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A Home of My Own: Why We Buy

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About the author: This is a guest article by Matt Wallaert, a behavioral psychologist and the Lead Scientist at Thrive, a free financial advisory website that helps people organize their finances and plan for the future with personalized feedback from its behavioral advisory engine.

I’m an owner. While I rent an apartment in New York City (the average apartment in Manhattan is worth $1.5 million; I won’t be buying soon), I’ve never leased a car or rented my furnishings because, generally speaking, I simply prefer to own than to buy.

But with the mortgage meltdown and the recent issues surrounding overconsumption, home ownership is becoming an active question, rather than the default standard. Rebecca Tuhus-Dubrow wrote a piece for The Boston Globe recently summarizing the debate and the angle was clear: homeownership needs rethinking, and is probably dramatically less good than we think it is.

I liked the article and a number of interesting academics weighed in to contribute, but the focus was on the social impacts of owning, rather than the personal ones, and I think that misses a key part of the equation. How we feel about owning versus renting, and how it changes our behavior, is worth exploring, particularly as owning wins in some unusual ways.

I should be clear that I’m not trying to argue that owning a home is intrinsically better than renting an apartment. As Tuhus-Dubrow points out, many of the disadvantages of a home rental are due to inadequate legal protections, rather than the actual rental procedure itself. Instead, my concern is with the psychological consequences of owning versus renting in general, whether it is an apartment, or a car, or a computer. I’m going to talk about apartments, just because they make a handy example, but feel free to insert “leased car” if it makes you happy.

Consider the typical renting New Yorker in their mid-20s. Few would argue that looking for an apartment is pleasant, and most would label it down around the 5th or 6th circle of hell. You have to find a place you can afford, that you like, that accommodates your lifestyle, that is in the right location, and is decently hard to do, given the actual raw number of rentals available in any given area.

Assuming you manage to actually find a place you like, you then have to actually get it, which can be harder than it sounds when people are going on and off the market at lightning speed. Renters live in a constant state of indecision: should I put a deposit down on this place now? If I take two minutes to talk myself into believing that it is the perfect place for me, will it be snatched away, leaving me with only the certainty that it was the best of all worlds and now I can never have it? Few people enjoy the process and fewer still come out feeling “happy,” and it is no wonder: a home is supposed to make you feel permanent, not dissatisfied.

And yet renters go through the process again and again, year after year. For many, it isn’t a choice: as Tuhus-Dubrow points out, renters don’t enjoy all that many legal protections and many of them get priced out or forced out of their housing, throwing them back onto the market. But even for those that could stay, many of them don’t because of the torture of knowing that you could have something different. Because you can move, you want to – knowing that other options are out there, it is part of our personal psyche and our national culture to want to explore them.

The problem is that psychologists have shown fairly conclusively that this type of comparison is almost certain to make you unhappy. The more options there are to consider, the more time you spend thinking about them, the more difficult the decision, and the more regret you feel when you actually pick one. And renting means always having options: there is always another apartment you could easily take, another car you could easily drive.

Owning alleviates this problem. While you can still compare your home to others (and many people do move several times over the course of their lives), increasing your attachment an object makes it harder to let go of and increases its value in your mind. Psychologists call it the endowment effect and it breaks down simply: there is value to feeling like something is “yours.” And while we can certainly think of our apartments as part of our domain in a psychological way, there are plenty of reminders in daily life that we don’t own them and never will.

And it isn’t just mental. The psychological value of owning translates to real value in your interactions, as almost anyone that has ever rented something intrinsically knows. You scratch the floor and don’t feel particularly bad or try to get it fixed (unless motivated by worry about your damage deposit). You beat the hell out of a computer until the lease runs out and you get a new one. No one puts premium gas in a rental car.

A home is a decision you don’t have to make again, or at least not for awhile. And there is value, sometimes, in less: less comparison, fewer decisions, less movement. Even as renting and leasing allow us to maintain our flexibility, they demand that we give up any number of psychological benefits. Sometimes it is a good trade, but more often than not, our instinct towards ownership is probably a decent one. Especially when it lets us save our time and energy for the decisions that matter; less “where will I live tomorrow?” and more “what will I do today?”.

