Technion researchers: the accepted economic consideration of preferring apartment ownership over renting - does not pass the test of economic theory

The study also revealed that the psychological factors in the decision between renting and buying are statistically more significant than the economic considerations

A study conducted by the researchers of the Faculty of Architecture and Urban Planning at the Technion suggests that the conventional economic consideration according to which owning an apartment is better than renting it, does not pass the test of economic theory. The Technion researchers also found that psychological factors play a significant role in the decision whether to buy or rent an apartment.
The study, headed by Dr. Dani Ben-Shahar, examined a variety of factors that influence the decision between buying an apartment and living in a rental - psychological factors and economic factors. "The economic considerations include taxation matters, costs associated with the transaction such as brokerage, attorney's fees, budgetary limitations of the buyer, risk associated with the volatility of the property's value and the volatility of rental prices," explains Dr. Ben-Shahar. "As for the psychological factors - we found that people associate a 'sense of freedom and independence' with ownership more than with renting (76% claim that they prefer ownership for this reason), use terms like 'good feeling' when they talk about preferring an apartment they own (83% state that they prefer ownership for this reason), prefer ownership due to the 'sense of belonging to the property' (85% cite this reason), associate marriage with owning an apartment (89% cite 'marriage' as a factor influencing the preference for ownership), and say that owning an apartment has an associative connection with 'Higher social status', 'feelings of stability', 'peace of mind', 'success' and 'happiness' (about 70% on average associate these terms with ownership compared to only about 4% who associate them with renting)".
It was also found that a large majority (85% of the respondents) believe that "buying an apartment is better than renting because you are left with an apartment after the end of the mortgage payments, while in renting you pay rent payments for the rest of your life and end up with nothing." On this, Dr. Ben-Shahar says that "without checking interest rates, risk level and other economic parameters - theoretically, this claim is simply not true since the rent payments may leave cash in the hands of the tenant at a value higher than that of the apartment that will be left at the end of the mortgage payments."
It was also found that there is a positive correlation between the economic and psychological considerations related to the decision to purchase an owner-occupied apartment. From this, Ben-Shahar concludes, it is possible that the rational economic reasons largely mask the psychological motives and that the latter are, in fact, more dominant in the decision to purchase an apartment. 315 male and female students participated in the study in their first year of studies.