Treehugger - Latest Comments in Is Home Ownership a Good Thing?

Re: Is Home Ownership a Good Thing?

LDSewell — Sat, 05 Nov 2011 09:17:08 -0000

Different options are best for different people. Everyone is not the same, never has been and never will be - so trying to force any one point of view on other people is just not going to work. I do think that it is becoming more apparent to more and more people that what most of us have been doing isnt truly in our best interest - especially with housing.

Housing costs and all associated cost take up much of our income and make it very difficuclt for many families to have much of a life these days.

If we look at housing without blinders on, with an open mind, we see there are many different options available to better meet the needs of almost everyone. You are free to choose what works best for you, what you believe and what you dont. My own beliefs on housing have developed over the years to form the viewpoint I have now, which is this;

The best housing choice is the one that meets all needs without exceeding them, and remains as small as practical to do so.

Ideally it is also paid for - no mortgage - no rent - no payments to any mortgage company or landlord.

Some ways of having a home that is efficient and affordable are a bit extreme such as living on a boat, or in an RV, converted van or bus. Others are a little less extreme, but still very effective - such as living in a very small house - the size of some storage sheds for example.

In all cases it means lower utilities, and additional costs. This frees money up to go to other things - hopefully paying off any other debts for example.

The less debt, the more freedom - the smaller the home, the the less it takes to heat and cool it - the more efficient it is.

Just a thought.

Re: Is Home Ownership a Good Thing?

Josh — Sat, 06 Dec 2008 15:37:51 -0000

@ Jessica:

Not quite sure what you assumptions are and how you did your calculation-- seems to me it depends on how long you stay in one place. Landlords have the advantage of owning a building for longer, so they are not paying interest on the current value of the building, which is why rent can be cheaper than the mortgage. If you plan to do the same, you can also reap that benefit.

Disclaimer: The following calculations all depend on your personal situation (income, % available for investment, rent/ownership costs: heating, water, electricity, maintainence, housing & renting inflation, frequency of moves, family size changes, etc.) I have ignored many of these factors, but feel the trends still hold.

Rent goes up over time, while mortgages do not. Have you factored that into your calculation? For example, a $120k 30 year fixed mortgage in the midwest with 6.25% rate, property taxes and PMI is $900. A lesser quality, same sq ft apartment is $650-700. I'll be generous and take the lower. If I were to go similar quality finishes on the rental and included the cost of maintaining & condo fees, I'd approximate the same price spread. At 4% annual increase in rent, in year 8, the difference is $10/mo. After that it costs more to rent.

We could say that we have a 50k/year household income and a fixed percent (6%) of our budget to invest and in year zero that's $250/mo. With renting and buying, on average, prices tend to track rises in wage (4%), both just beating out inflation (3%). So, we keep the same percent year after year to invest (250+1.04)^year. With a mortgage, the amount we pay for housing does not increase year over year, meaning we have a greater percentage of our income to invest every year. Time invested magnifies any differences in the two scenarios, so I'm saying we'll stop counting at 30 years. I have not factored in a change in mortgage due to PMI, changes in property taxes, or any tax advantage from mortgage interest. With no down payment, if we get an 8% return on invested money, there's 1.23 times as much money saved being an owner. If we get an excellent 12% return on investment, it's nearly a wash. I recognize that no down payment skews the numbers in favor of ownership. With 10% down payment invested at 8% from day one as a renter, the invested money is about the same, but the mortgage payment would also be lower (and PMI would expire sooner), freeing up more money sooner for investment as an owner. However, that doesn't account for the equity building in the house at an average of 4% a year, which nearly doubles a zero-down investment compared to the renter's investment at 8%, and still more than offsets a 20% down payment investment, even without an adjustment for PMI and lower mortgage payments.

So, if what you are saying is to stay in your apartment, start from scratch, invest 6% of your income at 8% return until you can afford to buy a $120k home appreciating at 3% a year, it will take you 21 years to do so. If the house is appreciating at 4%, it takes 24 years. After that, you reap all the benefit of the house appreciation plus you can now sock away the rent + investment. House price at 30years,3% (291k) + 9 years investment at 8% (116k) + rent ($982k equity plus investment. Inflation adjusted, that's like having $213k more at you disposal today. Both cases, you get to continue to live in the house nearly rent-free after you pay off the mortgage. Isn't that a sweet deal on its own? If housing moves at 4%, it's even more favorable to live there from the beginning.

