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> Buying a house with potentially wild inflation of tax costs is about as attractive as buying a house with a variable APR. The one and only reason the US has

> Buying a house with potentially wild inflation of tax costs is about as attractive as buying a house with a variable APR. The one and only reason the US has 30 year fixed rate mortgages, with no prepayment penalty, available levered 5-10x, all at less than 100 bps over the risk free rate is because of massive government implicit and explicit subsidies. Absent distortions it doesn't make sense for most people to buy a house -- it's inherently non-diversified, low liquidity, high transaction costs. But American society has for some bizarre reason decided that home ownership is the sine qua non of human civilization and so every level of government intervenes to distort the market in favor of homeownership. Instead of recognizing this extraordinary intervention, and perhaps being grateful, homeowners tend to either: 1) refuse to recognize that such massive subsidies exist, or 2) see as entirely natural -- and bitch and moan if even the slightest modification is proposed. It's yet another example of the American phenomenon of socialism for me but not for thee (and none dare call it welfare).

encoderer 13y ago
On the contrary, Fed and Census data indicates that the net worth of the average homeowner is 30x greater than renters. Part of this is certainly some selection bias. More wealthy people buy homes. But it's more than that. The truth is, buying a home is the only form of investing on margin for most. Also, it's compulsory investment and savings -- both with the principal payment and in the form of property improvements. Finally, of course, are the myriad tax benefits. While it's true that we incentivize home ownership, possibly too much, I think it's unfair that you paint it as an otherwise neutral activity that we strangely endorse with public policy. Land has real value, you can live on (and off) it. It was long seen as the one enduring source of wealth (See John Adams, George Washington, etc). It's much deeper than our postwar tax policies.
- deleted 13y ago
  [deleted]
- ahomescu1 13y ago
  > The truth is, buying a home is the only form of investing on margin for most. Also, it's compulsory investment and savings -- both with the principal payment and in the form of property improvements. I find it weird that people look at houses as "investments". For an asset to be an investment for me, it has to be productive. Buying stock in a company or starting your own is productive; buying farm land is productive (you can use it to produce food). A house in itself doesn't produce anything, it's just an asset. If you're relying on buying it cheap and selling it at a high price, that's speculation, not investment (that house still hasn't produced anything, it just happens to be more valued by other people).
  - eweise 13y ago
    umm, it produces shelter.
    - ahomescu1 13y ago
      You can rent for about the same money, and still get shelter. There are convenience advantages for owning your own home, but it still seems like a bad "investment" to me.
      - secabeen 13y ago
        True, but not at a fixed cost, and with no guarantee of residence. For people with families, the elderly, and people with strong community connections, the value of having a shelter that you own has substantial value. You can also customize and improve a home you own. Many people have housing needs that cannot be met in the rental market. With a home you own, you can make the modifications you need, and accept the impact to your home's value.
        ahomescu1 13y ago
        > You can also customize and improve a home you own. Many people have housing needs that cannot be met in the rental market. With a home you own, you can make the modifications you need, and accept the impact to your home's value. Sure, I agree with all of that. However, none of these qualify as economic investments IMHO, unless you decide to start a business out of your home. Keep in mind I'm focusing strictly on investment in economic terms (production of goods or services). I agree that the house provides various benefits to its owners, just that none of them are economic returns.
- bradleyjg 13y ago
