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> Profitable means it has to grow faster than inflation or wages. That is not what profitable means. Returns on investment in housing consist of: 1. rental yie

> Profitable means it has to grow faster than inflation or wages. That is not what profitable means. Returns on investment in housing consist of: 1. rental yields, and 2. capital gains (i.e. change in price). You cannot say whether housing is profitable or not (or affordable, for that matter) only by considering number 2.

BreakfastB0b 5y ago
That’s true, I didn’t figure in rental yields at all. Consider it a first order approximation. Would anyone rent if it was more affordable to buy?
- sokoloff 5y ago
  I’d still have rented while in college. I’d still have rented for my first two or three places after college. After that, I bought a place, lived in it for a while, then moved and rented in the city in two places (including one with a girlfriend which seems like a bad idea to jump right into home ownership), then bought the house I live in now. There’s plenty of beneficial flexibility afforded by renting, even if you can afford to do either one. Plus, if housing doesn’t go up in value like an investment, why would you want to tie up a downpayment and tie yourself down, losing money all the while? You’d have more incentive to rent and invest your down payment money.
  - 8note 5y ago
    Rentals should always be more expensive than buying then, no? You're gaining a service overtop of the place to live. Not to mention, you should be able to leave atyhe drop of a hat, rather than be required to have a 1 year lease
    - sokoloff 5y ago
      Renting hotel rooms is more expensive than a month-to-month lease is more expensive than a year-long lease, so that all checks out to agree with your premise. Whether renting or buying is more expensive depends on your market’s outlook for property prices. But in an environment where they don’t go up, I’d definitely expect renting to cost more.
  - quantified 5y ago
    Building equity isn’t “losing” money. It is tying it up, sure. If you have enough free cash so that investing beyond rent gives you a decent rate of return, great. In high-rent parts of the country, rent sucks enough you don’t have that. And, your landlord can kick you out in the middle of a school year if your lease is up.
    - sokoloff 5y ago
      Tying money up in a vehicle that grows more slowly than its likely substitute investment is “losing money” in one’s total financial picture. If it grew more slowly than inflation, it could remain affordable to others but terrible for the present owners. I’m pro owner-occupied housing. I think it’s good for families and good for the community/society. But in the hypothetical where it grows more slowly than inflation, renting starts to look a lot better than it does currently.
- quantified 5y ago
  Over a long enough term, it’s cheaper to not piss away all your money on rent. Early-2000’s real estate mania aside, crashes in price are not all that common. Building equity is preferable to building nothing at all. Plus you don’t have a landlord telling you what you can’t do.
bjornsing 5y ago
Sure, but only 2 (i.e. estimating rental yield as zero) is a lower bound on profitability. Housing has been profitable in that sense in many places over the last decade.

BreakfastB0b 5y ago

That’s true, I didn’t figure in rental yields at all. Consider it a first order approximation. Would anyone rent if it was more affordable to buy?

sokoloff 5y ago
I’d still have rented while in college. I’d still have rented for my first two or three places after college. After that, I bought a place, lived in it for a while, then moved and rented in the city in two places (including one with a girlfriend which seems like a bad idea to jump right into home ownership), then bought the house I live in now. There’s plenty of beneficial flexibility afforded by renting, even if you can afford to do either one. Plus, if housing doesn’t go up in value like an investment, why would you want to tie up a downpayment and tie yourself down, losing money all the while? You’d have more incentive to rent and invest your down payment money.
- 8note 5y ago
  Rentals should always be more expensive than buying then, no? You're gaining a service overtop of the place to live. Not to mention, you should be able to leave atyhe drop of a hat, rather than be required to have a 1 year lease
  - sokoloff 5y ago
    Renting hotel rooms is more expensive than a month-to-month lease is more expensive than a year-long lease, so that all checks out to agree with your premise. Whether renting or buying is more expensive depends on your market’s outlook for property prices. But in an environment where they don’t go up, I’d definitely expect renting to cost more.
- quantified 5y ago
  Building equity isn’t “losing” money. It is tying it up, sure. If you have enough free cash so that investing beyond rent gives you a decent rate of return, great. In high-rent parts of the country, rent sucks enough you don’t have that. And, your landlord can kick you out in the middle of a school year if your lease is up.
  - sokoloff 5y ago
    Tying money up in a vehicle that grows more slowly than its likely substitute investment is “losing money” in one’s total financial picture. If it grew more slowly than inflation, it could remain affordable to others but terrible for the present owners. I’m pro owner-occupied housing. I think it’s good for families and good for the community/society. But in the hypothetical where it grows more slowly than inflation, renting starts to look a lot better than it does currently.
quantified 5y ago
Over a long enough term, it’s cheaper to not piss away all your money on rent. Early-2000’s real estate mania aside, crashes in price are not all that common. Building equity is preferable to building nothing at all. Plus you don’t have a landlord telling you what you can’t do.

bjornsing 5y ago

Sure, but only 2 (i.e. estimating rental yield as zero) is a lower bound on profitability. Housing has been profitable in that sense in many places over the last decade.