May 31, 2007

Don't globalization and workforce mobility lend themselves to renting vs. owning?

Here's something I've been thinking more and more about - the idea that renting is not only preferable financially today (it's significantly cheaper to rent than buy), but it's also preferential when it comes to job mobility, lifestyle opportunity and globalization.

It's gotta be tough to be stuck with a debt-trap you can't rent out for positive cash flow in today's rapidly flattening world. And I would imagine there are many other folks around the world in the same situation.

Globalization requires workers to be flexible and mobile. In the past, if you lost your job, or sought to further your career, you might have to move across town to a new company. Then it was across the state. Then it was across the country. And now? It's across the world.

Knowledge workers are going to be required to be more and more mobile and flexible when it comes to where they work. So the idea of being stationary in a home for 10 years, 20 years or more just ain't gonna cut it in today's world. You're gonna have to move. And your kids are gonna have to move.

Renters can pick up on a dime and go where the opportunity is. Owners (or people who rent money from a bank) are stuck. Even if they move, and rent out their current debt-trap, if they bought in the past few years, the rental income on their debt-trap will be significantly less than the ownership or carrying costs.

Yes, you can try to get your company to absorb these costs - your burden. But who will employers favor - someone with all kinds of entanglements and issues, or someone ready to go?

Same for entrepreneurs - opportunities are breaking out all over the world. Are you going to be free to chase them? Or is your home going to get in the way of pursuing your dreams?

And finally, globalization has allowed people to leave the US, workers and retirees, and live and experience places they've always dreamed of living. And not just one place - places plural. And no matter where you find yourself in the world, there seems to be one truism holding up:

It's cheaper, much much cheaper, to rent than buy.
And that's the problem.

Or the opportunity.


Anonymous said...

Absolutely. I have had the exact same thought gnawing at my brain lately but you have stated more eloquently.

I have barely enough to do a 10 percent down payment for a typical MN starter home.

But why tie up my cash? I am currently renting a 350K (asking) townhome for 1500 per month, shared with a roommate. This is reasonable. there are cheaper options if I wanted to put in more effort to look for them.

Plus, we are a bit behind on the crash. RE is moving okay here FOR NOW, anyway.

The two big justifications (rationalizations?) for owning are equity appreciation and protection against rising rent costs.

The first one is a joke. RE is so overpriced right now that inflation adjusted 'appreciation' will likely be negative for a while. A long while.

The second point is moot for anyone who does a refi or moves. You then are re-buying at the new inflation-increased market price.

Rent = POWER; real financial power, flexibility and mobility.

This giddy sense of freedom from debt slavery must be this "bitterness" that I've been hearing that us renters have.

Anonymous said...

You must keep in mind that globalization is a temporay phenomenon.

Globalization is dependent on cheap transport, cheap transport is dependent on cheap oil, and cheap oil is going the way of the Dodo. said...

Everything you've said is true and yet emotion will win over logic 100% of the time.

The truth about desperate homedebtors who hang on to their so-called "ownership" against reason is all about ego, plain and simple.

The vanity and inflated ego of being able to say "I own" is more important to them than money in their pockets and all the common sense in the world. This doesn't apply to true OWNERS of course, who own without a mortgage, or to those who bought pre-2001 and plan to keep their houses long-term, but instead to the desperate homedebtor egomanics in places like Phoenix and Vegas where "ownership" is nothing but a status symbol, much like leasing a car you can't afford just to make yourself feel big and compensate for your small manhood.

bubble watcher said...

Man thats a really good point. Mobility = opportunity

Anonymous said...

Now this is why my reading of the MSM is way down. Not enough Origional and Insightful thought going on there like this excellent post.

Keith, they should hire you at Forbes to shake things up.

Anonymous said...

I would like to work nomadically. Have done in the past, but that was only between two points. Next time it will be anywhere on the planet there's a WIFI hot spot.



Most people buy a house to lock in the cost of home ownership, rents can always rise, but a fixed interest loans remains the same, also inflation is then your friend since it will increase the value of your home and decrease the cost of your payment

Globalization - if a job can be done in foreign country, you would just sack the high cost western worker and employ a lower cost third world worker

Konwledge wroker? What can you learn that some some indian cannot?

