49 ms·

Maybe treating housing as an investment was a mistake

• falcolas 4y ago
  This doesn't even touch on the fact that you will always require housing, so you can never truly liquidate your primary residence. At best, you can borrow against it. At worst, you sell it once and rejoin the rental market.
  • kitsunesoba 4y ago
    This is actually why as a homeowner, I'm not particularly bothered by the value of my house dropping. Don't get me wrong, it's not exactly fun to watch its price tag drop, but the supposed dollar value of the house isn't "real" unless I'm looking to sell, which I'm not going to be doing unless I'm changing living arrangements, whether that be buying a different house or renting. Its value to me is that it's 1) a home and 2) a semi-fixed cost that won't ever be dramatically changing rather than increasing several percent each year.
    • falcolas 4y ago
      One problem with the value dropping (assuming you're still paying off the mortgage): lenders can freak out and call the entire mortgage due and foreclose on your home. They did this extensively after the subprime mortgage issue.
      • thfuran 4y ago
        And even if they don't, if it happens early in the mortgage, it can pretty easily make it impossible for someone to be able to move.
    • vanilla_nut 4y ago
      If you plan on living there for a long time, isn't it nice to think that your property tax bill will drop?
  • latchkey 4y ago
    > At best, you can borrow against it. Borrowing against it is a fantastic idea, what's wrong with that? People really need to learn that their assets can be used to generate additional returns. Otherwise you just have money sitting there, not doing anything. Where is the fun in that?
    • falcolas 4y ago
      Nothing's wrong with it, but it's a bit orthogonal as viewing the property itself as an investment. Instead it's acting as guarantee against other investments.
      • latchkey 4y ago
        That is the whole point though. People tend to stop at layer 1, when they are sitting on something that has value for other things as well.
        • falcolas 4y ago
          I think one problem with this is that you paying banks twice (mortgage, home equity loans) for that money from your own property. And at almost 10% APR each. It's really hard to reliably make over 10% on an investment.
• famahar 4y ago
  I want to read a hard speculative sci fi story about the invention of teleportation and how it collapses the whole housing market and transforms how a city looks like.
• deleted 4y ago
  [deleted]
• chadlavi 4y ago
  [flagged]
  • whiddershins 4y ago
    First time homeowners have many special loan options available to them, which you might be aware of if you weren't directing your thoughts towards threats of violence against millions of people.
    • chadlavi 4y ago
      ah yes, my errant comment on the internet is the cause of my woes, thanks mate, cheers
      • whiddershins 4y ago
        Your comment is murderous, I don't care particularly about your woes.
• transfire 4y ago
  If you can afford a 15 year mortgage it is a much better value proposition.
• raverbashing 4y ago
  Investment return on housing should have been on the first sale or through rental, and that's pretty much it But then the main issue with real estate prices is the limited supply side, which for the most part has no reason to be
• arcticbull 4y ago
  My refrain remains: housing cannot be both affordable in perpetuity and a good investment. These are mutually exclusive goals. Let people build.
  • VHRanger 4y ago
    Japan has plenty of societal ills, but at least Tokyo has been doing amazing on this front.
    • beebmam 4y ago
      China has an enormous amount of housing. Their prices are still sky high
      • credit_guy 4y ago
        Housing in ghost cities doesn't count. Housing needs to be available where the jobs are.
        • pif 4y ago
          I think it's time to reverse the equation: jobs have to be available where housing is! In other words, we must learn how to improve the economy without turning the cities into antlers.
      • svachalek 4y ago
        There's a huge cultural difference there though -- people don't trust stocks, bonds, or bank accounts. Housing is the only investment most people will consider.
        • ianlevesque 4y ago
          Nor should they, cultural or not. Look how the government destroyed the Ant group recently. When they can unilaterally do that, how can you find a safe stock?
• koolba 4y ago
  The biggest real world advantage for the average person for buying a house is forced savings. If a mortgage is $3K and rent is $2K per month, Joe Sixpack is not going to save $1K in a sinking fund. He’s going to spend some extra non-zero portion of that money. So in the long run, for average real consumers, not a theoretical economically minded consumer, a mortgage forces frugality.
  • lnsru 4y ago
    Close to my numbers. My old rent plus monthly savings are close to monthly bank payment for my home. My real consumption is dropping to zero since I want to get rid of mortgage as quick as I can.
    • misiti3780 4y ago
      why do you want to pay off your mortgage so fast?
      • lnsru 4y ago
        I don’t like it. I don’t know future interest rate.
  • ohgodplsno 4y ago
    In many countries, mortages cannot be over a certain fixed percentage of your income. In my case, in France, it is 33%. I currently pay over 40% of my income as rent. This has a double effect: * I'm paying for a landlord's mortgage, for a good that should be easily accessible, at insane prices. * I cannot save up that money, while my landlord does, allowing them to purchase more houses. Rent is theft.
  • iso1631 4y ago
    It amuses me this recent panic in the US. The UK has had this housing problem for over 20 years. Reality in the UK is that if you can find the downpayment on a mortgage, the monthly outgoings in that mortgage (both the interest and the capital) are less than the rent. Sure you might have to replace a roof every 50-100 years (I had a quote in 2021 for my 60 year old roof for 4% of the value of the house), or a new heating system every 30 years (just replaced mine from the 80s, 3% of the cost of the house), but on the whole the vast majority of the cost is in that mortgage payment
• arberx 4y ago
  That implies housing has risks. Since 2009, that risk has been eliminated by the FED owning 30% of all mortgages on its balance sheet. We've nationalized housing risk and privatized the gains.
  • deleted 4y ago
    [deleted]
  • atemerev 4y ago
    And the fed is absolutely, 100% riskless, right? Nothing ever will happen to it?
    • treeman79 4y ago
      Well we still have 60 and 90 year mortgages as tricks to use. Plus paying for mortgages on places that don’t yet (never will) exist. So government can probably increase house prices several times over before whole thing collapses. See China for how that’s working out. (Not well)
    • atomicnumber3 4y ago
      I'm not sure if you're being glib or not, but if something "happens to" the Fed, we have much bigger problems than anything as boring as investing risks. It probably means WW3 or California is seceding or something.
      • donnowhy 4y ago
        I think atm the Fed is the main force holing the USA together, considering all the bi-partisan polarization all ways to divert the "voltage" across elite and commoner classes which are the real source of this tension. I'm saying that wealth inequality creates something quite comparable to 'voltage', this creates a tension which WILL get released (because physics). But due to active (social-)technological management this tension is getting re-focused into blue Vs red bi-partisan politics, as well as other expressions of winners fighting losers (including gender 'equality' tensions, trans and transphobics, etc..)
• photon12 4y ago
  > Meanwhile, renters are desperate. They’re begging for housing prices not just to slow, but to fall. I have a friend who is a head chef at a decently popular bar and restaurant on Broadway in Capitol Hill, Seattle (very trendy part of town if you aren't familiar, steep commercial rent). He lives in a 400 sq ft studio and is barely, barely making it from one paycheck to the next. I am sitting on a 2.6% interest rate mortgage and my prices are set for the next 30 years. I probably work half as hard as he does, if not even less than half. I have a lot of cognitive dissonance associated with that.
  • mdgrech23 4y ago
    I majored in economics and it still boggles my mind what we make as software engineers versus the guy who unclogged my sewer drain allowing me to use the toilet.
    • codegeek 4y ago
      You will be surprised how much good plumbers make in the USA. You probably used a bad example. Source: I know my trusted plumber makes well over six figures a year and he cannot take all calls. I asked him once if he has problems generating leads and he smiled saying "I have too much business that I turn people away". He is a "master plumber" which these days is not easy to get certified for in many states. He told me he cannot find enough skilled master plumbers to help him (state of NJ).
      • dangwhy 4y ago
        Yes I have family who make ~100k in chicago.
      • ominous_prime 4y ago
        You will be surprised how much good software engineers make in the USA -- still many multiples of most successful plumbers, and without the long-term physical consequences of that type of labor. Yes, there's still going to be better examples to highlight the disparity.
• mjr00 4y ago
  > While the rich are more likely to own homes, tons of middle class and poor people also bought homes and planned their lives under the assumption that housing prices would go up. Tanking housing prices would destroy their trust in the system that they bet everything on. This is pretty much the crux of it. High housing prices could be "fixed" almost overnight, but for almost every citizen of the first world, their house is the single biggest investment they will ever make in their life. You'd be destroying everyone's retirement plans and there'd be major economic repercussions. But there's also the second-order problem which is the people who realize that governments will never let the value of housing decrease because of the above, so you have upper middle class people owning "investment homes", or foreign investors buying homes they never intend to live in (or, in many cities, never even bother renting out), or even corporations like BlackRock buying up houses because they know it's such a safe investment.
  • blurbleblurble 4y ago
    Doesn't lack of affordable housing kinda destroy everyone's retirement plans too? So it's kind of a losing situation.
  • last_responder 4y ago
    >You'd be destroying everyone's retirement plans Everyone?
    • reocha 4y ago
      I presume by "everyone" they mean upper middle class folks
      • sgt101 4y ago
        "everyone that counts" There - fixed it.
    • goosedragons 4y ago
      The majority homeowner class. Which is why politicians enabling it keep getting voted in.
• rcme 4y ago
  Buying a house is an investment. You're making a bet that worker productivity will improve near you. After all, what is the value of land? Some land can be farmed or house a factory. But usually, when we talk about residential real estate, we're talking about land that houses workers. So, the value of that land is directly proportional to the economic value those workers can provide. We refer to "economic value provided by workers" as "economic productivity." As the economic productivity of each worker rises, so does the value of the land. Of course, market conditions and government incentives can distort the market is weird ways. But ultimately, the price of real estate is going up because its underlying value is going up. You can't change that.
  • deleted 4y ago
    [deleted]
  • fooker 4y ago
    > You can't change that. You don’t have to change that. You can just make policies which make speculative investment less profitable while still allowing homeowners to buy houses.
    • rcme 4y ago
      That won't help things, ultimately. Wages have been essentially flat since the 70s. Productivity has increased massively. Real estate was always going to become more unaffordable without real wages increasing.
  • hammock 4y ago
    Is worker productivity going up?
    • svachalek 4y ago
      See the graph halfway down the page https://www.bls.gov/productivity/home.htm https://www.bls.gov/productivity/home.htm
      • 4y ago
• anonymouskimmer 4y ago
  > But now, if she buys a home, she needs housing prices to keep going up to make her decision financially sound. The analysis from 1, 2, and 3 seem obviously financially bad. Because they stop at a particular point in time. The point of buying over renting, when using a fixed-APR mortgage, is to lock in a monthly rate (that will eventually sunset to only the cost of maintenance and taxes). And peace of mind that only an act of god or being fired will force you to move. This is never guaranteed with rent, unless you have one of those multi-decade leases. And good luck finding a house with a multi-decade lease. For an investing analogy, buying a house is like buying an annuity. Not buying the market. When a person buys an annuity they are still considered to be "investing".
• mikebenfield 4y ago
  I honestly don't understand why this wasn't always obvious. A good investment is one that increases in value (aka cost) dramatically. Dramatic increases in the cost of housing might have negative consequences. What part of this requires deep insight to see?
  • CatWChainsaw 4y ago
    The part where making money is so intoxicating, I assume.
• samstave 4y ago
  Housing should be a _National_ investment - meaning the nations GDP should be invested into the wellbeing, housing and quality of life of the populous. Not an investment avenue for the corporate/hedge/elite money holders. Housing as an "investment" is a tool for extracting crippling debt from the populous as a means of behavioral control through financial stress.
• Idiot_in_Vain 4y ago
  I haven't played with the NY times calc, but is the following correct: Housing prices only keep pace with inflation. America realizes it totally forgot about a few million homes it built, greatly expanding supply. Housing prices rise only 2%. Alice is much, much worse off for buying. In total, buying costs ~$1.75M, where renting would have cost her ~$1.3M. Because her finances were tied up in the house while the home value has gone up so little, Alice has minimal savings. Her daughter receives some financial aid, but takes on hundreds of thousands of student loan debt to go to college. Yes, in 18 years Alice will spend $1.75M, but she'll also own a big share or all of the house. On the other side when renting she ends owning nothing after 18 years. Or is the calculator taking in consideration the selling price of the house?
