4 ms·

You should be much more anxious about the risk of losing a great deal of your lifetime earnings (more than enough to buy a house outright) to rent. Some people

You should be much more anxious about the risk of losing a great deal of your lifetime earnings (more than enough to buy a house outright) to rent. Some people rent out of necessity; for you that is not the case. Everyone who has purchased a home lives with economic risk. I am very concerned that an entire generation that has flocked to expensive urban centers will wake up at age forty five as renters and realize it is basically too late to enter the housing market.

ska 8y ago
There is nothing wrong with not entering the housing market so long as you have an alternative savings plan. Depending on lots of factors, of course, but you may end up much better off in the long run by renting + saving. In the US particularly there are a number of incentives that help tilt this toward home equity, but it's not a given - it does work as a reasonable forced saving plan for people who are not thinking long term.
- JKCalhoun 8y ago
  People are bad at saving for retirement. I suspect a lot of life-long renters are going to be anxious when they get older and realize they also have no savings — home owners with no savings will at least have their one asset.
  - ska 8y ago
    No doubt it works as a default strategy for people who didn't' think it through. But by all means, think it through.
- claydavisss 8y ago
  These arguments treat putting a roof over your head as optional. It isn't. You will either spend a variable amount of money on rent that you cannot recover, or a fixed amount on a home purchase that you can recover. People haven't run the numbers of a lifetime of renting. You will more than pay for a home outright...you will simply have nothing to show for it other than shelter. On a five year horizon, it is a questionable if you should buy or rent. After that, there is basically no rationale for renting. There is also no rationale for renting past age forty-five. If you are in this situation, move immediately to a place you can afford to buy. In the US, it is assumed that retirees live off their home equity. Your 401k will probably be spent within five years. Without home equity, people are going to be in big trouble. And to preclude a popular counterpoint: you are paying for maintenance and property taxes implicitly in your rent.
  - ska 8y ago
    Nobody said anything about ignoring housing costs, that would be silly. What you are really comparing is "equity from long term investment - cost of rental" vs "equity in house - operating costs - cost of financing". Clearly if for functionally equivalent housing (for you) you can rent for enough lower than you would pay to maintain and pay for a house, and the investment returns are high enough, rental wins. The break even point is different in different locations and housing brackets, but it's always there. And often it's impossible to compare directly as your access to rental and purchased housing may look quite different in a given area. So yes, lots of people have run the numbers. When they do it properly, they always come up with "it depends". The US is unusual in tax benefit for mortgage payments, which often bends things in that direction, but there are still definitely situations where renting can win. It's also rather careless to assume homogeneity of an populations needs like "over 45", everyone is different. Someone with 3 teenage kids will have different parameters than a single person post-divorce, etc. What you are correct about is that housing has worked as a retirement strategy for people who haven't planned - but that doesn't mean it's the best strategy.

ska 8y ago

There is nothing wrong with not entering the housing market so long as you have an alternative savings plan. Depending on lots of factors, of course, but you may end up much better off in the long run by renting + saving. In the US particularly there are a number of incentives that help tilt this toward home equity, but it's not a given - it does work as a reasonable forced saving plan for people who are not thinking long term.

JKCalhoun 8y ago
People are bad at saving for retirement. I suspect a lot of life-long renters are going to be anxious when they get older and realize they also have no savings — home owners with no savings will at least have their one asset.
- ska 8y ago
  No doubt it works as a default strategy for people who didn't' think it through. But by all means, think it through.
claydavisss 8y ago
These arguments treat putting a roof over your head as optional. It isn't. You will either spend a variable amount of money on rent that you cannot recover, or a fixed amount on a home purchase that you can recover. People haven't run the numbers of a lifetime of renting. You will more than pay for a home outright...you will simply have nothing to show for it other than shelter. On a five year horizon, it is a questionable if you should buy or rent. After that, there is basically no rationale for renting. There is also no rationale for renting past age forty-five. If you are in this situation, move immediately to a place you can afford to buy. In the US, it is assumed that retirees live off their home equity. Your 401k will probably be spent within five years. Without home equity, people are going to be in big trouble. And to preclude a popular counterpoint: you are paying for maintenance and property taxes implicitly in your rent.
- ska 8y ago
  Nobody said anything about ignoring housing costs, that would be silly. What you are really comparing is "equity from long term investment - cost of rental" vs "equity in house - operating costs - cost of financing". Clearly if for functionally equivalent housing (for you) you can rent for enough lower than you would pay to maintain and pay for a house, and the investment returns are high enough, rental wins. The break even point is different in different locations and housing brackets, but it's always there. And often it's impossible to compare directly as your access to rental and purchased housing may look quite different in a given area. So yes, lots of people have run the numbers. When they do it properly, they always come up with "it depends". The US is unusual in tax benefit for mortgage payments, which often bends things in that direction, but there are still definitely situations where renting can win. It's also rather careless to assume homogeneity of an populations needs like "over 45", everyone is different. Someone with 3 teenage kids will have different parameters than a single person post-divorce, etc. What you are correct about is that housing has worked as a retirement strategy for people who haven't planned - but that doesn't mean it's the best strategy.