“I read in the Metro that the Bank of England thinks London house prices will fall 30% after Brexit. When that happens we should buy a house.”
As is her wont, my lady wife casually lobbed a hand grenade amidst my well-laid plans.
Outwardly I feigned indifference, grunting noncommittally.
On the inside I was panicking like Beaker from the Muppets, whenever that sadistic Dr Bunsen Honeydew approached him with a car battery, jumper leads, and a promise that “this should only hurt a bit”.
On my first visit to Paris I climbed the Arc de Triomphe. While the views across the city are certainly striking, it was the bird’s eye view over the Place Charles de Gaulle that was unforgettable.
A roundabout with 10 unmarked traffic lanes, 12 exits, and no road rules is a recipe for car crashes just waiting to happen!
The London equivalent of the Parisian accident waiting to happen is Hatton Gardens. This is a street lined with jewellery shops specialising in diamond engagement rings, where the bank balances of generations of gentlemen suitors have gone to die.
Loved-up newly engaged couples arrive at the first store hand in hand, all smiles and laughter.
With each successive shop visited the body language deteriorates.
Smiles become strained. Forced. Painted on. Then lost altogether.
Laughter becomes strained. Slightly hysterical. Before vanishing entirely.
Hands that were previously glued together are withdrawn, transforming into tensely crossed arms.
Eyes tear up.
The initial leisurely pace becomes a forced march. The ladies determinedly stalking ahead. The gents resignedly skulking behind.
By the time the formerly happy couples complete the loop, terms of endearment like “darling” and “my love” have degenerated into sniping and character assassination along the lines of “cheap bastard” and “moneygrubbing bitch”.
The bartender at the pub nearest the end of the Hatton Gardens does a roaring trade soothing the injured prides (and emptied wallets) of those gentlemen suitors.
The most common refrain? To curse the depression era De Beers advertising campaign which made up the “rule” that engagement rings should cost a month’s salary. Then curse De Beers again for their follow up marketing campaign in the “greed is good” 1980s, which doubled that “rule” to two month’s salary.
The Parisian demolition derby and the Hatton Gardens gauntlet are entertaining spectator sports to watch, but far less enjoyable to actively participate in. I suspect that witnessing my house hunting misadventures would fall into that same category.
I have learned to dread those moments when my lady wife decides we should resume our sporadic house hunt. Over time I have become conditioned to a state of learned helplessness, much like Seligman’s dogs. Sometimes there are only bad choices!
Weeks spent vigorously debating whether a housing budget is determined by how much I am willing to afford versus the maximum obtainable mortgage “approval in principle” figure.
Months of lost weekends and evenings attending viewings. A seemingly endless parade of overpriced properties located in neighbourhoods that are near (but rarely in) nice locations to live.
The endless debate around whether London is just a milestone or actually the final stop on our somewhat nomadic globetrotting adventures. Having school-aged kids has certainly slowed things down on that front, but if I am honest the prospect of becoming an elderly Londoner holds roughly the same appeal for me as visiting a proctologist who has cold hands.
Like a nuclear winter, the homeownership whim eventually passes.
Housing: trophy or investment?
Since I left home as a broke university student more than 20 years ago, I have lived in at least a dozen different homes.
Collectively that experience has taught me a few hard-won lessons:
- Moving house is disruptive, expensive, and no fun at all.
- The degree of compromise required when choosing where to live increases by a power of magnitude with each additional member of the household.
- Life happens. We may like to believe we are in the driver’s seat, but it often feels more like we’re passengers on a rollercoaster.
- “Forever” plans are the imaginings of incurable optimists. Along with perpetual motion, skyhooks, and superheroes, they should exist… but I have learned to live with disappointment.
Two of those homes I owned. The remainder I rented.
On balance renting incurs less matrimonial disharmony. Tenants can settle the remodelling and decorating arguments with a definitive “we can’t” rather than seldom accepted “I won’t”.
