The American dream: Owning your own home. Ah, but if only our dreams were free.

Jack Hough at SmartMoney.com kicked off a lively debate about the relative costs of owing the place you call home versus renting it. It's hard to argue with his conclusion that renting is cheaper than owning. He begins with the end, stating:

Businesses are great investments while houses are poor ones, so I'd rather rent the latter and own the former.

Then he works through a fairly exhaustive arguement for why money invested in owing your own home returns less than money invested in stocks. He sums it all up with these words:

Shares right now cost 16 times earnings and over long periods return 7% a year after inflation. Houses right now cost 19 times their "earnings" and over long periods return zero after inflation. And they look likely to return less than that for a while.

He wrote this back in April of this year. That was before anyone had any real sense of how bad the current mortgage lending debacle would be. His words ring even more true today, as more and more homeowners are forced to sell at losses to avoid bankruptcy.

But I wanted to look a little bit deeper into the question and ask "Why is this true?" Yes, despite owning my own home I belive home ownership is not as good an investment as renting. I didn't do all the math that Jack did in proving it to my own satisfaction, though. I don't think you need to.

My answer to why ownership is a poorer investment than renting is simple and I've already given you my answer: Home ownership is the American dream. It's our culture. It's in our DNA. Americans want to own a house and raise a family. We want a yard to manicure where the kids can play. We want our privacy. We crave a sense of ownership, to own that piece of land. After the check is written and in the mail we relish that feeling that we own a little bit more as the principal is paid back and little by little our homes become truly "our" homes.

We need the storage space - someplace to keep all our stuff.

For the greater part, the benefits of home ownership are the intangibles. That's the stuff that dreams are made of. It's my contention - and you know this if you've read here for very long - that we always have to pay extra for our dreams.

Simply put, those things which hold a special allure in our collective psyche - whether it be a home in the suburbs, a big shiny new SUV (or more nowadays a Toyota Prius) or even an iPod, will always cost more in relative terms than their alternatives.

You don't really need a calculator or a spreadsheet to figure that out.

Jack Hough's article: Renting Makes More Financial Sense Than Homeownership