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Housing can't be simultaneously an investment and affordable. For current homeowners, one good way to preserve and grow the value of your home is to support po

Housing can't be simultaneously an investment and affordable. For current homeowners, one good way to preserve and grow the value of your home is to support policies that reduce new supply from coming on the market. New supply is prevented from coming on the market through high costs and ever expanding rules and regulations. Persistent low housing supply is the expected outcome when housing is treated as an investment.

zamfi 5y ago
> Housing can’t be simultaneously an investment and affordable. This just isn’t true, it is only a contradiction if the type of housing remains constant, which it does in zero-development, extreme-construction-cost markets like San Francisco where public policy forbids the modification of (almost) any housing to increase density. Here’s how it would work otherwise: family buys single family home in year A for $100k. Lives there for a while, then sells in year B for $200k. The buyer is a developer, who then constructs a larger building on that same lot consisting of 4 apartments that now each sell for $100k again. Original family gains in wealth, developer makes tidy profit, new families can still buy a place to live for $100k. All numbers inflation-adjusted, you pick A and B to make whatever return you think is reasonable. This is how densification happened almost everywhere until zoning laws went crazy mid-century. Note what you don’t get out of this arrangement: a neighborhood that doesn’t change for 40 years; the ability to live in the same type of house your parents did, in the same neighborhood, for the same price. But you could have the same amount of (indoor) space they did, and outdoor space through public parks and the like. What’s not sustainable is everyone having a suburban style detached single family home without increasing density in perpetuity. That is what leads to this contradiction. The non-density alternative is sprawl, where prices rise in long-established neighborhoods, and outlying new developments are where you can buy new houses for less—which is what you observe all over California.
- jchonphoenix 5y ago
  If you draw out your argument inductively, I think you'll find you proved the opposite of your claim. You get smaller and smaller houses until they cannot go smaller. Side note: smaller also translates into not affordable.
  - zamfi 5y ago
    Not smaller houses — apartments that can be equally large.
- endisneigh 5y ago
  Your example is incomplete - let’s say the lot can support up to 100 apartments, but it’s expensive to do so and profitable only in the long run. Now comes prospective buyer C who can’t afford to live there unless new developer D buys and builds. However B is ok with their profit and doesn’t sell. Unless you tax in a way such that the maximum capacity must be used (and that can be gamed easily) you’ll always run into this. This is the ideal situation but then incumbents will fight to change what maximum means. The problem is that there’s no standard. If it were said that a living space must be 300sqft + 300 soft per person things would converge, but without that you get sprawl or comfortable density. A decent compromise is locale adjusted limits but then you run into the same original issue. Rinse and repeat.
  - zamfi 5y ago
    > Unless you tax in a way such that the maximum capacity must be used Indeed, there have been proposals to address this!
- blackoil 5y ago
  Do it a few times, and you'll reach caged houses and kowloon of Hong Kong. Not a desirable vision.
  - filoleg 5y ago
    I mean, you could also reach something like Tokyo as well, which is pretty desirable for a lot of people.
    - zamfi 5y ago
      Fun fact: SF has a higher population density (18k/sqmi) than either HK (17.5k/sqmi) or Tokyo (16.5k/sqmi). Mind blown? Truth is, density is super nonuniform — when people fear “Tokyo” they just don’t want to live in Shibuya or Ginza, not the leafy outer suburbs that are still part of Tokyo metropolis, and are quite nice. With the exception of Manhattan (70k/sqmi), probably all the USA could double in density — enough to support another 70 years of population growth — with minimal effect on neighborhoods. This is one story-houses in inner suburbs becoming duplexes, two-stories going to 4, etc. over the span of 70 years. You’d barely notice the change. Instead, we’ve decided to engage in the largest-ever wealth transfer from younger, poorer Americans to older, wealthier Americans the country has ever seen.
- maxlamb 5y ago
  Isn't it true by definition? If an asset stays affordable in the long run, then by definition it cannot be a good investment, as the definition of a good investment is an asset that increases in value faster than most other assets.
  - bluGill 5y ago
    No, because a house is a hedge on inflation. Once the house is paid for it is rent free, so your retirement investments can be smaller for the same standard of living.
    - maxlamb 5y ago
      Right, but then as a simple hedge against inflation there many alternatives. Also, that would mean in a deflationary economy like Japan in the last 30 years, housing would be a horrible investment.
      - bluGill 5y ago
        Correct on both counts.
  - zamfi 5y ago
