If you read articles about making smart financial choices, you may already be sick to death of the debate over whether it’s better to rent or buy a home. The most obvious problem with the debate is that there isn’t one right answer for everyone on Earth, or even everyone in middle class USA. There are a number of factors that determine which solution would best suit you.
For me, owning a house would definitely be the better long-term solution, but I’m stuck renting because the cost of houses is still so far out of line with the income available to many of us. Loads of people are in the same boat as I am – a whole economic class of US people who make relatively good money but still don’t have the option of buying a home. And every once in a while, when I say so, some home owner pipes up: “Oh, NO, gosh, you have it so easy! We have to pay for repairs! Taxes! Insurance! If anything goes wrong, you just call the landlord and it’s fixed instantly!”
Well, that last bit is a load of bullshit – most landlords in L.A. chose their profession because the rental market was always so hot, they could completely ignore their legal responsibilities and get away with it. The rest is bullshit, too: if you think most renters aren’t indirectly paying for everything the owner has to pay for, you must really believe shops are committing acts of charity when they say “buy one, get one free!” And then there’s the issue that all the money I’m forking over for rent doesn’t do me any future good, while everything the home owner invests is becoming equity. (Home owners are very dissatisfied these days because their houses aren’t “worth” what they were “worth” in 2007. No one even considers the unfashionable possibility of, say, paying off their houses and living without a housing payment of any sort these days, which is incredibly short-sighted. You can often make a house “worth” more than the market value to you if you look at your finances holistically.)
But that’s just the bullshit. Let’s get to the privilege: you can only really “choose” between renting or owning if both “choices” are feasible for you. If renting is your only option – or your only sensible option, for those of us who said “No, thanks” when the banks offered us bizarrely structured mortgages fifteen times the size of our annual income and, as a result, are not currently in foreclosure – then it’s not a “choice” between owning or renting. Duh.
Stella says
I haven’t been able to save enough money to make buying an option either, despite having had a decent job for years. Maybe someday. I do like not being responsible for maintenance, if the landlord is good about fixing things, which is certainly not a given. Of course, the lower the rent, the more likely the landlord is to not fix anything, so the poor get screwed as usual.
I think it’s also worth noting that low income people are less likely to be educated about financial matters, through lack of experience or exposure or opportunity. The ability to recognize that a mortgage offer is bizarrely structured and can’t be a good thing over the long term only comes with awareness and education.
BetaCandy says
Yes, and those people who really couldn’t afford a house but trusted the bankers telling them they could were the first to get foreclosed. The middle classers who knew better, but bought themselves six houses? Those are the ones the banks are “working” with.
Lori says
The fallacy of choice also pervades snark about jobs. The old canard about nobody holding a gun to your head. As you point out, in the real world choice is constrained by feasibility, not ‘coercion.’ Lower in the food chain one’s world is literally smaller; jobs, housing arrangements–even access to information.
BetaCandy says
Yeah, and I hear that crap from middle class people. I just look at them strangely and say, “What’s your independent source of income?” That shuts them up because, generally, they do have one and it never occurred them there are people right with them on earth who don’t. God.
Patrick McGraw says
Right now that’s really smacking me in the face due to people with able-bodied privilege.
I’m a former dialysis patient who was lucky enough to receive a live transplant, so I’m no longer legally disabled and have to get a job. But my options are extremely limited because of the anti-rejection medications that I have to take.
For example, among my marketable skills: I’m a ceritified pharmacy technician. So when I mention having trouble getting a hospital pharmacy job, people decide I’m making the “choice” not to work a lower-paying job at a retail pharmacy. But I can’t work at a retail pharmacy without endangering my life because it would put me into contact with sick people. (Hospital pharmacy techs have no contact with patients.)
