16 ms·

So what is better? Mortgages seem to have some pretty nice features. They help encourage people to invest some of their income into an asset that generally ap

So what is better? Mortgages seem to have some pretty nice features. They help encourage people to invest some of their income into an asset that generally appreciates rather than spend it all. It aligns incentives around upkeep and investment in the neighborhood and community. They offset some of the negatives of inflation.

Ericson2314 5y ago
Land value tax and appatments. The vast majority of people will rent, the rent will be stable, and it will mostly not go to do-nothing lanloards. Mass ownership of appreciating assets is a very unstable situation, and also unclear what it even means. It is better to increase wealth through public goods.
- notch656a 5y ago
  Land would appreciate significantly less if housing and zoning regulations were eliminated. While there is value in being near a city core, land isn't a strongly constrained resource. Meeting the onerous requirements to build a home near this city core continually grandfathers in present-day land owners with buildings from the early 1900s while requiring entirely different standards for the next generation. We have intentionally sabotaged the ability for our youth to afford houses under guise of safety while simultaneously grandfathering in our own shitty run down structures that were built under much looser requirements. The result is land with a shitty old structure can be worth almost as much as a new one, under this restrained and captured supply.
  - tagami 5y ago
    A bit off OP's topic, but in California ADUs (Accessory Dwelling Units) are now legal in all residential zoning districts. This effectively opens up the urban core for homeowners that wish to develop out their property. A smart first time owner will take advantage of this and effectively create an additional 1 or 2 living units (Primary residence+JADU+ADU) that can cover the new mortgage.
    - Ericson2314 5y ago
      There was just a Chronicle article on this https://www.sfchronicle.com/bayarea/article/San-Francisco-ADUs-are-being-built-mostly-in-the-16758730.php https://www.sfchronicle.com/bayarea/article/San-Francisco-AD... Honestly, I agree with one of the quoted people that ADUs are just a political hack to get a half-measure by the NIMBYs. Even if we converted all the garages it would an extremely inefficient way to construct more housing. There was talk of trying to do financing for poor people to do the conversions, but insofar that that works I think it is likely to push up construction prices because ADUs are so inefficient. (Conversely, the externality of decreased parking is quite good. I don't want to neglact that.) If we really care about housing and equity for the poor, we should allow poor homeowners to trade in for a new condo if the entire block agrees, and then redevelop it at a massive scale. Far more housing, still equity for them, and once you bootstrap the process no one even need be displaced out of the neighborhood. Win-win
- HarryHirsch 5y ago
  also unclear what it even means It's very clear what it means - inflation. Consider a farmer in Zimbabwe who buys a used truck for 10000 Zimbabwe dollars to bring his produce to market. A few years later, he sells his truck for a million Zimbabwe dollars. He is a millionaire! But he still is a farmer and needs a truck to move his produce. Another used truck would set him back 5 million Zimbabwe dollars. It can't go on like that. At some point the chunk of money that shelter takes out of the monthly paycheck can't grow further.
  - notch656a 5y ago
    The biggest driver, arguably, of elevated home prices in the past 2 years has been [real ] interest rates that are effectively negative against inflation. The result is buying of property under fixed rate loan to short the USD.
    - Ericson2314 5y ago
      That's not true. Most homes are still being bought to live in. The supply of SFH in decent places is just always too puny to meet housing needs. Cashing out comes with the hassle to move, and is less attractive during pandemic. Rich people that want to decamp boost up demand in the select few popular remote places. That was the 2020 story. Recently I am less sure exactly what's going, but yeah, single family homes are the worst!
      - notch656a 5y ago
        People have always wanted to buy homes to live in. I'm talking about the large increase in prices in the last 2 years. [negative real] Interest rates are definitely a big reason for the asset appreciation.
        Ericson2314 5y ago
        Even if that is the case, SFH for being stupid not interest rates for being low is the proper scapegoat. The rest of the inflation is due to pandemic-related supply side dysfunction, and fossil fuels which are even more subject to random things like OPEC whims. Raising rates to bring down SFH prices and not reforming the SFH system would be colossally stupid.
- Ericson2314 5y ago
  Some counterintuitive things: - the floor rent is too damn high, but the land rent is two damn low - Ownership is very hard to price, but the existance of the instutition of ownership is a choice! By raising the land rent the price of ownership shrivels up, and that clamps down on the risks from this volatile and ill-defined problem. - Rent is just better, what is bad is rent paid to owners, integrating the flow into the stock. Rent that cycles right back around as citizen divdend or gov services stays as a flow and is good. (And what ever evil inclinations states might have, profits are not one of them in the fiat era. (States == federal government in this case. State, local, and invididual departments could still be money grubbers.))
- fuzzer37 5y ago
  > the rent will be stable, and it will mostly not go to do-nothing lanloards. I see you've never rented before.
  - Ericson2314 5y ago
    I am renting right now with a shitty do-nothing landlord, and in a dispute over maintainence --- the boiler is leaking and smoking up my apartment. I am under no such illusions. Landlords maintain power through the restriction of supply. They don't need to actively do it, the single-family-home complex does it for them. Land value tax (+ land use regulation reform) demolishes that. Appartment management, divorced from land speculation, will become the boring low-margin business it deserves to be.
betaby 5y ago
