A great thing about Peter Schiff’s lecture at the ASC was his promotion of renting over buying. There is nothing in the structure of the universe that somehow makes owning as versus renting an abode the morally and aesthetically right choice. I could never understand this hysteria about home ownership as some kind of human right, the fulfillment of all earthly desires. Of course Truman promoted this, but on the Republican Right it was Jack Kemp all the way back in the 1980s who made this a core claim of right-wing theory. It was completely bizarre. He was running around the country demanding that everyone be given a home to own, and then as HUD secretary he finagled regulations to make it happen.
Part of the idea is that anyone who is renting a home is seen as underprivileged, unfulfilled, probably oppressed, and in desperate need of rescue by the federal government and Jack Kemp in particular. Why? It was never really explained. We just woke up one day and it was true. This continued through the Clinton administration and up through Bush II, with the absurd “ownership society” which was really the “theft-based society” given the means by which this ownership was to come about!
Maybe, just maybe, this is starting to change. See this nice Boston Globe piece. “Renters enjoy flexibility and freedom from the responsibilities of maintenance. Given the often overlooked costs and risks of homeownership, renting is in many cases a wise financial choice. And the experience of a place like Switzerland – a well-functioning country with only about a 35 percent homeownership rate – suggests that rental housing per se does not unmoor society.”
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This obsession with homeownership goes back way before Truman. I’ve read that Herbert Hoover played a big part in creating the thirty-year fixed-rate mortgage as a financial institution, with exactly the same rationale: That it was good for society to have as many people as possible owning houses.
No, it’s not necessarily good for society to have everyone own their own home. It is, however, good for the government. It makes it just a little harder to vote with one’s feet. It makes people easy to find in order to tax them. It emphasizes the function of government in providing secure property titles (secure from anyone who can’t use eminent domain to take the title away.)
P.S. I am a homeowner.
I just moved into a rental home with my wife. Everyone was pushing me to buy a house. Even when I explained how it was a bad idea because house prices had falled 10-20% in our area, people still are pushing me. Telling me I am “negative” and just need to be taught how a home is a good investment regardless of the fact of property taxes, maintenance and depreciating value.
I have noticed something different, this time. When I told people of my reasons for not buying a house, they took it personally. When recommending buying a house, they were not so much making a business decision but rather, defending there own decision to buy a house and took it as being arrogant, rude and childish to question there wisdom, especially if they are older or are a “Realtor”. They say, “All you need to do is talk to my friend who is a Realtor and they will fix you up”.
I had a Realtor try to tell me that house prices would go up about 5% this year because the $4,000 tax rebate/loan that new home buyers get, has been doubled to $8,000 and is now not a loan, but is given gratis. Never mind, the fact that one needs a credit score of 720 or better to buy a home. Never mind that those people who have a credit score of 720 or better, are not stupid and are not going to buy a new home.
Go figure.
The myriad of interventions that the state has introduced into the housing and real estate markets has greatly distorted them. Like it has done in the vast majority of markets, the state has distorted the underlying economic reality in the housing and real estate markets to serve its own interests and those of pressure groups, all at the expense of the political minority.
Attempting to arrive at a relatively accurate evaluation of the monetary costs and benefits of owning versus renting has been greatly complicated by this state intervention. However, what ultimately drives the analysis is not only monetary cost and benefits, but the subjective value that individual buyers place on owning versus renting specific units of housing.
Just like it’s better for the government to promote big business with big factories that can’t hide from laser guided bombs.
It is not so much actual ownership that the state is pushing. Indebtedness is the real goal. In order for their system of perpetual credit expansion to continue, more and more credit must be loaned. Home “ownership” is simply a great place to dump lots of fresh credit. The state does NOT want lots of people to actually own free-and-clear property. They need borrowers!
When everyone owns a home. It is easy to rob the citizens by inflation and deflation.
Personally I rather like the idea of owning my own property rather than having to rent it off of a stranger.
Someone has to own the home to rent it. Personally, I think home ownership for its own sake is overrated. Owning rental property is another story.
owning a home is basically a luxury, one which may or may not be worth it to you depending upon your needs, situation, location, etc.
