If It’s Stability You Want, Then Rent, Don’t Buy
Unoccupied houses sit on a stalled housing development in Dublin Ireland, on Monday. Jan. 10, 2011. The decline in asking prices for Irish homes accelerated in the fourth quarter of 2010, bringing the overall drop in the year to 14 percent, according to property website Daft.ie.
Aidan Crawley/BloombergAnyone who got caught in the real estate bust last decade in the U.S. or U.K. probably knows this already, but now the economic data is in: home ownership can be bad for you.
More accurately, it can be harmful to the financial stability of whole economies. That’s the evidence from a new study published this week by European Central Bank research economist Gerhard Ruenstler.
The higher the level of ownership in a given country, the longer and bigger the credit cycles are. And this can make a big difference — look at the chart for Britain, where house prices are the subject of every Londoner’s Sunday brunch chatter. With a rate of 72 percent, higher even than the U.S., the last four decades have seen three matching mega-cycles in credit volumes and house prices.
Now look at the chart for Germany, where people have been traditionally more likely to spend their cash on large motor cars than on mansions. The credit and house price cycles track overall output very closely. Few booms, few busts.