I never understood that kind of US/Western point of view. I will give a trivial example: my grandparents purchased their house in year 19xx and both died in the same house in 20xxs. How's the price of house even mattered all their life? There were living there, it's not something external. Today, I specifically asked my parents if they knew how much their house cost. Nope, they didn't know. It's an irrelevant information for them. Cost it 10k or 10m won't change a thing - they live in it, it's not something external. So house-asset (why it's asset?) is something more US-specific I think. Also it ... bad?
- _ea1k 5y ago
  A good financial planner will emphasize this point. Rents go up, but your mortgage doesn't. So you buy a house and eventually forget about the relatively small mortgage payments that have effectively become smaller due to inflation. The modern world of people moving and upgrading every 5-10 years has really changed this dynamic for the negative.
  - crooked-v 5y ago
    Of course, part of that 'upgrading' is that homes in a lot of urban areas have become impractically expensive for anyone who wants enough space for a family... but you still have to buy in ASAP if you don't want to be left behind by further market inflation. So cue 'starter home' nonsense.
    - WJW 5y ago
      There is/was a fairly straightforward explanation for the fiscal stimulation of home ownership and in the 60s government was not very coy about describing it: home ownership ties people into their respective communities by giving them a very tangible piece of "skin in the game". When you own a very expensive (relative to your total net worth) piece of real estate, that gives you a real incentive to take care of your local community. This in turn improves the stability of the society as a whole, since the large group of homeowners is not in favor of any real upheaval which might threaten the status quo.
DwnVoteHoneyPot 5y ago
I don't think the author is implying something is wrong with mortgages. I think article is just a concise, informative explanation of how the mortgage industry works.
betterunix2 5y ago
I am skeptical of the claim that real estate generally appreciates over time, at least in real terms (inflation-adjusted). Yes that has been the trend for a long time and especially in popular areas, but there is no reason to think the trend will continue.
- adam_arthur 5y ago
  Current residential home prices in the US are far above their 100 year inflation adjusted trend. A few standard deviations above IIRC, and far above where they were in real terms at peak of the 2000s housing bubble. That's not adjusted for interest rates though, which explains some of the deviation. So homes have appreciated strongly in real terms in the last decade, but it's likely they will revert to the mean from here (whether it be quick or more drawn out). However you're correct that historically homes mostly follow inflation, and aren't appreciating in real terms. It's only in the modern era where that trend has changed, probably due to more investor involvement and Fed trying to stimulate growth aggressively. But it's important to note, even if a home appreciates only at the rate of inflation, usually the buyer only puts 20% down, so from their perspective they are earning 5x the rate of inflation in equity. Pretty lucky to those that lived in 10% interest rate times that were able to buy all sorts of property cheap and refinance at low rates later.
  - hackerfromthefu 5y ago
    Its important to realise that homes now != homes of the past. Modern homes are typically an improved product, better features, and also better environmental facilities. Thus they should be increasing beyond inflation.
    - tompazourek 5y ago
      Laptops today are much better than laptops of the past. Should they cost much more than in the past (beyond just inflation)?
- tshaddox 5y ago
  The problem is that people need houses to live in now. I can’t suddenly not need a house to live in simply because I feel very strongly that the trend of real estate appreciation won’t continue forever.
LatteLazy 5y ago
I don't think you're wrong. But there is another side to this argument. Owning makes you responsible for things beyond your control. If the factory in your town closes, you're underwater no matter how smart you were about picking it or diligent you were about maintaining the house. Similarly you can't really do what you want with it. You better keep it cream and beige coloured! And that's all you can buy. No one builds small homes or castles. Just identical units. Everyone must have a lawn, it must be one of three shades of green and cut correctly etc. It also forces you to care about things you don't really care about: you have no problem with minorities living next door, but what if it effects your house price? The same for infrastructure your town needs. You know we need a free medical clinic but what if poor people hang around when you're showing the place? It has the same effect on services: tax rates MUST be lowered because you can see them before buying. Internet speed is irrelevant because no one knows how bad it is until they move in. So no one has workable internet. Americans schools are famously underfunded for this reason too. It gives you a big incentive to veto all future housing development too. That's given us a very big housing shortages in many places. The ownership model also makes people much less mobile, limiting their income and productivity, not to mention cementing inequality and effecting nation gdp etc.
- jjav 5y ago
  > Similarly you can't really do what you want with it. You better keep it cream and beige coloured! And that's all you can buy. No one builds small homes or castles. Just identical units. Everyone must have a lawn, it must be one of three shades of green and cut correctly etc. Don't ever buy in a HOA area! That is the nightmare you describe. No HOA in our neighborhood, so while all the houses were the same shade of beige with the same lawn when the developer built the area, over the years as people have repainted and redone yards it has become wonderfully colorful with each house having unique character.
  - LatteLazy 5y ago
    It honestly baffles me that America has them. The US (I'm a Brit) is meant to be about individualism, personal rights, property rights etc. But these are all the bad bits of communism (except for actually killing people). The only logical reason for this I can see is people being terrified they'll lose 50k because their neighbours paint their house black and let the lawn turn to scrub.

