38 ms·

How housing became the world’s biggest asset class

418 points by yarapavan 7y ago

neonate 7y ago
https://web.archive.org/web/20200117004259/https://www.economist.com/special-report/2020/01/16/how-housing-became-the-worlds-biggest-asset-class https://web.archive.org/web/20200117004259/https://www.econo... Edit: visiting the OP with JS turned off also works for some.
- Gustomaximus 7y ago
  Side point: Thanks for the link but I don't like seeing archive.org encouraged to beat paywalls. They do a great job archiving information and might see their access reduced if people use them in this way. Hope that doesn't sound like I'm having a go at you, and I may be wrong in my understanding of this landscape but thought I would mention.
  - saiya-jin 7y ago
    So what do you propose? Rarely is there any other usable access link
    - 52-6F-62 7y ago
      Aside from paying for the quality journalism that people think is missing, I recommend checking out your local library for digital and paper subscriptions.
    - JshWright 7y ago
      I mean... paying for high quality journalism is an option (for most HN readers, anyway)
      - naravara 7y ago
        In the old days, you could either subscribe to a periodical OR go to a newsstand and make a one-time payment for a single issue. E-commerce has not yet figured out an analogous model to let me just read one thing without subscribing. We get "free articles" but no "pay a $1 and read this thing" option.
        NickBusey 7y ago
        This 100%. I'm not going to subscribe to the Economist to read one article every 6 months. I might pay $0.10 to read this particular article though.
        sib 7y ago
        From the late 1990's to early 2000's, there were a number of online companies (would now be called SaaS) including Qpass in Seattle that solved this problem for companies like NY Times, Wall Street Journal, and many more. Turns out that customers really didn't want to do that for written articles; subscriptions just worked better. That turned out differently for things like mobile apps. (Source - worked at Qpass for multiple years.)
    - jjaredsimpson 7y ago
      Raise your hands, contribute to the spirit bomb.
  - schwank 7y ago
    I agree with this sentiment but archive.org didn't work for me anyways, I got slightly farther down the page before the paywall obscured the content.
  - thorwasdfasdf 7y ago
    I agree with paying journalists for their work. but, They never provide a means to pay for the content of just the one article. I don't want a new magazine subscription everytime I surf to a new link. So, forgive me if I don't have much sympathy for a news organization that refuses to get up to date with how the internet works. The internet is on demand. If you want people to pay, it should also be on demand. Not, ohhh now you have to pay 200$ for a year long subscription just to read 1 little article which I was only going to look at for 60 seconds anyway.
    - munificent 7y ago
      > So, forgive me if I don't have much sympathy for a news organization that refuses to get up to date with how the internet works. News organizations probably understand "how the internet works" better than you do. (Not too surprising since their livelihood depends on it.) Lots of research and many many real-world attempts clearly demonstrate that small-scale individual transations do work effectively. The cognitive cost of a user having to choose to buy each small product outweighs the value and adds so much friction that most users simply don't buy it. Subscriptions have their own challenges, but overall, they have shown to be a much more effective model than microtransactions. No business is obligated to build an entire transaction system that works the way each particular customer wants it. If you don't want to buy the product the way they choose to sell it to you (in this case, with a subscription) then you can simply choose not to buy it. You have no moral right to claim "I'm going to take this for free because they didn't sell it to me the way I like."
      - thorwasdfasdf 7y ago
        i didn't say anything about taking the content. they just shouldn't be surprised when people don't pay for those subscriptions on the internet the way they do for Print.
    - gsanghera 7y ago
      You may want to check out Blendle - it does exactly what you ask. You pay for the article you read.
samschooler 7y ago
https://outline.com/EfEz3V https://outline.com/EfEz3V (Non-Archive.org link)
davidw 7y ago
The entire special report is well worth a read: https://www.economist.com/special-report/2020/01/16/housing-is-at-the-root-of-many-of-the-rich-worlds-problems https://www.economist.com/special-report/2020/01/16/housing-... There's a lot of information, history and a broad perspective on how things work in various countries. Housing politics is key to so many things: * The economy - allowing people to live in productive places is a benefit to them, and all of us, because they put their talents to more productive use. California, where the housing crisis is worst, also has the highest poverty levels of the US when cost of living (which is mostly housing) is factored in. * The environment - cities are more environmentally friendly than sprawling suburbs. * Equality and "social justice": the history of how people of color have been frozen out of the housing 'ladder' in the US is not as well known as more blatant and vicious examples of racism, but it is a huge reason why certain disparities have persisted.
- tonyedgecombe 7y ago
  >The environment - cities are more environmentally friendly than sprawling suburbs. I'm not sure that is true, 50% of the world lives in cities but cities produce 70% of the worlds emissions.
  - davidw 7y ago
    There are a lot of articles talking about this. Here's one I grabbed: https://www.citylab.com/life/2012/04/why-bigger-cities-are-greener/863/ https://www.citylab.com/life/2012/04/why-bigger-cities-are-g... I think in the statistic you cite, 'city' includes both the urban part and the sprawling suburbs. You'd also want to compare apples to apples: someone living a very green life in a "western" city is still likely to live a more carbon-intensive life than someone doing subsistence farming.
    - tonyedgecombe 7y ago
      I suspect it's more about wealth, people in cities earn and spend more. In general the more you spend the bigger your carbon footprint.
  - 7y ago
adamnemecek 7y ago
It's going to screw everyone over.
- tasuki 7y ago
  Oh definitely not everyone.
- frockington1 7y ago
  It should be a win for everyone who owns property right? I plan on renting my current house when its paid off and moving up to something bigger.
plughs 7y ago
> In 2001 William Fischel of Harvard University proposed his “homevoter hypothesis”. The thinking runs that owner-occupiers have an incentive to resist development in their local area, since doing so helps preserve the value of their property. This is a common sentiment that, I think, misses the point and makes a lot of the discussion around housing costs unproductive. I'm a homeowner and I've seen the resistance to new construction. The concerns are often * more traffic * more students at schools that are already overcrowded * more noise * etc. Also proposals to build more houses often are planned on property that is already occupied. In a nearby area they want to tear down an existing school, in other areas they want to take away open space that is used as walking/running/biking paths. Now I'm not going to pretend that homeowners are otherwise pure and virtuous and not even slightly concerned about the price of their house. But that's rarely the only concern. I don't say that to shut discussion down - maybe homeowners are still wrong to have these concerns. Maybe they just need to deal with more traffic and trust that the schools will address overcrowding as needed. But that conversation never happens. It is _always_ greedy homeowners who worry only about their house price at the expense of everyone else. As long as the conversation is framed that way, I don't think it will ever move forward.
- svachalek 7y ago
  This is true to a point but I've also watched debates that go something like this: Homeowners: This is going to overcrowd the schools! School superintendent: Actually we've run the numbers, we have plenty of capacity and we welcome the additional tax revenue. Political ads: This is going to overcrowd the schools! Voters: This is going to overcrowd the schools! I've never seen any ads saying "Protect our property values!" It's "always" about the schools, or the roads, or something else noble. I'm sure in many cases the concerns are legitimate but even when they're not, they're still the concerns.
  - plughs 7y ago
    > School superintendent: Actually we've run the numbers, we have plenty of capacity and we welcome the additional tax revenue. "we've run the numbers" is a poor response. Our local school has a playground covered with "temporaries" and a class size of 25-30 per teacher. School overcrowding is not a hypothetical concern. Homeowners want their home prices to rise in the way anyone wants any investment's value to rise. But it doesn't mean they don't have other reasonable concerns.
closeparen 7y ago
I'm a big fan of the folk wisdom that the power of housing as an investment is essentially a self-discipline mind trick. Paying your mortgage feels more urgent than contributing to a brokerage account, withdrawing home equity feels dirtier than withdrawing stock portfolio value, and holding onto your house during a downturn is easier than holding onto your crashing stock portfolio. Once you know those things, you can rig yourself similar safeguards around other asset classes (automatic payroll contributions, tax sheltered accounts with early withdrawal penalties, etc).
- GhostVII 7y ago
  Another benefit is that you are essentially trading on margin when buying a house, which you couldn't do to the same degree with other assets.
  - wocram 7y ago
    You could if you wanted to, though for whatever reason people are much more comfortable with leveraging 5x to purchase a home than they are with leveraging 5x to invest in a brokerage account.
    - asdfasgasdgasdg 7y ago
      > You could if you wanted to Not really. There are no margin accounts with terms as favorable as the typical mortgage loans. (Some examples of terms mortgages have that margin loans don't: the absence of margin calls, the low interest rates, the relative diversity and transparency of rates from potential lenders, etc.)
      - User23 7y ago
        You can get margin rates as low as a mortgage or even substantially lower[1]. If you don't want to switch brokers you can also ask your current broker for a discounted margin rate. I've heard anywhere from $250k to $1m total assets is enough for them to consider discounts. However, margin calls are a lot more terrifying than foreclosure proceedings, that's for sure. As such, it's virtually imperative to appropriately hedge and that should be factored into the cost of borrowing. [1] https://www.interactivebrokers.com/en/index.php?f=18069 https://www.interactivebrokers.com/en/index.php?f=18069
