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Comment by DiabloD3 | Hacker News Reader

Rent does not build wealth. Rent is the act of transferring wealth from the poor to the rich. Rent is, essentially, theft from society itself, it leaves everyone poorer when most people rent.

Rent in America today is identical to the serfs of old.

The post-WW2 thing the Government did with getting everyone mortgages so they would be home owners that caused the eventual economic collapse 10 years ago? They had the right idea, but the wrong execution.

Instead of making everyone homeowners, make everyone fiscally responsible so that getting a mortgage wouldn't be hard for them in the first place.

I don't entirely blame them though: building Freddy and Fannie was magnitudes easier than fixing the broken parts of American society and (lack of) education.

This is one of the large reasons why I'm supporting Bernie, he actually has spoken in depth about how to fix the underlying bullshit that keeps so many Americans renters instead of being homeowners and building their personal wealth.

It has been proven in at least one study that financial stress causes a measurable drop in IQ: literally, being poor makes you stupid. We need less stupid people, to put it frankly.

Edit: Don't downvote. Reply with your counter-viewpoint. HN isn't Reddit.

Edit 2: Bernie said it better than me: http://imgur.com/gallery/DaHIv

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> Rent is, essentially, theft from society itself, it leaves everyone poorer when most people rent.

Not necessarily. It depends on whom you're giving the money to. If it's a profit-oriented company or investor or the like, then I'd tend to agree with you.

On the other hand, I'm renting my apartment from a housing cooperative that I'm also a member of. The cooperative releases a yearly financial report detailing that rents are for the most part used for maintaining the buildings owned by the cooperative, and to buy new land and construct new buildings.

I consider that model very sensible; it allows me to delegate all tasks relating to the maintenance of my apartment to people who are more competent in this area, and who can negotiate better rates with craftspeople.

It also gives me much of the social security that people usually associate with self-owned apartments or buildings since my lease contract literally states that the cooperative is not allowed to throw me out of the apartment (given that I obey the rules of the house, of course). But at the same time, I have the flexibility to easily move to a different apartment somewhere else in the city (or somewhere else entirely) without having to deal with selling the apartment and buying a new one.

in my country this is the most common form of renting. the cooperatives benefit from legal protections which prevent for profits from entering the market. however it means there is no competition and prices are artificially high. also a huge amount of corruption scandals involving the higher-ups of housing cooperatives.

Interesting. Over here (Germany) the prices in housing cooperatives are actually ridiculously low, compared to the rest of the apartment market. As a student, I lived in a single-room apartment with separate kitchen and bath, 26 square meters total, for less than 200 euros (including utilities).

well here (netherlands) you have zoning. they are the only ones allowed to do anything in 'social housing' zones. the government asks higher prices (for land) in other zones. i needed to pay off the government for 30000 when i bought my place because it used to be in the social housing zone too. that 30k/unit needs to be factored in when comparing coops and others. i believe legally others are not even allowed to charge under 800.

But you kinda prove my point about artificially high prices. there is no reason for the prices here to be a lot higher than next door. I lived in a similarly sized 1 person appartment for years. it cost me 480 euros/mo. and that was the best deal anyone could ever get here (because in my case too, it was from the student's coop). here the 200 euro/month would get you absolutely nothing (not even a room).

Renting from a company that you own sounds like a really convoluted version of buying something. I'm guessing there are more shareholders than just the tenants? You basically have a full year timeshare from the sound of it.

I actually think you are right that the real challenge is spreading fiscal responsibility. However, it doesn't follow that everyone should own a home, or that rent is somehow evil.

If you rent, you pay rent. If you own, you pay interest on a loan[1] and maintenance costs. There is also a forced savings component in the form of mortgage principle payments. There are also less tangible benefits to both renting and owning. Renting is entirely flexible and allows you to relocate with ease. Owning gives more flexibility in customizing your home. Different people will ascribe different values to these benefits. Especially for someone who does not yet know where they want to settle long term, renting might be very attractive.