Putting that particularly tricky ultimate destination question in the “too hard” basket for now, the remainder of the ownership debate boils down to the following clash of perspectives:
Should a home be located, configured and decorated with a view to impressing the Joneses?
Should a home be located in an area that will increase in value faster than the prevailing market? Provide opportunities to create value? Be decorated to maximise enjoyment while not designing yourself into a corner (or making the property difficult to sell)?
In short: is a house a trophy or an investment?
Given those options represent opposing ends of a spectrum, where is the optimal happy place that satisfies both perspectives as far as possible?
Wise heads would observe that as long as a house is a home, providing a warm safe place for its occupants to sleep, then the rest is just a matter of perspective.
Cynics would add that the proverb “happy wife (or husband), happy life” is more correlation than causation, however the inverse is invariably true!
home ownership from a tenant’s perspective
Home ownership is an interesting financial equation. Consider the following comparisons:
Buy a property, pay down the mortgage over time, and eventually you will own it outright. From that point onwards your rent is effectively “free” for the remainder of your life.
Rent a property, pay down the landlord’s mortgage, and eventually they will own it outright. You had to pay rent the week you moved in, and you will continue having to pay rent every week until you move out.
Buy a property and you have an asset to leave to your loved ones when you die.
Rent a property and leave your loved ones the obligation to hire a professional cleaner before the exit inspection.
Buy a property and you have to finance and manage the hassle of repairs and maintenance.
Rent a property and you indirectly pay for those repairs and maintenance. You also have to deal with unreliable tradespeople visiting your home and making a mess. However the decision to hire craftsmen or cowboys is made by your landlord, a group renowned for their deep pockets and short arms!
Buy a property and you can make it your own. Decorating, renovating, improving, extending.
Rent a property and your home design instincts are limited to furnishings alone.
Buy a property and you are on the hook for any major repairs.
Rent a property and you can escape at the first sign of trouble, incurring minor costs.
Buy a property and you are also buying into the benefits and problems of the neighbourhood.
Rent a property and you can readily move if that neighbourhood gets too much to handle.
Looking through that list I think the main takeaway is:
renting buys flexibility while avoiding accountability, but at the opportunity cost of forgone accumulated equity.
Buy… but only if you can buy well
If it was a simple question of owning an asset or not, then generally it would better to own. The financial discipline of building equity via mortgage payments is a form of enforced savings.
That said many homeowners make terrible buying decisions:
- Buying in a terrible location.
- Buying a terrible property.
- Paying a terrible price, then compounding that problem by over-capitalising via terrible renovations.
- Burning money on terrible decorating decisions that look pretty but add no value.
My personal preference has been to own self-financing well-located properties, where the numbers add up and the growth prospects are promising.
I then choose to rent where I prefer to live, making this purely a lifestyle decision.
This provides the best of both worlds: equity accumulation while enjoying flexibility and choice.
The chances of a single property meeting both sets of criteria are small indeed!
Generally I wouldn’t be willing to afford to buy where I choose to live, and I have little interest in living where I have chosen to buy.
The one exception to this approach was the time when I purchased a flat we were renting. The landlord needed to sell, but my lady wife dug in and refused to move. While this “investment” worked out nicely in the end, it would be easy to forget that even fools will float in a rising market!
If you aren’t content with where you live, and (usually) happy at the prospect of returning home each day, then it is worth reevaluating your housing priorities.
You’re only as trapped as you choose to be.
Sounds simple, no? I’ve told a story, articulated a reasonably compelling argument that (unsurprisingly) supports my worldview, and even concludes with a slightly condescending call to action.
My plans receive a punch in the face
Not long ago I visited some friends in Paris. They live in a rabbit-warren of a house near Versailles, the place they settled down after their own globetrotting adventures some three decades ago.
Over the years they have renovated and extended as interest and/or finances allowed. Building a flat above the external carport. Buying the neighbour’s unused garage, and turning that into another flat. Enclosing the rear courtyard between the house and garage, to create a sprawling triple glazed dining area.
