10 ms·

California homeowners made more money in equity than workers made in income

67 points by throwkeep 5y ago

LatteLazy 5y ago
Ditto most greater London owners.
- nly 5y ago
  I'm looking for a property in London currently and, only today, came across a 1 bedroom apartment that sold in 2001 for £86,000 but is now on the market for £800,000 ($1.1M USD). That's 12%/yr annualized. This example is extreme, but not by much. And let's not forget, those that took out mortgages 20 years ago have been able to refinance to lower interest rates as they fell.
  - dwd 5y ago
    There was a property in a neighbouring suburb to where I live that is on a main road about 500m downwind from the city wastewater plant and bordering an industrial estate with a concrete plant that sold recently for 1.4m AUD. I'm assuming they got a permit to subdivide which made it more valuable, but still an insane price. The land cost $38k in 1988 and it was sold a couple of times in the last five years in the 500/600k range. For the boomer generation that bought years ago, they're laughing. Not so much the millennials unless they can inherit these overpriced properties.
skak 5y ago
Call it whatever you want but a socialist analysis is inevitable under these circumstances, as was the accumulation of capital that put us here.
zepto 5y ago
This is not exactly surprising given how little workers are paid.
solidddd 5y ago
Isn't this sort of a strange comparison, though: income, which is liquid, vs equity, which usually isn't? Since most homeowners live in their investment and prices have risen almost everywhere, there's no way to cash out on the investment and remain housed. You would have to sell and gamble on renting until a market correction, or moving to a cheaper housing market, or own multiple properties to be able to actually cash in on this equity earning .. whereas of course income is just cash Maybe I'm missing something
- lanstin 5y ago
  You can easily borrow against equity. You can skimp on saving for retirement hoping to move to Montana and live off the extra equity.
  - lanstin 5y ago
    Note to Montanans: just a random example of a place with lower than CA real estate. In reality after ten years in Bay Area most people cannot tolerate a cold winter nor a hot summer. I think Mexico or “that state I grew up in” are more popular. Although I have cousins that moved to Colorado and Texas after fifty years in California.
- commandlinefan 5y ago
  “Equity” is also theoretical until you try to cash in on it: they say your house could sell for $1MM, but you have to find a buyer before you can get that equity out and spend it. You may very well have to sell it for (a lot) less. It’s also a liability every year when the tax man comes, because he charges based on the “imaginary” number, not what an actual person will actually pay for it.
  - biggc 5y ago
    The second part isn't exactly true in California. Thanks to Prop 13 homeowners' property taxes usually don't increase in proportion to their value.
  - m-ee 5y ago
madengr 5y ago
They didn’t “make” anything, though perhaps when they sell they will make some money, unless everyone else decides to sell at the same time. It’s just a game of musical chairs. They only one making anything is the federal reserve; they are literally making money.
tryptophan 5y ago
https://en.wikipedia.org/wiki/Land_value_tax https://en.wikipedia.org/wiki/Land_value_tax We need this reform yesterday. It is absurd how much you get taxed on actual work, but so little on land speculation and rent extraction.
- RhysU 5y ago
  Land speculation is less taxed than, say, equities gains because of 1031 exchanges and forgiveness of the first $X of capital gains on a home sale. I don't see how "rent extraction" is less taxed relative to other activities aside from depreciation, net income, etc. which is not unique to renting. Why is rent extraction favored in the tax code? Actual work has little risk. If I don't show up in the office today they won't pay me for today. If I own property, in contrast, it can go down in value. Also, I probably have to pay to maintain it.
  - tryptophan 5y ago
    >Why is rent extraction favored in the tax code? Renting is considered a business. You can deduct interest, maintenance expenses, etc... Individuals cannot do that. >Actual work has little risk. So does waiting for prices to go up in a city. And this is the key - you just wait. You don't do any work whatsoever. You just wait for economic conditions nearby to improve and then take your share of it by charging higher and higher rents just because you have monopolized the usage of your land. You don't have to contribute literally anything to the nearby economy, but can still benefit from it. >If I own property, in contrast, it can go down in value. Property = land + buildings. This is a tax on the land, not the building value. In a LVT scheme, the value of the land goes towards 0, and the share of the property value due to the building increases. > Also, I probably have to pay to maintain it. You maintain the building, not the land. Making profits on building would not change. https://astralcodexten.substack.com/p/your-book-review-progress-and-poverty https://astralcodexten.substack.com/p/your-book-review-progr... Is a good review of these ideas.
    - Dracophoenix 5y ago
      As I've said quite a few times before, with no straight answer given: How does one assess the value of land? Was is the basis or seed value for a given figure?
nickthemagicman 5y ago
My uber driver in Los Angeles was telling me about how his parents bought a house in the seventies in the west side and now it's worth it a million or more and he inherited it and wasn't sure what to do with it. My Uber driver was a millionaire by equity.
- lotsofpulp 5y ago
  I think any useful definition of millionaire involves either having a million dollars of income over multiple years or being able to spend a million dollars without it affecting your lifestyle.
  - vmception 5y ago
    Why is that important to you? An illiquid millionaire still has access to the lowest interest rate capital, compared to someone that has no assets or assets valued much less. There is still a distinction between someone that can even invest in private equity funds, versus someone that would either be legally barred or not able to make the minimum investment.
    - lotsofpulp 5y ago
      Because having title to a home worth a million dollars does not give you the distinction of being able to invest in PE funds. A 50+ year old married couple that earned incomes around the median and set some money aside in their 401k might have a million or two million dollars of “total net worth”, but it does not mean they can become venture capitalists or develop land or go out and buy a Ferrari. They’re probably still shopping at Costco and flying economy class. In common vernacular, a “millionaire”, at least when I was growing up, meant someone who could afford luxuries that almost all could not. And while a secure retirement may be available to a select few, that was not the kind of luxury you would refer to when labeling someone a “millionaire”. I would say describing someone’s wealth in terms of what they can afford to risk, or what they can afford not to worry about is most useful. You can start with shelter, food, loss of income, health, retirement, legal, etc. By the time one can (per my judgment) start affording discretionary luxuries or investing in PE funds, you should probably have your legal risks covered, which involves you having enough assets or cash flow to not have to work and simultaneously pay lawyers.
vmception 5y ago
Does equity in this context refer to the increase in the value of the whole home, or just the increase in the value that is paid into the mortgage? If the former, duh? If the latter, wouldn't that just mean homeowners make more in general because many afforded the down payment to begin with?
Proven 5y ago
They'd better, they've invested previously earned capital. Workers didn't invest almost anything, they just sell labor. Also, California workers made more in income than Portuguese homeowners made in equity.

