Renting Is Terrible. Owning Is Worse
theatlantic.com
theatlantic.com
A public-ownership rental option might solve this problem, at least in part. The foundation of the program would be quite simple: public ownership of housing, acquired or built with government loans—though run by local for-profit or nonprofit property managers—and rented at market prices. No saving for a down payment (or being given one by family) and no qualifying for a mortgage. The only requirements for participation in the public-ownership option would be (1) move in, and (2) pay rent.
Though admittedly, the lede is well-buried nine 'graphs in, and the clickbait title has succeeded in self-sabotaging this particular discussion.
The idea and organisational structure behind it strike me as potentially interesting and a notable shift in addressing what I'm seeing as a Big Problem.
Not mentioned in the article is the concept of land banks, instituted in some countries, and parts of the US, though not within California where the Russel Lewis Centre is located (UCLA). Contributing tax-lien and abandoned properties to such a public ownership rental proposal would be tremendously useful.
There is a book, with presumably more information: The Affordable City: Strategies for Putting Housing Within Reach. https://www.bibliovault.org/BV.book.epl?ISBN=9781642831337
Somewhat inexplicably, the article fails to mention this.
I'm not fully understanding the concept and would like to know more about public ownership for renters in practice.
There are some co-housing and community-housing projects, as well as NYC's venerated housing co-ops (for better and worse). There are some community / sustainable housing initiatives in Davis and Chico California, that I'm aware of (I'd need to research on specifics), though I'm not sure they follow this model specifically.
There's the prospect that occurs to me of working with land banks (mostly practiced in the Midwest / East Coast in the US) as a way of acquiring land.
The proposal itself seems striking to me. Yours is the only comment that's actually cottened on to the main thrust of the article.
People talk about the flexibility of renting. I don't get it. You have to sign a 12 month lease. On average then you're 6 months away from being able to get out of your lease. In my area you can sell a house within 90 days and it's been that way for over 40 years! Of course now houses are on the market for 10 days and people are bidding them up - that's not normal, but still I can sell a house faster than I can get out of a lease.
Don't even get me started on the difference owning vs. renting makes on your retirement planning! I live in a high tax area and my taxes are HALF of the rent of a 2 BR townhome!
Renting makes no sense.
This is not as strong of a financial case as one might think. AAPL stock I bought less than 2 years ago is now worth more than double what I paid for it. If you don't want to have to pick a winner, the Nasdaq composite doubled in the past 2 years, and if you feel like the Nasdaq is too risky because of 2000 then the SP500 doubled in the past 5. All of the money that you spent up front on that house could have been invested elsewhere instead with better returns.
You can buy stock with leverage, too.
OTOH, buying a house with leverage, at least in a non-recourse state, exposes you to less downside risk.
This just doesn't seem sustainable. Nobody will be able to afford a house if this keeps up.
Now 4 years after moving away I still check on that house and see it keeps going up and even though our savings has gone up, we can no longer afford that house anymore.
After a few moves, we're now renting a home in a pretty far off suburb of another city and the prices in this area are starting to get out of hand. Witnessed by us starting to look after we decided we like it here. The houses in this market won't last a week and offers are way over list.
But I still go back to, this can't keep up. Who is going to keep buying at this pace? Salaries certainly can't be keeping up with this?
He is living his life and you have virtual paper and potential gains.
Owning a house is more than a bet against inflation and financial crash.
You don't have to worry about mowing the lawn unless you want to. Where I live the annualized cost of lawn care is $67/month. You can even have maintenance taken care of for you - replace appliances, plumbing, electrical, heating/cooling - the whole works - and that'll cost you between $100-$150 per month. Even with those additional costs I'm only paying $300/month more than those renting a 2 BR apartment having less than half the space.
The end of your comment is important too - you don't want to overpay for a house. Sometimes renting is a good short-term strategy to wait-out an anomalous market or determine long-term market direction so you can avoid an expensive mistake. Renting is also a good strategy if you believe you'll be moving soon. The rule-of-thumb is don't buy unless you're going to be staying for five years.
Closing on a house = pain. You have inspections, appraisal, loan applications, contingencies, counter offers, staging, open houses, closed showings, and at least an entire day of signing papers. It takes nearly a month on average to close on a house. That's not a passive month either. If you're selling, you'll need to vacate your house for showings at whatever day and time is convenient for the buyer. And if you're moving to another house you get to do this twice. I've found an apartment, signed a lease, and moved in in a single weekend before.
