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If you can rent significantly cheaper than total cost of servicing loans etc, consider investing the difference in index funds and rent as cheap as you can. It

If you can rent significantly cheaper than total cost of servicing loans etc, consider investing the difference in index funds and rent as cheap as you can. It might be a good bet, especially if speculation in housing is slowing down compared to the last 20-30 years.

ethbr0 6y ago
It's possible the problem isn't speculation, but the rate of return on capital vs the rate of return on labor. If capital dominates, you're going to run into scenarios where it's fundamentally impossible to ever afford scarce goods that generate returns, because someone who started with more capital will now have an even larger delta with you, and is therefore able to outbid you.
- the_gastropod 6y ago
  Not all capital generates the same returns. Index funds have virtually no gatekeeper—you can open a brokerage account, toss in $10, and be an honest-to-god capitalist. And stocks tend to outperform real estate by a hefty margin. So catching up is possible.
  - ethbr0 6y ago
    Unfortunately, you need somewhere to live while you're catching up. How much of salary - CoL can an average person dedicate to building capital? I'm not saying it's hopeless, only that there are systemic factors fighting against home ownership in extremely supply-limited cities.
    - pc86 6y ago
      "Extremely supply-limited cities" could just mean outliers like NYC or SF, or it could mean literally every city in the country, depending on your definition. And by definition, isn't it impossible to have an extremely supply-limited city with very little barrier to home ownership?
  - mrep 6y ago
    Historically, equity markets and housing provide similar returns when you factor in rent according to this super interesting harvard paper on "The Rate of Return on Everything, 1870–2015" and the corresponding HN discussion [0]. Far less liquid and actually more stable though according to the paper. [0]: https://news.ycombinator.com/item?id=19817584 https://news.ycombinator.com/item?id=19817584
    - pc86 6y ago
      I would think the stability is in part due to its illiquidity. If the market drops 10% and you've "heard" it's going to drop another 40%, you might dump everything. If you don't get back in at the right time you can lose even more than if you had just stayed in throughout the drop. It's rare for folks to immediately dump their investment properties because the housing market has cooled off.
  - arvindch 6y ago
    I honestly don't think "tossing in 10$ to an index fund", i.e literally pocket change, makes anyone a /capitalist/. This is not an argument in good faith relative to the reality of capitalism we live in.
    - the_gastropod 6y ago
      It was in good faith, I promise. I think there are multiple definitions of capitalist that are broadly used. I meant it in the “investor in a business” sense. Also, it may be important to reiterate: the idea isn’t to just invest $10 and be good to go. It was just meant to highlight the low barrier to entry, which is very different from buying a home.
- xnyan 6y ago
  Well said. Another way of looking at it: in the long term return on investment (r) > economic growth (g) because “everyone” gets g but people with capital also get r.
  - ethbr0 6y ago
    Indeed, and credit where credit is due: https://en.m.wikipedia.org/wiki/Capital_in_the_Twenty-First_Century https://en.m.wikipedia.org/wiki/Capital_in_the_Twenty-First_... I don't ascribe to everything, but it's a thought provoking perspective.
    - thoughtstheseus 6y ago
      Piketty has many of his class materials on his personal website as well.

ethbr0 6y ago

It's possible the problem isn't speculation, but the rate of return on capital vs the rate of return on labor. If capital dominates, you're going to run into scenarios where it's fundamentally impossible to ever afford scarce goods that generate returns, because someone who started with more capital will now have an even larger delta with you, and is therefore able to outbid you.

the_gastropod 6y ago
Not all capital generates the same returns. Index funds have virtually no gatekeeper—you can open a brokerage account, toss in $10, and be an honest-to-god capitalist. And stocks tend to outperform real estate by a hefty margin. So catching up is possible.
- ethbr0 6y ago
  Unfortunately, you need somewhere to live while you're catching up. How much of salary - CoL can an average person dedicate to building capital? I'm not saying it's hopeless, only that there are systemic factors fighting against home ownership in extremely supply-limited cities.
  - pc86 6y ago
    "Extremely supply-limited cities" could just mean outliers like NYC or SF, or it could mean literally every city in the country, depending on your definition. And by definition, isn't it impossible to have an extremely supply-limited city with very little barrier to home ownership?
- mrep 6y ago
  Historically, equity markets and housing provide similar returns when you factor in rent according to this super interesting harvard paper on "The Rate of Return on Everything, 1870–2015" and the corresponding HN discussion [0]. Far less liquid and actually more stable though according to the paper. [0]: https://news.ycombinator.com/item?id=19817584 https://news.ycombinator.com/item?id=19817584
  - pc86 6y ago
    I would think the stability is in part due to its illiquidity. If the market drops 10% and you've "heard" it's going to drop another 40%, you might dump everything. If you don't get back in at the right time you can lose even more than if you had just stayed in throughout the drop. It's rare for folks to immediately dump their investment properties because the housing market has cooled off.
- arvindch 6y ago
  I honestly don't think "tossing in 10$ to an index fund", i.e literally pocket change, makes anyone a /capitalist/. This is not an argument in good faith relative to the reality of capitalism we live in.
  - the_gastropod 6y ago
    It was in good faith, I promise. I think there are multiple definitions of capitalist that are broadly used. I meant it in the “investor in a business” sense. Also, it may be important to reiterate: the idea isn’t to just invest $10 and be good to go. It was just meant to highlight the low barrier to entry, which is very different from buying a home.
xnyan 6y ago
Well said. Another way of looking at it: in the long term return on investment (r) > economic growth (g) because “everyone” gets g but people with capital also get r.
- ethbr0 6y ago
  Indeed, and credit where credit is due: https://en.m.wikipedia.org/wiki/Capital_in_the_Twenty-First_Century https://en.m.wikipedia.org/wiki/Capital_in_the_Twenty-First_... I don't ascribe to everything, but it's a thought provoking perspective.
  - thoughtstheseus 6y ago
    Piketty has many of his class materials on his personal website as well.