Tuesday, 11 November 2014

For many, buying a house is considered to be a good financial choice to make once they have ticked off other important “life boxes”, such as securing a permanent job and perhaps, marriage. It offers a home, stability as well as acts as a crucial investment. However, is owning a home right for everyone? And, what of the countries who choose not to encourage home ownership through initiatives and policies? Do they suffer the consequences in terms of economic prosperity?

Take the United States where home ownership is and probably always will be actively encouraged in society. Here successive administrations have pushed for higher home ownership rates time and time again. For example, in 2002, President Bush outlined “a comprehensive agenda to help increase the number of minority homeowners by at least 5.5 million before the end of the decade”, while in 1994, President Clinton requested an “effort to dramatically increase homeownership in our nation over the next six years”. Moreover, President Obama reiterated this message in a speech in August 2013 when he declared that "the most tangible cornerstone that lies at the heart of the American Dream, at the heart of middle-class life," is "the chance to own your own home." This message rings clear on the other side of the world too; in both Australia and New Zealand, the acquisition of a home is considered to be the “ultimate goal” or “national dream” and governmental policies tend to reflect this ideology.

In fact, in many countries in the Western world, owning a house is almost part of the national psyche. It’s a dream that we aspire to fulfill from day one. And yes, for many it is the right path to choose but perhaps it is not for all. Buying a house is a smart financial investment if you have sufficient funds and have budgeted accordingly for the long term but unfortunately, a lot of people negate to think about the added extras that go with buying a house– taxes, interest, insurance and maintenance fees – which can often be greater than the cost of renting. In fact in some countries in Europe, long term renting is viewed as a more attractive option than buying. This is largely due to increased rights for tenants and supportive legislation from local governments in these countries.

Germany is a prime example of this trend. Almost half of Germans do not own a home, the lowest proportion in Europe with the exception of Switzerland. In contrast, seven out of 10 people in the U.K. live in owner-occupied accommodation. Germany has traditionally been a nation of tenants rather than homeowners and this is in large part down to the governmental policies and initiatives in the country. For example, German law allows state governments to cap rent increases at no more than 15% over a three-year period. Also, tax treatment of home owners isn’t as favourable here as it is in other countries such as the United States and Ireland. Unlike these countries, Germany doesn’t let homeowners deduct mortgage-interest payments from their taxes. Without that deduction, the benefits of owning and renting are more evenly balanced. 

It is clear that home ownership trends and policies vary around the world and for a number of reasons. But what is not evident is that high homeownership rates equate to a prosperous economy. Taking the examples of Germany and Switzerland into account, we can see that low home ownership rates and an emphasis on the rental market is not necessarily a bad thing as most of us are thought to believe. Germany’s economy is strong; it is the largest national economy in Europe, the fourth-largest by nominal GDP in the world, and fifth by GDP (PPP). Thus, it is evident that a focus on renting is not damaging to a national economy. Before buying a house, it really helps to be aware of the policies and initiatives in place in the country/state in which you wish to purchase. Do these policies favour renters? Or, are they more attractive for the home owner? These are the types of questions you should be asking yourself.

One final and very important point that you should consider about buying/owning a house is that you will acquire an asset. Assets are investments – you buy them, own them and sell them.The value of an asset may not increase over time, but the fact that it is an asset means that you can recoup part of your investment by selling it. By buying a house, it means you at least own something when you're finished paying it off, as opposed to renting. Of course, there are many other factors to keep in mind, but this should definitely top your “pro column” when deciding on whether or not to buy a house.