Key Post Is buying your home the right financial priority?

Brendan said:

Absolutely disagree with you on this. You must take an overall approach to your finances. They are all part of the same long term plan. They are all forms of savings with different characteristics. The big downside of pensions is that they cannot be accessed for 40 years. That is no good to someone who is having a problem paying their mortgage.

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That's all very well but I think you're missing the poster's point.

You have to view the two aspects of "owning a home" independently: it's a long term investment (which can be compared to other investments) but also something which delivers utility, comfort, security, etc. in contrast to renting. The latter is rather a subjective area and depends too much on personal circumstance and outlook to allow us to reach general conclusions here. I think it's fair to examine the former aspect coldly and objectively.

Accepting that we cannot predict asset class price movements, the only two sensible things a long term investor can do is minimise transaction costs/overheads associated with the investment and - just as importantly - aim for as much diversification as possible. I presume you accept this?

On this basis, recommending someone put every penny of their savings into a single illiquid asset class (Irish residential property) for the first half of their earning life is terrible advice. You achieve zero diversification and the transaction cost and investment overheads are huge. You cannot balance this lopsided riskiness out by putting all your money into equities for the last 10/15 years - you are still taking on a big amount of completely unneccessary risk compared to investing in global equities over a 40 year period.

If you are going to consider the options for your money in terms of investment parameters (and you rightly repeatedly point out that your home is a financial asset), then it is clear to me that the simple principles of low-costs high-diversification are completely violated by your suggestion.

To argue about whether IO is justifiable or not only makes sense if you accept the premise that it is sensible to stretch yourself as much as possible to buy the biggest house you can. I don't accept this and in fact find a lot of the reasoning here somewhat backwards - you are going to great lengths and years of frugal living in order to minimise transaction costs and mitigate against other horrible features of this investment class (such as the fact that it requires a ginormous minimum investment and requires a commitment to a 25 to 30 year schedule of payments - contrast with most unit/pension funds where you can invest 5k one month and nothing for the next three years depending on your circumstances) when you should be asking yourself the more fundamental question about whether this asset class should constitute the vast majority of your savings/investments.

I think not and I could only recommend people even start consider buying when the yields return to normal historical levels and the decision becomes a simple trade off between security and flexibility.

Again this is a false argument. Most of us would agree that buying a house is a good long term financial plan.

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It's important to note that buying a home gives more than financial benefits.

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What evidence have you for such claims? I think this has nothing to do with sensible finance and more to do with our Irish culture.

It's been an eye opener for me living for a few months in a country where these "truisms" are not only seen as not being evident at all but in fact are generally viewed as being completely false.

The only people who buy here are a small number generally well into their 30s or foreigners - the later usually regretting it within months. The difference is that this is a "normal" market where yields (rents) and asset values (house prices) display the normal rational historic relationship; I believe the huge temporary property misspricing in Ireland has misled you. Here less than 20% of the population "own" their home here and yet this is one of the wealthiest in the world. People are far more inclined to pay heavily into an (equities based) pension, rent a nice place in an convenient area (moving when necessary) and spend the money left over on ski holidays, sports cars or outrageously priced model railway sets.

This seems to be a completely sensible approach to life's finances when contrasted with the Irish approach where the "must buy a house" mantra impoverishes you for years (time wasted on the young and all that) forcing many to completely compromise their lifestyle (commuting) just so your kids will have something to squabble over when you die.

Hi Dara

I think this is such an interesting point, that I split it from its original thread.

I am all in favour of challenging conventional wisdom and am very open to reevaluating this point.

I still believe, that as a general rule, it is a good idea to buy your own home. With the benefit of hindsight, this would not have been a good idea over the past 5 years.

I also believe, that it is a good idea to borrow to buy your own home.


Financial benefits of buying a home over investing in shares
It is easier to borrow
The cost of borrowing is much cheaper
There is some tax relief on the mortgage interest
There is no income tax on the benefit from having a "free" home.
There is no CGT on the increase in value of your investment
Your home will be disregarded for means testing purposes if you get social welfare allowances.

I believe that these combined financial benefits more than compensate for the risk of non-diversification

I believe in the principle of diversification, but it is sometimes overstressed.

