6 ms·

Great, so you made $50k because your $200k house is now worth $250k - a 25% increase. You now have a family and bigger income and are looking at a bigger house

by jrnvs 8y ago

Great, so you made $50k because your $200k house is now worth $250k - a 25% increase. You now have a family and bigger income and are looking at a bigger house priced $500k. You are really glad that you “made” $50k on your old house. But wait, if the new house is in the same neighbourhood, it’s price increase was probably also close to 25%. If prices had stayed the same, it would be worth $400k today. So you just gained $50k on your old house but are paying $100k more on the new one. This is only beneficial if you move from a large house in a popular area to a smaller house in a less popular area. If you have kids, they might inherit the wealth gained from your housing “investment” - after splitting with their siblings and after taxes of course. Sounds good, until you realise that they will have to spend it all - and put in extra - on housing because of the price increases. In a world where housing prices stay the same, or become slightly cheaper year by year, everyone is better of. The prices of common utilities such as food and clothing have gone down spectacularly in the last decades while quality has gone up. No one would rather live in a world where these had instead become more expensive. It’s time we start thinking about housing in the same way.

TomMarius 8y ago
Could you please describe exactly how could housing get continuously cheaper when there are more people every year and the demand for good locations is increasing? (Edit: I asked a sincere question. Don't downvote without explanation, please. It's really tiring, anti-discussion and makes it seem like you don't have any good point at all.)
- sleavey 8y ago
  I guess, meet and exceed housing demand and improve less affluent areas. This involves government money but most seem happy to let the public take the bill in the form of continuously inflating house prices instead.
- jplayer01 8y ago
  We currently have a feedback loop where rising prices attracts investors who sink money into real estate, which reduces supply and raises prices, which attracts investors, etc. There are a number of factors that incentivize reduced supply such as reduced incentive to build lots of new buildings because that would increase supply too much and reduce prices and an increased incentive to build a small number of luxury apartments instead, which further raises property values. If ownership wasn't seen as an investment vehicle, this feedback loop would be broken. People would only buy because they need it, or in the case of landlords, the rents they could secure from rentees would be much lower because of the lower market value of the object and the overall lower rent prices across the entire market. Of course, sufficient supply has one big condition: Zoning laws are relaxed, allowing enough supply to be built in the first place.
  - usaar333 8y ago
    It depends where you are. I'd argue the SF Bay Area is not being driven by investors (many investors think it is bad to invest given the very low rent yields), but by supply constraints themselves. The supply constraints are not so much financial, but being driven by residents who don't want their neighborhood to change. And since they don't suffer (no property tax increases come with the home value increase), there's not much push back other than the moral argument that their children can't afford homes anymore.
    - jplayer01 8y ago
      You're right. I just didn't want to write an essay. There are a number of incentives that motivate owners to prefer supply constraints.
- snovv_crash 8y ago
  Build more. Better transport. Encourage remote working. Allow denser construction. Relax ridiculous laws that push up construction costs. The trouble is, lots of people will lose money...
  - credit_guy 8y ago
    You can bribe those people. If any new building on your block gives you a tax abatement for 5 years (which is then absorbed into that building's construction costs), then you bring a serious economic incentive to YIMBY. You can tune up the amount of tax benefit until YINBY outvotes NIMBY, and then you're good.
    - snovv_crash 8y ago
      That sounds like a way to make construction more expensive. Transfer money from new buyers to existing owners. This is against the entire premise of the article.
      - credit_guy 8y ago
        All things being equal, it would, indeed. However, the main driver of the high real estate prices is the artificial scarcity of locations. If you can remove that, you'll see prices collapse all over the country. To remove this scarcity, you need to fight NIMBY.
- Lazare 8y ago
  Yes, there are more people every year, but in the US, there aren't a lot more people every year. Population growth is at 0.7% and falling. On the other hand, I see no reason to think that "demand for good locations is increasing". What counts as a "good location" is in flux, but people always want to live in "good locations". I see no reason that it's more important to live in a "good location" today than 5 years ago, or 50, or 3000. So what I see is a fairly static number of people who'd like to live all over the place, but a decent chunk wanting to live in large, dense, desirable cities. Which are, not surprisingly, quite expensive. > how could housing get continuously cheaper Housing, as opposed to land, is a manufactured good, and we're getting better at manufacturing things every year. As for land, we can use it more efficiently (higher density, fewer parking lots, more transit, etc.) It's well documented that many cities (Los Angeles is an infamous example) drive up the cost of housing and bias new developments towards luxury units due to building codes that, eg, require very inefficient land use and a large number of parking places. Alternatively, we can work towards changing what is desirable. In 1920 something like 5% of the entire US population lived in New York City; now things are much more spread out. Today a hefty slice of software engineers live (or want to live) in San Francisco, but that's not an immutable law of nature. I mean, taken to an extreme, if you build an absurd number of houses in San Francisco without sufficient infrastructure, the combination of massively increased supply (all the new units) and decreased demand (because it's no longer a great place to live) would absolutely lead to house prices dropping. That doesn't sound like a good policy (and is certainly not what the parent comment was suggesting!) but there's no particular reason why house prices can't continuously fall.