Pretty easy to do a financial comparison, factoring in taxes, mortgage interest and associated tax deductions. whenever i have done this for my needs and location renting has always been cheaper. There are drawbacks to renting, most of them are not financial though. Hence my conclusion that owning a home is a luxury.
Well………. I do blame other factors for the raising home prices.
We simply do not live in a free market. We live in some kind of socialist/fascist mixed dream world.
Individuals cannot go out to an area that is unowned and mix there labor into it, making it there property, building a home at pretty low cost.
Individuals are forced into cities by zoning laws, environmental laws and the such, preventing anyone really from owning there own home except from taking on massive amounts of debt.
I live in Utah, there is an awful lot of of undeveloped land that is really not owned by anyone except the “state”. I have had dreams of going to some of those areas and building a home and starting a small farm. I could build my own home or have family help me. If I did, I could be arrested and thrown in jail for quite some time.
That keeps the price of housing artificially high too.
I’m not so sure it’s about government control in terms of ease of taxation as much as I think it’s bureaucrats of both right and left thinking that housing is an easy way to show that the government can make you wealthy easier than the boring old ways like saving, hard work, patience, thrift, etc.
Why should people patiently save their money, make sure they have good credit, be frugal, when the government can print money out of thin air, give it to banks for next to nothing, insist that they lend with as low standards as possible, then have agencies like Fannie and Freddie buy up the mortgages as securities. Then bail out the banks and individuals if they fail. It completes the circle of the government being the creator of wealth.
Renting does offer flexibility and I am renting right now to avoid any commitment for the time being. And a sane and objective look at homeownership as an investment shows that renting actually is superior in many cases (especially considering how stupidly people manage their investments of all kinds).
And what is the difference between paying a landlord rent and paying a bank mortgage for 30 years? You don’t really own the property either way and are fundamentally a renter. At best, the mortgagee is renting-to-own, but while they do get some leverage on a potential profit, they also risk the downside loss and have to pay maintenance. A renter can save money on maintenance and invest it and do at least comparably well increasing wealth, plus they can adjust to market conditions.
There is one very important reason to own a house considering the economic situation right now. If hyperinflation occurs, your house (and any other real estate you own) will get paid for for free. Real estate is called real for a reason. This is the one reason I do advocate owning a home with a FIXED rate loan–as a hedge against omnipresent inflation.
Owning real estate is one of the few ways that the common man can survive government inflation. Real estate can be a revenue generating asset, whereas gold is merely a value conserving investment. Accumulating gold will not make you rich, but accumulating real estate is a path for ordinary people to increase wealth if they are careful about it (obviously this is a lot to expect given the recent housing bubble).
But it is true that government and finance have conspired together to make home ownership a lifetime bondage. The ability to finance homes on longer and longer terms allows bidding prices up and saddling yourself with servitude. Government promotion of home ownership is encouraging slavery and crushing debt.
Once upon a time, people paid cash for land. Prices were necessarily cheap and we called this the land of opportunity. Mortgages required 50% down payments and only lasted three to five years. But then the government “helped” farmers buy the farm in more ways than one and we started the cycle of encumbering debt.
Over time, the loan terms extended and the down payments decreased until people went from buying property to merely leasing property. Since people still had the same basic means to buy with, lengthening the terms of loans meant prices were increasing. The market would put a brake on the price of real estate based upon supply and demand, but government intervention with generous credit allowed the price of real estate to grow without bound.
We think real estate is overpriced by 20 or 30%? Really it is overpriced by 2 or 3 times what it would be in a gold standard economy. If people could not get government money for a 3% down, 30 year loan they would have to go back to 50% down, 5 year loans. Houses would certainly be more modest (like the impossibly small houses of the 30′s, 40′s, and 50′s), but they would also be much cheaper. People really would own houses, too.
Buying a house in a hard money economy would be like buying a car in our fiat money system. Would it be good if young people starting a family could actually pay off their home before they turned 30 and be saving for their kids college and retirement? Would our economy be stronger if everyone who wanted a house owned it outright and invested the other 25 years of mortgage interest in something else?