BetaCandy says
To both this and your other related comment on the post about job hunting: {{{hugs}}}. It sounds to me like you’ve fallen into that crack between actual disability and what the governments define as disability, because, hello, if you need to avoid sick people, that’s pretty fucking limiting. It’s like someone who’s recovered from a bad construction accident and can now go back to construction work, but with loads of limitations that make him a far from ideal candidate for the jobs he once worked. “Disabled” or not, you certainly don’t enjoy anywhere near all the employment opportunities most of us can safely seek. So {{{hugs}}}. 🙁
Patrick McGraw says
Thank you. The one silver lining is that my anti-rejection meds (the super-expensive part of my condition) will still be fully covered by Medicare for an additional two years, and the recent Health Care Reform means that I can’t be turned down for having such an expensive pre-existing condition.
BetaCandy says
I’m really glad the pre-existing crap will be done away with by the new legislation. (Still railing that it’s being funded by forcing people to buy insurance rather than through tax dollars, but grateful for any improvements it’s making in people’s lives.)
Scarlett says
most landlords in L.A. chose their profession because the rental market was always so hot, they could completely ignore their legal responsibilities and get away with it
OK, things might be different in Australia – we have a very strong pro-buy culture that goes back to the ‘red terror’ days when the govt thought it would encourage people to be anti-communist by encouraging them to buy stuff that those evil commie bastards could co-opt – but we have pretty strong legislation regarding home maintainance. Like, the landowner has to fix a problem within x days or the tennant can get a professional service and the homeowner has to foot the bill. And there’s a lot of legislation in place which in theory is there to keep a landowner from turfing out someone on a whim/hiking up rent as they please but it can make it damn difficult to make a tennant leave if they don’t want to, even after the lease is paid up. My parents were once out of pocket to the tune of several months rent and about $50K in damages because of that.
Having said that, you have a point: many don’t even have the option of rent or buy and I think it’s a reflection of society that a person in a stable, full-time position, even at minimum wage, shouldn’t be able to afford to buy SOMETHING, even if that something is a 2×1 strata title.
BetaCandy says
I’m not sure what your point is in the first paragraph, but: our laws mostly protect the landlords. I’ve heard some horror stories on their end, but the thing is, to enforce a renters rights EVER in California, you have to hire a lawyer. How many renters can do that? Even if they can, the law is largely against you. And even when the law is totally with you, as it was for me in the two cases where I involved a lawyer, you’re always dealing with huge companies who don’t even feel your piddly little lawsuit or demand letter, let alone think, “Gosh, perhaps we should do what the law says in future.”
Combine this with a crowded city of 4 million, an overabundance of prospective tenants and vacancy rates of less than 1%, and you get a situation in which wronged renters simply move (cheaper and easier than trying to enforce their rights), and the landlord instantly finds a new tenant to replace them, and the new tenant is wronged, moves out, and gets replaced instantly. Why would landlords bother changing their ways? You don’t even need tenants to be ignorant of their rights – lawyers routinely tell you “You don’t have a case” because it’s not big enough money for them, even when you do clearly and obviously have a case.
As for your second paragraph, I’ve always believed that someone at minimum wage should be able to buy a very modest home if they are frugal enough and save up the down payment. But with rent being as high as it is in some parts of the US, no amount of “saving” is going to do it, unless you pile 12 people into a studio apartment and split that kind of rent. And there are laws against that, and landlords can have their own regulations about how many roommates to an apt.
Scarlett says
I was just commenting about how different landlord rights are in Australia so when tennants don’t have the hassle of maintainance, they really don’t, and landlords can be up for a lot if they don’t keep their end up. It turned into something of a rant ‘cos my parents have been the victims of the pro-tennant rights a few times.
I actually get the point in putting a limit on people – we’ll say 2 ppl/room to pull a figure out of my ass. But I also think that if rent is so far out of people’s reach that they HAVE to go more than 2/room – and really, I think 1 adult/room is perfectly reasonable – then affordability on the part of the tennant should be a bigger issue than overcrowding on the landlord’s part.
I’m curious what kind of pay-out the landlord gets if a tennant breaks the lease? Because the cycle of move-and-replace when dealing with an unfair landlord sounds like false economy on the landlord’s part if they’re constantly having to readvertise and have the place go empty, even for a few weeks.
