A new paper (pdf) finds that, over the last 30 years, renting was superior. The spin by e21:
[T]he much-touted economic gains from homeownership really come from the forced savings of an amortizing mortgage. And this benefit only accrues to myopic households that would not otherwise save. Thus, the government could replicate the same economic benefit generated by federal housing policy through a simple deduction from checking accounts that could then be deposited into a tax-free savings vehicle. This is an important point to consider the next time someone argues that removing or lowering a housing subsidy will necessarily inflict an acute economic hardship on the nation.
Felix Salmon is less dismissive:
[A] mortgage is a commitment device. You’re forced to spend all that money on your mortgage each month; if on the other hand you rent, you’re very likely to simply spend the excess, rather than save it. The e21 people reckon that only “myopic households” would not otherwise save the difference, but that’s just not realistic. People stretch to make their mortgage payments, and without the mortgage there there’s no need to stretch so hard, and you can enjoy your life more instead — go out, go on holidays, buy nicer clothes or extra iPads.
But the exercise in the paper is well worth running all the same. People get real value out of consumption, and so when you buy rather than rent you’re essentially denying yourself all that extra fun and pleasure. And if you both rent and deny yourself the extra fun and pleasure, then you’ll end up with more money than the buyer.
Yglesias calls for more saving commitment devices.