Because of the forced savings aspect of owning, renting will almost always be cheaper on a cash-flow basis. Therefore, if a person earns a middle class income[2] and is fiscally responsible, it provides an opportunity to put money into a diversified, low-cost investment portfolio. Eventually, that portfolio should grow to the point where purchasing a modest home is possible. What's more, it will hopefully start a habit that will continue through life, and eventually provide for a comfortable retirement.

So again, I absolutely agree with you that finding a way to better teach smart personal finance is critical. I just don't see at all how it follows that everyone must own a home (immediately).

[1] Or if you own outright, you pay the opportunity cost on funds that could be invested elsewhere.

[2] Obviously at a certain level of poverty, there simply is no additional money to put away, even after any discretionary spending is cut. That isn't an issue of affordability of homes though; it's an issue of poverty, which needs to be tackled directly.

When someone buys a house to let, they are making property prices more expensive for everyone. I do however agree with you, in essence. But I find it genuinly shocking you that you see a low cost portfolio as the road to ownership. Perhaps this is a uniquely American philosophy?

The point of contention in this debate, probably boils down to if you see access to housing as a social issue or an investment opportunity.

I'm Canadian, not American, but perhaps? I honestly (literally) don't understand what shocks you exactly. Save money -> invest money to grow savings -> time passes -> eventually you have enough to buy a home, if you want.

I'm guessing you're saying that homes are so expensive, most people could not reasonably afford one even with disciplined saving and investing. But at least as a long term state, that seems logically impossible. The reason being, if homes were that expensive, no one would buy them to rent out either; because, either they would have to charge rent sufficiently low that people could afford it, in which case they wouldn't make any return on their investment given the high cost of the house, or they would charge high enough rent to make a decent return, in which case no one could pay it.

Since the supposed problem is with home ownership rather than with finding decent places to rent (aside from special cases like San Francisco,) that doesn't seem to be the case though.

Now, special cases may certainly exist in some markets that causes housing to be scarce, but that will tend to make both prices and rents high. I agree that that situation (limited access to housing) IS an important social issue. But it is distinct from the ability to purchase a house, which doesn't seem necessary or wise for everyone to be able to do without first saving.

Edit: Perhaps you were just saying that given low interest rates, one would not expect to earn much on a conservative portfolio. If so, I agree; any appreciation would be a bonus, but the main thing is the savings side.

Like I said, I think we have a similar view. My objection if any, is based on the idea of a risk based portfolio. But it seems you actually mean more generally: savings. All these issues are of course very local. Being English I probably have a very different perspective on what the issues are regarding the affordability of houses, let alone what our specific views are. Primarily I see housing as a necessity rather than a financial opportunity. Do you think people who own a house should be allowed to buy a 2nd one and push first time buyers out the market?

What this means practically for me is that societies using these rental and Lordship systems, should give preference to those seeking to buy a house over those who have one already. The delivery and form of this preference is obviously complex and very tied to local variables like employment and banking structures. Generally I think the renting system exploits the renter and benefits the landlord - esp when the renter has no other option. This is a big issue in England as the gap between house prices and peoples average savings has rocketed in the last 50 years - especially for those in the lower average salary bracket. What does society do when the average working person cant even with savings get a mortgage? In this scenario renting fuels the inequality.

I hadn't thought about first time home ownership in terms of access to the market like that. Possibly related (among other factors) in 2008 the US tax code gave $8000 tax credits to first time homebuyers. It was enough for me to jump from renting a little earlier, because I knew that money would be there to fund repairs and start chipping away at the mortgage principal. Of course this assumes prices are in reach and one has some savings ready to go for the opportunity, and I'm sure more people took advantage in rural areas to mid-sized cities than, say, SF or NYC.

The issue of rentals adding inefficiencies to the market is also quite complex and tied to local variables. If supply is ok, I think there's not such a premium on rentals. Where I live (Indianapolis) it's generally cheaper to own, but not by a lot. The overall value greatly depends on local pricing, interest rates, and definitely on not moving around and paying closing costs very often. In such an environment, renters may be enjoying the value of extra flexibility for not too much premium while landlords have to work harder to extract efficiencies in maintenance and management. Consider me as a homeowner looking up a few contractors or appliance servicers in the phone book vs. a landlord who has the experience and the rolodex to know who to call for the best price and service for each problem?