  • svachalek 4y ago
    Principal is only part of the cash flow. You're also paying for interest, insurance, taxes, and maintenance, which the renter does not, and these are also money down the drain. In my experience, owning a house in many (most?) areas is a losing proposition unless you assume that housing prices rise at an unreasonable rate for a long period of time. However, that's exactly what's happened.
    • Idiot_in_Vain 4y ago
      Despite the interest, insurance, taxes, and maintenance when paying a mortgage the majority or at least a big part of your payment goes to pay off the house - so after 15 or 20 or 30 years you own a very expensive house. When renting all the money you pay goes down the drain and in 30 years you own nothing.
    • rqtwteye 4y ago
      My mortgage (including property tax and insurance) is 1300 of which 700 goes to principal. So the money going down the drain is around 600. A comparable rental would be at least 1500. So basically I can save 800 per month for maintenance. Even if prices don’t go up or even go down this is still a good deal. Especially since rents will probably keep rising while my mortgage will be flat for the next 14 years and then go to 0. This equation doesn’t work in California where buying makes financial sense only if house prices keep going up. But in a lot of other areas buying a house is a very good deal.
• ec109685 4y ago
  Nice thing about housing is you can continually lock in the lowest interest rate and keep it locked for 30 years. So the example in the article of 7% interest may drop to 3.5% if the fed needs to get the economy going again, allowing you to refinance.
• pradn 4y ago
  It's practically impossible for US society to get out of treating housing as an investment. Americans believe in home ownership as evidence of prudence (hard work + savings), acumen (housing always goes up so it's smart to buy a house!), and sense of security and achievement. These ideas aren't going to change any time soon. That's the ideological component. Home-owners also protect their investments because they're a very large group (including practically every politician) and constitute the donor class. It's currently hard to take small steps toward stabilizing housing prices and reducing homelessness. Housing is easy to talk about, just like inequality. But it's hard to see evidence of much political will to solve these problems. It will take a lot more housing inaccessibility, especially if it hits the currently affluent class.
  • davidw 4y ago
    > But it's hard to see evidence of much political will to solve these problems. Disagree. The YIMBY movement is picking up steam in a big way. Here in Oregon, we re-legalized 4-plexes in our cities and the woman responsible, Tina Kotek, is now our governor. She's pushing another big housing bill. Our mayor in the city I live in regularly attends our YIMBY group meetups. It's gotten bad enough in enough places that there's a lot of interest in reform. Some good groups to check out: * https://yimbyaction.org/ https://yimbyaction.org/ * https://welcomingneighbors.us/ https://welcomingneighbors.us/
    • nacho2sweet 4y ago
      I mean good luck but the YIMBY movement is a very pro investor movement. Decrepit old SFH selling for $1.6 million turned into a 4 plex here in Vancouver would see each unit in the 4 plex selling for $1.4+ million (maybe $1.1 for the basement suite). Friend bought in a converted old place 780 sqft attic suite $940k. It doesn't really make stuff affordable. It was sold here as "the missing middle" and they basically dragged a mouse over huge washes of neighbourhoods like SimCity and said you could do 5 unit conversions. Fixer-upper SFH become gut out conversion SFH and are priced based on the investment of the 5plex conversion and what those can be sold for.
      • 4y ago
• tagami 4y ago
  It's the land that holds the value. The building depreciates.
• hiergiltdiestfu 4y ago
  well, duh
• thriftwy 4y ago
  Did anyone ever make this decision explicitly? The city where I live is full of buildings which are all like "this was built by a %landlord name% as a means to support his retirement". This was ~150 years ago.
• tlholaday 4y ago
  Policy solution to intractable social differences: Fund UBI with 2.5% SALSA, problem solved. https://www.radicalxchange.org/concepts/plural-property/ https://www.radicalxchange.org/concepts/plural-property/ Yes, new problems appear. Maybe new problems are less vexing.
  • yboris 4y ago
    I love this idea! Came across it in Radical Markets: Uprooting Capitalism and Democracy for a Just Society by Eric A. Posner and Eric Glen Weyl https://press.princeton.edu/books/hardcover/9780691177502/radical-markets https://press.princeton.edu/books/hardcover/9780691177502/ra...
  • czbond 4y ago
    Didn't money printing of 2019-2022 show that UBI will cause price inflation, lower velocity of money, and thus cause all prices to inflate across the board? UBI sounds great, but once fully in play across a population - market forces cause base prices to increase to meet UBI for a near net zero benefit.
  • pxmpxm 4y ago
    Straight out of Libertopia. Losing your house and being forced to move because of a mistake in assessed value or someone else's specualtive bid is as much of feature as losing all your money when you mistype a bitcoin address. Tesla moving to Texas? It would take me about 3 days to syndicate enough money to displace half of downtown Austin.
  • throwway120385 4y ago
    Explain to me how SALSA doesn't immediately result in really wealthy people bidding up the value of all of the real property in an area simply to turn around and rent it to the people they force-bought it from.
• czbond 4y ago
  RE was always a "meh" investment (nominal with inflation) - with growth due to prior demographic waves; The past 2008+, bubble interest rates and money printing have have created a difference in real returns and nominal ones. Which have subsided. Realize the investment underpinning before taking on the investment. RE of a personal residence is rarely a good idea... buy cheap personal homes (small liabilities), and then use the excess to buy rental homes (income asset + depreciation).
• recursivedoubts 4y ago
  It's all so tiresome. Watching boomers pop champagne corks as their homes went astronomically high and their children were priced out of ever living in the middle class neighborhoods they grew up in in CA, and now watching them eat that equity down with reverse mortgages, has made me permanently disgusted with the US housing market. The only solution I can see is absolute carnage in the housing market, and probably the entire financial system failing. And I'm kind of rooting for that, even though I own a home and financial assets: I have children, and I'd like for them to not be in perpetual two-earners + debt slavery in order to afford what their grand parents were able to afford on one salary.
  • Lich 4y ago
    > The only solution I can see is absolute carnage in the housing market, and probably the entire financial system failing. And I'm kind of rooting for that, even though I own a home and financial assets: I have children, and I'd like for them to not be in perpetual two-earners + debt slavery in order to afford what their grand parents were able to afford on one salary. Exactly my thoughts as well and I am in the same situation too (homeowner + kids). I don't want it to happen given the probable turmoil and violence that will come along with it, but at this point I feel like it's the only thing that will bring change.
  • czbond 4y ago
    RE hasn't always risen. Boomers who purchased a home from 2004 - 2006 were under water for 8 - 9 years. https://fred.stlouisfed.org/series/USSTHPI https://fred.stlouisfed.org/series/USSTHPI Housing has most under performed the general market (SP500 for generalities). Thus if your home appreciates at ~3%/yr, market at ~5-9%/yr.... boomers could have increased their wealth 3-5% more yr without homes.
• yboris 4y ago
  Related: Is It Better to Rent or Buy? - an interactive data visualization / calculator. https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...
  • higgins 4y ago
    is there a non-paywall version of this online?
    • yboris 4y ago
      Try incognito? For some reason I see the visualization with no block - and I'm not registered / paying to NYT.
    • CatWChainsaw 4y ago
      try uBlock origin (and/or uMatrix, it's still very useful even though it's out of support).
• endisneigh 4y ago
  As long as land has different levels of productivity it's impossible to not make housing an investment. The only solution are exponentially increasing taxes on land, in order to ensure that land usage is always used in tandem with the potential productivity (which has its own issues), or make most housing nationalized like Singapore. In the end, for better or for worse, the issue is a dissonance between the struggle of renters and political activity. Homeowners do not make up the majority of the electorate (though interestingly the majority of households "own" the household in which they reside). You'd think that renters would the laws in their areas reflect their will, but alas, renters have low voter turnout.
• fulafel 4y ago
  Of course expecting a house to go up in value is speculation, is this controversial?
• nisegami 4y ago
  Inaccessibility of housing is one of those problems that will inevitably be solved. Societies must choose which solution they prefer and the US is certainly choosing a particularly undesirable solution right now.
• reocha 4y ago
  Housing is a requirement for life, working to decommoditize housing should be a requirement for a modern state.
• zachthewf 4y ago
  Lately I've been thinking that perhaps the solution to the housing shortage is a technology that makes it easy, cheap, and extremely fast to build housing that is both attractive and illegal. Uber and Airbnb were both pretty much illegal from the get go, but ultimately worked because they were incredibly popular. They forced the laws to change to accommodate what people actually wanted. Similarly, living in tents and RVs on city streets is illegal but common because RVs and tents are so easy to set up. No one builds an illegal fourplex because it takes a year and a million dollars. It's too expensive to shoulder the shutdown risk. But what if it took a day and $100k?
  • czbond 4y ago
    Interesting thought - you expanded my thinking here....
  • nemothekid 4y ago
    This is a technical solution to a political problem. The cost of building housing isn't the problem. As the article complains, the problem is housing is an investment and as other commenters have pointed out, our government has pretty much protected this asset class and all of America has the expectation that pricing will continue to go up. If you flood the market with competitive homes you will destroy housing at an asset class; people understand this so they will block any technological improvement that would make housing cheaper.
    • zachthewf 4y ago
      In some sense I agree with you, and it would all be much simpler if the laws could be changed. But I think this is pretty unlikely at least in the next 30 years or so. But sufficiently cheap/fast technology is very difficult to block. Not sure if there's any actual way housing could get there (would have to be some sort of modular assembled-on-site sort of thing).
      • Wesxdz 4y ago
        relative robotics will do it https://news.mit.edu/2019/robots-large-structures-little-pieces-1016 https://news.mit.edu/2019/robots-large-structures-little-pie...
• eloisant 4y ago
  There is nothing bizarre about house appreciating despite being used when you realize that it's not the house that appreciate, it's the land. The land your house is build on doesn't get wear-and-tear, 100 years ago or 100 years from now it's still the same number of m2 of land. And it's getting rare because the population is still increasing and everyone want to live in the same big cities. If you find it ridiculous that everyone pays a fortune to live packed together (it kinda is) just buy a house in rural Alabama! It will be super cheap.
  • gtop3 4y ago
    The value of a home is usually land value + improvements. The improvements might see some appreciation as raw material and labor prices increase, but most of the value is in the land. It is 100% reasonable to assume land prices will increase over time. No one is making any more of it, and the wealth and population of the country (also planet) continues to increase. An increasing amount of resources are bidding on a static amount of product. To put this in another way, if the value of land in the US was the same as it was 250 years ago then we would be giving it away by the square mile.
  • steveklabnik 4y ago
    > If you find it ridiculous that everyone pays a fortune to live packed together (it kinda is) Different people have different preferences. I would (and do!) absolutely pay more to live "packed in with other people" than to live in a remote area for cheaper.
• mfer 4y ago
  Homes are incredibly complicated... - I know people who rent who have had their period end by the owner. The owner plans to "update" the place and rent it for a lot more. Renting prices do go up over time. This sucks if one wants to be in one place long term. - There aren't enough homes out there. And, in many locations there are not enough people to build them. A lack of skilled trades to do the work. This drives up home prices because of supply/demand. - I know financial people who say NOT to treat your primary home as an investment. It's something you aren't really going to be able to leverage while your thriving in life. And so much more...