Am I asking rhetorical questions, or do you need some time to think about it?
Jason said
“We simply do not live in a free market. We live in some kind of socialist/fascist mixed dream world.”
I’m calling it…..
The United Socialist Plutocratic States of America
USPSA!
Go USPSA!!
My dad has always pointed out that renters and homeowners do about the same in the long run – on average. I own a house (well rent to own…) because I can do the maintince myself.
Renters still have to pay taxes and maintence. However the amount they pay is fixed, while the costs come in lump sums.
If I can live in the same place for 30 years I will own it outright. With inflation I expect I will soon be able to pay off the origional cost for a months wages. Rent is very likely to go up.
Again, both renting and owning have pros and cons. Don’t listen to the hype, decide which is right for you.
I think this truly depends on the rental environment.
In a large city with dense development, it’s in your best effort to rent. This is due to simple math (rent is usually cheaper than equivalent cost of ownership, even by as much as half), and also because you’re not stuck in a tiny flat for 30 years. You simply move at the end of your lease if you find a better deal, don’t like your neighbors, or don’t like your landlord. The opportunity cost is lower.
However, where I live now, the opposite is true. It’s a mid-sized college town. The rental property is bid up by students, and there is an abundance of land. In this case the simple math is reversed: rent is much more expensive than ownership. The neighbors also tend to be nicer, so it makes more sense to “put down your roots”. There are also more than enough choices available in either urban, suburban, or rural housing so the opportunity cost of renting is largely negated.
I agree with Dennis that the interventions of the State have greatly distorted the market. I bought my condo in 2006, but my decision making process would have been different had I been introduced to Austrian economics at the time. I crunched the numbers and the tax advantages of homeowning were too good to pass up. I also bought in Washington, DC, and at the time, the rent for a one bedroom apartment was equivalent to purchasing a one bedroom condo with no money down, at least in some parts of the city. That was including the mortgage, mortgage insurance, and property taxes. That is how distorted this market was. I did consider the maintenance of the condo but thought that the tax advantages outweighed that inconvenience. I also believed that the housing market would increase over the next five years so I could profit when I sold. Yes, I drank the entire punch bowl of housing Kool Aid.
But had I read Peter Schiff, Ron Paul, and Mark Thornton among other Austrian economists, I would have known that there was a bubble and I would have had a better understanding of how the State had distorted the housing market, and I would have choosen to rent instead.
Economic Numbskulls
Tuesday, March 24, 2009
Home Rental Undermines Paul Krugman’s Fantasies!
Home ownership is one way the Keynesians can make prices sticky downwards! If people can move around easier it would be difficult to make wage rates sticky downward which is bad for the government protected labor unions and bad for Keynesians who only have one seemingly plausible excuse for their fiscal and monetary intervention.
Face it all you idiot Keynesians, prices are not sticky downwards unless you fabricate those conditions through ego-driven intervention.
Keep your hands off the economy, Keynesian charlatans, and then the only stickiness you will see is the slimy garbage that comes from the mouth of the Nobel Laureate of Wackonomics, your hero Paul Krugman!
I like ownership. just see my avatar! It owns what it has harvested. That ownership is its security during winter. But that doesn’t mean that I advocate owning houses in particular.
House ownership has been a slogan used by right-ish political parties and by many confused with a push for capitalism. But it was simply a part of the FRB/fiat money fraud.
My experience from ‘underdeveloped’ countries is that people very very much wants to own their own homes. And even very poor people do. It has to do with distrust and unsecurity. The point is that they don’t want to depend on being able to pay something every month in order to keep their home. However, as little as they like to rent a home, they’d like to borrow money to ‘own’ it!
The difference between owning a mortgaged home, or renting a home, is only the adress of where you send the check every month in order to get permission to stay there. That is not a substitute for renting in ‘underdeveloped’ countries I’ve visited. That is not what they mean with ownership. They mean independance.
