8 ms·

Land and Homes should not suck useful capital out of our economies. Where could you spend more money and benefit less people per dollar? Our capital is better

Land and Homes should not suck useful capital out of our economies. Where could you spend more money and benefit less people per dollar? Our capital is better deployed in businesses where many more people benefit from many less dollar input. This is why the SP500 craps on real estate. Because it should. Hell, the only reason real estate has had the peaks it has, is because it was subsidized by the financial sector. And as you can see, that blip of misvaluation did much more harm than good. Business make the world better than houses do. Businesses are where you get people the best benefits. More expensive houses, to the point of unaffordable are the enemy. If you have allocated a huge portion of your assets into a non productive asset (a house), then you are part of what is wrong with the world. Stop expecting your "only benefits you house" to pay the same as "benefits 10x + more people" businesses. P.S. liquidity, capital surplus recycling, less bid/ask spread, less fees, less counterparty risk (eviction, destruction). The capital markets pretty much crap on the real estate markets. And they should.

malcolmgreaves 10y ago
I largely agree with your statements. and especially with your overall tone and thesism. However, everyone needs a home. And it's foolish to believe that only businesses should own homes. How much "useful capital" should one expend on such a critical, life sustaining thing?
- HappyFunGuy 10y ago
  I agree with you. Which is why we need more affordable houses, and less unaffordable houses. Because many in this world have more than they need, you can get the important, shelter by renting, lucky us! We can affordably live in things that took thousands of man hours of labor, and more capital, for a low monthly fee. One day, when robots build houses, owning can replace renting. Or when everyone stops the cargo cult of HOUSES MUST GO UP IN PRICE OR LIFE SUXORZ!!! It's funny how owning something distorts ones perception. What else in the world MUST GO UP IN PRICE! Notice I say price and not value, for it is truly only the price going up. Their utility remains static, or decreases as the view is blocked by high rises. Paperclips must go up in price! I own some!
  - lostlogin 10y ago
    > What else in the world MUST GO UP IN PRICE! Pretty much everything. The stagnation and zero inflation of many economies is a problem.
    - tunap 10y ago
      Therein lies the rub: infinite growth cannot be sustained in any finite system. This fosters an environment where real value & perceived value diverge and balloons occur...and pop. Beany Baby Marketing 101.
      - jventura 10y ago
        Infinite growth is possible and it is what our societies aim for. But, in its deepest, it is a pseudo-growth, because prices rise, but eventually salaries must eventually rise again to match the prices.. So, in the end, everything gets back to the same relative levels!
        dredmorbius 10y ago
        That isn't growth -- real increase in wealth, as Adam Smith defines it ("the annual labour and produce of the Nation"), or as mismeasured to a lesser degree by GNP / GDP -- but monetary inflation.
        roschdal 10y ago
        Some research finds that growth has limits: https://en.m.wikipedia.org/wiki/The_Limits_to_Growth https://en.m.wikipedia.org/wiki/The_Limits_to_Growth
        tunap 10y ago
        I concur, it is what developing economies strive for and what developed(sic) economies strive to maintain. Anything is possible, it is the methodology that provides the results(good & bad). This philosophy has been the acme of societal success since blood-letting was believed to be a cure all & the earth was thought to be the center of the universe. The tangible reality is, higher & higher margins are required to achieve that growth. Whether this is achieved by tech, innovation, exploitation or inflation is moot, what is certain is always more has it's costs & limits.
jly 10y ago
I'm not quite sure what your point is. Nobody should own a house because it requires sinking too much capital into that could be better spent? While you may have some point there, that's not really realistic. I own a home and I didn't sink a lot of assets into it because it was going to be a great investment, but because I wanted to own a home.
- HappyFunGuy 10y ago
  Some of the smarter among us own homes, because they can delay gratification, and save. That same saving and delayed gratification could be used to put money into a business that benefits others, instead of a home, which benefits basically only them and their close family. Not only do they misallocate that capital, while being the intelligent class that can actually run a successful business, or service, which benefits others. That's just bad thing 1. Bad thing 2 is that they cop an attitude, and affect legislation which causes their "investment" in owning a home to rise in price. Executed by preventing competition (zoning laws) and being more costly for everyone else to buy, because they demand and fight for it. *Homestead tax exemption, etc. Their choice to own a home makes them want others to have a harder time to get what they themselves have, through the vehicle of higher prices, and tax benefits to the capital class. Thus intelligent, useful people, become cockblockers. Houses must become more and more unaffordable for everyone else, because they happen to own one. :( How selfish. Sadly, the idea that high house prices screw over more people than they benenfit is undermarketed, and its impossible to teach a man a thing he profits by not understanding... We end up in a world where no young person can afford to own the home they live in. And if you try to build some new supply, the local captured regulatory agency, vetos you. The zoning board of people who already have nice houses, cock blocks you. Not in my backyard! Stop cock blocking. Stop expecting your future to be paid for by your non productive, benefits only you "asset." Go forth and benefit others at scale if you desire riches.
  - summarite 10y ago
