To Buy, To Rent, or To Belong? Household Finance: An Expat Couple's First Home in Paris

This case follows an expatriate couple deciding whether to rent or buy their first home in Paris. As they compare three very different apartments, they must weigh affordability, mortgages, transaction costs, neighborhood preferences, family support, career mobility, and the emotional pull of belonging. The case invites students to evaluate a major household financial decision where lifestyle, identity, and risk matter as much as spreadsheets.

• Evaluate affordability before valuation. Students should distinguish the maximum apartment the couple can buy from the apartment they should buy. The initial participation constraint, bank underwriting constraints, and interim consumption constraint are conceptually distinct.
• Practice annuity mechanics in a household finance setting. Students can apply the annuity formula to an amortizing fixed-rate mortgage and decompose each payment into interest and principal.
• Understand long-term loan amortization. Students should see that principal repayment is a cash outflow but not a pure cost: it converts liquid wealth into home equity, on which households can cash in when they sell. Mortgage balance, cumulative principal repayment, and home equity evolve jointly over time.
• Analyze a rent-versus-buy decision in a low-cap-rate market. In Paris, the rental yield on many owner-occupied apartments is low relative to prices. This makes avoided rent modest compared with the purchase price and transaction costs, so buying can be financially unattractive even when the household can obtain mortgage leverage
• Measure nonfinancial benefits explicitly. Ownership provides stability, renovation freedom, neighborhood belonging, and family-life optionality. Students should convert these benefits into a euro-equivalent annual flow or present value and ask whether that value is plausible by introspection or using external data.
• Compare housing as both an asset and a consumption good. The case forces students to choose a benchmark when computing the financial benefits of owning: avoided rent based on rental yield, or the rent of the apartment the couple would choose if they did not own.• Connect the home purchase to broader wealth building. Owner-occupied housing creates forced saving and leveraged exposure to a local asset, but also concentration and idiosyncratic risk. Students should compare this with diversified financial market exposure.