BetaCandy says
Payout: the landlord is entitled to the rest of the lease, plus advertising fees. But in reality, that 1% vacancy means no advertising fees: until very recently, they’d just stick a “for rent” sign in the yard and have 10 desperate renters unable to find any other available place that halfway works for them filling out forms by the end of the first afternoon. So, no money loss, no apartment staying empty for longer than it takes the landlord to get it ready. Because that was the situation for a lot of decades, L.A. landlords just had it way too fucking easy.
The it all changed with the new economic downturn, bwahaha, and L.A. landlords are in deep denial. Now every building has a “for rent” sign in front of it. Two years ago, rent prices started falling and they didn’t stop until late 2009. At first, it was hilarious watching landlords struggle with basics like using Craigslist – they didn’t even know how to advertise because for so many years a sign in the yard with “3br [phone number]” was all it took. Most of them have No. Skills. Whatsoever. for an economy in which sellers compete for buyers. Those who have a clue offered incentives and lowered their prices, but most of them kept up the prices and made no effort to meet the demands of the new economy, because – in the words of a friend’s landlord – “We’re convinced it’s going to swing back in our favor any day now.” That was a year ago, when the rental prices were near bottoming. Since then, they’ve fallen a little further and not recovered one bit. Yeah, any day now, fool. LOL!
Scarlett says
Sounds like we have similar laws that are practised in very different ways. Like if a tennant breaks the lease, they’re supposed to pay rent and advertising until the place is filled, and many tennants actually do this to get a good reference… but if the tennant decides not to pay, it’s rarely worth going to court over it.
But yeah – I think a good rule of thumb should be 10 years of minimum wage salary = modest home. So if you’re a waitress on $20K, you should be able to get, say, a 2×1 strata for $200K on a twenty-year mortgage, so long as you’re able to live frugally. And there is NOTHING in Perth that you could buy solely on a waitress wage. These are Aus prices, obviously, but I think the principle should hold worldwide: even on the minimum wage, you should be able to afford the most modest of places based on paying 30-50% of your salary over 20 years.
BetaCandy says
No, that’s all the same here. The problem is: what does a TENANT do when a landlord breaks the lease by not keeping the place habitable, for example? The city/county inspections take forever, and give them huge amounts of time to fix the problem. Meanwhile, you have to continue to live in a place with rats, broken windows or whatever the issue is. You can’t just stop paying the rent and move into a motel. There are remedies that actually do involve stopping rent, moving out, etc., but if you don’t pay a lawyer several hundred – minimum – to do it right, you’re risking your credit and the loss of a suit on your record, not to mention owing the landlord damages. Because your place is unlivable from mold or whatnot. So while the laws on the side of the landlord don’t always work, the laws on the side of the tenant were set up because they KNEW people would rarely be able to afford to invoke them.
I’ve had two apts which were seriously uninhabitable. The one case that escalated into a lawsuit? The judge asked me, “If it was so bad, why didn’t you just move out?” I said, “Your Honor, I had just signed a six-month lease, and they could’ve sued me for the remainder of it. Even if I didn’t worry about that, they had my security deposit of $2k, so I didn’t even have enough cash on hand to make a security deposit at another place. How was moving out an option?” He looked embarrassed. Rich people forget how much you are held hostage by leases, while enforcing your lease on your landlord is almost impossible. I did win, but nowhere near enough to make the whole thing worthwhile. Years later, the company that owned that building (the company I sued) sought out a company I was working at to do some business. I warned them what would happen, but they didn’t listen. They did 4 months of work for that company, and then the company totally stiffed them on the bill. Just stiffed ’em. Didn’t even give an excuse. That’s the kind of people who become landlords in Los Angeles. It’s an ethics-free zone.
Lori says
re. November 1, 2010 at 8:12 pm thx 4 pointing out that one person’s ‘property values’ is another person’s ‘housing costs.’ I get sick and tired of news coverage, policy discussion etc. constantly saying ‘property values’ as if it’s the same thing as GDP, something that benefits everyone. Yah I know there are a lot of folkx critiquing GDP as a yardstick, but still GDP at least has something to do with the ‘size of the pie.’ But that ‘property values’ are not an unalloyed good should be a no-brainer. There are two sides to every transaction. For every party who buys low, there is one who buys high, as for every party who sells high, there is one who sells low.
