Comment by hectormalot | Hacker News Reader

Comment by hectormalot | Hacker News Reader

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> the competition for rental property is so fierce now that in many places, monthly rent to the private landlord is higher than a monthly mortgage payment would be to buy a similar property.

This is not a malfunction of the market. Economically renting is always expected to cost more than buying. Renting has advantages over buying:

* No need to have a significant amount of cash to deposit

* Flexibility to move out into a larger or smaller house that better fits your needs

* No exposure to the risk of changing housing prices (which don't always go up, and can be hugely impacted by policy)

* Less headaches over maintenance, etc. This is (typically) your landlords responsibility.

So, just like a flexible airfare is more expensive than a 'no changes allowed' fare, it makes perfect sense that a rental house on average is more expensive than owning a house. Also, if rental prices are lower than the mortgage cost, the owner should probably do something different with that house.

TL;DR: rental prices are expected to be higher than owning, because renters are willing to pay a premium, and because landlords otherwise have no incentive to let out a property in the first place.

Parent's comment still stands, but you have to take the regulation into account: * people can live in a bigger house than they could otherwise afford, e.g. if they can't make the deposit * people can live in a bigger house than they could have the mortgage for. (e.g. Dutch regulation you can mortgage 4.5x your yearly salary. If you make 40.000 Eur that is 180k, which perhaps buys you a small studio in Amsterdam). Renting you could probably live in a 250k valued house, because those restrictions don't apply.

Two of these aren't true in the U.S. as I was reminded during a recent eviction where we had to find a new place in 30 days. Let's address them.

"No exposure to the risk of changing housing prices (which don't always go up, and can be hugely impacted by policy)"

In our case, the homeowner thought the home was undervalued or marketable rent wasn't good enough. Just wasn't enough ROI. So, he sold the house out from under us to put the money in a better investment. Many years of on-time rent payments meant nothing. So, yes, renters have to worry about that stuff with quick, dire results when a problem happens.

" Flexibility to move out into a larger or smaller house that better fits your needs"

Most renting these days is done by agencies with formal procedures and tactics to maximize value for them. So, we had to fill out lots of paperwork, get credit checks, and otherwise go through the ringer. They were also all pushing us to accept a higher rate or trying to include stuff in the contract where we fix any problems in $80-200 range. All sorts of stuff. Fortunately, a friend at an agency that knew we were good tenants luckily pulled strings and got us a place just in time.

I imagine that if we were homeowners we'd have had that flexibility of moving into houses that fit our needs. We could shop around, identify the best deal, and move in at our own pace. Unfortunately, we were renters. That meant we had to act on homeowner's short timetable plus fit within the needs of renting agencies who were so picky we wouldn't have had a place.

Suddenly, renting doesn't sound so rosy, eh? ;)

>No exposure to the risk of changing housing prices

Except when your 12 month lease expires and they jack up your rate 20%. If anything renters are at greater exposure to changing housing prices. Renters don't benefit from drops in pricing, and they only have detriment from increases. At least home owners benefit from one side.

Rents must be tied to drops in pricing in the long run. If rents don't drop with the price of houses, investors would swoop in to buy the high ROI housing, and existing renters would make home purchasing a higher priority as opposed to buying stocks, paying off other debt, or spending their disposable income.

Also, having a uncertain monthly expense is not nearly as much of a risk as having 100% or 200% of your networth tied to a volitile and usually zero-sum housing market. The counterfactual of owning a diversified portfolio of stocks and bonds is much better from an investment perspective.

> investors would swoop in to buy the high ROI housing

They do, all the time.

> existing renters would make home purchasing a higher priority

They can't, there's such a low supply of housing in the entry-level price points

> uncertain monthly expense is not nearly as much of a risk as having 100% or 200% of your networth tied to a volitile

Most people do not own the vast majority of their home. Worst case scenario, they buy a house, it goes down a lot in value, and they do a strategic foreclosure and declare bankruptcy. Considering the average American has little to no savings and therefore nothing to lose in bankruptcy, there's really not much a downside. In fact they may even profit from it tremendously in other ways, such as wiping out their credit card debt at the same time.

The ones that do have any sizeable amount of savings are 40+ years old today and have benefited in insane amount in housing prices over the past two decades. Their home values will never go down anywhere near the amount they have gone up.

Compare this to a guaranteed, unavoidable loss with ever increasing rent prices. If rents actually do drop with housing prices over the long run, it certainly hasn't mattered at all for decades given the long term trend of the American housing market.

Renting also has the nice added benefit to landlords and capital owners that it can take tremendous portions of the working classes income while exclusively transferring wealth from them every month so they can never get ahead.

One of the greatest necessary advents in the near-term for prosperity of all is the correction of housing towards smaller, more affordable dwellings out of control of the rentiers racket that has now infected property ownership at a near global scale.

> landlords otherwise have no incentive to let out a property in the first place.

Come on. I buy a house for 100k, and rent it out for a bit less than the mortgage repayments. In 10 years, I sell it for 200k. How is there no incentive to rent in that period?

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