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People generally don’t borrow money to pay their rent, so rent prices are restricted by local salaries. People borrow the vast majority of the cost of a house
by sbenitoj 9y ago
People generally don’t borrow money to pay their rent, so rent prices are restricted by local salaries.
People borrow the vast majority of the cost of a house to buy it, so housing prices are largely only restricted by how much banks are willing to lend and how much it costs to borrow — all of which is heavily influenced by central banks.
- seanmcdirmid 9y agoAlso, no one speculates on real estate by renting. It isn’t just how much money buyers can borrow, even if they are paying for it all in cash and don’t plan on living in the property, it also about perceived upside.
- christophilus 9y agoThat is an obvious statement, and yet it has never occurred to me. I now (finally) understand why renting is generally a better decision than buying.
- sbenitoj 9y agoGlad to hear it helps! The NYT has a good “buy vs rent calculator” that’s worth checking out: https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0 https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal... Even though the calculator is useful, it’s important to have a really good understanding of why housing is so much more expensive today (as a percentage of avg annual income) than it was 50-60 years ago. For that I recommend a short, but extremely useful book, The Housing Trap: https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0 https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...