    In my argument, one view of the asset (“a unit of housing suitable for a family”) remains affordable, while another view of the asset (“this particular detached 1200 sqft house on this 5000 sqft lot”) outpaces inflation in value growth. The example I gave above is meant to illustrate this. “Housing” remains affordable — a family can still purchase a 1200 sqft unit in a desirable neighborhood for a reasonable amount of money. But the value of a particular house or apartment grows our[acing inflation because (of course, assuming more people want to live in that area—which all housing price growth is predicated on anyway) the demand on land is high, and a developer can come in and increase density on any particular lot. In other words, the cost of housing remains affordable while the cost of any particular house or apartment grows above inflation, because each particular unit reflects a claim on land, the comparatively scarce resource. Everyone needs housing, but not everyone needs a detached single family home on a half-acre lot. In other words, The piece that is missing from your assessment is that a house is two things: land and a structure on top; the value of the land can go up, ensuring a high return for the owner of the land+structure, even as new structures can offer fractional claims on that same land at a more affordable price. I’m happy to dig in further here if I’m still not being clear!
- magikaram 5y ago
  Developers many times in higher density areas don't often "sell" apartments. Rather, it is many times a lease. This doesn't necessarily help new families that want to purchase something for 100k, as their rent would keep them from making this into any investment. In addition, to making something split into quarters each time it's "sold and redeveloped" isn't possible, as you'll run into a lack of space at some point. You could potentially do this one time.
- chrisjarvis 5y ago
  >But you could have the same amount of (indoor) space they did, and outdoor space through public parks and the like. Ahh, the future is bright.
- mytailorisrich 5y ago
  I think it depends on what level of return you expect in an investment. Since the industrial revolution (at least?) people have got richer, so incomes have grown faster than inflation in the long term. So it is sustainable for the value of property to increase faster than inflation, in that sense property can indeed a valid and sustainable long term investment. But overall, in the long term the value of property cannot increase faster than incomes. Where it does this can only be temporary and a slowdown is unavoidable.
- vkou 5y ago
  > This just isn’t true, it is only a contradiction if the type of housing remains constant, which it does in zero-development, extreme-construction-cost markets like San Francisco where public policy forbids the modification of (almost) any housing to increase density. If the housing supply rises, this puts downward pressure on home prices, which means they stop being a good investment. Consider a hypothetical where no new housing was built for a decade, and existing housing is wildly overpriced. If your thesis is correct, then someone buying on the last day of the building moratorium is not making a good investment, because prices will either drop, or stagnate right after they bought.
  - bluGill 5y ago
    Only true if the house was over valued. Otherwise the house should more or less pace inflation, but you get to live there.
    - vkou 5y ago
      The house is obviously overvalued in dollars, compared to that same house to a world where construction was happening. Unless you mean to tell me that the cost of housing is the same regardless of whether or not construction is happening... (Which would be a truly odd claim.)
      - bluGill 5y ago
        Err, yes, compared to a world where construction was happening.
        vkou 5y ago
        So what you're saying is that housing can only be one of 'available to people', or 'a good investment'. The thing with good investments in that in a world of low interest rates, prices for them get inflated, as mountains of cash are trying to find some place to go.
        5y ago
xnx 5y ago
Precisely. I'd love for someone to "disrupt" this sector with radically better quality at lower prices, but entrenched interests have foiled every attempt so far. I watching to see what effect a higher percentage of remote workers and ubiquity of Amazon delivery will have in the coming years (e.g. increased movement to exa-burbs and rural areas. conversion of office and retail space to apartments/condos). There's plenty of land for housing, just not affordable in the short list of most desirable spots.
teeray 5y ago
But it has been treated like an investment, so that’s where we have to start from with solutions. How do we put the genie back in the bottle without bankrupting everyone?
KoftaBob 5y ago
Why does someone's primary home need to be an investment vehicle at all?
- foogazi 5y ago
  Doesn’t need to be, but it can Society wants stability and homeownership provides that. So owning a home is valuable - add capitalism, land, time and you get an investment whether you want it or not
- AnimalMuppet 5y ago
  It doesn't need to be. But people look at what has happened to house prices over the last 30-50 years, and see that it has been a good investment. So people are buying houses thinking "investment plus place to live" instead of "place to live".
belltaco 5y ago
I wish housing was more like the market for cars. People generally don't buy cars and sit on them as an investment for years waiting for them to gain value to flip.
- paconbork 5y ago
  The difference is we don't demand that automobile manufacturers only make "affordable" cars and people with cars can't stop new cars from being made
candybar 5y ago
> Housing can't be simultaneously an investment and affordable. I see this cliche often but it's simply wrong. Housing prices don't need to increase over time for housing to be a good investment, as long as the rental yield is sufficiently high relative to cost of capital.

