Dilbert: 'treat housing as consumption' = good?

xchaotic

I tired to keep the topic concise, but with many saying one should take out his primary place of living out of the investment equation and Dilbert (?) seems to go further saying it should be treated as any other form of consumption spending.
While the original idea was probably meant to detract from pumping money into your primary house, in the current economy governments are actively encouraging spending, punishing savers and pumping money into a house seems to make sense, especially if you treat it as a form of luxurious consumption.

The reason I'm asking is I am about to start pumping money into my own house (rather than renting) and on almost every level it seems to make sense, almost regardless of the trends in economy. I'd love to hear you disagree.

paddyrg

I'm torn. Financially it's not a huge difference in terms of monthly payments, some people rent for cheaper than a mortgage would be, others save cash buying.

The difference is renting means it is never fully your own place to do as you will, so walls are all magnolia forever, and you don't plant trees you want to keep. On the other hand, renting means the boiler gets fixed, and you can move homes/areas easily. We have lived all over the country and world which wouldn't be the case with a mortgage (why pay UK rent if you're in Nepal or NZ for months, for instance). Having no mortgage and not having to do a big, slow buy/sell means we can move city within 31 days if we want to. And with the nature of my work, sometimes you could be on contract somewhere else!

Horses for courses.

HAMISH_MCTAVISH

xchaotic wrote: »

Dilbert (?) seems to go further saying it should be treated as any other form of consumption spending.

A house is an asset, not a consumable good, and assets behave very differently.

But if you want to look at it like consumable goods, then you'd be seeking the lowest lifetime housing cost possible. And owning beats renting hands down in that regard.

grizzly1911

If you buy sensibly (allowing for a degree of interest movement) then your mortgage and effectively fixed cost will erode through inflation whereas rents are only likely to rise.

Yes you have to maintain the property but again buying sensibly costs can be contained or budgeted for over time. With rented properties these costs will still be recovered through rental increases over time. Landlords aren't charity cases.

You do lose the flexibility to move at "whim" but again there are other options that can enable this if that is what is needed.

Derivative

But if you want to look at it like consumable goods, then you'd be seeking the lowest lifetime housing cost possible. And owning beats renting hands down in that regard.

Indeed, but I don't think that renting is part of the equation.

If we work on the basis of minimising housing costs, then we need to evaluate the purchase itself (1 bed, 2 bed, 3 bed, nice neighbourhood, dodgy one, etc).

Justifying larger purchases on the basis of homes being appreciating assets is flawed on a few fronts:

1. higher council taxes, heating bills, possible structural repairs, etcetera
2. if you actually stay put in the home it's not an investment other than in your own well-being
3. higher potential of cash flow problems due to mortgage repayments.

There are probably more, I've just posted a few there.

If you're playing the 'maximise lifetime net worth' game I tend to think the options are to live in a small flat/house and own BTL(s), or to live in a large house and take in lodgers.

grey_gym_sock

if you buy a house (or flat), possibly with a mortgage, pay all the maintenance and taxes, and let it, it's an investment - not expenditure at all.

if you do the same thing except that you live in it instead of letting it, then the differences are (a) you don't receive rent, and (b) you get somewhere to live. so effectively you're spending the rental value of the house, in return for living there.

financially, owning your own home is similar to investing in a BTL and at the same time renting your own home. except that there are tax advantages on being an owner-occupier (no income tax on the theoretical rental value which you're spending, and no CGT when you sell).

the more important differences are, as ppl have said, that as an owner-occupier, you can decorate how you like, and can't be kicked out; and as a renter, you are more mobile.

ash28

One thing people forget is that renting into retirement can be an expensive exercise. I know retirement will seem a long way off for some of you but it will come round quicker than you think.

We retired a couple of years ago when we were 55, one of the reasons we were able to retire was the fact that we had no rent to pay. Our mortgage was paid off. Where we lived if we had been renting a 2 bed/flat house it would have cost £800+ a month. And our pensions ensured we would never get any state help towards rent.

This is within a half a mile of where we lived.

http://www.rightmove.co.uk/property-to-rent/find.html?locationIdentifier=REGION%5E22434&sortByPriceDescending=false&minBedrooms=2&radius=0.5&propertyStatus=all&includeLetAgreed=true&_includeLetAgreed=on

And yes, we have maintenance costs for the house but it's only 5 years old and there has been no maintenance except annual boiler maintenance. And one thing's for sure the maintenance costs, insurance, cost of any repairs for the house will be far, far less than the cost of renting.

That was the reason we bought a house in the first place - to allow us to retire as early as possible.

staffie1

grizzly1911 wrote: »

If you buy sensibly (allowing for a degree of interest movement) then your mortgage and effectively fixed cost will erode through inflation whereas rents are only likely to rise.

Yes you have to maintain the property but again buying sensibly costs can be contained or budgeted for over time.

When you say 'sensibly', what do you mean exactly?

ash28

staffie1 wrote: »

When you say 'sensibly', what do you mean exactly?

For me that would mean could you afford your mortgage if interest rates doubled - happened to us under the last conservative government - a lot of people really struggled - we did too.

So people should give themselves some slack.

When we were buying and selling during that period salary multiples were largely irrelevant to us - it was how much would it be a month, and if interest rates went up again how much could we afford before we hit trouble.

We also bought relatively new properties that needed little or no maintenance other than routine stuff.

It was the mid 1990s before we took on somewhere that needed work - interest rates had stabilised and we could plan a bit more. Before that it was a bit of a roller coaster for us and a lot of others.

At it's worst we were paying over £800 a month for a £60k mortgage - today that same mortgage would cost you less than £400.

staffie1

ash28 wrote: »

At it's worst we were paying over £800 a month for a £60k mortgage - today that same mortgage would cost you less than £400.

Wow - that is scary! £800 / mth today is a lot, at the time it must have been crippling. I see your point - thanks for your reply

I guess I bought sensibly with my current home (which was my first house purchase 14 yrs ago). The price was £40K and the house is now worth ~£120K. The mortgage has always been more than manageable. But that was more luck than judgement on my part!

Apart from that, what other things should I consider when buying 'sensibly'?

pqrdef

grey_gym_sock wrote: »

financially, owning your own home is similar to investing in a BTL and at the same time renting your own home. except that there are tax advantages on being an owner-occupier (no income tax on the theoretical rental value which you're spending, and no CGT when you sell).

So is it time these tax loopholes got closed?

(Duck)