sunsu 7y ago
Answer: Our governments printed a shit-ton of money.
- tonyedgecombe 7y ago
  Or very low interest rates?
  - dboreham 7y ago
    Same thing, no?
- brenden2 7y ago
  Also, debt.
- nerfhammer 7y ago
  then we should expect similar inflation for prices of all types of things, but that's not what we're seeing.
  - rurp 7y ago
    Stocks, startup valuations, and crypto coins all fit the same trend as housing prices. Which investment vehicles in the US haven't skyrocketed in value the past 10 years?
  - chii 7y ago
    goods inflation hasn't happened because these printed monies are not given to the average (or poor) person, but to financial institutions and large investment banks (in the form of low rates). The inflation of asset prices has indeed increased - and if the Feds continue down this course, the high prices for all assets will be the new norm.
blackrock 7y ago
When will it finally crash? Housing prices has reached a level of nonsense again. Back in 2007, there was a report of some guy spending an astronomical $800,000 USD for a house somewhere outside of Silicon Valley, like in Tracy, I think. This was bonkers back then. But now, nobody bats an eye anymore, and thinks it’s perfectly normal to spend that much on a house in previously economically depressed areas. QE has impoverished us all (except for the fat bankers). What is the black swan event that will finally trigger the stock market melt down? The price of SPY has gone exponential. A look at it, and it appears to defy gravity. But yet, everyone is celebrating on the streets it seems, as if the good times will finally last forever.
- kaonashi 7y ago
  qe is just overnight rate maintenance in the post-2008 world if you're looking for a 'black swan' economic collapse event, look for a lot of outstanding debt and the possibility of an interest rate spike on that debt
  - blackrock 7y ago
    A lot of outstanding debt? Student Loans. You need to make as much money as a doctor to afford housing. So did everyone become a doctor in the past 10 years? Personal Auto Loans, although this seems rather localized. Business Loans used for stock buy-backs, so executives could pay themselves a nice bonus. Can some of these businesses really pay back those loans? Municipal bonds used for funding construction in areas with no economical viability.
    - uwuhn 7y ago
      >You need to make as much money as a doctor to afford housing. So did everyone become a doctor in the past 10 years? Plenty of people who aren't doctors can make doctor money now. Just look at tech.
      - blaser-waffle 7y ago
        > Plenty of people who aren't doctors can make doctor money now. Just look at tech. > Plenty Plenty of tech folks make north of six-figures and often do better than most, but neurosurgeons make $800k, and plenty of mid-level medical types can pull $300K+. I personally know a dentist making "in the ballpark of 400" (his words) in the Washington DC 'burbs. There are certainly IT/CS gigs paying north of $600K -- they're discussed all the time here on HN -- but those don't really exist outside of SV and maybe a handful of other areas, and generally require a pedigree that, while not a Med School, are still fairly non-trivial. Your ITT-Tech trained Active Directory Admin isn't going to make anything near GP or Dermatologist money -- most tech, even with real degrees and certs, wont.
thulecitizen 7y ago
The documentary Push shows this scary reality beautifully: https://www.youtube.com/watch?v=2iLWpuZrd-I https://www.youtube.com/watch?v=2iLWpuZrd-I
myroon5 7y ago
Investment Asset Classes by Market Size [Image] (2016): https://www.claconnect.com/-/media/cla-image-repository/general/illustrations_and_objects/the-investable-universe.jpg https://www.claconnect.com/-/media/cla-image-repository/gene...
- marcosdumay 7y ago
  It's disconcerting. Take a look at the darker bar that gathers everything that adds value to society. If we could make all that money go to productive ends, society would be just much fairer.
thorwasdfasdf 7y ago
everyone thinks housing is supposed to be a great/high yield investment. that's only true if you're renting it out and even then, the rent to own ratio tends to be about 3-5% minus expenses and property taxes and insurance and taxes, which ultimately gets you to about 1-2% per year, plus the appreciation. In the very long term housing can not increase in value quicker than wages (roughly inflation). And, if we were to actually make any progress in the industry of providing shelter, housing should actually lag inflation.
- pojzon 7y ago
  When the rates in bank for anything over 500k is 0.1-0.2% per year -> 1-2% from renting sounds like an amazing deal.
  - lotsofpulp 7y ago
    Rates in US banks are 1.7%+, and there is considerably more risk involved in renting a residence rather than having cash deposited in an FDIC insured bank account requiring a considerable premium. Also, if the home investment is on the time horizon of 5+ years, I can't see many homeowners outside of hot real estate markets (which is a gamble) beating a total market index fund, if you factor in labor, time, tenancy and home maintenance risk, and the fact that the US government is going to bail out the public equity markets no matter what.
- j8014 7y ago
  Property is a decent investment, commercial and industrial you can expect to see nice returns and all expenses are pushed to the tenant. When renting homes, its usually about getting your tenants to pay off the mortgage and then you have excellent monthly recurring revenue streams, of course you can then sell your 100k+ assets whenever you want.
  - lotsofpulp 7y ago
    I wouldn't recommend property as a decent investment for most compared to a total stock market ETF. You have the risk of the location becoming undesirable (lots of places in the US with stagnant or declining property values), you have the risk of bad tenants, you have the risk of being liable for the tenants in case something happens (even though you have insurance, they can always sue you), you have the risk of maintenance issues in the house requiring costly repairs. Etc.
CalRobert 7y ago
The trick is: * Introduce laws that make it harder to (legally) build housing. Note that much of New York would be illegal to build today, for instance. * Use these laws to create scarcity. Ensure that there's never quite as much housing as people who need homes. * Make massive amounts of debt available for said housing. You now have an entire class of people who want to be sure their house only goes up in price, and that there is only just barely enough housing built to stop their region from collapsing. After all, who wants to be underwater on a mortgage? I don't know how to break this on a policy level. Few people vote for the politician who says "I want your house to go down in price" so we get insane levels of rube-goldberg devices to make housing "more affordable" while also making it ever more expensive. The more debt you make available, the more housing soaks it up. Sweden recently made the maximum mortgage length 105 years! On the bright side, if you look at stuff that no bank will lend on (dilapidated structures, etc) there are some good deals to be had.
- segmondy 7y ago
  Are you American? because that's the most anti American thing.
  - ses1984 7y ago
    What about his post is anti American? Just pointing out this problem?
  - glial 7y ago
    I think OP is describing the mechanism that got us here, not endorsing it.
- shusson 7y ago
  > I don't know how to break this on a policy level. Berlin plans to freeze rent prices for 5 years in March [1]. But who knows, maybe that will push up prices long term. [1] https://www.ft.com/content/f2f1354e-30a8-11ea-9703-eea0cae3f0de https://www.ft.com/content/f2f1354e-30a8-11ea-9703-eea0cae3f...
  - 7y ago
shusson 7y ago
An Australian perspective: https://www.abc.net.au/news/2020-01-20/bigger-house-price-fall-would-have-been-better-ian-macfarlane/11876758 https://www.abc.net.au/news/2020-01-20/bigger-house-price-fa...
- sien 7y ago
  The RBA wrote a paper on the effect of zoning in Australia that is also worth a read : https://www.rba.gov.au/publications/rdp/2018/pdf/rdp2018-03.pdf https://www.rba.gov.au/publications/rdp/2018/pdf/rdp2018-03.... It uses the approach from here: https://www.nber.org/papers/w8835 https://www.nber.org/papers/w8835
thdrdt 7y ago
Unless a house does generate income it is a liability. I think most people underestimate this. There are some many people who can't pay their mortgage while they thought the house was an asset.
- munificent 7y ago
  Food is a liability too. Not all products exist to provide future value. Some provide value right now, like a place to live.
  - frankbreetz 7y ago
    If that's the case, why not rent? Anything that cost money, and doesn't create more money then it costs is a liability. They are just business terms everyone has to spend some money on liabilities.
    - chii 7y ago
      different people value things differently. For a renter, they may value the lower cost (compared to buying a property to live), and invest the difference. Some people prefer to own their home because a renter cannot modify the home (usually). They may also prefer the stability. There's no universal answer really, since a lot of individual circumstance come into play making this choice.
maneesh 7y ago
Um...are we forgetting derivatives? Real estate isn't even close... https://i0.wp.com/money.visualcapitalist.com/wp-content/uploads/2017/10/all-the-worlds-money-mp-infographic-1360.png?zoom=3.5&w=1360 https://i0.wp.com/money.visualcapitalist.com/wp-content/uplo...
claudeganon 7y ago
This is my problem with YIMBYism. It’s entirely possible for tons of housing to be built and for that housing to serve as a speculative asset for private equity, as a foreign cash store, or be used for money laundering. In fact, because were living in an age of massive inequality, flat wages, low interest rates, and QE-driven distortion, there’s material incentive to do this instead of building what the vast majority of people need. Any comprehensive housing plan has to be rooted in building more AND cutting out all of this global Capital chicanery. I see lots of advocacy for the former and little for the latter.
- helen___keller 7y ago
  Supply and demand is still a thing for rentals. If it's legal for a non-global-capitalist to replace their 1 unit single family home with say a 2 unit duplex (and if the regulations are sufficiently streamlined that they can do so in a cheap-enough and timely manner), many individuals will do so on a home equity loan or similar type of loan and then rent out the second unit for extra income. When enough individuals with 1 unit single family homes own duplexes with rental units, this applies negative pressure to rental prices (because supply and demand does exist in the rental space) When rental prices are depressed, this will (slowly and over the long run) apply negative pressure to the inherently-speculative purchase price for a housing unit. Aside from "prize units" like skyscraper penthouses, your average rental unit sells at a speculative price based on rental income and perceived future appreciation. When you depress the rental income, you also depress the perceived future appreciation. You CAN fight speculation with free market economics, but it requires more than luxury condos, it requires ordinary people with ordinary properties in ordinary neighborhoods who can take a loan to make their land more productive.