Yes, paying for interest is expensive and by no means should one finance a car for that reason, but a house is a leveraged investment. Rather than just socking away the difference in mortgage minus rent at some potentially higher return, it's like you're investing the purchase price of the house for the time you own it. A huge amount at 4% for a long time can beat out the small difference gained in the first decade by renting and investing, even at high returns. Back of the envelope, the first and most expensive year, if you're paying 6% interest on $120k, that's 7.2k. In that same year, if the house appreciates 4%, It offsets 4.8k of that lost interest. And every year after that, you're paying down more of the principle, meaning you're spending less on interest. As you're aware, most of the mortgage principle is paid off in the latter years of the loan. There's a break even point at which time the house appreciates more than you've paid in interest for the year. The return accelerates for both reasons from that point on, too.

The article was about mobility of workforce, though. Assuming one can buy and sell at will and does not upgrade housing when moving, there is a realized loss due to seller's fees (up to 6% purchase price) and bank fees on the new loan. This may very well offset any equity built by the house, especially if moving every 2 years. In this case, continuously refinancing an ever-increasing principle (due to other properties building equity), it would make more sense to rent.

Re: Is Home Ownership a Good Thing?

Erik — Tue, 02 Dec 2008 02:30:48 -0000

Living close to the land, having solar access and being self reliant. Living in community, producing energy, and depending on each other. It is the great divide between Sarah Palin and Tina Fey. We don't understand each other. Common sense as a opposed to being smart. Single family home vs high rise apartment. If we look rightly we see that it is different paths to the same goal.

Sustainability-living the best you can. Not taking more than can be replenished. Living in harmony and balance. Being a steward of our resources. We may not understand the difference between the rural and urban stewardship.

Killing a wolf from a helicopter may seem appalling to an urban dweller, yet it is vital to restore the balance to nature. Living in polluted overcrowded cities is unbelievable to rural people but it allows us to produce products to conserve and harness clean energy.

Ownership is merely a financial arrangement or is it? Security, personalizing and making your own decisions are empowering. Owners can make green choices. Renters can make choices only inside their walls. Or can they? Co-op gardens and food co-ops can be very empowering to members. Choice is green while ownership gives more choice renters can make green choices as well. Co-op can even present more green options than sole ownership.

So be green in your own way, be sustainable and make good choices no matter where you live.

Re: Is Home Ownership a Good Thing?

Jessica — Mon, 13 Oct 2008 00:09:09 -0000

To all of you writing that owning a home is cheaper than renting if you can afford a down payment - please consider the cost of interest. I would have to live in my current apartment for 32 years to pay for the interest on a home, and an extra 15 to pay for the cost of the home. Instead, I can start early, save up, and pay cash while living in an apartment, and save almost $100,000!

Re: Is Home Ownership a Good Thing?

alowishus — Wed, 16 Jul 2008 19:29:14 -0000

This is an old post, but after reading the comments I felt like that it was missing one point of view.

My wife and I live in a newly renovated two-bedroom apartment (with a garage parking space) in Oakland, CA. It's within walking distance of shopping and restaurants and a few nice parks. Our rent is $1575 a month, which includes parking, water and garbage. It would be nearly impossible for us to purchase a house in this neighborhood for that amount. Most small two-bedroom homes sell for around $750,000. We could find cheaper, but we'd be looking at crappy, even dangerious neighborhoods far from shopping, dining and parks. We'd also be looking at homes that would need considerable construction work.

In the end, we'd be paying more money for a home that would require a lot of construction work and would likely be far away from shopping, dining and parks.

In places like the San Francisco Bay Area, where there is such a huge gap between rents and mortgages, buying really doesn't make any sense.

And at any rate, anywhere I'd like to buy a home, from nice neighborhoods here to nice neighborhoods in Portland or Seattle, are pretty expensive. Perhaps we could find a great inexpensive place near a cool downtown in another part of the country, but then we'd be thousands of miles away from friends and family.