• akudha 4y ago
  There are lots of things that shouldn't be done only for profit - healthcare for example. Food, water. Companies like Nestle do all kinds of unethical, but legal stuff and get away with it. Capitalism is good, but some amount of principles (like treating employees fairly, not pillaging the environment etc) with capitalism would be nice. Instead the only thing that matters today is profit, at the expense of everything/everyone else
• deleted 4y ago
  [deleted]
• maerF0x0 4y ago
  It's a complex topic, even details are left out in this long form article. 1. In our highly financialized society, and with many of us essentially worshipping money, it first needs to be said that not every choice needs to be financially optimal to be the best choice for your life. Buying a home is not just a financial choice, but a lifestyle change. They work with different units so the math cannot cross over, save for maybe considering comparable goods/utility in an economic sense (what else could you do with the same financial outcomes, which do you prefer) 2. Buying a house comes as a mix of rarifying asset, high value depreciating good, and liability. The land in a growing city is increasingly becoming rare (like the art example in the article), a depreciating house (eg, depreciate your roof over 20 yrs, your hot water tank over 5-10 etc), and a liability -- you now have to pay HOA + taxes on the value of the property until disposed of. (And note the steep exit fee that using a realtor costs. That significantly eats into your appreciation) 3. Because your house's rental market value is roughly proportional to it's underlying asset value, the more your house appreciates, the more marginal opportunity you give up by living in it. That is, you essentially are consuming the rental value of the house as a lifestyle choice -- that's essentially the definition of a liability, therefore 4. 4. The home you live in is a liability (a recurring cost center and lost opportunity cost, potentially still at net profit after the appreciation of the land), a property you rent out is an income producing asset (potentially still at a loss after expenses). 5. Anecdotally, most people who I have seen swear they made "so much money" on their home are actually failing to do the math well. Total cost of ownership of a home + buy/sell transaction costs + tax burden + maintenance + lost opportunity to invest in other assets has rarely, if ever, been profitable in my maths. Speculating on distressed assets at market bottoms or other contrarian times would be the exception, but that can be very profitable for experts with capital in most any asset market (eg used cars made money for a few years there).
  • w10-1 4y ago
    "It's a complex topic, even details are left out in this long form article" Some summary and factors... Commenters have blamed: - Vetocracy and NIMBYism reducing supply - Federal reserve ownership of banks - "housing cannot be both affordable in perpetuity and a good investment": the myth of a limited resource - "Why is every new house a McMansion?" (Because a bigger thing has fatter margins, so it's beneficial to reduce the supply of smaller things. See cars and computers.) Why fix it? - So I can get a better home (my $300K is not enough for $1.2M houses) - To get homeless people off the street (roughly 0.2% of people) - To get more poor and middle-class people off renting into homes - To reduce the incentives for the wealthy to manipulate the market Correct driving factors: - Mediterranean climate is rare - "Values go up because of density changes related to location desirability" - "You're making a bet that worker productivity will improve near you" Additional amplifying factors: - Home loans are recourse-free: if you go underwater, the bank loses, not you. - Difference in market power between investors and owner-occupiers - Owner-occupiers are forced into a location, and have to buy something (or rent) - The home has to appreciate at a rate higher than the after-tax cost of property taxes - The Republican's recent cap on property-tax deductions made this equation worse - For nice homes, the property taxes alone can be half the median rent - Renting and buying are not perfect substitutes - Most rentals are small, and not in good school districts - Most houses are large, so rents are only sensible for large families or wealthy - Most jurisdictions exempt single-family homes from most restrictions on rentals
• bedhead 4y ago
  I've been screaming about the OpenDoor's and RedfinNow's of the world for several years. These are in effect payday lenders for homes, dangling low all-cash offers to entice desperate sellers to hit the bid quickly. Ironically, these companies manage to lose money anyway, perhaps yet another sign that SFH's weren't meant for this. Incredible that even after 2008, we have yet to really learn that the financialization of people's homes should be pretty darn close to a non-starter.
  • throwway120385 4y ago
    Yeah these scumbags constantly text you and send you fake handwritten letters about your house to try to entice you to talk to them. My partner and I were getting A LOT more of them when interest rates were low. She took a "course" once on flipping houses when she was younger and honestly the whole idea of flipping is scumbag central, with "wholesalers" and "lead generators" whose whole business model is to convince people to sell for less than they could get in a proper real-estate transaction. Basically the course boiled down to "find some rich relatives to con for investment money" and "look around your neighborhood for old people or people who just lost their job and give them lowball offers."
• duped 4y ago
  The math at the top seems suspect. In all three cases Alice should have "spent" the same amount of money after 18 years. In the cases of renting you pay more each year and get no equity back, so you should be less able to save and you get none of your money back at the end. I guess the only difference is whether that 20% downpayment on the loan better spent sitting in a house or in bonds/ETFs.
• yonran 4y ago
  This post makes a good point, in particular that one generation’s house price appreciation (really, land rent and price appreciation) is the next generation’s shelter price inflation. And the obvious solution is higher land taxes and more incentives to construct new housing. However, I would add nuance that using the word “investment” as synonymous with price appreciation is only partly true because any investment’s value comes from capital gains or dividends. And I dispute his claim that if buying is a good investment, then prices need to increase faster than inflation (although expected rent growth due to supply restrictions may be priced in in the example of Littleton, CO). A house can be both affordable to all generations and a good investment, just as a laptop or a pickup truck or any capital good can be both broadly available and a good investment. You buy a car instead of leasing it because it is a good investment even though it depreciates and even though there is a healthy market of auto leases. Kevin Erdmann has a clear-eyed series on the role of landlords even in a healthy housing market, which is much like the role of lessors of any capital good https://www.mercatus.org/economic-insights/expert-commentary/homeowners-make-best-landlords https://www.mercatus.org/economic-insights/expert-commentary... The key variable that he is forgetting in the nytimes rent calculator is rent inflation. In almost any market, there will be rental investors, and that’s a good thing; otherwise you would not be able to rent a house. What really matters for the long-term health of the country is making sure that rents don’t increase (YIMBYism) and turning inevitable central city rents into public goods (Georgism).
• lalos 4y ago
  Easily fixed with a tax system: 1) first home tax-free - the address you submit your yearly taxes on. Incentivize people to own at least one home. 2) second property you pay taxes for both homes now - no more tax free benefit since you are able to afford more than one place. 3) more than 2 properties you pay taxes for all of them times some factor 0.05*N houses. Fudge around with the factor to allow more supply for all the first home buyers since now it it is more expensive to hold multiple properties. Not sure if this falls under Georgism.
  • jb12 4y ago
    I buy one house, my wife buys one house, we set up one trust each for two of our kids to own one house, we get four houses tax free
    • lalos 4y ago
      Yeah, now your wife and each kid will fill taxes by themselves and you crack down on that there - you give the free tax benefit as a deduction on your income tax so if your 3 year old doesn't have income there's no benefit. The trust itself can fill taxes, you allow the tax-free benefit to apply to only single individual tax form and force a trust to pay tax.
    • cced 4y ago
      I think OP's point is the introduction of limits to the benefit of owning multiple properties. Hard to see OP replying with "Oh gosh, darn it you got me again" as a response to your comment and much more likely to further develop policy that would stay true to the idea that being able to afford more means you should pull more weight.
    • ImHereToVote 4y ago
      If you register that you live in those different houses but live in the same house. Straight to jail.
    • triceratops 4y ago
      Good thing legislators will never think of that if they ever make a law, in good faith, to tax multiple property ownership. /s
• fnordpiglet 4y ago
  This ascribes morality to an amoral thing like population growth and markets. Buying anything is an investment. That’s what investment means - you take resources and invest them. The growth in value of an investment in a market is an artifact of supply and demand. Not all homes rise in value, some decline, and many are fairly stable over time. Likewise rent doesn’t rise steadily everywhere. The absurdity of the story here is reflected in the person with the rent vs buy calculator trying to see which decision makes the most sense, then feeling a moral outrage that in order to make money the price of the house has to go up. This is like being morally outraged that X-Y is only positive if X is greater than Y. You certainly can be, but what’s the point and why on earth would you talk about that publicly? By the way, home prices are most easily thought of as a proxy for rent utility. If you can buy a house on debt and rent it for more than the principal risk and debt cost then you’ve got an arbitrage opportunity and prices will go up. Likewise if you can’t and you’ll lose money prices will go down because prices are too high. So complaining about house prices and rent as orthogonal ignores that they’re intertwined. Mark Twain gave the advice to invest in real estate, they’re not making any more of it. Ignoring that you should never take investing advice from Mark Twain, there’s truth to it. Lack of affordability has to do with scarcity - if everyone is moving to San Francisco and expecting to be able to buy a beautiful Victorian in the Castro, expect the prices and rents to be sky high as there’s only so many and there will never be more than there was effectively 50 years ago. There’s nothing immoral about this. It might feel unfair in some “the universe owes me a beautiful life” way, but it’s actually not unfair. It might feel unfair that someone working for the city who moved into the Castro in 1970 got a great deal on a beautiful house while you live in a SRO in the Tendergroin with 15 roommates working as a senior principal engineer at google, but it’s actually not. It’s just the way things are. If you don’t like it, it’s not the city workers fault for being a nimby that you can’t afford their house, or that the city they live in attracted so many wealthy people and the value of their house exploded. There simply no morality at play here. There’s no way not make ownership of property not an investment. There’s no entitlement to affordable housing. We can work to make more house available so more people can afford it, but we also probably can’t ensure everyone on earth can move to San Francisco and have a nice house in Noe Valley.
• Animats 4y ago
  "The idea that home prices should outpace inflation is insane and maybe has broken modern society." At least in the US. Not Japan, which seems to hit the economic problems of the US about 20-30 years earlier. House price growth came partly from population growth. But population growth is over in the developed world. The US fertility rate is around 1.8 babies/female. 2.1 is breakeven. It peaked at 3.8 in 1958. "Peak Baby" for the US was in 2018. The US population hasn't started to decline yet, but it will. House prices increasing faster than inflation started in the 1950s. US housing used to be cheap. In the 1950s, NYC residents spent, on average, 12% of income on housing. [cite needed]. Clothing and food were bigger items. Now, with a declining population, that trend turns around.
  • dougmwne 4y ago
    The US is immune to demographic problems. There’s an infinite supply of young people willing to immigrate and an extremely heterogeneous society really to integrate them. Japan has never figured out how to integrate immigrants.
• jvanderbot 4y ago
  I've never understood buying a house for the investment. I bought one because I love the location, love the house, have a propensity for doing things that landlords don't like, and _really_ hate moving. The rentals around here are junk.
  • latchkey 4y ago
    You invested in yourself, nothing wrong with that at all. =)
• sangnoir 4y ago
  Why does author ignore home equity in scenario 3 (when house prices track with inflation). Paying $1.75M to own a house is more savvy than paying $1.3M to rent over 18 years as you can still sell the house for $1M. I didn't buy a home as an investment with the hope that the value will appreciate: I bought it so that I can build equity instead of paying rent every month and getting nothing. The only way home owners truly lose money over renting is when their total expenses[1] after selling the house is greater than the rent they would have paid for the same home over the same period. My home could lose value by a significant amount over the course of my mortgage, and I'd still come out ahead of renters because of equity. 1. Maintenance can get expensive
• jpollock 4y ago
  I believe that allowing people to refinance a house without it becoming a taxable event is the problem. If getting a second mortgage on the higher valuation required the valuation to be used for both property and income tax purposes, people would be much less willing to extract value from their houses. That would then slow down the price increases and lower the inflationary feedback loop. Using the valuation used for loan collateral as a taxable event would also close the "shares/options as collateral" tax loophole.
• megiddo 4y ago
  House prices don't rise due to "sweat equity", they rise because demand outpaces supply. The rest of the article then follows a false syllogism.
• georgelyon 4y ago
  One thing this doesn't cover is that while we've gotten much better at making cars and TVs, but haven't really gotten all that much better at building houses. In fact, we seem to have only gotten better at using with cheaper, worse materials to build houses in ways that the average housing consumer doesn't really understand and thus can't properly price.
  • whiddershins 4y ago
    Because it is illegal to innovate in house building.
• lokar 4y ago
  The part about homes gaining value as they physically wear out seems odd. The value is the land and the zoning permission to have a structure.
• haberman 4y ago
  Articles like this frequently assume that if new housing can be built, the value of existing housing will go down. Is there data to support this? Supply and demand is of course a real and powerful force, however if you tear down a single family house and build something more dense in its place, then you can build many units where there used to be only one. My intuition is that the cost of existing houses would not take such a big hit (and might even continue to appreciate), because existing houses have more land and thus more potential to build multiple units within that footprint.
