I talked last week about home ownership and asked the question, should you own a home? Because of skyrocketing housing prices, a lot of people have made a lot of money in real estate. Most of those a lot of people are older, and most of them are likely parents.
This is how advice becomes traditional wisdom. when it’s passed down with certainty, because it worked for them.
Let’s look at how we got to this position. After the Second World War, a global surge in urbanization drove millions upon millions into cities. Cities grew astronomically, and with little future planning. Converting farmers fields into barely serviced suburbs isn’t particularly taxing on municipalities. That is, until you run out of room, or you get so big that you’re an unwieldy mess. Vancouver is an excellent example of the former and Toronto is a great example of the latter. So what happens when something that seemed endless, like building houses, suddenly becomes very limited? Prices skyrocket. It’s a matter of supply and demand, if there’s not enough increase in housing supply to match increasing demand from a rising population, prices will increase.
Owning a home can be a great decision, but what I want to challenge is that it’s an inherently great decision. Mobility is an incredibly powerful tool for achieving your goals, whether it’s moving for a job, finding a lifestyle that you love, or just trying something new, having the option to move can be extremely powerful. Home ownership often ties you down to a specific area, especially when prices are volatile, and you end up overpaying for a home.
Renting isn’t for everyone, the same as owning isn’t right for everyone, whether you choose to rent or own, what’s important is that you choose what’s right for you. Renting affords you more flexibility, you can always choose to move without worrying about selling a property, the price said property will get, and the associated costs of selling and buying real estate. Renting can also be cheaper then owning. Tenants aren’t responsible for overall maintenance of a property, upkeep on a property isn’t always cheap.
Owning a home is an enforced savings plan, if you pay off your mortgage then you have an asset. This can be simpler then contributing to an investment portfolio as an example. However that doesn’t mean it’s more effective. Renting combined with a disciplined savings plan can be far more effective then relying on the housing market. Especially considering that it’s far more difficult to access the equity in a house compared to selling a stock.
No matter what you choose to do, what’s important is that you choose what’s right for you. Don’t stress because you rent your home, what’s important is that you make decision that get you closer to where you want to be.