Spot-on description of the landlordly sense of entitlement.
DragonLord says
@Scarlett – Ironically, in the UK at least, renting prices are often the same as or higher than a 30 year mortgage on the same property would be so that waitress is affording a mortgage, but not getting anything for it.
BetaCandy says
That’s true in L.A., too – if you had good credit and anything close to the 20% downpayment on that $500k shack with a partial roof, your mortgage payments might even be substantially less than rent. And I’m not talking luxury apt prices.
For me, the real problem is the 20% downpayment. Let’s say you dutifully squirrel away $1000 a month – and given the cost of living and salaries, that’s not easy for many people to do. You have to do that for 100 months to have enough for a downpayment on a $500k home*, which is going to be a modest little home in most parts of L.A. That’s 8.3 years. How much do you think that $500k house will cost then, so you still won’t have your downpayment. That’s the hamster wheel many people were stuck on for the past 15 years or so. It may be changing – at least the prices are no longer going up – but the banks are still conspiring to keep the prices artificially inflated (estimates suggest as many as 7 million homes may be being kept off the market by banks refusing to foreclose, so as to avoid flooding the market and forcing prices down).
*I picked $500k as an estimate. There are a lot of homes on sites like Trulia for less than $500k, but these are mostly foreclosures, short sales and houses far from move-in condition. The consensus among people I’ve talked to who were house hunting is that you still can’t seriously get a decent house for less than $500k in L.A. proper. If you move outside the city, you might get it down to $400k, possibly even a bit less. But that comes with a helluva commute, which is also an expensive undertaking, when you account for gas and car maintenance, since this city adamantly refuses to put in trains or any useful form of public transportation. OTOH, there are a lot of homes in L.A. that are $700k and 2BR. So I think my $500k number is fair, but I’m trying to disclose everything that I factored in just so ya know.
DragonLord says
A recent report in the UK put the average age of first time buyers at 37 years old, and they were saying that this isn’t a good thing…
BetaCandy says
Every first time homeowner I’ve talked to in L.A. who bought in the last few years had at least one of the following advantages:
–Someone gave them the downpayment, usually family.
–They earn well above the median household income of $55k (IMO, the median household income ought to at least come into spitting distance of being able to buy a home in your area. It’s nowhere close).
The bottom line is: merely having a good job won’t enable you to buy a house anymore. I’ve read some articles about how families might be smarter to give their kids a downpayment on a house than to put them through college. Yes, the kid may lose income from not having a degree, but if she’s smart enough to take advantage of that downpayment and pay off that house, she’ll be without a housing payment in 30-40 years. That could make a huge difference in when she’s able to retire or take a chance on running her own business or something personally fulfilling.
DragonLord says
Personally I blame the buy to let market for the state of the housing market these days. If interest only mortgages wasn’t an option, and there was a minimum period that you had to own a house before you could put it up for sale, it’s almost guaranteed that house prices would stay fairly static/rise much more slowly. as there wouldn’t be the vicious cycle of buying, holding for a few months and then selling for a profit that happens when the market is going up.
BetaCandy says
Yes – the whole concept of housing as a part of your investment portfolio rather than a place to live is problematic because it turns a necessity into a commodity. Then you either have to control the price of that commodity somehow, which makes US people scream “Don’t screw with the free market” (as if we have one), or you have to let housing costs soar as high as the richest people can take it. Since we’re already inured to seeing homeless people on the street, a few more won’t hurt, right?
The prices of necessities SHOULD be controlled, just enough to ensure that people who have modest income can afford at least decent quality necessities. Otherwise, you’re setting up a nation where honesty is so unrewarded that everyone needs a life of crime to get by. (I’m not being as hyperbolic as you might think – in film, where wages are literally $0 for newbies, most people earn their living at drugs or prostitution while auditioning and shopping their scripts around, because waiting tables just doesn’t pay the rent anymore. It could happen on a larger scale.)