  - claudeganon 7y ago
    All current home owners take on debt so they can remodel their houses and become landlords seems like an insane proposition relative to the government just building housing and charging rent pegged to their wages, no?
    - 7y ago
jalgos_eminator 7y ago
Ok, so something has been bothering me ever since I started thinking about housing in an economic sense. Housing prices seem to consistently rise faster than inflation over long periods (at least in large/medium metros). This means that housing is currently more expensive to people than it was 30 years ago. So what happens 50 years from now? or 100 years from now? Who will be able to afford to buy a house? Will people spend more than 50% of their take-home pay on mortgage payments? This doesn't seem sustainable long term.
- mhuffman 7y ago
  Housing prices are driven by the people paying the price (or rent) not by the people selling or renting (the Ricardian Theory of Rent). With the caveat that in the short-term, government laws and ordinances can affect that.
  - franga2000 7y ago
    > Housing prices are driven by the people paying the price Not sure how that relates to the Ricardian theory, but while prices are technically "driven" by the people paying them, this does not seem like a useful observation to me. This isn't "if you keep buying every next more expensive iPhone, Apple will keep raising the price". You can't just not buy/rent property. It is a basic necessity. While prices vary between regions, that is still hardly a choice. Most places, jobs are scarce and transport is a disaster - you can't just go live somewhere else because your job is here (and most jobs are in high-rent areas). This means that no matter how high* prices get, people will have to find a way to pay (even if that means basically starving for the rest of their lives) and landlords are aware of this, so they keep raising the prices with the argument that "people clearly have the money, so it's fine". In theory, it makes sense for a finite resource to increase in price with increasing demand, but prices are increasing a lot faster than demand is and housing isn't as finite as land is (we can build up). This points to the supply side (landlords and developers) being the problem, not the people just trying to survive.
- dwiel 7y ago
  I agree, though I think the important comparison point is not necessarily inflation rate, but wage growth rate or similar.
yonran 7y ago
This series of articles raises good questions, but for a series on how homeownership is the “biggest economic policy mistake,” I wish they would have spent more time on taxation. Adjusting the property tax (or equivalently rent and imputed rent income tax) rate allows the government to capture an arbitrarily high fraction of the rental value and capital gains of the property. It can be set anywhere from fully allodial (0 property tax) to fully social (tax on 100% of rental value). Homeownership wouldn’t a problem if homeowners had no privileges on the land rent. In California, we had an average property tax rate of about 2% before Proposition 13 cut it in half in 1978, encouraging homeowners to restrict supply and reap all the capital gains. So when comparing jurisdictions, I think it is also important to note what the taxes on the property are.
- neilparikh 7y ago
  To add some more context, the effective property tax rate in California is ~0.7%. Unsurprisingly, the lowest effective property tax rates are in the richest cities, while the highest are in the poorest. For example, Palo Alto has an effective property tax rate of ~0.4%.
  - chii 7y ago
    what's an "effective tax rate"? isn't it the same in the same state?
    - yonran 7y ago
      The property tax bill is calculated as rate × assessed value. In almost every other state, the assessed value is directly proportional to the current fair market value, but in California, Proposition 13 lowered the legal tax rate and also changed the assessed value to be the price that you (or your ancestors thanks to Proposition 58 and 193) originally acquired the property, adjusted for inflation. What this means is that some people pay outdated property taxes that are a fraction of what their new neighbors are paying, while they benefit from receiving market-rate rents or benefit from modern amenities (schools and jobs). The effective tax rate is the property tax amount divided by the fair market value, which allows us to compare fair market tax burdens given the unfair property assessments: https://www.trulia.com/research/prop-13/ https://www.trulia.com/research/prop-13/. To my point above, property taxes are intertwined with the debate about homeownership because Proposition 13’s low property tax rate increases wealth inequality (since landowners instead of governments capture the value of increased rents), increases wealth inequality (since governments are forced to increase regressive sales taxes and fees instead of property tax), increases wealth inequality (since the US income tax often does not capture increases in imputed rent and capital gains), disincentivizes cities from zoning for more housing (since the property taxes from new housing no longer pays for the infrastructure costs), and encourages NIMBYism (since homeowners have to purchase the land at a high price and then become extremely risk-averse). In addition, Proposition 13’s unfair asssesed value system further encourages NIMBYism (since landlords and homeowners get to benefit from displacing the poor without having to pay any higher property taxes) and encourages long-term property speculation without investment (since long-term property owners have low holding costs despite being in expensive locations). In another state, where homeowners have to pay taxes for the privilege of excluding others, homeownership would not be harmful to society.
40acres 7y ago
Cynical view: the laws passed in the mid 20th century to lock out black and brown folks from homeownership are now starting to affect white people. Sprinkle historically low interest rates and you have the modern day housing market.
alakin 7y ago
It's pretty interesting to think about happens from an economic perspective. Say I buy a house on loan (money withdrawn from capital markets). I hand cash to the previous owner and they use it to pay back their loan (return money back to the capital markets, keep the difference). Consider the synchronous chain. Me: Myprofit=future_profit-cost1 Prev owner: profit=cost1-cost2 Prev owner 2: profit=cost2-cost3 And so on... Also consider a parallel behavior where I can simultaneously buy and sell multiple properties though debt. It would be fun to model this whole chain and understand what this recursively unfolding process actually does with capital. Is it a capital sync? What behavior does it incentivize? Does it guarantee expansion/recession cycles?
- chii 7y ago
  the capital consists of pre-existing capital, and newly created capital from debt (from a bank). This is literally how money is created (vs direct printing from the Feds). And it does guarantee recession and expansion, as explained here by ray dalio https://www.youtube.com/watch?v=PHe0bXAIuk0 https://www.youtube.com/watch?v=PHe0bXAIuk0
StillBored 7y ago
Whats crazy is how much it actually costs to build something these days. Where I live, I doubt you could build a 1200 SQft house for less than 180K. Yet, just a little over a decade ago I knew people who built nice houses for $60 a square foot. Just pouring the foundation is almost as much as it cost for the whole house 25 years ago.
istorical 7y ago
I believe self-driving RVs will massively disrupt housing. Wish there was startup level funding for it.
- milkytron 7y ago
  Why do you think that?
  - istorical 7y ago
    Three things: So much of the price of housing is related to the cost of a high value location - city center, near a transit stop, in a metro area with good jobs, near a nice natural feature, near a beach, etc. Mobile housing that can dock somewhere cheap at night but take you into a city while you are still sleeping or allow you to commute from the comfort of bed or a desk or couch alleviates that cost by making it possible to both live and work in these high cost locations while avoiding paying for the price of land there. Second is the added value of being able to go on vacation or visit friends while bringing your house with you. Set a destination, go to bed, and wake up several states away in your friends driveway. Makes a trip to Chicago for the weekend much cheaper if you only need to pay for a lot to park and the cost of charging your presumably electric vehicle. As opposed to renting an Airbnb or hotel. Third reason - climate change. If we start seeing major property value losses to coastal areas, people will start to see a lot of value in the idea of having their home be mobile.
    - 0xffff2 7y ago
      How do you think that's going to go when you get into a collision going 65mph and you're lying in bed? Where are all of these commuter RVs going to park during the day? Why not just leave them there instead of driving back out of the city every day?
- 0xffff2 7y ago
  This is the greatest manifestation of Poe's Law I have ever read on HN.
narrator 7y ago
Housing would be much cheaper if it wasn't collateral for loans. That collateral aspect of it makes it the foundation for money creation in the private banking system and thus all the new money in the economy flows through housing first.
age_bronze 7y ago