    I'm not sure I can grasp why you're so negative about house ownership and you seem to be rather in some weird ideological cage that doesn't let you see the whole picture. Firstly you have something akin to the broken window fallacy going on: if I buy a house someone else (often a company) gets that cash and can invest it. The money does not disappear, and if I had taken the same loan (which I likely wouldn't have received without the house title as guarantee that the bank gets its money back) to start a company or invest in stocks there's a much higher probability of failure than that my house disappears. So it's a thrifty investment. In particular as secondly, house ownership means I'll save on rent, rather than to pump money into someone else's pocket I'm accumulating the value. It's a simple calculation that this is in most cases in my benefit if I expect to be in the same spot for 5+ years. Real house value could even decrease over time, the rental costs I'm saving could still make it a good investment. Thirdly, first house owners are unlikely to try to influence policy just to increase house value. Not sure how you can have such an idea, for most owners this would be unlikely to be worth the time& effort required just to increase house value 1℅ or so. But you can be sure they will fight for their quality of life (think parks, no planes, etc). That coincides with house value but for most average citizens the only (conscious/driving) reason to affect local policy is quality of life. And lastly I think you're somehow too far from reality if you argue it is in an individual's interest to serve the wider economy. I'm not going to use my money just to benefit an imaginary wider economy - what is the benefit then for me? Why be rich if life sucks (and why risk all my money just to start a company if I have already a good income & life?) Do I live just to nudge Gdp up by 0.00001℅ over my lifetime? Or do I want a healthy life, a garden for my kids to play, etc. Buying a house is a very rational decision and I"m not sure what you can see as selfish (in particular considering point 1). Your argument really is somewhat absurd and I find it hard to believe you make all your life decisions or buying decisions with such an approach (leasing your laptop? Living in a polygamous commune as keeping an attractive partner to yourself would keep potential value from the rest of humanity?).
carsongross 10y ago
Housing bubbles (where prices outpace incomes) are particularly damaging for the long term survival of a civilization because they hit it where it really counts: family formation. Celebrating high housing prices is the civilizational equivalent of giving a toast as you sit down to a banquet of your seed corn.
mancerayder 10y ago
This is just a massive overgeneralization about the viability of real estate as an investment vehicle, and it comes off as slightly moralistic. I'll leave out the moralistic component. When it comes to value, some other considerations are the low interest rates we experience, the fixed 30-year loan, in the U.S. that is, and interest tax deductions. So one isn't pummeling 1M in investment that could otherwise go into a business. One is putting in 200k, even less with an FHA loan, and deducting the price of the loan. Now we get more advanced. Buy a multi-family property, and you get rental income. This rental income is balanced against depreciation of the house, so your personal income bracket isn't affected. When you combine the tax credits, the low cost of loans, the increasing rents, the principal you're getting back, when the dust has settled you're light years ahead of those folks who rented and pumped their money into some seesaw investment vehicle like the stock market. I pay out of pocket less than the price of a studio, and own a standalone house in one of the country's top three rental markets. It gets better, because you can sell the property to purchase another, and defer all tax payments on the profit of the sale. 1031 exchange. As someone else said, it's pointless to generalize nationally. We live in a big country, assuming you are US-based. I bet there's a similar dynamic in the UK or Canada, both of which have noises of a bubble.
- pm90 10y ago
  It fails to amaze me how much the govt. and financial sector are willing to subsidise the housing market. If you leave the morality clause aside, why exactly should the US Government create tax incentives, low interest mortgages and such for housing? It was precisely the morality of enabling Americans to own a house that these benefits are present in the first place, funneling so much financial resources into the housing market rather than other investments. I do agree with what you say though. With all the incentives that are in place, we shouldn't overgeneralize since housing can be a good investment.
  - refurb 10y ago
    What I find silly is, is the gov't really subsidizing housing in the end? Offer a tax deduction on mortgage interest and people can afford a higher price so competition drives prices up and everyone ends up in the same place. Same with lower interest rates, etc. One could argue there is a period where housing is easier to purchase once a new subsidy is created, but shortly after that, the market reaches equilibrium and we're back in the same place. Just imagine if there were no housing subsidies. Housing prices would be mich lower. And yes, I know that's a gross oversimplification, but I think the effect is still there.
paulpauper 10y ago
Businesses are where you get people the best benefits. Entrepreneurship has a 90-95% chance of failure...Bay Area homes have doubled since 2011..the choice seems obvious to me (provided you have enough money to buy a Bay Area home). Business make the world better than houses do. You're comparing apples an oranges here. Businesses very often lease real estate..guess who ends up making most of the money in that deal.. More expensive houses, to the point of unaffordable are the enemy. Where is the incentive to invest in urban development if there is no return. If a private equity firms wants to buy a bunch of blighted homes and improve them, why should they not profit from the land value?
WalterBright 10y ago