You can also find leases shorter than 12 months. And if your landlord isn't a total jerk (or some giant faceless private equity company) then you can usually talk to them as reasonable adults do. Even better if you have a potential replacement lined up for your rental. Breaking a lease isn't a crime. You can do it, if you need to.
Dealing with landlord is a pain. You have to adhere to contracts often no pets, even putting up a painting is an ordeal. Not to mention rent increases.
Owning a house is a bigger responsibility with way bigger rewards and freedoms. Also your rent money is not sucked out into the void.
You also may not relate to markets where there is no particular trend in prices over and above inflation. My home is almost 30 years old and has not appreciated except maybe temporarily this past year. Most of the country/world is not SF or Vancouver.
Finally, your penultimate sentence sounds like you may not be paying interest on a mortgage, which obviously is a significant addition to expenses. And there are a lot of little things that add up if you make a spreadsheet, when you own rather than rent. Constant maintenance too.
Oh and "within 90 days" implies any time of year is as good as any other - I'm not particularly knowledgeable, but I would have assumed that you have a much better chance if you put a property on the market in the spring, so practically speaking, the window is once a year, like a 12 month lease, no?
Ownership means responsibilities. Renting is great for those who want to minimize those responsibilities with the associated overhead and surprises, and lease terms vary wildly with some being as short as a few weeks.
Arbitrary comparisons don't really challenge anything about the fact that renting and buying are just different financial operations that you can tailor to your specific situation. There's no right answer.
> Those losses aren’t equitably distributed, either: Nearly 2 million mortgages are underwater in the U.S., and they’re disproportionately concentrated in Black and Latino communities. Tenants in coastal cities, meanwhile, know the pain of forking over more and more rent every year, unable to save for a down payment and living at the mercy of sometimes unscrupulous landlords.
> The housing situation is only getting worse—more expensive, more inequitable, more precarious. As prices have continued their climb in the country’s most economically dynamic regions, it’s no longer feasible for working-class residents to seek out the best opportunities there. Instead, younger and lower-income residents are being pushed out to places where jobs are less plentiful and lucrative
> Largely as a consequence of housing prices, Generation X held less than half as much wealth in 2019 as Baby Boomers of the same age did two decades earlier, and Millennials are on course to hold even less.
I'm glad it worked out for you bud. Just remember there are 6,999,999,999 more people on this planet besides yourself.
But after replacing my 30 year old roof, 10 year old water heater, and 20 year old furnace all in the same month? Yeah. Owning isn’t always great. But on the bright side, unless an emergency happens, I’ve got many years to recoup those costs. Just hurts writing out that many checks all in one go.
In some sense you restore the house to where it was before years of use.
I'm glad I bought 11 years ago. My house is easily worth 2X what I paid then. If I'd been renting all this time I'd be paying at least 2X in rent compared to what my mortgage is. And I'd be subject to the whims of owners who decide to sell and make the renters move.
> If I'd been renting all this time I'd be paying at least 2X in rent compared to what my mortgage is
This is generally not the case. Rents on a property take a long time to catch up to the mortgage payment. Of course market conditions vary by location, but I suspect if a lot of homeowners ran the numbers (total mortgage + interest, closing costs, taxes and property maintenance compared to incremental annual rent, difference invested in S&P 500 or something riskier), the conclusion would be different.
This means I'm living in a nice area for only $600 a month.
If I wanted to live in a home in the same area, that $600 wouldn't even cover the interest on the mortgage, much less all the other costs that come with living in a home.
In the mean time, I have been saving thousands of dollars every month and investing it. Over the past couple of years, I managed to completely pay off over $50,000 worth of debt and also saved up around $140,000 (most of which is invested in stock market index funds).
If I want to move to another state to pursue other job opportunities, I can do that whenever I want at the drop of the hat. All it would cost me to terminate my lease early is two month's worth of rent.
So yeah... pros and cons. I'm still not convinced that buying a house is worth it over renting.
It's a lot more cost-effective than having a different HVAC system in every single unit. This is especially true in Arizona, where it's not uncommon to hit temperatures of 110-120f in the summer.
The downside is that if you have a hot day in the winter time (which isn't uncommon in AZ), you are out of luck because your HVAC is stuck in heating mode until March rolls around. Another downside is that the air conditioner will often struggle to cool things down to lower than 80 degrees during the summer time.
