7 ms·

A lot of people have a big chunk of their net worth tied up into home equity because it's sort of the "ordained" path to building wealth for the middle class -

by twalla 5y ago

A lot of people have a big chunk of their net worth tied up into home equity because it's sort of the "ordained" path to building wealth for the middle class - condos don't see similar appreciation, get hit harder in downturns and are one of the last types of properties to recover in value afterwards. Start incentivizing treating housing as, you know, a place to live rather than a financial instrument and you'll see plenty more condos.

Victerius 5y ago
> condos don't see similar appreciation, get hit harder in downturns and are one of the last types of properties to recover in value afterwards. This is fine. I don't buy a condo with the hope of recouping my money. I buy a condo to have a roof over my head. I couldn't care less if my condo loses 80% of its value. It would lower my property tax bill in fact. I don't expect a ROI > 0 for the furniture either. For my retirement, I contribute to a 401k and a Roth IRA.
- massysett 5y ago
  If all you want is a roof over your head, why not rent? It's less risky. You may well find yourself caring if your condo loses 80% of its value if you need to sell it and you can't repay the loan.
  - oldsecondhand 5y ago
    Because rent would hurt you really bad when you're pensioner.
    - HarryHirsch 5y ago
      Old-age poverty is indeed a policy problem, but housing policy isn't really the way to address it. (Meanwhile you look at places like the Villages in Florida, where you are required to own a car because nothing is within walking distance, no social club, no grocery story, no physician, there's going to be a huge amount of pain in the future.)
    - nicbou 5y ago
      The alternative is to tie up a significant amount of money into a home. In Germany, ~12% of the purchase price is lost to fees. A lot more is lost to interest. Some more is lost to things that are normally included in your rent. Oh and you need to pay for maintenance. You need to take care of maintenance. To illustrate my point, most German landlords fail to beat inflation. Some 20% are losing money. The homeowners I know chose a slightly worse location, because they couldn't afford to buy in the places where they actually want to live. Since a mortgage is a 30 year affair, they bought more than they currently need. They end up paying more and getting less (for now). Inflation and rising rents will work in their favour eventually, but it's far enough in the future to make me question the move. I meant to write about buying a home in Germany (I write about adulting in Germany), and the conclusions from my extensive research are the following: - Buying a home is not a financial decision, it's a lifestyle decision - Everyone who writes about buying a home has a financial incentive to recommend buying a home - Home ownership is also throwing a lot of money away: closing fees, taxes, interests, maintenance, opportunity cost...
      - jjav 5y ago
        > Home ownership is also throwing a lot of money away It doesn't matter how much overhead it has in a vacuum. What matters is how much goes to overhead when compared to renting, which is the only other choice (other than being homeless).
      - llampx 5y ago
        I'm not so sure that buying is always a bad decision. I live in Berlin, and see where you are coming from. Germany has strong tenant protection laws, and you generally don't get much or any freedom when buying an apartment in a building. You can't change the layout as you'd like, for example, due to load-bearing walls. However, in terms of building equity (not to become a small-time landlord), buying an apartment is a safe bet - the housing market has been in a bull market for a long time, and the last few years have been especially good. I suspect we're closer to a long-term top than many think, but that's another matter. Even if the market crashes, your house remains yours and keeps providing shelter. On top of that, selling is tax-advantaged whereas stocks aren't.
  - deleted 5y ago
    [deleted]
  - notatoad 5y ago
    >It's less risky. depending on your local housing market, it could be much more risky. where i live, for the last few years renting has carried the real possibility of being unable to find a place to live, for any amount of money, when your lease ends. the big upside to a condo is that nobody is going to kick you out.
    - AJ007 5y ago
      The building could collapse, be condemned, there could be any number of natural disasters. You can end up in a situation where you owe a lot of money on the mortgage, interest rates move up, and the value drops, so now you can’t move. If something major fails with the building, a repair bill could be so large that you have to take out another mortgage to pay for it, no matter your current financial situation. Plenty of significant problems with condos that can force you to be kicked out. Most of all, incentives are misaligned. Condos are designed to be marketed and sold. I’ve lived in several high end condos, as well as high end apartment buildings, and the apartment buildings always were built better and didn’t have weird custom made shit breaking.