I like your idea for controlling the cost – eliminate flipping by forcing people to own a house for something like 3 years before selling it. The only problem is, there has to be a way to establish who legitimately deserves an exception from that rule, since sometimes things happen and non-flippers need to sell unexpectedly. Maybe another option would be to freeze the house’s selling price for X years after a purchase. The house can be sold, but only for that price. That would encourage people to think of homes as places to live and – at the worst – long term investments rather than get rich quick schemes. That could stabilize things significantly.
Lori says
There’s also all the zoning ordinances designed to knock the bottom rungs out of the housing market, discouraging multi-family, minimum square foot requirements; all sorts of other social cleansing through social filtering.
Scarlett says
Yeah, I remember talking to a eal estate agent who would buy a property and because she didn’t need to start making repayments for a year, would hold onto it and sell it at the end of the year. It actually sounded pretty clever at the time, but now I’m inclined to agree that a nececity such as housing should not be made into a free-market driven commodity. At least freezing prices will put the brakes on rampant increases. Unfortunately, the kind of people with a genuine need to sell something with as much value as a house probably NEED every penny so still get kinda screwed – it’s a shame that those types of people get a raw deal because *certain* property owners are greedy, even when it comes to nececities.
Nuria says
The 3-year period between buyin a house and selling it exists in Spain and the unreality of the real estate market has been as brutal as in the US. People there are obsessed with buying-not-renting; the rental laws protect the tenant above the landlord; renting is as or more expensive than a mortgage; and there are thousands of people who bought a property that was well above their posibilities (and with a terribly inflated price) thanks to abusive mortgages and/or buying between 3 or 4 people.
I think regulating the prices instead of being a completely free market would be more helpful.
BetaCandy says
I agree – that’s why I suggested freezing the *price* the house could be sold at for a period of time rather than slowing down the number of times it could be sold. Take the benefit of “flipping” out of the equation rather than regulate the flipping itself. Of course, people would probably just add cash under the table to the deal as it’s written on the books, so flipping would continue to be profitable. I really don’t know what the solution is, but I do think it has to involve price regulation as you say. I also strongly believe that a TRUE free market can only thrive when some prices ARE regulated. It sounds contradictory to people, so they have a knee-jerk reaction against the idea. But:
–“What the market will bear” on a necessity like housing, food or medical stuff is extortionist. The suppliers have an incentive to price their stuff out of reach of all but the wealthy.
–Eventually, and there are historical precedents, pretty much anyone will turn to crime before watching their kids starve. You end up with de facto anarchy, massive organized crime or a big nasty revolution.
Limiting the profit people can make on necessities may sound Communist to some people, but it’s really in the long-term best interest of a healthy market. At least, you know, if you like law and order.
Rawling says
Didnt know you had it that bad in LA. I live in Vancouver, Canada, which has been rated the most unfordable city in the world – in terms of real estate prices in relation to incomes. A very basic rancher in the suburbs will cost you $500k.
In such a city it is way better to rent than to own. Everybody here is so into owning a house. Yes, despite the high prices, we have one of the highest ownership rates. People end up stretching themselves. Latest stats show that the average Vancouverite is now spending 75% of their household income on mortgage payments. As, a consequence of this buying frenzy we have a lot of available rental apartments. I once lived in a rental apartment were 1 in 3 tenants were moving out so they could buy their own house or condo. There is a time when property management companies were offering 1st month rent free specials in order to attract tenants. Besides traditional rental apartment buildings, there were also a lot of condos to rent (these had been purchased by speculators who were waiting for a perfect time to flip). Another source of rental accomodation is from overstretched home owners who have to rent out their basements.