  - ragequitta 8y ago
    In regards to whether or not a good location is more desirable today than 5, 50, or 3000 years ago it definitely is. Reminds me of a story I found about Greyhound going down in my neck of the woods. https://www.theguardian.com/world/2018/oct/29/canada-greyhound-bus-ending-urban-rural https://www.theguardian.com/world/2018/oct/29/canada-greyhou... Relevant bit: "More and more people are leaving rural Canada, and the people who remain are often the ones who are unable to leave.” Since 1950, the rural share of the country’s population has fallen by half." So while population growth isn't fantastically large, people are flocking to urban areas (for many pretty obvious reasons).
- village-idiot 8y ago
  Population growth is very low, the technology to make homes should get cheaper, and old homes degrade and become less desirable as the rich continue to build new homes.
- camgunz 8y ago
  You build more houses, supply/demand, etc. There are many, many good locations in the US where affordable housing been be built. You can also replace low density housing with medium/high density housing.
grey-area 8y ago
Housing is not independent of other goods, house prices go up because we use inflation to manage the economy. They make people money because they are the one example of large yet safe leverage which most investors have access to, so they are a good hedge against inflation. This is why buying is worthwhile long term. Over a lifetime the gains can be considerable because of the falling value if the debt and the rising value of the asset. Of course a volatile market makes this very risky and is highly undesirable. Deflation is generally agreed to be a bad thing by economists. I disagree falling housing costs would be good as then no-one would want to buy and quality would fall. All that said I agree relatively stable housing costs are desirable, and in fact quite achievable as the government controls pricing via planning laws. They are in fact 'making' buildable land all the time, and the supply is tightly constrained and tightly regulated in cities. This is a solvable problem.
- maxerickson 8y ago
  Withdrawing tax benefits and government backing for long term mortgages would both probably reduce the increases in housing prices. As would higher price inflation. Because people decide on a monthly payment and more price inflation means higher interest rates. Those interest rates would reduce the size of mortgages that people would enter into.
- bradleyjg 8y ago
  > Deflation is generally agreed to be a bad thing by economists. I disagree falling housing costs would be good as then no-one would want to buy and quality would fall. Is it a bad thing when the prices of mobile phones and large screen TVs fall? Does those falling prices mean no one wants to buy them? Do they imply falling quality?
  - baybal2 8y ago
    Taiwan was nearing net deflation for 2 decades while the GDP grew at double digit rates. That saying that is more of a self fulfilling prophecy, than something with fundamental underlying mechanism.
CompelTechnic 8y ago
The article is dead wrong about the economics of whether buying a house is a good investment. So much so as to be intellectually dishonest. 1. The alternative to buying a home is renting. If the net cost of home ownership is lower than renting, you do not need to make a net profit on the sale of your home for it to be a good decision. The right way to make this decision is to look at all net cash flows, discounted to their present value, such as is done by the New York times rent vs. buy calculator. 2. The article ignores the fact that mortgages, which most people use, amplify the gains of inflation. 3. The inflation hedging properties of a home make for a good way to protect your future self and retired self from cost of living changes in a way that alternative investments cannot. Many people outside of VHCOL San Francisco have found housing that is both affordable and a good investment.
- baybal2 8y ago
  1. No: housing bubble crashes, and the 10+ years of your life crashes and burns with it. That's your good investment decision 2. True.., but the era of net negative rate mortgages, a minutes hike in rate will trigger a wave of defaults 3. That's only thanks that in the west that "unique inflation hedging property" is a result of decades old self fulfilling prophecy Housing market in US is, I believe, the best examples of "ECON 101" vs common sense and reality.
- hoaw 8y ago
  > The article is dead wrong about the economics of whether buying a house is a good investment. So much so as to be intellectually dishonest. What part of the article is that? Because that certainly wasn't my take away. The article is about whether housing can be affordable and a good financial investment, giving large returns, at the same time. Housing as an "investment" in your life, family or security isn't what is meant.
  - krn 8y ago
    Just an example: the average price per square meter in Berlin has increased up to 4x between 2007-2018[1], and it was possible to buy a 42 m² apartment for 25k EUR in 2006[2]. [1] https://guthmann-estate.com/marketreport/real-estate-report/ https://guthmann-estate.com/marketreport/real-estate-report/ [2] https://www.toytowngermany.com/forum/topic/48094-advice-on-buying-an-apartment-in-berlin/#comment-703490 https://www.toytowngermany.com/forum/topic/48094-advice-on-b...
mamon 8y ago
>> In a world where housing prices stay the same, or become slightly cheaper year by year, everyone is better of. I think you made a good argument here against fiat currency and Keynessian economics in general. Let's have gold standard and deflation again.

