Want to make the internet (especially the Canadian internet) pretty mad at you? Just tell them that buying the house you live in isn’t a good investment.
So to follow up on my apparently-very-controversial views here, I want to clarify some things.
(But first, if you’re already iffy about buying a house, or you’re worried you can’t afford to buy, I have v v good news: you don’t actually need to buy a house.)
You can buy things that aren’t an investment
If you look at my monthly budget, the only part of it that I would call “investing” is the money I put into Wealthsimple every month in my RRSP. (Here’s a primer on RRSPs and on TFSAs if you’re still like “IDK what those even are.”)
Does that mean that every other category of spending is worthless?
Um, of course not.
Food? Not an “investment,” but a hella good purchase, and kind of a necessary one.
Insurance? Also not an “investment,” especially since no millennial needs whole life insurance, but I’m very happy to spend that money.
And my mortgage payments? You guessed it. Also not money I categorize as an investment.
But I still bought a house. Saying that a house isn’t an investment is not an argument that you, or anyone else for that matter, shouldn’t buy one to live in. So what am I really saying?
There is no one magic investment
This seems like a wholly uncontroversial opinion—but all too often, housing is pitched as this glorious, can-do-no-wrong magic investment.
If I told you to stop what you’re doing, and put every dollar you could possibly spare every month into bitcoin, because it was a magical investment that was always going to be a good long-term decision, that would be bananas, right?
Or if I told you the same thing about oil? Or cleantech? Or literally any one, single asset category?
Bananas. No one would buy that… unless it was about their house.
No matter what people tell you, housing is not a magical financial product you also get to live in. There is no guarantee that it is going to forever go up in price, and there is no guarantee that your carrying costs aren’t going to eat up all of your potential gains over the long term.
Which is OK and fine!
If you plan on your house being the place you live, and a long-term purchase that might or might not end up leaving you better off, great—buy a house. Maybe you make money, maybe you don’t, but you have a place to live, and that’s awesome.
But when that’s your approach, there are things you just can’t justify anymore.
If you can’t save for retirement, you can’t afford that house
When housing is a great investment, no matter what, it’s easy to justify cutting back other financial priorities to make buying a house work. So easy.
But just like it would be a bad idea to stop saving for retirement to fund a wedding, it’s a bad idea to stop saving for retirement in order to afford to buy a house.
This is one of the biggest reasons I’m happy to take the unpopular “housing is not a great investment” stance, because too many people are stretching juuuuuust to the edge of their budgets, and cutting out other financial priorities, to get into a house. And all based on the idea that it’s the end-all-be-all of investments! (It’s not.)
If you lose your job sometime over the next 25 years, you’ll be happy that you didn’t stop saving an emergency fund just to pay your mortgage.
And when you have a nice, diversified investment portfolio to fund your retirement without having to seriously downgrade your living situation, you’ll be happy you didn’t raid your retirement savings contributions to make your monthly owning-a-house budget work.
(Not sure how to start investing? I got you fam.)
There is no investment that is good enough to put your entire financial life at risk, or abandon your other priorities.
No, not even a house.
Your numbers are not my numbers
My favourite reaction by far to this entire situation is when people get really into the detailed, nuanced numbers of their particular situation to show me I’m wrong.
If you have a detailed financial analysis that illustrates how you’re planning to make homeownership an advantageous money move? This is not for or about you! (And if you’re sitting on a house that made you millions already, especially in a hot housing market, just sit down.)
Housing markets vary. Personal finances vary.
But if you’re tell-an-internet-stranger-they’re-wrong-because-you’re-so-sure on top of your numbers, you probably aren’t going to torpedo your financial life to own a house.
Where it gets dangerous is when people don’t question the narrative or the numbers around owning a home enough, or when they conveniently forget about all of the carrying costs that will eat up their “investment,” like property taxes, mortgage interest, and routine maintenance.
At the end of the day, and I really can’t stress this enough, none of this means you shouldn’t buy a house to live in.
It just means you need to be able to afford your total housing costs without turning your monthly finances into a dumpster fire.
You need to be able to handle the (financial) emergencies that do come up when you own a house.
And you need to be able to save for retirement too (and invest that money in industries that aren’t just housing).
To do that, run your numbers before you buy
Get familiar with a mortgage calculator, and ask people about the other costs that will come along with owning a home.
Understand how much you’ll pay over the lifetime of your mortgage in interest, and make sure to account for paying about 1% of your house’s value in property taxes every year—and aim to save 1% of your house’s value every year for routine maintenance and a house emergency fund.
If you can do all that, and still be able to save for retirement (ideally, 10% of your pre-tax income)?
It doesn’t matter that your house isn’t an investment. If you want it, you can responsibly buy it.
But banking on it being your only ticket to retirement, just like banking on only bitcoin, is a hella risky financial plan, and one that far too many people (24% based on the latest studies) are currently “pursuing”.
And while some people will win big with risky plans, it’s not something you should count on, you know?
So buy (or rent!) only what you can afford, and keep saving for retirement.
I know, I’m controversy personified.