      - brewdad 5y ago
        SFHs burn down, are destroyed by floods or landslides. Termites may lead to hidden damage that leads to thousands of dollars in repair bills. On and on... All of the risks you list for condo owners exist for homeowners as well. A diligent homeowner may have more control over preventing/limiting some issues but sometimes stuff happens. As far as I know it is impossible to insure against every threat to ones home (landslides for instance) at any price.
  - freyr 5y ago
    Is it always less risky? What happens when the price of apartments triples or quadruples over the years but your income stagnates or even goes down? You’d better have rent control, which is generally a bad economic policy overall, and you’d better love your apartment because you will be stuck there. When I lived in SF, many of my older neighbors were in this situation. If you own and can afford your fixed-rate mortgage, you are much less likely to be in this situation, or worse, homeless.
    - sofixa 5y ago
      Regulating big rent increases for existing tenants isn't a bad economic policy if you compensate through other means ( e.g. you ensure there's a path to homeownership for those tenants, so they don't stay forever, and that new housing stock for affordable rent is added frequently). In France there's a maximum amount you can increase a tenant's rent with, defined yearly based on market prices. Combined with one of the most popular investment vehicles, which is a buy new ( thus incentivising construction) to rent (at defined affordable prices) programme which gets you tax breaks for 10 years, and after that most people usually sell. Alongside that cities are mandated by law to have a certain percentage of "social"(affordable) housing available, so when private construction adds housing stock, cities have to add on top of it. That helps keep renting affordable while also making sure new construction appears.
  - epistasis 5y ago
    Renting is very risky, and also more expensive than a condo that loses value. The US has almost no tenant protections except for a few urban areas that passed municipal laws. I would prefer to rent if it provided almost as much protection as homeowning, and if it weren't so financially disincentivized in the US. IMHO we need to eliminate the capital gains exemptions for homes, and also add on local capital gains taxes in addition to federal, to disincentivize real estate speculation.
  - raegis 5y ago
    If property values skyrocket the landlord can (will) sell the building and kick you out.
  - jjav 5y ago
    > If all you want is a roof over your head, why not rent? It's less risky. Renting is far more risky. You never know when and how much it will increase every year. If you buy something (condo, or house) you now know what your "rent" will be for the next 30 years, it's never going up.
- trinovantes 5y ago
  Property tax is based on the municipality's budget. If your assessed value goes down, your property tax rate would go up while your final bill would remain relatively the same.
goodluckchuck 5y ago
Single family homes offer dominion over your housing, where condos come with a variety of complexities. Unless condo laws are improved, I wouldn’t want one. Condo regulations about noise, guests, pets, children. Some actually try to ban children. Buying and sells is complicated by the association’s finances, which depends on other people. This naturally leads to maintenance issues. Look as the surf side building collapse. Then there are problems when a small group owns a large share of the building. Eg corruption in the contracting process, not to mention forced buyouts. The quality of the construction can often be deficient (wood). So, there are real differences aside from the lack of a yard.
- zbrozek 5y ago
  Unless you're in CA, where an SFH just means that your municipality is the HOA instead. In places with sensible governments and less NIMBYism, the SFH offers the advantages you describe.
- thisrobot 5y ago
  Something to point out is that condo regulations vary significantly from state to state so can’t be as easily generalized as you do here.
- axlee 5y ago
  It has been solved across the pond, why wouldn't the US be able to do it?
  - sofixa 5y ago
    For the same reason it can't do public transit, high-speed rail, affordable healthcare and education for the masses, etc. (Insert a bunch of vague and debunkable excuses here like the size of the country(Russia, China)).
- staticman2 5y ago
  There's a big difference between a project like Surfside and a townhome condominium. Also banning children is illegal in the U.S. unless you have a 55 or older community. I don't know why you wouldn't desire rules about noise if your home is attached to another home where loud neighbors would bother you. But at any rate that concern has nothing to do with condominiums, your HOA in a planned development with detached housing can also serve you noise complaints. The quality of construction has nothing to do with whether the project is a condo. Unless you think single- family detached homes can't have bad construction.
