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We just need to remember that banning housing investment means banning rentals which is problematic for people who don't have good credit and a down payment.
by JamesBarney 4y ago
We just need to remember that banning housing investment means banning rentals which is problematic for people who don't have good credit and a down payment.
- yardstick 4y agoImagine if housing was cheap enough that paying the mortgage was around the same as what it now costs to rent. There definitely needs to be some rentals, but I believe that there needs to be controls over how many and the rental price.
- brianwawok 4y agoIn much of the US (read, in the Midwest where I am right now).. mortage monthly payment is indeed cheaper, sometimes a lot. And this is after taxes / repair issues. Renting is very much a poverty trap where the poor with bad credit get poorer and worse credit.
- boringg 4y agoDepends on where you live - this "renting is a poverty trap" only applies to certain places and depends on home values constantly increasing. If home values crash where you live then you spent years putting money towards a worthless asset.
- quantified 4y agoRenting is always worth 0 as equity, so it's a total loss regardless.
- notch656a 4y agoBut renting also guarantees you will never have negative equity.
- quantified 4y agoNegative equity with a roof over your head is better than on the street. Your equity going to zero is still cheaper than raising a family to adulthood in a rented place.
- notch656a 4y agoI agree there are lots of upsides to having a house. I definitely get some used car salesman vibes whenever someone tries to sell up the upsides of negative equity, though. Having no chance to have negative equity is pretty much unequivocally one of the few absolute advantages of renting. The other being (typically) lower transactional costs for short term occupancy.
- quantified 4y agoNegative equity means little. So what if it's worth less when you sell than when you buy? Compare the net on that with the loss you take from renting. Only a fool treats their dwelling as an appreciating asset anyway. It's subject to market forces.
- brianwawok 4y ago* It guarantees you do not lose money if the home values around you drop * It gives you a fixed monthly houseing cost. No "10k new roof" or "1k new stove" suprises hit you. * If you are say, saving 50% vs buying, you can put this difference in an index fund. This would over 10 or 20 years potentially give you a LOT of money over buying. Look, buying is mostly great. It's one of the biggest builders of wealth for most Americans. But from a purely numbers game, it's not so clear "rent is just losing money".
- antisthenes 4y ago1. True, but housing prices rarely drop in desirable areas (usually where good jobs and schools are). If, for some reason, you decide to stay in a town with a dying industry, then yes, this is true. 2. So does a fixed-rate mortgage. Even better, refinancing a mortgage during a low-rate period (e.g. 2012, 2020) actually lets you reduce your payment, while contributing more to equity. How often do you have an opportunity to reduce your rent? 3. Saving 50% of what exactly? You can put the down payment into an index fund, yes, but remember than the house is an asset that gives you 5x leverage initially, assuming 20% down. You can't get 5x leverage at your broker, and even if you could, playing with 5x leverage on the stock market is insanely risky compared to real estate. > But from a purely numbers game, it's not so clear "rent is just losing money" It's pretty clear actually. They've compared retirees who rented all their life vs home-buyers. The difference in wealth was striking, a factor of 6x-7x if not more. What's not clear is whether that trend will continue in perpetuity under the conditions of declining population.
- brianwawok 4y agoSo say global warming continues. Huge chunks of Cali aren't fit to live in. Salt Lake dries up. What happens to all of those home values? Home values rising historically is good, but I don't think a clear win through all time. There is no instrinsic reason a house value should rise faster than inflation. You can always build a new house for cost X. Buying existing means that new house supply is too low or too costly.
- 4y ago
- 1991g 4y agoThis is true only if you place zero value on "having a roof over my head".
- boringg 4y agoAbsolute statements rarely hold up when you shine a light on them.
- quantified 4y agoThat's sometimes true, but there are a lot of nuances to it.
- jaywalk 4y ago> If home values crash where you live then you spent years putting money towards a worthless asset. It's still a roof over my head regardless of how much it's worth. And more importantly, how much it's worth is completely irrelevant unless/until you want to sell. And if you do want to sell, and home values have crashed, then the next house you buy will also be cheap!
