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Rethinking rent: Maybe we should stop trying to be a nation of homeowners
- rokhayakebe 18y agoWhat we need is lower home prices across the board, along with smaller homes instead of 4000 sqf for a family of 3. See the Rocio Romoro homes.
- jmtulloss 18y agoHow does this address the problems raised in the article?
- rokhayakebe 18y agoThe article states that "owning" is not the right solution for everyone, but what it omits to state is that in most of those countries where the majority of the population can afford to not own a home, their social security takes care of individuals once they reach the age at which working to fork that rent out is not possible anymore. In the US, that is not currently possible. So the solution indeed is to buy a house and hope that by the time you reach retirement and cannot work anymore, you at least have a home and maybe the tiny bit of money you were able to save will suffice to pay your bills and food. The solution in the US is not to fix social security and ensure those who rent today will have enough to rent when they retire, it is to reduce the cost of home ownership, so by the time you are 65 you already own a home you can afford to live in because you own it after only 15 years of hard work, not 30+.
- falsestprophet 18y agoOwning a home is lovely. But being overexposed to real estate, like any other asset class, is imprudent.
- vaksel 18y agoI disagree with that article...home ownership is something everyone should strive for. The home equity line is a huge security blanket for living in today's economy. Thats an additional $100-200K line of credit that you'll always have access to.
- anamax 18y ago> Thats an additional $100-200K line of credit that you'll always have access to. Most people don't have $100k in equity these days.
- ShabbyDoo 18y agoI couple hundred grand in insured CDs would be a much better security blanket.
- vaksel 18y agoobviously...but what makes you think you'll be able to get that much, when most of your money is going towards rent? At least with home ownership, most of the money you pay, will go back in your pocket when you sell the house
- redrobot5050 18y agoIf you can sell the house. In a down market, you might lose money, or like the article says: get stuck in a bad local job market. The potential payoff from selling your home isn't "security", its counting your chickens before they've hatched.
- steveplace 18y agoHELOCs are one of the issues that got us into this mess.
- trjordan 18y agoHomeownership by itself is not useful, but it does promote saving. For the average family, a home is the most expensive thing they will ever save for. After 10 years in that mortgage, they'll have significant equity that they probably wouldn't have otherwise had. Is it a risk and possibly a poor choice to own a house? Versus other investments, possibly. Versus consumption and other disposable income spending, absolutely not. There a lot of people that could do better if there were more knowledgeable about ways to save capital, but it the absence of the knowledge, owning a home is not a bad default.
- azanar 18y agoHomeownership by itself is not useful, but it does promote saving. For the average family, a home is the most expensive thing they will ever save for. After 10 years in that mortgage, they'll have significant equity that they probably wouldn't have otherwise had Does it? This presumes that for those entire 10 years, the family never refinanced the house, and never used that refinancing to pull equity out. I don't have any statistics in front of me, but given as big a market as there was for refinance deals, I imagine the number of homes being cash-out refinanced was nowhere near negligible. I can imagine the temptation was quite large for anyone not independently wealthy, but wanting to live the good life anyway. Does anyone have a source for numbers of homes refinanced out of all possible homes in the past 10 years? Even more interesting to me would be statistics on the amount that tended to be cashed out in said transactions.
- brc 18y agoThis is one of the most important points : the enforced savings plan and relatively illiquid asset. For many people, the enforced discipline of putting money away by paying down their principal pays off for them. Of course you can refinance or trade homes every 5 years and get nowhere. But if you stay put for a long period of time, buy wisely in the first place, and maintain the property, it will pay off. Well placed property is uniquely inflation proof because it normally contains intrinsic value. You can achieve the same thing by renting and regularly putting a portion of your income away into quality assets : but the temptation to liquidate part of your portfolio always will remain strong. This is where people come unstuck. The danger is in this advice/thought process being taken to apply to all property, regardless of location. I can foresee far-flung suburbs with long commutes continually falling in value as people factor in the cost of transport to their overall living costs. The government should exit the property incentive market. No tax deductibility for renting or buying. No incentives or guarantees for high-risk mortgages. Let the free will of the people decide what is the best for them. The only laws in place should govern the quality of the property, and against unfair eviction/foreclosure. And there should be laws in place to allow for longer term tenancies. On any commercial property, it's easy to get 10-12 year leases on a property. It's rare to get more than a 12 month lease on a rental property : probably precisely because it's easier to evict a commercial tenant than a residential tenant. The more government controls are put on tenancies, the worse the overall effect for tenants (like rent control, which results in a good deal for a few tenants, and a bad deal for most) If you could sign a 10-year lease on a house and be allowed to modify the interior (paint, floorcoverings, etc) then the merits of onwnership vs renting could be more equally compared.
