The growing body of happiness research goes some way to helping explain why.
What came first the house or the happiness?
Previous studies have shown a link between home ownership and wellbeing but new research from Australia indicates it is not as straightforward as first thought. The researchers, from universities in Adelaide and Melbourne, write that the link between mental health and owning a home shows only correlation rather than causality. Put simply, on average, those with better measures of mental health buy their homes; but buying a home does not improve mental health.
Also, it is likely that this difference in wellbeing has less to do with owning and more to do with other attributes. When controlled for age, income, occupation and other variables, the difference, while still present, was reduced. Recent work in the United States echoes the findings.
Come over to my place
Why do we seem naturally inclined to want to buy? It might partly be because of our tendency to want to “keep up with the Joneses”. Cornell University’s Robert Frank Warwick University’s Andrew Oswald have written extensively on peer effects and the “status race”. When owning our home is considered to be a higher-status position than renting it, then when other people around us buy a home, we feel that somehow we have not kept up.
But there is reason to be cautious here because we are often very poor at predicting what will make us happy. Daniel Gilbert writes in Stumbling on Happiness that we are terrible at predicting how to please our future selves.
Even if buying our home does indeed make us happy at first, the glow might not last. We very easily adjust to an increased standard of living, finds research, meaning that to get another ‘hit’ of happiness we need another lifestyle upgrade. Finding ourselves on this hedonic treadmill sometimes push us to over-extend our finances and live beyond our means.
Rent or buy?
The decision whether to rent or buy should, of course, be carefully considered – both in the financial sense and the lifestyle and happiness sense.
The Be Good at Money video Can I afford to buy a property? talks through some basics of budgeting and mortgages.
Economist Chris Dillow blogged for eZonomics that housing is a riskier investment than many may imagine. He detailed the economics of asset pricing and points out that house price indices are somewhat “irrelevant” to individual buyers as the price of individual homes are much more volatile than an index.
ING senior economist Ian Bright blogged that homeownership is not a purely financial decision.