Housing

The Bank of England’s Bank Underground blog has two excellent posts on house prices (first this one, then this one). The basic idea is that houses are assets, not goods, since the “goods” consumed is “living”, which is basically a point in time thing.

As the first of these posts points out:

You can’t buy flowers when they are cheap and store them for months until Valentine’s day. Similarly, you can’t store housing services by, say, renting two flats this year and saving one’s rental services for next year. So the price of rents is determined “on the spot” by the current balance of demand and supply of places to live. Add a load of extra people and/or make them richer and the higher demand pushes up rents. Boost supply and rents fall.

Combined with this comes the news that a friend’s parents have moved to Mysore (from Bangalore) for their retirement.

Taking these blogposts, and this piece of news, together, I’m beginning to reconsider my views on housing.

About 7-8 years back, I got “personal finance advice” that one needs to start “saving for retirement” at age 30, and one of the best ways of doing that is to buy a house. I was about to turn 30 around then, and I took this advice seriously enough to invest in an apartment in 2014. Looking at it five years on, I’m not sure buying a house for retirement in your thirties is the best idea.

For starters, India is (still) a fast-growing and fast-changing nation, so I have no clue what are going to be good places to live 10 years down the line (forget 30 or 40, at which point I’ll retire).

Secondly, my needs from a house now are very different from what they will be 30 or 40 years down the line. For example, right now, my daughter’s school is a “fixed point” (assuming I don’t want to change that), and I need a house that isn’t too far from there. As she grows up and grows out of school, this will cease to be a factor.

Similarly, the work that I do demands a certain pattern of travel in the city, and that again guides my choice of place to live. This is likely to change as the years go by as well.

Then, what I need from my house and my surroundings are likely to change as well. For example, I might want peace and quiet right now, and might be willing to take my car everywhere. At some other point in time, I might place a higher premium on shops in a walkable distance. Similarly, my preferences on entertainment activities might change as well.

Taking all this into account, making a housing decision now on where I want to live 15-20 years down the line is futile. There are simply too many variables and any decision I take now will only lock me in to something that is possibly not optimal.

From that point of view I need to look at my needs over the next 10-15 years (when things will change, but maybe not by that much) to make my current investing decisions. This includes rent/buy/sell decisions, taking into account whatever I’m optimising for now, and will in the next few years. And if I’m setting aside money to “buy a house for retirement” now, I should simply just focus on saving and growing that money so that I can make an informed decision at a time when it matters, and matters are more clear.

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