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"Housing can be affordable or it can be a good investment. Not both." This is a cut&paste response predictably in every housing thread. Can we dig deeper and

by jjav 2y ago

"Housing can be affordable or it can be a good investment. Not both." This is a cut&paste response predictably in every housing thread. Can we dig deeper and do some analysis?

steveBK123 2y ago
It is a simple mathematical fact of nature. If something goes up more than inflation - it is a good investment, but also less affordable over time (it costs you more labor hours to purchase over time). Think - tech stocks, housing, etc. If something goes up same/less than inflation - it remains affordable. Think - basic consumer goods we mostly import like laptops, t-shirts, etc.
- jwarden 2y ago
  > If something goes up more than inflation - it is a good investment It’s not that simple. First, risk is a also factor. But a real estate investor is not just looking for capital gains. They are looking at rent yields against costs (taxes, insurance, maintenance, interest). Real estate can be a good investment even without appreciation in real terms. And that is a good thing. Real estate investors play an important role in society. Without landlords, it would be impossible to rent a home. So anyone without the ability to purchase a home would have to rely on friends and family or charity, or sleep in the street.
  - steveBK123 2y ago
    Sure but if you make the tax incentives TOO good for landlords, owner occupied housing % goes down as those with capital amass larger portfolios to lease out. Further if you made building housing easier there would be more available, with less price pressure from excess demand pushing prices and rents up. I’m more interested in enticing developers to build than I am encouraging more landlords.
    - jwarden 2y ago
      Okay but I think we’ve lost the thread of the argument. I am arguing against the claim "Housing can be affordable or it can be a good investment. Not both." You support this claim with the argument that “If something goes up more than inflation - it is a good investment” and therefore it can’t be affordable. I am saying real estate can be a good investment even if it doesn’t go up more than inflation. Do you disagree? Further, for landlords to make homes available to rent, housing must be a good investment. Do you disagree?
      - ItsMonkk 2y ago
        Note that a Georgist tax on 100% of land rental value does not stop the landlord from earning a return on their improvement values. The land tax of a property with a 100% land tax will decrease the land price down to $0, and thus instead of for instance putting $500k into buying land and $500k buying apartments, they could instead buy 2 $500k apartments for the same capital cost. The end result of this will be more apartments, which will bring down rents, but this will yield a higher ROI than they currently achieve, since they have to pay less rents to the banks.
      - steveBK123 2y ago
        > I am saying real estate can be a good investment even if it doesn’t go up more than inflation. Do you disagree? Yes I think so. You need rents to escalate faster than maintenance costs (which are tied to inflation closely) for this to be a good trade. So again - for rent to become relatively less affordable over time.
        jwarden 2y ago
        It sounds like you are not considering rental income (the argument I made in my original comment). You only need growth of rental income to exceed growth of cost for it to be profitable to be a landlord. Am I incorrect?
- Marsymars 2y ago
  I find inflation is a bit of a red herring. I like to think in inflation adjusted dollars with price relative to GDP. If something goes up faster than GDP, it's a good investment, but less affordable over time, etc.
  - steveBK123 2y ago
    GDP / inflation / labor hours all loosely correlated though, so we aren't too far off. Really I think of things in two main buckets- Stuff that's going up faster than income and therefore the sooner you buy it and lock in a level, the better. This is also something that you can invest in, because it means when you sell in 10-40 years at retirement, it will have appreciated. Stuff that's going up slower than income, and I'll buy it as needed. For example on the face of it - cars and houses should both depreciate. They cost money to maintain, that maintenance cost goes up over time (it is labor), and newer ones get nicer and nicer. However it is only cars that depreciate. And I don't just mean a used car. A 2000 Honda Civic started at $13k new. A 2025 Honda Civic starts at $24k new, and you now have good reliable Hyundai Elantra at $22k, which weren't as prevalent and reliable 25 years ago. The fact that we underbuild is why houses refuse to depreciate though.
    - jjav 2y ago
      > cars and houses should both depreciate Perhaps, but at vastly different time scales. For most normal people a car degrades to beater status in just a couple decades. Houses last more than a lifetime in most cases, barring natural disasters. Many centuries in some cases. > The fact that we underbuild is why houses refuse to depreciate though. Given that a house is seemingly good forever (no, not forever, but longer than a human lifespan) its value must go up at least as much as inflation. This is easy to prove by contradiction. Assume it didn't: it would mean two identical houses right next to each other would have vastly different prices depending on when they were built. But we know they don't, since comparables in any given neighborhood have about the same price (the value is assessed based on the comparables, after all). If a house was built 30 years ago for $100K in labor and materials and an identical house across the street cost $400K in labor and materials to build today, the older house can't help but be worth at least as much because it is a comparable property. Sometimes the argument is made that we'll just build so much that values are pushed below this, for both the old and new comparables. It is not clear to me who that "we" can be though, since no builder is going to afford to sell houses below cost of construction.
deleted 2y ago
[deleted]

by jjav 2y ago

"Housing can be affordable or it can be a good investment. Not both." This is a cut&paste response predictably in every housing thread. Can we dig deeper and do some analysis?