• WaitWaitWha 4y ago
  For me, there are two differences between Alice and I, how we think about rent v buy. She is looking at national details. Real-estate prices are very much localized in my experience. I can have a property that is plummeting in value, while a neighborhood just on the other side of the main road is nicely increasing in value. To me if I sell for no profit at the time the house is sold, I won. If I pay rent X every month, I will never get that rent back. If I pay the same X amount on a mortgage, even if I get half of it back, that is a gain of 50% over rent.
  • plaidfuji 4y ago
    Somewhat agree, especially with the localized nature of the market, but you do have to account for the fact that a mortgage is essentially paying 90% rent to the bank for the first ~1/4 of its lifetime, and the opportunity cost of tying up your down payment in housing vs other investments. It’s why I find it odd that first-time homeowners describe themselves as, well, owners - in all likelihood you just have a new landlord - the bank - and the penalty for not making rent is quite a bit worse. Especially if you’re looking at a short time-frame e.g. less than 5 years, if you sell at the exact price you bought, you’re out essentially all of your mortgage payments (pure interest), opportunity cost of down payment appreciation, buyer and seller fees (not insignificant), property taxes and insurance (usually rolled into the mortgage but worth mentioning), and maintenance. You very likely lose to renting. One aspect that’s relevant is the ratio of rent to mortgage payment for an equivalent property in a given locale - and this varies strongly. Some markets are very favorable to renters and vice versa.
• whiplash451 4y ago
  The article is flawed from the very beginning. You rarely find similar homes that are both on sale or for rent. The inventories are completely different. And so, fail.
  • rwmj 4y ago
    Ae you familiar with "thought experiments"?
    • whiplash451 4y ago
      I absolutely am, thanks. My point was that buying (or renting) gives you access to different inventories. And so this thought experiment is not useful to describe the choice buyers/renters make.
• donnowhy 4y ago
  most certainly. another example of dumb and costly mistakes is putting a capitalistic-optimization scheme in charge of medical care alas, for some reason (many of them, indeed) most of these 'problems' cannot be corrected. for a few powerful interests these aren't problems at all.
• whiddershins 4y ago
  7% return on the market is the bad assumption that makes it so you need the other bad assumption to make home ownership worth it.
• secabeen 4y ago
  > She’s grateful she bought, but her life wouldn’t be much different had she rented. This completely overlooks the reliability of owning. If Alice rented, she would always be at risk that the owner of the home she's living in would decide to stop renting it, or sell it to someone who didn't want to rent it, etc. The most important piece of owning a home to me is knowing that I cannot be forced out of my home as easily as a renter.
• deleted 4y ago
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• ed25519FUUU 4y ago
  Ctrl+F federal reserve, CTRL+F interest rates-- nothing in the article. Should I even bother to read it? Housing prices can be "fixed" overnight if we'll stomach the medicine.
  • hedon1 4y ago
    The article and most of the comments: Wet streets cause rain.
• keeptrying 4y ago
  "Upside" problems/opportunities that take a generation to solve/understand (w.r.t a family context): 1. value of going to college 2. investing in real estate 3. creating a profitable business Once your parents achieve one of these, in a lot of cases, kids learn via osmosis. "Downside" problems that are also usually generational: 1. creating/maintaining a strong relationship with spouse (not getting divorced) 2. staying healthy - no type 3 diabetes etc.
• myshpa 4y ago
  The problem is zoning and regulation and animal agriculture, imho. Hear me out. Just 1% of habitable land is urban and built-up land (1.5 mil km2). Buy a land (native Americans didn't believe that anyone can own the land, that land belongs to everybody - maybe there was something true about that) and try to build a house on it. So many regulations - where you can build, what you can build, how it would look, what materials are acceptable, etc. Try to build a house from hempcrete, for example. A material used for several thousand years in Europe, but now it's much harder to build and to certify such house (due to regulations and approval processes), that everybody builds with bricks and wraps their house in mountains of polystyrene instead. That doesn't make sense .. you have to build a house from a material with abysmal insulation properties, and then wrap it in several layers (10 maybe) of additional materials just to have a working shell. Then stuff it with plastic stuff inside - that for example lowered time the buildings are fire resistant from 15 minutes to mere 2-3 minutes now (IIRC). Or try to build something with earth pressed blocks. Also pretty common historical method from the area where I'm from, very comfortable living, breathable, low-cost, ecologic. That's something almost never used now, although it has a lot of pluses compared to the "modern" ways of building. Try to purchase a land and build a block of flats on it. No, the building office will say, no such houses in the area, just single family homes here, single floor, minimum land 800m2. No way to build small flats or houses with those minimum area requirements. We don't have enough place to build new homes, you say? We use just 1% of all habitable land for buildings and stuff. What about those 37 mil. km2 we use for "livestock" [0]? I for one can't wait for the times when the majority will switch to plant based diets. This is just one of the many things that would solve ... [0] https://ourworldindata.org/land-use https://ourworldindata.org/land-use
• gaoshan 4y ago
  I've been making this argument for many, many years and it's interesting to see the tide turning from "What are you, an idiot? Some kind of communist?!" to "<specific edge case that applies to someone they know which invalidates my entire premise>" to "You may have a point". One tipping point, sadly because as the article points out there are many more valid criticisms, seems to be foreign ownership. Enough foreign ownership in certain markets finally brought this to the forefront as locals were priced out en masse and people looked for someone to blame. At least the issue is being discussed because it has been a serious problem for a long time.
• TheDesolate0 4y ago
  [dead]
• chadlavi 4y ago
  I just want to own a home so that I have stable housing expenses and don't live at the whim of an absentee landlord who never fixes anything, raises the rent by double-digit percentages every year, and could choose not to renew my lease any year now.
• freitzkriesler2 4y ago
  The problem is entirely caused by real estate investors both domestic and foreign who are looking for yield on their investment hot money. Since NIMBYS want their cities to never change, the solution is to ban or excessively tax multiple unit ownership and only allow new builds to sell units. The problem then solves itself.
• Bostonian 4y ago
  House prices depend on supply and demand. Housing investors increase the supply of housing and are not the problem but part of the solution. The problem is land-use restrictions, such as limitations on multi-story buildings.
• Joel_Mckay 4y ago
  When residential zoned buildings are used for commercial purposes, a fundamental shift in the communities purpose occurs. The situation we have now is people leveraging overvalued assets to acquire more speculative risk with nonexistent equity. Tip about the "200 month rule": if a rented property valuation is more than 200 months revenue (empty occupancy adjusts to $0 unlike the "creative accounting"), than you can be 100% certain a market correction is coming soon. I would recommend reviewing post-hype markets in Japan if you want to understand where this cycle ends in more detail. No, your shed in a gloomy remote town is not worth what you paid for it friend. As interest rates must increase to dampen inflation, the overexposed gamblers will lose their assets in the next 3 years. Try to find a ETF that isn't a dumping ground for a firms real-estate mistakes... Hint, it is mission difficult indeed, as cultural bias drives most of these markets. Get some popcorn, and invest wisely friend. =)
• darod 4y ago
  The math is suspect. Author doesn't take into consideration that rents increase annually vs a locked mortgage with a conventional loan. Rent is also 100% loss vs mortgage you're gaining equity. Additionally if you think beyond one generation, your kids have an asset they can use to borrow against, rent out, and live in if they so choose, which if it's paid off by that time, they just have to worry about maintenance and taxes.
• deleted 4y ago
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• wankle 4y ago
  > But now, if she buys a home, she needs housing prices to keep going up to make her decision financially sound. If you buy a home, you're living rent free, that's true regardless if the price goes up. If you live in it for 30 years and sell for exactly what you bought it for, you still made money because you lived rent free for 30 years. That's even including the cost of maintaining the home, roof replacement, HVAC, water heaters, appliances. Then there's the reduced taxes on mortgage interest.
  • asperous 4y ago
    You paid “rent” to the bank in terms of interest.
• whiddershins 4y ago
  got to the free nerd wallet calculator https://www.nerdwallet.com/mortgages/rent-vs-buy-calculator https://www.nerdwallet.com/mortgages/rent-vs-buy-calculator plug in all the numbers given in TFA with this reasonable modification: Increase in housing prices (rent and buy) exactly match whatever your inflation number is. return on investment is 4% over inflation, and you pay 15% capital gains on it. Lo and behold, the break even point is 20 years, after which buying is actually better. tweak a couple of variables ... move your marginal tax rate up to what someone making 175,000/year makes in NY or CA and the break even point gets earlier. Etc. Real Estate doesn't have to beat inflation to be a good investment. It only has to beat inflation when the price it is being sold at assumes it will beat inflation in the future and has baked that in. The article is drawing way too much conclusion from a small amount of observation.
• s1artibartfast 4y ago
  Housing inaugurably should be an investment. The question is what the return on that investment is optimal, and what are the factors drive that.
• bumby 4y ago
  It’s not necessarily that housing/land shouldn’t be an investment, but that: 1) it’s a market that is exceedingly difficult to exit. If you still at the top of the market, you generally have to also buy your next home at the top of the market as well 2) because of the disproportionate amount of peoples wealth is tied up in their home, it makes their overall wealth poorly diversified. This leads them to protect this one asset more than anything else
• abeppu 4y ago
  I don't get how the example at the start works. In the scenario where housing prices increase dramatically, buying costs $1.1 today. In the scenario where housing only keeps pace with inflation, buying costs $1.75M and renting costs $1.3M. Why is renting in a world where we build a lot more housing somehow more expensive than buying in a world where we don't? I think this writeup also doesn't meaningfully touch on the _end_ of the scenario, when it's assumed that Alice sells the home, and is again faced with the choice of where to live next, and whether to buy or rent. In the case where housing prices have increased substantially, she's realized a considerable gain, but all the other houses are also substantially more expensive, and that gain is all directed at paying for her own future cost of housing. I.e. even if you're a homeowner and you've gotten your home value to increase, you don't really get to realize that gain if you still need to live somewhere. For that reason, I think the downside to building a lot more is less dramatic than this writeup suggests. If your particular home value drops because you're in an uninsurable flood zone, that's a problem. If _all_ home values drop, then your house can still be sold and used to buy another similar house. Yes, when you die your family will inherit a less valuable house -- but they will also be richer in the sense of having smaller housing costs.
  • btilly 4y ago
    It was presented in a confusing way, but it is accurate. Rent tends to move with housing prices. If the price of housing goes up, rent also goes up, and vice versa. In scenario 1, buying cost $1.1 million today and saved $600k, meaning that renting cost $1.7 million. In scenario 2 the house cost more and renting cost left making them about equal. We aren't given either number. In scenario 3 the house cost $1.7 million and renting cost $1.3 million. So you see that more houses = cheaper houses and cheaper rent. Fewer houses = expensive houses and expensive rent. Building housing is a tradeoff between wealth for homeowners and affordability for everyone else. For decades we've chosen wealth for homeowners and this is visible in everything from expensive houses to high rents to a huge homeless problem.
    • abeppu 4y ago
      I think as presented this still can't be comparing things sensibly between these conditions. > more houses = cheaper houses and cheaper rent So why do we say that buying in scenario 3 costs ~$1.75M and buying in scenario 1 costs ~$1.1M? Everything in the preceding paragraphs makes it sound like her mortgage is fixed. In scenario 1, property taxes and insurance would be higher. Nothing should make scenario 3 more expensive to buy in absolute terms.
• alkonaut 4y ago
  Housing as an investment is when I use money to improve my home, hoping I'll get that money back. Which might happen, or it might not. Historically it has been a pretty good investment, but famously, past returns say nothing about future performance. The type of "housing as investments" that are high risk is when you buy to let, using your home as a pure investment (which could have been an index fund instead). I know zero people who ever did that. Also, whether the investment is sound depends on the interest rates. Mine is now a fixed 5yr at 1.5% which is pretty decent, but obviously when that's renegotiated in 3 years the rates will most likely be much higher. In any case, it's basically been a free ride to live with a 1-2% interest rates for the past decade.
