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Housing cannot both be a good investment and affordable by definition unless new supply outpaces demand. The problem is that for so many Americans, their house

• stjohnswarts 6y ago
  As an owner of two homes, I've never lobbied anyone for better zoning laws for me, and actually I've done the opposite. Not everyone is cookie cutter.
  • jopsen 6y ago
    I imagine most home owners don't do any lobbying. But it is true that politicians don't like increasing property taxes and other policies that could draw down the housing market.
    • vidarh 6y ago
      The problem is that though a lot of homeowners would themselves benefit from dropping prices (most would love to trade up, and as long as we don't end in negative equity, dropping prices would help with that), most people don't seem to understand, and see the house as an investment of the "I can afford a more expensive house" kind (ignoring that those more expensive houses are also more expensive because of the price growth). Overcoming the psychology of that is politically hard.
• xvedejas 6y ago
  If new supply outpaces demand, wouldn't housing also in that case cease to be a good investment? (I think your first sentence has this wrong)
  • missedthecue 6y ago
    Housing is consumption, by definition. A house doesn't produce anything. It shouldn't be a good investment. It's probably optimal for it to rise at the same rate of inflation over time, to ensure that people aren't immediately under water on their mortgages, and so that they become cheaper relative to median incomes over the long term.
    • chewbacha 6y ago
      While it makes sense that it should basically grow with inflation, I think that housing does arguably produce humans. Humans which work and drive the economy. This would imply that it should rise with inflation of course.
    • beebmam 6y ago
      Housing in the US can be seen as a luxury good as well. I really don't like that
      • WarOnPrivacy 6y ago
        Given our enormous homeless population, that would seem to apply here.
    • AndrewUnmuted 6y ago
      How about the land that the house sits upon? That's a scarce resource for which demand will continue to rise over time. I envision no way for this to change until we figure out a new way to house people in previously-uninhabitable spaces.
      • whyenot 6y ago
        It seems like you are assuming that population will continue to increase. Obviously it is not something that can happen forever.
    • chongli 6y ago
      A house is consumption and it’s not a good investment. The value is in the land. Land in popular areas is extremely valuable and increasing in value all the time. Yes, homeowners collude to restrict housing supply via regional politics. But the real problem is the centralization of jobs within big cities. This is bound up in the history of manufacturing in the west and the forces of globalization. Remote work has the chance to reverse or at least slow this trend. In the short term it may lead to an explosion in real estate prices in areas within commuting distance of the big cities. In the long term I hope it leads to people spreading out a lot more and making housing affordable again.
• jvalencia 6y ago
  I would argue that housing is not a good investment, but owning land is. The house is transient... the land remains.
  • j4yav 6y ago
    It doesn’t have to be. I live in a house in the Netherlands that was built in 1675, and this isn’t terribly unusual. It’s not a special old house or anything, just an old one in an old city center. I know it’s not super common in the US for various reasons, but it’s certainly possible to build a house that will outlast you, your children, and their children.
    • chrisco255 6y ago
      Wild, how was it constructed out of curiosity and what materials?
      • j4yav 6y ago
        Timber and brick, I’m unfortunately not an expert on home construction and can’t give a more interesting answer but maybe someone else around knows. A lot of homes and construction in the New England area is brick and I bet it will last quite a long time.
        • psalminen 6y ago
          Can confirm. I know many people who live in New England houses ~150 years old.
          • jefftk 6y ago
            This is mostly not a matter of construction materials. The oldest houses in New England are all wood frame (much cheaper for the colonists, still is today). As long as you keep the wood dry (maintain the roof and siding), it will last indefinitely.
          • 6y ago
• johnebgd 6y ago
  It seems we are also living in the last throes of global population growth. Various factors seem to be influencing dramatic fall off in birth rate. Housing is by definition in these circumstances a poor long term infrastructure investment.
  • rorykoehler 6y ago
    Not yet. Many people will move from the country to the city still. Many people in the city will also want more space as they gain wealth. Population won’t top out until the end of the century according to estimates I’ve seen.
