4 ms·

And they get unhappy because they have been trained to think of housing as investment that should grow faster than inflation rather than a place to live.

tnel77 6y ago
You don’t treat a couple hundred thousand dollars as an investment? Sounds privileged.
- oppenh3imer 6y ago
  If the price of the house rises faster than inflation, it is a good investment. However, rising faster than inflation also means that they become proportionally less affordable over time. You cannot have both affordable housing and high returns from housing
  - dragonwriter 6y ago
    > You cannot have both affordable housing and high returns from housing Sure, you can, but only if real estate in established neighborhoods is more expensive than housing in new neighborhoods, which isn't hyperlocally sustainable but might be sustainable over a broader region.
  - thebean11 6y ago
    You sort of can, but it requires increasing density (so per square foot stays similar but those with low incomes can still afford a small place) or older neighborhoods becoming more expensive than newer neighborhoods (happens all the time).
    - egsmi 6y ago
      Increasing density likely implies displacing the people presently in the expensive neighborhood for construction. In the U.S. anyway, that’s easier said than done. So that’s definitely a theoretical solution but I’m not sure how practical it is.
      - thebean11 6y ago
        Displacing sure, but it's almost always voluntary! Zoning rules change, and developers start offering the big bucks for existing homeowners to sell. It's starting to happen in Austin: duplexes/fourplexes are getting built in some of the nicer, more central areas.
  - adamredwoods 6y ago
    Also, inflation causes the value of debt to decrease over time. (Wages are sticky, but when they catch up, inflation causes debt to go down as the value of currency decreases.)
- gwd 6y ago
  I think you've got it backwards. If new cars all cost $200k, would you buy one as an investment? No -- you'd either not buy one (unprivileged) or buy one anyway realizing it's a cost (privileged). I might spend $100k on a house that I was going to live in for 20-30 years, even if I knew that at the end of that time it was going to be worthless. But I certainly wouldn't spend $500k+ on a house unless I knew I'd be able to sell it for more down the road.
  - daed 6y ago
    What if the cost of the monthly interest on your mortgage for that $500k house was less than your rent?
    - PretzelFisch 6y ago
      then you may not be factoring in your total piti. the mortgage payment is a part of total cost of ownership.
    - gwd 6y ago
      If it's an interest-only mortgage, and you are sure the value isn't going to go down, then fine. But if you're putting in capital, you have to factor in the cost of money. There are far better things to do with $500k than to park it in an asset that doesn't appreciate. And of course, you have to factor in the risk that the price will actually drop. Risk isn't free either: it doesn't make sense to take a risk that you may lose money, unless there's a counter probability that you will actually gain money instead. Even if your monthly payment was less than your rent, you still might be better off doing something else. To get a good interest rate you need 75% LTV; which means on a $500k house you need to put up $125k up front. You might be better taking that $125k and investing it in an S&P500 index fund, and then paying rent, than taking that $125k and putting it into a house and making a mortgage payment. (Obviously you need to do the actual math here to see if it makes sense or not.) <EDIT>And of course there's the diversification aspect too. If your net worth is $300k ($500k house + $50k other investments - $250k mortgage), it would normally be a really poor decision to have 166% of that ($300k / $500k) in a single asset, whose value could drop drastically for any number of reasons. All that to say -- if your house isn't an investment, it had better be significantly cheaper than renting before it makes financial sense.</EDIT> From a societal flexibility perspective, it's much better if most people rent; particularly poorer people who can't as easily from the economic shock of having their house lose all its value. If the bottom fell out of the economy in the city I'm in, and my house's price dropped by half, I could afford to cut my losses and start over. A lot of people are stuck. I'm told that Germany is very different. It's not at all expected that people strive to own their own home; people rent the same place for decades and are perfectly happy. Because they've never had out-of-control housing prices (at least, not in the last few decades), they can keep things rational. If the UK's policies suddenly looked like Germany's I'd probably take a massive haircut on the house I own. Personally, I'd be willing to do that if I knew it would make things better for other people; I'd be OK financially. But a lot of people wouldn't, so I understand why it's difficult to change.