Financial downsides
If you want to relocate for a job, it is expensive to do so
It is risky in the short-term and maybe in the long-term

I still believe in investing in shares over investing in investment property
Borrowing to invest is too risky - whether in shares or in property.
Shares are better diversified.
Over the long-term shares have outperformed property
There is much less hassle in shares.
It is difficult to get diversification in property

Non-financial benefits of buying a home
Security of tenure
You can "nest" in your home - if you spend money on painting and decorating it, you will get the benefit of it.
No disputes with a landlord over fixing things

I do not recommend overborrowing or overpaying for your own home
I grew up in the era of mortgages equal to 2.5 times your salary.
I have said it many times that people should aim to get their mortgage to a comfortable level, which I take to be 2.5 times salary or 50% LTV

Because of the transaction costs, it is wise to stretch yourself when buying a home
There is a bit of a contradiction here. But with high stamp duty and high buying and selling costs generally, it makes more sense to buy a home at a bit of a stretch. And I don't mean borrowing 10 times your salary.

There is another argument for buying your own home - you are matching your assets with your liabilities.

You will have a requirement to live somewhere for the rest of your life. Buy buying a property you are getting a more reliable fix on that cost for the long term.

If you have paid off your mortgage, the cost is gone.

If you are renting, you are always at a risk that an increase in rent might well force you to leave the property you consider to be home.

I am not articulating this very well, but over the long-term, I think that buying a house is the least risky option.

Well I'm in my mid 30's and now unemployed. By the time I get a good job and rebuild my wealth I will be 40. I'm single and will remain so.

There is noway in the world I'm going to buy a house. Why would I want to lumber myself with a 30 year mortgage for? I am currently renting in a sound area and have great neighbours and family nearby.

Having a mortgage is a mugs game.

Look at it another way...

Consider someone who invests in a balance portfolio of equities instead of buying their own home.

Assume that the rent equals the amount of interest they would pay on the mortgage.

They will have a portfolio of equities instead of a property. This is certainly more volatile, but, long-term, probably less risky.

They will pay 25% CGT on any gains they make.
They will pay up to 55% income tax on dividend income

They face a risk that rental levels (and property values) may rise while their investment income declines.

To compensate for that, they might also get a much higher return on their share portfolio while property prices and rents decline.

The massive tax advantage of "investing" in your home, swings it for me without even considering the non-financial benefits.

Could you overcome this by maxing out your pension contributions? Only to a certain extent. I am going off pensions as the commitment is so long term that you can't change course if the government taxes them as they seem to be planning to do.

I have said this before on this site - but it applies here - one attitude very prevalent in Ireland is that "rent is dead money". What we overlook however is that for the lifetime of the mortgage we pay a rent to the bank for the mortgage in the form of interest rates. This money is equally dead. If the interest rates for your mortgage will cost you more than rent (which can definitely be the case) then surely its financially prudent not to buy but to save and only buy when a bigger deposit reduces the interest rates below rent.

Brendan said:

If you are renting, you are always at a risk that an increase in rent might well force you to leave the property you consider to be home.

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Yes in Ireland this is a problem. In countries where renting is more prevalent a tenant cant be "forced" to leave a property you consider to be home. Things like tenants childrens schooling etc. are all taken into consideration. Notice to leave can be up to a year. Support for relocation provided etc. Until a fairer renting structure is created supporting the tenants and landlords Irish people have no choice but to buy for security. But this security is family security (ie having a home/base) - not financial security.

In my humble opinion:

I bought my own home (via mortgage) at the age of 30 so that if all else fails I will guarantee myself I will own my own home by the time I retire. I see this as a huge and paramount importance.
I can work now. I'm healthy and willing and able. (Leaving recession arguments aside). When i'm in my 60's and onwards, this won't be the case. Being old in this country and many others is hard enough, and I plan to make it that bit easier by taking away the worry and stress of not owning my own home. This is the main reason I bought my home.

Also another benefit worth noting is that if you die, the life assurance takes care of the mortgage for your wife or estate. I don't think you get that with benefit with shares.

spreadsheet, you can always just buy life insurance... even if you don't own a home.

While there are currently tax benefits to buying a home over renting one, I don't expect these benefits to last the current public finances dilemma. Further, I expect water rates and a property tax will be introduced that will fall disproportionately on homeowners.