  But it's more than that. The truth is, buying a home is the only form of investing on margin for most. Also, it's compulsory investment and savings -- both with the principal payment and in the form of property improvements. I'd need to see a lot more justification before accepting that leveraged investments are a net positive either for individuals or for society. In general, leverage increases variability while reducing expected value in the form of interest payments. In other words it is analytically opposite of insurance. I do agree that program or automatic savings are a positive "nudge" both for individuals and for society, but there's nothing but status quo bias that says that this asset class has to be the heavily favored vehicle for that. While it's true that we incentivize home ownership, possibly too much, I think it's unfair that you paint it as an otherwise neutral activity that we strangely endorse with public policy. Land has real value, you can live on (and off) it. It was long seen as the one enduring source of wealth (See John Adams, George Washington, etc). It's much deeper than our postwar tax policies. Prior to the industrial revolution land was the primary means of production. Today that's no longer true, and the vast vast majority of real property (by value not acre) is not used as an input factor for goods. The best translation of those classic references to the importance of land ownership today are modern means of production (e.g. ownership shares in productive businesses), not a quarter-acre of lawn in the suburbs. Governments ought to be encouraging investment in positive sum productive enterprises, not zero sum positional goods. And at least as a default bias for non-wealthy citizens it ought to encourage holding diversified portfolios of assets with transparent liquid markets and low transaction costs.
  - encoderer 13y ago
    Appreciate the grey matter behind this response. I'll write more later. But the Adams and Washington example... possibly your point speaks to their frame of mind, but both these guys were land speculators who bought land which in some cases was remote and in a wilderness. They bought the land because they believed that property, unlike a business, is not subject to fraud or bankruptcy, it's durable, and with a growing population it's likely to continue appreciating. That's just as true today.
technotony 13y ago
There is a very good economic reason for encouraging people to own property, and that is to do with collateral and their ability to take risk. Once you build up a strong financial asset such as a house, it can provide a basis for collateral and allowing you to take new business risks. Lack of property rights and collateral are a key reason that so many people around the world are trapped in poverty as they cannot secure funds to invest in their businesses and grow their wealth. As the saying goes, it takes money to make money. For more information on this look at Hernando De Soto's writings on property rights.
- malandrew 13y ago
  What you propose is not at odds with what you are replying to. Imagine an alternate timeline of the US where we did not promote homeownership. This alternate US would likely have many many forms of REITs, in which regular people could invest in. No one would have to buy a whole house, just participation in one or more homes, perhaps a subdivision or even a city. This alternate timeline would promote more focus on increasing the value of the city than the value of a single home. It would also reward those who got there early without allowing them to block all progress since there is financial benefit for all.
lsc 13y ago
>Absent distortions it doesn't make sense for most people to buy a house -- it's inherently non-diversified, low liquidity, high transaction costs. But American society has for some bizarre reason decided that home ownership is the sine qua non of human civilization and so every level of government intervenes to distort the market in favor of homeownership. The thing is? Leases are... very inflexible. In many ways, it's less flexible than buying. Here is the essential problem: If I have a rational, profit-maximizing landlord, every time my lease is up for renewal, he increases my rent to what it would cost me to rent an equivalent place elsewhere plus just under what it would cost me to move. On the other side of that, if I take a longer lease, I'm in a seriously bad position if something changes in my life and I need to move. This is especially dramatic in commercial real-estate, where the business owner is usually asked to personally co-sign the lease, and where there are fewer laws requiring the landlord to reasonably try to rent vacant units to other people. (and where the tenant is more likely to be able to keep paying rent after moving.) Three to five years of rent is nearly always more than 6% of the purchase price of the property.