> Land and Homes should not suck useful capital out of our economies. They don't. The money you invest in them doesn't disappear into a Scrooge McDuck cash vault. The seller then spends or invests it. Also, an asset that servers as collateral for a loan serves to creates the money for the loan. I agree that homes don't make for great investments for many reasons, but they aren't a drag on the economy.
- internaut 10y ago
  You've ignored opportunity costs. Consider my Tiny House project. I estimate it shall cost me 50-70k. The average house price in my area is quarter of a million euros and the total life long cost of a loan brings that up to half a million euros. Instead of working for an employer to obtain either 180k (if I save) or 450k (if I borrow) I can begin my own business instead.
  - karma_vaccum123 10y ago
    What is the difference between a small business and a home? My home "employs" people (I just had two roofers earn $4k doing work on my home yesterday), it requires investment and risk...it doesn't generate a cash flow, but 90% of startups don't either. Lets flip this around...if two people came to Palo Alto in 2009 with a $2 million fund, one doing a starup and the other buying a home...the one doing a startup would have a 90% chance of failure with a 0.1% chance of tripling their money...the other who purchased a home would have had a 99% chance of at least doubling their money, and a 100% chance of making at least a 25% gain. Who is the smart one?
    - internaut 10y ago
      > What is the difference between a small business and a home? The difference between consumption and investment? I want a nice shelter, not a 3 bedroom house I don't need or want on the off chance I'll sell at a profit some day. I'm not interested in that. > Lets flip this around...if two people came to Palo Alto in 2009 with a $2 million fund, one doing a starup and the other buying a home...the one doing a startup would have a 90% chance of failure with a 0.1% chance of tripling their money...the other who purchased a home would have had a 99% chance of at least doubling their money, and a 100% chance of making at least a 25% gain. Who is the smart one? I could give a similar example of literally any class of assets. Investing is not arithmetic. These things aren't baked in like Newton's Laws of Thermodynamics. Corelations can look solid for decades and then totally disappear. I can tell you for free though, that my generation and the ones behind it cannot afford your houses.
karma_vaccum123 10y ago
There is undersupply in houses in good markets. This is why I invest in a house in a good market. There is oversupply in most business categories. This is why I would rather invest in a house. What are these business needs that will be met if I reallocate my capital? Do we need another car company? Can Amazon.com not raise enough capital to grow AWS? etc etc People who invest in homes in good markets understand supply and demand pretty well. For most people, a home is an investment they understand which delivers utility every day they live in it and augments their retirement when they downsize. It isn't very complicated. I think the subtext here, for better or for worse, is that regular folks have made a lot of money off of real estate since the 2009 crash. Startup people like to think of themselves as smart, and it bothers many of them that regular folks have actually done quite well while they are rolling the dice. Smart people are supposed to have better outcomes than regular folk, apparently.
Gustomaximus 10y ago
> This is why the SP500 craps on real estate. This is a limited view. For this one needs to include debt opportunity and tax. Try and get a $1mil loan at 95% LVR on shares. Good luck with that. With property this is often fine. Property lets you work at high leverage points due to its safer nature. In this way your $100k of shares might have a higher return but once you leverage to a $1mil house at that capital level, the smaller percentage return pays more overall. Also in many countries you dont pay tax on residential property you live in which adds 15%-40% value as you take profits. Completely agree on the heavy deployment of capital in many of today's property markets. The business and society cost of high house pricing is not discussed enough. I feel its a great way to stagnate an economy if we continue this.
mablap 10y ago
So what do you suggest I do in my mid-20s: buy a house or stay a tenant for life? Why shouldn't I buy a house?
- carsongross 10y ago
  Here is a rent v. buy calculator: http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html http://www.nytimes.com/interactive/2014/upshot/buy-rent-calc... Unfortunately, if you play around with it, you will see that future appreciation is one of the most sensitive variables in the equation. My guess is that housing will decline in price, potentially quite seriously, but no one has a crystal ball. I own right now, but I would not buy right now. If it were convenient, I would sell.
  - mablap 10y ago
    Where I live, it's a buyer's market. We have plenty of choice. I can live with not making money on my investment, or even losing a bit, as long as it means losing less than I'd have lost renting. EDIT: Wow. I have just used the NYT's calculator with numbers to the best of my knowledge (assuming 0% house price growth). Per them, I should rent. I'm paying $840 in mortgage plus about $180-200 in utilities etc. Their estimate is that I should rent if I can rent a house for less than $1800 a month. That's definitely possible here. Way to make me rethink my investment! If I assume a 3% growth in house prices, I should definitely buy, by a 300$ margin.
- tacostakohashi 10y ago
  Buy a house if you want. It can be much better than being a tenant for practical reasons - less moving around to keep getting a good deal, not having to constantly play games with your landlord and brokers for new leases, basic repairs and the like, getting the mortgage interest tax deduction and all the rest. Just don't kid yourself that it's an 'investment', don't sink in more money than you need to. Remember, we are all born with short position of one residence, and buying a single residence takes us back to being flat. Buying any more than we need to is going long on housing as an asset class, which may not be the best idea.

