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Why is home ownership a net good? A home is not an appreciating investment - it's an expensive asset that requires regular upkeep, maintenance, and property tax

Why is home ownership a net good? A home is not an appreciating investment - it's an expensive asset that requires regular upkeep, maintenance, and property taxes. Using that as your main store of value seems imprudent.

rhombocombus 9y ago
That depends a lot on where you live. I agree that a home is not an ideal investment vehicle, but where I live, even accounting for upkeep, my home has increased in value at a rate similar to my income for the last five years. It is ultimately your home and not an investment unless that is your specific goal, so it's not a good idea to put all of your eggs in that basket, but the idea that real property isn't an investment simply is not correct.
- deleted 9y ago
  [deleted]
emodendroket 9y ago
Well, the paper I linked lays out what I found to be a compelling case, but to summarize the major beats quickly: from the New Deal era to 2008, besides giving owners a place to live and freeing them from abusive landlords, the vagaries of the housing market, etc., homes provided an agreed-upon, relatively stable source of value (particularly for retiring people) and gave their owners an incentive to maintain them (to a higher standard than an absentee landlord) and made them more invested and participatory in their communities. This also provided a measure of political stability (people who feel like they have a lot to lose don't generally want to tear the system down). During the financial crisis supporting that system was in some measure abandoned (since little effort was made to arrest foreclosures), but without any plan to replace that stability-generating mechanism with a different one. Yes, perhaps you could dream up a better means of delivering these benefits, and certainly home ownership was not equally or equitably distributed among Americans, but I feel like those objections are more compelling in a vacuum than in the reality we actually inhabit.
- jimmywanger 9y ago
  I guess I wasn't clear. Why is it a net good for the individual? Society _might_ be better off, but for the individual, deluding him to the long term inherent fiscal benefits of home ownership to maintain societal stability seems to short change the individual. Whenever rents are less expensive than mortgages, then it's better to rent or buy. This case is true throughout much of the Bay Area right now. And it's not clear that it's a net societal good in other countries. In Berlin, a lot of people are lifetime renters. In Japan, housing is a depreciating asset that becomes worthless after 20-30 years. When you buy a house it's generally for the land and the house is generally demolished by the new owners.
  - emodendroket 9y ago
    > Whenever rents are less expensive than mortgages, then it's better to rent or buy. This case is true throughout much of the Bay Area right now. Not so fast. It seems a little silly to say the equity in the home is worthless, even if the house depreciates somewhat (although for the time period described and even in the present the trend for most home owners is appreciation that is better than inflation). After all, you not only get the option to sell the home -- you also have the ability to seek HELOCs, reverse mortgages, etc. Those options are not available to renters. Or, to put it another way, if renting's such a better deal, why does anyone become a landlord?
    - jimmywanger 9y ago
      > Not so fast. It seems a little silly to say the equity in the home is worthless, even if the house depreciates somewhat (although for the time period described and even in the present the trend for most home owners is appreciation that is better than inflation). There are a few things I'd like to address. First, for a mortgage, most of your money for the first few years goes straight to interest. You're not building equity, and it's only the amount of money you're paying in interest is tax deductible. The amount of equity you're accumulating with mortgage payments in the beginning is laughable. Second, you're also paying for maintenance and property taxes, two things that the renter does not care about. When the water heater breaks, if you're the renter you call your landlord and take a shower at the gym, and the next day things are magically better and you don't have to worry about dry rot and stuff. If you're the owner, you're on the hook. Third, the thing about HELOCs and reverse equity, generally you can only borrow on the equity already in the house. You could easily save that money, especially since with closing costs, agent fees, and the 20% down payment means that if you didn't buy the house, you have options not available to the buyer. Especially as a renter, you can up and move for a new job whenever you want. Would you rather have money sunk in a house and a home equity loan or liquid money in the financial markets? > Or, to put it another way, if renting's such a better deal, why does anyone become a landlord? In most housing markets, rents are above mortgages. I'm sure there are investment reasons, especially if you already have a lot of money and want to diversify. Plus if you're truly wealthy, you would diversify into some real estate, commercial and residential in different housing markets, and pay for property managers. Putting all your eggs in one basket is generally not the winning play. Would you put all your money in Amazon for 30 years? Then why would you invest heavily in land in one particular market with the great majority of your capital for 30 years?

