The renter is paying the landlord to assume the risk of tenant mobility. That is, if the renter needs to move, they can do so and the landlord could be stuck with a vacant unit. On the other hand, someone who owns a home and needs to move, needs to find a buyer for the old place, and incurs material (~7%) transaction costs. People who want to stick around for a long time have no reason to pay a premium for an option they won’t use, so longer-term residents tend to buy and not rent.
On the other hand, as long as they can make mortgage payments, homeowners almost never get kicked out of their homes. If you want to bring up kids and build memories/accumulate sentimental value in one place over your whole life, a rental is probably not for you. If you want to customize your home and/or make capital improvements, a rental is also probably not for you.
There’s a kind of pooling equilibrium, and very little incentive to live in the “wrong” arrangement.
It’s also a mistake to compare nominal rent with nominal mortgage payments, as you also have to consider tax deductibility, maintenance costs (which people often underestimate), heating/cooling/electricity/water bills, real estate taxes, and mortgage amortization.
Here are some complicating factors:
The renter is paying the landlord to assume the risk of tenant mobility. That is, if the renter needs to move, they can do so and the landlord could be stuck with a vacant unit. On the other hand, someone who owns a home and needs to move, needs to find a buyer for the old place, and incurs material (~7%) transaction costs. People who want to stick around for a long time have no reason to pay a premium for an option they won’t use, so longer-term residents tend to buy and not rent.
On the other hand, as long as they can make mortgage payments, homeowners almost never get kicked out of their homes. If you want to bring up kids and build memories/accumulate sentimental value in one place over your whole life, a rental is probably not for you. If you want to customize your home and/or make capital improvements, a rental is also probably not for you.
There’s a kind of pooling equilibrium, and very little incentive to live in the “wrong” arrangement.
It’s also a mistake to compare nominal rent with nominal mortgage payments, as you also have to consider tax deductibility, maintenance costs (which people often underestimate), heating/cooling/electricity/water bills, real estate taxes, and mortgage amortization.