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Renting is supposed to be a much shorter commitment that lets people move around. It shouldn’t be cheaper in a market that’s allowed to function. If anything, t

Renting is supposed to be a much shorter commitment that lets people move around. It shouldn’t be cheaper in a market that’s allowed to function. If anything, the optionality and added risk should have a cost, which is also why a hotel room costs more per day or week than renting.

chii 4y ago
> It shouldn’t be cheaper in a market that’s allowed to function. in a perfectly efficient market, renting and home ownership costs exactly the same - not cheaper nor more expensive. However, most home owners living in their home pay a premium for it, because they both want to secure their bid when they buy, and they are likely buying on more than just financial implications (like the location is great for their kids, etc). Therefore, a home owner is actually more likely to have a higher cost of capital over all - both the deposit and the mortgage added together, even if the mortgage interest by itself may be lower than renting. Think of it this way - if renting was more expensive than the total cost of ownership, then an investor would borrow the capital needed for buying, and then rent it out and arbitrage the difference risk free. It is this mechanism that keeps the rent and the price of ownership at approx. equal. In recent times, the price of ownership has grown due to the pandemic, and high availability of credit. Rent will follow, if it hasn't already, as landlords will not just eat the loss.
- mmarq 4y ago
  > Think of it this way - if renting was more expensive than the total cost of ownership, then an investor would borrow the capital needed for buying, and then rent it out and arbitrage the difference risk free. It is this mechanism that keeps the rent and the price of ownership at approx. equal. Which is not that far from the truth. At least on the UK, rent is an extortionary and ever-increasing tax on people who don’t have 150K to pay a deposit.

chii 4y ago

> It shouldn’t be cheaper in a market that’s allowed to function. in a perfectly efficient market, renting and home ownership costs exactly the same - not cheaper nor more expensive. However, most home owners living in their home pay a premium for it, because they both want to secure their bid when they buy, and they are likely buying on more than just financial implications (like the location is great for their kids, etc). Therefore, a home owner is actually more likely to have a higher cost of capital over all - both the deposit and the mortgage added together, even if the mortgage interest by itself may be lower than renting. Think of it this way - if renting was more expensive than the total cost of ownership, then an investor would borrow the capital needed for buying, and then rent it out and arbitrage the difference risk free. It is this mechanism that keeps the rent and the price of ownership at approx. equal. In recent times, the price of ownership has grown due to the pandemic, and high availability of credit. Rent will follow, if it hasn't already, as landlords will not just eat the loss.

mmarq 4y ago
> Think of it this way - if renting was more expensive than the total cost of ownership, then an investor would borrow the capital needed for buying, and then rent it out and arbitrage the difference risk free. It is this mechanism that keeps the rent and the price of ownership at approx. equal. Which is not that far from the truth. At least on the UK, rent is an extortionary and ever-increasing tax on people who don’t have 150K to pay a deposit.