[citrablue]

For comparison, the stock market has done 9.1% during that time. $40k in an index fund back then would be worth around $390k today.

Leverage is the biggest benefit, I would imagine. Although paying half as much in rent sounds really nice these days :).

Glad it worked out for you.

[wahern]

> Leverage is the biggest benefit, I would imagine.

Yes, absolutely. A 20% downpayment of $40k suggests a $200,000 purchase price. A 6.5% annual return over 25 years suggests the house is presently ~$950,000, because that's usually how people frame things (appreciation on the value of the asset, not their equity), unless they say otherwise. (Correct me if I'm wrong.)

So the house appreciated $750k, which is theirs to pocket. And based on the $40k downpayment, that's a ~13% annual return. But even if you base it on the purchase price, nobody cares about a lower annual return if you have a higher absolute figure you would't have been able to achieve otherwise.

(If you're not paying a mortgage, you're paying rent, and rents are typically approximately the current price of houses plus maintenance. There's a ton of variance, of course.)

We live in an intensively capitalist society, for better or worse. If you're not in debt, using money to make money, you're losing. Houses can be a risky investment, and for most people a mortgage is just what you have to do to maintain an average standard of living, especially in your later years when you can draw down equity and any appreciation. But if you don't have a mortgage you're at a serious disadvantage.

Rich people, or people who have the time and energy to trade derivatives, don't need home mortgages because they have other ways to make leveraged investments. For the vast majority of people, the first and only opportunity is a home mortgage.

This is why I think it's insane that we're building low-income housing with exactions and public expenditures. It's like buying Cadillacs for everyone too poor to buy a car on their own. You either buy older buildings (used cars) and refurbish, or better you get banks to finance construction of new properties in which they and the low income residents can have a property interest, similar to Singapore and (I think) some places in Honk Kong. The property interest may have constraints (can't sell for 5-10 years, some appreciation has to be rolled back into the program, etc), so it would take some public expenditures to cover the gap. But you're still playing the capitalist game, leveraging assets, and digging into the pockets of global wealth (not just the local tax base). Of course, the potential for abuse and bad planning is immense, but there'd have to be a ridiculous amount of abuse to burn money faster than buying Cadillacs for everybody. And when you consider the wealth building potential for residents (no longer just a handout, but the opportunity to build assets, like the middle classes), it makes even more sense.

A couple of years ago there was some press about some non-profits doing this in Oakland and elsewhere in the U.S. But the programs are just too small to matter, and the constraints far more onerous. If you don't permit such properties to eventually enter the free market and "gentrify", you risk creating ghettos. Do it right in a place like the Bay Area you need billions on the line.

[ssalazar]

If you could take the money you were going to pay in rent (or at least the difference of mortgage-minus-rent) and instead put it in an index fund, this would be a meaningful comparison.

[citrablue]

Sure, but you aren't getting 5x leverage in an index fund.