So yeah, renting or owning a home: Both meh in expensive areas.

Re: Is Home Ownership a Good Thing?

Roger — Sat, 17 May 2008 11:31:59 -0000

Home ownership to me just seems unfair. You have to open up so much of your private records and your life to these banks and other instiutions just to get a loan. But, what do they bring to the table? Do you get to see their credit ratings? I don't know, but this home ownership thing is just a way for corporate America to keep the machine running to fatten the elite. At least when I rent, I have the freedom to leave that community when I want, and become just as vested and interested in the new community that I'll move to.

Re: Is Home Ownership a Good Thing?

Stephanie - Green at Home Mom — Fri, 04 Apr 2008 16:19:28 -0000

I fully intend to own someday. We rent a house right now, and I just can't picture going back to an apartment. I love the flexibility of a home.

This home didn't always have some of the advantages we enjoy right now. It's in southern California, so buying is impractical around here anyhow. But when we had major freezes two winters ago kill off the flowers our landlords had landscaped with, we were free to put in a vegetable garden. Can't tell you how wonderful that has been.

There's more we'd do if we owned. Tear out more space for gardening, for example. I like the amount of lawn we have, as it's just perfect for the kids to run about, but much of the yard space is just waste without a garden.

And that's the big thing that makes me want to own a home. The sheer advantage to being able to make our own decisions to green up the place would take care of many of the things that drive me nuts about renting.

Maybe in a year or two, the way prices are going down....

Re: Is Home Ownership a Good Thing?

ladysea — Fri, 28 Mar 2008 15:20:19 -0000

I agree with Kasa, I love to grow my own foods in my garden, compost, and recycle. I live in a century home in a small town in N.E. Ohio. I love the idea of "recycling" an old house and greening it up. I agree that it's about "how" you live as much as where you live.

Re: Is Home Ownership a Good Thing?

Benjamin Franzmayr — Thu, 20 Mar 2008 20:14:44 -0000

I feel that cohousing is generally more environmentally friendly (and fundamentally more resource efficient) than conventional single-family houses. This is the case whether you rent or own in those situations. High density conventional rentals certainly are resource efficient in some aspects - land area, close to city centres, some shared facilities - but are certainly not as good as they could be and there is little motivation by the owners to spend money to reduce environmental impact. I also see the advantages of home ownership (and want to buy a house this year).

The best of both worlds can be achieved with cohousing, whether it is using standalone houses in a plot in the country or inside an apartment building. All cohousing I have seen so far involve ownership of the house/land. I think that rental cohousing has a lot of potential in reducing the overall costs of renting and reducing environmental impact. If renting is combined with "energy service" provision (ie paying for energy services like a warm temperature or cleaned clothes rather than electricity and washing machines) then it is in the interest of the building owner & service provider to reduce energy costs and environmental footprint (ie use efficient heating/ passive solar heating etc).

I plan to do this myself one day - build an eco cohousing rental project where resources can be shared (laundry, cooking, luxuries, lawnmowing, common rooms, workshop, vege garden, internet access, car pooling etc), tenants pay an all-inclusive price that includes energy services like heating and economies of scale make environmentally friendly technologies and practices economically viable (ie solar hot water, high insulation, energy efficient lighting, greywater use, recycling & waste minimisation, maybe solar PV). I believe that this would not only be economically viable but a very desirable place to live because it would decrease overall rental costs while making available a social community and shared resources that individuals would not be able to afford.

Re: Is Home Ownership a Good Thing?

Brian Yalung — Thu, 20 Mar 2008 15:32:31 -0000

It is really a dream for anyone to finally own his own home. But apparently, a lot of financial considerations come into play. That along with the governing ecological conditions, you just got to sit down and see the feasibility of it all. Dont let your emotions dominate the practical side of everything.

Re: Is Home Ownership a Good Thing?

Kasa — Thu, 20 Mar 2008 15:27:04 -0000

I'm amazed that everyone has mostly brushed past the very real material and psychological benefits of owning a home.

Yard and the accompanying ability to garden.

Ability to own pets.

Ability to green your house (I can't even hang my clothes up to dry in my apartment, since I live in damp, moldy Seattle).

Security in knowing you're not going to get kicked out of your living space when your landlord decides to sell or convert to condos.