hungrygs 5y ago
It's true that condos as a class don't appreciate but if you buy one in the right gentrifying area they can be a fantastic deal. Some condos in Austin Texas have increased 400% in price in the past 5-6 years. Particularly in zips 78741 and 78704.
pivo 5y ago
> condos don't see similar appreciation It depends on where the condo is. My condo in Boston has increased in value 2.5 times in the 20 years I've owned it. My friend's home in a wealthy suburb of Boston increased by 40% in almost the same amount of time. That's taking into account the last two years of the pandemic where we saw housing price increases slow or stop in the city while suburban prices rose much more quickly. Before that, the difference in appreciation was even greater. My parents condo in Manhattan, which they bought 45 years ago, has probably appreciated close to two orders of magnitude.
- acomjean 5y ago
  I'm in cambridge MA and our condos are about the same appreciation, even though the building needs some love. I think overseas buyers, who like the fact that an association takes care of the repairs and services like these type of properties. Even those that moved and rented have ended up selling to those that have never seen the property except in photos. Our building has no rules about %owners living in the building so its gone from about 80% 20 years ago to 30%.
- ab_testing 5y ago
  I think this comment just proved that condos don't appreciate as fast as single family homes or townhomes. In certain cities in the US, single family homes have gone up 2.5x in the last 5 years & sometimes even less than that. Phoenix, Las Vegas, Miami, Mountain View are some examples
  - seanmcdirmid 5y ago
    If you looked at appreciation over 20 years in those cities (sans Mountain View), it might come out to less than 2.5X even if the last 5 years it was, especially when inflation is accounted for. Phoenix in particular: https://i0.wp.com/arizonarealestatenotebook.com/wp-content/uploads/2018/09/2018-09-27-Real-Real-Estate-Prices-Phoenix.png?ssl=1 https://i0.wp.com/arizonarealestatenotebook.com/wp-content/u... This graph only goes up to 2019, so it is probably higher now, but that is one heck of a drop. Also, it isn't strange that a lower cost market appreciates faster than a higher price one. If say houses were $100k in Phoenix after the crash in 2008, now they are $400k, that is 4X! At the same time, a $1 million dollar house in Boston after the crash is only $1.4 or 1.5 million now, only 1.5X.
kerneloftruth 5y ago
Yes. Condos are like a hybrid of apartments and SFHs, with mostly the downsides of both. In terms of affordability, they are often are the first opportunity for those wanting a SFH. But like you say, their risk/reward scenario is skewed heavily towards the risk.
jimbob45 5y ago
> A lot of people have a big chunk of their net worth tied up into home equity because it's sort of the "ordained" path to building wealth for the middle class The flipside is that a lot of people spend a big chunk of their lifetime earnings on rent with no return simply because the barrier of entry to home ownership is so high. I agree that housing shouldn’t be an investment first or by default and I agree that condos would be an excellent vehicle to bring more into home ownership by lowering the cost of entry.
seanmcdirmid 5y ago
> Start incentivizing treating housing as, you know, a place to live rather than a financial instrument and you'll see plenty more condos. This happens in Japan, but happens mainly as a result of: a. No one sees real estate as a sure shot after the excess of the 80s. b. Declining population means even Tokyo has a lot of extra housing. c. It is easy to rebuild housing, so people rarely buy "used" homes, leaving on the land as a real estate vehicle for appreciation (the structure is overhead). Condos are almost worthless speculative assets in that sense.
- mushbino 5y ago
  It's also the case in China where 73% of millennials are homeowners.
  - seanmcdirmid 5y ago
    Considering china is still very rural that doesn’t seem surprising. But China is still in their 1980s Japan phase where real estate in Shanghai is worth more than all of California.
    - aaomidi 5y ago
      China just builds out entire cities years before they're necessary.
      - pydry 5y ago
        It's not a deliberate policy. There's precious little else to put your money in so the Chinese end up using property as a savings account. Developers will often skimp on construction quality as a result, since they know that nobody will actually be living in them.
        aaomidi 5y ago
        You seem to have read the western propaganda that has misrepresented the situation: https://en.wikipedia.org/wiki/Under-occupied_developments_in_China https://en.wikipedia.org/wiki/Under-occupied_developments_in...
inter_netuser 5y ago
Are you familiar with Georgist taxes?