Ericson2314 5y ago

Land value tax and appatments. The vast majority of people will rent, the rent will be stable, and it will mostly not go to do-nothing lanloards. Mass ownership of appreciating assets is a very unstable situation, and also unclear what it even means. It is better to increase wealth through public goods.

notch656a 5y ago
Land would appreciate significantly less if housing and zoning regulations were eliminated. While there is value in being near a city core, land isn't a strongly constrained resource. Meeting the onerous requirements to build a home near this city core continually grandfathers in present-day land owners with buildings from the early 1900s while requiring entirely different standards for the next generation. We have intentionally sabotaged the ability for our youth to afford houses under guise of safety while simultaneously grandfathering in our own shitty run down structures that were built under much looser requirements. The result is land with a shitty old structure can be worth almost as much as a new one, under this restrained and captured supply.
- tagami 5y ago
  A bit off OP's topic, but in California ADUs (Accessory Dwelling Units) are now legal in all residential zoning districts. This effectively opens up the urban core for homeowners that wish to develop out their property. A smart first time owner will take advantage of this and effectively create an additional 1 or 2 living units (Primary residence+JADU+ADU) that can cover the new mortgage.
  - Ericson2314 5y ago
    There was just a Chronicle article on this https://www.sfchronicle.com/bayarea/article/San-Francisco-ADUs-are-being-built-mostly-in-the-16758730.php https://www.sfchronicle.com/bayarea/article/San-Francisco-AD... Honestly, I agree with one of the quoted people that ADUs are just a political hack to get a half-measure by the NIMBYs. Even if we converted all the garages it would an extremely inefficient way to construct more housing. There was talk of trying to do financing for poor people to do the conversions, but insofar that that works I think it is likely to push up construction prices because ADUs are so inefficient. (Conversely, the externality of decreased parking is quite good. I don't want to neglact that.) If we really care about housing and equity for the poor, we should allow poor homeowners to trade in for a new condo if the entire block agrees, and then redevelop it at a massive scale. Far more housing, still equity for them, and once you bootstrap the process no one even need be displaced out of the neighborhood. Win-win
HarryHirsch 5y ago
also unclear what it even means It's very clear what it means - inflation. Consider a farmer in Zimbabwe who buys a used truck for 10000 Zimbabwe dollars to bring his produce to market. A few years later, he sells his truck for a million Zimbabwe dollars. He is a millionaire! But he still is a farmer and needs a truck to move his produce. Another used truck would set him back 5 million Zimbabwe dollars. It can't go on like that. At some point the chunk of money that shelter takes out of the monthly paycheck can't grow further.
- notch656a 5y ago
  The biggest driver, arguably, of elevated home prices in the past 2 years has been [real ] interest rates that are effectively negative against inflation. The result is buying of property under fixed rate loan to short the USD.
  - Ericson2314 5y ago
    That's not true. Most homes are still being bought to live in. The supply of SFH in decent places is just always too puny to meet housing needs. Cashing out comes with the hassle to move, and is less attractive during pandemic. Rich people that want to decamp boost up demand in the select few popular remote places. That was the 2020 story. Recently I am less sure exactly what's going, but yeah, single family homes are the worst!
    - notch656a 5y ago