I don't believe a home is an asset. To me an asset is something that generates income. If you borrow to buy a house, then it is a liability until you have paid it off. If you own your home outright, it is a possession, much like any other, that has a resale value. That resale value varies depending on the market for similar possessions. It also has an ongoing maintenance cost that is absent in rental properties.

Of course, if you sell your home, you are homeless and need to find somewhere else to live, so you have to either buy or rent another home. You may or may not make money on the transaction.

A similar proposition would be if you bought an e-type Jag in the 1960s. You drive it around and get use of it for many years. When you come to sell it, you find that there is a good market and in inflation adjusted terms you get the same amount for it that you bought it for.

House prices on average over the long-term track inflation. They do not beat it, particularly not if you buy when prices are above long-term trends. It doesn't take hindsight to see this...

I don't believe a home is an asset. To me an asset is something that generates income.

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I think people need to think very clearly and precisely about this.

A home is an asset. It has a value. It can be sold. It can generate income if you vacate it. In a sense it generates tax-free income in that if you live in it, you are saving the rent you would otherwise have to pay.

A mortgage is a liability.

House prices on average over the long-term track inflation.

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I don't see any direct relevance for inflation.

What matters is whether over the course of ownership, the interest paid on the mortgage will be exceeded by the rent saved by owning the property + any gain or - any decline in the capital value.

Or to go back to Darag's point, would you get a better, risk adjusted return by renting a property and buying shares.

Brendan

Brendan said:

What matters is whether over the course of ownership, the interest paid on the mortgage will be exceeded by the rent saved by owning the property + any gain or - any decline in the capital value.

Or to go back to Darag's point, would you get a better, risk adjusted return by renting a property and buying shares.

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Personally I think this is like comparing apples and oranutangs. The propostion is whether buying your home is the right priority. Priority being the operative word. I can accept, even without doing the numbers, that after 30 years owning your own home beats paying rent and having a few shares in Acme Corp. But nobody does that. Nobody.

Renting provides flexibility in the short term, allowing you freedom of movement for career progression and a changing personal life. What is the financial priority in that case? Pension? Probably not. Owning a House? Certainly not.

I think, with hindsight, flexibility has proven to be key to anyone under the age of 30. Take financial decisions which do not hinder that.

If the interest rates for your mortgage will cost you more than rent (which can definitely be the case) then surely its financially prudent not to buy but to save and only buy when a bigger deposit reduces the interest rates below rent.



Does this not ignore the probability of capital appreciation of a purchased house which is not possible in the rental scenario?

I say "probability" as over the longer term this has been the case.

Brendan said:

I think people need to think very clearly and precisely about this.

A home is an asset. It has a value. It can be sold. It can generate income if you vacate it. In a sense it generates tax-free income in that if you live in it, you are saving the rent you would otherwise have to pay.

A mortgage is a liability.

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By this definition, anything is an asset if you monetise the use value. My car has an asset value of thousands of euro, as that is what it saves me over taxis and public transport. But it is a 1998 Skoda and is, essentially worthless. As an asset it has no value, but its use is incredibly valuable to me.

You are conflating utility and asset by monetising utility. As I said above, you have to have somewhere to live. Using owner's equivalent rent (OER) to determine the use you get out of a home is a bogus analogy because there is a cost to bear regardless of whether you own or rent. In effect, all you are saying is that there is a baseline cost set by either interest rates (the interest portion of your mortgage payment+maintenance+building insurance + transaction costs - tax allowances) or rent (rent + transaction costs - rent relief) whichever is lower. Sometimes rent will be lower, sometimes interest rates. This doesn't mean you are saving this cost by living in the house you are paying for, because you are paying for borrowing the money to live in the house!

Inflation is relevant where talking about an asset that has a long-term realisable value. Performance against inflation over the long-term is the only metric that I can think of that is worth considering in an asset.

I think that comparisons between home prices and the stock market are misleading. The stock market is risk capital, most people aren't gambling when they buy their homes (or even when they buy investment properties). A better comparison would be long-term bond rates since they determine the price of money for mortgage lending (or should, in an orderly system!).

Howitzer said:

Personally I think this is like comparing apples and oranutangs.

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hi Howitzer

You are quoting out of context. Yoganmayhew made a reference to house prices and inflation. I was pointing out the irrelevance of this comparison and pointing out that comparing interest rates, house prices and rent.