by twalla 5y ago

Victerius 5y ago

> condos don't see similar appreciation, get hit harder in downturns and are one of the last types of properties to recover in value afterwards. This is fine. I don't buy a condo with the hope of recouping my money. I buy a condo to have a roof over my head. I couldn't care less if my condo loses 80% of its value. It would lower my property tax bill in fact. I don't expect a ROI > 0 for the furniture either. For my retirement, I contribute to a 401k and a Roth IRA.

massysett 5y ago
If all you want is a roof over your head, why not rent? It's less risky. You may well find yourself caring if your condo loses 80% of its value if you need to sell it and you can't repay the loan.
- oldsecondhand 5y ago
  Because rent would hurt you really bad when you're pensioner.
  - HarryHirsch 5y ago
    Old-age poverty is indeed a policy problem, but housing policy isn't really the way to address it. (Meanwhile you look at places like the Villages in Florida, where you are required to own a car because nothing is within walking distance, no social club, no grocery story, no physician, there's going to be a huge amount of pain in the future.)
  - nicbou 5y ago
    The alternative is to tie up a significant amount of money into a home. In Germany, ~12% of the purchase price is lost to fees. A lot more is lost to interest. Some more is lost to things that are normally included in your rent. Oh and you need to pay for maintenance. You need to take care of maintenance. To illustrate my point, most German landlords fail to beat inflation. Some 20% are losing money. The homeowners I know chose a slightly worse location, because they couldn't afford to buy in the places where they actually want to live. Since a mortgage is a 30 year affair, they bought more than they currently need. They end up paying more and getting less (for now). Inflation and rising rents will work in their favour eventually, but it's far enough in the future to make me question the move. I meant to write about buying a home in Germany (I write about adulting in Germany), and the conclusions from my extensive research are the following: - Buying a home is not a financial decision, it's a lifestyle decision - Everyone who writes about buying a home has a financial incentive to recommend buying a home - Home ownership is also throwing a lot of money away: closing fees, taxes, interests, maintenance, opportunity cost...
    - jjav 5y ago
      > Home ownership is also throwing a lot of money away It doesn't matter how much overhead it has in a vacuum. What matters is how much goes to overhead when compared to renting, which is the only other choice (other than being homeless).
    - llampx 5y ago
      I'm not so sure that buying is always a bad decision. I live in Berlin, and see where you are coming from. Germany has strong tenant protection laws, and you generally don't get much or any freedom when buying an apartment in a building. You can't change the layout as you'd like, for example, due to load-bearing walls. However, in terms of building equity (not to become a small-time landlord), buying an apartment is a safe bet - the housing market has been in a bull market for a long time, and the last few years have been especially good. I suspect we're closer to a long-term top than many think, but that's another matter. Even if the market crashes, your house remains yours and keeps providing shelter. On top of that, selling is tax-advantaged whereas stocks aren't.
- deleted 5y ago
  [deleted]
- notatoad 5y ago
  >It's less risky. depending on your local housing market, it could be much more risky. where i live, for the last few years renting has carried the real possibility of being unable to find a place to live, for any amount of money, when your lease ends. the big upside to a condo is that nobody is going to kick you out.
  - AJ007 5y ago
    The building could collapse, be condemned, there could be any number of natural disasters. You can end up in a situation where you owe a lot of money on the mortgage, interest rates move up, and the value drops, so now you can’t move. If something major fails with the building, a repair bill could be so large that you have to take out another mortgage to pay for it, no matter your current financial situation. Plenty of significant problems with condos that can force you to be kicked out. Most of all, incentives are misaligned. Condos are designed to be marketed and sold. I’ve lived in several high end condos, as well as high end apartment buildings, and the apartment buildings always were built better and didn’t have weird custom made shit breaking.
    - brewdad 5y ago
      SFHs burn down, are destroyed by floods or landslides. Termites may lead to hidden damage that leads to thousands of dollars in repair bills. On and on... All of the risks you list for condo owners exist for homeowners as well. A diligent homeowner may have more control over preventing/limiting some issues but sometimes stuff happens. As far as I know it is impossible to insure against every threat to ones home (landslides for instance) at any price.
- freyr 5y ago
  Is it always less risky? What happens when the price of apartments triples or quadruples over the years but your income stagnates or even goes down? You’d better have rent control, which is generally a bad economic policy overall, and you’d better love your apartment because you will be stuck there. When I lived in SF, many of my older neighbors were in this situation. If you own and can afford your fixed-rate mortgage, you are much less likely to be in this situation, or worse, homeless.
  - sofixa 5y ago
    Regulating big rent increases for existing tenants isn't a bad economic policy if you compensate through other means ( e.g. you ensure there's a path to homeownership for those tenants, so they don't stay forever, and that new housing stock for affordable rent is added frequently). In France there's a maximum amount you can increase a tenant's rent with, defined yearly based on market prices. Combined with one of the most popular investment vehicles, which is a buy new ( thus incentivising construction) to rent (at defined affordable prices) programme which gets you tax breaks for 10 years, and after that most people usually sell. Alongside that cities are mandated by law to have a certain percentage of "social"(affordable) housing available, so when private construction adds housing stock, cities have to add on top of it. That helps keep renting affordable while also making sure new construction appears.
- epistasis 5y ago
  Renting is very risky, and also more expensive than a condo that loses value. The US has almost no tenant protections except for a few urban areas that passed municipal laws. I would prefer to rent if it provided almost as much protection as homeowning, and if it weren't so financially disincentivized in the US. IMHO we need to eliminate the capital gains exemptions for homes, and also add on local capital gains taxes in addition to federal, to disincentivize real estate speculation.
- raegis 5y ago
  If property values skyrocket the landlord can (will) sell the building and kick you out.
- jjav 5y ago
  > If all you want is a roof over your head, why not rent? It's less risky. Renting is far more risky. You never know when and how much it will increase every year. If you buy something (condo, or house) you now know what your "rent" will be for the next 30 years, it's never going up.
trinovantes 5y ago
Property tax is based on the municipality's budget. If your assessed value goes down, your property tax rate would go up while your final bill would remain relatively the same.

