As catchy slogans go "Rent is dead money" is a classic. It's up there with "concrete built is better built" or "A Mars a day helps you work rest and play".

It's so simple that virtually everybody who hears it will take it for granted as true without thinking too much about it.

And that's what you need from a catchy slogan because people who think too much about them often discover the huge lie that they cover up.

Rent is not dead money. In return for rent you get shelter. You get someone else to pay for the maintenance and repairs of your home. If it's an apartment you get someone else to pay management fees, waste disposal etc.

"Rent Is Dead Money" has one purpose and that is to convince people that buying is worthwhile no matter how high the price, and renting is a waste no matter how low the price.

The logic of "Rent Is Dead Money" is that the money you spend on rent doesn't buy you anything, at the end of your lease you own no more of your home than when you started.

When you buy a house and pay down a mortgage you are buying equity in the house. If you reduce your mortgage by €5,000 in a year that's €5,000 more equity that you own in the house. If the value of the house also went up by €10,000 you end the year owning €15,000 more of your house.

There are a couple of very simple reasons why this logic doesn't stand up to any kind of scrutiny when considering the Rent vs Buy decision.

1. Only a tiny proportion of a mortgage payment actually pays down the debt and buys equity. Most of it is interest, which is every bit as dead as rent. Interest is the rent you pay to borrow someone else's money.

2. House price falls wipe out the equity you buy by paying down your debt. If you reduce your mortgage by €5000 in a year, but the value of the house drops by €20000, you end up owning €15000 less equity in your house.

3. If you rent for less than the interest you would have paid, then you are not only protected from house price drops, but you can also save. Those savings are just as valuable as the equity that buyers try to build up in their houses.

Case Study

Ben and Jerry need a place to live. Both have a €60,000 deposit saved. Both have seen 2 bed apartments for €300,000 that they like.

Ben decides to buy the apartment, putting down the €60,000 deposit and getting a mortgage of €240,000 @ 5% over 25 years. In the first year Ben will pay €9,117.57 in interest (after mortgage interest relief).

Ben also must pay €1800 per year management fees.
For a total annual "Dead Money" €10917.57

During the year Ben reduced the mortgage by about €5000 euro, but his apartment fell in value by 10% or €30,000

The end result is that Ben owes about €235,000 on his mortgage, and his apartment is worth €285,000. This leaves him with €50,000 in equity. That's €10,000 less than he started the year with).

Jerry rents an identical apartment next door to Ben.
His rent for the year after rent relief is €12,800
He doesn't have to pay management fees.

Jerry still has his €60,000 is savings, on which he earned
€1125 interest (after DIRT)

Jerry saved an additional €5000. This is equivalent to the €5000
that Ben paid against his mortgage.

During the Year the value of Jerry's apartment dropped by 10%, but
he didn't care, he doesn't own it.

The end result is that Jerry has €66125 in savings.
That's €6,125 more than he started the year with and €16125 better off than Ben.

Jerry also now has the chance to Buy the apartment that Ben bought for €30,000 less than Ben paid a year earlier, and with a bigger deposit. Or he can rent for another year, continue to save and see if house prices keep dropping.

Conclusion
Rent isn't dead money. It not only buys you shelter but it gives you a safe haven in a falling market.
Even in a rising market, if you are paying less in rent than you would be paying in interest, then you are better off renting unless house prices are rising fast enough to make up the difference.

The Idiotic Emotional Argument
I won't pay rent because I don't want to be putting money into a landlords fat wallet.

This logic is out there. People who will voluntarily pay more to a bank in interest than to a landlord in rent. Words fail me.