The house wouldn’t win any awards. Indeed, any architect producing such a design would be drummed out of the profession for attempting to combine the works of M.C. Escher and Salvador Dali whilst under the influence of an excessive quantity of hallucinogenics.
What the house did have was a real feeling of “home”.
An eclectic collection of furnishings and decoration, rather than the bland conformity of cheap disposable flat packed furniture that is the staple of tenants everywhere.
A constant stream of friends and neighbours dropping by for a coffee or a chat, the product of having made an effort combined with remaining in a single place for more than a year at a time.
The couple also have a holiday house on a river in the south for France, near the Spanish border. They can ski from their back door in the winter, yet are only a short car ride away from the beach in the summer. A wonderful escape when big city living gets to be too much.
Neither of these properties would have ever made financial sense.
Both would easily fail my assessment criteria.
And yet… I find myself surprisingly drawn to some of their lifestyle choices.
A home where their children and grandchildren can happily visit.
A home with enough space to indulge whatever pastimes or hobbies they enjoy.
A home they happily grew old in.
Could this merely be my equivalent of keeping up with the Joneses? Or perhaps there is something more to it?
all fun & games until someone loses an eye
When the result of the Brexit referendum was announced, I found myself getting angry.
It wasn’t the fact that a vast populous of English gormless lackwits had just kicked the largest financial own goal since the Dutch traded Manhattan for Pulau Run.
That was hardly surprising, they are the same people who:
- watch reality television
- go on “all inclusive” package holidays to exotic locations teeming with people from… England.
- spend more each month on pay television football subscriptions than they manage to save
- purchase shoddily built off-the-plan leasehold housing built on well-documented floodplains… then seek to blame others for the service charges and flooding.
No, upon reflection what I was pissed off about was losing the right to live, work and study anywhere in Europe. This wasn’t something I had gained by some accident of birth, it was something I had actively sought out and invested a ridiculous number of years jumping through onerous visa hoops to obtain.
It wasn’t until it was (likely) gone that I realised I had a vague general intention of ending up living on a beach or a lake somewhere on the Mediterranean.
The lifestyle on offer is broadly comparable to that offered by the many coastal towns in Australia… only with better food, more reasonable summer temperatures, and the absence of an expensive 8+ hour flight to get to anywhere else.
Face fear and confronting uncertainty
The sense of panic that arose when my lady wife’s nesting instinct kicked in turned out not to be caused by the familiar arguments, frustration and indecision over London property prices.
This time it was fear.
Fear that my carefully constructed array of passive income streams would be destroyed by a mortgage large enough to pay off the national debt of a small banana republic.
Fear that the hard-won control over how I invest my time would be sacrificed to service that mortgage.
Fear that I would become even more financially anchored to Britain’s uncertain economic future, as opposed to enjoying a tenant-like flexibility and freedom to escape.
Fear that my barely formed thoughts of indulging in a comparable lifestyle to my Parisien friends would remain an empty pipe dream.
It turns out that “too hard” basket question about ultimate destinations probably can’t be avoided for all that much longer. Pretending problems don’t exist has never been particularly effective at making them go away… no matter how many C-suite executives wish it were so.
Time to strap on the helmet, run that gauntlet, and try to win the demolition derby. I forecast stormy weather ahead!
- Dali, S. (1989), ‘exhibits + collection‘
- Escher, M.C. (1972), ‘The MC Escher Foundation‘
- Epstein, J.E. (1982), ‘Have You Ever Tried to Sell a Diamond?‘, The Atlantic
- Office of National Statistics (2018), ‘Making ends meet: are households living beyond their means?‘
- Olsen, M.B. (2018), ‘House prices to ‘plummet by a third’ if UK gets no deal on Brexit‘, The Metro
- Seligman, M. (1972), ‘Learned Helplessness‘
- Varagur, K. (2017), ‘The spice island they swapped for Manhattan‘, Financial Times