malcolmgreaves 10y ago

I largely agree with your statements. and especially with your overall tone and thesism. However, everyone needs a home. And it's foolish to believe that only businesses should own homes. How much "useful capital" should one expend on such a critical, life sustaining thing?

HappyFunGuy 10y ago
I agree with you. Which is why we need more affordable houses, and less unaffordable houses. Because many in this world have more than they need, you can get the important, shelter by renting, lucky us! We can affordably live in things that took thousands of man hours of labor, and more capital, for a low monthly fee. One day, when robots build houses, owning can replace renting. Or when everyone stops the cargo cult of HOUSES MUST GO UP IN PRICE OR LIFE SUXORZ!!! It's funny how owning something distorts ones perception. What else in the world MUST GO UP IN PRICE! Notice I say price and not value, for it is truly only the price going up. Their utility remains static, or decreases as the view is blocked by high rises. Paperclips must go up in price! I own some!
- lostlogin 10y ago
  > What else in the world MUST GO UP IN PRICE! Pretty much everything. The stagnation and zero inflation of many economies is a problem.
  - tunap 10y ago
    Therein lies the rub: infinite growth cannot be sustained in any finite system. This fosters an environment where real value & perceived value diverge and balloons occur...and pop. Beany Baby Marketing 101.
    - jventura 10y ago
      Infinite growth is possible and it is what our societies aim for. But, in its deepest, it is a pseudo-growth, because prices rise, but eventually salaries must eventually rise again to match the prices.. So, in the end, everything gets back to the same relative levels!
      - dredmorbius 10y ago
        That isn't growth -- real increase in wealth, as Adam Smith defines it ("the annual labour and produce of the Nation"), or as mismeasured to a lesser degree by GNP / GDP -- but monetary inflation.
      - roschdal 10y ago
        Some research finds that growth has limits: https://en.m.wikipedia.org/wiki/The_Limits_to_Growth https://en.m.wikipedia.org/wiki/The_Limits_to_Growth
      - tunap 10y ago
        I concur, it is what developing economies strive for and what developed(sic) economies strive to maintain. Anything is possible, it is the methodology that provides the results(good & bad). This philosophy has been the acme of societal success since blood-letting was believed to be a cure all & the earth was thought to be the center of the universe. The tangible reality is, higher & higher margins are required to achieve that growth. Whether this is achieved by tech, innovation, exploitation or inflation is moot, what is certain is always more has it's costs & limits.