goodluckchuck 5y ago

Single family homes offer dominion over your housing, where condos come with a variety of complexities. Unless condo laws are improved, I wouldn’t want one. Condo regulations about noise, guests, pets, children. Some actually try to ban children. Buying and sells is complicated by the association’s finances, which depends on other people. This naturally leads to maintenance issues. Look as the surf side building collapse. Then there are problems when a small group owns a large share of the building. Eg corruption in the contracting process, not to mention forced buyouts. The quality of the construction can often be deficient (wood). So, there are real differences aside from the lack of a yard.

zbrozek 5y ago
Unless you're in CA, where an SFH just means that your municipality is the HOA instead. In places with sensible governments and less NIMBYism, the SFH offers the advantages you describe.
thisrobot 5y ago
Something to point out is that condo regulations vary significantly from state to state so can’t be as easily generalized as you do here.
axlee 5y ago
It has been solved across the pond, why wouldn't the US be able to do it?
- sofixa 5y ago
  For the same reason it can't do public transit, high-speed rail, affordable healthcare and education for the masses, etc. (Insert a bunch of vague and debunkable excuses here like the size of the country(Russia, China)).
staticman2 5y ago
There's a big difference between a project like Surfside and a townhome condominium. Also banning children is illegal in the U.S. unless you have a 55 or older community. I don't know why you wouldn't desire rules about noise if your home is attached to another home where loud neighbors would bother you. But at any rate that concern has nothing to do with condominiums, your HOA in a planned development with detached housing can also serve you noise complaints. The quality of construction has nothing to do with whether the project is a condo. Unless you think single- family detached homes can't have bad construction.

hungrygs 5y ago

It's true that condos as a class don't appreciate but if you buy one in the right gentrifying area they can be a fantastic deal. Some condos in Austin Texas have increased 400% in price in the past 5-6 years. Particularly in zips 78741 and 78704.