I think mortgages as a concept are bad, and do more harm than good to the people who need to take them. I think gradually banning mortgages, by increasing the minimum required percentage of house price required to start a mortgage all the way to 100% (when you can't really take a mortage), will be a good thing. The way house investors view mortgages is as a very cheap leverage. So investing in housing will always be fundamentally skewed, because every single person can so easily get cheap leveraged investment in a house, so housing as an investment can perform much more poorly compared to other investment as still beat them by far because of the mortgage. This is so skewed up that a house now has an extra value: as a 'token' to get a cheap loan. This extra value is paid by everyone buying a house. The way the average family looking to buy a house is completely different: they are looking to compete in the housing market with other families with similar financial abilities, to purchase a house. When you offer all sides of the competition the ability to enter a cheap loan, the side that doesn't take the loan loses the house. But if all sides didn't have the possibility to take a loan and pay more for the house, they would all pay less. Allowing buyers to take mortgages sets them off in a prisoner dilemma against every other buyers, and they all come out losing. If you outlaw mortgages, everyone interested in the house itself wins. Moreover, once you have lured a family into strangulating themselves with a mortgage, they are now prone to financial stress that will cause them to take loans with much worse terms than a mortgage, therefore nullifying all the possible gains they had from taking the cheap loan. So while investors fully benefit from the cheap credit of the mortgage, families often follow up with mistakes and bad loans which, in total, make the mortgage costly loan. The more you think about it, the more you should realize the winners from the concept of mortgages are real estate companies, investors and banks, and the biggest losers are the average family which are forced to take it from the Nash Equilibrium of a prisoners dilemma. Moreover, if mortgages didn't exist, overall spending across the economy would rise, which will be a good thing.
- evanlivingston 7y ago
  Almost no one in the US has the cash to purchase a home. How would eliminating mortgages not dramatically shift land ownership to the wealthy and turn everyone into renters?
ecoled_ame 7y ago
this is how nature disappears ..
bookAlot 7y ago
Mostly because housing isn't allowed to criminals. If you took that control from them, the housing district would be a selling market and not a market hold. Which is a lot like saying it's almost a bank.
arexxbifs 7y ago
Owning a home is sooo last decade. Housing as a Service is where it’s at! Now sit back and relax while we install this wallpaper with non-stop animated ads, tailored to suit _your_ way of life.
yhoiseth 7y ago
The Common Ownership Self-Assessed Tax (COST) [1] might be at least part of a solution. 1. http://radicalmarkets.com/chapters/property-is-monopoly/ http://radicalmarkets.com/chapters/property-is-monopoly/
- perceptronas 7y ago
  This violates private property rights. What If I don't want to sell my property no matter the price?
  - yhoiseth 7y ago
    > This violates private property rights. That's correct. > What If I don't want to sell my property no matter the price? That wouldn't be possible. You could set an extremely high price, but then your tax bill would also be extremely high.
monadic2 7y ago
Land and buildings as an asset has never made sense to me—it allows charging many times the investment cost as rent, which seems incredibly inefficient, without comparable depreciation on resale. What can I read to understand this perspective?
chrischen 7y ago
Once all the land in the world is apportioned, what happens to all future generations that do not have land? They become slaves to landowners? Will capitalism fall apart then? I get that land ownership incentivizes the development of the land by rewarding the owner, but what happens after all the land is gone and someone is born into a world of such legacies?
- KaoruAoiShiho 7y ago
  Build taller.
  - chrischen 7y ago
    That disproportionally enriches landowners still.
    - KaoruAoiShiho 7y ago
      Don't see how, more supply = lower prices.
- chii 7y ago
  > someone is born into a world of such legacies? they obtain the portion that their parents purchased. Or if they are productive enough, they buy out land from somebody else less productive. There's no natural right for somebody to be able to own land.
  - chrischen 7y ago
    But that creates a class of people who don't have to do that just because they got lucky.
heymartinadams 7y ago
Here’s a mostly overlooked fact: Housing hasn’t become the biggest asset class — the land underneath each house has. Housing itself is cheap to build. Location, however, is expensive. And that’s also what makes people win or lose in Monopoly. I’ve written about it extensively: a book (https://www.unitism.com https://www.unitism.com), articles (https://www.progress.org/authors/martin-adams https://www.progress.org/authors/martin-adams), etc.
- wayoutthere 7y ago
  The other part people don't think about: your ownership of land is only as valid as your (or the government's) ability to enforce it. A lot of major civil wars in the 20th century have been fought over land rights -- in many cases, it has been local citizens seizing land back from foreign corporations and land barons. Many countries have laws on the books restricting land ownership to citizens as a result.
  - heymartinadams 7y ago
    Indeed. Have a chapter on the geopolitical implications on landownership. https://www.unitism.com/land/en/14-the-price-of-peace https://www.unitism.com/land/en/14-the-price-of-peace
  - opportune 7y ago
    The US has also basically had unrestricted capital accumulation barely interrupted by war / mass societal reorganization (only the high tax rates around WWII and abolition of slavery) for over two centuries. Now that there is no more frontier there’s no more land that is both cheap/free and desirable
personjerry 7y ago
Hasn't land and property been the defining assets of the wealthy going back as far as the Romans?
partingshots 7y ago
I thought land ownership was the de facto means of storing wealth since pretty much the advent of human civilization. Is that not true?
PavlovsCat 7y ago
> Basically, what's happened is, somewhere along the line, as a society, we confused the notion of home with the possibility of an investment opportunity. What kind of creature wants to live in an investment opportunity? Only man. The fox has his den, the bee has his hive, the stoat has a a stoat hole. But only man, ladies and gentlemen, the worst animal of all, chooses to make his nest in an investment opportunity. Mmm, snuggle down in the lovely credit. All warm in the mortgage payment. > Mmm! But home is not the same thing as an investment opportunity. Home is a basic requirement of life, like food. > When a hamster hides hamster food in his hamster cheeks, he doesn't keep it there in the hope that it will rise in value. And when a squirrel hides a nut, he's not trying to play the acorn market. And having eaten the nut, he doesn't keep the shell in the hope of setting up a lucrative sideline making tiny hats for elves. And when a dog buries a bone, he doesn't keep that bone buried until the point where it's reached its maximum market value. He digs it up when he's hungry. > And if estate agents were dogs burying bones, not only would they leave those bones buried until they'd reached their maximum market value, but they'd run around starting rumours about imminent increases in the price of bones in the hope of driving up the market, and they'd invite loads of boneless dogs to all view the bone at the same time in the hope of giving the impression there was a massive demand for bones. And they would photograph the bone in such a way as to make it look much more juicy than it really was, airbrushing out the maggots and cropping the rotten meat. -- Stewart Lee
d_burfoot 7y ago
Tech people should reflect a bit on our responsibility for this situation. It's not that housing is scarce in absolute terms. There's a ton of housing in rural or suburban areas. There's even a lot of housing in cities - just not the "desirable" cities. And what are the "desirable" cities? Almost without exception, they are places where tech workers tend to cluster - SF, NYC, Seattle, Boston, Austin, etc. We should try to alleviate this problem by lobbying the leadership of big tech companies to open more branch offices in middle-tier cities, and also to increase support for remote workers.
jakobmi 7y ago
Remove all the housing regulation in California and allow builders to build. You'll smoothly see rents going down to $500/month. Start having integrity and finally do what's best for your country, not best for just yourself. Otherwise... All other countries are quickly catching up (esp. Europe and Asia) and soon, it will be irrelevant.
- ghouse 7y ago
  Which housing regulation? Building codes for earthquakes? Or zoning which prevents apartment buildings in the middle of single-family housing neighborhoods? I assume you mean the second, and not the first.
- danhak 7y ago
  Start with Prop 13
- z3ncyberpunk 7y ago
  The regulations which are the only thing allowing many people to still afford their lifelong houses die to rent inflation and gentrification? The regulations preventing many areas from becoming ugly skyscraper apartments? Which regulations are you talking about?
- gjs278 7y ago
  and stop selling to fireihners
adaisadais 7y ago
It’s so unfortunate that houses have become more expensive but the actual value proposition hasn’t really changed. It makes more sense for lots of urbanites to rent instead of own in some cases. Houses (and apartments) are so poorly designed. In my mind the floors should be like an hair hockey table that vacuums itself up. Appliances should be built into the house and should handle each job when something becomes dirty. The dishwasher should be smaller and wash each item as soon as it’s been used. Same for the dreaded washer & dryer... the fact that they are two different devices greatly perturbs me. Rant over.
kingkawn 7y ago
Ownership of property has always been so
rland 7y ago
The planning of housing stock is a seesaw. On one end, you have industrial capital, and on the other you have financial capital. Industrial capital will always lobby for lowing the cost of housing, as cheap housing will make it possible to pay out less in salary. Financial capital, on the other hand, will always lobby for increasing the cost of housing, as higher rents will produce more in return. During the fantastic industrial expansion which characterized the growth of the world's great cities, industrial capital dominated, other than in very small pockets. Workers flocked to cities, whose planning boards were in favor of expanding stock -- so incentivized by industrial capital. At some point during the last generation, the power consensus flipped: industrial interests waned, and financial interests exploded. In our new economy, financial capital holds all the cards. Predictably, planning has followed where the incentives are. Making the world turn simply doesn't as many workers as it used to -- especially in cities. Industries that do require cheap housing stock for labor typically opt to build on the outskirts of town. So entrenched are financial interests. The answer is to change the incentives. Tax the crap out of real estate, and the people who hold real estate. Let them put their vast wealth into sectors which actually build and invent new things to make our lives better.
bitxbit 7y ago
Housing should not be an asset class. Financial institutes will try to convince you that securitization is what made housing affordable but that’s far from the truth.
antb123 7y ago
They miss Baumol cost disease https://en.wikipedia.org/wiki/Baumol%27s_cost_disease https://en.wikipedia.org/wiki/Baumol%27s_cost_disease Basically there haven't been major productivity increases in construction.

