Saturday, December 12, 2009

Buying a house and intergenerational wealth transfer

I think one overlooked aspect of the rent v. buy debate is that buying facilitates an inter-generational wealth transfer (from parents to offspring), while renting typically does not. Due to the widespread belief that buying a house gives you shelter and a secure investment future (you can't live in a share of stock), it can be relatively easy to ask parents and grandparents to chip in 25 grand, or however much, in order to buy a first home. It would be harder to say, "Mom, Dad, my wife and I have decided that it makes more financial sense to continue renting, but we would like you to give us $25,000 to buy some stocks." The latter plan, sensible though it may be in many cases, isn't as emotionally rewarding to parents, nor is there much broad cultural support for such a wealth transfer, as far as I know (hard to say, though; intra-familial financial transactions are usually closely guarded secrets--is there any economics literature on these family dynamics?).

5 comments:

Michael said...

I think this is a really good point, David.

Are there special laws that support parent-to-child wealth transfers for the purpose of buying a house? I assume so.

David Archer said...

I think the IRS permits tax-free gifts of up to $13,000, but I don't know if any laws pertain directly to home buying. I also don't know much about co-signing loans, but that must factor into the equation as well--in other words, low-cash or no-cash twenty- and thirty-somethings would have greater access to credit when their asset and cash-rich parents co-sign a loan... I'd guess...

Also, I've found some papers that address the question of intra-familial and inter-generational economic transactions, but I haven't had a chance to read them yet.

Anonymous said...

There's a lot to be said for having a house even if it depreciates. Although any house can have nasty surprises it seems easier to me anyway to detect those than the nasty surprises that might be lurking in a company. There are lots of things a person can do to try to conceal problems in a house, but the telltale signs are there. My one foray into stock ownership outside a mutual fund lost me a thousand dollars when it turned out that a venerable old Canadian telecommunications equipment manufacturer had been cooking the books. Houses are less volatile. There's a lot you can do to improve a house if things go bad. And your parents might get to live in it when they're old.

Jordan G. said...

Some of these comments are hilarious.

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