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Comment by eru | Hacker News Reader

You are still ignoring opportunity costs.

If you have $x, you can buy a house and save on $y rent. But you could also buy eg bonds, and make $z return per year. If z > y, going for the bonds is better.

Free time and health don't even come into the picture here. [0]

(Of course, taxes and regulations can make this more complicated. And there are systematic and idiosyncratic risks to take into account.)

It's not automatic that buying owner-occupied property is always the best way to invest your wealth.

[0] Well, I assume renting is better for your health: I was significantly less stressed about all the water damage that we had about two years ago, because I knew it was ultimately my landlord's problem, not mine. But the overall effect is likely to be rather minor, and it can go either way, as some people get a mental health benefit out of knowing that they own their home.

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Im guessing different people have different life priorities. So in some way its not correct to argue a point derived from an assumption/axiom other person doesn't believe in.

>>Well, I assume renting is better for your health: I was significantly less stressed about all the water damage that we had about two years ago, because I knew it was ultimately my landlord's problem, not mine.

Paid by your money.

>> But the overall effect is likely to be rather minor, and it can go either way, as some people get a mental health benefit out of knowing that they own their home.

I get a feeling if one is fairly rich they don't have to worry about money. When you are that rich, it doesn't matter whether you rent or own.

> Im guessing different people have different life priorities. So in some way its not correct to argue a point derived from an assumption/axiom other person doesn't believe in.

Yes, definitely. That's why I am saying that whether it's better to invest in owner occupied housing or in something else and using the returns to pay rent, depends on yields and prices and personal preferences. It's not automatic that buying a house to live in is better.

> Paid by your money.

Yes, definitely. Just like when I go to a restaurant, all the ingredients and the chef's labour is paid for by my own money.

Owning a house is a bit like having an extra part-time job with all the things you have to worry about and work on.

Around here, houses appreciate in value. Quite significantly, actually. A house can gain 100k in value in just a few years.

If you bought it, you're paying off the old price. If you're renting, rent increases every year to keep more or less in line with the accruing value. So while renters and buyers may both start out paying (eg) 20% of their income on housing, for buyers, this will typically go down (due to inflation --> higher wages), while for renters, it will stay the same and might even increase.

You're right about considering opportunity costs, but around here, it just turns out far, far worse for renters.

> 20% of their income on housing

Wha a world that would be. More in the 35-45 range.

For a proper comparison, you need to pay up the guy paying off the mortgage with someone who eg invests similar amounts in an index fund.

To be even more proper, you'd need to allow the stock market investor to use leverage, just like the guy with the mortgage does.

Or, if you want to avoid the mortgage/leverage complication, we can compare someone buying a house outright with someone investing the same amount in stocks, and uses the returns to pay rent.

> Around here, houses appreciate in value. Quite significantly, actually. A house can gain 100k in value in just a few years.

Total returns on eg the S&P500 over the last few decades have been pretty good, too. And it's a much more diversified and liquid investment than a single house in a single location.

For some people in some places, buying a house might be better than buying stocks, for some others it might be worse. Results also depend on taxes and jurisdiction and personal preferences. But it's not automatic that buying a house is better than renting.

> Results also depend on taxes and jurisdiction

If things were different, then the results would be different; but, being as they are, for most people in most Western jurisdictions the rules favor homeowners.

> [...] but, being as they are, for most people in most Western jurisdictions the rules favor homeowners.

Alas, no, not necessarily. There are feedback effects. The rules favouring owner-occupied housing mostly drive up the demand for that, and if you don't allow supply, then all you get is higher prices, that those would-be homeowners have to pay.

But in any case: my point is that it's down to circumstances which path is better. It's not an automatic 'home-ownership is always better'.

An important thing to consider is not just average return, but risk factors, and worst case scenarios.

If you buy a home instead of investing, you've got a locked in, controlled rate for your housing expenses. (Yes, there's some variability with property tax and insurance). In difficult times, you can still plan very carefully around your housing costs and wait for better times.

If you rent and invest, your housing costs can be highly variable and uncontrollable over time. Your investments may not cover increases in housing costs.

A critical factor is that housing is more or less a _required_ cost of existence - just like feeding oneself. It is not something where one can necessarily "invest in other areas" instead. There are extreme cases (living out of an RV or in a tent on the side of the road), but for the most part those extremes are not representative of how someone wants to live. One can only downsize so much, and downsizing your housing investment comes with very real changes to quality of life (storage space, commute time, access to grocery stores, etc).

And are you considering the risk factors and worst case scenarios when it comes to housing?

Housing is not as liquid, and prices can also go down as well as up. Often there are large transaction costs associated with buying/selling property.

What if an event happens that is not covered by insurance? Subsistence, large-scale repairs required etc. Changes in housing regulations c.f. the fallout from Grenfell in the UK.

There are risks in both, and risks from housing can also be large. The leverage offered by banks works in your favour in good times but can work against you in bad.

https://trustforlondon.org.uk/data/housing-as-proportion-inc...

"Households living in poverty are spending a significantly larger proportion of their net income on housing costs than households not living in poverty. This is true both in London and in the rest of England.

London households in poverty are estimated, on average, to spend 54% of their total net income on housing costs. In comparison, those living in households which are not in poverty spend just 11% on average.

The trend is similar in the rest of England with households in poverty spending 32% of their income on housing compared to 8% for those not in poverty"

(a lot of that is numerator/denominator issues - of course if you have more income you're spending a lesser fraction on housing - but it does show just how dominant housing costs are in people's lives)

[0] is so unbelievably true having lived through a major natural disaster. People don't realize how much, in general, you're on your own you are after something like that. Really life and perspective changing. BUT I think you're also misunderstanding his point about buying - it's not about maximizing your wealth which in the end doesn't even matter, but rather about minimizing the things you need to worry about. Even bonds can be stressful because they're not guaranteed money as they might seem due to 'guaranteed returns.' If rates/inflation go up you're left with money losing pieces of paper. See Silicon Valley Bank [1] for the obvious example. Even if your house depreciates, it's still a house! There's even an upside - your rent to the government decreases.

The one case where I think buying doesn't really make sense is for people who enjoy traveling long-term. You can still theoretically rent or sell the place, but now you're back to increasing life stresses especially in the rental cases because you have a lot of obligations there that would require employees if you're remote and so on. And then moving money internationally, especially between currencies, and all of this stuff. Just ugh, no no no.

[1] - https://en.wikipedia.org/wiki/Collapse_of_Silicon_Valley_Ban...

Yes, even bonds can be stressful.

But also: an owner occupied house is a single lumpy, undiversified asset. And in many cases it's bought on so much leverage, that its value is bigger than the buyer's entire net-worth.

> Even if your house depreciates, it's still a house! There's even an upside - your rent to the government decreases.

Yes. Though depending on government policies, you can also lose use of your house (or even lose your house). Depending on where you live and how you set up your holdings, investing in international stocks and bond can be more stable.

To summarise: owner occupied housing does make sense for a lot of people. But it's far from being automatically always being the best choice.

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