pivo 5y ago

> condos don't see similar appreciation It depends on where the condo is. My condo in Boston has increased in value 2.5 times in the 20 years I've owned it. My friend's home in a wealthy suburb of Boston increased by 40% in almost the same amount of time. That's taking into account the last two years of the pandemic where we saw housing price increases slow or stop in the city while suburban prices rose much more quickly. Before that, the difference in appreciation was even greater. My parents condo in Manhattan, which they bought 45 years ago, has probably appreciated close to two orders of magnitude.

acomjean 5y ago
I'm in cambridge MA and our condos are about the same appreciation, even though the building needs some love. I think overseas buyers, who like the fact that an association takes care of the repairs and services like these type of properties. Even those that moved and rented have ended up selling to those that have never seen the property except in photos. Our building has no rules about %owners living in the building so its gone from about 80% 20 years ago to 30%.
ab_testing 5y ago
I think this comment just proved that condos don't appreciate as fast as single family homes or townhomes. In certain cities in the US, single family homes have gone up 2.5x in the last 5 years & sometimes even less than that. Phoenix, Las Vegas, Miami, Mountain View are some examples
- seanmcdirmid 5y ago
  If you looked at appreciation over 20 years in those cities (sans Mountain View), it might come out to less than 2.5X even if the last 5 years it was, especially when inflation is accounted for. Phoenix in particular: https://i0.wp.com/arizonarealestatenotebook.com/wp-content/uploads/2018/09/2018-09-27-Real-Real-Estate-Prices-Phoenix.png?ssl=1 https://i0.wp.com/arizonarealestatenotebook.com/wp-content/u... This graph only goes up to 2019, so it is probably higher now, but that is one heck of a drop. Also, it isn't strange that a lower cost market appreciates faster than a higher price one. If say houses were $100k in Phoenix after the crash in 2008, now they are $400k, that is 4X! At the same time, a $1 million dollar house in Boston after the crash is only $1.4 or 1.5 million now, only 1.5X.

kerneloftruth 5y ago

Yes. Condos are like a hybrid of apartments and SFHs, with mostly the downsides of both. In terms of affordability, they are often are the first opportunity for those wanting a SFH. But like you say, their risk/reward scenario is skewed heavily towards the risk.

jimbob45 5y ago

> A lot of people have a big chunk of their net worth tied up into home equity because it's sort of the "ordained" path to building wealth for the middle class The flipside is that a lot of people spend a big chunk of their lifetime earnings on rent with no return simply because the barrier of entry to home ownership is so high. I agree that housing shouldn’t be an investment first or by default and I agree that condos would be an excellent vehicle to bring more into home ownership by lowering the cost of entry.

seanmcdirmid 5y ago

> Start incentivizing treating housing as, you know, a place to live rather than a financial instrument and you'll see plenty more condos. This happens in Japan, but happens mainly as a result of: a. No one sees real estate as a sure shot after the excess of the 80s. b. Declining population means even Tokyo has a lot of extra housing. c. It is easy to rebuild housing, so people rarely buy "used" homes, leaving on the land as a real estate vehicle for appreciation (the structure is overhead). Condos are almost worthless speculative assets in that sense.

mushbino 5y ago
It's also the case in China where 73% of millennials are homeowners.
- seanmcdirmid 5y ago
  Considering china is still very rural that doesn’t seem surprising. But China is still in their 1980s Japan phase where real estate in Shanghai is worth more than all of California.
  - aaomidi 5y ago
    China just builds out entire cities years before they're necessary.
    - pydry 5y ago
      It's not a deliberate policy. There's precious little else to put your money in so the Chinese end up using property as a savings account. Developers will often skimp on construction quality as a result, since they know that nobody will actually be living in them.
      - aaomidi 5y ago
        You seem to have read the western propaganda that has misrepresented the situation: https://en.wikipedia.org/wiki/Under-occupied_developments_in_China https://en.wikipedia.org/wiki/Under-occupied_developments_in...

inter_netuser 5y ago

Are you familiar with Georgist taxes?