You’ve probably heard it a thousand times: real estate is the best investment you can make. Your parents said it. Your financially successful friends say it. The entire cultural machinery of American aspiration says it. And in plenty of markets, they’re right.
But in high-cost-of-living cities—San Francisco, New York, Boston, Seattle, Los Angeles—that conventional wisdom doesn’t just fail. It actively destroys wealth for buyers who don’t understand what they’re actually signing up for.
The uncomfortable truth is that buying in an expensive city often leaves you poorer than renting would have, even over a decade or more. Not because you’re throwing money away on rent, but because the math of ownership in these markets is fundamentally broken for most buyers.
The Myth That Traps Smart People
Here’s the belief that gets people into trouble: “I’m paying $3,500 a month in rent. That’s $42,000 a year going to my landlord’s pocket. At least if I buy, I’m building equity.”
It sounds logical. It feels responsible. And it’s often catastrophically wrong.
The problem isn’t the desire to build equity—that’s sensible. The problem is assuming that buying automatically means you’re building more wealth than you would by renting and investing the difference. In expensive cities, the gap between renting and owning costs is so enormous that the “difference” you could invest dwarfs whatever equity you’d accumulate.
Let’s make this concrete. A $1.2 million condo in San Francisco (which buys you something modest) with 20% down means a $960,000 mortgage. At current rates, your monthly payment is around $6,300—just principal and interest. Add property taxes, HOA fees, insurance, and maintenance, and you’re looking at $8,500 to $9,500 monthly in true housing costs.
Meanwhile, that same condo might rent for $3,800 to $4,200. The gap between owning and renting is $4,500 or more per month.
If you invested that $4,500 monthly difference in a diversified portfolio returning 7% annually, after ten years you’d have over $750,000 in investment assets. The equity you’d build in the condo over the same period? Roughly $350,000 to $400,000, depending on how much principal you’ve paid down and whether prices appreciated.
This is the wealth destruction nobody talks about.
The Hidden Costs That Compound
The monthly payment comparison is damning enough, but it gets worse when you factor in the full cost of buying in a high-cost market.
That $240,000 down payment? It’s not just money you spent—it’s money that stopped compounding. At 7% annual returns, $240,000 grows to approximately $472,000 in ten years—nearly double your original investment. By putting it into a down payment, you’ve locked that capital into an illiquid asset that might appreciate, might not, and definitely won’t let you access it without selling or borrowing against it.
Then there’s the opportunity cost of closing costs. Buying a $1.2 million property means $30,000 to $50,000 in transaction costs—money that vanishes immediately and must be recovered through appreciation before you’re even breaking even.
Selling costs are worse. When you eventually move, you’ll pay 5-6% in agent commissions plus transfer taxes. On a $1.4 million sale (assuming modest appreciation), that’s $85,000 to $100,000. Every dollar of that comes directly out of your wealth.
Property taxes in expensive cities typically range from 1% to 1.5% annually, though this varies significantly by location—California cities often see lower effective rates due to Proposition 13 caps, while other states may exceed this range. On a $1.2 million property, that’s roughly $12,000 to $18,000 per year—money that provides zero return and simply disappears.
HOA fees in urban condos frequently run $600 to $1,200 monthly. Over a decade, you’ve paid $72,000 to $144,000 that built no equity whatsoever.
Maintenance costs don’t disappear just because you own a condo. Between special assessments, interior repairs, and appliance replacements, budget another $5,000 to $10,000 annually.
Add it all up, and the true cost of owning in an expensive city can exceed the mortgage payment by 40% or more. Most buyers never run these numbers until they’re already committed.
When Appreciation Becomes a Fantasy
“But what about appreciation?” is the reflexive response to these calculations. And yes, if your $1.2 million condo becomes a $2 million condo in ten years, the math changes dramatically.
But that assumption deserves scrutiny.
For appreciation to make buying worthwhile in an expensive city, prices need to outpace not just inflation, but the returns you’d get from investing the difference. That means sustained annual appreciation of 5-7% or more.
Some markets have delivered that historically. San Francisco from 2012 to 2022 saw explosive growth. But that same market experienced significant declines from 2022 to 2023, with various indices and property types reporting drops ranging from 10% to 15% depending on the segment, according to Case-Shiller and local MLS data. New York City has had essentially flat real appreciation over twenty-year periods. Boston cycles between booms and stagnation.
The problem with banking on appreciation is that expensive cities are already priced for perfection. The people who built generational wealth buying in San Francisco did so when homes cost $300,000, not $1.5 million. At current valuations, you need everything to go right—continued tech dominance, no remote work shifts, sustained population growth, and favorable interest rate environments—just to match what index funds deliver with none of that risk.
When you hear someone say they made a fortune buying in an expensive city, ask when they bought. Almost invariably, it was a decade or more ago at prices that seem laughable now. That opportunity isn’t coming back.
The Liquidity Trap
Here’s what really makes buying in expensive cities dangerous: the exit.
