Avocado Toast Math: Renting vs. Owning in an Extraordinarily Expensive Area
Executive summary: Our societal obsession with buying a home is simply not realistic for many people these days, especially in high cost-of-living areas. Renting (unfairly) gets a bad rap, but I would be able to buy so much avocado toast with how much I’d save per month as a renter vs. homeowner.
It appears that my husband and I have now inadvertently achieved “The American Dream” twice in under a year, as we bought our condo last March but then promptly sold it and purchased a duplex down the street 11 months later. I always preface this development by saying that it was unintended, that the university faculty housing programs fundamentally alter the home buying process and incentive structure. Indeed, we might never have purchased a home at all if Stanford hadn’t provided the levers — we’d been happily renting for almost two decades, after all, from our dorm and apartment in college to the East Coast to coming back West during the pandemic. Flexibility was our priority throughout our educational and professional endeavors, and we needed to move approximately every 2 years to pursue life-changing opportunities. And now that we’re back in the Bay Area “for good,” housing prices are so astronomically out of reach (even more so than 5-10 years ago) that it simply isn’t prudent or possible for many people to become homeowners. Sometimes older generations like to disparage Millennials for spending too much on avocado toast at the expense of being able to buy a home, but no amount of being stingy with bougie brunch is going to move the needle in this real estate market, where homes are priced at $1M a bedroom. While I did not enjoy calculus in high school, I do love myself a tidy spreadsheet, and I’ve run the numbers to understand what it would hypothetically cost to rent vs. buy near Stanford (to spare hubby from a soul-sucking commute to get to/from work). Even better, I’m going to couch the results in terms of how much avocado toast it translates into. Wanna see?
Based on these calculations, it costs over twice as much to own as to rent: $12.6k/month in cash outflow to own a 2br condo vs. $6k/month to rent a 2br apartment in our previous complex. If I saved $6.6k a month on housing, I could order 331 pieces of avocado toast (11 pieces per day) at $20 per piece. And this doesn’t even account for the opportunity cost of those savings, plus the $400k tied up in the down payment, that could be earning 10-15% in nominal returns on the stock market. I omit that part of the calculation in my avocado toast math, because a house will also likely appreciate, so let’s call it a wash to simplify things. Do you want to see how much more the numbers (and toast) balloon if I apply it to a 3-bedroom duplex, like what we just moved into?
At $21k/month, it would cost over $250k/year in today’s dollars to own what most Americans would consider an average-sized home (3 bedrooms, 2,000ish square feet). If I were to rent a house of this size, it might be $10k/month in this area, so again, renting is less than half the cost of buying. That equates to 6,590 slices of avocado toast (18 a day) with the $132k that I’d save yearly if I were a renter instead of an owner of a 3br home. Stomachache.
I love where we live, but these homes won’t become any easier to afford by scrimping on avocado toast.
The American Dream might have once made sense, or maybe it still does in lower cost-of-living regions of the country, but the “traditional” equation of renting vs. owning breaks down in places like the Bay Area. Anecdotally, I’ve met a number of families through our kids’ schools, and they tend to fall into several buckets: 1. Have a lot of money, period; 2. Bought through Stanford (only an option for faculty); 3. Rent; 4. Live in their parents’ homes, which were purchased decades ago at a tiny fraction of today’s prices (and still pay itty bitty property taxes on them). I am tired of the endless rhetoric around the “necessity” of buying a home and the people who disparage renting as “throwing your money away.” Excuse me, but look at how much avocado toast I could be enjoying with the savings from renting! Alas, it seems that the American Dream is nothing more than a pipe dream for most people of my generation in this area … but hey, if you can’t afford a home here, you could bathe every night in all the avocado toast you’d be able to buy with the savings from renting!