There was an interesting question on Quora about what economists think about buying vs renting a house? Alex’s response was interesting (paraphrased):
Housing is overrated as a financial investment. From a diversification standpoint, you’re less diversified, and it’s easier to diversify with stocks. Unless you are leasing the basement, houses don’t pay dividends. Dividend stocks do. One can hope that the house will improve in value but don’t count. Indeed, you should expect that your house will appreciate less than the market will.
Another problem with houses is that people are locked by home ownership to location making it more challenging to find jobs when a change is needed. It’s troubling that higher unemployment rates are predicted both across nations and across states in America where the percentage of home ownership is higher. This implies High Home-Ownership impairs the Labor Market.
Houses are wonderful if you enjoy interior decorating, backyard bbq and talking to your neighbors. Houses now also come bundled with a considerable side asset – accessibility to so-called public schools. One argument by the way, which isn’t stressed as much as it should be, is that the schools you attend are no longer connected to your home location, which breaks that historically powerful connection between your geographical area and the school you attend.
Owning a house can also be part of the “American Dream” and maybe as an outcome the US tax code subsidizes houses, notably for the rich. Most economists, however, believe that the United States tax code is biased toward housing. There’s no great reason to bias folks away from renting and towards purchasing. Germany is a rich country, and a big part of Germans do fine by renting their dwellings. See this article on Quartz about most Germans renting instead of buying their homes.
Summary: When you have a choice, select the smaller house closer to work.
If we’re taught to diversify our bonds and your stock portfolio to spread out the risk, why wouldn’t you do the same with the one single thing you are likely to spend the most money on over the course of your lifetime? Alex makes a good point in his argument.