      People have always wanted to buy homes to live in. I'm talking about the large increase in prices in the last 2 years. [negative real] Interest rates are definitely a big reason for the asset appreciation.
      - Ericson2314 5y ago
        Even if that is the case, SFH for being stupid not interest rates for being low is the proper scapegoat. The rest of the inflation is due to pandemic-related supply side dysfunction, and fossil fuels which are even more subject to random things like OPEC whims. Raising rates to bring down SFH prices and not reforming the SFH system would be colossally stupid.
Ericson2314 5y ago
Some counterintuitive things: - the floor rent is too damn high, but the land rent is two damn low - Ownership is very hard to price, but the existance of the instutition of ownership is a choice! By raising the land rent the price of ownership shrivels up, and that clamps down on the risks from this volatile and ill-defined problem. - Rent is just better, what is bad is rent paid to owners, integrating the flow into the stock. Rent that cycles right back around as citizen divdend or gov services stays as a flow and is good. (And what ever evil inclinations states might have, profits are not one of them in the fiat era. (States == federal government in this case. State, local, and invididual departments could still be money grubbers.))
fuzzer37 5y ago
> the rent will be stable, and it will mostly not go to do-nothing lanloards. I see you've never rented before.
- Ericson2314 5y ago
  I am renting right now with a shitty do-nothing landlord, and in a dispute over maintainence --- the boiler is leaking and smoking up my apartment. I am under no such illusions. Landlords maintain power through the restriction of supply. They don't need to actively do it, the single-family-home complex does it for them. Land value tax (+ land use regulation reform) demolishes that. Appartment management, divorced from land speculation, will become the boring low-margin business it deserves to be.

betaby 5y ago

I never understood that kind of US/Western point of view. I will give a trivial example: my grandparents purchased their house in year 19xx and both died in the same house in 20xxs. How's the price of house even mattered all their life? There were living there, it's not something external. Today, I specifically asked my parents if they knew how much their house cost. Nope, they didn't know. It's an irrelevant information for them. Cost it 10k or 10m won't change a thing - they live in it, it's not something external. So house-asset (why it's asset?) is something more US-specific I think. Also it ... bad?

_ea1k 5y ago
A good financial planner will emphasize this point. Rents go up, but your mortgage doesn't. So you buy a house and eventually forget about the relatively small mortgage payments that have effectively become smaller due to inflation. The modern world of people moving and upgrading every 5-10 years has really changed this dynamic for the negative.
- crooked-v 5y ago
  Of course, part of that 'upgrading' is that homes in a lot of urban areas have become impractically expensive for anyone who wants enough space for a family... but you still have to buy in ASAP if you don't want to be left behind by further market inflation. So cue 'starter home' nonsense.
  - WJW 5y ago
    There is/was a fairly straightforward explanation for the fiscal stimulation of home ownership and in the 60s government was not very coy about describing it: home ownership ties people into their respective communities by giving them a very tangible piece of "skin in the game". When you own a very expensive (relative to your total net worth) piece of real estate, that gives you a real incentive to take care of your local community. This in turn improves the stability of the society as a whole, since the large group of homeowners is not in favor of any real upheaval which might threaten the status quo.

