My Rent is More Than Your Mortgage—And That’s OK

My Rent is More Than Your Mortgage—And That’s OK

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My Rent is More Than Your Mortgage—And That’s OK

Often, when I talk about my rent in the city, I receive some version of “my entire mortgage is less than your monthly rent” from those who live outside of cities, usually with addi ...

Often, when I talk about my rent in the city, I receive some version of “my entire mortgage is less than your monthly rent” from those who live outside of cities, usually with additional commentary about throwing away money on rent.

But I’m still getting the better deal, as are many city dwellers—at least given our personal context and living preferences. Despite practices that artificially drive up rents (e.g., rent controls and onerous land use restrictions), the higher expense of city apartments is sensible for many people.

In order to arrive at the conclusion stated in that last sentence, I had to learn a lot. The following is an (incomplete) list of those things.

Compare Apples to Apples

Comparing mortgages in suburban and rural areas to apartment prices in the city makes as much sense as ye olde apples to oranges comparison. They are not similar enough to directly compare with nominal price alone. You have to list out everything that is included in those prices to make a good comparison. So…

There’s More to a Price Than the Living Space

Nominally, the price that I pay for my apartment is just for the physical space I inhabit. Actually, I am paying for access and proximity to the amenities and advantages of Boston, and these things are priced into my monthly rent via marketplace competition.

For example, in addition to my actual apartment, my rent buys me:

  • Access to a larger and better-paying job market.
  • Access to a larger and more diverse friend/dating market.
  • Access to public transportation, which removes my need of a car, car insurance, gas, car maintenance, and other expenses, thereby reducing other lines in my budget.
  • Proximity to a seemingly endless supply of restaurants, coffee shops, theater and performance venues, gyms, &c.
  • Physical fitness; although not true of every city, many cities require and incentivize more walking and physical activity on a daily basis.
  • In my specific case, both Harvard and MIT are within a 15-minute walking radius, along with everything they offer. Each city has its own special things that are important to different people, depending on their preferences.
  • Freedom, physical and financial: it’s much easier to leave an apartment than it is a house, which makes pursuing jobs and relationships in other places much easier. When most people buy a house, they’re also taking on a large debt burden and accumulated interest payments too. Whether or not this is worth it depends on your individual circumstances, but renting is often a sensible alternative.
  • Service: my landlord takes care of home maintenance issues, is responsible for property taxes and other dealings with the government, and serves as a final source of authority to settle disputes between roommates (although we’ve never even come close to having to do that).
  • Relative privacy: in small towns, suburbs, and rural areas, it’s common to know who your neighbors are, and relatively easy to observe their daily comings and goings should you feel inclined (and many people do). This is not the case in most parts of the city—you gain the anonymity of the crowd. As a privacy shield, only complete isolation works as well, but you don’t have all the access a city brings.

Renting is usually the most cost-effective way to achieve all of these things, because buying property in a city is often too expensive and would require intolerable debt burdens. Renting can be made even more cheap by splitting an apartment with others…

You Don’t Rent a Whole Apartment—You Rent a Room and Share Common Spaces

Because the price of city apartments can get so high, many people opt to split the cost with roommates. This is often portrayed as a bad thing, and sometimes it can be, but in my experience it has been good. Andrew and I did a whole podcast on the benefits of roommates, but here are some highlights:

  • Roommates can combat loneliness and provide a base level of daily social contact that is necessary for mental health.
  • You can split all apartment-related costs (rent, utilities, things like toilet paper) and labor (mowing a yard or sweeping the floor) with roommates. These benefits are almost always recognized as a financial/personal perk of marriage, but they’re the same with roommates too.
  • If you have a personal health emergency, you’re not alone. Having roommates increases the chance that someone will provide aid, call help, or—at the very least—find your dead body so that it’s not half eaten by your cat by the time the police arrive after a month for a welfare check.

The Seen and the Unseen

The political economist Frédéric Bastiat is famous for his essay on the seen and the unseen, which is well characterized by its opening paragraphs:

“In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.

There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.”

The same idea is applicable in every sphere of human endeavor, which includes analyses of mortgage and rent prices. The monthly amount that you pay for your living quarters is the seen effect that most people compare, but, in reality, it is the profusion of unseen effects (many listed in this post) that are dispositive in these kinds of comparisons. There are many other costs and benefits that I didn’t discuss here, but the point is: you must discuss them in the first place.

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