I make do by supplementing the main A/C with a 10,000 BTU portable window-vented A/C, though... Which is free to use because electricity is included. So it all works out.
Over the last 10 years, though, I think this has been a pretty common occurrence in a lot of areas. My mortgage + property tax is right around $1k/month - admittedly I bought near the housing market bottom. Rent on similar properties in my location is getting close to $2k/month. My mortgage will be paid off in about 2 years (15 year mortgage with some extra principal payments)
My friend just bought an apartment, and it's a stressful, expensive affair. In Germany, you should expect 12% of the purchase price in various taxes and fees. You still have to pay monthly expenses, which are still 10-20% of your "rent". That's on top of maintenance, which if I recall is around 2% of the value of the building, ever year. There's a chance she might get slapped with random repairs, something that's never on my mind.
Owning a house seems even worse. Selling her house felt like a weight off my mom's shoulders. She spent so much time and energy keeping that house.
I was looking at around the same time, and I really struggled to trace the cost of renting vs buying over time, and to find where the lines intersect. It makes it a very dubious investment for me.
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Side note: I have noticed that many articles from American magazines phrase everything in terms of race, gender and political affiliation, something I rarely see in local publications. This article is a good example. Does it add anything meaningful to the article?
As to your side note: No, it adds nothing. It's just paying homage to the new national religion of wokeism.
At times, in certain cases, it can serve to "align" the article relative to readers' expectations and beliefs. When the article is promoting a controversial position, it can help to show readers that "people like them" agree with it.
In most cases, though, it's more likely included as a sort of "Carthago delenda est" to beat the drum for the author's preferred cultural crusade.
I'm not an economist, but "market price" in this context does not seem very sensible. If I have the choice of paying the same rent for traditional housing versus housing that I can build equity in, I would end up wanting the equity. So really that should be worth more and command a higher price.
If instead they're going to fix the price of public rents so that you're not paying a premium for it, then it's not really market price and will lead to a lot of the same issues that rent control does.
I saw an article recently on HN about how Vienna handles rent control and public housing [0]. Seemed like a better approach--just have the city government work to make sure that rents are affordable.
[0] https://thetyee.ca/Solutions/2018/06/06/Vienna-Housing-Affor...
I was very lucky to buy towards the end of the dip in 2013 and my mortgage on a 2-bedroom 2-bath house with a yard is now significantly less than what I would have be renting it for now.
Now we've accumulated enough wealth that we bought a condo outright, if you're in that incredibly privileged position owning is fantastic. We use it for fun but it's also a good way to generate a steady income stream.
So it's not "owning vs renting" it's whether you can afford enough of a downpayment.
What situations is this not the case?
If you downsize or move to a place with lower housing costs or somehow fundamentally change your living arrangement to lower the cost.
If you die, houses can be a good inheritance, but people usually want their investments to provide something during their lifetimes.
If you find a house that is undervalued and can be improved and sold for much more. However, this exists in any investment decision and is not unique to housing. Most houses won’t fall into this category or they would have already been bought and sold.
If you can fully pay off the mortgage, you’ll immediately get more monthly income and this income can be applied towards actual investments that make you money. (But you could have done this instead of paying off the mortgage too, so it’s economy dependent)
Whether it's a seller's market, buyer's market or balanced market, as both a seller and buyer _in the same market_ you will experience things from both sides, I don't think the market situation really matters in that case.
But what does matter, especially in market of constantly increasing prices, is that already owning a house means your stake in the house is already following the general market pricing so you only need to pay some extra "if you move up" in the market or you cash in some money "if you downsize". This is vastly better than just being a first time buyer, in that type of market.
> If you can fully pay off the mortgage, you’ll immediately get more monthly income and this income can be applied towards actual investments that make you money. (But you could have done this instead of paying off the mortgage too, so it’s economy dependent)
Really depends on the mortgage interest rate, term (years that the interest is applied over) and the expected returns from those said investments. In other words, I find it hard to find enough motivation to pay off a 2% interest rate 10 years long mortgage loan. 2% is same as inflation, that mortgage is almost free.
Also agree on the mortgage rates which are economy dependent along with the stock market. Right now you should certainly not pay off the mortgage but there are some times in history where it might make sense, which is why I noted it.