Creative Class

Commenting on this earlier post, Jack Burns writes:

Renting is a service I gladly pay for. We spend about $40 a day for use of a nice three bedroom townhouse on a quiet street, with a private yard, a larger park for kids in the complex and a city park 5 houses away. The AGO is at the end of the street. Walk to work, got rid of the car and no equity buried in concrete, dirt and drywall. I like my equity earning interest and dividends and accessible when I need it. I also like having money set aside for a surprise like a weekend trip to Manhattan, or a night at the Opera instead of a blown water heater or a leaky roof. I know many homeowners and they like it. It enables you to be fixated on a world of a couple thousand square feet knowing you need not think beyond that world. It’s very comforting, like being a religious fundamentalist.

When should you rent versus buy? It’s a question lots and lots of people are asking these days. Armed with intriguing new post-crash data on the relative costs of renting versus buying, The New York Times’ David Leonhardt suggested that the significant decline in real estate prices was making buying a home a much better proposition in a growing number of communities across the country. (The Times offers a great interactive rent-or-buy tool, if you’re currently thinking about this).

Leonhardt’s analysis provoked an intriguing debate among many of the web’s most thoughtful economics commentators. Ryan Avent, writing at Free Exchange, urged caution. Felix Salmon thinks housing prices still have a ways to fall, especially as inflation eats away at them. Robert Shiller, the Yale economist who initially identified the housing bubble, and the tech bubble before that, also believes real estate prices may still have further to fall. Leonhardt replies thoughtfully here and here.

(more…)

Declining housing prices combined with (artificially) low mortgage interests rates are combining to bring the costs of owning more in line with renting, according to the Wall Street Journal (h/t: Alison Kemper):

The relative cost of owning versus renting is swinging back in favor of homeownership in some U.S. markets, buoyed by several quarters of sharp declines in home prices. At the height of the housing boom, as home prices surged, demand for rentals started to rise as the gap between owning and renting widened significantly. Even after the housing market soured, apartment demand grew as former homeowners became renters, allowing landlords to push healthy rent increases.  Now, after two years of rapid home-price depreciation, the relationship between the cost of rental payments versus after-tax mortgage payments is tilting toward ownership in a number of metropolitan areas.

True, when you factor in massive government incentives for homeownership, and that is only in certain markets. But this kind of thinking misses the bigger issue of the long run. In addition to the issue of month-to-month housing affordability, homeownership carries with it a second, longer-run cost – the cost of exit. In a mobile society, people need to be able to sell their homes. Take the example of homeowners in say Pittsburgh or Detroit or just about any market these days. They got a great deal on a wonderful, affordable home, but then their employment dries up. They’re offered a job say in Seattle or Washington, D.C. and need to move. But they’re locked into a house they can’t sell. If they were renters they could easily up and move.

In today’s economy, many people are better off paying a considerable premium to rent, if they think they might need to move for career or family or lifestyle reasons.

And I continue to believe that we need to put in place a new housing system which can and should make renting easier, more flexible, and even more affordable.