Also, less money goes to financial servicing when landlords pay cash. Without knowing how many pay cash vs. use leverage it's hard to say if there is an overall effect.

I see your point on the fueled inequality, though, and have no naive market analysis for that.

You do understand that the $8000 tax credit just made houses more expensive right ?

My parenthetical was admitting I don't know what other complexities were involved with the tax credit, but to the grandparent's point it was closed to landlords and perhaps lowered rents as some like me bought houses instead.

Not when the tax credit is only for first time buyers and the majority of buyers are not first-time... This type of credit is an attempt to address the concern of @okc in providing preference to new home buyers over existing homeowners.

> Being English …. Primarily I see housing as a necessity rather than a financial opportunity.

This is the opposite of what most English people seem to value, and vote in policies for. Is there any other country where property is treated so much as an investment?

This[1] system is a good way to have reasonable rent, essentially a housing association. But housing associations in England are only for poor people; not the case in other European countries like Germany and Scandinavia.

[1] https://news.ycombinator.com/item?id=11032936

The point was that people have different perspectives on where the issue is, regardless of what they think about it. To wit: As an English person the debate in housing is heavily based on investment. As an individual I however feel housing is primarily a necessity. The underlying sentiment is that its a localised debate.

Though I disagree with you that most English people value and vote for the promotion of investment in housing. But then that could mean a million things; from stamp tax on buy to let mortgages, to freeing up green belts for development, to reforming housing benefit eligibility. It has always been and still is a massively divisive, sometimes violent and always complex issue in English society. Elections are won and lost on the nuances of these issues and politicians will often find a complex "3rd way" to attempt to appease everyone.

And that's without questioning your assertion that all English peoples values are dutifully represented by the political party currently holding majority in the house of commons. We also have a fairly unelected House of Lords having a final say in these matters - a notion that quite easily resonates with Serfdom.

> Do you think people who own a house should be allowed to buy a 2nd one and push first time buyers out the market?

Just to address this, first, yes, I absolutely think people need to be able to buy a second house. There is also a natural impediment in place of investors buying up "too many" houses. The reason is, if there are more houses on the rental market than there is demand for rentals, it will drive rental rates down. Similarly, if there are not enough houses for sale to fill demand of all these investors as well as purchases for-self, it will drive house prices up. As those two things happen, the rate of return on an investment property will quickly become lower than that of other comparable investments, so people will not rationally keep buying investment properties until either prices go back down or more houses are built (which will also drive prices back down).

Obviously in the short term people don't always act rationally, but that situation can't logically persist indefinitely. (And while it does, renters get below-market rent, subsidized by owners. That was has been the case here in Canada for the past few years, and I happily rented for several of those years.) Long term though, investment owners will earn just enough return to make it worthwhile for them to provide the service of rental housing to people who want it. That's a good thing.

Now imagine if people couldn't buy second houses. It would be impossible to rent, because there would be no unoccupied homes. Yes, it would bring house prices down, but what if you were just starting out and didn't have the money to buy a home, even a cheap one? You would then have no options. I know you're not really advocating for outlawing second houses completely, but incentives for first-time buyers over investment buyers would have a similar effect to the lesser extent. You would be making first-time ownership cheaper, and renting more expensive.

Now, I don't think that some help for first time buyers is terrible policy. However, I think better policy would be to focus on helping young people in general. For instance, instead of a first time home buyers' credit, there could be a special reduced tax rate on the first $X (or £Y :P ) that a person earns after age 18. (Possibly varied on a means-tested basis.) That would help people get started, either saving up a down payment, or starting an investment portfolio, without skewing the housing and rental markets.