The power to control what your living space looks like. Want to hang a picture? Do it. Want to paint your bedroom? Do it.

I don't disagree with any of the points made above, but these are certainly things that can't be overlooked.

Re: Is Home Ownership a Good Thing?

Doug (the original) — Thu, 20 Mar 2008 14:34:33 -0000

Yes, there are many more variables that must be applied - future value, lost opportunities, etc. Feel free to do the complex math and post it, this was just back-of-the-envelope.

stevejust - housing density does not mean a smaller footprint. Everything you use must be pumped in, trucked in... it all has to be brought to you. Then your air must be forced in (in a highrise), and your fluid waste must be processed in a treatment plant. The concrete that makes your building has a very high embodied energy. In the country you can put up PV panels, plant a garden, get your water from a well, and dispose of your sewage in an energy-free septic system. I discussed this on the Treehugger forum here:

http://forums.treehugger.co...

Re: Is Home Ownership a Good Thing?

stevejust — Thu, 20 Mar 2008 13:25:08 -0000

Doug and others:

I live in Los Angeles. My rent is $1750 for a tiny place, about half the size of my old 3 bed 2 bath house with a swimming pool in Dallas Texas for more money than my mortgage was.

But to buy an equivalent place in Los Angels in the area I live (I ride my bike to my office in Beverly Hills), I'd pay about $550,000.

Do the math.

The discussion when it comes to economics cannot be held abstractly. It is entirely dependent on far too many variables.

That said, there is one constant: housing density is always going to mean a smaller footprint on the planet -- literally and figuratively. That's just common sense.

Re: Is Home Ownership a Good Thing?

brennan — Thu, 20 Mar 2008 12:19:11 -0000

Wow Doug! Those numbers are low. Where do you live, a village in Mexico?!

Re: Is Home Ownership a Good Thing?

Doug — Thu, 20 Mar 2008 01:15:37 -0000

From personal experience living in my home is much cheaper.

Mortgage $250 (includes property taxes)

Electricity $12

Natural gas $15 (winter goes up to $65)

Water $14

Trash $0 (that's what recycling and composting costs)

Apartment based upon my friend's costs that I know of:

Rent $450 (includes heat, trash and water for a 1bdrm)

Electricity $30

That also means no lawn, less storage space, smaller size, really close neighbors and a deposit landlords often try to screw you out of.

When she moves out she'll reclaim nothing on what she paid, I'll receive whatever I get from the sale. Maintenance costs are really low on average as there is seldom anything that requires major work.

Re: Is Home Ownership a Good Thing?

Terry Fawkes — Wed, 19 Mar 2008 21:11:05 -0000

Let's rephrase the question: "Is urinating on yourself a good thing?". Think about it!

Re: Is Home Ownership a Good Thing?

LisaB — Wed, 19 Mar 2008 17:39:53 -0000

Doug the original - to be fair you should add a few things to the home ownership tally that are included in rent: water bill, sewer bill, garbage collection, property taxes, and property maintenance (snow clearing, lawn mowing, repairs, etc. In my case heat is also included in rent but that varies by place.)

Also - the rent/mortgage price difference varies by place too. The mortgage payment on a place like mine would be double the rent I'm paying (but I live in whacky Vancouver which isn't the norm) plus strata fees plus property taxes.

Re: Is Home Ownership a Good Thing?

someone — Wed, 19 Mar 2008 17:13:41 -0000

I think you're missing a zero at the end of those numbers Doug.

Re: Is Home Ownership a Good Thing?

Robert — Wed, 19 Mar 2008 17:12:46 -0000

Renting vs. Buying decisions based purely on a financial analysis depend on market conditions, the individual and of course, the location.

The analysis may come down one way or the other but it needs to include maintenance, insurance, taxes (both saved and charged), replacement costs, opportunity costs, asset appreciation, etc. and is jut not as simple as adding up mortgage payments and rental payments.

Re: Is Home Ownership a Good Thing?

Scott B — Wed, 19 Mar 2008 16:43:10 -0000

Home ownership is a like many things: good and bad. Living spaces are so different it is difficult to broadly paint houses as bad, condos as good, etc.

