with the next, new renters.

California is obviously an outlier in real estate discussions. Obviously in highly desirable areas, demand will keep going up will cause rents and home prices to keep going up, and of course owning will be better.

NYC/AUS/DEN/SEA/PDX are also forecast to be high demand, but who knows when an earthquake or drought or whatnot can come along and destroy home values. But for most other places not posting double digit growth like Midwest towns or the Northeast with its stagnant high tax suburbs, home values don’t see the rise in value that make it a no brainer to buy.

> They rented houses (didn't have the down payment) to get the benefits of more space

This is just a statement that living beyond your means is bad. Even in markets where renting is cheaper (https://medium.com/@usaar33/why-you-shouldnt-buy-a-home-in-t...), you have to ensure your savings rate is high enough to absorb any reasonable rent appreciation.

Realistically, you might be able to get 20% more house than what you can buy - I imagine your friends were pushing more than that.

But you are assuming they were living beyond their means.

They were really not. They were able to find another place near paying similar rent.

The point is the house owners were basically getting around a local laws meant to protect renters against unreasonable rent increases.

Where I live, there is a law against raising monthly rent substantially on an existing renter. Owner can raise the rent for existing tenant say about 3 - 5%, once a year. I'm not sure about the exact percentage, but it is allowed only once a year for sure, to a specific percentage of the existing rent.

So the house owner gets around this law by periodically forcing out the renter with bogus reasons, so that they can rent out the property to the next renter at a substantially higher rate.

Instead of being able to increase rent from $2500 to $2700 after the renters lived there for first 2 years, property owner can raise the rent from $2500 to $3000 or even $3500. The property owner is basically getting around the local law to protect renters.

> They were able to find another place near paying similar rent.

I'm a bit confused here. I assume the new place was inferior in some way? Otherwise, I don't see why the landlord would try to force them out if they are paying market rent.

Well it seems some owners seem to think they can beat the market and get higher rent by chasing renters out every few years. So they can raise rent by 7- 10% instead of just say 3%.

> If you don't own a home, you pay rent, and rent increases over time. Rent costs are directly tied to property values. Assuming rents will always increase is based off the same assumption that property values will always increase as well.

> Rent costs are directly tied to property values.

In the long term, probably. But definitely not in the short or middle term. There can be many years where the ratio deviates from the norm. So "directly" is not definitely not the word I'd use.

https://www.investopedia.com/terms/p/price-to-rent-ratio.asp

> If you don't own a home, you pay rent, and rent increases over time.

That's not necessarily true. I live in Japan. While the price of land may raise, the price of houses only goes down. As for rent, it looks flat.

Japan is unique in how housing deprecates over time. Rentals also kind of works like that in the states; with older properties becoming cheaper to rent as newer stock fills the high end.

You could also argue that Japan's extremely low crime rate makes it a safe place for families to live. But good luck getting the US crime rate down to those levels. Japan is an outlier in so many ways that it's not useful to use the country for comparison. It has a completely unique culture and an almost totally homogenous population, ethnically and culturally.

I have yet to see anyone put forth a realistic proposal for achieving the social harmony of Japan in a country as diverse as the United States.

Well, if different courts were allowed to exist in the same geographical area, with different laws, selling their services (and their laws) to customers, competing for these customers, and negotiating between themselves as to how inter-court disputes should be resolved ... then different cultures living in the same places could live by the laws that best suited them, with maximally-efficient interaction with other cultures/courts, without people having to geographically segregate themselves into multiple homogeneous nations (such a transition being inefficient and outright disgusting).

But that won't happen, because everyone's minds are married to the idea that law must be provided by a monopoly called "government".

Japan also had a negative population growth for quite a while now, which translates to less demand and too much supply.

In that regard, I'm not at all surprised about prices for houses going down, probably plenty of them on the market. Just like flat rents make sense, wouldn't want to lose your tenant due to increasing rent when he has plenty of other options.

Tho don't urban population centers still see rising rents and house prices?

Or it can come out behind if alternative investments have higher returns.

A calculator: https://medium.com/@usaar33/an-up-to-date-buy-or-rent-calcul...

That’s only true from a cash flow perspective. Buying a house is effectively a form of savings. When you rent it’s a recurring expense.

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