Housing is consumption. Whether through payments of rent (contractual usage), interest (mortgage-ownership) or mainteneance (100% ownership). Pick and choose!
I would also like to add that there is increased risk and volatility in large cities when buying real estate. As the recent bubble has shown, prices increased fastest in large urban areas. Also, neighborhoods can quickly gentrify or experience urban decay.
Small towns don’t have these large price swings, which makes real estate a safer (though less profitable) investment. I would say that low-risk is a desirable attribute for a primary residence (or any item required for daily survival).
I see two big reasons to own:
1. You don’t need to worry about a monthly payment.
2. You don’t need other peoples permission to do what you want with the property.
But between city restrictions and 30 year fiat mortgages driving prices out of reach for anyone, both of those are absolutely dead. I dare anyone to try buying a cheap piece of land or to build an inexpensive home peace-meal. Or even to put a temporary trailer on it.
I should say that “my avatar” is a squirrel. Not visable here.
David C, owning a mortgage home still means a need to worry about monthly payments. Of course you know this. Politicians who have pushed for ‘home ownership’ even for people without sufficent means, do it only to hook people up to The central bank, instead of to a diversity land lords.
Mortgage home ownership is like renting your home from the government!
Ha!
“But between city restrictions and 30 year fiat mortgages driving prices out of reach for anyone, both of those are absolutely dead. I dare anyone to try buying a cheap piece of land or to build an inexpensive home peace-meal. Or even to put a temporary trailer on it.”
My uncle does Free Masonry. He bought his home and wanted to put a brick wall up on the edges of the property. The city came and fined him because his wall was too high. So true.
I think David points out something that is often left out of the “own vs. rent” comparison.
Right now, the cost of renting is well below the cost of owning. I can rent a nicer dwelling in a nicer neighborhood than I can afford to live (Orange County, CA). This is likely to remain the same in the future. As inflation invariably pushes the nominal price of assets (incl. real estate) up, rents are probably going to remain lower than the cost of ownership of a new mortgage.
The key, as I see it, is to buy and hold with a nice low fixed-rate mortgage. Instead of following the trend of ever-increasing house size as you build equity, buy what you can afford up front, keep it 20-30 years until it’s paid off (and your kids move out making it “effectively” larger), and each year as government inflates the dollar the real cost of carrying that mortgage is decreasing.
I have the same view of cars. Get a lightly used car, pay it off as quickly as possible, and hold it until it can’t be driven any more. You don’t NEED a new car every 3-5 years, especially with the reliability of cars. You also don’t need a bigger house every 5 years, so if you believe you’re going to live in one area long enough (or buy a rentable property) to reap the benefits of your fixed mortgage 10 years down the road, you might as well buy (but not yet, because real estate will still go down from here).
@ David C: You’re completely right. I would also add a mention of property taxes; even if you’ve completely paid off your mortgage, try not paying your property taxes and see who really owns your home.
There’s another advantage to renting for me, since I’m single: the maintenance necessary to home ownership takes time. I value my free time and I’m glad that I don’t have to spend it mowing grass, cleaning gutters, painting, repairing, etc.
When I was a kid my parents owned but that wasn’t bad: We all (Dad, Mom, me, two other brothers) could share the work. Obviously that’s not an option for me now.
One drawback to renting that nobody has mentioned yet is the necessity to periodically renew the contract, and wonder how much the rent will be raised and if in fact the owner will continue to offer the unit for rent. Of course foreclosures provide ample proof of the false sense of security that imprudent mortgage holders, who thought they were house owners, had.
I had two real estate professors at Berkeley 40 years ago: the first waited until he could pay cash for his house because his parents had lost their house during the Depression, he bought his first house in his 50s; the other rented his personal residence so he could leverage every available dollar in investment real estate projects to maximize his tax advantages: his company wound up bankrupt.