418 points by yarapavan 7y ago

https://web.archive.org/web/20200117004259/https://www.economist.com/special-report/2020/01/16/how-housing-became-the-worlds-biggest-asset-class https://web.archive.org/web/20200117004259/https://www.econo... Edit: visiting the OP with JS turned off also works for some.

Gustomaximus 7y ago
Side point: Thanks for the link but I don't like seeing archive.org encouraged to beat paywalls. They do a great job archiving information and might see their access reduced if people use them in this way. Hope that doesn't sound like I'm having a go at you, and I may be wrong in my understanding of this landscape but thought I would mention.
- saiya-jin 7y ago
  So what do you propose? Rarely is there any other usable access link
  - 52-6F-62 7y ago
    Aside from paying for the quality journalism that people think is missing, I recommend checking out your local library for digital and paper subscriptions.
  - JshWright 7y ago
    I mean... paying for high quality journalism is an option (for most HN readers, anyway)
    - naravara 7y ago
      In the old days, you could either subscribe to a periodical OR go to a newsstand and make a one-time payment for a single issue. E-commerce has not yet figured out an analogous model to let me just read one thing without subscribing. We get "free articles" but no "pay a $1 and read this thing" option.
      - NickBusey 7y ago
        This 100%. I'm not going to subscribe to the Economist to read one article every 6 months. I might pay $0.10 to read this particular article though.
      - sib 7y ago
        From the late 1990's to early 2000's, there were a number of online companies (would now be called SaaS) including Qpass in Seattle that solved this problem for companies like NY Times, Wall Street Journal, and many more. Turns out that customers really didn't want to do that for written articles; subscriptions just worked better. That turned out differently for things like mobile apps. (Source - worked at Qpass for multiple years.)
  - jjaredsimpson 7y ago
    Raise your hands, contribute to the spirit bomb.
- schwank 7y ago
  I agree with this sentiment but archive.org didn't work for me anyways, I got slightly farther down the page before the paywall obscured the content.
- thorwasdfasdf 7y ago
  I agree with paying journalists for their work. but, They never provide a means to pay for the content of just the one article. I don't want a new magazine subscription everytime I surf to a new link. So, forgive me if I don't have much sympathy for a news organization that refuses to get up to date with how the internet works. The internet is on demand. If you want people to pay, it should also be on demand. Not, ohhh now you have to pay 200$ for a year long subscription just to read 1 little article which I was only going to look at for 60 seconds anyway.
  - munificent 7y ago
    > So, forgive me if I don't have much sympathy for a news organization that refuses to get up to date with how the internet works. News organizations probably understand "how the internet works" better than you do. (Not too surprising since their livelihood depends on it.) Lots of research and many many real-world attempts clearly demonstrate that small-scale individual transations do work effectively. The cognitive cost of a user having to choose to buy each small product outweighs the value and adds so much friction that most users simply don't buy it. Subscriptions have their own challenges, but overall, they have shown to be a much more effective model than microtransactions. No business is obligated to build an entire transaction system that works the way each particular customer wants it. If you don't want to buy the product the way they choose to sell it to you (in this case, with a subscription) then you can simply choose not to buy it. You have no moral right to claim "I'm going to take this for free because they didn't sell it to me the way I like."
    - thorwasdfasdf 7y ago
      i didn't say anything about taking the content. they just shouldn't be surprised when people don't pay for those subscriptions on the internet the way they do for Print.
  - gsanghera 7y ago
    You may want to check out Blendle - it does exactly what you ask. You pay for the article you read.

samschooler 7y ago

https://outline.com/EfEz3V https://outline.com/EfEz3V (Non-Archive.org link)

davidw 7y ago

The entire special report is well worth a read: https://www.economist.com/special-report/2020/01/16/housing-is-at-the-root-of-many-of-the-rich-worlds-problems https://www.economist.com/special-report/2020/01/16/housing-... There's a lot of information, history and a broad perspective on how things work in various countries. Housing politics is key to so many things: * The economy - allowing people to live in productive places is a benefit to them, and all of us, because they put their talents to more productive use. California, where the housing crisis is worst, also has the highest poverty levels of the US when cost of living (which is mostly housing) is factored in. * The environment - cities are more environmentally friendly than sprawling suburbs. * Equality and "social justice": the history of how people of color have been frozen out of the housing 'ladder' in the US is not as well known as more blatant and vicious examples of racism, but it is a huge reason why certain disparities have persisted.

tonyedgecombe 7y ago
>The environment - cities are more environmentally friendly than sprawling suburbs. I'm not sure that is true, 50% of the world lives in cities but cities produce 70% of the worlds emissions.
- davidw 7y ago
  There are a lot of articles talking about this. Here's one I grabbed: https://www.citylab.com/life/2012/04/why-bigger-cities-are-greener/863/ https://www.citylab.com/life/2012/04/why-bigger-cities-are-g... I think in the statistic you cite, 'city' includes both the urban part and the sprawling suburbs. You'd also want to compare apples to apples: someone living a very green life in a "western" city is still likely to live a more carbon-intensive life than someone doing subsistence farming.
  - tonyedgecombe 7y ago
    I suspect it's more about wealth, people in cities earn and spend more. In general the more you spend the bigger your carbon footprint.
- 7y ago

adamnemecek 7y ago

It's going to screw everyone over.

tasuki 7y ago
Oh definitely not everyone.
frockington1 7y ago
It should be a win for everyone who owns property right? I plan on renting my current house when its paid off and moving up to something bigger.

plughs 7y ago

> In 2001 William Fischel of Harvard University proposed his “homevoter hypothesis”. The thinking runs that owner-occupiers have an incentive to resist development in their local area, since doing so helps preserve the value of their property. This is a common sentiment that, I think, misses the point and makes a lot of the discussion around housing costs unproductive. I'm a homeowner and I've seen the resistance to new construction. The concerns are often * more traffic * more students at schools that are already overcrowded * more noise * etc. Also proposals to build more houses often are planned on property that is already occupied. In a nearby area they want to tear down an existing school, in other areas they want to take away open space that is used as walking/running/biking paths. Now I'm not going to pretend that homeowners are otherwise pure and virtuous and not even slightly concerned about the price of their house. But that's rarely the only concern. I don't say that to shut discussion down - maybe homeowners are still wrong to have these concerns. Maybe they just need to deal with more traffic and trust that the schools will address overcrowding as needed. But that conversation never happens. It is _always_ greedy homeowners who worry only about their house price at the expense of everyone else. As long as the conversation is framed that way, I don't think it will ever move forward.

svachalek 7y ago
This is true to a point but I've also watched debates that go something like this: Homeowners: This is going to overcrowd the schools! School superintendent: Actually we've run the numbers, we have plenty of capacity and we welcome the additional tax revenue. Political ads: This is going to overcrowd the schools! Voters: This is going to overcrowd the schools! I've never seen any ads saying "Protect our property values!" It's "always" about the schools, or the roads, or something else noble. I'm sure in many cases the concerns are legitimate but even when they're not, they're still the concerns.
- plughs 7y ago
  > School superintendent: Actually we've run the numbers, we have plenty of capacity and we welcome the additional tax revenue. "we've run the numbers" is a poor response. Our local school has a playground covered with "temporaries" and a class size of 25-30 per teacher. School overcrowding is not a hypothetical concern. Homeowners want their home prices to rise in the way anyone wants any investment's value to rise. But it doesn't mean they don't have other reasonable concerns.

closeparen 7y ago

I'm a big fan of the folk wisdom that the power of housing as an investment is essentially a self-discipline mind trick. Paying your mortgage feels more urgent than contributing to a brokerage account, withdrawing home equity feels dirtier than withdrawing stock portfolio value, and holding onto your house during a downturn is easier than holding onto your crashing stock portfolio. Once you know those things, you can rig yourself similar safeguards around other asset classes (automatic payroll contributions, tax sheltered accounts with early withdrawal penalties, etc).