• majormajor 6y ago
  Land absolutely would stay a good investment. Land that can house more people, in a city where more people need housing than used to, isn't less valuable than land that can house fewer people. Development's goal is to increase property value, that's the whole point of it. Nobody would spend money to develop if they were going to lose money on it. That's going to continue as long as population rises. When talking about land-owners (which zoning discussions, especially around single-family zoning, often means), the land value isn't what's protected by zoning. Development may reduce the desire of a new owner to live in a single family home next to an apartment building, but now you have another developer willing to buy your land to build their own multi-unit building, and that's gonna be some good money. The cities that have had less crushing affordability problems are the ones that have been able to continue expanding outward - the outskirts land that used to be empty now has housing (and got more valuable as a result of this development) and the inner areas (slowly) has been getting denser, especially as old industrial property gets redeveloped and such. But many of those cities have just as much zoning and restrictions around density as NY or SF (usually more!). The difference is that they were able to go outward to better keep up with demand increases. I don't think any US city has been able to address rapidly rising demand through upzoning and density alone - redevelopment of existing residential will always be much harder and slower than of empty perimeter land. Density, on the other hand, has seemed to ultimately cause demand increases in NYC and SF greater than the supply increases it has provided. If population growth stops, though... all this changes. Or even if just the net migration to various cities shifts around!
  • vmception 6y ago
    People who say that have never owned land and have a simplistic fantasy in their mind. Listening to people that have owned land you hear things like: - A creek was at one edge of our property right outside of it, and the state required us to build a bridge, getting the license for the bridge was costly and time consuming - The creek changed course and cut across our property, the federal government had new requirements that had costs and approvals necessary - We lost money on the property, despite land being a finite resource and all the dreamers being perma-bulls on land ownership, there was no way we could turn this into an income generating property that would be profitable.
• jariel 6y ago
  It's not zoning. The same issue persists irrespective of supposed NIMBYISM. The primary, most obvious driver is historically low interest rates. How much we can attribute to that is hard to say but it's #1 for sure. During the 2008 crises, the Fed took toxic housing loans off their books, which 'saved the banks' but it also 'saved millions' from foreclosure i.e. creating a moral dilemma there as well and signalling the Fed won't let home prices crash.
  • whimsicalism 6y ago
    In urban areas, I think it is hard to claim that the high rents have little to do with zoning. I don't think the problem is low interest writ large, but specifically attempts to prop up the homeownership market with debt. There's a reason that post-2008 private lenders have basically backed out of the mortgage market and let Fannie Mae & Mac hold the bag, even in the context of so much more money chasing yields.
    • stjohnswarts 6y ago
      This is incorrect zoning and "historic" zones prevent new building. A new 70 floor tower replacing an old 5 or 6 floor "historical residence" -drastically- increases density. Now go try and get that to happen in San Francisco in less than a decade.
      • whimsicalism 6y ago
        I don't see how you think what you're saying contradicts what I'm saying. Prices in urban areas are very much caused by zoning (primarily), but changes in macro-scale pricing of houses in the US are definitely related to supply of financing.
        • bluGill 6y ago
          Only partially. Anyplace where you want to live has zoning that limits how many people can live there. Zoning won't stop you from building out on some ranch in the middle of nowhere (ranches are getting bigger so you can find some no longer used homestead to rebuild). However zoning will stop you from building in a city.
• deleted 6y ago
  [deleted]
• alpineidyll3 6y ago
  Eh. I think it's more about decades of declining low interest rates. Low rates are only available to american's who can obtain credit, and leads to predation on those who cannot. It's about mortgage availability not housing availability.
  • qeternity 6y ago
    You must not have been following the past 20 years. We have massive GSEs that backstop mortgages with the power of the Fed. Perhaps second to 2006, it has never been easier for low income borrowers to buy property. This is part of the problem.
    • alpineidyll3 6y ago
      I trade volatility for a living. I scrutinize the smallest changes in rates. Of course bad mortgages are not great, however in dollar scale vs. The corporate bond market, they are meaninglessly insignificant. The cdos they are baked into being bought at leverage (again due to low rates) is the problem.
      • qeternity 6y ago
        Me too, vol is the only true asset class. I don’t disagree with what you say. But affordability can only be solved by increasing supply. Everything else is just shuffling the deck.