• nickelcitymario 4y ago
  I may be wrong, but it seems to me like this is a simple supply/demand issue. Increase the supply. Yes, that's detrimental to those who already have homes (like me). But if I were a dispassionate judge-of-the-world, and I were weighing these two groups needs, I'd err on the side of supporting those without homes over those who have them. Also, increase the supply of SMALL homes. Why is every new house a McMansion? Why do we have to buy 50+ year old homes to get something smaller? Those smaller homes are the entry to the market, and seemingly no one is making them, unless you count condos (which I do not). Of course, I understand builders are building the homes that make them the most money. I'm not suggesting they're doing anything wrong. But there is an underserved market for entry-level homes, and if the free market isn't going to solve the supply issue, it seems fair for governments to step in, build affordable homes, and sell them at a reasonable (10-20%) profit.
  • zbrozek 4y ago
    They're all huge because getting anything built at all is a Herculean lift, so to make it worth your while it's going to be big and expensive. Blame red tape.
  • vannevar 4y ago
    It is a supply/demand issue, but it is not simple. Demand for housing in the sense of people needing housing is not the same as economic demand for housing. And in order to have economic demand for housing, you have to have people with the means to buy. The housing market is not a smooth curve from zero to McMansion---there is effectively a cutoff. Right now, even if builders sold their houses at cost, in places with sufficient economic activity to support employment, the real estate cost would still put those houses out of reach of most low-income buyers. Because real estate in the past few decades has risen faster than wages, mortgage payments and rent have risen as a percentage of income for most Americans. Renters simply can't accumulate the capital needed for a down payment, nor the credit rating needed for a reasonable mortgage interest rate. So while intervening directly in housing is one policy solution, another would be to prevent the wealthy from continuing to capture a wildly disproportionate share of economic growth, which would both slow acute real estate appreciation in urban areas (by reducing the capital the wealthy have to buy up rental properties) and increase the pool of able buyers for lower income housing.
• nemo44x 4y ago
  There's millions of affordable homes available but they aren't where you think you deserve to live. 30m or less commute by train in and around Newark, NJ to NYC for peanuts (and they're safe places). But, it's not sexy so you don't want to live in it.
• TheBigSalad 4y ago
  One major mistake in this article is comparing houses to cars or appliances and saying they should lose value. Things go wrong in houses but while cars and appliances can't last forever, houses can last for hundreds of years with regular maintenance costs.
• adameasterling 4y ago
  "Housing prices only keep pace with inflation. America realizes it totally forgot about a few million homes it built, greatly expanding supply. Housing prices rise only 2%. Alice is much, much worse off for buying. In total, buying costs ~$1.75M, where renting would have cost her ~$1.3M." Err. What? In this scenario, Alice lives in a world where a homeowner is allowed to subdivide their lot and sell homes worth about the same to N more people. Sure, one "home" costs the same, but she'll be allowed to fit a lot more homes onto her lot. She comes out way ahead in this world.
• billiam 4y ago
  I think the real problem is that we have rigged our the nominally democratic but mostly capitalist system to favor wealth accumulation above all else, and have given most people a crappy deal: provide some incentives (in the tax code and local laws) for most people to use their home as their primary wealth repository as long as they don't make a peep about the essentially untaxed wealth of rich people and corporations. Taxing income instead of wealth (except for homes, which is most of us) is really the way modern society is broken, and until we address it we will continue to pull away from each other.
• abeppu 4y ago
  I do think one of the rare things about Alice in the example at the top is that she realizes the change in her incentives in a very self-aware way. I recall speaking to a Boomer who has owned their own home for decades, whose daughter and son-in-law were both living with her. She seemed genuinely perplexed at why it was considerably harder for her daughter to be able to afford her own place. "Everyone who wanted their home value to increase got what they wanted; housing is more expensive now because you closed the door behind you" was not the response she wanted. I similarly recall being at a Q&A with a state politician in front of an audience of high school students. He was asked a question about affordability of higher education, and gave some self-righteous up-by-your-bootstraps answer about having waited tables to put himself through school. He didn't seem willing to grapple with the idea that if you want that to be achievable then state school tuition can't increase faster than wages for multiple decades.
• deleted 4y ago
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• adverbly 4y ago
  Gonna have to keep commenting this on housing posts until it becomes the top comment: land value tax
• leaving 4y ago
  The author misses the big picture: housing is embedded in an economic system based upon perpetual growth. The scarcity of housing, as the author correctly points out, is related to location, location, location. The old saw is "buy land; they're not making any more of it". As the population continues to grow, there may be more houses, but there certainly will not be more houses in desirable locations that are already built up. The madness here is the perpetual growth. The author's entire analysis is irrelevant because perpetual growth cannot continue in a finite environment. Whether or not housing prices rise to beat inflation, and whether we vote for Bernie and AOC or not, our houses will soon be worth nothing because we will all be dead. This is the inevitable outcome of the perpetual growth paradigm. The only sane way to stabilize housing prices and to prevent the inevitable post-apocalyptic collapse, therefore, is by achieving sustainable numbers. The insects are gone. The animals and the oceans are going. We are immediately next. If you doubt this, and if you continue your consumer lifestyle, you are insane.
  • aeternum 4y ago
    We used to make more land in desirable places, much of SF's population lives on on man-made land. Scarcity mindset sounds right, but most of that status refute it. Known reserves of pretty much every resource has only increased over time. If you take the big picture view, then the earth itself has only a temporary lifetime, and thus we should switch to looking outside our planet. For that, optimizing for growth and tech progress above all else is probably the right goal.
• tekkk 4y ago
  Well say what you want but imo there's just a huge wealth transfer going on with companies hitting record profits and US, and other countries, suffering from homelessness, poor education and overall worse financial outlook than it was generations ago. The system is rigged on a higher level than talking head politicians can manage or even comprehend. Leaving the normal people just facing a bleak reality of either being slaved as minimum wage renter or having to come up with resources to find a way out through say education. We are basically the same as we were in Middle-Ages so it's no surprise though. With the peasants being basically property (and lets not talk about US). And the situation is better, no doubt. But accumulating wealth is a rich person's hobby.
• crisdux 4y ago
  In my metro, the median listing price for a home just peaked. Driven by low supply, high demand - stemming from a variety of factors. I've made competitive offers on many homes, only to be beaten by all cash offers or people putting more cash down for an appraisal gap. I get angry when I think about neighboring properties that sold for 50% less only 3 years ago, financed at 2.5% interest rates - while I must make a decision to pay 50% more and pay 7%. My wage increases during this time do not fill the gap. I feel I must accept a lower standard of living than my neighbor. This is a massive source of inequality that I feel does not get enough attention. I am quietly feeling the stress of despair and fomo in regards to my housing situation. How can a society function like this?
  • nojvek 4y ago
    Even on a software eng salary in Seattle area, housing 40m away from city took many many years of saving to afford downpayment. As we were saving, the price went up faster than we could meet 20%. The rents also went up. It feel like the bar kept on moving faster than we could catch up. This was 5 years ago. At current >1M prices, that would not be possible. 2 bedroom rents in Bellevue are > $2500/month. Kind of nuts.
    • thunkshift1 4y ago
      Why the insistence on 20% down? Avoiding pmi is not worth the upfront cash
    • danuker 4y ago
      With so much of the tech sector going remote, how do prices still keep going up? Why is there still so muh demand? Is there anyone living in those expensive places? Or is it just speculation/investment?
• madduci 4y ago
  The article might be based on the US market, but actually it has some fallacies, as seen in European cities: - house prices go really up in in-demand cities (Lisbon, Berlin, Milan among others) - rents do go up as well, you don't have fixed rent for 30 years, but, instead, you get an increase of 1.5-3% every year (so is seen in Berlin), sometimes you get contracts where rent is adjusted based on inflation as well - you can still buy an house, use and enjoy it and decide to sell it when you want to move somewhere else. You don't loose all the money (if you are lucky, you might earn actually ). With rent, all the money paid is lost forever.
• hendersoon 4y ago
  As the article correctly notes, it all depends on location. I live in Manhattan, and my apartment has appreciated quite nicely over the past decade, but even if it just kept up with inflation, it would honestly be worthwhile to buy just to avoid the annoyance of some of the worst people in the world, NYC landlords, viciously screwing with me every year on renewals. If you live in the suburbs somewhere and rent from a reputable legitimate property company, you may not care about that.
• Glyptodon 4y ago
  I think there are some factors missing in this piece: 1. Values go up because of density changes related to location desirability. My house is more valuable because more people want to live here, but space is finite. This should lead to it being worthwhile to pay me to leave so an apartment complex can replace the single family homes on my block. But it's more likely that someone will pay a lot to have the single family experience at a larger price. 2. The value of location has increased. I could buy a nice home for $350k in a small town that would go for $650k in my city. But we can't move there because the downsides of working there for my SO are too large. 3. Not being adjacent to a major urban area is in many respects like going back in time some proportion to your distance from one. Finding appropriate doctors is harder. Finding employment that has modern working conditions is harder. Etc. That said, I think it's reasonable to expect housing to be stable relative to inflation rather than being a high performance asset. And retaining wealth at the rate of inflation minus borrowing costs should beat just renting at the rate of inflation without a need for tremendous price growth. But there's obviously a big issue with supply.
  • horsawlarway 4y ago
    > Not being adjacent to a major urban area is in many respects like going back in time some proportion to your distance from one. This whole conversation devolves into this single point, in my opinion. There is land out there that is cheap as fuck-all. Lots of places will flat out hand you the deed if you promise to live there and build a house. Some places will subsidize you moving into a house for $1. You just have to do it. Vermont and Ohio will literally PAY YOU to have you move into some areas (10k). The problem is that young folks generally don't want to live in those locations. So while I'm certainly a fan of increasing housing supply in existing metros, I think as long as metro populations keep rising, prices in those areas will continue to to beat inflation because demand is rising. --- If the US wants to alleviate housing costs, the most effective route I think we could go is to simply make it more appealing to live in rural areas. (ex: force those cable companies we paid billions to for rural broadband to go actually install rural broadband) The whole "Californian diaspora" effect we got during covid is actually a wonderful example of the right way to do this. If the high price metro is roughly equal in appeal to the lower cost areas, people will exist the high price metro in favor of the lower cost areas, working to equalize costs across the two (prices fall in SF, prices rise in the small towns around it).
• sevenf0ur 4y ago
  Housing is, historically, a not-so-great investment. It has transaction fees, requires maintenance, and you often do not get back the money you put into upgrades. The article paints an overly optimistic picture of owning. Nobody expects housing to go up like it did the last few years. Invest in stocks or index funds. Spend your weekends on your hobbies, not lawn care or painting walls.
• dablweb 4y ago
  Maybe a fractional reserve banking system that allows banks to create money out of nothing through mortgage contracts and funnel it straight into the housing market, causing inflation and soaring debt, was a colossal mistake. There, I fixed it for you.
• blurbleblurble 4y ago
  I'm old enough to remember when this post would have been blasphemy on hacker news.
• jeppine 4y ago
  I think one of the main issues with pricing is the deferral of taxation for the sale of rental or investment properties. A lot of people are seeing housing as a potential retirement savings account that can be reinvested and also produce income at the same time. If I had $100k to put as a down payment on a $500k house, and was able to rent at a rate that would pay, mortgage, taxes and upkeep. In 30 years, even assuming the price of housing stayed the same, it would have been a pretty good investment. What is better though is if anytime within the 30 years the house doubles in price. I can sell it tax free and have enough money to buy an even more expensive house and potentially have a better retirement. As long as I keep shifting the money from one house to another, I never pay taxes. I am also able to continue to rent the property and bring in a nice continuous income. The fun little trick to this is you have to find a new property within 45 days of selling the previous property to keep the tax deferral benefits. I think this 45 day window combined with low interest rates and limited inventory caused most of this crazy increase in housing prices. Unfortunately, the landlords have increased their rents to correspond with local housing prices, and normal hardworking people are getting squeezed more than they ever have been. I don't think this is sustainable, and as soon as there is a drop in renters in an area, and the rental properties start losing money. The housing prices will start to fall. The question is how long this will take.
