Thread by Matthew Barnett (@MatthewJBar)

This analysis, of course, looks nothing like the way most people in the mainstream discuss housing policy. Instead, people generally focus on far more simplistic ideas, most prominently the notion that buying a house is inherently better than renting for almost everyone, and that people only rent because they cannot afford to buy. People tend to offer various flawed arguments for this idea. For example, people often claim that buying a house is better because one should speculate on housing prices, betting that housing prices will appreciate faster than the general market. However, this argument is almost always unsound. No responsible financial advisor would recommend taking out a large loan to speculate on a single, undiversified asset. The relevant considerations are not really very different just because the speculative asset happens to be a house. Another idea people tend to bring up is the concept that by renting, you're "throwing money away" because, unlike when paying off a mortgage, you aren't accumulating equity by paying down the principal. But this idea is also false. You don't acquire wealth through principal payments. You're just reducing your debt. Renting isn't throwing away money; it's just a way to purchase a different, reduced bundle of rights on a good by securing it through a time-bounded lease rather than through asset ownership. There is no economic reason to expect home ownership to lead to net present cost savings, unless you disagree with market prices or unless government subsidies and regulations have distorted the market. Of course, the government does distort the market in practice. However, that's not a good justification for making things worse through additional market interventions. At most, it simply means that taking advantage of government programs that encourage home buying may be in your personal interest.