If you can afford a house, it provides the security of knowing you won’t have to move when the landlord calls; if you can’t afford a house, rent until you can.
i’m doubtful that houses will prove to be a great inflation hedge this time, with respect to other assets.
first, the bubble is just so enormous, and global. second, municipalities and states are going to need to plug collapsing revenues; land tax is hard to evade and easy to levy. i’d be a seller of munis into the recent rally, on the expectation of new bear market lows.
here in australia, the primary residence is exempt from state land tax, but not council rates (this counts most of the voting public); additional properties are an easy target. “soak the rich” is a perennial vote winner. it doesn’t matter that they’re not rich, the important thing is that they’re richer.
One of the best parts of Peter Schiff’s speech was hearing that he practices what he preaches. He tells people to rent and he rents. When politicians are spouting to the public that we need to conserve or live within our means, it doesn’t seem they do it themselves. Maybe if they led by example, instead of making laws, I’d be more persuaded.
The city my house is in has a solid waste code that is over 100 pages in length and, unbeknownst to me when I purchased my house, garbage collection is compulsory and universal. So I have no choice on who collects my garbage, and I can’t even cancel my garbage collection unless the house is vacant. Also, according to the code, I can’t even touch my garbage once it becomes garbage and only city employees can do that. This is just a bit much.
Of course, if I was renting, it wouldn’t bother me at all because I wouldn’t know any better. I’d just pay rent, get garbage with rent, and enjoy the service and not question why or how or any reason behind the garbage service. But not until you own do you learn those burdens it seems.
Great information thanks for sharing this with us.In fact in all posts of this blog their is something to learn . your work is very good and i appreciate your work and hopping for some more informative posts .
In Germany houses are named “Immobilien” The english counterpart does not address this that properly. In english it is named property, which surely sounds good.
So let me try to translate the German meaning. It means
houses makes you immobile. And that’s mostly sure. Fair enough Politicians very fast with putting their hands on other peoples pockets react really fast on that. In Germany arom 2007 the way to work was not allowed to be deducted from you income. They once introduced it to keep apart housing and work, so people were invited driving to work and back. Now if they had reacted they can not just get elswhere, and that was where the politicians tried to get them. Well it was rejected by the highest court . But I bet they’ll looking for the next opportunity to get your money….
I will buy property only when the law will give me 100% ownership rights and I won’t have to pay property taxes or let the government inspect my premises etc.
Given that we still “owe” property taxes to the government, given that the government has full rights over the land, given that the government can inspect the home, conduct search and seizures etc.
Then I will stay a renter and never become an owner.
I will buy property only when the law will give me 100% ownership rights and I won’t have to pay property taxes or let the government inspect my premises etc.
Given that we still “owe” property taxes to the government, given that the government has full rights over the land, given that the government can inspect the home, conduct search and seizures etc.
Then I will stay a renter and never become an owner.
Richard,
“Personally I rather like the idea of owning my own property rather than having to rent it off of a stranger.”
As a property “owner”, you RENT your “property” off of government. If you don’t pay your taxes, you will no longer “own” your “property”.
This is really what rebukes me from buying in the first place, because there is always the risk that government will claim your property for himself.
“Real” estate is not called “real” because it is “genuine” wealth. Instead, it is called “real” because it means “king” in Latin and Spanish. When you “own” real estate, you’re actually subject to the whims of the king and are really a renter.
If you want to own something genuine, buy silver, oil, or gold.
“Real” estate is not called “real” because it is “genuine” wealth. Instead, it is called “real” because it means “king” in Latin and Spanish. When you “own” real estate, you’re actually subject to the whims of the king and are really a renter.
If you want to own something genuine, buy silver, oil, or gold.
“Real” estate is not called “real” because it is “genuine” wealth. Instead, it is called “real” because it means “king” in Latin and Spanish. When you “own” real estate, you’re actually subject to the whims of the king and are really a renter.
If you want to own something genuine, buy silver, oil, or gold.
I find it sad that many people can’t afford their property taxes even though their home is paid for (or nearly so). In Philly, where I live, there have been proposals for an exponential increase in property taxes. This will drive many people from their own homes. Evil, not fair, and criminal. A gang of thieves writ large indeed!!!
BTW, I’m not sure in this climate the property tax increase will happen but you never know.
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