  • lsllc 4y ago
    > The fun little trick to this is you have to find a new property within 45 days of selling the previous property to keep the tax deferral benefits. This is a 1031 exchange [0], when selling a business and buying a "like" business -- if you can identify the new one within 45 days of selling the old and close within 180, you can defer (not avoid) the long term gains on the deal. So let's say you bought a gas station in a crappy part of town, but you want to sell it and buy a bigger/better/more profitable one by the highway, this is how you do it. If your "business" is rental housing, then you can do the same thing. Tax evasion is illegal, tax avoidance isn't. Why would you want to pay 15-20% long term gains tax on your gas-station trade-up if you didn't need to? > Unfortunately, the landlords have increased their rents to correspond with local housing prices, and normal hardworking people are getting squeezed more than they ever have been. It's just supply and demand -- capitalism at work. I don't think that many landlords are altruistic enough to not want match their rates to the "competition" (in this case housing prices). [0] https://www.investopedia.com/financial-edge/0110/10-things-to-know-about-1031-exchanges.aspx https://www.investopedia.com/financial-edge/0110/10-things-t...
• mywittyname 4y ago
  I'm 38, so I basically came of age during the Great Financial Crisis. I had so many friends who were slightly older than I lose their asses on houses. Multiple of my single friends had partners who also owned houses, and when they finally got hitched, they had to either pay the mortgage for a house that sat empty, come up with five figures to pay someone to buy their house, try to negotiate a short sale (in a recourse state), or risk renting it out. I'm not talking one or two people either, this was an extremely common situation, it was a common lunch time topic of conversation at every job I had in the 09-13 era. Even my parents were against my buying a house at the time, as they were severely underwater on the poorly-built boom-time piece-of-crap they ended up buying. I'd argue part of the problem is an entire generation of people saw houses as anti-investments and avoided buying them when they were $80-120k because one look at the pricing history showed they used to be $100-140k for the same house just six years earlier. Renting was (at the time) cheap, had none of the maintenance requirements, and was less risky if you wanted to move. Of course, the contrarian people who had a long-term outlook made out like bandits. People who bought those heavily discounted houses with ultra-low interest rates using the housing buyers credit are enjoying the housing boom right now.
• WalterBright 4y ago
  > I hear advice from the older generation that “buying a house is an investment”. [...] With all due respect, this is a crock of shit. I was lucky that my dad (an economist) told me that houses are lousy investments. It's been true for me. I've lived in serial houses that I've owned, and toting things up over the years, they've been a lousy investment.
• pfannkuchen 4y ago
  Have we considered simply making mortgages illegal? Allowing the inclusion of future money (and thus future labor, usually) in bids must increase the cost of land (at least) as a percent of income, no?
  • kqr2 4y ago
    I don't think we need to make mortgages illegal. We just need the government to not subsidize and guarantee mortgages. 30 year fixed rate mortgage most likely would not exist. Instead ARMs would likely be the norm which would probably drive down purchase prices due to future rate risks.
• acabal 4y ago
  Indeed, and the article is right in saying there isn't really a way out. Humanity paints itself into these kinds of corners fairly frequently over the course of history: entrenched systems where many suffer, but where too many powerful people benefit for it to be able to change. Traditionally, the solution has been violent revolution. That's really the only way to (for example) tell 66% of Americans that their biggest asset that they've spent a lifetime saving for and investing in is now worthless because trust us, everyone is better off when housing isn't an investment. But America is in a strange place in human development. There are enough bread and circuses in the form of cheap Netflix, cell phones, and food supply where even the totally destitute just don't have the desire to grab a pitchfork and physically march to their capital building. (And I would argue that January 6 was more of a social-media-fueled livestream event than any kind of attempt at coherent political change.) Plus, suburban sprawl and the isolated, car-based lifestyle we've cultivated in the past century means that even if you wanted to get a group of like-minded revolutionaries together and march, how would you even physically do that? How does a poor person in suburban Tulsa even meet 20 like-minded people, and where would they go to express their displeasure physically? Once they got there, where would they all park?
  • loldk 4y ago
    [dead]
  • djent 4y ago
    Suggesting that the conclusion is telling homeowners that their asset is now "worthless" is extreme hyperbole. Homeowners live in their house. You need only apply the same metaphor from the article. Nobody might be willing to pay money for my couch, but I still keep it in my living room and use it.
    • mulmen 4y ago
      Yep. Even if I bought a house at the peak and the market tanks I can still sell it (at a loss) and buy a comparable house because those are cheaper too. The people who get screwed are the multiple-home-owning rent seekers and I'm ok with that. Treating your primary residence as an investment has been bad financial philosophy for all of time.
• varispeed 4y ago
  This and also commercial property that is unaffordable for small business. Imagine you have an idea you want to develop - you already need to commit a substantial sum of money to rent a workshop. It used to be that you could do stuff in your parents' garage, but nobody can afford such a luxury today. Then you have corporations setting up so called maker spaces, which the real reason for them is to steal ideas from people who can't develop them themselves. The idea is that even if you come up with great idea you could never make more money than from regular employment. Big corporations have been lobbying for these for years, so that it is ensured by the system that competition never grows without control of big corporation, investment fund or banks and that the entrance to the wealth club is closed.
• wonderwonder 4y ago
  Poster appears surprised that home vales are based on "demand outstripping supply". That's what any value of anything is based on. That's the basics of economics. Housing goes up because there are more people that want a home than there are homes. Everything else is just noise.
• michael_vo 4y ago
  A lot of this is discussed by strong towns. What is appreciating is the land underneath the house due to supply and demand. The physical house depreciates over time. They discuss numerous solutions like abolishing zoning laws as well as changing tax code to tax the land and not the value of the home. I’m still optimistic that technology will disrupt building costs and totally change our options. Imagine if we could buy a 3d printed home for 50 percent of current costs.
  • rootusrootus 4y ago
    I'm having trouble following you. > What is appreciating is the land underneath the house > Imagine if we could buy a 3d printed home for 50 percent of current costs. Why would the latter make much difference if the former is dominating the price of the house? We can already test a version of this in the real world. Home builders are building largely identical houses now as they were 10 years ago, but the houses cost three times as much. I don't believe for a minute that my builder pays 3x for the people he employes to build the homes, or the materials, as he did in 2012. I also doubt very much he's just pocketing a huge amount more profit. He's paying a lot more for land now than he did in 2012.
• nwah1 4y ago
  This is why a Land Value Tax is so essential.
• palotasb 4y ago
  One thing I haven't understood yet: After I've bought a house to live in, why does it matter for me whether housing prices go up? Does it matter even if my $X house is worth $3X ten years from now? I assume that I must live somewhere, and any any money I'd earn selling the house, I'd lose buying a new one.
  • rootusrootus 4y ago
    You can borrow against equity and that might work to your benefit without selling. Or you can move to a less expensive location. E.g. if you live in the Bay Area and retire to the midwest, your home equity could be your entire retirement fund.
• seydor 4y ago
  It's amazing to think that medieval people wouldnt even consider housing difficult. Grab a few stones and you re basically done. Surely houses today require electricity, sanitation and water, but how much do these really cost? Lots of people build offgrid and it is not THAT expensive. Maybe there's an opportunity there, but , given the exorbitant profits of investing , it s doubtful that anyone will care
• entangledqubit 4y ago
  I don't understand why people just don't call out mortgages for what they are - leveraged loans that let you get ~4-5x the return on housing gains. (Assuming a simplified 20% down scenario and you refi on a regular basis.) I suspect that most housing demand stems from just people wanting in on this (subsidized) investment. From what I can tell, this is the retirement plan foundation for many Americans. I guess this works until you come up on a generation that can't afford the last generation's houses? Or you need to be a company to afford the house and it gets "permanently" removed from the individual market. I'm wondering if lowering the maximum fixed mortgage length by one year every 2-3 years until we get down to 10 years would help moderate some of this due to there being a bit more risk to consider.
  • judge2020 4y ago
    > I suspect that most housing demand stems from just people wanting in on this (subsidized) investment. From what I can tell, this is the retirement plan foundation for many Americans. Renting hardly makes sense when buying is an option. Instead of giving your landlord $2k a month or $24,000 a year, it goes into a de-facto savings account that either keeps its value or goes up in value in case you ever need to sell it (with the only obstacles being times like right now where the high interest rates make it hard for prospective buyers to qualify - a $2,500 payment house at 2% from 2022 is $4,000 today at 7%).
• agrajag 4y ago
  The author is right that treating housing as an investment is a mistake, but doesn't take their analysis far enough. In the case where no new houses are built and their house appreciates significantly, after they sell their house _they still need a place to live._ Their next house will cost just as much, regardless of if they rent or buy, effectively eliminating all the gains they made selling the first house. The only real ways out of this are to move somewhere else with lower housing costs, or die. And really, it's worse than this, because their children will need housing too unless they're ok with them living at home forever. The mentality that housing is an investment good has created a lot of perverse incentives (buy as much house as you can, you'll make more money!), that we really need to curb so that we can lower the cost of housing for everyone. Housing needs to be a consumptive good, where much like cars there's incentives to drive prices down and keep overall spending on the sector low.
  • horsawlarway 4y ago
    I think you'll find it really tricky to remove the idea of land as an investment. And that's what we're really talking about when we talk about housing as an investment (the land is appreciating, the house is a pile of goods that's slowly rotting) There are lots of houses (and lots of land) that no one wants and is dirt cheap. There is lots of land that is very attractive because of the investment made in it (structural improvements, clearings, landscaping) There is also lots of land that is very attractive because of the investment made in the areas surrounding it (hospitals, entertainment, jobs, infrastructure). The problem is that at some point, people actually invested time/money/resources/energy/etc into making those areas "attractive". So now those areas are in high demand and the number of dollars seeking them out is far in excess of the amount of the space available, so prices rise. As a side note - if people can't make land an investment through housing, it absolutely does not guarantee that folks will lower the price of houses in those areas. It may well mean that they remove the housing and make the investment something else (industrial/agricultural/power). --- So really - to remove the idea that land is an investment, you have to remove the population growth in an area. Otherwise it's unavoidable. There is a limited amount of land, and more people competing for it. When people say things like "Housing isn't an investment in [area]" most times they really mean population is decreasing in that market (japan is a perfect example).
• wonderwonder 4y ago
  Most people are probably better off renting, especially those without a good deal of disposable income after expenses. Unexpected costs for a house just keep coming and the insurance company just laughs at you when you file a claim. My fence blew down and my sunken living room flooded in a storm and insurance classified it as a basement so it's not covered. That's been a 40k hit. I have to get trees trimmed, $3,500. Garage door opener stopped working. The hits keep coming. If I rented all it costs me is a phone call to my landlord.
  • judge2020 4y ago
    > If I rented all it costs me is a phone call to my landlord. Do you think your landlord would be fine staying in the red when all of these expenses creep up? Why wouldn't they just increase your monthly rent by 1/12th what they've spent upon lease renewal? Or is is that they actually get their Homeowner's Insurance claims taken seriously because they have n > 1 insured homes with the same provider?
    • wonderwonder 4y ago
      A landlord increasing rent is capped by comparables in the area. It's not realistic for a landlord to increase rent by over $3,300 a month. They would never be able to rent it. So while they can increase rent it still has to be competitive with comparable rentals.
      • judge2020 4y ago
        If you're already in a lease, chances are they will try to rent it for a few percent more than what they'd list it for on the open market. Many people are not attune to moving every year, especially if it's a house instead of an apartment, and will weigh the costs (incl. mental) of moving with the money they have left in their budget.
        • wonderwonder 4y ago
          Sure, but in the meantime all of the repairs have been completed vs the renter being unable to come up with 40k and their house remains flooded and damaged. Even simple maintenance likely covers the increase. I spend at least a $1000 a year just on ac maintenance. Add in lawn care and that's another $1500 (you could of course do it yourself). Need trees trimmed $2000 or 1 fell into your house?. Roof leak, $5000? Water heater, $3000? AC needs to be replaced, $8000? Someone backed into your mailbox? These are all large bills that many renters could not cover. Many of these happen in the same year.