rhombocombus 9y ago

That depends a lot on where you live. I agree that a home is not an ideal investment vehicle, but where I live, even accounting for upkeep, my home has increased in value at a rate similar to my income for the last five years. It is ultimately your home and not an investment unless that is your specific goal, so it's not a good idea to put all of your eggs in that basket, but the idea that real property isn't an investment simply is not correct.

deleted 9y ago
[deleted]

emodendroket 9y ago

Well, the paper I linked lays out what I found to be a compelling case, but to summarize the major beats quickly: from the New Deal era to 2008, besides giving owners a place to live and freeing them from abusive landlords, the vagaries of the housing market, etc., homes provided an agreed-upon, relatively stable source of value (particularly for retiring people) and gave their owners an incentive to maintain them (to a higher standard than an absentee landlord) and made them more invested and participatory in their communities. This also provided a measure of political stability (people who feel like they have a lot to lose don't generally want to tear the system down). During the financial crisis supporting that system was in some measure abandoned (since little effort was made to arrest foreclosures), but without any plan to replace that stability-generating mechanism with a different one. Yes, perhaps you could dream up a better means of delivering these benefits, and certainly home ownership was not equally or equitably distributed among Americans, but I feel like those objections are more compelling in a vacuum than in the reality we actually inhabit.

jimmywanger 9y ago
I guess I wasn't clear. Why is it a net good for the individual? Society _might_ be better off, but for the individual, deluding him to the long term inherent fiscal benefits of home ownership to maintain societal stability seems to short change the individual. Whenever rents are less expensive than mortgages, then it's better to rent or buy. This case is true throughout much of the Bay Area right now. And it's not clear that it's a net societal good in other countries. In Berlin, a lot of people are lifetime renters. In Japan, housing is a depreciating asset that becomes worthless after 20-30 years. When you buy a house it's generally for the land and the house is generally demolished by the new owners.
- emodendroket 9y ago
  > Whenever rents are less expensive than mortgages, then it's better to rent or buy. This case is true throughout much of the Bay Area right now. Not so fast. It seems a little silly to say the equity in the home is worthless, even if the house depreciates somewhat (although for the time period described and even in the present the trend for most home owners is appreciation that is better than inflation). After all, you not only get the option to sell the home -- you also have the ability to seek HELOCs, reverse mortgages, etc. Those options are not available to renters. Or, to put it another way, if renting's such a better deal, why does anyone become a landlord?
  - jimmywanger 9y ago
    > Not so fast. It seems a little silly to say the equity in the home is worthless, even if the house depreciates somewhat (although for the time period described and even in the present the trend for most home owners is appreciation that is better than inflation). There are a few things I'd like to address. First, for a mortgage, most of your money for the first few years goes straight to interest. You're not building equity, and it's only the amount of money you're paying in interest is tax deductible. The amount of equity you're accumulating with mortgage payments in the beginning is laughable. Second, you're also paying for maintenance and property taxes, two things that the renter does not care about. When the water heater breaks, if you're the renter you call your landlord and take a shower at the gym, and the next day things are magically better and you don't have to worry about dry rot and stuff. If you're the owner, you're on the hook. Third, the thing about HELOCs and reverse equity, generally you can only borrow on the equity already in the house. You could easily save that money, especially since with closing costs, agent fees, and the 20% down payment means that if you didn't buy the house, you have options not available to the buyer. Especially as a renter, you can up and move for a new job whenever you want. Would you rather have money sunk in a house and a home equity loan or liquid money in the financial markets? > Or, to put it another way, if renting's such a better deal, why does anyone become a landlord? In most housing markets, rents are above mortgages. I'm sure there are investment reasons, especially if you already have a lot of money and want to diversify. Plus if you're truly wealthy, you would diversify into some real estate, commercial and residential in different housing markets, and pay for property managers. Putting all your eggs in one basket is generally not the winning play. Would you put all your money in Amazon for 30 years? Then why would you invest heavily in land in one particular market with the great majority of your capital for 30 years?