If they bought the house, they’d have to pay a couple hundred extra a month but they’re getting back close to 120k at closing plus 40k down payment. Now what do you think is better?

From a strictly financial point of view, ownership has not been a good investment, when including opportunity costs, maintenance and depreciation. When it comes to a market comprised of owner-occupiers and investors, the price is inevitably set by the investors. The intangible benefits given to home owners are spoils for living in a productive society and not a blanket justification for paying a premium over renting.

We consume housing just as any other capital asset — buildings and landscaping depreciate and require regular upkeep including one’s personal time, which is not necessarily free. Homes appreciate roughly at inflation so the asset value will typically lag other similar investments when including dividends. I would add in those costs to the cost of capital when determining how much equivalent rent really is. It’s not just mortgage payments and property taxes.

Investors know what all these costs amount to and for a condo you should expect a yield of around 10-12%. If gross yield on your condo is not in this range, expect to take a loss in terms of asset valuation or foregone free cash flow that would have compounded above the rate of inflation.