Brendan

Yog

You made a statement that a house was not an asset, and this had to be corrected.

Your Skoda is also an asset, but not a very valuable one. It is still an asset.

Inflation is relevant where talking about an asset that has a long-term realisable value.

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Just to simplify this. Let's say I have a choice of renting a home for €10,000 for one year or else buying the home for €100,000. The mortgage interest will be €5,000 and I have a buyer for my home at €98,000 when the year is up. Forget about transaction costs to keep it simple.

Buying the home will cost me €7,000( €5,000 rent + €2,000 decline in value) So it makes sense for me to buy the home instead of renting it.
It does not matter if inflation is -5% or 40%. Bond yields are also irrelevant.

If by inflation you mean the increase in value of the home, then, of course, it is relevant. But I assumed you meant the change in the CPI.

Brendan

Brendan said:

If by inflation you mean the increase in value of the home, then, of course, it is relevant. But I assumed you meant the change in the CPI.

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Um, that's why I said that house prices over the long-term track inflation, assuming you start at the median point in pricing (i.e. that the price you buy at is at the median point - buy above and you will increase in value by less than CPI over the long term, buy below and you will do better).

I still believe CPI is relevant. What's the purpose of buying an asset with a long maturity? Is it so that you have less purchasing power in the future, but it is locked away from you so you can't spend it? Or is it that you at least maintain the current purchasing power that you have?

On the car thing, it is worthless but useful. That is what owning a house is. Attempting to put a value on that depends on a lot of facts - whether you want to move, what prices are like when you do want to move, how liquid the market is, what happens if you lose your job, get divorced, rents rise, interest rates rise. It is an oversimplification to say that the only comparator is cost of renting vs. cost of buying. As other have said better, in a globalised economy, flexibility in pursuit of your only true asset (your job) is important in someone under 30.

On the bonds, my point was to use bonds rather than stocks as the investment element of: renting + investing Vs. buying in terms of appreciation of asset values (the who wins scenario).

Brendan said:

I still believe, that as a general rule, it is a good idea to buy your own home. With the benefit of hindsight, this would not have been a good idea over the past 5 years.

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My contention is that is a belief based on emotion rather real evidence. I will grant you the following are financial advantages: TSR, a lack of CGT and the fact that it is not considered part of your wealth for the point of view of SW assessment. However there are matching or even more generous tax benefits to putting money into a pension while, to be honest, I'm unsure whether the size of your pension is considered by SW but I suspect it isn't.

Let's look at what a prospectus would look like if you were trying to convince people to "invest in a home":

• Huge upfront cash requirement - often more than an entire years salary net of tax.
• A significant chunk of the above is foregone if you decide to sell earlier than you intended (stamp duty). I.e. a massively expensive "early redemption fee".
• Commitment to an onerous 20-35 year payment schedule which is completely unsuitable to most peoples life time earning profiles - impoverishing the young.
• Huge entry/exit fees - often 10% or more.
• That can require months or even years to liquidate or turn into a cash source (rent)
• It involves a huge amount of leverage - massively increasing risk as we can see the vile effects of negative equity on peoples lives.
• Cannot easily be partially liquidated
• Involves very significant ongoing extra costs: mortgage protection insurance, life insurance, council taxes, maintenance, upkeep, etc.
• you need to live in it (in order to be able to include the rent you've saved by not being a tenant) which is a particularly onerous and damaging condition in todays world and is likely to seriously restrict your future earning potential
• It's an asset class that has historically hardly beaten inflation (the killer blow in my opinion - I could stomach all the other inconveniences in order to gain exposure to a high yielding investment)

In all seriousness, if you weren't emotionally tied to the idea of home ownership, would you seriously suggest that a person put EVERY SINGLE SPARE PENNY into an investment product like this for 15 or 20 years? If there wasn't a historical precedent you'd be considered nuts. Looking at that list, the closest thing it reminds me of is an "investment" I made in a national hunt filly but at least the horse represents play money for me not my sole reservoir of wealth.

