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The math is clear. You don't gain any equity by paying rent.

• nly 5y ago
  The math is far from simple. Let's say you have a 3% mortgage and the interest component on your loan is 20% lower than the rent you're paying on a similar property. Sounds like a no brainer, until you consider the opportunity cost of carrying the repayment part. It's earning (really saving) you 3%/yr instead of the 5-10% you could earn long term in the stock market. Sure if house prices rise just 1% a year, the equity you're building is nice, but that is not guaranteed going forward, especially when you're buying in to an area where median house prices could already be 10x median earnings.
  • notfromhere 5y ago
    Most people are bad at saving and investing, so housing acts like a forced savings account. People won't be investing the difference between rent and their mortgage, they'll be using it for other expenses. Especially for anyone that's at the median or below, you're not making enough to actually save much, so the mechanism here is effective. The most important thing is that a mortgaged house is a hedge against rent inflation, as it locks in a flat housing payment for the next 30 years. Then when you're paid off and you retire , you only have to worry about maintenance + property tax, which is cheaper than the mortgage ever was.