by jrnvs 8y ago

TomMarius 8y ago

Could you please describe exactly how could housing get continuously cheaper when there are more people every year and the demand for good locations is increasing? (Edit: I asked a sincere question. Don't downvote without explanation, please. It's really tiring, anti-discussion and makes it seem like you don't have any good point at all.)

sleavey 8y ago
I guess, meet and exceed housing demand and improve less affluent areas. This involves government money but most seem happy to let the public take the bill in the form of continuously inflating house prices instead.
jplayer01 8y ago
We currently have a feedback loop where rising prices attracts investors who sink money into real estate, which reduces supply and raises prices, which attracts investors, etc. There are a number of factors that incentivize reduced supply such as reduced incentive to build lots of new buildings because that would increase supply too much and reduce prices and an increased incentive to build a small number of luxury apartments instead, which further raises property values. If ownership wasn't seen as an investment vehicle, this feedback loop would be broken. People would only buy because they need it, or in the case of landlords, the rents they could secure from rentees would be much lower because of the lower market value of the object and the overall lower rent prices across the entire market. Of course, sufficient supply has one big condition: Zoning laws are relaxed, allowing enough supply to be built in the first place.
- usaar333 8y ago
  It depends where you are. I'd argue the SF Bay Area is not being driven by investors (many investors think it is bad to invest given the very low rent yields), but by supply constraints themselves. The supply constraints are not so much financial, but being driven by residents who don't want their neighborhood to change. And since they don't suffer (no property tax increases come with the home value increase), there's not much push back other than the moral argument that their children can't afford homes anymore.
  - jplayer01 8y ago
    You're right. I just didn't want to write an essay. There are a number of incentives that motivate owners to prefer supply constraints.
snovv_crash 8y ago
Build more. Better transport. Encourage remote working. Allow denser construction. Relax ridiculous laws that push up construction costs. The trouble is, lots of people will lose money...
- credit_guy 8y ago
  You can bribe those people. If any new building on your block gives you a tax abatement for 5 years (which is then absorbed into that building's construction costs), then you bring a serious economic incentive to YIMBY. You can tune up the amount of tax benefit until YINBY outvotes NIMBY, and then you're good.
  - snovv_crash 8y ago
    That sounds like a way to make construction more expensive. Transfer money from new buyers to existing owners. This is against the entire premise of the article.
    - credit_guy 8y ago
      All things being equal, it would, indeed. However, the main driver of the high real estate prices is the artificial scarcity of locations. If you can remove that, you'll see prices collapse all over the country. To remove this scarcity, you need to fight NIMBY.
Lazare 8y ago
Yes, there are more people every year, but in the US, there aren't a lot more people every year. Population growth is at 0.7% and falling. On the other hand, I see no reason to think that "demand for good locations is increasing". What counts as a "good location" is in flux, but people always want to live in "good locations". I see no reason that it's more important to live in a "good location" today than 5 years ago, or 50, or 3000. So what I see is a fairly static number of people who'd like to live all over the place, but a decent chunk wanting to live in large, dense, desirable cities. Which are, not surprisingly, quite expensive. > how could housing get continuously cheaper Housing, as opposed to land, is a manufactured good, and we're getting better at manufacturing things every year. As for land, we can use it more efficiently (higher density, fewer parking lots, more transit, etc.) It's well documented that many cities (Los Angeles is an infamous example) drive up the cost of housing and bias new developments towards luxury units due to building codes that, eg, require very inefficient land use and a large number of parking places. Alternatively, we can work towards changing what is desirable. In 1920 something like 5% of the entire US population lived in New York City; now things are much more spread out. Today a hefty slice of software engineers live (or want to live) in San Francisco, but that's not an immutable law of nature. I mean, taken to an extreme, if you build an absurd number of houses in San Francisco without sufficient infrastructure, the combination of massively increased supply (all the new units) and decreased demand (because it's no longer a great place to live) would absolutely lead to house prices dropping. That doesn't sound like a good policy (and is certainly not what the parent comment was suggesting!) but there's no particular reason why house prices can't continuously fall.
- ragequitta 8y ago
  In regards to whether or not a good location is more desirable today than 5, 50, or 3000 years ago it definitely is. Reminds me of a story I found about Greyhound going down in my neck of the woods. https://www.theguardian.com/world/2018/oct/29/canada-greyhound-bus-ending-urban-rural https://www.theguardian.com/world/2018/oct/29/canada-greyhou... Relevant bit: "More and more people are leaving rural Canada, and the people who remain are often the ones who are unable to leave.” Since 1950, the rural share of the country’s population has fallen by half." So while population growth isn't fantastically large, people are flocking to urban areas (for many pretty obvious reasons).
village-idiot 8y ago
Population growth is very low, the technology to make homes should get cheaper, and old homes degrade and become less desirable as the rich continue to build new homes.
camgunz 8y ago
You build more houses, supply/demand, etc. There are many, many good locations in the US where affordable housing been be built. You can also replace low density housing with medium/high density housing.

