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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

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.
        encoderer 13y ago
        I think you have a very narrow definition of "investment" that doesn't match how others use it. I challenge you to explain why speculation in equities is an "investment" but speculation in real estate isn't. Suppose I create a corporation, sell shares, buy real estate, sell it for more money, and return value to shareholders. Is that an investment? I think your argument is thin here.
        ahomescu1 13y ago
        > I challenge you to explain why speculation in equities is an "investment" but speculation in real estate isn't. Speculation in equities is also not an investment in my book. I was referring to buying stock long-term for the dividends, not short-term speculation.
- aidenn0 13y ago
  So commodities aren't investments?
  - ahomescu1 13y ago
    "define: commodity" on Google gives me: "a raw material or primary agricultural product that can be bought and sold, such as copper or coffee." By this definition, "commodities" are also materials that can be processed into something more complex, adding value, which makes them great investments. That's not why people usually buy a house.
    - aidenn0 13y ago
      I disagree. Commodities derive value from 2 things: 1) Usefulness 2) Scarcity Something useless and abundant has little value, something very useful and scarce has high value. A house is useful (it's a place to live, with varying personal usefulness based upon geographic location; a house 3 states away from my job is personally not very useful to me, for example) and scarce for any given geographic location. The fact that copper is useful because you can build stuff out of it, while houses are useful because having a place to live is useful is irrelevant. [edit] And the both the usefullness and scarcity of houses can change (just like with copper). Someone comes up with a cheaper way to mine copper? Price drops. A locality loosens their zoning laws? Price drops. Someone finds a new, valuable use for copper? Price rises. Big tech boom in the bay area? Price rises.
    - encoderer 13y ago
      But that's not at all what fuels the commodity market! People "invest" in precious metals so they can convert them into something else? Anyway, I'm done with this discussion. Feel free to have the last word. It's clear to me that you've made-up your own definition of 'investment' and cannot see past that. Totally your right. But for the rest of us, here's what investment means: investment noun : the outlay of money usually for income or profit : capital outlay; also : the sum invested or the property purchased
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.

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.
      - encoderer 13y ago
        I think you have a very narrow definition of "investment" that doesn't match how others use it. I challenge you to explain why speculation in equities is an "investment" but speculation in real estate isn't. Suppose I create a corporation, sell shares, buy real estate, sell it for more money, and return value to shareholders. Is that an investment? I think your argument is thin here.
        ahomescu1 13y ago
        > I challenge you to explain why speculation in equities is an "investment" but speculation in real estate isn't. Speculation in equities is also not an investment in my book. I was referring to buying stock long-term for the dividends, not short-term speculation.
aidenn0 13y ago
So commodities aren't investments?
- ahomescu1 13y ago
  "define: commodity" on Google gives me: "a raw material or primary agricultural product that can be bought and sold, such as copper or coffee." By this definition, "commodities" are also materials that can be processed into something more complex, adding value, which makes them great investments. That's not why people usually buy a house.
  - aidenn0 13y ago
    I disagree. Commodities derive value from 2 things: 1) Usefulness 2) Scarcity Something useless and abundant has little value, something very useful and scarce has high value. A house is useful (it's a place to live, with varying personal usefulness based upon geographic location; a house 3 states away from my job is personally not very useful to me, for example) and scarce for any given geographic location. The fact that copper is useful because you can build stuff out of it, while houses are useful because having a place to live is useful is irrelevant. [edit] And the both the usefullness and scarcity of houses can change (just like with copper). Someone comes up with a cheaper way to mine copper? Price drops. A locality loosens their zoning laws? Price drops. Someone finds a new, valuable use for copper? Price rises. Big tech boom in the bay area? Price rises.
  - encoderer 13y ago
    But that's not at all what fuels the commodity market! People "invest" in precious metals so they can convert them into something else? Anyway, I'm done with this discussion. Feel free to have the last word. It's clear to me that you've made-up your own definition of 'investment' and cannot see past that. Totally your right. But for the rest of us, here's what investment means: investment noun : the outlay of money usually for income or profit : capital outlay; also : the sum invested or the property purchased

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.