“That our citizens should live in their own homes is deeply rooted in the heart of our nation and the American way of life,” said President Herbert Hoover in 1931, perhaps the most important advocate of mass homeownership in U.S. history. However, when interest rates in rich countries began to rise in 2022, renting properties became more profitable than purchasing them.
Since then, home prices have stagnated or fallen in many places — and so have interest rates. Nevertheless, there are still reasons to believe that tenants' good fortune will continue.
According to the American real estate website Zillow, in the years 2015–2021, i.e. in the period of very low interest rates, the monthly cost of buying a house – including taxes, insurance, small maintenance costs and 20%. advance payment – was lower than the rental cost. However, the situation has changed. Currently, a new buyer pays approximately $400. (approx. PLN 1,450) more per month. In several of the country's largest cities, this difference reaches thousands of dollars. This is not a phenomenon unique to the United States.
According to real estate agency CBRE, there is no district in Australia where buying an apartment would be cheaper than renting it. Rathbones, a British property management company, estimates that the rental yield – i.e. the amount that property owners receive from tenants in relation to the price of the house – is approximately 5%. This is slightly more than 4.4 percent. for five-year fixed-rate mortgages. Considering that owners also have to bear high maintenance costs and taxes, this means that tenants are in a favorable situation.
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Tenants often fear that they are losing money by paying landlords, while buyers are building their own equity. But real estate is not the only form of investment available. Arthur Cox of the University of Northern Iowa found that even between 1984 and 2013, when home prices rose widely and mortgage rates plummeted, it was sometimes better not to buy a home. In three of the six American metropolises he studied, renting an apartment and investing the extra money that would be needed to pay off the mortgage in stocks and corporate bonds was a more profitable choice during this period.
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It is true that in some places tenants have lost their value. In Hong Kong, rental yields rose from less than 2.5 percent. four years ago to 3.5 percent Currently. This change is due to the collapse in property prices, which have fallen by one third in real terms since 2021.
Is it better to rent or buy apartments?
However, mortgage loans in Hong Kong are not equal to loans taken out in other rich countries. The Chinese most often choose variable interest rates, which usually change with short-term interest rates from the Federal Reserve. In other countries, mortgage loans are more dependent on long-term rates. And these have hardly changed. Despite recent interest rate cuts, yields on five- and 10-year Treasury bonds remain at the levels they were three years ago. In America, interest rates on 30-year mortgages remain above 6%. which is more than double the lowest level reached during the COVID-19 pandemic. While buyers can find mortgages with shorter terms, they run the risk of a rebound in inflation and therefore interest rates.
Is it better to buy or rent an apartment?Juan Silva/Getty Images
Choosing the likely winner in the battle between renting and owning involves looking at the future of long-term interest rates. The editors of “The Economist” suggest that the situation looks alarming. Concerns about public debt and long-term inflationary pressures will persist.
Moreover, in recent years, tenant-friendly regulations have been introduced in Western countries. The UK Tenants' Rights Act makes it harder for landlords to evict tenants and allows tenants to challenge rent increases in court. Many American cities have frozen regulated rents, as the new mayor of New York, Zohran Mamdani, plans to do. Regulations like this are terrible news for anyone considering investing in residential property and tip the scales even further in favor of renters.
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Buyers have reasons to own a home. Their arguments outweigh cold financial logic. Many people share the emotional need that Hoover spoke about almost 100 years ago. Others want certainty and a long-term lease. In some markets, it's simply a matter of practicality: finding a large single-family home to rent can be difficult. But for cool, unemotional residents who weigh the pros and cons of the purchase, the winner is obvious. Without a much larger drop in property prices, a sudden drop in long-term interest rates, or a prolonged increase in rents, renting will remain the better option.
I’m Ashley Davis as an editor, I’m committed to upholding the highest standards of integrity and accuracy in every piece we publish. My work is driven by curiosity, a passion for truth, and a belief that journalism plays a crucial role in shaping public discourse. I strive to tell stories that not only inform but also inspire action and conversation.