67 points by throwkeep 5y ago

LatteLazy 5y ago

Ditto most greater London owners.

nly 5y ago
I'm looking for a property in London currently and, only today, came across a 1 bedroom apartment that sold in 2001 for £86,000 but is now on the market for £800,000 ($1.1M USD). That's 12%/yr annualized. This example is extreme, but not by much. And let's not forget, those that took out mortgages 20 years ago have been able to refinance to lower interest rates as they fell.
- dwd 5y ago
  There was a property in a neighbouring suburb to where I live that is on a main road about 500m downwind from the city wastewater plant and bordering an industrial estate with a concrete plant that sold recently for 1.4m AUD. I'm assuming they got a permit to subdivide which made it more valuable, but still an insane price. The land cost $38k in 1988 and it was sold a couple of times in the last five years in the 500/600k range. For the boomer generation that bought years ago, they're laughing. Not so much the millennials unless they can inherit these overpriced properties.

skak 5y ago

Call it whatever you want but a socialist analysis is inevitable under these circumstances, as was the accumulation of capital that put us here.

zepto 5y ago

This is not exactly surprising given how little workers are paid.

solidddd 5y ago

Isn't this sort of a strange comparison, though: income, which is liquid, vs equity, which usually isn't? Since most homeowners live in their investment and prices have risen almost everywhere, there's no way to cash out on the investment and remain housed. You would have to sell and gamble on renting until a market correction, or moving to a cheaper housing market, or own multiple properties to be able to actually cash in on this equity earning .. whereas of course income is just cash Maybe I'm missing something

lanstin 5y ago
You can easily borrow against equity. You can skimp on saving for retirement hoping to move to Montana and live off the extra equity.
- lanstin 5y ago
  Note to Montanans: just a random example of a place with lower than CA real estate. In reality after ten years in Bay Area most people cannot tolerate a cold winter nor a hot summer. I think Mexico or “that state I grew up in” are more popular. Although I have cousins that moved to Colorado and Texas after fifty years in California.
commandlinefan 5y ago
“Equity” is also theoretical until you try to cash in on it: they say your house could sell for $1MM, but you have to find a buyer before you can get that equity out and spend it. You may very well have to sell it for (a lot) less. It’s also a liability every year when the tax man comes, because he charges based on the “imaginary” number, not what an actual person will actually pay for it.
- biggc 5y ago
  The second part isn't exactly true in California. Thanks to Prop 13 homeowners' property taxes usually don't increase in proportion to their value.
- m-ee 5y ago

madengr 5y ago

They didn’t “make” anything, though perhaps when they sell they will make some money, unless everyone else decides to sell at the same time. It’s just a game of musical chairs. They only one making anything is the federal reserve; they are literally making money.