GhostVII 7y ago
Another benefit is that you are essentially trading on margin when buying a house, which you couldn't do to the same degree with other assets.
- wocram 7y ago
  You could if you wanted to, though for whatever reason people are much more comfortable with leveraging 5x to purchase a home than they are with leveraging 5x to invest in a brokerage account.
  - asdfasgasdgasdg 7y ago
    > You could if you wanted to Not really. There are no margin accounts with terms as favorable as the typical mortgage loans. (Some examples of terms mortgages have that margin loans don't: the absence of margin calls, the low interest rates, the relative diversity and transparency of rates from potential lenders, etc.)
    - User23 7y ago
      You can get margin rates as low as a mortgage or even substantially lower[1]. If you don't want to switch brokers you can also ask your current broker for a discounted margin rate. I've heard anywhere from $250k to $1m total assets is enough for them to consider discounts. However, margin calls are a lot more terrifying than foreclosure proceedings, that's for sure. As such, it's virtually imperative to appropriately hedge and that should be factored into the cost of borrowing. [1] https://www.interactivebrokers.com/en/index.php?f=18069 https://www.interactivebrokers.com/en/index.php?f=18069

sunsu 7y ago

Answer: Our governments printed a shit-ton of money.

tonyedgecombe 7y ago
Or very low interest rates?
- dboreham 7y ago
  Same thing, no?
brenden2 7y ago
Also, debt.
nerfhammer 7y ago
then we should expect similar inflation for prices of all types of things, but that's not what we're seeing.
- rurp 7y ago
  Stocks, startup valuations, and crypto coins all fit the same trend as housing prices. Which investment vehicles in the US haven't skyrocketed in value the past 10 years?
- chii 7y ago
  goods inflation hasn't happened because these printed monies are not given to the average (or poor) person, but to financial institutions and large investment banks (in the form of low rates). The inflation of asset prices has indeed increased - and if the Feds continue down this course, the high prices for all assets will be the new norm.

blackrock 7y ago

When will it finally crash? Housing prices has reached a level of nonsense again. Back in 2007, there was a report of some guy spending an astronomical $800,000 USD for a house somewhere outside of Silicon Valley, like in Tracy, I think. This was bonkers back then. But now, nobody bats an eye anymore, and thinks it’s perfectly normal to spend that much on a house in previously economically depressed areas. QE has impoverished us all (except for the fat bankers). What is the black swan event that will finally trigger the stock market melt down? The price of SPY has gone exponential. A look at it, and it appears to defy gravity. But yet, everyone is celebrating on the streets it seems, as if the good times will finally last forever.

kaonashi 7y ago
qe is just overnight rate maintenance in the post-2008 world if you're looking for a 'black swan' economic collapse event, look for a lot of outstanding debt and the possibility of an interest rate spike on that debt
- blackrock 7y ago
  A lot of outstanding debt? Student Loans. You need to make as much money as a doctor to afford housing. So did everyone become a doctor in the past 10 years? Personal Auto Loans, although this seems rather localized. Business Loans used for stock buy-backs, so executives could pay themselves a nice bonus. Can some of these businesses really pay back those loans? Municipal bonds used for funding construction in areas with no economical viability.
  - uwuhn 7y ago
    >You need to make as much money as a doctor to afford housing. So did everyone become a doctor in the past 10 years? Plenty of people who aren't doctors can make doctor money now. Just look at tech.
    - blaser-waffle 7y ago
      > Plenty of people who aren't doctors can make doctor money now. Just look at tech. > Plenty Plenty of tech folks make north of six-figures and often do better than most, but neurosurgeons make $800k, and plenty of mid-level medical types can pull $300K+. I personally know a dentist making "in the ballpark of 400" (his words) in the Washington DC 'burbs. There are certainly IT/CS gigs paying north of $600K -- they're discussed all the time here on HN -- but those don't really exist outside of SV and maybe a handful of other areas, and generally require a pedigree that, while not a Med School, are still fairly non-trivial. Your ITT-Tech trained Active Directory Admin isn't going to make anything near GP or Dermatologist money -- most tech, even with real degrees and certs, wont.

thulecitizen 7y ago

The documentary Push shows this scary reality beautifully: https://www.youtube.com/watch?v=2iLWpuZrd-I https://www.youtube.com/watch?v=2iLWpuZrd-I

myroon5 7y ago

Investment Asset Classes by Market Size [Image] (2016): https://www.claconnect.com/-/media/cla-image-repository/general/illustrations_and_objects/the-investable-universe.jpg https://www.claconnect.com/-/media/cla-image-repository/gene...

marcosdumay 7y ago
It's disconcerting. Take a look at the darker bar that gathers everything that adds value to society. If we could make all that money go to productive ends, society would be just much fairer.

thorwasdfasdf 7y ago

everyone thinks housing is supposed to be a great/high yield investment. that's only true if you're renting it out and even then, the rent to own ratio tends to be about 3-5% minus expenses and property taxes and insurance and taxes, which ultimately gets you to about 1-2% per year, plus the appreciation. In the very long term housing can not increase in value quicker than wages (roughly inflation). And, if we were to actually make any progress in the industry of providing shelter, housing should actually lag inflation.

pojzon 7y ago
When the rates in bank for anything over 500k is 0.1-0.2% per year -> 1-2% from renting sounds like an amazing deal.
- lotsofpulp 7y ago
  Rates in US banks are 1.7%+, and there is considerably more risk involved in renting a residence rather than having cash deposited in an FDIC insured bank account requiring a considerable premium. Also, if the home investment is on the time horizon of 5+ years, I can't see many homeowners outside of hot real estate markets (which is a gamble) beating a total market index fund, if you factor in labor, time, tenancy and home maintenance risk, and the fact that the US government is going to bail out the public equity markets no matter what.
j8014 7y ago
Property is a decent investment, commercial and industrial you can expect to see nice returns and all expenses are pushed to the tenant. When renting homes, its usually about getting your tenants to pay off the mortgage and then you have excellent monthly recurring revenue streams, of course you can then sell your 100k+ assets whenever you want.
- lotsofpulp 7y ago
  I wouldn't recommend property as a decent investment for most compared to a total stock market ETF. You have the risk of the location becoming undesirable (lots of places in the US with stagnant or declining property values), you have the risk of bad tenants, you have the risk of being liable for the tenants in case something happens (even though you have insurance, they can always sue you), you have the risk of maintenance issues in the house requiring costly repairs. Etc.

CalRobert 7y ago

The trick is: * Introduce laws that make it harder to (legally) build housing. Note that much of New York would be illegal to build today, for instance. * Use these laws to create scarcity. Ensure that there's never quite as much housing as people who need homes. * Make massive amounts of debt available for said housing. You now have an entire class of people who want to be sure their house only goes up in price, and that there is only just barely enough housing built to stop their region from collapsing. After all, who wants to be underwater on a mortgage? I don't know how to break this on a policy level. Few people vote for the politician who says "I want your house to go down in price" so we get insane levels of rube-goldberg devices to make housing "more affordable" while also making it ever more expensive. The more debt you make available, the more housing soaks it up. Sweden recently made the maximum mortgage length 105 years! On the bright side, if you look at stuff that no bank will lend on (dilapidated structures, etc) there are some good deals to be had.

segmondy 7y ago
Are you American? because that's the most anti American thing.
- ses1984 7y ago
  What about his post is anti American? Just pointing out this problem?
- glial 7y ago
  I think OP is describing the mechanism that got us here, not endorsing it.
shusson 7y ago
> I don't know how to break this on a policy level. Berlin plans to freeze rent prices for 5 years in March [1]. But who knows, maybe that will push up prices long term. [1] https://www.ft.com/content/f2f1354e-30a8-11ea-9703-eea0cae3f0de https://www.ft.com/content/f2f1354e-30a8-11ea-9703-eea0cae3f...
- 7y ago

shusson 7y ago

An Australian perspective: https://www.abc.net.au/news/2020-01-20/bigger-house-price-fall-would-have-been-better-ian-macfarlane/11876758 https://www.abc.net.au/news/2020-01-20/bigger-house-price-fa...

sien 7y ago
The RBA wrote a paper on the effect of zoning in Australia that is also worth a read : https://www.rba.gov.au/publications/rdp/2018/pdf/rdp2018-03.pdf https://www.rba.gov.au/publications/rdp/2018/pdf/rdp2018-03.... It uses the approach from here: https://www.nber.org/papers/w8835 https://www.nber.org/papers/w8835

thdrdt 7y ago

Unless a house does generate income it is a liability. I think most people underestimate this. There are some many people who can't pay their mortgage while they thought the house was an asset.

munificent 7y ago
Food is a liability too. Not all products exist to provide future value. Some provide value right now, like a place to live.
- frankbreetz 7y ago
  If that's the case, why not rent? Anything that cost money, and doesn't create more money then it costs is a liability. They are just business terms everyone has to spend some money on liabilities.
  - chii 7y ago
    different people value things differently. For a renter, they may value the lower cost (compared to buying a property to live), and invest the difference. Some people prefer to own their home because a renter cannot modify the home (usually). They may also prefer the stability. There's no universal answer really, since a lot of individual circumstance come into play making this choice.

maneesh 7y ago

Um...are we forgetting derivatives? Real estate isn't even close... https://i0.wp.com/money.visualcapitalist.com/wp-content/uploads/2017/10/all-the-worlds-money-mp-infographic-1360.png?zoom=3.5&w=1360 https://i0.wp.com/money.visualcapitalist.com/wp-content/uplo...

claudeganon 7y ago

This is my problem with YIMBYism. It’s entirely possible for tons of housing to be built and for that housing to serve as a speculative asset for private equity, as a foreign cash store, or be used for money laundering. In fact, because were living in an age of massive inequality, flat wages, low interest rates, and QE-driven distortion, there’s material incentive to do this instead of building what the vast majority of people need. Any comprehensive housing plan has to be rooted in building more AND cutting out all of this global Capital chicanery. I see lots of advocacy for the former and little for the latter.

