Daily Note: A Home of My Own: Why We Buy

About the author: This is a guest article by Matt Wallaert, a behavioral psychologist and the Lead Scientist at Thrive, a free financial advisory website that helps people organize their finances and plan for the future with personalized feedback from its behavioral advisory engine.

I’m an owner. While I rent an apartment in New York City (the average apartment in Manhattan is worth $1.5 million; I won’t be buying soon), I’ve never leased a car or rented my furnishings because, generally speaking, I simply prefer to own than to buy.

But with the mortgage meltdown and the recent issues surrounding overconsumption, home ownership is becoming an active question, rather than the default standard. Rebecca Tuhus-Dubrow wrote a piece for The Boston Globe recently summarizing the debate and the angle was clear: homeownership needs rethinking, and is probably dramatically less good than we think it is.

I liked the article and a number of interesting academics weighed in to contribute, but the focus was on the social impacts of owning, rather than the personal ones, and I think that misses a key part of the equation. How we feel about owning versus renting, and how it changes our behavior, is worth exploring, particularly as owning wins in some unusual ways.

I should be clear that I’m not trying to argue that owning a home is intrinsically better than renting an apartment. As Tuhus-Dubrow points out, many of the disadvantages of a home rental are due to inadequate legal protections, rather than the actual rental procedure itself. Instead, my concern is with the psychological consequences of owning versus renting in general, whether it is an apartment, or a car, or a computer. I’m going to talk about apartments, just because they make a handy example, but feel free to insert “leased car” if it makes you happy.

Consider the typical renting New Yorker in their mid-20s. Few would argue that looking for an apartment is pleasant, and most would label it down around the 5th or 6th circle of hell. You have to find a place you can afford, that you like, that accommodates your lifestyle, that is in the right location, and is decently hard to do, given the actual raw number of rentals available in any given area.

Assuming you manage to actually find a place you like, you then have to actually get it, which can be harder than it sounds when people are going on and off the market at lightning speed. Renters live in a constant state of indecision: should I put a deposit down on this place now? If I take two minutes to talk myself into believing that it is the perfect place for me, will it be snatched away, leaving me with only the certainty that it was the best of all worlds and now I can never have it? Few people enjoy the process and fewer still come out feeling “happy,” and it is no wonder: a home is supposed to make you feel permanent, not dissatisfied.

And yet renters go through the process again and again, year after year. For many, it isn’t a choice: as Tuhus-Dubrow points out, renters don’t enjoy all that many legal protections and many of them get priced out or forced out of their housing, throwing them back onto the market. But even for those that could stay, many of them don’t because of the torture of knowing that you could have something different. Because you can move, you want to - knowing that other options are out there, it is part of our personal psyche and our national culture to want to explore them.

The problem is that psychologists have shown fairly conclusively that this type of comparison is almost certain to make you unhappy. The more options there are to consider, the more time you spend thinking about them, the more difficult the decision, and the more regret you feel when you actually pick one. And renting means always having options: there is always another apartment you could easily take, another car you could easily drive.

Owning alleviates this problem. While you can still compare your home to others (and many people do move several times over the course of their lives), increasing your attachment an object makes it harder to let go of and increases its value in your mind. Psychologists call it the endowment effect and it breaks down simply: there is value to feeling like something is “yours.” And while we can certainly think of our apartments as part of our domain in a psychological way, there are plenty of reminders in daily life that we don’t own them and never will.

And it isn’t just mental. The psychological value of owning translates to real value in your interactions, as almost anyone that has ever rented something intrinsically knows. You scratch the floor and don’t feel particularly bad or try to get it fixed (unless motivated by worry about your damage deposit). You beat the hell out of a computer until the lease runs out and you get a new one. No one puts premium gas in a rental car.

A home is a decision you don’t have to make again, or at least not for awhile. And there is value, sometimes, in less: less comparison, fewer decisions, less movement. Even as renting and leasing allow us to maintain our flexibility, they demand that we give up any number of psychological benefits. Sometimes it is a good trade, but more often than not, our instinct towards ownership is probably a decent one. Especially when it lets us save our time and energy for the decisions that matter; less “where will I live tomorrow?” and more “what will I do today?”.

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A Home of My Own: Why We Buy

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