Yet another excellent read from MMM.
I'm sure many families renting would love to "build stuff out of wood" but most have to have both parents working to pay the rent and bills. If only they had no mortgage. Still it's tough what with all the speculators in the market feeding off basic human needs so back to work for them.
The man worked, earned money, and bought things with it. Not everyone has these opportunities, true. He got lucky. None of this comes to bear on his present situation. Regardless of whether he has rental income, MMM's managed to whittle his spending down to a level affordable by the median household income in the U.S. On that merit alone, I consider his advice worth listening to (if not taken with a grain of salt to my own personal circumstances).
I've been considering buying rental properties to supplement my income, but something deep inside somewhere, based on living close to people well below my income level as one of a 4-unit building, prevented me from doing it.
When I tried to compute how much rent I would charge, I realized I would be profiting simply by taking money from them because they have been unable to accumulate capital at the pace I have been. While that does indicate some skill on my part - hey, I scrimp and shop wisely - I don't feel it morally qualifies me to skim from others. That would be paying myself twice. When I scrimp and shop wisely, I benefit from having extra savings, but using that savings to get more from others without adding more value is something I don't feel right doing.
I could morally accept money as a landlord based on my labor doing maintenance and time spent bookkeeping, I suppose. That - speaking as a current tenant - does have some value, but I just don't think it would be much, approximately that of a day laborer or accountant for several hours a week. So screw it, i'll make a lot more money creating something of real value.
Thank you for helping me recognize and articulate this, branchless.
Good for you for having some back-bone.
Deriving income by adding value is fine. The rentier just takes.
Do you feel you would owe people the freedom to use your property free-of-charge? What about the mortgage payments you endure? The maintenance/upkeep (roofs, siding, carpet, plumbing, electrical, all amortized over the life of the building)? Should this be a loss you take in order to let someone else sleep in your house?
Disclosure of bias: In Seattle where I live, the cost of real estate is higher than the prevailing rents, when you factor mortgage payments, maintenance, utilities, HOA, etc. This makes it a little easier for me to see the equity in pricing between rentals and owned homes. It may be different in your parts of the world.
Your allusion to a market that would correct the price doesn't account for a market which no tenants can enter because none of them can afford the entrance (a 20% down payment).
They'll get the benefit of housing no matter how much I would charge, but if I charge more than the value of the maintenance and accounting them I would be exploiting them, taking advantage of their inability to produce capital in the time it's taken me to produce it. And everyone else who is in the position I am could exploit them just as easily so the market doesn't help there.
It's like gas prices: if so many gas stations can compete, how come they prices aren't driven down to nothing? Because of the entrance cost to the market. You can't start a well and refinery, so you have to go to one of the established ones.
For luxury items like phones, art, fancy cars, etc., I don't care about charging people a lot of money. But for water, air, food, medical and housing, which people have no choice to acquire or consume I'm not going to gouge them.
This is not some rational choice about what a person or market theory can or should do, this is my personal code of ethics.
I did want to call attention to your gas prices example... Gas prices are driven down to approximately the cost of getting more oil out of the ground, refining it into gasoline, and transporting it to your local Chevron. These are costs inherent to "making gas" - it's not free. The same goes for housing, so whether you'd have renters pay it or have the government pay it for them, someone's going to have to cut down trees, pour concrete, level land, install plumbing, etc.
This is this "value" of the housing I'm talking about, which is separate from the moral right to shelter that seems to guide your judgement on the issue. Thanks for being willing to engage me in the discussion!
There is a very unfortunate problem with this line of thinking. It takes a lot of effort/money to build a house. You need to procure raw materials, pay for human labor and various other expenses, this is apart from acquiring land.
And the problem with this kind of 'equality for all' argument towards housing is you are assuming, that a good quality home should either come at a cheap price or some one being ready to pay and make up for everybody else. Both of them are problematic, why should every single economic link in the chain related to building a house suffer? Or why are we expecting some people to pay taxes and have houses built for every one else?
You don't have the right to anything unless the cost of achieving that is literally free or negligible.
"The average construction cost of a single-family home in the 2013 survey is $246,453. This average is significantly higher than the 2011 average construction cost of $184,125, and is the highest it has been since 1998. Although the cost of construction per square foot remained relatively stable in 2009 and 2011 ($82 per square foot, and $80 per square foot, respectively), it jumped to $95 per square foot in 2013."
Also, regarding the relative impact of land cost vs construction costs:
"NAHB’s most recent construction cost survey (conducted in August and September of 2013) shows that although lot sizes are shrinking, both the cost and size of the home are on the rise. The average home in our survey was built on 14,359 square feet (about a third of an acre) of land, had 2,607 square feet of finished area, and sold for $399,532. The average share of the home’s sales price which goes to construction cost jumped from 59 percent in both 2009 and 2011 to 62 percent in 2013. Finished lot costs, accounting for the second largest share of the sales price, dropped from 22 percent in 2011 to 19 percent in 2013."
The situation might have changed since this survey in 2013, but this is the most recent information I was able to find.
EDIT: Source - http://nahbclassic.org/generic.aspx?genericContentID=221388