Why you should care
You can be happy renting — and happier than owning. Really.
I love my home, but I often ask myself: Whatever possessed me to buy it? It has to be one of the dumbest financial decisions I’ve made. And I did okay. I didn’t miss mortgage payments or milk the house for cash, and my neighborhood’s value remained fairly steady through the housing collapse. But I fell for it — I just wanted to own my own little piece of America.
Meanwhile, if I hadn’t bought a house I’d be taking a lot more vacations in Hawaii, like I did the last time I was a renter.
Before we scrutinize my numbers, let’s assess the nation’s math. Each year, the mortgage interest deduction costs about $70 billion dollars in lost tax revenue. Seventy percent of that goes to the top 20 percent of earners, while just 2 percent goes to the bottom 40 percent of people. If the goal of the deduction is to help the middle class buy houses, in other words, it doesn’t help much. “The deduction is mostly captured by people who would have bought anyway,” says Mark Calabria, a housing finance expert at the Cato Institute, who argues that government policy shouldn’t steer people to buy or rent.
Maybe the rich would end up buying smaller houses without the subsidy. But, hey, that would be a good thing. Even if real estate agents and the building industry scream over it, big houses are environmentally destructive. They chew up more resources to get built, and they’re wasteful to heat, cool and light. So let’s not subsidize them.
As for me, I doubt I’ll make a dime on my house, even though the value keeps going up and I get a tax break every year. It’s needed new paint on the walls, windows and a furnace — not to mention a new roof. We were also foolish enough to build an addition and put in a new kitchen. Sure, that adds value, but not enough to pay its way.
If creating wealth is the goal, you’d be better off renting and putting that mortgage money into a stock market index fund every month.
I’m not done, yet. Even though I’m pretty handy, there’s still the odd plumber or electrician who has to show up, or the guy who charged $100 to tell me he’d fix my washing machine for $500 by installing a $150 part. Rake the leaves, mow the grass, clean the gutters, inspect the furnace, trim the trees, wash the windows, shovel the snow. And, at the end, pay a 5 or 6 percent commission to the real estate agent to get rid of the thing. Owning a home just ties you down.
To be sure, owning a home is probably a good thing for most people, says Richard Green, director of the University of Southern California Lusk Center for Real Estate. It helps many to save money, although that’s less true than in the past, since so many people refinance and take out cash. Still if creating wealth is the goal, you’d be better off renting and putting that mortgage money into a stock market index fund every month, since stocks grow faster than home values. For most, buying a house is a lifestyle choice that costs money. “It’s a consumable,” Green says. Some studies suggest homeowners exhibit socially desirable behavior, but that could be because people who behave that way buy more houses.
Homeowners in other countries take a different approach. In Australia, Ireland, Spain, the United Kingdom and Canada, people own lots of homes with less government support. About 64 percent of Americans own homes, after peaking at 69 percent in 2005. In Germany, only 43 percent own their homes, partly because homeowners can’t deduct their mortgage interest from their taxes. Renting doesn’t seem to have hurt the country.
Let’s take all that $70 billion we waste on housing and build better roads, trains, subways and schools, or cut tax rates. I’ll sell my house, and maybe my car, and find my way back to Hawaii. See you on the Nā Pali Coast!
Homeowning: Good or bad? Go!