The western world is now going to realise that you cannot pay 10 times the pay to first world worker, that a third world worker can just as easily do.

kids - who has these if you could end up unemployed and homeless?

Anonymous said...

Yup, I have rented based on job location, travel/relocation preferences, and the size of my household (gfs/ect). I may have missed the price boom but I laugh when FBers talk about my ghetto rental. I live in the same neighborhood as the president of the company where I work, 5 minutes from the office, backing to the nicest section of the biggest city park in the U.S.A., and my lawn work is included in the price. Still it costs me 1/2 what it would some slob driving 70-90 minutes from his soon to be depreciated exurbian "housing investment."

Anonymous said...

I cashed out last year and rent but have no intentions of relocating nonetheless. I moved literally down the street, 9 houses away from my old home that I sold.

If you're single you can pick up and go wherever you want. If you have a family as I do, you're not going to move to Japan for 6 months then to Thailand for 6 months just because a job came up. Well I suppose you could if you think moving your kids around from country to country and school to school every few months is a good idea. I don't.

And to the first poster, come on RENT = power? WTF? Rent = I live somewhere I like until r/e prices fall back in line and I buy back in cheap, hopefully making a nice proft along the way. I have no power as I could be told to move at any time by my landlord. I have no power as I can't do shit to my house without asking permission, hell I had to get written permission from my landlord to get Dish Network to install a dish...some power, asking for permission to get satellite TV!!

You guys need to chill out with this over the top rhetoric and self-righteousness. You rent instead of own. You're not discovering the cure for cancer.

Anonymous said...

If you want to have protection against rent increases, then just go long on REITs while renting. The dividends of, e.g. an apartment REIT are based on the rent and so you get a good hedge against future rent increases.

Anonymous said...

Renting for $1500 a month huh? I own for $500 a month + taxes and insurance = $1000. Not only that but you are in a townhome with losers everywhere you look. I own over 2 acres which keep the tards away.

Looks like I am far better off. But thanks for playing.

Anonymous said...

I disagree with some of the points raised in the original post and the comment.

With today's technology, it's very easy to work remotely. My company (based in NY) has workers in Ukraine, Switzerland, New Hampshire, and Washington state. And this trend will continue.

Renting might make sense financially for some people, but it does not equal POWER. I rented for 10 years, and have owned my house for the last 5 years. For me, the main advantage of renting was not having to mow the lawn or shovel the sidewalk when it snows. But I was also stuck with appliances and toilets that other people picked for me. I was unable to improve my living environment while I was renting. I am a big guy, and that elongated toilet bowl is a little slice of heaven. And living with white walls for 10 years was boring. Put another way - how would you like to drive a white Taurus the rest of your life, and you can't change the radio station on it?

When I was young, I thought renting was the answer, too. But as I got older, I started to want a place of my own, and I am sure lots of people feel that way, which is why people are willing to pay such high prices for their homes. However, I do agree that people should not buy houses they can't afford.

yes but.... said...

Although I agree renting makes mobility easier, many companies when they move you, or you transfer to another company, pay for all moving costs. My company will buy our house if we can't sell it, at an appraised value, and if thay appraised value is less than purchase, they give us what we bought it for. They pay all closing costs both ends and realtor fees. However, this may change in the current climate if they are left with too many dogs, and smaller companies are starting to say that you are on your own.
By the way, anyone see this $891,000 bargain??

Anonymous said...

I think it ridiculous to have to move. Why? technology...plain and simple. Where is the vaunted "tele-commuting". If this is about "knowledge", why does the person have to be there physically?

Somewhere, someone got it all wrong...

Bob Reno said...

Great point. My wife and I have also been contemplating this recently, as I own my own business ( and she's a lawyer and since we sold our home we can move anywhere. Anywhere, not just the US or the area where we currently live. It's a staggering option when you think about it and in the new job marketplace the power will be in the hands of those who can move quickly to the new opportunity.
Awesome post.

Anonymous said...

Now there's an energy merchant's terminal wet dream!
Instead of commuting across a 50-mile greater urban spread, let's commute across the planet!
This all pre-supposes that the fuel necessary for this kind of activity will always be plentiful and cheap. It won't.
Ultimately, not only will rising energy and fuel costs force people to downsize, but to localize, as well.
We can zip long distances easily enough through fiber optics and satellite communications, but unless someone invents teleportation, people and things will always move around the same old way - in real, and not virtual time and space. And that requires loads of energy.
Globalized methods presume this as a constant - the planet's resources have other plans.