I just want to be clear that I am talking about the investment angle of buying a house (to live in) independently to the non-financial and emotional benefits of owning a house. I think it is fair to do so; in Ireland people will always be happy to pay some premium to own rather than rent, the value of this premium is effectively canceled out during the round trip purchase and sale of a house. The market (by pricing rents and houses) actually tells you what this premium is if you are interested in this other aspect of home ownership. (As an aside the premium seems to vary widely by area and house type - the phrase "trophy home" seems to actually be quite apt - people seem to be happy to pay 3 to 5 times as much to own rather than rent an expensive house in a prestigious area but are less willing to pay much of a premium for less "prestigious" properties.)

I did own an apartment far from the city centre but I sold it a couple of years ago. I realised that I could pay about half the amount to live in a much nicer place in leafy Dublin 6 close to where I was working at the time. I'm delighted I did so; it improved my quality of life enormously.

Like I said, having been exposed to a different culture where renting from cradle to grave is the norm, the ludicrousness of the idea of "investing in a home" seems all the more apparent. The returns on this asset class are historically poor (ignoring the recent boom and bust cycle where many people did very well by virtue of luck with timing) - add the restrictions, expenses and risks and it starts looking like a sick joke. I just look around me here and young people and families have far more disposable income as they are unburdened by mortgages and usually have some savings as they haven't blown their life savings on a deposit or stamp duty. You are not expected to go through 10 years of purgatory in order to get a "foot on the ladder" - and your lifetime expenses are spread out in a much manageable way. If someone here REALLY wants to buy, they generally sensibly leave it until the children are grown up and no longer a burden while here people are hit with a trebble whammy with the cost of rearing children coinciding with the period where your salary/income is far from it's peak trying to pay off a mortgage. The more I think about it the Irish attitude to home ownership is not only irrational, it is damaging for individuals both in terms of overall quality of life (particularly for young families) and worse financially overall. The only issue is that legal protection for tenants is poor to non-existant but a simple piece of legislation could change that overnight and allow Irish people to earn and spend more evenly over their lives instead of being impoverished 'til the age of 40 before becoming comfortably financially for a period before kicking the bucket and leaving the house to "kids" who are now probably middle aged themselves and have gotten over the financial hump. It simply doesn't make sense.

If I get time later, I'll fire up Excel and do a few scenarios to show how bad an investment a house is.

Darag, that was a good post and i enjoyed reading it. Anyhow I posted this here and I was even called a plonker!

http://www.askaboutmoney.com/showthread.php?t=104250&highlight=upthedeise

UptheDeise said:

Why are you stressed? Is it Because you can't get on the property ladder? why would you want to do that my friend? Haven't you realised that owing your own home is a scam, least of all when it comes to affordable housing?

Think about it. When you buy your own home you have to:

- Spend a fortune paying back the mortgage
- Spend a fortune paying a massive amount in taxes to the government
- Spend a fortune for all the administrative and legal costs to get your mortgage in the first place
- Spend a fortune on doing it up
- Spend a fortune on utility bills
- Spend a fortune on home insurance
- Spend a fortune on mortgage protection
- Spend a fortune on maintenance
- Spend a fortune on the interest on your mortgage
- Spend a fortune on petrol/diesel travelling to work as you'll probably get an affordable home miles from your work
- Spend a fortune on the wear and tear on your car.
- Spend a fortune dealing with the neighbours form hell and can't sell.

- If you do sell too early and your in negative equity you will be penalised twice. Once by the fact your in negative equity and then by claw back.
- You then die just as you've made your last payment, and the relatives get most of the monies from the sale while the tax man gets another chunk in most cases.

What a scam!!!!!

Stick to renting.

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Hi Darag

My contention is that is a belief based on emotion rather real evidence.

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You may have overlooked my post where I listed out the financial and non financial benefits.

This is based on evidence and analysis. It is not based on emotion as you are suggesting. However, I am putting a non-financial value of home ownership.

I did own an apartment far from the city centre but I sold it a couple of years ago. I realised that I could pay about half the amount to live in a much nicer place in leafy Dublin 6 close to where I was working at the time. I'm delighted I did so; it improved my quality of life enormously.

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So what? I have made it very clear that, with hindsight, it would have made much more sense over the past few years to rent rather than buy. This will be the case some years, while owning a house will be the case more often than not. Giving one example, does not advance your argument.

I just want to be clear that I am talking about the investment angle of buying a house (to live in) independently to the non-financial and emotional benefits of owning a house.