jly 10y ago

I'm not quite sure what your point is. Nobody should own a house because it requires sinking too much capital into that could be better spent? While you may have some point there, that's not really realistic. I own a home and I didn't sink a lot of assets into it because it was going to be a great investment, but because I wanted to own a home.

HappyFunGuy 10y ago
Some of the smarter among us own homes, because they can delay gratification, and save. That same saving and delayed gratification could be used to put money into a business that benefits others, instead of a home, which benefits basically only them and their close family. Not only do they misallocate that capital, while being the intelligent class that can actually run a successful business, or service, which benefits others. That's just bad thing 1. Bad thing 2 is that they cop an attitude, and affect legislation which causes their "investment" in owning a home to rise in price. Executed by preventing competition (zoning laws) and being more costly for everyone else to buy, because they demand and fight for it. *Homestead tax exemption, etc. Their choice to own a home makes them want others to have a harder time to get what they themselves have, through the vehicle of higher prices, and tax benefits to the capital class. Thus intelligent, useful people, become cockblockers. Houses must become more and more unaffordable for everyone else, because they happen to own one. :( How selfish. Sadly, the idea that high house prices screw over more people than they benenfit is undermarketed, and its impossible to teach a man a thing he profits by not understanding... We end up in a world where no young person can afford to own the home they live in. And if you try to build some new supply, the local captured regulatory agency, vetos you. The zoning board of people who already have nice houses, cock blocks you. Not in my backyard! Stop cock blocking. Stop expecting your future to be paid for by your non productive, benefits only you "asset." Go forth and benefit others at scale if you desire riches.
- summarite 10y ago
  I'm not sure I can grasp why you're so negative about house ownership and you seem to be rather in some weird ideological cage that doesn't let you see the whole picture. Firstly you have something akin to the broken window fallacy going on: if I buy a house someone else (often a company) gets that cash and can invest it. The money does not disappear, and if I had taken the same loan (which I likely wouldn't have received without the house title as guarantee that the bank gets its money back) to start a company or invest in stocks there's a much higher probability of failure than that my house disappears. So it's a thrifty investment. In particular as secondly, house ownership means I'll save on rent, rather than to pump money into someone else's pocket I'm accumulating the value. It's a simple calculation that this is in most cases in my benefit if I expect to be in the same spot for 5+ years. Real house value could even decrease over time, the rental costs I'm saving could still make it a good investment. Thirdly, first house owners are unlikely to try to influence policy just to increase house value. Not sure how you can have such an idea, for most owners this would be unlikely to be worth the time& effort required just to increase house value 1℅ or so. But you can be sure they will fight for their quality of life (think parks, no planes, etc). That coincides with house value but for most average citizens the only (conscious/driving) reason to affect local policy is quality of life. And lastly I think you're somehow too far from reality if you argue it is in an individual's interest to serve the wider economy. I'm not going to use my money just to benefit an imaginary wider economy - what is the benefit then for me? Why be rich if life sucks (and why risk all my money just to start a company if I have already a good income & life?) Do I live just to nudge Gdp up by 0.00001℅ over my lifetime? Or do I want a healthy life, a garden for my kids to play, etc. Buying a house is a very rational decision and I"m not sure what you can see as selfish (in particular considering point 1). Your argument really is somewhat absurd and I find it hard to believe you make all your life decisions or buying decisions with such an approach (leasing your laptop? Living in a polygamous commune as keeping an attractive partner to yourself would keep potential value from the rest of humanity?).