I own a duplex which was my first house. Now it is a rental, and I maintain it with as much eco-sense as is feasible. I built a new house, a very green new house in a vibrant downtown, and I love it. It is great to have the opportunity compared to former rental days to make all of my decisions to go as green as possible on my own properties.

Property ownership also allows financial freedom if done wisely. Most people don't understand that residential real estate is a long term investment vehicle and not a liquid asset that can be sold at any time. If done right, you can own a house in less than 15 years while typically experiencing growth in value and tax sheltering. This is a very green thing, because it gives people the ability to provide their own version of green to their own housing, and may help them afford many of the green products that cost a bit more, eco cars, clothes, food, etc. are not typically as cheap as there basement price alternatives.

Re: Is Home Ownership a Good Thing?

itmaybejj — Wed, 19 Mar 2008 14:59:09 -0000

Doug: you are missing two critical data points: maintenance costs on the house, and investment return on the money the renter did not spend on the downpayment and closing costs.

When you include those, renting almost always comes out on top for periods of 1-5 years, and owning for 10+. The New York Times has a great graphic to illustrate this.

Re: Is Home Ownership a Good Thing?

Doug (the original) — Wed, 19 Mar 2008 14:32:56 -0000

I was putting my numbers together while Doug posted. I see we agree on this.

Re: Is Home Ownership a Good Thing?

Doug (the original) — Wed, 19 Mar 2008 14:29:48 -0000

30 years of apartment living:

Year 1 rent + renter's insurance per month: $1150

Year 30: $ 2556

Total outlay: $ 52,793

30 years of home living:

Year 1 mortgage + homeowner's insurance per month: $1500

Year 30: $ 1567

Total outlay: $ 45,292

This assumes loss of mortgage insurance in year 10; 3% cost increase yearly on the rent; 1% annual increase in renters/homeowner's insurance. Both homes are about the same size.

Does not include mortgage tax deduction, which drives the homeowner's total outlay down by thousands. Does not include tax increases for the homeowner, which increases total outlay. Tax increases are included in the rent. At the end of 30 years the homeowner owns a home worth hundreds of thousands.

Home ownership is an important "3rd leg" for retirement; 401K, pension, social security comprising parts of the other 2 legs.

Re: Is Home Ownership a Good Thing?

Doug — Wed, 19 Mar 2008 14:06:51 -0000

It really boils down to how you live. Paying a mortgage is cheaper than renting. Apartments are huge heat sinks but houses give you the luxury of planting trees for shade and adding upgrades like awnings or more modern furnaces and water heaters.

Sprawl is often the result of cozy relationships with developers and the government officials they bribe. Here in town a protected wetlands is being destroyed for a housing development but a new wetlands will be developed at taxpayer expense somewhere that's currently less desirable for the developers. The politicians like the sprawl for the added tax revenue. The actual demand for housing really doesn't matter since there is already a glut of unoccupied housing. Much of the housing is built on old farmland so the developers get tax subsidies from the federal government for simply building there. So even unoccupied housing pulls in a profit.

Re: Is Home Ownership a Good Thing?

PhilosopherP — Wed, 19 Mar 2008 13:54:57 -0000

As someone who recently moved to be closer to her job, I am sure my carbon footprint went down. Had we owned a home, we wouldn't have sold it, but our apartment lease gave us the flexibility to move out and move to a smaller place that is closer to work -- now, instead of a 60 minute round-trip commute, I am under 5 minutes from work.

Also, there is a common assumption that money paid on a mortage is money saved somehow... but, especially on newer mortages, most of it goes to interest and very little to principle. Also, the assumption that your home MUST increase in value has driven the recent housing bubble... and many people aren't getting their money back after the burst -- and really, should they? I don't see how it is sustainable to assume that you'll get your money back -- because, in essence, you'd then be living for free. That increases home prices etc. The only affordable homes become the newest ones way out in the exhurbs... thus urban sprawl.

I also agree about energy efficiency. If that is your concern, look for apartments with shared HVAC -- the landlord has a huge incentive to keep that efficient and to design buildings with appropriate insulation. Our new bulding has heat and AC included, we have a large shared system and it works very well. My electric costs are about $35-40 US per month -- not bad for 1,000 square feet.