2 ms·
It was presented in a confusing way, but it is accurate. Rent tends to move with housing prices. If the price of housing goes up, rent also goes up, and vice
by btilly 4y ago
It was presented in a confusing way, but it is accurate. Rent tends to move with housing prices. If the price of housing goes up, rent also goes up, and vice versa.
In scenario 1, buying cost $1.1 million today and saved $600k, meaning that renting cost $1.7 million.
In scenario 2 the house cost more and renting cost left making them about equal. We aren't given either number.
In scenario 3 the house cost $1.7 million and renting cost $1.3 million.
So you see that more houses = cheaper houses and cheaper rent. Fewer houses = expensive houses and expensive rent. Building housing is a tradeoff between wealth for homeowners and affordability for everyone else. For decades we've chosen wealth for homeowners and this is visible in everything from expensive houses to high rents to a huge homeless problem.
- abeppu 4y agoI think as presented this still can't be comparing things sensibly between these conditions. > more houses = cheaper houses and cheaper rent So why do we say that buying in scenario 3 costs ~$1.75M and buying in scenario 1 costs ~$1.1M? Everything in the preceding paragraphs makes it sound like her mortgage is fixed. In scenario 1, property taxes and insurance would be higher. Nothing should make scenario 3 more expensive to buy in absolute terms.
- btilly 4y agoThey were counting the present value of the buying decision. Which includes the present value of the resale 20 years later. I have no idea if the calculator that they used factors in property taxes and insurance. But insurance averages something like $5k/year for $1 million of coverage, so does not significantly alter the prices. Whether property taxes do depends strongly on where you live. But generally it is much less than a mortgage.