• cosmin800 4y ago
  TLDR; let me guess, buying a house is a very wrong to do thing, Renting is always better. Circle is complete. You will own nothing and will be happy, everything will be available to rent ...
• readingnews 4y ago
  >> Alice is much, much worse off for buying. In total, buying costs ~$1.75M, where renting would have cost her ~$1.3M. Because her finances were tied up in the house while the home value has gone up so little, Alice has minimal savings. The only fallacy here is that most renters I know do not pocket "all that money I am saving renting not buying", AND, the article assumes in 18 years the rent price does not change. But the fixed mortgage would have _not_ changed. Interesting.
• holyknight 4y ago
  The main problem is inflation, and the second problem is that most houses are owned by people (boomers and silent gen people) who already have a lot of wealth (not millionares or anything but they got the opportunity to buy cheap and save for longer time) so there is no real incentive to make housing prices go down and make the net worth of that demographic plummet (you must also remember that almost all politicians belong to that same demographic). So basically us young and poor people are financing the wealth and comfort of the older generation through inflation.
• dukeofdoom 4y ago
  From landlords perspective. things are build with very poor quality materials, that require constant maintenance. Also weather damage of all sorts from trees to roofs, to water in basement. plumbing now made from plastic that leaks. long list. Also people fail to consider how much of the rent money is going to interest, about half over a lifetime. In cities like Toronto, the rent doesn't even cover the mortgage on most rented out houses. So landlord will need to pay the difference, with the hope of getting it back evnetually do to inflation or rising prices.
• notShabu 4y ago
  Many economic systems around the world rely on various kinds of "demand sponges" to soak up excess spending. This keeps inflation in check b/c excess spending can be directed towards a "Better Future" nest egg as the Future has theoretically infinite storage capacity. In the U.S. the SPY and real estate soak up most of this excess spending. In poorer countries, physical U.S. dollars. In China, real estate is the primary sink. In certain subcultures, GME/AMC/DOGE. One of the philosophical ideals of "hard money" is that there should be a way of transporting spending power into the future without loss that is primarily useless. The issue with using real estate and the stock market to transport wealth is that they have real use cases. People need to live in houses, stock prices need to be rooted in fundamentals otherwise everything is built on pillars of sand, etc... Gold and art are the most traditional ways of transporting wealth across time while bitcoin is one that is very techno but also very volatile. However, even for the very wealthy, a diversified stock portfolio is likely still the most pragmatic. Most normal people rely on real estate (to a fault, e.g. w/ 2008) b/c investing in the stock market has operational risk & psychological risk ("investors" end up gamblers). The FIRE movement tries to get around this via SPY dollar cost averaging but the end result is using the SPY as a hopefully-too-big-to-fail pension plan replacement. Through this lens, "just increase the supply of housing" is naive because it fails to account for the existing web of incentives. It's the engineering equivalent of re-routing entire rivers of cashflow. China's supply of ghost cities for e.g hasn't helped with housing b/c it's only certain locations where the traits of being a massive demand sponge are satisfied. Governments need to prop up the asset prices of these stores of value b/c so much is already invested in them. They need to prevent a "bank run" on these de-facto inflation-adjusted savings. Gold and bitcoin "solve" this problem because the withdrawals are theoretically distributed across infinite time as they are immortal systems. However most people do not think like vampires & instead want to solve problems like "how do we buy a house in a good neighborhood before we are past child-bearing age?" The assets become a carrier to play high volatility (but low expected return) games that are perceived as the only way to "win" (rational application of hail mary strategies) To summarize, real estate price appreciation is due to it absorbing the "inflation" that would otherwise be distributed across other assets and commodities. This river of inflow has a lot of cultural momentum and pragmatism behind it. (the demand is real) Redirecting this river requires an alternative sink of money that 1. Has enough volume and low barrier to entry to constantly absorb this flow. 2. Has non-homogenous motivations for entering/exiting to prevent bank runs 3. Preserves spending power across both short, medium, and long time horizons. Like the CAP theorem, it's unlikely one asset can satisfy everything b/c it's market value would be infinite. However it's interesting to think about the housing problem through the lens of demand sponges and all the layers of historical solutions and new solutions towards incentivizing/manipulating demand.
• riskcomplex 4y ago
  I'm one of the lucky ones. Bought a house for $350k during my PhD, while everyone tried to talk me out of it. This was 6 years ago. Today, not is my mortgage $1,300/month (while renters are paying double for a single bedroom apartment) but the house is valued at $800k-$900k. There's no way I'd be able to afford my current home today. It almost feels unfair.
  • dougmwne 4y ago
    Well, yeah, it is unfair! But unfortunately, this is not a case of good for you, too bad for them. Unaffordable housing will cause political extremism and will increase crime as more people realize that the deck is hopelessly stacked against them and that they will not receive any reward for playing along with our current economic system. Basically, California is an early experiment in this. Take a zig-zagging walk from the top of Market street to the Mission and you will know the future of America if we don’t keep housing affordable.
• denton-scratch 4y ago
  > Some people say home prices rise because of “sweat equity”, i.e., the work homeowners do improving the house. > With all due respect, this is a crock of shit. Don't agree. Well, I'm from the UK; authorities are introducing more and more regulations requiring significant improvement in the housing stock. These kick in when you let the place or sell up; they are to do with insulation, damp and mould, fuel efficiency and so on. The authorities don't regulate granite counter-tops. There is a lot of old housing stock in the UK. I think that in a lot of the USA, it's common to knock down the house you bought and build a new one; that's not common here, although it happens. There are good things about old houses; if it's stood for 120 years, it'll probably manage another hundred. I know that's not why house prices rise; they rise because of increasing demand against a limited supply. But be fair; home improvement isn't all about paint, putting up shelves, or redesigning the kitchen. A lot of HI projects result in an objectively better house.
  • theandrewbailey 4y ago
    > I think that in a lot of the USA, it's common to knock down the house you bought and build a new one. Maybe in specific places (like Detroit), but generally, no. Most new houses are built on empty lots that never had a structure on them. Though I've heard that cheap McMansions built 20-30 years ago are deteriorating alarmingly fast, so demolition might be more common in the near future.
• deleted 4y ago
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• dkrich 4y ago
  Markets are funny. They are colored by recency bias. You have an investment nobody cares about for years and years and then all of a sudden there’s a ground shift and it becomes extremely valuable overnight. Then the value seems like it was self-evident all along. But markets are also cyclical and ground shifts work both way. Right now anyone owning a home seems like a genius and anyone renting seems like a poor sucker. I suspect that eventually the pendulum will swing back for unforeseen reasons and people will swear off ever owning more things than they need. The minimalist theme seems to come up every cycle. Btw, to the point about housing not producing anything but relying on the greater fool theory- that is not unique to housing. For example, right now beyond meat is an investment nobody is interested in. But suppose you get some sort of terrible virus that wipes out half the cattle population and the price of beef goes up 80x. All of a sudden beyond meat will likely have more demand than they can satisfy. They didn’t necessarily innovate more than they did previously, but a ground shift brought them a spike in demand. Housing is no different. ZIRP followed by a very fast move to 4% on the 10 year created an environment of owners who suddenly found themselves locked into low interest mortgages in a very high interest rate environment. There doesn’t have to be an increase in productivity for an asset price to increase, just an increase in demand for it.
• varelse 4y ago
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• kiwiguy 4y ago
  Try buying a house in New Zealand...
• tonymet 4y ago
  To pile on to the ills of housing cost inflation – there are high order effects on cost. Your $3k / mo day care is expensive because the staff is paying $2500 / mo for their apartment. Auto repair is now $175+ / hour, so are most plumbers, handymen and contractors. The cost of every good & service you are buying is in large part the rent for all the laborers that supplied the inputs. You may think that minimum wage should rise, but that just takes pressure off of rents and rents go up. This is not an easy problem to solve, and every mitigation tends to worsen the problem . We've had inflation for 30 years, most of which piled into housing. Covid accelerated the release of the pandora's box.
• marcus_holmes 4y ago
  I love this, but it missed out one factor: the banks. Mortgages before the 80's were tied to your income, and for most households that was a single income. House prices couldn't rise beyond a fairly low point because no-one could get a mortgage for them. Then in the 90's this broke two ways: most households had 2 incomes as the norm became that married women also worked, and the banks started giving mortgages on much higher ratios, leading to the 100% no-deposit mayhem of the early 00's and eventually to 2008's crash. We will spend as much as we can on a house. If you lend us 3x our salary, we'll buy the best house we can with that. If you lend us 10x our salary, we won't sensibly buy a house that costs 3x our salary, we'll buy the best house we can find for that 10x loan. House prices are therefore free to rise spectacularly fast, as they did, because any dip in supply leads to price increases. Until we're here, where no-one can afford to buy a house unless they have a house to sell.
  • Nemo_bis 4y ago
    Hence in many countries in Europe, e.g. in the Nordics, there's one simple way to gradually reduce prices: reduce the supply of mortgages for more expensive housing. The state backstops most mortgages, but by the same mechanism (or with the help of the banking regulator) also sets the rules on how to give them. When prices get too hot, the regulators simply decrease, or refuse to increase, the nominal amount of the max mortgage you can get with the state's support, and/or the maximum allowed mortgage repayment as a percentage of your monthly income (in a stress-test at 6 % interest rates). Lowering the demand immediately pushes down housing prices; regulators stop when prices are down 15-20 % so that the banks avoid losses. This is possible in the USA too, given nearly all mortgages are federally supported.
    • marcus_holmes 4y ago
      This is great. I wish Australia did this
    • jahewson 4y ago
      The more expensive housing in the US is famous for all-cash transactions so I don't think this works.
• zajio1am 4y ago
  There is no need to look for heterodox explanations. There are clear economic and political factors explaining why there is a housing shortage and why such shortage causes raise of prices. Vetocracy and NIMBYism is something that is deeply embedded to modern western society. For larger housing developments, getting permits can take several times longer than actually building it, can be attacked at courts by almost anybody and significant improvement would be blocked by zoning anyways. That essentially caps housing supply in popular places, which means the price is determined just by demand (i.e. wages and mortgage rate), which grows fast in booming areas.
• Night_Thastus 4y ago
  The age of owning a home is going away. No one wants to hear it, it sounds like nonsense, but I really think it's true. Over the next few decades, home ownership will be reserved for the very wealthy. Everyone else will be renting in some form or another. If you're less well off it will be a cheap apartment. If you have a better job, it might be a nicer single-family home. But it'll all be rented, because that's where the real money is and the system is successfully squeezing out the possibility of ownership.
• ben7799 4y ago
  The math in the article seems wonky and oversimplified to support the author's viewpoint. It seems the writer doesn't have enough perspective as the answer to the question of whether a house is a good investment has to do with which house you buy in which market at which time. Some houses in some areas are bad buys at some times. Lots of other houses in lots of other areas are good buys at other times. The author completely glosses over: - Land space near powerful economic areas is finite - No one will let you build infinite new houses if it requires you making them sell and move off the land they already own - The article makes it out like you could pay the same rent your whole life and/or stay in the same place all that time. That's unlikely, smart landlords are always going to raise prices as much as they can, not overspend on anything to do with services, and will decide to not renew your lease if they decide you're not worth it. - The math about a $700k house versus a $2900/month mortgage is highly suspect. $2900 is not renting much of a house in an area where a house is $700k. $700k here will get you a modest older house. $2900 will rent a studio in my area. (Expensive area). There are many 2 bedroom apartments going for $5000/month. I've been in my house 13 years and my mortgage payment has gone down 3x as interest rates fell and we were able to re-finance. The last apartment I was renting has more than doubled in rent in the last 13 years. It is 2.5x what the mortgage on the house is, and the house is 4x the size of the apartment and we actually own land. - Nailing down a fixed rate mortgage with a payment that doesn't rise versus ever ascending rent means you can actually save money to invest in other things if you're smart and diversify your assets. Not all of us are going to see what the Baby Boomers saw. But owning a house is still a way to get ahead of peers. Certainly smarter than burning massive money on expensive cars every few years and lots of the other excessive spending that happens. You have to keep in mind the returns the baby boomers got were due to massive changes in the economy and interest rates over their lifetime. Boomers bought their starter homes sometimes with 15-20% interest rates back in the 1970s. Those sky high interest rates were what kept house prices so low back then. Population growth & density in the areas they bought in made land scarce while interest rates fell to nothing so it was natural for prices to skyrocket.