If you enjoyed this article, please visit Thrive and Thrive’s blog, Good to Grow. You can also subscribe to the blog’s RSS feed. We would appreciate your comments and reactions, so if you would like to contribute to the discussion, add your comment below.

Updated December 22, 2011 and originally published April 13, 2009.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 8 comments… read them below or add one }

avatar 1 Anonymous

You make a good argument and I’m glad you don’t make a definitive answer that owning a home is always good or always bad. Personally I don’t like home ownership – I don’t like the responsibility of maintaining anything bigger than a car. But owning has its positives – peace an quiet and getting exactly what you want are just two of them. When I lived in a city of over a million people renting was no problem – you could get fabulous places in expensive neighborhood and you could get funky little places in trendy neighborhoods – you could rent anything you wanted. But if I look at where I live now – city of about quarter million, the options aren’t as great – the high end options all but disappear, however trendy is available. But most of the rental homes are just trash. When you look at a rural area, like the town of 15,000 I grew up in, rental is just not an option unless you are near desperate. You can’t find anything worth living in unless you get really lucky and most find that in rural areas buying is a far superior option to renting from a financial standpoint.

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avatar 2 Anonymous

I agree with some of the concepts that Matt talks about here, but some of what he talks about flies in the face of my experience. Concepts must be slightly misapplied here. While renters do move more frequently than homeowners I know many renters who stay in one place for much longer than a year (renters of my rental properties for instance). As well, I know many homeowners who constantly upgrade their homes by either buying a new place, or by renovating. If you want to visit a ring of hell, then renovations are the way to get there.

Owning does not free the mind at all from anguish. If you do own then you can suffer more because you have fewer levers to pull to relieve your dissatisfaction. Renting, on the other hand, does free your mind. As Matt menions, scratches and dings don’t bother the renter very much while they would likely bother an owner much more.

The “real value” of owning versus renting can be calculated. Additionally that pride of ownership, which causes a person to fix dings, costs real money. Some people just don’t place any value in owning a home. Their lifestyle is often to be envied. They have more money to party with, they are not shackled to a job because they are highly leveraged, they can just up and go on a trip around the world, they aren’t stuck mowing the lawn and gardening on Sundays. Renters also live more within their means. A homeowner usually has too much house while a renter has just enough.

This is a little more subtle than what is in this article.

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avatar 3 Anonymous

I am pro-renting but I disagree with the suggestion in the article that the mortgage interest tax deduction be abolished. In my understanding, said deduction is actually there to level the playing field between the two options. A landlord is able to deduct the interest cost for his/her/its mortgage as a business expense. That deduction then gets passed on (assuming a reasonably efficient rental market) to the renter. If anything, the fact that an individual homeowner’s interest deduction overlaps with the standard deduction is already tipping things slightly in favor of renting. On the other hand, this is probably balanced out by the inability of most people to look beyond the the surface of “I got a huge tax refund in April because I own a house.” Therefore I propose that we keep the status quo or something mostly similar. (Perhaps with some adjustment to remove the regressive effects of the current system, but with the overall total remaining the same.)

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avatar 4 Anonymous

I suspect you may be biased by a New York experience. Most people I know in Philadelphia move when they have some kind of specific issue with their current home – cost, location relative to job, size – and don’t do it very often, remaining in one place for, often, three or four years at a time. Plus, they’re 20somethings, so they have far less holding them down to a specific place than older adults with children, more-stable careers, marriages, etc. At the same time, New York real estate may be hellish, but for many of us, it’s merely extremely inconvenient. Not fun, by any means, but a number of my friends have apartment-hunted recently, and none mentioned the kind of desperate “must decide now ohgod” you’ve described; many mention, offhand, that they liked a place but wanted to see others, and went back days later to say “yes, I want this apartment.” It’s not that apartment-hunting is fun outside of NYC, but the nerve-wracking hellish experiences I hear about as par for the course in Manhattan and Brooklyn are worse than the worst apartment-hunts in less-insane markets.

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avatar 5 Anonymous

KC: I’m with you. I grew up very rural and the rental options were either non-existent or downright scary, and it is valuable reminder that not everyone really have the option to make this sort of decision. Both ways: many people in NYC can’t buy, many people in rural Oregon can’t rent.