- deleted 4y ago[deleted]
- random314 4y agoThe OP is talking about a situation where it would be cheaper to rent your home in the future, than make mortgage payments on it.
- BeetleB 4y agoYes, but are we splitting the payments between principle and interest? In most cases, after a number of years, the rental cost easily exceeds interest + insurance + tax for the same size property. Yes, it often seems the rental cost will be less than your monthly payments, but do realize that you lose all the rental cost, but not all your monthly payment.
- random314 4y agoIts simple to demonstrate scenarios where a loss in property value ends up being more expensive for the homeowners than renters in the long run. We had a crisis in 2008 because of this. There are online rent vs buy calculators that you can use to generate these scenarios. https://www.calculator.net/rent-vs-buy-calculator.html https://www.calculator.net/rent-vs-buy-calculator.html Plug in negative appreciation for property values and watch how the comparison tilts.
- xur17 4y agoAs someone that happily rents (I enjoy the increased optionality that comes with this option), the constant push to get everyone to own a house seems weird to me. Yes, we should make it possible to own a home, but it doesn't need to be the only option. Also, rentals tend to be higher density than houses that are owned. If there is a housing crisis, this seems like a desirable thing. Ex: roommates (yes, possible with a house, but less likely), etc.
- nunez 4y agosame. i rent largely because i haven't prioritized buying. (i.e. the money i could have saved for the down payment went to accelerated student loan payoff, cars and fun stuff) aside from the federal tax breaks and very high amount of leverage ($40k to get a loan on a $200k unit that you _might_ be able to resell at $300k to get into a larger $400k unit that you _might_ be able to resell at $500k to get into a larger $600k unit...), I never saw, and still don't see, the benefit of home ownership. actually, that's not true. for people with families who need (or "need") stability, home ownership makes a lot of sense. you're going to be in the same town until the children reach maturity...might as well get a loan on a house since you're going to stay put for a while. cheaper than hoping that your landlord doesn't bump the rent up. however, we are not having children, have moved three times in the last six years, and spend a lot of time traveling. i very much like emailing my landlord "hey, weird noise" and they bring in their contractor friends to look into it on their dime i do hate how there is this sense that you should feel "bad" for not owning, i.e. renters are always pictured as troubled people in financial distress who don't have a choice but to rent.
- HideousKojima 4y agoWhen I bought my home 4 years ago my mortgage was ~10% more per month than the apartment I was renting. Looking at the apartment complex's website, it looks like the same apartment is now about 60% more per month than my mortgage.
- Kalium 4y agoI have good news for you! How many rentals are available is closely controlled in most parts of the US. This is one of the things zoning accomplishes. It's possible that the outcome may differ slightly from what you want, however. Rent controls are unfortunately very similar in key ways. They've been tried, and the results may not quite line up with what you might be hoping for.
- BeetleB 4y ago> How many rentals are available is closely controlled in most parts of the US. Technically true, but practically false. Yes, zoning exists in most of the US. And yes, most people have no trouble converting a region to residential zoning. I've known people on both sides, and most of the problems are the opposite - people who want to run businesses in a residential zone. I've yet to meet a single person who couldn't go the other direction. There's a process to getting approval to build a house/apartment complex. You simply follow the process and get approval. Most of the US is not the Bay Area, Seattle or NYC.
- Kalium 4y agoThe point I was attempting to make is that we have and use the tools to control the quantity of rental housing available. Using those tools has not made renting as cheap as owning. Those tools generally help accomplish the opposite. With that in mind, there's perhaps cause to question if "controls over how many" that yardstick suggested will accomplish their aim. So yes, you're absolutely right, technically true. In practice, they fundamentally don't do what the user wants them to do because that's not what caps are capable of doing. The tools don't work that way.
- pishpash 4y agoThat's never going to be the case because of equity. Of course government-owned housing can be sold for use rights only with no equity, but that's 'socialism' which Americans have been viscerally conditioned against.
