In the midst of the U.S. housing crisis, Paul Kedrosky asks, quite reasonably, Why Do We Want People to Own Homes? I’ve been wondering that myself. Is it because people think houses are a good investment? Because they have sentimental attachments to the idea of owning the roof over their head? Because they want to be sure no-one can toss them out of their home? Because everyone else does?
I remember years ago in Australia (where almost everyone also wants to own their own home) talking to a German immigrant who complained bitterly that he couldn’t rent anywhere nice to live and so he had to buy a house. He would have been much happier renting, as people commonly do in Germany. Maybe the rental properties are better in Germany because so many people rent, or maybe part of it is because in Germany it’s common to make modifications to an apartment you rent, for example by renovating the kitchen (you own the appliances, the cabinets, etc, and take them with you if you move). People often rent the same apartment for 20 years or more, which is longer than many people in North America stay in houses they buy, so it’s worth their time and effort to make it a nice place to live.
Different countries, different ideas. For us ten years ago, there were a couple of reasons to buy rather than rent. We saw it as a reasonable investment, we wanted to live in a house with a garden, and I wanted a couple of cats. So buying made sense (many landlords don’t like pets).
As house prices climb to the extent that it’s questionable how good an investment they are (how high can they keep going?), it’ll be interesting to see what happens. Here in Vancouver house prices have been rising to the extent that many landlords are selling the rental houses to people who renovate and move in themselves, rather than renting them out. For families with children in local schools, having the landlord sell the house out from under them is extremely disruptive, especially when they can afford to rent, but can’t afford to buy, in the area they’re living in. From the landlord’s perspective, they’re cashing in on the capital gains rather than taking a rent that just can’t compare as a return on their investment. Either the house prices will have to come down, or the rents will have to go up, unless people are willing to continue to gamble on making their money from capital gains.
And in the U.S., owning the house doesn’t mean someone can’t turf you out if you default on a payment or two. The Economist has an article in this week’s magazine about the U.S. housing crisis, pointing out that foreclosure proceedings can take months in some states, but less than a month in Texas. Which makes me wonder even more why people buying houses they couldn’t afford didn’t rent instead.