encoderer 13y ago

On the contrary, Fed and Census data indicates that the net worth of the average homeowner is 30x greater than renters. Part of this is certainly some selection bias. More wealthy people buy homes. But it's more than that. The truth is, buying a home is the only form of investing on margin for most. Also, it's compulsory investment and savings -- both with the principal payment and in the form of property improvements. Finally, of course, are the myriad tax benefits. While it's true that we incentivize home ownership, possibly too much, I think it's unfair that you paint it as an otherwise neutral activity that we strangely endorse with public policy. Land has real value, you can live on (and off) it. It was long seen as the one enduring source of wealth (See John Adams, George Washington, etc). It's much deeper than our postwar tax policies.

deleted 13y ago
[deleted]
ahomescu1 13y ago
> The truth is, buying a home is the only form of investing on margin for most. Also, it's compulsory investment and savings -- both with the principal payment and in the form of property improvements. I find it weird that people look at houses as "investments". For an asset to be an investment for me, it has to be productive. Buying stock in a company or starting your own is productive; buying farm land is productive (you can use it to produce food). A house in itself doesn't produce anything, it's just an asset. If you're relying on buying it cheap and selling it at a high price, that's speculation, not investment (that house still hasn't produced anything, it just happens to be more valued by other people).
- eweise 13y ago
  umm, it produces shelter.
  - ahomescu1 13y ago
    You can rent for about the same money, and still get shelter. There are convenience advantages for owning your own home, but it still seems like a bad "investment" to me.
    - secabeen 13y ago
      True, but not at a fixed cost, and with no guarantee of residence. For people with families, the elderly, and people with strong community connections, the value of having a shelter that you own has substantial value. You can also customize and improve a home you own. Many people have housing needs that cannot be met in the rental market. With a home you own, you can make the modifications you need, and accept the impact to your home's value.
      - ahomescu1 13y ago
        > You can also customize and improve a home you own. Many people have housing needs that cannot be met in the rental market. With a home you own, you can make the modifications you need, and accept the impact to your home's value. Sure, I agree with all of that. However, none of these qualify as economic investments IMHO, unless you decide to start a business out of your home. Keep in mind I'm focusing strictly on investment in economic terms (production of goods or services). I agree that the house provides various benefits to its owners, just that none of them are economic returns.
bradleyjg 13y ago
But it's more than that. The truth is, buying a home is the only form of investing on margin for most. Also, it's compulsory investment and savings -- both with the principal payment and in the form of property improvements. I'd need to see a lot more justification before accepting that leveraged investments are a net positive either for individuals or for society. In general, leverage increases variability while reducing expected value in the form of interest payments. In other words it is analytically opposite of insurance. I do agree that program or automatic savings are a positive "nudge" both for individuals and for society, but there's nothing but status quo bias that says that this asset class has to be the heavily favored vehicle for that. While it's true that we incentivize home ownership, possibly too much, I think it's unfair that you paint it as an otherwise neutral activity that we strangely endorse with public policy. Land has real value, you can live on (and off) it. It was long seen as the one enduring source of wealth (See John Adams, George Washington, etc). It's much deeper than our postwar tax policies. Prior to the industrial revolution land was the primary means of production. Today that's no longer true, and the vast vast majority of real property (by value not acre) is not used as an input factor for goods. The best translation of those classic references to the importance of land ownership today are modern means of production (e.g. ownership shares in productive businesses), not a quarter-acre of lawn in the suburbs. Governments ought to be encouraging investment in positive sum productive enterprises, not zero sum positional goods. And at least as a default bias for non-wealthy citizens it ought to encourage holding diversified portfolios of assets with transparent liquid markets and low transaction costs.
- encoderer 13y ago
  Appreciate the grey matter behind this response. I'll write more later. But the Adams and Washington example... possibly your point speaks to their frame of mind, but both these guys were land speculators who bought land which in some cases was remote and in a wilderness. They bought the land because they believed that property, unlike a business, is not subject to fraud or bankruptcy, it's durable, and with a growing population it's likely to continue appreciating. That's just as true today.

technotony 13y ago

There is a very good economic reason for encouraging people to own property, and that is to do with collateral and their ability to take risk. Once you build up a strong financial asset such as a house, it can provide a basis for collateral and allowing you to take new business risks. Lack of property rights and collateral are a key reason that so many people around the world are trapped in poverty as they cannot secure funds to invest in their businesses and grow their wealth. As the saying goes, it takes money to make money. For more information on this look at Hernando De Soto's writings on property rights.

malandrew 13y ago
What you propose is not at odds with what you are replying to. Imagine an alternate timeline of the US where we did not promote homeownership. This alternate US would likely have many many forms of REITs, in which regular people could invest in. No one would have to buy a whole house, just participation in one or more homes, perhaps a subdivision or even a city. This alternate timeline would promote more focus on increasing the value of the city than the value of a single home. It would also reward those who got there early without allowing them to block all progress since there is financial benefit for all.

lsc 13y ago

>Absent distortions it doesn't make sense for most people to buy a house -- it's inherently non-diversified, low liquidity, high transaction costs. But American society has for some bizarre reason decided that home ownership is the sine qua non of human civilization and so every level of government intervenes to distort the market in favor of homeownership. The thing is? Leases are... very inflexible. In many ways, it's less flexible than buying. Here is the essential problem: If I have a rational, profit-maximizing landlord, every time my lease is up for renewal, he increases my rent to what it would cost me to rent an equivalent place elsewhere plus just under what it would cost me to move. On the other side of that, if I take a longer lease, I'm in a seriously bad position if something changes in my life and I need to move. This is especially dramatic in commercial real-estate, where the business owner is usually asked to personally co-sign the lease, and where there are fewer laws requiring the landlord to reasonably try to rent vacant units to other people. (and where the tenant is more likely to be able to keep paying rent after moving.) Three to five years of rent is nearly always more than 6% of the purchase price of the property.