- vel0city 4y agoMy mortgage + insurance + taxes is a lower monthly payment than what my rent was at the time I bought my house. Compared to that same unit renting today, its several hundred dollars a month cheaper. It has over twice the square footage and a private garage. This is in a pretty big metro area, not the middle of nowhere. One of the biggest benefit of owning is a hedge against housing inflation. Its not a perfect hedge, I do acknowledge. As property values increase my taxes go up, as housing materials increase in cost the cost to repair it goes up. But the amount my taxes will go up in a year is far less than how much I've been seeing rents shoot up.
- bombcar 4y agoYou're also shouldering maintenance which is often not calculated well; the depreciation allowance the IRS allows for rental properties is a rough estimate but it's not perfect - it estimates that the property (house, not land) will be worthless in 27.5/30/40 years, depending on if you take GDS, ADS, or it was placed in service before 2018 - you usually want the fastest depreciation possible but there are reasons not to choose such, involving capital gains on sale, etc. They're "small" expenses but if you track out the various things and divide them over the ownership period, they do add up. E.g. - current house, here 5 years, so far: furnace and A/C, $9k, fence, $14k, landscaping and misc, $2k, tools and supplies, $3k, plumber and window repairs, $2k. So about $6k a year, double my taxes and half my mortgage again. And I haven't even hit the big ones (and didn't count appliances as those were "optional" purchases). Owning is still a good idea for many, and has benefits, and renting will almost by definition be more overall, but it's not a given. You note the main advantage - stability. If you're on a fixed loan (whether it be 5, 10, 20 or 30 years) your payments are calculable years in advance and you get to pay much with tomorrow dollars, which are almost always worth less than today dollars. But you do have to want to stay in the area for years.
- yardstick 4y agoHow much equity do you have in the house? 5%? More?
- vel0city 4y ago
- thatfrenchguy 4y agoI mean, in San Francisco or the Bay Area in general, renting is a ton cheaper than owning at current prices. People still buy, because it’s nice knowing your landlord won’t get the cheapest contractor that’ll drill into asbestos in your kid’s room when something happens.
- ethanbond 4y agoThere are ways to disincentivize toxic forms of investment (especially speculation) without banning it. A high land value tax, for example, would simultaneously increase investment and decrease speculation.
- boringg 4y agoI don't see how a high land value tax increase investment & decrease speculation? If your talking about flipping homes that's one thing but REIT ownership isn't home flipping for the most part...
- pwinnski 4y agoA very high real estate tax with huge discounts for a single primary homestead makes investment less profitable.
- idontpost 4y agoThat's just a less efficient, and less accurate land tax.
- giantg2 4y agoThat won't fix the current problem. That would only potentially prevent it from reoccurring to the current levels. Landlords pass tax onto renters. Renters may seek to buy a home, but if supply is locked up by landlords, they may just be stuck.
- ethanbond 4y agoHigh LVT means you pay a high tax on the land itself and little or no tax on what you do on top of that land. It encourages highly efficient land development which means increased supply of commercial and residential units (thus reducing rents), and it makes lots of speculation prohibitively expensive. Since holding undeveloped land is just as expensive as holding developed land, you’re going to want to put it to productive use sooner rather than later.
- toomuchtodo 4y agoYou can crowd out usury private investment (which this specifically is an example of) with government investment. Have the Fed buy treasuries, use federal funds to build and manage affordable housing. Capital is make believe, a fiction, rows in a database. Physical laws are mandatory, everything else is a shared delusion or a suggestion. The rules can change at anytime with enough will. Broad strokes, if Capital is primarily serving a small minority while the majority suffers for it, the tool (capital allocation) is broken and it is time to reevaluate the implementation.
- sudden_dystopia 4y agoYou realize that we are already running trillions of dollars in deficit for the programs we already have in place? The first step, should be to lower the deficit and actually fund the programs we have in place. We cannot just keep printing money without worsening the deficit and worsening the inflation. Yes, consumer sentiment is all hopes and dreams, but monetary policy is not. There are real world implications.