steveBK123 2y ago

It is a simple mathematical fact of nature. If something goes up more than inflation - it is a good investment, but also less affordable over time (it costs you more labor hours to purchase over time). Think - tech stocks, housing, etc. If something goes up same/less than inflation - it remains affordable. Think - basic consumer goods we mostly import like laptops, t-shirts, etc.

jwarden 2y ago
> If something goes up more than inflation - it is a good investment It’s not that simple. First, risk is a also factor. But a real estate investor is not just looking for capital gains. They are looking at rent yields against costs (taxes, insurance, maintenance, interest). Real estate can be a good investment even without appreciation in real terms. And that is a good thing. Real estate investors play an important role in society. Without landlords, it would be impossible to rent a home. So anyone without the ability to purchase a home would have to rely on friends and family or charity, or sleep in the street.
- steveBK123 2y ago
  Sure but if you make the tax incentives TOO good for landlords, owner occupied housing % goes down as those with capital amass larger portfolios to lease out. Further if you made building housing easier there would be more available, with less price pressure from excess demand pushing prices and rents up. I’m more interested in enticing developers to build than I am encouraging more landlords.
  - jwarden 2y ago
    Okay but I think we’ve lost the thread of the argument. I am arguing against the claim "Housing can be affordable or it can be a good investment. Not both." You support this claim with the argument that “If something goes up more than inflation - it is a good investment” and therefore it can’t be affordable. I am saying real estate can be a good investment even if it doesn’t go up more than inflation. Do you disagree? Further, for landlords to make homes available to rent, housing must be a good investment. Do you disagree?
    - ItsMonkk 2y ago
      Note that a Georgist tax on 100% of land rental value does not stop the landlord from earning a return on their improvement values. The land tax of a property with a 100% land tax will decrease the land price down to $0, and thus instead of for instance putting $500k into buying land and $500k buying apartments, they could instead buy 2 $500k apartments for the same capital cost. The end result of this will be more apartments, which will bring down rents, but this will yield a higher ROI than they currently achieve, since they have to pay less rents to the banks.
    - steveBK123 2y ago
      > I am saying real estate can be a good investment even if it doesn’t go up more than inflation. Do you disagree? Yes I think so. You need rents to escalate faster than maintenance costs (which are tied to inflation closely) for this to be a good trade. So again - for rent to become relatively less affordable over time.
      - jwarden 2y ago
        It sounds like you are not considering rental income (the argument I made in my original comment). You only need growth of rental income to exceed growth of cost for it to be profitable to be a landlord. Am I incorrect?
Marsymars 2y ago
I find inflation is a bit of a red herring. I like to think in inflation adjusted dollars with price relative to GDP. If something goes up faster than GDP, it's a good investment, but less affordable over time, etc.
- steveBK123 2y ago
  GDP / inflation / labor hours all loosely correlated though, so we aren't too far off. Really I think of things in two main buckets- Stuff that's going up faster than income and therefore the sooner you buy it and lock in a level, the better. This is also something that you can invest in, because it means when you sell in 10-40 years at retirement, it will have appreciated. Stuff that's going up slower than income, and I'll buy it as needed. For example on the face of it - cars and houses should both depreciate. They cost money to maintain, that maintenance cost goes up over time (it is labor), and newer ones get nicer and nicer. However it is only cars that depreciate. And I don't just mean a used car. A 2000 Honda Civic started at $13k new. A 2025 Honda Civic starts at $24k new, and you now have good reliable Hyundai Elantra at $22k, which weren't as prevalent and reliable 25 years ago. The fact that we underbuild is why houses refuse to depreciate though.
  - jjav 2y ago
    > cars and houses should both depreciate Perhaps, but at vastly different time scales. For most normal people a car degrades to beater status in just a couple decades. Houses last more than a lifetime in most cases, barring natural disasters. Many centuries in some cases. > The fact that we underbuild is why houses refuse to depreciate though. Given that a house is seemingly good forever (no, not forever, but longer than a human lifespan) its value must go up at least as much as inflation. This is easy to prove by contradiction. Assume it didn't: it would mean two identical houses right next to each other would have vastly different prices depending on when they were built. But we know they don't, since comparables in any given neighborhood have about the same price (the value is assessed based on the comparables, after all). If a house was built 30 years ago for $100K in labor and materials and an identical house across the street cost $400K in labor and materials to build today, the older house can't help but be worth at least as much because it is a comparable property. Sometimes the argument is made that we'll just build so much that values are pushed below this, for both the old and new comparables. It is not clear to me who that "we" can be though, since no builder is going to afford to sell houses below cost of construction.

deleted 2y ago

[deleted]