In Canada we have strong tenant protection legislation. Additionally, you do not even need to take a landlord to court. We have a cheaper alternative – tenant/landlord tribunals. Also, with the high vacancy rates, landlords are forced to maintain their units. A reasonable landlord would understand that treating tenants with respect would result in them treating the house with respect. Treat people like crap and they will trash your place – the damage deposit would not even cover 25% of the damage. Does not make business sense at all. I have been a renter since I moved to this city. Been in the same place for 5 years. Landlord is not into money but wants someone who can take care of the place.
Also, the poor (particularly those with kids) in this city are not left at the mercy of the landlord. There is some very decent non profit, subsidized, social housing. I am not talking ghetto projects here. These are sometimes brand new townhouse complexes. They are not concentrated in one neighbourhood. There are evenly distributed withing decent suburbs. Furthermore, instead of moving into such housing, low income families can opt to move into any market rental of their choice and receive a rent subsidy from the government. Therefore, our landlords really do not have that many people to exploit – except for drug addicts.
BetaCandy says
In such a city it is way better to rent than to own.
I couldn’t disagree more, and you don’t support your idea here. L.A. is “such a city”, and it’s infinitely better to own a chunk of it than fund someone else owning it while you get nothing to show for it but a roof over your head. And, like I said, we LACK tenant protections, which adds another incentive to NOT being a renter.
I’m really not sure what your point was.
DragonLord says
If the cost of renting => the cost of paying the mortgage then it’s always better to buy as the cost of your mortgage will go down over time (relative to your income) while the cost of renting will always stay the same or go up.
Problems of equity only ever arise IF you decide that you want to move or access it. In all other cases the paper value of a house is irrelevant, and only the mortgage value matters.
The other point about mortgages is that as long as you pay all bills and debts that are secured on it (and the government doesn’t decide to build a road through it) no one can decide you’re not allowed to live there any more.
————————————————————–
IMO one of the problems with american houses is that they are mostly built out of wood (I know that there are a lot that are made out of other materials, but that’s the impression we get from across the pond), In the UK almost all houses are built of brick, and they have a live spanning centuries rather than what seems to be the case in america, where (I’ve been reliably informed) that 100 years is considered old for a house.
BetaCandy says
Americans have a teenager’s idea of what constitutes “old” in everything. Houses ARE mostly made of wood here – that wasn’t the case 40 years ago – we used brick more often then. But now that’s considered “over-building” because, hey, somebody’s just going to get bored with that old brick house and tear it down anyway, right? Why build it to last?
That’s the attitude, and it’s even more pronounced in some regions than others. For example, in most of the US, at least *some* “historical buildings” are protected. In L.A., you can mow down *anything* and put up a parking structure. Which is what usually happens.
I find it absurd and sickening, but no one has offered to sponsor my move to another country so I can go be an ex-pat somewhere else.
BetaCandy says
Of course, according to Rawling here, if I’d just cut out my “latte a day habit” (that I don’t have), I could get a community college degree (already got more than that, thanks) and then the world would be my oyster!
More on this coming in my Sunday post.
Emma says
It has occurred to me that the difficulty in becoming a homeowner as well as the system favoring landlords over tenants are deliberate attempts to keep the rich (landlords) in business (tenants). Because if anyyone could own a home, to whom would landlords rent their properties?
(Sorry for commenting on an older post.)
BetaCandy says
It’s totally okay to comment on old posts – awesome, in fact.
I agree with your point. What irritates me even more is this: there will always be renters. Always people who either can’t afford a home, no matter how easy it is, or don’t want to be saddled to one property, or like the idea of not having to pay for a house’s upkeep themselves (though renters do, indirectly). It’s not like there will just stop being profit in the rental business if we make the situation remotely fair. What WILL stop happening is absolutely ludicrous levels of profit. And they can’t be bothered to make that sacrifice.
I know some landlords are not all that wealthy, but I think the ones controlling the hugely-well-funded lobbies that keep things the way they are, are indeed making scandalous profits and don’t care about anything else.
Lori says
I suspect that the tax policies that reward homeownership and thus punish tenancy are a perhaps subconscious extension on the part of public opinion and its representatives of age-old prejudices in preference of ‘settled’ peoples over itinerant ones.