carsongross 10y ago

Housing bubbles (where prices outpace incomes) are particularly damaging for the long term survival of a civilization because they hit it where it really counts: family formation. Celebrating high housing prices is the civilizational equivalent of giving a toast as you sit down to a banquet of your seed corn.

mancerayder 10y ago

This is just a massive overgeneralization about the viability of real estate as an investment vehicle, and it comes off as slightly moralistic. I'll leave out the moralistic component. When it comes to value, some other considerations are the low interest rates we experience, the fixed 30-year loan, in the U.S. that is, and interest tax deductions. So one isn't pummeling 1M in investment that could otherwise go into a business. One is putting in 200k, even less with an FHA loan, and deducting the price of the loan. Now we get more advanced. Buy a multi-family property, and you get rental income. This rental income is balanced against depreciation of the house, so your personal income bracket isn't affected. When you combine the tax credits, the low cost of loans, the increasing rents, the principal you're getting back, when the dust has settled you're light years ahead of those folks who rented and pumped their money into some seesaw investment vehicle like the stock market. I pay out of pocket less than the price of a studio, and own a standalone house in one of the country's top three rental markets. It gets better, because you can sell the property to purchase another, and defer all tax payments on the profit of the sale. 1031 exchange. As someone else said, it's pointless to generalize nationally. We live in a big country, assuming you are US-based. I bet there's a similar dynamic in the UK or Canada, both of which have noises of a bubble.

pm90 10y ago
It fails to amaze me how much the govt. and financial sector are willing to subsidise the housing market. If you leave the morality clause aside, why exactly should the US Government create tax incentives, low interest mortgages and such for housing? It was precisely the morality of enabling Americans to own a house that these benefits are present in the first place, funneling so much financial resources into the housing market rather than other investments. I do agree with what you say though. With all the incentives that are in place, we shouldn't overgeneralize since housing can be a good investment.
- refurb 10y ago
  What I find silly is, is the gov't really subsidizing housing in the end? Offer a tax deduction on mortgage interest and people can afford a higher price so competition drives prices up and everyone ends up in the same place. Same with lower interest rates, etc. One could argue there is a period where housing is easier to purchase once a new subsidy is created, but shortly after that, the market reaches equilibrium and we're back in the same place. Just imagine if there were no housing subsidies. Housing prices would be mich lower. And yes, I know that's a gross oversimplification, but I think the effect is still there.

paulpauper 10y ago

Businesses are where you get people the best benefits. Entrepreneurship has a 90-95% chance of failure...Bay Area homes have doubled since 2011..the choice seems obvious to me (provided you have enough money to buy a Bay Area home). Business make the world better than houses do. You're comparing apples an oranges here. Businesses very often lease real estate..guess who ends up making most of the money in that deal.. More expensive houses, to the point of unaffordable are the enemy. Where is the incentive to invest in urban development if there is no return. If a private equity firms wants to buy a bunch of blighted homes and improve them, why should they not profit from the land value?

WalterBright 10y ago

> Land and Homes should not suck useful capital out of our economies. They don't. The money you invest in them doesn't disappear into a Scrooge McDuck cash vault. The seller then spends or invests it. Also, an asset that servers as collateral for a loan serves to creates the money for the loan. I agree that homes don't make for great investments for many reasons, but they aren't a drag on the economy.