Qwerty said...

As long as energy is cheap, that notion of globalization seems ok. Telecommuting might be a better answer as energy costs eventually eat into overhead, meaning people are disbursed from the company HQ, but are staying put. I imagine that rising gas prices alone are already starting to tighten company travel budgets. Which would be yet another factor added onto pressuring the housing market to return to normal.

Anonymous said...

There's also the flipside.

With today's wired world, there is no reason that a person (ie knowledge worker) cannot work remotely by using a virtual private network over the internet with a high speed connection.

As an example, I'm a software developer working at a financial institution. This morning I logged in from home at 8AM to do several things so that others wouldn't be waiting for me. Eventually I got ready and made it in by 10AM (half hour commute) - happily avoiding most rush hour traffic. Tomorrow I intend to work remotely from my cottage which is a two hour drive away.

In both cases when I'm working remotely - I'm always at my computer and avaialable by phone or email. Everyone's happy - including me.

Far from the "worker" being flexible - I believe that it is companies and management that will have to be flexible in the future. They're going to have to learn how to manage remote users - whether they're two hours away or in India.

In order to do this, however, there is one critical thing which managers will need to do... manage. Yes... this idea is revolutionary... I know.

By this, I mean that managers who actually know how to manage and plan projects will be the hot commodity in the future workforce - NOT the workers.

And if they know how to plan - then they won't need to be looking over the shoulders of everyone on their team. It will be the team member's responsibility to either finish his work on time - or provide realistic estimates on how long things will take.

Thank God for SOX (I'm going to have to send Mr. Sarbannes and Mr. Oxley a nice bottle of cognac someday) because it made my life so much better. It forced companies to actually make decent procedures and follow them.

You also have another possibility...

If I can work remotely - I can decrease my rates because my cost of living will go down. Which might be very preferable to the company to cut costs - both on development as well as space, extra computers, etc.

For a short time (maybe a 3 month period) the person might work on site until they learn the processes and procedures and speak with a few people who can teach them (bring other coworkers on site to teach them if need be). After this - let them loose, to work from home and periodically bring them back in for a week or two to refresh their skills.

What you might find is the reverse of what you stated in your blog - rather than being more mobile, people will be able to move back and settle down permanently to raise their kids in small stable communities away from the crime and pollution of big cities.

This means they will become a part of a community, they'll learn their neighbours names again, their kids will grow up in the fresh air and build long lasting friendships which will last a lifetime - rather than move them from city to city until they are utterly alone and have no one but their immediate family who they can call.


Mark in San Diego said...

Additional thought - Craigslist has revolutionized apartment rentals in the USA. When I owned a rental condo, I rented it out two times in the late 1990's and early 2001 via Craigslist. . .the current condo I rent was found on Craigslist - this provides an instant marketplace (similar to the stock market) that sets prices. . .before I rented my condo out, I checked for a few weeks to see what similar places were renting for, and then listed slightly below market - that way I have a large choice of tenants to select from. . .

My observation??. . .Craigslist and other sites keep prices lower - no middleman, vast list of all available properties. . .like Ebay did for collectables. . .everyone though collectable prices would go up - but Ebay made a international market, and everyone got their old Fiestaware out of the closet and put in on Ebay - hence prices went down. . .an efficient market always does that. . .

I took early retirement form UC Berkeley - now do contract work via computer - can live anyplace with a good internet connection. . .why buy???

Rordogma said...

"Bitter" like the sweet taste of high quality dark chocolate.

These homedebtor a-holes are munching down a buffet line of Hersey's mudbutt.

Anonymous said...

I agree 100% with the assertion of this latest post. One of the major reasons I have not opted to purchase any property is precisely due to the fact that I have far more flexibility and mobility.

Living in Silicon (Silly-con) Valley makes it FAR more logical to maintain a renter's life versus my home owner counterparts. Considering the traffic, I would hate to be relegated to dealing with horrible commutes just for the sake of home ownership "pride".