- bprater 18y agoI've always rented. While I've "tossed my money down the drain", I've been able to live on the coast, in a mountain town (wanted to learn snowboarding) and in Amsterdam, to name 3 places. Is having the unique experiences worth it? To me, they were.
- cubicle67 18y agoI've done both, and I like owning my own home. Biggest advantage of home ownership? Freedom to do what you like with it; I can hack my own home. But - I'm outside the US and I pay far less (half) in mortgage payments than I would in rent.
- ShabbyDoo 18y agoI'm glad the article points out the cruel government incentive to buy rather than rent. It's one of the few regressive taxes (other than the lottery, some might say) that we have in the US.
- colins_pride 18y agoDon't forget cigarette & alcohol taxes
- ShabbyDoo 18y agoGood point. When Cleveland levied a new sin tax to finance its stadium, the local labor unions opposed it citing the unfair burden such taxes place on their members!
- fortes 18y agoSales taxes are also regressive, because expenses are a much higher percentage of income for those that make less. This is also true for payroll taxes.
- ShabbyDoo 18y ago"Others favor greater security for renters - such as laws making eviction more difficult" This is nothing more than a government-mandated insurance policy. Landlords require higher margins due to the risk of freeloaders. Also, landlords may avoid renting to those most likely to be "helped" by such policies. It is ironic that today's laws make home ownership a safer choice if one defaults on payments -- In most states, foreclosure takes much longer than eviction. So, given the choice between renting and taking on an interest-only, no money down home loan, the less risky choice for a family is ownership. Of course, those families couldn't get such a loan today.
- 3pt14159 18y agoTotally agree with your sentiments, but the obvious objection to your argument is that ones credit rating would take a massive hit on default, affecting everything from car insurance, to rental agreements.
- ShabbyDoo 18y agoIn pursuit of my hobby of photographing abandoned buildings, I drive through the parts of Cleveland recognized Nationally as the "epicenter of the foreclosure crisis." On almost every block in the ghetto is a home with part of the roof covered by a blue plastic tarp. The owner doesn't have the money to repair the roof (or doesn't believe doing so to be a good investment?). There is much other evidence of short-term choice rather than long-term economically optimal decision-making when it comes to property upkeep. Perhaps, if these homes were owned by professional landlords, repairs would be made.
- alecco 18y agoFunny, from personal experience landlords need to get pushed by tenants constantly to make repairs.
- neilk 18y agoThey have an incentive to keep repair costs under control, not to avoid repairs entirely. But, that said, not everyone is economically rational. Some landlords do perceive fixing stuff just as an expense rather than a way to ensure repeat business. I'm either lucky or super picky because my landlords have usually been great about fixing stuff.
- blackguardx 18y agoSo what areas strike you as the worst? East Cleveland? That area had big problems before the crisis started. For some reason, people seem to have given up on it long ago. Also, I am not sure that having a professional landlord would ensure timely repairs. I lived in a house in Cleveland Heights where the landlord's philosophy was to wait to make repairs until a problem ballooned out of control. Instead of fixing a slow washing machine drain pipe, he waited until it was completely clogged. At that point, doing laundry meant a flooded basement. My roommates and I had to go down there with buckets to bail it out until he had the problem fixed a month later. Every time we called him he would assure that someone was "stopping by next week." We also had cracks in our plaster walls that spread so much that the entire wall crumbled to bits. This happened in several places. His "handyman" came buy and did the worst repair job I have ever witnessed. It almost looked worse that the bare lath!