In a $250,000 market, if you need to move for a job or family situation, you can sell relatively quickly. You might even break even after a few years if you have to. The market is liquid, with plenty of buyers at that price point.
In a $1.5 million market, your buyer pool shrinks dramatically. You’re selling to dual-income professionals at the top of their earning years, investors, or foreign buyers. When the market softens—and it always softens eventually—those buyers evaporate first.
This creates a trap. You bought because you were committed to the city. Then your circumstances change. Maybe the company that justified the high salary relocates. Maybe remote work becomes permanent and the salary premium disappears. Maybe you have kids and suddenly that 900-square-foot condo feels impossible. Maybe your industry shrinks and the job that supported the mortgage vanishes.
In any of these scenarios, you need to sell into a market that may have cooled, while carrying transaction costs that eat a huge percentage of any gains. If you’ve only owned for 3-4 years and the market is flat or down, you might walk away with less money than if you’d rented the entire time.
This isn’t theoretical. Thousands of Bay Area tech workers learned this lesson from 2022 to 2024. Those who owned were trapped when layoffs hit—still paying massive mortgages on properties worth less than they paid, unable to relocate to lower-cost markets where jobs were available.
The rent vs. buy calculation for people who might move in 3-5 years tilts even more dramatically toward renting in expensive cities because the transaction costs are proportionally so much larger.
The Psychology That Makes Smart People Do Dumb Things
If the math is so clear, why do high-earning professionals in expensive cities keep buying?
Partly, it’s because the emotional appeal of ownership is powerful. There’s security in knowing no landlord can decide not to renew your lease. There’s satisfaction in customizing your space. There’s status in saying you own in a city where ownership is rare.
But mostly, it’s because people compare themselves to other buyers rather than to the alternative of renting and investing.
When your colleague buys a place, you feel behind. When your parents ask why you’re still renting, you feel defensive. When Instagram shows you home tours of beautiful owned spaces, you feel aspirational.
Nobody posts photos of their brokerage account growing. Nobody gets congratulated at dinner parties for choosing to rent. The investment returns from renting and investing the difference are invisible, while the house is tangible and displayable.
This social pressure leads people to make decisions that cost them hundreds of thousands of dollars over their lifetimes. They’re not stupid—they’re human. But being human in financial decisions is expensive.
When Buying in an Expensive City Actually Works
To be fair, there are scenarios where buying in a high-cost market makes sense.
If you’re genuinely committed to staying 10+ years and your income is secure and growing, the math can work out, especially if you buy at a market low. The longer your time horizon, the more transaction costs get amortized and the more likely appreciation helps you.
If you can buy something that generates income—a duplex where you live in one unit and rent the other—the house-hacking calculation changes significantly, though even then, the numbers often disappoint in truly expensive markets.
If you’re wealthy enough that the down payment and monthly costs don’t materially affect your investment capacity, buying becomes more of a lifestyle choice than a financial one. When housing costs are 15% of your income instead of 40%, the wealth-building comparison matters less.
If you have insider knowledge that a particular neighborhood is about to transform—and I mean real knowledge, not speculation—you might capture appreciation that makes the math work.
For everyone else? Renting in an expensive city and investing the difference is likely to leave you wealthier than buying.
The Decision Framework
Here’s how to actually think about this decision:
First, calculate the true monthly cost of owning, including everything: principal, interest, property taxes, insurance, HOA, maintenance reserve. Be honest—most people underestimate by 20-30%.
Second, find comparable rentals. Not what you’re paying now, but what it would cost to rent the specific property you’re considering buying.
Third, calculate the monthly difference and the invested value of your down payment over your expected time horizon using realistic return assumptions (6-7% after inflation).
Fourth, compare the investment portfolio you’d have after that period to the equity you’d build in the home, accounting for transaction costs to sell.
If the numbers favor renting, trust them. Your feelings about ownership are valid, but they’re not worth sacrificing hundreds of thousands of dollars to satisfy.
The Uncomfortable Truth
American culture treats homeownership as the foundation of wealth-building. For most of American history, in most American markets, that was true.
But expensive cities have broken the formula. When the price-to-rent ratio exceeds 20-25 (meaning a home costs more than 20-25 years of rent), buying becomes speculation rather than investment. Most high-cost cities are well above that threshold.
The true cost of renting vs. buying depends entirely on the specific market you’re in. National statistics are worse than useless—they actively mislead.
If you’re renting in San Francisco or New York or Seattle and feeling guilty about it, stop. You’re not throwing money away. You’re making a mathematically sound decision that will likely leave you wealthier than your colleagues who bought.
The only question is whether you’re actually investing the difference or just spending it. Because renting and investing only works if you actually do both parts.
So if you’re renting in an expensive city and wondering whether it’s time to buy—ask yourself honestly: Am I making this decision based on math, or based on what I think I’m supposed to do? The answer might save you a fortune.