Furthermore, my renting, I can live in the far more posh and emmaculate areas of the region. (Palo Alto for me)

And should I decide to switch jobs and the new job takes me elsewhere, it is a simple 30 day notice to get my affairs in order.

Anonymous said...

Maybe for a single guy, but moving with kids is the worst. I've done it quite a bit and for a family a fixed mortgage at a low cost is the best. I own a rental in Utah and rent to a family and will be selling in the next 2 months. They won't be happy but they got low rent for 6 months and now it's my turn to capitalize. I will clear about 50,000 in 8-months. If you have a family finding an affordable house with fixed costs is the best. My goal is to sell all my rentals and build or buy a house for cash. How much money will I need if I own, no payment. My guess on housing will be a slow train wreck and people are looking to put their money somewhere. The stock market will be the next 1 to 2 year run.

Anonymous said...

also inflation is then your friend since it will increase the value of your home and decrease the cost of your payment

Boy, you don't now the first thing about economics!

westwest888 said...

Globalization - if a job can be done in foreign country, you would just sack the high cost western worker and employ a lower cost third world worker

Konwledge wroker? What can you learn that some some indian cannot?

Well, fluent English for one. Having attended a top tier four year university in the United States for two. People skills - three. The ability to think creatively and spend a single digit percentage of your time using code as a tool to get your job done - four. Outsourced workers are only good at doing repetitive tasks the US workers get intellectually bored of in six months and quit. Customer service reps are a good example.

westwest888 said...

Outsourced workers can only be taught the most repetitive tasks in an operation. You need a first world worker to analyze the domain of your problem and determine a solution.

No company is flying workers from Bangalore to Zurich and sticking them in front of clients.

I embrace the flexibility renting gives me to move from boomtown to boomtown. Sheep get slaudered. I pick up and move.

Anonymous said...

Losers everywhere I look? Hardly.
I am the only renter in a very expensive complex. You sound very insecure.

I am waiting out the local sellers until they get realistic. It just goes to show that some people really need to put others down to feel superior.

And until you have made your last payment, you are a renter just as I am - a renter of money.

The place I live in would probably have a payment of over 2800/month.

The owner who is renting this to me is subsidizing my rent to the tune of over 1000/month.

Anyone subsidizing you standard of living, Mr. Homeowner? :)

You play whichever game is more financially advantageous at the time.

I'm holding out so as to win the buyer/seller price standoff. So far, I am winning.

42 said...

Lemme see... I've moved three times in the last seven years due to job changes or an intra-company relo. I bought a condo in June 2004 and was laid off March 2005. The best job I could find required a 1500-mile move. Luckily I was able to sell the condo and pocket a nice profit just as prices peaked.

Bottom line is as a single middle-aged dude with no liabilities besides a cat and houseplants, renting is a no-brainer. I will buy when I retire and decide where in the world I want to live, but until then I am mobile and ready to go where opportunity takes me.

amigauser said...


wages are set at the edges of a market, so if a company can get the work done for a 10th of the price, this will be used to lower your compensation

top 4 universities, so what, if for the price of your labour I can employ 10 workers,do you think I will care what your skill set is.
One of the primary aims of private business is to try and de-skill a job and increase the number of job seekers who can do it.

You might think that Indian programmers only do the low end, but they are rapidly moving up market, so they will be able to compete for every computing job.

IBM is shutting in USA and opening in India, how long before Microsoft follows suit?

You sound just like how Detroit used to look at the Japanese car makers, so you could experience the same result.

Anonymous said...

You must keep in mind that globalization is a temporay phenomenon.

Globalization is dependent on cheap transport, cheap transport is dependent on cheap oil, and cheap oil is going the way of the Dodo.

I'm a peak oilist (scientific, not doomerist) but I think that is very naive.

Flying peaches out of season from Chile to Europe will be obsolete, surely, but factories in China?

The numbers in the costs matter. The value of merchandise on a modern (enormous) container ship is so much larger than the cost of the bunker fuel---even at 5x the price for fuel, it's still very worthwhile to ship from Shanghai to Long Beach. Cargo ships have optimized their fuel use quite well. In many cases the value of one cargo load is more than the value of the ship itself! Pirates steal cargo ships and often just scuttle the boats. And remember, if necessary cargo ships can go back to coal, like they used to, and who is going to regulate smog of Chinese freighters on open seas? Especially when they'll have a powerful navy in 20 years to protect them?