internaut 10y ago
You've ignored opportunity costs. Consider my Tiny House project. I estimate it shall cost me 50-70k. The average house price in my area is quarter of a million euros and the total life long cost of a loan brings that up to half a million euros. Instead of working for an employer to obtain either 180k (if I save) or 450k (if I borrow) I can begin my own business instead.
- karma_vaccum123 10y ago
  What is the difference between a small business and a home? My home "employs" people (I just had two roofers earn $4k doing work on my home yesterday), it requires investment and risk...it doesn't generate a cash flow, but 90% of startups don't either. Lets flip this around...if two people came to Palo Alto in 2009 with a $2 million fund, one doing a starup and the other buying a home...the one doing a startup would have a 90% chance of failure with a 0.1% chance of tripling their money...the other who purchased a home would have had a 99% chance of at least doubling their money, and a 100% chance of making at least a 25% gain. Who is the smart one?
  - internaut 10y ago
    > What is the difference between a small business and a home? The difference between consumption and investment? I want a nice shelter, not a 3 bedroom house I don't need or want on the off chance I'll sell at a profit some day. I'm not interested in that. > Lets flip this around...if two people came to Palo Alto in 2009 with a $2 million fund, one doing a starup and the other buying a home...the one doing a startup would have a 90% chance of failure with a 0.1% chance of tripling their money...the other who purchased a home would have had a 99% chance of at least doubling their money, and a 100% chance of making at least a 25% gain. Who is the smart one? I could give a similar example of literally any class of assets. Investing is not arithmetic. These things aren't baked in like Newton's Laws of Thermodynamics. Corelations can look solid for decades and then totally disappear. I can tell you for free though, that my generation and the ones behind it cannot afford your houses.

karma_vaccum123 10y ago

There is undersupply in houses in good markets. This is why I invest in a house in a good market. There is oversupply in most business categories. This is why I would rather invest in a house. What are these business needs that will be met if I reallocate my capital? Do we need another car company? Can Amazon.com not raise enough capital to grow AWS? etc etc People who invest in homes in good markets understand supply and demand pretty well. For most people, a home is an investment they understand which delivers utility every day they live in it and augments their retirement when they downsize. It isn't very complicated. I think the subtext here, for better or for worse, is that regular folks have made a lot of money off of real estate since the 2009 crash. Startup people like to think of themselves as smart, and it bothers many of them that regular folks have actually done quite well while they are rolling the dice. Smart people are supposed to have better outcomes than regular folk, apparently.

Gustomaximus 10y ago

> This is why the SP500 craps on real estate. This is a limited view. For this one needs to include debt opportunity and tax. Try and get a $1mil loan at 95% LVR on shares. Good luck with that. With property this is often fine. Property lets you work at high leverage points due to its safer nature. In this way your $100k of shares might have a higher return but once you leverage to a $1mil house at that capital level, the smaller percentage return pays more overall. Also in many countries you dont pay tax on residential property you live in which adds 15%-40% value as you take profits. Completely agree on the heavy deployment of capital in many of today's property markets. The business and society cost of high house pricing is not discussed enough. I feel its a great way to stagnate an economy if we continue this.

mablap 10y ago

So what do you suggest I do in my mid-20s: buy a house or stay a tenant for life? Why shouldn't I buy a house?

carsongross 10y ago
Here is a rent v. buy calculator: http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html http://www.nytimes.com/interactive/2014/upshot/buy-rent-calc... Unfortunately, if you play around with it, you will see that future appreciation is one of the most sensitive variables in the equation. My guess is that housing will decline in price, potentially quite seriously, but no one has a crystal ball. I own right now, but I would not buy right now. If it were convenient, I would sell.
- mablap 10y ago
  Where I live, it's a buyer's market. We have plenty of choice. I can live with not making money on my investment, or even losing a bit, as long as it means losing less than I'd have lost renting. EDIT: Wow. I have just used the NYT's calculator with numbers to the best of my knowledge (assuming 0% house price growth). Per them, I should rent. I'm paying $840 in mortgage plus about $180-200 in utilities etc. Their estimate is that I should rent if I can rent a house for less than $1800 a month. That's definitely possible here. Way to make me rethink my investment! If I assume a 3% growth in house prices, I should definitely buy, by a 300$ margin.
tacostakohashi 10y ago
Buy a house if you want. It can be much better than being a tenant for practical reasons - less moving around to keep getting a good deal, not having to constantly play games with your landlord and brokers for new leases, basic repairs and the like, getting the mortgage interest tax deduction and all the rest. Just don't kid yourself that it's an 'investment', don't sink in more money than you need to. Remember, we are all born with short position of one residence, and buying a single residence takes us back to being flat. Buying any more than we need to is going long on housing as an asset class, which may not be the best idea.