> That has meant a negative household saving rate, compared with Germany's 10 percent of disposable income.
Isn't it because majority of Germans rent and majority of Poles buy?
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If you compare the cost of a mortgage, and a rent, they are very similar in Poland. So after 30 years you can sell the flat/house and you will get half of that money back. It's better than nothing.
Half, because usually the total mortgage cost for 30 years is about 100%.
In Portugal renting is more expensive then the cost of a mortgage due to tenant ultra-protective laws. Landlords are literally afraid to rent. Economically this is a disaster.
Is that mortage cost in real terms? If interest rates are close to appreciation rate, you might break even in real terms (apart from tax/maintenance costs).
That's what I saw in simulations for a 30 year mortgage shown by multiple banks. The amount of what I'd pay was twice the house cost. The interest rate was then around 3-4%, the appreciation rate about 2%, if I remember correctly.
So generally 100% more is a lot. However after 30 years you can sell the house, and what you get is still much more than renting, when you get nothing at the end.
Probably because Germans earn 3x as much. https://en.wikipedia.org/wiki/List_of_European_countries_by_...
Average wage doesn't matter unless you adjust for cost of living.
> Isn't it because majority of Germans rent and majority of Poles buy?
No. Economically, it doesn't make a difference. Although renting is better to society as a whole.
> renting is better to society as a whole.
Care to explain?
I would say that widespread renting is actually quite terrible. It means that property is kept in the hands of class of landowners (and when wealth is concentrated, this also tends to concentrate power); that instead of investing one's income, renters are basically paying off the owner's mortgage; that generally, people prefer to own, and so widespread renting is a sign of being unable to participate in the real estate market; that it generally is associated with a rentier economy.
So, no, I do not think renting is better. At all.
> Care to explain?
Sure!
Caveat: please ignore taxes, emotional value and a few other country-specific details.
When you're buying a home, you're doing 3 independent things:
1) Borrowing money (optional)
2) Making a capital investment into an illiquid, immovable asset
3) Renting an asset that you own to yourself for you own usage
Give how much little money you have (compared to a company) and how your earnings and spending might oscillate, having so much of your assets locked up in an illiquid, immovable, single piece is a bad idea. It prevents you from moving around and taking a new job, for example.
Also, given your individual risk, you have to pay interest rates much higher than what you'd expect from an institutional investor. Also, you don't have any economies of scale for renting out, selling, doing maintenance, etc.
Now if an institutional investor bought a large stock of housing and rented it out, it is:
1) Borrowing money at lower rates than you
2) Making capital investment in thousands of individual, immovable assets
3) Renting an asset to you
With a much larger scale, the institutional investor has massive gains in economies of scale on selling, buying, renting, fixing, etc. Also, it is able to spread the risk of a single house or resident across its entire base, essentially transforming the individual risk into a financial cost to the renters, reducing the exposure to extreme events.
Finally, renting increases an individual's mobility, allowing for better allocation of jobs to different places in a country, improving economic growth and enabling the economy to adapt faster to changing situations.
PS: NIMBYism fucks this up. This only works if new housing is allowed to be built freely based on supply and demand, which is not the case in the most "progressive" parts of the US (Bay Area, for example).
I couldn't help but notice that you didn't address anything I wrote. You also ask me to ignore important factors like property tax which, frankly, can make owning land unprofitable for landlords if people move away. Also, an economics stripped of human beings and divorced from the social and the political is not economics, just some Procrustean nonsense cooked up in an armchair. Economies exist to serve their participants, not the other way around. Anyway...
First off, immobility is a problem only when there is a scarcity of jobs. It is a bad sign when lots of people have to move frequently to get jobs. Optimizing for mobility is kind of like treating a symptom instead of the cause and will likely deepen the problem because, hey, we can always count on people moving. People don't generally move around just to move around. Appealing to "better allocation" and "adaptation" as ways to defend mobility is, again, the result of having adopted some kind of dehumanized economics that treats people like units of goods in a distribution chain. Mobility is really not the thing you should be most worried about.
Second, it's not an either/or proposition. We can have renters and owners. Renting can cater to those who are mobile. But when a market is dominated by renters, then your market is fucked (see above).
> You also ask me to ignore important factors like property tax
Property tax is highly variable from location to location. But if you give me an example of property tax, I can tell you which makes more sense.
> an economics stripped of human beings and divorced from the social and the political is not economics, just some Procrustean nonsense cooked up in an armchair
Sure, and if I don't like the law of gravity, it should be abolished!