Local transportation from here to there to mall takes up way more fuel than efficient global shipping by boat or train.

The idea that people will 'relocalize back to the farm' is uneconomic, until we are close to starvation. In reality, people will want to live near large-scale transportation hubs since the "last mile" cost per unit is much larger than anything else.

Look in the 'developing nations' where the price of oil in international money is already extremely expensive---the countryside next to the food is very poor but stable. The center of cities is where the rich and powerful live, near public transportation and utilities. The ring suburbs are the poor crime-infested hellholes with no transportation, and no services and no jobs.

dabble said...

I dont think the globalization argument you are proposing holds water for a couple of reasons (the 2nd reason is more interesting to me)...
Renting does not nessesarily equate to mobility relative to owning. Most landlords require a lease that holds you financially responsible to a rental unit for the term of the lease agreement. I dont see many month to month arrangements anymore and I dont think most people want a month to month agreement because they dont want to be kicked out at an inappropriate time.
The other more interesting point to me is the idea that as borders become more porous and imigration continues to increase, there is a subtle upward pressure on RE prices in 1st world nations. This follows the line of thought that if you dont buy RE you may get permanently priced out. When the RE market is not restricted to a nation's "indigenous" population, the potential demand for housing goes up as there are many more potential buyers (...from a migrant worker, picking strawberries and getting a no doc loan, buying a house in Monterey county to Chinese investors paying cash for houses in Saratoga Los Gatos, Palo Alto, etc). This creates a 'world market' for the limited metro areas in the US, Europe, etc.,. I envision a situation where owning a home in the 1st world becomes defacto citizenship.
Dunno if this makes sense to anyone but I'd be interested in getting some feedback. said...

I own for $500 a month + taxes and insurance = $1000.

Where? In the worst ghetto neighborhood of Detroit?????

The place I live in would probably have a payment of over 2800/month.

The owner who is renting this to me is subsidizing my rent to the tune of over 1000/month.

Anyone subsidizing you standard of living, Mr. Homeowner? :)

Same here, I'm renting a $1.2M McMansion for $3,500/month that would cost over $8,000/month to "buy." But the sick part is some people are so insecure and are so desperate to impress others that they'll pay the $8,000 instead of $3,500 just to compensate for their lack of something else.

Anonymous said...

Globalization implies the leveling of wages around the world. That implies a drastic reduction in wages of American (and other developed nation) workers. That, in turn, implies a drastic reduction in home prices in those countries. Homeownership is not going to be such a great investment going forward. In fact, for those Greater Fools that bought in within the last 2-3 years, it will be a disaster.

yuccatree3 said...

Great topic. And since workforce mobility is, I believe, necessary for the efficient use of workers, when is the U.S.A. going to wake up and create single-payer universal health coverage so its workers can more easily move to where the jobs are?

Anonymous said...

"they should hire you at Forbes to shake things up."

Forbes is the most spinning mag out there. It even has a program on Faux News....that tells you something.

I enjoy some bio articles on execs, though. But I would never buy that mag. I "borrow" some issues from my boss/office.

Anonymous said...

Ladies & gentlemen, I introduce you yet another HP original acronym or terminology: the "Pseudowner" or PO. It's a contraction of "pseudo + owner", applied when the bank holds the deed until the the mortgage is paid in full. As we know, homedebtors love to say that "they own" a home, while in reality they are renting it from banks until the balance in the mortgage is paid in full, if ever.

Anonymous said...

Keith, you forgot to mention that natural disasters augment the idea of mobility. People who live in hurricane haven, for instance, should think about going mobile because we never know when the next Andrew or Katrina will destroy your city. New Orleans is still a mess.

Anonymous said...

The western world is now going to realise that you cannot pay 10 times the pay to first world worker, that a third world worker can just as easily do.

I absolutely agree... but at the same time, companies are going to realize that they can't expect first world workers to pay 100 times the cost of products produced by the third world worker.

The $50 Adidas runners which are made for 50 cents in Micronesia come to mind.