DwnVoteHoneyPot 5y ago

I don't think the author is implying something is wrong with mortgages. I think article is just a concise, informative explanation of how the mortgage industry works.

betterunix2 5y ago

I am skeptical of the claim that real estate generally appreciates over time, at least in real terms (inflation-adjusted). Yes that has been the trend for a long time and especially in popular areas, but there is no reason to think the trend will continue.

adam_arthur 5y ago
Current residential home prices in the US are far above their 100 year inflation adjusted trend. A few standard deviations above IIRC, and far above where they were in real terms at peak of the 2000s housing bubble. That's not adjusted for interest rates though, which explains some of the deviation. So homes have appreciated strongly in real terms in the last decade, but it's likely they will revert to the mean from here (whether it be quick or more drawn out). However you're correct that historically homes mostly follow inflation, and aren't appreciating in real terms. It's only in the modern era where that trend has changed, probably due to more investor involvement and Fed trying to stimulate growth aggressively. But it's important to note, even if a home appreciates only at the rate of inflation, usually the buyer only puts 20% down, so from their perspective they are earning 5x the rate of inflation in equity. Pretty lucky to those that lived in 10% interest rate times that were able to buy all sorts of property cheap and refinance at low rates later.
- hackerfromthefu 5y ago
  Its important to realise that homes now != homes of the past. Modern homes are typically an improved product, better features, and also better environmental facilities. Thus they should be increasing beyond inflation.
  - tompazourek 5y ago
    Laptops today are much better than laptops of the past. Should they cost much more than in the past (beyond just inflation)?
tshaddox 5y ago
The problem is that people need houses to live in now. I can’t suddenly not need a house to live in simply because I feel very strongly that the trend of real estate appreciation won’t continue forever.

LatteLazy 5y ago

I don't think you're wrong. But there is another side to this argument. Owning makes you responsible for things beyond your control. If the factory in your town closes, you're underwater no matter how smart you were about picking it or diligent you were about maintaining the house. Similarly you can't really do what you want with it. You better keep it cream and beige coloured! And that's all you can buy. No one builds small homes or castles. Just identical units. Everyone must have a lawn, it must be one of three shades of green and cut correctly etc. It also forces you to care about things you don't really care about: you have no problem with minorities living next door, but what if it effects your house price? The same for infrastructure your town needs. You know we need a free medical clinic but what if poor people hang around when you're showing the place? It has the same effect on services: tax rates MUST be lowered because you can see them before buying. Internet speed is irrelevant because no one knows how bad it is until they move in. So no one has workable internet. Americans schools are famously underfunded for this reason too. It gives you a big incentive to veto all future housing development too. That's given us a very big housing shortages in many places. The ownership model also makes people much less mobile, limiting their income and productivity, not to mention cementing inequality and effecting nation gdp etc.

jjav 5y ago
> Similarly you can't really do what you want with it. You better keep it cream and beige coloured! And that's all you can buy. No one builds small homes or castles. Just identical units. Everyone must have a lawn, it must be one of three shades of green and cut correctly etc. Don't ever buy in a HOA area! That is the nightmare you describe. No HOA in our neighborhood, so while all the houses were the same shade of beige with the same lawn when the developer built the area, over the years as people have repainted and redone yards it has become wonderfully colorful with each house having unique character.
- LatteLazy 5y ago
  It honestly baffles me that America has them. The US (I'm a Brit) is meant to be about individualism, personal rights, property rights etc. But these are all the bad bits of communism (except for actually killing people). The only logical reason for this I can see is people being terrified they'll lose 50k because their neighbours paint their house black and let the lawn turn to scrub.