• zpeti 4y ago
  This is all the feds fault. It sounds very 2010 but people need to get back to what the occupy movement was about. The fed should NOT look at house prices as an asset, for almost everyone it’s an expense and if it’s going up in price that’s just plain old inflation, nothing else. Interest rates never should have been this low for so long. It was a massive wealth transfer to the existing asset owners from working people. I just can’t believe there’s been zero blowback about this. And the entire 2008 crises. Many many people should be in prison.
• lumb63 4y ago
  This idea is well over one hundred years old (closer to two!) [0]. Back when it was conceived of, solutions were proposed alongside the problem. To use more in-vogue economic terms, the increase in value of housing is typically a result of positive externalities. The government adding taxes to the system to allow it to account for the externality is a very reasonable method of dealing with this problem. It doesn’t solve the problem for everyone who bought into the pyramid scheme, though. Personally, though, I don’t have much sympathy for people using homes as more than a home. [0]: https://en.m.wikipedia.org/wiki/Unearned_increment https://en.m.wikipedia.org/wiki/Unearned_increment
• Exendroinient00 4y ago
  Threads like this inevitable devolve into socialism vs capitalism debates. Better not to engage.
• michaelje 4y ago
  This was a thoughtful read - but found the conclusion avoided the biggest challenge of all - that housing is not just a financial decision - but rather, people require housing to live their lives.
• michaelje 4y ago
  This was a thoughtful read - but found the conclusion avoided the biggest challenge of all - that housing is not *just* a financial decision - but rather, people require housing to live their lives.
• jonfw 4y ago
  I think the issue has been worsened because it was easier, politically, to work around the problem by making mortgages more attainable rather than by doing something to decrease the value of the home. In the short run, everybody is happy- developers make money and build houses, consumers and investors can borrow cheap money with little leverage to get a worthwhile asset, and existing homeowners see their house appreciate and can re-fi to take advantage of the cheap cash. However, this strategy doesn’t scale. You can only make mortgages so attainable, before you get 2008 all over again. I think inflation has been the answer- with massive inflation, we can decrease the real value of a house and make mortgates more expensive without people ending up underwater. Of course, inflation has many of its own problems, like we’re seeing today
• zoomablemind 4y ago
  > "...Moreover, houses are pretty much the only physical good that are expected to 1) appreciate in value, and 2) be used all the time." That sounds more like a perpetuum mobile. I wish the author cosidered the third choice that is "an empty lot with a vision to build that exact house from ground up". Something tells me that the current building costs contribute a lot to the home prices in general and project the "recapture" into the future. Whether ammortization of the real estate is fairly factored in the price remains unknown. Also, what is indeed maintaining the scarcity is the land itself, well, that's the part of the "location".
• Nifty3929 4y ago
  I think an important point is that people might mean a couple of different things by “investment:” One is a more traditional idea of investment, which isn’t so much about money, or cashing in later - it’s about having this particular dirt here for myself after some period of time. I may never get a financial reward, but this plot of land is MINE. Another way “investment” is used is indeed about a financial reward and being able to sell for more later. Basically speculation. Regarding the former, this is a natural way to think about it and while it might be expensive, the rational makes sense even if I don’t agree with it. Regarding the latter, I think this came about more recently as people empirically observed housing prices going up, often faster than inflation. Without really understanding WHY it’s doing that, you might think of it like stock. But the real reason housing had been going up over the last decades is that the government (US, and many others) have poured a lot of money into that market in various ways: tax incentives, loans, etc. Supply restrictions come into play as well, but that’s a very local thing and not generally applicable. So it’s not connected to real outputs like an investment. It will only keep going up as long as the government keeps pouring in more money. And when they don’t, or can’t, it won’t. And that’s when the “investment” will start to look a lot more like a speculation gone wrong.
• freedude 4y ago
  "But now, if she buys a home, she needs housing prices to keep going up to make her decision financially sound. And not just go up, but outpace inflation and — almost certainly — wage growth. Otherwise, she's cost herself hundreds of thousands of dollars. For buying to be worth it, she needs the price of her home to double." They overstate this. All she needs is for rent to continue to rise for it to be worth it. With most sane mortgages the costs are fixed for the life of the mortgage. Rent is going up. Always. Well, almost. With the regulatory costs of new residential building in most of the West stifling growth, there will be no over-abundance of new rentals hitting the market any time soon. That said, how did I do it? My wife and I knew we didn't know how to do it. So we asked someone who had made a lot of mistakes and was finally successful at owning property. "Take a Dave Ramsey class", they said. I didn't want to take the class, but I finally realized that I didn't know what I didn't know. It was shortly after someone I know well said something like, "suck it up buttercup!" That was 9 years ago and our dream was to own a modest home on about 5 acres. 4 years later after changing our entire outlook on spending we bought a 3 bedroom, 2 bath home on 8 acres. Living through a pandemic on 8 acres was way better than the postage stamp we moved from. It was a blessing. My recommendation: Buy now before the next "Good Reason" to live in the country hits the fan. Look an hour to an hour and a half away from downtown in good traffic. Have Fun!
• logifail 4y ago
  > 30 year fixed rate mortgage at 7% Q1: Why would one use that rate to compare? and Q2: Who here has ever paid that high a rate on their mortgage? We sure haven't! Signed our current floating rate 25 year mortgage back in 2008, so far the only great financial decision we've made. My feeling is that cheap money has seeded a bunch of problems all over society, not just in the housing markets.
  • advisedwang 4y ago
    Q1: because 7% is roughly the current rate for a 30 year mortgage right now. https://www.bankrate.com/mortgages/mortgage-rates/ https://www.bankrate.com/mortgages/mortgage-rates/ Q2: Anyone you see who is buying a house right now is paying that rate.
    • logifail 4y ago
      Errm, fixed != floating. Who is fixing at 7% for 30 years?
      • advisedwang 4y ago
        Per the source I quoted "For today, Monday, March 06, 2023, the current average interest rate for the benchmark 30-year *fixed* mortgage is 7.08%"
• aschearer 4y ago
  Case-Shiller Index: The same house being tracked through subsequent sales over time. 1990s: 70-100 2010s: 140-212 2020s: 200-300-??? https://fred.stlouisfed.org/series/CSUSHPINSA https://fred.stlouisfed.org/series/CSUSHPINSA
• nickpinkston 4y ago
  If you want to make an impact to housing affordability, I'd ask you to consider getting involved in the YIMBY movement. I joined the board of YIMBY Action who lead the fight for housing affordability in CA and across the US, and I did so because I see the change this movement can bring, and we're making some major gains throughout the US. Even just signing up to get the emails or a modest donation is a huge help! They also have a great Slack for all things housing. https://yimbyaction.org/ https://yimbyaction.org/
• nathants 4y ago
  whether or not housing should be an investment, it is. legislation and culture have grown around this idea for decades. sometimes the only way to win is actually to play the game. the nice part of housing being and investment is that you can live in it. you wouldn’t treat your index funds like a pet, so don’t treat your house like one either. buy houses that are newish to avoid maintenance. take out a heloc immediately just in case you need cash later. sell as soon as you max out the tax free profit on a home sale. if you work remote, be open to moving around. compare new housing in dallas vs austin as an example. it’s like that everywhere. look in the town over, the state over, and in random locations too.
• deleted 4y ago
  [deleted]
• fkrentparasites 4y ago
  Always amazes me how YC and PG get zero mention on housing threads here for AirBnB destroying communities and housing worldwide. I've totally lost all respect for their "fuck the rules" approach. PG, this is what you get when you turn every human need into a VC backed hunger games cesspit. Congratulations.
• yrdmb 4y ago
  Home equity is the largest retirement asset of most americans. Far greater than 401ks, savings, etc. Even if it was a mistake, there is no turning back now with millions of baby boomers set to retire and tap into their retirement assets.
  • modzu 4y ago
    i aint givin up mah slaves
• anothernewdude 4y ago
  Does this analysis assume rent stays the same? I can't see its assumptions for rent prices changing. Because I calculate my mortgage as being worthwhile by comparing what I pay monthly in interest vs. what I would've paid in rent. Interest payments go down, rent goes up. It's an easy comparison to make - ignoring any capital changes, which is just free money.
• Avlin67 4y ago
  In France we have a state backed association which gets money from taxes then builds new buildings in prioritary zones so that not so rich not so poor people can still afford proper renting inside big cities. Thats why I can rent 126m2 for 1900€ a month which is cheap. counterpart: I live in a « shitty neighbour » but it ends up multicultural and i feel safe, my wife ultra close to her job. I think the state needs to enforce building construction/rénovation. same for buying, in france i can get VAT 5.5 instead of 20 in prioraty zone and also 100k free mortgage. all combined i did buy @4500€ per m2 in close suburb instead of 10k. priority zone ? well then they juste build a brand new school with a small forest on top of it. in this case i agree. paying taxes ( prices are for Paris, i have no clue how it works in USA)
• rakkhi 4y ago
  The only realistic way to make housing or property in general a bad investment and leave it as shelter is to control credit. First investment property (i.e. not a primary residence or PPOR) max loan to value ratio (LVR) 80%, second investment property 50%, third + no credit. There was a reason why in Australia for example that housing prices were pretty flat for a 100 years and only took off after late 1980's following financial deregulation of banks. It would be great of course if we didn't centrally plan and set the most important price (the price of money i.e. the interest rates) via fiat. It should be set by the market i.e. the demand for money (borrowing) and supply (savings). But governments will never let go of that power so it is not realistic. Maybe after this round of global recession / depression with property price crashes we will do the first step.
• dbttdft 4y ago
  > produce more widgets doesn't that have something to do with computer programming?
• jscipione 4y ago
  This is a strange takeaway when it’s obvious that the value of housing is not the problem, but the devaluation of our currency by out of control government spending that is to blame.
• KETpXDDzR 4y ago
  The Case-Shiller index, in points, adjusted for median income and inflation is almost constant for the last 50 years [0]. [0] https://adjusted-for-inflation.com/case-shiller-index/ https://adjusted-for-inflation.com/case-shiller-index/
• HashBasher 4y ago
  This problem is well-known amongst bitcoiners. When the currency is abundant, everything becomes scarce. When the currency is scarce, everything becomes abundant. Real estate has been monetized because the money is too abundant. The marginal cost of the next dollar is near zero, which is not the case for houses. The demand that monetized real estate and other scarce assets will find a better home in Bitcoin. At that point, Alice will have no woes about house prices as it will go down to it's utility value. When housing is demonitized, it will once again make sense to rent if you put your downpayment in a hard money.
• marginalien 4y ago
  Interesting read. However, the author misses some important motivations why people choose to buy instead of renting. For example, I don‘t expect it to generate much value for myself, but for my kids, as they will inherit it one day. Imagine not having to choose between renting or buying a home in the first place. That’s the start I want to provide my kids with. I thinks it’s a good one. The other reason why I chose to buy is self-discipline. Yes, renting typically leaves you with some money at the end of the month that you can use to invest in the stock market - which oftentimes yields more benefits in the long run over buying (and financing) a home. But that’s just theory. In practice, many people (and I’m including myself here) will use the extra money not to invest in stocks etc. but to consume at a higher level - to buy the more expensive car, to take the more expensive trip, eat out for dinner a lot etc. Knowing that I rather chose to buy and finance a home because that way I am forced to spend my money in something that even my kids will benefit from rather than consuming it.