Of course I recognize that the problem with that plan is that many, or even most, people would waste that money instead of saving it. By tying it to house purchase, you force people to put it into an asset, and in turn, owning a home forces people to save (in the form of equity). However, we need to find a different solution to that problem, because we'll never be (or want to be) at the point where everyone is a home owner, and right now the people who most need that leg up early in life are the ones who aren't getting it. I don't know what the solution is, but there are certainly possibilities. For instance, a defined benefit state-backed pension plan can prevent people with no savings from being screwed in retirement. It could be made possible to borrow from one's state pension plan to buy a first home. In theory that should not skew prices vs rents as much as a straight tax break, because it's not free money. And it would be more equitable, because people who choose not to use it (or who aren't able to) will still get an equivalent benefit.

I generally follow the logic. Though, if salaries are not enough to support a mortgage application this model will trap people in a renting cycle. A precarious one at that. The interesting part in the model you present is the use of investment portfolios to get on the housing ladder. Its as if working hard isn't enough, you need some extra device, with a degree of risk and luck to make the leap to home ownership.

Its great to imagine what would happen if people couldn't buy second homes, or being innovative over how a special tax rate could be applied to young people. No-one really knows the answers until it happens. My gut feeling is that renting is unethical - I know I couldn't bring myself to make money out of someone renting if I had my own house and enough money already. But that's it, none of these issues are based on isolated models.

My crude knee jerk ideas: A maximum cap on rental prices indexed to minimum wage.

A preference model where first time buyers get 1st picks.

A trusted simple well thought out online platform that makes buying and selling a house as easy as possible (replacing the trickery of estate agents).

And for Landlords: Absolutely robust laws always favouring the right of the tenant, so landlords are forced to acknowledge a social responsibility to their tenants - what bigger responsibility could you have for another human being then being a Landlord.

An online platform where tenants can request references on Landlords from old tenants.

@okc: Been following this conversation, and I really appreciate the honest exchange of ideas and viewpoints...

Regarding your ideas:

Rental cap indexed to minimum wage: Unfortunately, in the US, this would mean no rental properties in most of the developed cities in the country. We can't control what people earn, and price of building housing is not directly connected to what individuals make.

First time buyers get preference: As explained above, this is manged in various ways (again, in the States) by first-time homeowner loans that have reduced down payments and by tax credits for first-time owners, among other ways. (Good news, in other words!)

Easier buying/selling process: This is essentially a complaint about contract law/language, which has merit, but is a much broader problem/challenge. Still, parts of the States are getting better systems. Try using Redfin.com to look for housing in one of the states it is available for (try Seattle, Washington for example).

Tenant Rights: These are stronger or weaker in different parts of the States, but check out the Tenants' Union of Washington State for an example. Don't forget, however, to protect the rights of a landlord against deadbeat tenants who can occasionally refuse to pay rent, damage the property, or disrupt neighbors.

Landlord references: Love the idea - would need the support of communities, and a rental climate where landlords need to compete (e.g. probably not San Francisco, Seattle, or other boom towns).

Yeah thanks, all these points are valid.

Re Landlord (and house) refs: references have lots of pitfuls. Ideally even in a boom town, being able to ref you landlord could warn you off the repeatedly terrible ones. The real problem is authenticity, it may get abused heavily by everyone.(imagine a hydrid anarchical version of all the rating problems inherent in eBay and TripAdvisor).

It seems a fair idea but difficult to implement. Would a simple message board based system be enough for a discerning reader? Any solutions for a system like this?

To say, "you can't buy a second house" seems fundamentally contrary to American tradition.

On the other hand, whether second homes should be eligible for deductibility of mortgage interest and property taxes is another question altogether (present law = yes).

>so that getting a mortgage wouldn't be hard for them in the first place.

So, you think that paying massive amounts of interest to financial institutions, over decades, all while being tied to a specific physical location and having a disproportionate amount of your wealth tied up in a single asset class is "fiscally responsible"?

>We need less stupid people, to put it frankly.

The word you're looking for is "fewer".