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And just in case it's not clear, it seems to me that the financial benefits of owning compensate for the risks involved. And you get the huge added non-financial benefits of home ownership.

Brendan said:

Just to simplify this. Let's say I have a choice of renting a home for €10,000 for one year or else buying the home for €100,000. The mortgage interest will be €5,000 and I have a buyer for my home at €98,000 when the year is up. Forget about transaction costs to keep it simple.

Buying the home will cost me €7,000( €5,000 rent + €2,000 decline in value) So it makes sense for me to buy the home instead of renting it.

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But it's not so simply in reality though is it? Costs on furniture and fittings would immediately remove any financial gain for the buyer.

I think you may be suffering another confirmation bias here.

Brendan said:

Hi Darag

You may have overlooked my post where I listed out the financial and non financial benefits.

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Hi Brendan, no, I didn't overlook it at all. What I did do was to separate the two aspects - investment/financial and non-financial/emotional. In fact, I've very deliberately expressed my belief that there is a significant non-financial benefit to living in a house that you own on numerous occasions. There is absolutely no way I would even attempt to argue that the utility of a rented home and an owned home are the same as it would be clearly nonsense to do so.

What I've tried to do is look at the investment/financial side of the deal and evaluate it using the sort of criteria I think would commonly be applied here on AAM.

Admittedly, I feel I've struggled to explain this aspect of my argument clearly. What I've tried to do is show how it is actually surprisingly easy to put a financial value on the ownership benefit by comparing the prices the market has established for rents and those for house prices. This premium could easily be calculated using prices from daft.ie if you'd a mind to do so. So we could easily factor out this premium from the purchase price and consider the balance the "investment" portion.

In fact when considering a house purely from the point of view of an investment, this ownership premium has no relevance because it equally inflates the purchase and eventual sale price.

Maybe a concrete example would explain what I'm trying to say. Let's say there is a house available for rent for 14k a year. Let's say the landlord nets 10k and interest rates are 4%, then a rational landlord (a rare breed in Ireland admittedly as there seems to be an endless supply of landlords who are prepared to subsidise their tenants) will pay max 250k for the house in order to break even. A property like this in Ireland would probably actually fetch let's say 300k from an owner occupier (or a stupid naive investor) as they will look at the cost to rent the house but will be prepared to pay more for the benefits of living in a house they own. So the owner/occupier is paying 50k over what the cold hearted landlord would pay because they value being able to live in their own home. I was trying to argue that you should forget about this 50k - some people will pay more, some less, basically it is all down to personal circumstances and subjective opinion. It's the balance - the 250K - I am interested in; if you could buy the investment portion of the house for 250K ignoring the fluctuating value of the "owner premium" (50k), would it make sense? I.e. even if the price to buy matched the price to rent, would it make sense?

This is based on evidence and analysis. It is not based on emotion as you are suggesting. However, I am putting a non-financial value of home ownership.

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I hope I've addressed the non-financial value point above - it is simply not relevant to the discussion as it has a neutral effect on the appreciation of value the asset and can be easily measured separately. Maybe I missed it but I feel the only purely investment advantages of owning your home you've listed relate to tax and welfare. I admit I've ignored one or two items you've listed as advantages like "it is easier to borrow" as I did not understand what point you were trying to make. I tried reading it as meaning a home owner can access loan products easier than a non-home owner but that didn't make much sense; it is always easier for people with positive net value to borrow money whether that value is tied up in a house or shares while a person who owns a house in negative equity is not going to find it "easier to borrow".

Besides that I honestly do not see any rational hard financial evidence to support your contention in your messages. I read the sentence "I believe in the principle of diversification, but it is sometimes overstressed." but I saw it as a statement of opinion (one I strongly disagree with) rather than convincing evidence to support your advice that a young person should put every single penny of their savings into Irish residential property for half their working life. I'm sorry Brendan this is simply terrible advice; it worked out well for people bought property before the biggest post-war property boom in Europe started (i.e. the Celtic tiger days). This good luck is very unlikely to be experienced by anyone else in our lifetimes. The only reality here worth a damn is that the long term returns from this asset class is roughly that of inflation.

