My thoughts on renting versus buying

This is a common case. I recently sold a house with a mortgage where my carrying costs were far below that of any buyer of the house, meaning I could break-even renting at a rate that would leave a new buyer losing thousands of dollars per month. You'd be an idiot to not rent in that market but there is no shortage of buyers.

1) That buying implies owning your own top-to-bottom house, with no adjacent neighbors.

2) That renting necessarily comes with arbitrary rent increases and risks of eviction.

3) That mixed communities of buyers and renters are uncommon.

None of these is necessarily true if you live in a city, depending on the city. It sounds like a lot of people are actually comparing “living in an apartment/condo” to “moving out to the suburbs,” not renting vs. owning.

Many countries tax systems give home owners preferential tax treatment for the primary home. I'll give an example from Australia:

The Australian age pension is means tested - there's a test of both income and assets. If your income and/or assets are too high, you get no age pension. But homeowners benefit from special treatment: A retired couple who own a home are eligible for the full aged pension if their assets excluding the value of their home are worth at most AUD 481.5k. A retired couple who are not homeowners are eligible for the full aged pension if their assets are worth at most AUD 749.5k.

For the purposes of getting a public funded aged pension or not, the value of the home is deemed to be about AUD 270k regardless of its actual market value -- contrast that with the median price of a home in Sydney being about AUD 1.6m!

Back of the envelope comparison:

Retired couple with paid off house worth $1.6m in Sydney, budget of $5k / yr for council rates and insurance + $16k/yr (1% of $1.6m median home value, say) as budget for home maintenance. Suppose our couple also have $481.5k in financial assets outside of the home generating a 4% real return, the max amount they can have as homeowners for the full age pension. Gross income from financial assets and full aged pension is $60,470. Housing costs are 35% of gross income, leaving 65% of gross income -- $39,470 to pay non housing living expenses.

Compare with a retired couple in Sydney who have the same net worth -- $2081.5k -- except all in financial assets, not home owners. Suppose they rent a 2 bed apartment in Sydney at $900 / week. They are not eligible for any age pension as their non-home financial assets exceed the means-tested assets cap of $1.37m for a part pension for a couple who don't own a home. Their gross income from financial assets, assuming a 4% real return, is $83.26k. Their housing costs from renting are $46.8k / yr, leaving them with $36,460 to pay non housing living expenses.

So, of the two couples with identical net worths, the couple with most of their wealth concentrated in the $1.6m sydney house has about 8% extra cash to spend on non housing living expenses, and gets to enjoy the benefit of living in a house vs a 2 bed apartment, and also enjoys the additional stability in their retirement years with no way a landlord can suddenly force them to move.

The calculation above ignores income tax. But - if we assume both couples have their financial assets parked in tax advantaged retirement accounts (Australia's superannuation system), then their retirement income streams from these financial assets is tax free, and although the age pension is taxable income, the couple receiving the age pension wouldn't expect to pay any income tax, due to the tiered progressive tax rates and additional tax offsets for seniors and pensioners.