> immobility is a problem only when there is a scarcity of jobs
Which in the long term is everywhere.
> Appealing to "better allocation" and "adaptation" as ways to defend mobility is, again, the result of having adopted some kind of dehumanized economics that treats people like units of goods in a distribution chain. Mobility is really not the thing you should be most worried about.
You argument boils down to: "I don't like what you're saying, you're mean". I don't care, that's how life works. Not liking it won't change it.
> Second, it's not an either/or proposition. We can have renters and owners. Renting can cater to those who are mobile. But when a market is dominated by renters, then your market is fucked (see above).
Sure, that's the ideal market. Don't provide any incentives to owning or renting, and let people decide freely.
If you're borrowing at a fixed interest rate (or buying outright), you're also locking in price for housing against future rent increases.. and, currently in CA, against uncontrolled property tax increases too.
It doesn't really prevent you from moving to another job, one could always rent out the owned property and rent in your new location. (Though if the area you own in has crashed in prices that's a more difficult proposition...)
> If you're borrowing at a fixed interest rate (or buying outright), you're also locking in price for housing against future rent increases.. and, currently in CA, against uncontrolled property tax increases too.
Again, that's irrelevant from a financial perspective. The rates are priced to account for the risk of increase, and in this case the markets are liquid and competitive enough to allow correct market pricing.
> It doesn't really prevent you from moving to another job, one could always rent out the owned property and rent in your new location. (Though if the area you own in has crashed in prices that's a more difficult proposition...)
There is a large overhead cost to renting out, which is significantly higher than the overhead cost of renting a home. Renting out is essentially a part-time job.
> Again, that's irrelevant from a financial perspective. The rates are priced to account for the risk of increase, and in this case the markets are liquid and competitive enough to allow correct market pricing.
The markets can be irrational for longer than you can stay solvent. You can pull out silly tropes like some concept of "correct market pricing". Which means "correct" according to some group of concerns vs some other group of concerns. Rarely do we get to directly design markets, and designed changes often go vastly wrong with unintended side effects.
It's not irrelevant from a life stability perspective if you get priced out of your domicile for rent increases, vs keeping it for an owned property. People can individually value that stability or not, but it's a real consideration.
There is also large overhead in not choosing the time that one wants to move if rents increase uncontrollably.
> The markets can be irrational for longer than you can stay solvent.
Cute quote, now show me the data.
> You can pull out silly tropes like some concept of "correct market pricing". Which means "correct" according to some group of concerns vs some other group of concerns. Rarely do we get to directly design markets, and designed changes often go vastly wrong with unintended side effects.
Correct market prices are the cost plus risk-adjusted returns. Essentially, the point at which economic profits are zero.
> It's not irrelevant from a life stability perspective if you get priced out of your domicile for rent increases, vs keeping it for an owned property. People can individually value that stability or not, but it's a real consideration.
That only happens if there is an artificial constraint in supply, generated by NIMBY policies.
> here is also large overhead in not choosing the time that one wants to move if rents increase uncontrollably.
Again, with freedom to build, prices won't move like that.
(2) is where your argument falls apart. Everyone wants to buy houses nowadays- it's not illiquid. In large cities, most houses only stay on the market for a few days. Buying houses with cash is becoming increasingly common also.
> (2) is where your argument falls apart. Everyone wants to buy houses nowadays- it's not illiquid.
It is illiquid. How long do you think it takes to sell a house?
The median home takes 60+ days to sell.
Don't let your limited view shape how you see the world. The world isn't the Bay Area or similar locations.
I never understood that. I keep hearing about landlords ultimately sucking all the earnings of the society that lives on the land they own (see the Bay Area for an example, where a mattress in a wardrobe costs you $1k or whatever).
It's complicated, there are pros and cons of each. The fewer landlords you have the better, but at the same time, situations like the United States-- where half the country has gigantic mortgages and relies critically on their home being an always-appreciating asset-- isn't great either. Economists have argued about this forever and there's no clear right answer.
Charging rent doesn't necessarily have to be rent-seeking. The Bay Area suffers from a severe and self inflicted housing shortage, meaning that landlords and property owners are actively rent seeking by not letting housing change to match demand.
> I never understood that. I keep hearing about landlords ultimately sucking all the earnings of the society that lives on the land they own
When you buy a house, you're essentially becoming your own landlord.
Taxes aside, it doesn't make a difference if you rent, buy a house and live in it, or buy a house, rent it out, and rent another house for yourself.
The issue isn't being a landlord, but blocking the building of new housing when demand is going up so you can extract economic rents from society.