Whatever about all that, I thought at least if you disagreed with me you'd try to take on any of these disadvantages. This list was intended to be the meat of the message:

• There's a huge upfront cash requirement - often more than an entire years salary net of tax.
• You lose a significant chunk of the above if your need to sell earlier in the form of foregone stamp duty.
• You are commitment to an onerous 20-35 year payment schedule which doesn't at all suit the way people's lives develop. This whole thread was started by me reacting against the suggestion that going interest only was a sensible way to mitigate this HUGE problem with this investment.
• Entry and exit are extortionately expensive - often 10% or more.
• It is completely non-liquid; it can take months or years to convert the investment into cash.
• It involves a huge amount of internal leverage (you list this as a benefit?) exposing the investor to increasing risk of ruin. This isn't hypothetical - property busts have bankrupted 10s of millions of people in Europe over the last 3 decades because of the leverage involved.
• You cannot easily partially liquidate your investment if you need cash.
• The "management" costs of this investment are significant. Even when you only include the purely financial costs involved in maintaining a house (ignoring the cost of your own time) like mortgage protection insurance, life insurance, council taxes, maintenance, upkeep, etc. I suspect you are looking at least 2% of the assets value per year.
• In order to even "break even" you have to live in the house for the entire duration of the investment so that you can count the "saved" rent as part of the return achieved by the asset. Mostly this is not a burden as it's far nicer to live in a house you own than rent one but it is restrictive non-the less. Life is a long and twisty path for most people; being forced to liquidate your entire life's savings/wealth in order to move for family/job/whatever reasons is a massive disadvantage.

Each one of these on their own is a serious negative; in combination and allied with the knowledge that the investment is only likely to return the rate of inflation just makes the idea look like a joke. These are serious issues and I don't believe you would recommend any other investment vehicle which had these issues. For example forestry funds, BES schemes and "investment" holiday homes all share most or all of these characteristics (except the having to live in them), yet I recall that you've expressed negativity towards investments like these over the years because of these very reasons despite various tax advantages and the like.

So what? I have made it very clear that, with hindsight, it would have made much more sense over the past few years to rent rather than buy. This will be the case some years, while owning a house will be the case more often than not. Giving one example, does not advance your argument.

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In fact I wish I had never mentioned it - it was not meant as an argument -it was more anecdotal than anything. As was my description of seeing renters in this other country lead much more stable, financially secure and comfortable lives by being able to pay for the roof over their heads as they use/need it according to their present needs instead of putting every penny of their personal wealth toward a deposit/stamp duty and servicing the ongoing cost of the loan for 20/30 years. Instead, I see people here who are earning the equivalent of the average industrial wage in Ireland who have a far better lifestyle than the equivalent in Ireland even though the cost of living is very high here. Yes they get old and then they often end up renting a smaller place in quieter areas; what is so awful about this? At least they are not pushed close to poverty during what should be the good years of your life, bringing up a family. During their lives they've had far less financial strain and have enjoyed far more luxuries than the equivalent Irish person who has spent 4/5 years saving for a deposit/stamp duty and then are mortgaged to the hilt for the next 20. I could be imagining it but people seem generally much happier here, parents have a greater opportunity to take career breaks to look after kids and people do not suffer stress worrying about mortgage payments. Not only that, they get to spend their income gradually over their life times. Contrast with a typical Irish person who has swallowed the "you must by a house" mantra; work for 4 or 5 years just to build up savings for a deposit; then fix yourself to a 20/30 year repayment schedule which is effectively "front loaded" given the effects of inflation; at this stage following conventional wisdom (repeated here on AAM), they have bought the biggest house they can afford and in the middle of all this, they may have to struggle to afford a family? Step back a minute Brendan and imagine yourself in another country which didn't have the same "buy a house" tradition as Ireland has; do you really think you could make a case to those people for buying a house given all these disadvantages?

And just in case it's not clear, it seems to me that the financial benefits of owning compensate for the risks involved. And you get the huge added non-financial benefits of home ownership.

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I'm sort of repeating myself but could you clearly state what you believe to be the "financial benefits" of investing half your life's income in an asset class that has historically returned about the rate of inflation? I really can't find any in what you've written beside a few tax benefits which are relatively minor and actually compare very poorly with the tax breaks available for pension investments. And there is no free lunch; you don't "get the huge non-financial benefits of home ownership" for nothing - you pay through the nose for these benefits as is evident by the huge disparity between the cost of renting and the cost of borrowing to own the same house.