helen___keller 7y ago
Supply and demand is still a thing for rentals. If it's legal for a non-global-capitalist to replace their 1 unit single family home with say a 2 unit duplex (and if the regulations are sufficiently streamlined that they can do so in a cheap-enough and timely manner), many individuals will do so on a home equity loan or similar type of loan and then rent out the second unit for extra income. When enough individuals with 1 unit single family homes own duplexes with rental units, this applies negative pressure to rental prices (because supply and demand does exist in the rental space) When rental prices are depressed, this will (slowly and over the long run) apply negative pressure to the inherently-speculative purchase price for a housing unit. Aside from "prize units" like skyscraper penthouses, your average rental unit sells at a speculative price based on rental income and perceived future appreciation. When you depress the rental income, you also depress the perceived future appreciation. You CAN fight speculation with free market economics, but it requires more than luxury condos, it requires ordinary people with ordinary properties in ordinary neighborhoods who can take a loan to make their land more productive.
- claudeganon 7y ago
  All current home owners take on debt so they can remodel their houses and become landlords seems like an insane proposition relative to the government just building housing and charging rent pegged to their wages, no?
  - 7y ago

jalgos_eminator 7y ago

Ok, so something has been bothering me ever since I started thinking about housing in an economic sense. Housing prices seem to consistently rise faster than inflation over long periods (at least in large/medium metros). This means that housing is currently more expensive to people than it was 30 years ago. So what happens 50 years from now? or 100 years from now? Who will be able to afford to buy a house? Will people spend more than 50% of their take-home pay on mortgage payments? This doesn't seem sustainable long term.

mhuffman 7y ago
Housing prices are driven by the people paying the price (or rent) not by the people selling or renting (the Ricardian Theory of Rent). With the caveat that in the short-term, government laws and ordinances can affect that.
- franga2000 7y ago
  > Housing prices are driven by the people paying the price Not sure how that relates to the Ricardian theory, but while prices are technically "driven" by the people paying them, this does not seem like a useful observation to me. This isn't "if you keep buying every next more expensive iPhone, Apple will keep raising the price". You can't just not buy/rent property. It is a basic necessity. While prices vary between regions, that is still hardly a choice. Most places, jobs are scarce and transport is a disaster - you can't just go live somewhere else because your job is here (and most jobs are in high-rent areas). This means that no matter how high* prices get, people will have to find a way to pay (even if that means basically starving for the rest of their lives) and landlords are aware of this, so they keep raising the prices with the argument that "people clearly have the money, so it's fine". In theory, it makes sense for a finite resource to increase in price with increasing demand, but prices are increasing a lot faster than demand is and housing isn't as finite as land is (we can build up). This points to the supply side (landlords and developers) being the problem, not the people just trying to survive.
dwiel 7y ago
I agree, though I think the important comparison point is not necessarily inflation rate, but wage growth rate or similar.

yonran 7y ago

This series of articles raises good questions, but for a series on how homeownership is the “biggest economic policy mistake,” I wish they would have spent more time on taxation. Adjusting the property tax (or equivalently rent and imputed rent income tax) rate allows the government to capture an arbitrarily high fraction of the rental value and capital gains of the property. It can be set anywhere from fully allodial (0 property tax) to fully social (tax on 100% of rental value). Homeownership wouldn’t a problem if homeowners had no privileges on the land rent. In California, we had an average property tax rate of about 2% before Proposition 13 cut it in half in 1978, encouraging homeowners to restrict supply and reap all the capital gains. So when comparing jurisdictions, I think it is also important to note what the taxes on the property are.

neilparikh 7y ago
To add some more context, the effective property tax rate in California is ~0.7%. Unsurprisingly, the lowest effective property tax rates are in the richest cities, while the highest are in the poorest. For example, Palo Alto has an effective property tax rate of ~0.4%.
- chii 7y ago
  what's an "effective tax rate"? isn't it the same in the same state?
  - yonran 7y ago
    The property tax bill is calculated as rate × assessed value. In almost every other state, the assessed value is directly proportional to the current fair market value, but in California, Proposition 13 lowered the legal tax rate and also changed the assessed value to be the price that you (or your ancestors thanks to Proposition 58 and 193) originally acquired the property, adjusted for inflation. What this means is that some people pay outdated property taxes that are a fraction of what their new neighbors are paying, while they benefit from receiving market-rate rents or benefit from modern amenities (schools and jobs). The effective tax rate is the property tax amount divided by the fair market value, which allows us to compare fair market tax burdens given the unfair property assessments: https://www.trulia.com/research/prop-13/ https://www.trulia.com/research/prop-13/. To my point above, property taxes are intertwined with the debate about homeownership because Proposition 13’s low property tax rate increases wealth inequality (since landowners instead of governments capture the value of increased rents), increases wealth inequality (since governments are forced to increase regressive sales taxes and fees instead of property tax), increases wealth inequality (since the US income tax often does not capture increases in imputed rent and capital gains), disincentivizes cities from zoning for more housing (since the property taxes from new housing no longer pays for the infrastructure costs), and encourages NIMBYism (since homeowners have to purchase the land at a high price and then become extremely risk-averse). In addition, Proposition 13’s unfair asssesed value system further encourages NIMBYism (since landlords and homeowners get to benefit from displacing the poor without having to pay any higher property taxes) and encourages long-term property speculation without investment (since long-term property owners have low holding costs despite being in expensive locations). In another state, where homeowners have to pay taxes for the privilege of excluding others, homeownership would not be harmful to society.

40acres 7y ago

Cynical view: the laws passed in the mid 20th century to lock out black and brown folks from homeownership are now starting to affect white people. Sprinkle historically low interest rates and you have the modern day housing market.

alakin 7y ago

It's pretty interesting to think about happens from an economic perspective. Say I buy a house on loan (money withdrawn from capital markets). I hand cash to the previous owner and they use it to pay back their loan (return money back to the capital markets, keep the difference). Consider the synchronous chain. Me: Myprofit=future_profit-cost1 Prev owner: profit=cost1-cost2 Prev owner 2: profit=cost2-cost3 And so on... Also consider a parallel behavior where I can simultaneously buy and sell multiple properties though debt. It would be fun to model this whole chain and understand what this recursively unfolding process actually does with capital. Is it a capital sync? What behavior does it incentivize? Does it guarantee expansion/recession cycles?

chii 7y ago
the capital consists of pre-existing capital, and newly created capital from debt (from a bank). This is literally how money is created (vs direct printing from the Feds). And it does guarantee recession and expansion, as explained here by ray dalio https://www.youtube.com/watch?v=PHe0bXAIuk0 https://www.youtube.com/watch?v=PHe0bXAIuk0

StillBored 7y ago

Whats crazy is how much it actually costs to build something these days. Where I live, I doubt you could build a 1200 SQft house for less than 180K. Yet, just a little over a decade ago I knew people who built nice houses for $60 a square foot. Just pouring the foundation is almost as much as it cost for the whole house 25 years ago.

istorical 7y ago

I believe self-driving RVs will massively disrupt housing. Wish there was startup level funding for it.

milkytron 7y ago
Why do you think that?
- istorical 7y ago
  Three things: So much of the price of housing is related to the cost of a high value location - city center, near a transit stop, in a metro area with good jobs, near a nice natural feature, near a beach, etc. Mobile housing that can dock somewhere cheap at night but take you into a city while you are still sleeping or allow you to commute from the comfort of bed or a desk or couch alleviates that cost by making it possible to both live and work in these high cost locations while avoiding paying for the price of land there. Second is the added value of being able to go on vacation or visit friends while bringing your house with you. Set a destination, go to bed, and wake up several states away in your friends driveway. Makes a trip to Chicago for the weekend much cheaper if you only need to pay for a lot to park and the cost of charging your presumably electric vehicle. As opposed to renting an Airbnb or hotel. Third reason - climate change. If we start seeing major property value losses to coastal areas, people will start to see a lot of value in the idea of having their home be mobile.
  - 0xffff2 7y ago
    How do you think that's going to go when you get into a collision going 65mph and you're lying in bed? Where are all of these commuter RVs going to park during the day? Why not just leave them there instead of driving back out of the city every day?
0xffff2 7y ago
This is the greatest manifestation of Poe's Law I have ever read on HN.

narrator 7y ago

Housing would be much cheaper if it wasn't collateral for loans. That collateral aspect of it makes it the foundation for money creation in the private banking system and thus all the new money in the economy flows through housing first.

