Debunking the Ownership Myth

Home ownership vs renting. Which is better?

The age-old debate over whether buying a house makes more financial sense than renting is rife, especially as the prospect of home ownership is slipping further and further out of reach for millennials not only in New Zealand but all over the world. With the sharp increase in housing prices in recent years, renting has become less of a choice, but a mere reality for many.

A common argument for home ownership is ‘Why would you pay a monthly rent to a landlord instead of building equity in a home for yourself?’ However, in an evolving market, it’s important to consider all aspects of both home ownership and renting, over a long period of time. As Camilo Maldonado states in his article 3 Reasons Why Renting A Home May Beat Buying, in today’s economy, owning a home may actually be less advantageous. Let’s take a look at what both sides have to say, and why owning your own home in today’s market may not be all it’s cracked up to be.

#1 There are hidden costs associated with buying your own home

At first glance, mortgage payments may appear to be slightly less than your weekly rent - but the weekly mortgage payment is only the beginning. In addition to the down payment, there are:

• Mortgage Orientation Fees (fees you have to pay upfront to the bank in order to process a new loan)
• Mortgage Interest Payments
• Homeowner’s Insurance
• Property Taxes
• Maintenance and Repairs
• Realtor and Lawyer Fees (if you decide to sell)

‘every dollar you pay in rent is a dollar you’ll never see again.’

Not to mention an array of other costs that can crop up over time. A common argument for house ownership is ‘every dollar you pay in rent is a dollar you’ll never see again.’ Sure, the money you pay towards your mortgage each week is going towards investment, but like a weekly rent payment, the associated costs and fees are ‘dollars you’ll never see again’ that aren’t helping you build equity. Besides, weekly rent payments isn’t money wasted down the drain - you’re paying rent in exchange for a place to live. How can having a roof over your head for you and your loved ones be money ill-spent?

#2 Renting might actually cost less in the long run

When looking at whether to buy or rent, it’s important to calculate the aforementioned costs. In addition, you need to take into account the amount of time that you are going to live there. Chances are, if you’re there less than five years, the closing costs will offset the growth in the home’s value, and you will end up losing money. Not to mention that most of the mortgage payments at the beginning of your investment go directly to interest, rather than building your equity. On the flip side, if you stay in the house for twenty years or more, with inflation and changes within the property market, it’s likely that you will benefit from it. But are you at a stage of your life where you are willing to settle down in one place for that long, solely for an investment?

#3 Lifestyle vs Reality

With a big disparity in housing prices depending on where you live (small town vs city, vs country etc), many tenants are able to afford to live areas they would simply not be able to afford to buy a property. It’s all very well to say you can afford to buy a house in Fielding, but if your job requires you to work from a city like Auckland or Wellington and you don’t have a burning desire to swap hipster cafés and barista quality coffees for the charming country lifestyle, chances are you won’t be able to afford a house in the big city. And that’s okay! Incorporating your own individual values and lifestyle needs should play a big part in your decision to buy.

As Martin Kovacs states in his article, it should be kept in mind that investments that provide financial returns are not the only sorts of investments that can be made, and that the experience gained by following other paths may well prove invaluable.

it should be kept in mind that investments that provide financial returns are not the only sorts of investments that can be made, and that the experience gained by following other paths may well prove invaluable.

Renting allows for greater flexibility to move around, head overseas, relocate for work, or embark on a new area of study - invaluable experiences that might be harder to do if you were tied to a house.

In today’s housing market, there are many reasons why it makes more sense to rent, rather than buy. Unlike the previous generations, owning your own home is no longer a norm, or an attainable reality for many. Choosing to rent may well be the smarter choice for the future.

For those of you who are sceptical then this might be of interest.

What do you think? Do you think home ownership is just as important as it used to be? Let me know below in the comments.