>he actually has spoken in depth about how to fix the underlying bullshit that keeps so many Americans renters

I appreciate many of his views, but if his platform has anything to do with "turn renters into owners" then it demonstrates his lack of economic wisdom, and will be part of the reason he won't get elected.

Can you not sell your house and refinance it under a new owner? You pay off your current loan with the bank money they take out to buy the house from you.

I think the fundamental point is simple - if you are renting, you are consuming. If you own, you are partially investing. On the other side of life, either you have purchased an asset or have nothing to show for a significant portion of your time.

>Rent does not build wealth. Rent is the act of transferring wealth from the poor to the rich.

That's not a general rule. It really depends on rents, interest rates, and the cost to purchase housing. In a functioning market rents bring in just a tiny bit more than the monthly mortgage payment, including taxes and fees. There have been times in my area where you came out ahead renting, and times when you came out ahead owning.

The government makes a terrible mistake when it pushes home ownership for people who cant afford it. In the US home ownership is a characteristic of the middle class, not a cause. It's as much consumption as it is savings.

> In a functioning market rents bring in just a tiny bit more than the monthly mortgage payment, including taxes and fees.

Which means rent is still transferring money from the poor to the rich. If you have a mortgage, you're hopefully building up equity that can be released when you retire to somewhere smaller or in a cheaper location (which you can do, since you don't need to live near jobs and any kids will have moved out). If you're renting, you pay the same amount but the money that would've gone into equity instead goes to your wealthy landlord. Here in the UK, there's been a huge wave of rich buy-to-let investors buying up properties on mortgages and paying the mortgage off with rent payments.

I don't know if I agree with your parent that rent should generally cover mortgage payments, but it should at least cover mortgage interest and other expenses, plus a rate of return on top of that. You need to take into account the opportunity cost of ownership. In addition to the interest, insurance, maintenance expenses, and risk, there is an opportunity cost to the money tied up in home equity. In a functioning market, if two people start with the same amount of capital, one decides to purchase a home and the other decides to rent a comparable home and invest the difference in assets of comparable risk, they will expect to come out the same. There is a small net payment from the renter to the owner, but that is because the owner is being compensated for having their capital tied up in the home. (Or looked at another way, the renter is paying for the benefit of not having to have their own capital tied up in the home.)

It doesn't appear that way in practice, because in practice 1) the home owner generally started with more money, which is how they bought a home in the first place, and 2) ownership forces people to save money. A renter with the same income could save a comparable amount of money to an owner, but on average they don't because there isn't a mortgage payment forcing them to do so. So on average home owners tend to be wealthier than renters. But there's nothing special about ownership vs rent (besides forced savings) that causes that to be so.

Rent is not a wealth transfer from poor to rich; it is payment for a service.

Now, if house prices are depressed, like with any asset, it is possible that ownership will temporarily be a good deal. (And vice-versa.) In a situation where the market has taken a plunge, one might be able to buy in at a level where they could be cashflow positive from rent, even including un-rented periods, to an extent that over-compensates for the funds they have tied up in the house. However, in that situation, people will rationally buy investment properties, increasing demand, and returning prices to a more rational level. (Likewise if houses are overpriced, eventually people will stop buying them because they don't expect any return on the investment, which will cause prices to drop.)

>f you have a mortgage, you're hopefully building up equity that can be released when you retire to somewhere smaller or in a cheaper location

In other words, you're relying on the "Greater Fool Theory" of perpetually increasing house prices.

There is nothing special about real estate as an asset class.

This is true even without perpetually increasing house prices, so long as you're paying off the principal of the loan and not just the interest.

Err, no. Building up equity is not the same as appreciation. It's basically a savings plan. This assumes that the property values remain sane and rational, not that they will constantly grow.

If the house appreciates then you get that money at sale no matter how long you've paid into it or how much equity you have.

If I want oil, I can go find some and drill for it anywhere that makes fiscal sense.

If I want clay, I can go find a riverbed and start digging.

If I want the corner of Fourth and Chester for commercial traffic, my options are a bit more limited.