GoalHunter: Renovations are a special kind of hell, especially DIY – my father has been refurbishing one of the bathrooms for about 10 years now. But the fact remains that even if you know people who live in a rental for more than a year, statistically speaking, renters move much more often than owners. And my point is simply that the flexibility comes with a price. I’m a scientist, so at my core, I’m not much on the unverified. What’s your evidence that renters are living more within their means? That homeowners have “too much house” while renters have “just enough”.

Steve: I think you’re referencing the article I linked to, not mine – I’m not necessarily for changing the tax laws, at least not casually.

Ben: Ironically, I lived in Philly for six years. The market problem there is a little different, because by and large, too many people rent in Philly and not enough own, because of a depressed and heavily stratified labor system with vast wage inequity. But you’re absolutely right, in that there is a little hyperbole going on here: certainly renting and choosing is not all that incredibly bad. Yet that’s part of the problem – without hyperbole, it is difficult for people to understand the very real psychological cost they are paying, precisely because it doesn’t “seem” so large. And yet when you study it, actually measure the satisfaction, it turns out to be larger than we expect at first blush. But you’re absolutely right and I could have turned the volume of the article down a little.

Good comments, one and all!

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avatar 6 Anonymous

My experience has been different than yours Matt. But I also live in a different area. I’m in Florida. Down here homeowners have really taken a hit. With house values dropping, many owners are now upside-down in their mortgages. I suspect they are not sleeping as well as night.

I’m renting a house, not an apartment. I’m living within my means, supporting a family on one income. Honestly, for me, renting is the way to go. Although I do care about scratches in the floor, I restrain myself from any home improvement projects that I cannot take with me. I mow the lawn, trim the bushes. But if a problem comes up (leaking water pipe, squirrel in the wall) then the property management company takes care of it. My house is nicely decorated, we take good care of it and I hope to stay there for many years.

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avatar 7 Anonymous

Matt: The proof that homeowners have too much house is evident in the current mortgage disaster .. a large percentage of homeowners can barely afford the home they bought.

A second is the very reason that people become homeowners: To upgrade. Most people purchase a house that is worth about 5-7 times their household income, the reason being that this is what the bank tells them they can support. They buy the maximum that they can “afford”, not based on their needs. They leave a smaller apartment to purchase as large or expensive a house as possible. People even reduce aspects of their lifestyles, living 1+ hours away from work and play to own a larger house. Renters live near the areas they spend most of their time in.

A third view: The average size of a new home has grown from about 2000 sq ft in 1980 to almost 2500 sq ft by 2007. New homes are built larger. You can see it in any newer community. Homes are crammed in to take up every available inch of land so they can be as large as possible.

Finally: Being a real estate investor, most home prices are not attracting to purchase because the rents are not adequate. Therefore, renting makes more financial sense in many cases. Even if the buyer and renter occupy exactly the same dwelling then the renter will have more money available, in addition to all the free time. In some markets a real estate investment does make sense, an then the renter should purchase. However, when renters purchase they almost always take the opportunity to upgrade and so negate their gains.

I agree with some parts of your post, but I would say that there are very stong arguments for a rental lifestyle. I own my home and it is a steady source of frustration for me, as well as pleasure of course.

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avatar 8 Anonymous

It’s really interesting to me that one HUGE bonus to owning vs. renting isn’t mentioned: community. I bought into a bankrupt coop some years ago in manhattan, and have seen community literally rise from the ashes. (yes we had a satanic cult on the 3rd floor that started a fire at some point). the dedication the owners bring to this building is amazing. together we organize tree-planting committees for the sidewalk, paint hallways and in the process become friends. i know every single one of my neighbors and feel incredibly safe and at home.

Americans are a very transient people. We prioritize corporate ties over our social ones, (Tocqueville would be horrified.) But when you put your roots down for a while, you can become very inspired by your surroundings and the people you pass every day become more than just that. You find you participate in local politics more and by doing so keep the whole system running. In fact, we’ve managed to have direct influence over the development on our block by attending community board meetings, fighting for “our neighborhood” against rampant gentrification.

Renting long-term can have the same affect, but I bet asking to meet the neighbors first isn’t a priority for most when they’re looking for a place to live. In many ways, these relationships affect your quality of life way more than if you have a dishwasher or not.

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