Housing Choices — Cows and Milk

Why buy the cow when you can buy the milk?

OK, this is NOT the expression about cows and milk we’re all familiar with for marriage (if you’re not familiar with the popular expression “Why buy the cow when you can get the milk for free”, John Mulaney explains it well!). But the above variation about “buying the milk” is a relevant one for today’s post about housing choices.

To cut to the chase, this Wednesday B-sides post, like others, is from an iMessage thread with friends this past week.

So what do housing choices have to do with cows and milk? Like John Mulaney did with spouses and sex, cows and milk can be used to describe the relationship between single-family homes and living somewhere — (i.e., replace “cow” with “single-family home” and “milk” with “living somewhere”).

If you buy a cow, you get milk for as long as you own the cow. You also have the ability to sell the cow to another farmer, and, if there’s a shortage of cows, the cow’s value could appreciate. Of course, you also have to care for and feed the cow. Feeding the cow may require the need to buy or lease land with a pasture, as well as the potential need to fence off the pasture. There is also the issue of handling the waste, even if there are other uses for the waste.

In the real world, most of us who drink milk just buy the milk and don’t bother owning the cow, the pasture, the fence, and all the goods and services required to care for the cow, feed the cow, manage the cow’s waste, or manage the land for the pasture. Today, farm and ranch families comprise less than 2% of the U.S. population.

However, we live in a world that operates in a different and somewhat odd set of rules.

Imagine this fictitious world.

In this fictitious world, our nation’s dream is to own cows, and there are many tax incentives, government programs, and societal expectations that encourage people to own cows.

People believe that cows are the one of the best places to park wealth. Cows are more lucrative than investing with a local store owner looking to raise capital to share ownership in their venture, investing in fixed income opportunities to help other farmers borrow money to expand their farms, or even investing in other ventures like chickens, crops, or even perhaps toolmaking. This belief that cows are the best place to park wealth creates a virtuous cycle where the price of cows goes up because of the unmet demand of people wanting to buy cows because they believe the price will go up!

We live in this fictitious world for single-family homes. We have many options for how to live somewhere, including buying a single-family home, renting a single-family home, or living in multi-family housing. However, owning a single-family home is a core component of the “American dream.” There are many tax incentives and government programs to help people get into home ownership. And, the societal expectations around home ownership are pretty well ingrained. Moreover, single-family detached homes have been a pretty good investment, largely because of a virtuous cycle where prices go up because people who buy them expect that prices will go up. As such, 54% of housing units in the US are single-family owner-occupied detached homes.

Big difference between buying cows and buying single-family homes, right?

Some real-world comparisons

As my friend mentioned in our iMessage thread, I’ve exercised all of these options for living somewhere or “buying milk” in this analogy.

• I rented an apartment

• I bought a suburban condo

• I owned two different single-family homes

• I rented three different single-family homes

• I owned two different urban condos

I’ve really appreciated what each of these situations has to offer. Owning a single-family home can be really great. However, each of these situations has its own advantages in the real-world. Let’s explore them!

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