I'm from Australia but now live in NYC and I've been debating the question about whether to buy or rent. It's amusing to me to see a big red circle on this graphic for NYC. I can understand why.

NYC is a special case in many ways. For one thing, from a purely financial perspective, your best bet is to find a rent stabilized apartment that is well under market value and then invest your money elsewhere, possibly on buying a property you don't live in in NYC!

In Australia, buying property is a big thing. I'd imagine that in OECD rankings for home ownership, Australia ranks reasonably highly. Interestingly, the Guardian (in the UK) years ago did a study that showed that economic growth in Europe was inversely proportional to the rates of home ownership (meaning the countries with the highest rates of home ownership--eg Spain--had the worst performing economies and vice versa).

This makes a certain amount of sense: home ownership creates a less flexible labour market.

Anyway, in Australia, it's common to not only buy the property you live in but also investment properties. Investment properties are tax advantageous (in that the mortgage interest is a tax deduction) but you pay capital gains tax when you sell (but a good investment strategy will have you never selling; you just free up the equity to buy something else). The home you own is the reverse: mortgage interest is not tax deductible but your principal place of residence is capital gains tax free when you sell.

Now the thing about real estate is that it's a hedge against inflation. For example, 10 years ago you could buy a 3 bedroom house (built in the 70s) 10 miles from the city centre in Perth for <$100k. 5 years later? $350k minimum. There was a structural change in the economy that hasn't since reversed and doesn't look like ever reversing. Part of this was the increase in land cost but part of it is the increase in building cost (where once you could build a house for $80k, now anything less than $150-200k is unrealistic).

So if you'd rented in that time you would've missed out on that huge jump. Thing about real estate growth is that it is never smooth. It'll go through periods of high growth and others of stagnant prices if not negative price growth. So it's a long term investment (typically 7+ years).

But the real estate market in Australia is highly speculative.

I say that because I've also lived in Switzerland, which has an almost planned economy. The tax system stamps out property speculation, arguing that it is in the common good to have affordable housing. This is an opinion that I think has merit. To give you an example, if you sell a property within 2 years of buying it, the capital gains tax is 100% (iirc), meaning the entire gain is taxed.

Anyway, back to NYC. NYC has a lot going for it from a real estate perspective. It's a center for jobs but also land is a finite resource here. Manhattan isn't getting any bigger. Most industrial areas have already been converted to residential (or, more accurately, mixed residential/commercial). Manhattan is mostly gentrified now.

Betting on a limited resource is typically a good plan but the difference between renting and buying is huge here. Like a 1BR that might cost $2000 to rent will probably cost >$500K to buy and have significant ($300-600/month) maintenance fees to boot.

I really don't understand what motivates investors for that kind of return. So something will change in the future but will prices come down (or just stagnate for years) or will rents go up? If it's the former, rent. If it's the latter, buy.

So I'm really torn on whether I should position myself to buy in the future or simply resign myself to renting. At this stage I'll probably rent just because I may move around with my employer (Google) but I must admit: the prospect of owning an apartment in Manhattan is appealling.