- azanar 18y agoHome ownership strikes me as just a symptom of another more fundamental sacrosanct value in society, that of stability and security. The author alludes to that in the article, but I think he needs to play it up more. For many people, this seems the real default, and buying a home is just outward evidence of that. Buying a home is a statement of commitment, that you will be there for at least as long as needed to make up the closing costs and what-have-you. Whether the house is just a byproduct of that attitude, or meant to directly project it, I don't know. But I don't think that everyone should make that sort of commitment, or that we should disproportionately laud those that do. This is not a critique against people who desire security and stability, this is a critique against the attitude that you must be secure and stable to be worthy. I've seen it make a lot of people around me become depressed, because they simultaneously desire a more interesting life but fear being branded as flighty and irresponsible. Maybe this is their own problem, for being unable to reason their way out of this internal battle, but it is ubiquitous enough that it indicates a more fundamental brokenness. I also wonder about the reported psychological benefits the author mentions. I wonder how much of this is induced by the belief that home ownership is meant to make you happy. If it doesn't then there is something wrong with you, not with your decision to buy. Not that there aren't happy homeowners, but that there are unhappy ones. It's the same with a lot of defaults; everyone else seems happy enough with them, why aren't you? Perhaps one of the biggest defaults, and the one that drives a lot of this, is the belief that those who follow the defaults are happier deeper than the image they project.
- joeyo 18y agoThis is a really great point. I think many people buy homes because it is that thing they have to keep up with their neighbors/peers. On the other hand, owning your own property empowers you in ways that should not be discounted. To give simple example, consider the problem of "gentrification." This happens when there is a poor neighborhood that over time attracts a young, usually creative crowd. This leads to pressure for housing there, that in turn leads to speculators and developers who improve/replace buildings further driving the process until the character of the neighborhood is totally changed. This is a pattern that people observe over and over again. This process is at its worst when the original neighborhood has few or no owner occupants. In these situations there is little to stop a developer from being able to go through and completely change the character of the neighborhood en masse and overnight. Worst of all, the original residents don't benefit form this process-- their rent rises and when they stop being able to afford living there, they have no choice but to leave. On the other hand, when there is a mix of ownership and rentership in the neighborhood the gentrification process proceeds much more slowly and in a way that benefits the original residents who, if they choose to leave, enjoy a profit in the sale, not steadily increasing rents.
- pasbesoin 18y agoI only finally purchased a house in an attempt to get away from a series of noisy apartment neighbors. I'd had enough trouble with noise in apartments that I was unwilling to make a purchase commitment in a similar environment (shared building). If apartments and condos were quieter, I would probably have continued to rent. Being not "settled down" at this point in time, the flexibility and lack of hassle dealing with ownership issues (especially maintenance) are definite pluses. Or I might have purchased a condo or coop unit. As people natter on about more efficient living, I continue to wonder whether there is a model that could incentivise the construction of apartment units that make a serious attempt at soundproofing. I guestimate 10% - 25% additional construction cost, depending on degree of soundproofing and on economies of scale. Hopefully toward the lower end, even with good soundproofing, particularly if there were a significant amount of such construction occurring. (I don't know about retrofitting, although I am skeptical as to its being effective in many situations.)
- thorax 18y ago> I only finally purchased a house in an attempt to get away from a series of noisy apartment neighbors. Why not rent a house actually?
- 3pt14159 18y agoDude. Sound proofing is exceedingly cheap. I was trained as a structural engineer and met many building engineers and architects throughout my time. There are materials that cost less than a dollar per square foot that can reduce sound to nearly zero. Think 1% not %10 to %25. Thing is, sound proofing isn't even on the constructors radar half the time because it doesn't sell units. That is the problem.
- jraines 18y agoI would probably buy the How to Soundproof Your Apartment or House for Cheap, Guaranteed ebook. You could probably find some not too competitive keywords for this, or find people bitching about noisy neighbors on Twitter. How hard/expensive would it be to do as a retrofit?
- dinkumthinkum 18y agoI agree. Actually, this is not a new idea. I remember hearing this view expressed around 1999 or 2000 on Online Tonight on CNET's Radio if you can believe it. That view has stuck with me ever since.
- hardik 18y agoSomeone must own those homes. Then, is the article suggesting more corporates/govt/funds become homeowners and gen. public pay them rent? When too many gen. public rely on rentals would it not lead to oligopoly of few who own the homes?
- steveplace 18y agoA couple more articles like this and I'll start looking to buy a home.
- Gibbon 18y agoOn the one hand, a house is one of the only forms of leveraged investments the majority of the population will ever have access to. On the other hand, it's a massive liability. Reduced mobility, little to no protection against disasters(fire, flood, tornado), property taxes, maintenance and repairs, unpredictable market forces, and so on. I rent a house.. it's the best of both worlds.