grey-area 8y ago

Housing is not independent of other goods, house prices go up because we use inflation to manage the economy. They make people money because they are the one example of large yet safe leverage which most investors have access to, so they are a good hedge against inflation. This is why buying is worthwhile long term. Over a lifetime the gains can be considerable because of the falling value if the debt and the rising value of the asset. Of course a volatile market makes this very risky and is highly undesirable. Deflation is generally agreed to be a bad thing by economists. I disagree falling housing costs would be good as then no-one would want to buy and quality would fall. All that said I agree relatively stable housing costs are desirable, and in fact quite achievable as the government controls pricing via planning laws. They are in fact 'making' buildable land all the time, and the supply is tightly constrained and tightly regulated in cities. This is a solvable problem.

maxerickson 8y ago
Withdrawing tax benefits and government backing for long term mortgages would both probably reduce the increases in housing prices. As would higher price inflation. Because people decide on a monthly payment and more price inflation means higher interest rates. Those interest rates would reduce the size of mortgages that people would enter into.
bradleyjg 8y ago
> Deflation is generally agreed to be a bad thing by economists. I disagree falling housing costs would be good as then no-one would want to buy and quality would fall. Is it a bad thing when the prices of mobile phones and large screen TVs fall? Does those falling prices mean no one wants to buy them? Do they imply falling quality?
- baybal2 8y ago
  Taiwan was nearing net deflation for 2 decades while the GDP grew at double digit rates. That saying that is more of a self fulfilling prophecy, than something with fundamental underlying mechanism.

CompelTechnic 8y ago

The article is dead wrong about the economics of whether buying a house is a good investment. So much so as to be intellectually dishonest. 1. The alternative to buying a home is renting. If the net cost of home ownership is lower than renting, you do not need to make a net profit on the sale of your home for it to be a good decision. The right way to make this decision is to look at all net cash flows, discounted to their present value, such as is done by the New York times rent vs. buy calculator. 2. The article ignores the fact that mortgages, which most people use, amplify the gains of inflation. 3. The inflation hedging properties of a home make for a good way to protect your future self and retired self from cost of living changes in a way that alternative investments cannot. Many people outside of VHCOL San Francisco have found housing that is both affordable and a good investment.

baybal2 8y ago
1. No: housing bubble crashes, and the 10+ years of your life crashes and burns with it. That's your good investment decision 2. True.., but the era of net negative rate mortgages, a minutes hike in rate will trigger a wave of defaults 3. That's only thanks that in the west that "unique inflation hedging property" is a result of decades old self fulfilling prophecy Housing market in US is, I believe, the best examples of "ECON 101" vs common sense and reality.
hoaw 8y ago
> The article is dead wrong about the economics of whether buying a house is a good investment. So much so as to be intellectually dishonest. What part of the article is that? Because that certainly wasn't my take away. The article is about whether housing can be affordable and a good financial investment, giving large returns, at the same time. Housing as an "investment" in your life, family or security isn't what is meant.
- krn 8y ago
  Just an example: the average price per square meter in Berlin has increased up to 4x between 2007-2018[1], and it was possible to buy a 42 m² apartment for 25k EUR in 2006[2]. [1] https://guthmann-estate.com/marketreport/real-estate-report/ https://guthmann-estate.com/marketreport/real-estate-report/ [2] https://www.toytowngermany.com/forum/topic/48094-advice-on-buying-an-apartment-in-berlin/#comment-703490 https://www.toytowngermany.com/forum/topic/48094-advice-on-b...

mamon 8y ago

>> In a world where housing prices stay the same, or become slightly cheaper year by year, everyone is better of. I think you made a good argument here against fiat currency and Keynessian economics in general. Let's have gold standard and deflation again.