Just before Christmas I came across an interesting article which does a good high-level job of pointing out some of the contradictions in housing policy with regard to ownership versus renting and how that relationship results in less affordable/’affordable’ housing than society requires. The article dates from 2016 and focuses on the US, but it’s worth a look. Here’s the link:
I want to focus on the first paragraph in the article:
At City Observatory, we’ve frequently made the case that promoting homeownership as an investment strategy is a risky proposition. No financial advisor would recommend going into debt in order to put such a massive part of your savings in any other single financial instrument—and one that, as we learned just a few years ago, carries a great deal of risk.
That’s what’s always bugged me about home ownership versus renting: for most people, it’s putting all your eggs in one basket, so to speak, something most people would never do in the stock market. Why is it acceptable with housing? I realize everyone needs a place to live, so, as the thinking goes, if you’re going to buy a house you might as well get one which will likely appreciate in price over time. This seems to have worked out well for people who own houses in the GTA and other major markets, especially for those people who probably would have had trouble saving money if they didn’t have a house to act as a sort of ‘forced savings’ mechanism.
I want to comment on the “great deal of risk” phrase, which I think is important. The article is referring to the 2008-09 collapse in residential real estate in the US, which wiped out millions of home owners, mostly on the lower end of the income scale. That collapse never happened in Canada, which is why ‘investing’ in a house has been, broadly speaking, a good choice for Canadians of all incomes over the past two decades or so. What happens if Canada’s housing market experiences a similar collapse in the future? Is there something special about Canada’s housing market that could preclude such an event? Or did we just get lucky last time around, dodging a bullet which the US didn’t dodge?
I’m going to hunt around and see if I can find more articles discussing home ownership as an investment since I think it’s an important topic. I’ll link in future posts whatever I find