The problem with land is not about its scarcity, its about its situational utility. The value of land is often completely out of control of the property owner themself, and you cannot create new city centers or in-demand residential neighborhoods in private enterprise.

Which means rent is still transferring money from the poor to the rich. If you have a mortgage, you're hopefully building up equity

Have you seen what percentage of your mortgage payment is equity early on? You're lucky if it's 5%. The rest is interest that goes to the "rich".

Not sure I see much difference between owning and renting when it comes to who gets the money.

5% is more than 0. And over time, it does grow.

Sure, your equity grows over time, but lets say you buy a house and live in it for 5 years. Add in the relator fees, title taxes, maintenance, property taxes and interest paid on the mortgage.

Now compare that with renting. In some situations you might be better off, but that usually requires appreciation in the value of your home. Often renting leaves you with more money in your pocket than buying does.

>Which means rent is still transferring money from the poor to the rich.

Suppose I start with nothing, get a mortgage on a house and then rent it out. Am I rich?

There are many good reasons to rent a house, just as there are many good reasons to own a house. However, there is no God-given right to own a house. If you want to own your own house, work hard, save for it, make a plan, have patience.

Renting gives people who already have a home incentive to build new housing.

It also allows you to live somewhere without (a) tying up all my capital + credit in some super-undiversified equity[1] and (b) buying a massive amount of downside risk on the local property market.

The comparison with serfs is, I think, an example of the worst argument in the world[2], paying someone for use of their property seems fine to me on the face of it, and yes it's something serfs used to do, but the things we don't like about serfdom were the violent coercion and the idea that the nobility got their property illegitimately, on the other hand if I built an apartment building and then I rent the apartments to people neither of the elements that cause me to hate serfdom exist here.

>Instead of making everyone homeowners, make everyone fiscally responsible so that getting a mortgage wouldn't be hard for them in the first place.

>I don't entirely blame them though: building Freddy and Fannie was magnitudes easier than fixing the broken parts of American society and (lack of) education.

Well, at least you don't blame them...

Saying something like "make everyone fiscally responsible" is not actionable, but offering people better terms on mortgages is actionable.

People also have risk preferences that just don't line up owning their own home, like wanting to live in property markets where they can't afford a home (like NY or SF), and no amount of fiscal responsibility will change that for most of these people, you either need to change their preferences (by making these place less attractive) or dramatically increase the supply of housing.

[1] Even worse, for a lot of people the value of their home is somewhat correlated with their income, like if the local property market tanks it's more likely that the local job market suffered a downturn also, so that it's more likely that they've also lost their jobs, so now you might have to default on a mortgage, and also you have no income.

[2] http://squid314.livejournal.com/323694.html

"Renting gives people who already have a home incentive to build new housing."

I doubt that's something that's actually needed. There's already plenty of incentive for that.

They probably did the wrong thing with mortgages-for-all. They set up Fannie Mae and Freddie Mac as mortgage clearing houses that repackaged the loans into investments. So the net effect made all owners with a mortgage functionally equivalent to renters with a landlord, but with fewer obligations on the financiers. If you have a mortgage, you effectively have an absentee landlord with an agent on Wall Street, who doesn't even know your name.

They probably should have made mortgages secured by land property illegal to offer, except by credit unions serving a geographical region. That would severely limit housing options in less developed regions, but at least the money invested in housing there would stay there instead of getting siphoned off to international finance centers. If your mortgage payment goes to all your neighbors, you can get it back from them every month by offering them local goods and services. If it goes to a holding company, there's nothing you have to offer that it wants, other than cash. So that cash has to come from whatever it is that your region can export.

If the only thing Appalachia has for export is coal and whiskey, then everyone with a non-locally-owned mortgage is dependent on those industries to make payments.

>Rent in America today is identical to the serfs of old. Instead ... make everyone fiscally responsible so that getting a mortgage wouldn't be hard for them in the first place.

Replace rent with debt is your solution? Mortgages (banks) are the new feudal lords

I dunno - I paid off my mortgage. Now I'm not beholden to anybody.

Renting is like slavery, mortgages are like indentured servitude.

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