zamfi 5y ago

> Housing can’t be simultaneously an investment and affordable. This just isn’t true, it is only a contradiction if the type of housing remains constant, which it does in zero-development, extreme-construction-cost markets like San Francisco where public policy forbids the modification of (almost) any housing to increase density. Here’s how it would work otherwise: family buys single family home in year A for $100k. Lives there for a while, then sells in year B for $200k. The buyer is a developer, who then constructs a larger building on that same lot consisting of 4 apartments that now each sell for $100k again. Original family gains in wealth, developer makes tidy profit, new families can still buy a place to live for $100k. All numbers inflation-adjusted, you pick A and B to make whatever return you think is reasonable. This is how densification happened almost everywhere until zoning laws went crazy mid-century. Note what you don’t get out of this arrangement: a neighborhood that doesn’t change for 40 years; the ability to live in the same type of house your parents did, in the same neighborhood, for the same price. But you could have the same amount of (indoor) space they did, and outdoor space through public parks and the like. What’s not sustainable is everyone having a suburban style detached single family home without increasing density in perpetuity. That is what leads to this contradiction. The non-density alternative is sprawl, where prices rise in long-established neighborhoods, and outlying new developments are where you can buy new houses for less—which is what you observe all over California.

jchonphoenix 5y ago
If you draw out your argument inductively, I think you'll find you proved the opposite of your claim. You get smaller and smaller houses until they cannot go smaller. Side note: smaller also translates into not affordable.
- zamfi 5y ago
  Not smaller houses — apartments that can be equally large.
endisneigh 5y ago
Your example is incomplete - let’s say the lot can support up to 100 apartments, but it’s expensive to do so and profitable only in the long run. Now comes prospective buyer C who can’t afford to live there unless new developer D buys and builds. However B is ok with their profit and doesn’t sell. Unless you tax in a way such that the maximum capacity must be used (and that can be gamed easily) you’ll always run into this. This is the ideal situation but then incumbents will fight to change what maximum means. The problem is that there’s no standard. If it were said that a living space must be 300sqft + 300 soft per person things would converge, but without that you get sprawl or comfortable density. A decent compromise is locale adjusted limits but then you run into the same original issue. Rinse and repeat.
- zamfi 5y ago
  > Unless you tax in a way such that the maximum capacity must be used Indeed, there have been proposals to address this!
blackoil 5y ago
Do it a few times, and you'll reach caged houses and kowloon of Hong Kong. Not a desirable vision.
- filoleg 5y ago
  I mean, you could also reach something like Tokyo as well, which is pretty desirable for a lot of people.
  - zamfi 5y ago
    Fun fact: SF has a higher population density (18k/sqmi) than either HK (17.5k/sqmi) or Tokyo (16.5k/sqmi). Mind blown? Truth is, density is super nonuniform — when people fear “Tokyo” they just don’t want to live in Shibuya or Ginza, not the leafy outer suburbs that are still part of Tokyo metropolis, and are quite nice. With the exception of Manhattan (70k/sqmi), probably all the USA could double in density — enough to support another 70 years of population growth — with minimal effect on neighborhoods. This is one story-houses in inner suburbs becoming duplexes, two-stories going to 4, etc. over the span of 70 years. You’d barely notice the change. Instead, we’ve decided to engage in the largest-ever wealth transfer from younger, poorer Americans to older, wealthier Americans the country has ever seen.
maxlamb 5y ago
Isn't it true by definition? If an asset stays affordable in the long run, then by definition it cannot be a good investment, as the definition of a good investment is an asset that increases in value faster than most other assets.
- bluGill 5y ago
  No, because a house is a hedge on inflation. Once the house is paid for it is rent free, so your retirement investments can be smaller for the same standard of living.
  - maxlamb 5y ago
    Right, but then as a simple hedge against inflation there many alternatives. Also, that would mean in a deflationary economy like Japan in the last 30 years, housing would be a horrible investment.
    - bluGill 5y ago
      Correct on both counts.
- zamfi 5y ago
  In my argument, one view of the asset (“a unit of housing suitable for a family”) remains affordable, while another view of the asset (“this particular detached 1200 sqft house on this 5000 sqft lot”) outpaces inflation in value growth. The example I gave above is meant to illustrate this. “Housing” remains affordable — a family can still purchase a 1200 sqft unit in a desirable neighborhood for a reasonable amount of money. But the value of a particular house or apartment grows our[acing inflation because (of course, assuming more people want to live in that area—which all housing price growth is predicated on anyway) the demand on land is high, and a developer can come in and increase density on any particular lot. In other words, the cost of housing remains affordable while the cost of any particular house or apartment grows above inflation, because each particular unit reflects a claim on land, the comparatively scarce resource. Everyone needs housing, but not everyone needs a detached single family home on a half-acre lot. In other words, The piece that is missing from your assessment is that a house is two things: land and a structure on top; the value of the land can go up, ensuring a high return for the owner of the land+structure, even as new structures can offer fractional claims on that same land at a more affordable price. I’m happy to dig in further here if I’m still not being clear!
magikaram 5y ago
Developers many times in higher density areas don't often "sell" apartments. Rather, it is many times a lease. This doesn't necessarily help new families that want to purchase something for 100k, as their rent would keep them from making this into any investment. In addition, to making something split into quarters each time it's "sold and redeveloped" isn't possible, as you'll run into a lack of space at some point. You could potentially do this one time.
chrisjarvis 5y ago
>But you could have the same amount of (indoor) space they did, and outdoor space through public parks and the like. Ahh, the future is bright.
mytailorisrich 5y ago
I think it depends on what level of return you expect in an investment. Since the industrial revolution (at least?) people have got richer, so incomes have grown faster than inflation in the long term. So it is sustainable for the value of property to increase faster than inflation, in that sense property can indeed a valid and sustainable long term investment. But overall, in the long term the value of property cannot increase faster than incomes. Where it does this can only be temporary and a slowdown is unavoidable.
vkou 5y ago
> This just isn’t true, it is only a contradiction if the type of housing remains constant, which it does in zero-development, extreme-construction-cost markets like San Francisco where public policy forbids the modification of (almost) any housing to increase density. If the housing supply rises, this puts downward pressure on home prices, which means they stop being a good investment. Consider a hypothetical where no new housing was built for a decade, and existing housing is wildly overpriced. If your thesis is correct, then someone buying on the last day of the building moratorium is not making a good investment, because prices will either drop, or stagnate right after they bought.
- bluGill 5y ago
  Only true if the house was over valued. Otherwise the house should more or less pace inflation, but you get to live there.
  - vkou 5y ago
    The house is obviously overvalued in dollars, compared to that same house to a world where construction was happening. Unless you mean to tell me that the cost of housing is the same regardless of whether or not construction is happening... (Which would be a truly odd claim.)
    - bluGill 5y ago
      Err, yes, compared to a world where construction was happening.
      - vkou 5y ago
        So what you're saying is that housing can only be one of 'available to people', or 'a good investment'. The thing with good investments in that in a world of low interest rates, prices for them get inflated, as mountains of cash are trying to find some place to go.
        5y ago