        • alpineidyll3 6y ago
          In the most desirable locations housing is mostly vacant.
• throwaway0a5e 6y ago
  People always repeat this trope without defining "good" To be a "good investment" owning housing doesn't have to have a better ROI than the S&P 500, bonds or the interest in a savings account. It just has to burn money more slowly than renting which is the alternative you'd be forced to spend that money on. That's a really low bar. One's primary residence can both be a good investment and affordable.
  • eindiran 6y ago
    It needs to take both into consideration to be a good investment in some sense: it might make financial sense to not spend a large sum of cash on a down payment, but invest the money and continue renting (even if the cost of renting is significantly greater than the (property taxes + mortgage - tax savings) would be for the same property), as long as the returns of the invested money are greater than what you are losing on renting. A friend of mine did the math on this for a few property types in Northern California and it worked out to be fairly close in most cases. With that said, there seem to be pretty significant stability and psychological gains to owning a house that may outweigh financial considerations of this kind. That is doubly true if the investment + renting option is within the same ballpark as the ownership option.
  • zeku 6y ago
    The issue that is often overlooked is the value of the down payment. Say your home is $100,000(i know, i know lol). Your 20% down payment is $20,000. You have to factor in the interest that $20,000 would generate in say index funds or whatever you would do with it, when comparing buying to renting--along with all of the other stuff people usually factor like taxes & upkeep. In some areas this can make renting actually the cheaper option.
    • csours 6y ago
      The down payment and cost of transaction, including inspections, taxes, and real estate agent fees, loan origination fees, other fees, cost of moving etc. In an average housing market it can take 5 years for those to pay off when compared to paying rent (do your own calculations, mileage varies dramatically). Unless you have enough cash to pay for a house, you are either renting money or renting a place to live.
• varispeed 6y ago
  People feel great about their property value, until they sell and they learn that to buy similar place they often have to pay more that they got from the sale. It only makes sense if you want to leave everything behind and buy property in another state or country. Now that people have Bitcoin, hopefully they'll stop using properties as a store of value. Maybe we need a regulation that will cap rent profits to be no higher than inflation or something similar. We also need to loosen the regulation so that a family can easily buy land and build a house (only one per family).
• splistud 6y ago
  I don't think the term 'naturally' is apt here. It implies that people are actually making a logical choice. In the same way that a house is often the majority of the network of Americans, a job is often the majority of the income. This fact does not cause most of them to advocate for enforcing immigration laws, even though this choice reduces payrates for all Americans.
  • rory 6y ago
    Immigration thing aside (I don't think personal-income-maximizing necessarily equals logical), I feel like this point is often missed. Most people who lobby for strict zoning don't do it with the intention of restricting supply to increase the value of their home. They usually do it for much simpler, more human, and often kind of stupid reasons (traffic, construction noise, fear of new and different people in their neighborhood, etc).
• andrepd 6y ago
  I'm partial to the Georgist approach. I just makes sense, even though it is pretty backwards from what we're used to ("I'll have to pay more if my land is more desirable??")
• m0llusk 6y ago
  This is not accurate analysis. Perhaps most important is to understand that zoning and open ended environmental review has added huge costs and risks to building and has effectively slowed construction. This is the primary reason that there are not enough units and most other problems we see emerge from this. There are important other factors such as the financialization of housing creating a situation where demand is essentially infinite and relates only to investors and not to families or income from labor. As far as affordable housing goes, the majority of affordable housing is in older buildings. As buildings mature they tend to get paid off and reach a point where operating costs remain low until the structure needs to be rebuilt or replaced. This may be awkward to model, but realistic observation of markets shows that affordability is something that more or less inevitably happens to a property unless it gets removed or rebuilt relatively early in its lifetime because of a hot market. Property values are traditionally supported by incomes. The current environment where property values grow well beyond incomes has little precedent and there is little reason to think this situation is stable. When people in the past talked about their property not losing value what they meant that there would be both income opportunities and reason to live in the area. When opportunities dried up or communities became undesirable then the housing values would crash. That is entirely different from expecting housing values should increase beyond incomes or inflation.