age_bronze 7y ago

I think mortgages as a concept are bad, and do more harm than good to the people who need to take them. I think gradually banning mortgages, by increasing the minimum required percentage of house price required to start a mortgage all the way to 100% (when you can't really take a mortage), will be a good thing. The way house investors view mortgages is as a very cheap leverage. So investing in housing will always be fundamentally skewed, because every single person can so easily get cheap leveraged investment in a house, so housing as an investment can perform much more poorly compared to other investment as still beat them by far because of the mortgage. This is so skewed up that a house now has an extra value: as a 'token' to get a cheap loan. This extra value is paid by everyone buying a house. The way the average family looking to buy a house is completely different: they are looking to compete in the housing market with other families with similar financial abilities, to purchase a house. When you offer all sides of the competition the ability to enter a cheap loan, the side that doesn't take the loan loses the house. But if all sides didn't have the possibility to take a loan and pay more for the house, they would all pay less. Allowing buyers to take mortgages sets them off in a prisoner dilemma against every other buyers, and they all come out losing. If you outlaw mortgages, everyone interested in the house itself wins. Moreover, once you have lured a family into strangulating themselves with a mortgage, they are now prone to financial stress that will cause them to take loans with much worse terms than a mortgage, therefore nullifying all the possible gains they had from taking the cheap loan. So while investors fully benefit from the cheap credit of the mortgage, families often follow up with mistakes and bad loans which, in total, make the mortgage costly loan. The more you think about it, the more you should realize the winners from the concept of mortgages are real estate companies, investors and banks, and the biggest losers are the average family which are forced to take it from the Nash Equilibrium of a prisoners dilemma. Moreover, if mortgages didn't exist, overall spending across the economy would rise, which will be a good thing.

evanlivingston 7y ago
Almost no one in the US has the cash to purchase a home. How would eliminating mortgages not dramatically shift land ownership to the wealthy and turn everyone into renters?

ecoled_ame 7y ago

this is how nature disappears ..

bookAlot 7y ago

Mostly because housing isn't allowed to criminals. If you took that control from them, the housing district would be a selling market and not a market hold. Which is a lot like saying it's almost a bank.

arexxbifs 7y ago

Owning a home is sooo last decade. Housing as a Service is where it’s at! Now sit back and relax while we install this wallpaper with non-stop animated ads, tailored to suit _your_ way of life.

yhoiseth 7y ago

The Common Ownership Self-Assessed Tax (COST) [1] might be at least part of a solution. 1. http://radicalmarkets.com/chapters/property-is-monopoly/ http://radicalmarkets.com/chapters/property-is-monopoly/

perceptronas 7y ago
This violates private property rights. What If I don't want to sell my property no matter the price?
- yhoiseth 7y ago
  > This violates private property rights. That's correct. > What If I don't want to sell my property no matter the price? That wouldn't be possible. You could set an extremely high price, but then your tax bill would also be extremely high.

monadic2 7y ago

Land and buildings as an asset has never made sense to me—it allows charging many times the investment cost as rent, which seems incredibly inefficient, without comparable depreciation on resale. What can I read to understand this perspective?

chrischen 7y ago

Once all the land in the world is apportioned, what happens to all future generations that do not have land? They become slaves to landowners? Will capitalism fall apart then? I get that land ownership incentivizes the development of the land by rewarding the owner, but what happens after all the land is gone and someone is born into a world of such legacies?

KaoruAoiShiho 7y ago
Build taller.
- chrischen 7y ago
  That disproportionally enriches landowners still.
  - KaoruAoiShiho 7y ago
    Don't see how, more supply = lower prices.
chii 7y ago
> someone is born into a world of such legacies? they obtain the portion that their parents purchased. Or if they are productive enough, they buy out land from somebody else less productive. There's no natural right for somebody to be able to own land.
- chrischen 7y ago
  But that creates a class of people who don't have to do that just because they got lucky.

heymartinadams 7y ago

Here’s a mostly overlooked fact: Housing hasn’t become the biggest asset class — the land underneath each house has. Housing itself is cheap to build. Location, however, is expensive. And that’s also what makes people win or lose in Monopoly. I’ve written about it extensively: a book (https://www.unitism.com https://www.unitism.com), articles (https://www.progress.org/authors/martin-adams https://www.progress.org/authors/martin-adams), etc.

wayoutthere 7y ago
The other part people don't think about: your ownership of land is only as valid as your (or the government's) ability to enforce it. A lot of major civil wars in the 20th century have been fought over land rights -- in many cases, it has been local citizens seizing land back from foreign corporations and land barons. Many countries have laws on the books restricting land ownership to citizens as a result.
- heymartinadams 7y ago
  Indeed. Have a chapter on the geopolitical implications on landownership. https://www.unitism.com/land/en/14-the-price-of-peace https://www.unitism.com/land/en/14-the-price-of-peace
- opportune 7y ago
  The US has also basically had unrestricted capital accumulation barely interrupted by war / mass societal reorganization (only the high tax rates around WWII and abolition of slavery) for over two centuries. Now that there is no more frontier there’s no more land that is both cheap/free and desirable

personjerry 7y ago

Hasn't land and property been the defining assets of the wealthy going back as far as the Romans?

partingshots 7y ago

I thought land ownership was the de facto means of storing wealth since pretty much the advent of human civilization. Is that not true?

PavlovsCat 7y ago

> Basically, what's happened is, somewhere along the line, as a society, we confused the notion of home with the possibility of an investment opportunity. What kind of creature wants to live in an investment opportunity? Only man. The fox has his den, the bee has his hive, the stoat has a a stoat hole. But only man, ladies and gentlemen, the worst animal of all, chooses to make his nest in an investment opportunity. Mmm, snuggle down in the lovely credit. All warm in the mortgage payment. > Mmm! But home is not the same thing as an investment opportunity. Home is a basic requirement of life, like food. > When a hamster hides hamster food in his hamster cheeks, he doesn't keep it there in the hope that it will rise in value. And when a squirrel hides a nut, he's not trying to play the acorn market. And having eaten the nut, he doesn't keep the shell in the hope of setting up a lucrative sideline making tiny hats for elves. And when a dog buries a bone, he doesn't keep that bone buried until the point where it's reached its maximum market value. He digs it up when he's hungry. > And if estate agents were dogs burying bones, not only would they leave those bones buried until they'd reached their maximum market value, but they'd run around starting rumours about imminent increases in the price of bones in the hope of driving up the market, and they'd invite loads of boneless dogs to all view the bone at the same time in the hope of giving the impression there was a massive demand for bones. And they would photograph the bone in such a way as to make it look much more juicy than it really was, airbrushing out the maggots and cropping the rotten meat. -- Stewart Lee

d_burfoot 7y ago

Tech people should reflect a bit on our responsibility for this situation. It's not that housing is scarce in absolute terms. There's a ton of housing in rural or suburban areas. There's even a lot of housing in cities - just not the "desirable" cities. And what are the "desirable" cities? Almost without exception, they are places where tech workers tend to cluster - SF, NYC, Seattle, Boston, Austin, etc. We should try to alleviate this problem by lobbying the leadership of big tech companies to open more branch offices in middle-tier cities, and also to increase support for remote workers.

jakobmi 7y ago

Remove all the housing regulation in California and allow builders to build. You'll smoothly see rents going down to $500/month. Start having integrity and finally do what's best for your country, not best for just yourself. Otherwise... All other countries are quickly catching up (esp. Europe and Asia) and soon, it will be irrelevant.

ghouse 7y ago
Which housing regulation? Building codes for earthquakes? Or zoning which prevents apartment buildings in the middle of single-family housing neighborhoods? I assume you mean the second, and not the first.
danhak 7y ago
Start with Prop 13
z3ncyberpunk 7y ago
The regulations which are the only thing allowing many people to still afford their lifelong houses die to rent inflation and gentrification? The regulations preventing many areas from becoming ugly skyscraper apartments? Which regulations are you talking about?
gjs278 7y ago
and stop selling to fireihners

adaisadais 7y ago

It’s so unfortunate that houses have become more expensive but the actual value proposition hasn’t really changed. It makes more sense for lots of urbanites to rent instead of own in some cases. Houses (and apartments) are so poorly designed. In my mind the floors should be like an hair hockey table that vacuums itself up. Appliances should be built into the house and should handle each job when something becomes dirty. The dishwasher should be smaller and wash each item as soon as it’s been used. Same for the dreaded washer & dryer... the fact that they are two different devices greatly perturbs me. Rant over.

kingkawn 7y ago

Ownership of property has always been so

rland 7y ago

The planning of housing stock is a seesaw. On one end, you have industrial capital, and on the other you have financial capital. Industrial capital will always lobby for lowing the cost of housing, as cheap housing will make it possible to pay out less in salary. Financial capital, on the other hand, will always lobby for increasing the cost of housing, as higher rents will produce more in return. During the fantastic industrial expansion which characterized the growth of the world's great cities, industrial capital dominated, other than in very small pockets. Workers flocked to cities, whose planning boards were in favor of expanding stock -- so incentivized by industrial capital. At some point during the last generation, the power consensus flipped: industrial interests waned, and financial interests exploded. In our new economy, financial capital holds all the cards. Predictably, planning has followed where the incentives are. Making the world turn simply doesn't as many workers as it used to -- especially in cities. Industries that do require cheap housing stock for labor typically opt to build on the outskirts of town. So entrenched are financial interests. The answer is to change the incentives. Tax the crap out of real estate, and the people who hold real estate. Let them put their vast wealth into sectors which actually build and invent new things to make our lives better.

bitxbit 7y ago

Housing should not be an asset class. Financial institutes will try to convince you that securitization is what made housing affordable but that’s far from the truth.

antb123 7y ago

They miss Baumol cost disease https://en.wikipedia.org/wiki/Baumol%27s_cost_disease https://en.wikipedia.org/wiki/Baumol%27s_cost_disease Basically there haven't been major productivity increases in construction.