tnel77 6y ago

You don’t treat a couple hundred thousand dollars as an investment? Sounds privileged.

oppenh3imer 6y ago
If the price of the house rises faster than inflation, it is a good investment. However, rising faster than inflation also means that they become proportionally less affordable over time. You cannot have both affordable housing and high returns from housing
- dragonwriter 6y ago
  > You cannot have both affordable housing and high returns from housing Sure, you can, but only if real estate in established neighborhoods is more expensive than housing in new neighborhoods, which isn't hyperlocally sustainable but might be sustainable over a broader region.
- thebean11 6y ago
  You sort of can, but it requires increasing density (so per square foot stays similar but those with low incomes can still afford a small place) or older neighborhoods becoming more expensive than newer neighborhoods (happens all the time).
  - egsmi 6y ago
    Increasing density likely implies displacing the people presently in the expensive neighborhood for construction. In the U.S. anyway, that’s easier said than done. So that’s definitely a theoretical solution but I’m not sure how practical it is.
    - thebean11 6y ago
      Displacing sure, but it's almost always voluntary! Zoning rules change, and developers start offering the big bucks for existing homeowners to sell. It's starting to happen in Austin: duplexes/fourplexes are getting built in some of the nicer, more central areas.
- adamredwoods 6y ago
  Also, inflation causes the value of debt to decrease over time. (Wages are sticky, but when they catch up, inflation causes debt to go down as the value of currency decreases.)
gwd 6y ago
I think you've got it backwards. If new cars all cost $200k, would you buy one as an investment? No -- you'd either not buy one (unprivileged) or buy one anyway realizing it's a cost (privileged). I might spend $100k on a house that I was going to live in for 20-30 years, even if I knew that at the end of that time it was going to be worthless. But I certainly wouldn't spend $500k+ on a house unless I knew I'd be able to sell it for more down the road.
- daed 6y ago
  What if the cost of the monthly interest on your mortgage for that $500k house was less than your rent?
  - PretzelFisch 6y ago
    then you may not be factoring in your total piti. the mortgage payment is a part of total cost of ownership.
  - gwd 6y ago
    If it's an interest-only mortgage, and you are sure the value isn't going to go down, then fine. But if you're putting in capital, you have to factor in the cost of money. There are far better things to do with $500k than to park it in an asset that doesn't appreciate. And of course, you have to factor in the risk that the price will actually drop. Risk isn't free either: it doesn't make sense to take a risk that you may lose money, unless there's a counter probability that you will actually gain money instead. Even if your monthly payment was less than your rent, you still might be better off doing something else. To get a good interest rate you need 75% LTV; which means on a $500k house you need to put up $125k up front. You might be better taking that $125k and investing it in an S&P500 index fund, and then paying rent, than taking that $125k and putting it into a house and making a mortgage payment. (Obviously you need to do the actual math here to see if it makes sense or not.) <EDIT>And of course there's the diversification aspect too. If your net worth is $300k ($500k house + $50k other investments - $250k mortgage), it would normally be a really poor decision to have 166% of that ($300k / $500k) in a single asset, whose value could drop drastically for any number of reasons. All that to say -- if your house isn't an investment, it had better be significantly cheaper than renting before it makes financial sense.</EDIT> From a societal flexibility perspective, it's much better if most people rent; particularly poorer people who can't as easily from the economic shock of having their house lose all its value. If the bottom fell out of the economy in the city I'm in, and my house's price dropped by half, I could afford to cut my losses and start over. A lot of people are stuck. I'm told that Germany is very different. It's not at all expected that people strive to own their own home; people rent the same place for decades and are perfectly happy. Because they've never had out-of-control housing prices (at least, not in the last few decades), they can keep things rational. If the UK's policies suddenly looked like Germany's I'd probably take a massive haircut on the house I own. Personally, I'd be willing to do that if I knew it would make things better for other people; I'd be OK financially. But a lot of people wouldn't, so I understand why it's difficult to change.