If the companies want to move to the third world - more power to them... it'll just be a race to the bottom as they try to out compete each other for increasingly scarce buyers.

Simply put - Ford was right. When you pay your workers decent wages - they can afford to buy your products. They might not... but at least they can. Moving to the third world without increasing wages will ensure that people (first or third world) CAN'T buy your products.

Since these companies are producing products in third world countries - only to be consumed by the first world... do you ever ask what happens when the first world can't afford to pay any more?

The only promise globalization ever made is that it would make everyone equal. Not rich - just equal. So in the end we are all going to be equally dirt poor while there is an uber rich class above us. Welcome back to Feudalism.


Anonymous said...

Couldn't agree with you more. I have been married 13 years and moved 7 times in 5 different cities (5 times owning a house, 2 times renting). Although we have made money everytime we moved, things have changed dramaticly. We are looking to move to another city again, but can't sell our home. Wish we had rented this one instead. Anyone who ties themself to one city/region holds themself back in terms of real career advancement/satisfaction. If for no other reason, I see this as a great argument for renting.

Small Hat

Agent #777 said...

"Knowledge workers are going to be required to be more and more mobile and flexible when it comes to where they work. "


I work in IT, and as long as I have reliable broadband and I am willing to work the hours my company needs, I can move or not - it is up to me.
Now, if I did move to India, I think they would try to give me a pay cut ;)

Anonymous said...

"So in the end we are all going to be equally dirt poor while there is an uber rich class above us. Welcome back to Feudalism."

Like I said many times before on this blog, the New World Order is right on track.

Anonymous said... said...
I own for $500 a month + taxes and insurance = $1000.

Where? In the worst ghetto neighborhood of Detroit?????
The place I live in would probably have a payment of over 2800/month.

Earth to renter, earth to renter. If you bought your rental 10 or 15 years ago with 20% down a mortgage payment of $500 would be the payment.

Anonymous said...

I do have to add that I am glad we have owned the homes we have, because the appreciation on them allowed us to buy our current home free and clear. (Better than renting or paying a mortgage any day.)

Markets change, what was once a good way to make money, isn't any longer. Real Estate may be a good investment again someday, but not anyday soon.

Small Hat

reality check said...

Anonymous said... said...
I own for $500 a month + taxes and insurance = $1000.

Where? In the worst ghetto neighborhood of Detroit?????
The place I live in would probably have a payment of over 2800/month.

Earth to renter, earth to renter. If you bought your rental 10 or 15 years ago with 20% down a mortgage payment of $500 would be the payment.


So what??? The home prices of 10-15 years ago are no longer available. The question is whether one is better off renting or buying at today's prices. The answer is that renting easily wins, given today's market realities, in the overwhelming majority of circumstances.

Anonymous said...

I thought of Ram Charan while reading your post. He's not married, no kids, and, until recently, never owned property. Those are all key traits for a more mobile lifestyle.

thinka bit said...

Many realtrolls have made the case for buying a home 10-20 years ago, but how about the last two years or even today? Just because it was smart to buy Google stock in 2005 does not mean it would be smart to buy it today.

How many realtrolls can honestly say that it was smart to buy in Florida in 2004-2005? How about California?

Buy low and sell high. Starter homes going 5-10x median income is not low. I don't care if it's located in the Garden of Eden, much less a crackden in Compton.

Anonymous said...

Circle of life.

Nomads -> Agriculture -> Kings, Queens, Serfs, Peasents -> Private Property -> Democratic Nation States -> Wireless Pervasive Communications -> Nomads

Rantenki said...

Fantastic article, and timely for me, since my wife and I are on a road trip examining cool little communities in Oregon. Hood river costs 1/2 Vancouver, and has all of the same activities (kiteboarding, fishing, MTB, skiing, and 1 hr from Portland) with better pubs!

A little rebuttal about energy costs preventing this kind of mobility; I used to live in the burbs far from my favourite activities (mountain biking). Now that I telecommute, and work from home, I spend nearly no $$$ on fuel, and get to do the things I really enjoy every day!

This is not limited to my situation. In general, working near/in a downtown core results in HUGE energy waste for the commute. Also, energy costs are the same, whether they are at the home, or company office. The energy overhead at the company office can constrain your raises just as badly as home energy use will...