xnx 5y ago

Precisely. I'd love for someone to "disrupt" this sector with radically better quality at lower prices, but entrenched interests have foiled every attempt so far. I watching to see what effect a higher percentage of remote workers and ubiquity of Amazon delivery will have in the coming years (e.g. increased movement to exa-burbs and rural areas. conversion of office and retail space to apartments/condos). There's plenty of land for housing, just not affordable in the short list of most desirable spots.

teeray 5y ago

But it has been treated like an investment, so that’s where we have to start from with solutions. How do we put the genie back in the bottle without bankrupting everyone?

KoftaBob 5y ago

Why does someone's primary home need to be an investment vehicle at all?

foogazi 5y ago
Doesn’t need to be, but it can Society wants stability and homeownership provides that. So owning a home is valuable - add capitalism, land, time and you get an investment whether you want it or not
AnimalMuppet 5y ago
It doesn't need to be. But people look at what has happened to house prices over the last 30-50 years, and see that it has been a good investment. So people are buying houses thinking "investment plus place to live" instead of "place to live".

belltaco 5y ago

I wish housing was more like the market for cars. People generally don't buy cars and sit on them as an investment for years waiting for them to gain value to flip.

paconbork 5y ago
The difference is we don't demand that automobile manufacturers only make "affordable" cars and people with cars can't stop new cars from being made

candybar 5y ago

> Housing can't be simultaneously an investment and affordable. I see this cliche often but it's simply wrong. Housing prices don't need to increase over time for housing to be a good investment, as long as the rental yield is sufficiently high relative to cost of capital.