Are Homeowners Happier than Renters? (EP.170)
The Rational Reminder Podcast
Portfolios for Long Term Investors
John cockran's research shows that returns are not, there predictable. Prices aren't changing due to predictable cash floes. High prices have historically been resolved by lower future returns. This also introduces horizon effects, which means stocks are less risky for long term investors than they are for short term investors.
For decades, owning a home has been seen as a hallmark of the ‘American dream’ and a major life milestone. While we take it for granted that home ownership is good, we make the argument in today’s episode that, from the perspective of subjective well-being, owning a home isn’t necessarily the key to happiness. This conversation covers the non-financial aspects of homeownership and why owning a home isn’t necessarily superior to renting one. This is supported by data from a number of different studies that describe the relationship between experienced happiness and life evaluation, and how the decision to buy or rent relates to effective forecasting, for example. Benjamin unpacks concepts like focalism, hedonic adaptation, and buyer's remorse, as well as social comparison and happiness when it comes to material purchases like homes. He concludes with the following words of wisdom: buying a house will not make you happy, but that doesn’t mean it’s a bad decision. During the course of today’s episode, we also touch on Shane Parrish’s The Great Mental Models Volume 3: Systems and Mathematics, how individuals engage in panic selling according to the recent MIT study, ‘When Do Investors Freak Out?’, and some of the listener discussion points that arose from our in-depth conversation with John Cochrane in Episode 169. Tune in today for all this, plus so much more!
Key Points From This Episode:
- Find out why you should listen to Tim Ferriss’ interview with Micheal Dell. [0:07:06]
- Today’s recommended book: The Great Mental Models Volume 3 by Shane Parrish. [0:08:05]
- Unpacking how individuals engage in panic selling according to the MIT study, ‘When Do Investors Freak Out?’ [0:11:10]
- We weigh in on three top Canadian banks halting sales of third-party mutual funds in preparation for Know Your Product (KYP) rule reform. [0:13:53]
- Ben highlights some listener discussion points following the John Cochrane episode. [0:16:34]
- Learn how predictable returns result from unpredictable cashflows in the long run. [0:18:23]
- What this means for long-term investors: focus on cashflow payoffs, not returns. [0:18:59]
- Why stocks are less risky for long-term investors if returns are predictable, which introduces horizon effects and impacts portfolio theory. [0:20:49]
- Key takeaways: outside income streams as additional asset classes, value versus growth, pure wealth investors versus labor market investors. [0:21:42]
- Introducing Ben’s topic for this week: does owning a home make you happy? [0:28:15]
- Some perceptions about the correlation between homeownership and happiness. [0:29:53]
- Why the non-financial aspects of renting might make it superior to home ownership. [0:31:50]
- Expanding on the 2011 paper, ‘The American Dream or the American Delusion?’ [0:32:10]
- Conclusions from the 2019 paper, ‘Homeownership and Happiness’, that Swiss homeowners are no happier or even less happy than renters. [0:33:57]
- The relationship between ownership and slightly elevated reflective life satisfaction; the difference between experienced happiness and life evaluation. [0:34:15]
- Ben reflects on how the decision to buy or rent relates to affective forecasting. [0:35:02]
- Focalism: how experience is shaped by how we spend our time rather than more stable circumstances like paying for housing. [0:37:50]
- How to deal with poor affective forecasting, hedonic adaptation, and buyer's remorse by making smaller, more frequent experiential purchases. [0:41:26]
- What Elizabeth Dunn and Michael Norton have to say about homeownership in Happy Money. [0:43:14]
- Social comparison and happiness when it comes to material purchases like homes. [0:43:57]
- How housing impacts life satisfaction: quality, economic effects, prestige, freedom. [0:46:09]
- Ben on how working from home can exacerbate possible issues for homeowners. [0:51:28]
- Concluding this topic: why homeowners are not automatically happier than renters. [0:52:05]
- Personally, Ben shares why he would rather own more of his time than his home. [0:53:27]
- Suggested reading, including Positive Psychology and The Happiness Hypothesis. [0:54:35]
- Talking Sense: whether success is based on money, cost versus value, and more! [0:57:38]
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