- toomuchtodo 4y agoWe’re going to inflate that debt away, like all developed nations with a declining fertility rate will do (Japan leads the way for us). Extend and pretend. Again, it’s not real! It’s just numbers in a database. For those concerned about sovereign debt, that should’ve been thought about before running it up on unnecessary conflicts (which there have been many!) and other unproductive efforts (tax cuts for the wealthy). Real needs coming up, and no excuses because of previously suboptimal governance. Lots of assets and wealth in the US to tax for those who really want the debt line go down, but if debt line doesn’t go down, nbd.
- ThunderSizzle 4y agoIf debt doesn't matter, then why do any of us pay any tax? We can just replace all taxes with more debt.
- 4y ago
- aprdm 4y agoThe concept of credit score isn't something that has always existed in humanity. It's something that we can go on without, even more so given the ridiculous profitability of banks
- JamesBarney 4y agoIf banks stopped lending based on creditworthiness they'd be doing a lot less lending causing far more people to not be able to afford a house.
- aprdm 4y agoIMO they need to change their model. If someone has been affording rent at 2k for many years, then they can afford a mortgage at 1.5k, that's not the case nowadays.
- Test0129 4y agoCredit scores are probably the most useful metric for a person in general. The reason isn't because it's an assessment of creditworthiness, but it saves the time interviewing each person for each loan, asking for quite literally thousands of pages of documentation proving they are creditworthy, etc. If you recall how these things were done before credit scores it was not pretty. Without them lending would virtually cease to all but the most obviously creditworthy people. I generally agree the system for credit scores needs to change. In particular it should not be controlled by a veritable monopoly. But this does not discount the utility of it in general.
- com2kid 4y agoIMHO cities need to limit how many large multi-national conglomerates are allowed to build huge rental complexes. A large % of the high density housing being built around Seattle is rental only, all that does is funnel money out of the city. Residents don't get to build equity, and rental prices keep going up year over year, vs mortgage payments that, except for the property tax portion, stay the same over 30 years. Also large rental complexes don't build communities. Someone who bought a small 2 bedroom house 10 years ago and who now rents it out, those people aren't the problem. Heck odds are they are renting that 2 bedroom out for less than what a large corporation would charge.
- JamesBarney 4y agoWhen they don't come in and build out those large rental complexes those very well paid engineers rent/buy every SFH for miles causing the absolutely insane gentrification we've seen in San Francisco that pushes everyone out.
- deleted 4y ago[deleted]
- com2kid 4y ago> those very well paid engineers rent/buy every SFH for miles causing the absolutely insane gentrification we've seen in San Francisco that pushes everyone out. I used to live in a large, over 100 unit, town home complex. Central to the complex was a very large open green space, larger than most suburban yards. Over the years, about 50% of the units are now rented out, typically at a price lower than in the nearby built for rental apartment complexes. Individual landlords prize stability in tenants more than maximizing short term value, also if a person is only renting out 1 unit, that unit being vacant for a month or two is a lot of lost income, raising rent by $200 and then losing out on 4k of rental income due to having to lose then find a new tenant is not something a smart landlord does on a yearly basis. Prior to that I lived in a luxury condo complex in a very nice area that was again, lots of rental units. From what I gather, soon to be retirees had bought in and were renting the units out until they they needed to move into them. They also prized stability and boring tenants over maximizing monthly income. The point here is, within reason, today's fancy high end condos are tomorrows reasonably prized housing. Will the 50 story skyscraper condos ever be reasonably prized? No, of course not, but if someone dropped 150,000 units of medium density housing into Seattle, I bet that in about 5-10 years housing prices would start to come down. The other issue I have is the absurd number of 4 story town homes being built, which should instead be 4 story condo complexes. Insane square footage is wasted on stairs, and no one over 35 can live in those places, and raising a family in them is either impractical or horribly annoying. (Good for baby gate sales though...) If it were up to me I'd remove elevator requirements for 4 and 5 story condo complexes in return for having the bottom floors requiring ADA units.
- Salgat 4y agoApartment complexes are for more economically efficient compared to single family homes. We need to incentivize these instead of letting them buy up homes meant for a single family.