tryptophan 5y ago

https://en.wikipedia.org/wiki/Land_value_tax https://en.wikipedia.org/wiki/Land_value_tax We need this reform yesterday. It is absurd how much you get taxed on actual work, but so little on land speculation and rent extraction.

RhysU 5y ago
Land speculation is less taxed than, say, equities gains because of 1031 exchanges and forgiveness of the first $X of capital gains on a home sale. I don't see how "rent extraction" is less taxed relative to other activities aside from depreciation, net income, etc. which is not unique to renting. Why is rent extraction favored in the tax code? Actual work has little risk. If I don't show up in the office today they won't pay me for today. If I own property, in contrast, it can go down in value. Also, I probably have to pay to maintain it.
- tryptophan 5y ago
  >Why is rent extraction favored in the tax code? Renting is considered a business. You can deduct interest, maintenance expenses, etc... Individuals cannot do that. >Actual work has little risk. So does waiting for prices to go up in a city. And this is the key - you just wait. You don't do any work whatsoever. You just wait for economic conditions nearby to improve and then take your share of it by charging higher and higher rents just because you have monopolized the usage of your land. You don't have to contribute literally anything to the nearby economy, but can still benefit from it. >If I own property, in contrast, it can go down in value. Property = land + buildings. This is a tax on the land, not the building value. In a LVT scheme, the value of the land goes towards 0, and the share of the property value due to the building increases. > Also, I probably have to pay to maintain it. You maintain the building, not the land. Making profits on building would not change. https://astralcodexten.substack.com/p/your-book-review-progress-and-poverty https://astralcodexten.substack.com/p/your-book-review-progr... Is a good review of these ideas.
  - Dracophoenix 5y ago
    As I've said quite a few times before, with no straight answer given: How does one assess the value of land? Was is the basis or seed value for a given figure?

nickthemagicman 5y ago

My uber driver in Los Angeles was telling me about how his parents bought a house in the seventies in the west side and now it's worth it a million or more and he inherited it and wasn't sure what to do with it. My Uber driver was a millionaire by equity.

lotsofpulp 5y ago
I think any useful definition of millionaire involves either having a million dollars of income over multiple years or being able to spend a million dollars without it affecting your lifestyle.
- vmception 5y ago
  Why is that important to you? An illiquid millionaire still has access to the lowest interest rate capital, compared to someone that has no assets or assets valued much less. There is still a distinction between someone that can even invest in private equity funds, versus someone that would either be legally barred or not able to make the minimum investment.
  - lotsofpulp 5y ago
    Because having title to a home worth a million dollars does not give you the distinction of being able to invest in PE funds. A 50+ year old married couple that earned incomes around the median and set some money aside in their 401k might have a million or two million dollars of “total net worth”, but it does not mean they can become venture capitalists or develop land or go out and buy a Ferrari. They’re probably still shopping at Costco and flying economy class. In common vernacular, a “millionaire”, at least when I was growing up, meant someone who could afford luxuries that almost all could not. And while a secure retirement may be available to a select few, that was not the kind of luxury you would refer to when labeling someone a “millionaire”. I would say describing someone’s wealth in terms of what they can afford to risk, or what they can afford not to worry about is most useful. You can start with shelter, food, loss of income, health, retirement, legal, etc. By the time one can (per my judgment) start affording discretionary luxuries or investing in PE funds, you should probably have your legal risks covered, which involves you having enough assets or cash flow to not have to work and simultaneously pay lawyers.

vmception 5y ago

Does equity in this context refer to the increase in the value of the whole home, or just the increase in the value that is paid into the mortgage? If the former, duh? If the latter, wouldn't that just mean homeowners make more in general because many afforded the down payment to begin with?

Proven 5y ago

They'd better, they've invested previously earned capital. Workers didn't invest almost anything, they just sell labor. Also, California workers made more in income than Portuguese homeowners made in equity.