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It fails to amaze me how much the govt. and financial sector are willing to subsidise the housing market. If you leave the morality clause aside, why exactly should the US Government create tax incentives, low interest mortgages and such for housing? It was precisely the morality of enabling Americans to own a house that these benefits are present in the first place, funneling so much financial resources into the housing market rather than other investments.

I do agree with what you say though. With all the incentives that are in place, we shouldn't overgeneralize since housing can be a good investment.

What I find silly is, is the gov't really subsidizing housing in the end?

Offer a tax deduction on mortgage interest and people can afford a higher price so competition drives prices up and everyone ends up in the same place. Same with lower interest rates, etc.

One could argue there is a period where housing is easier to purchase once a new subsidy is created, but shortly after that, the market reaches equilibrium and we're back in the same place.

Just imagine if there were no housing subsidies. Housing prices would be mich lower. And yes, I know that's a gross oversimplification, but I think the effect is still there.

> What I find silly is, is the gov't really subsidizing housing in the end? > Offer a tax deduction on mortgage interest and people can afford a higher price so competition drives prices up and everyone ends up in the same place.

Exactly: it's a tax subsidy to sales agents (and others whose income depends on the transaction price). Homeowners don't get anything out of it except that their house has a larger $ on their list of assets. It doesn't help them buy a better house (since everyone in the same income bracket can afford the same house).

It's pitched as a middle class benefit though, so simplifying the system would be greeted with howls of dismay.

It does screw those of us who pay cash for our houses BTW.

It's all about morality though. It's populist practice, and most people don't care about the long-term economic consequences. They want to be able to buy a house and start a family on an average income.

Furthermore, land is one of the few intrinsic assets of a sovereign state. With their intervention, they can enable diversified, private ownership of land, rather than a widely-recognized concentration of the state's land in a few hands.

I would suggest, perhaps controversially, that individual home ownership mitigates rent seeking and capital accumulation in large firms. Some percentage of the GDP is always going to be allocated to a housing expense.

Homeowners subsequently hire contractors for maintenance and upkeep which spreads that choice around vs firm ownership which will negotiate a single contract and extract price concessions from their position.

As it is impractical to have land ownership be a public good (centrally owned (or not owned depending on your take on the whole land ownership issue) distributing ownership appears to have the best effect on overall use.

The problem is that the payment for home ownership is centralized in that your mortgage goes to a select few big banks. A more distributed form of home ownership would be more ideal but likely impossible.

The same problem exists with business loans.

It's the lack of banking competition, not mortgage.

One thing I suspect is that home construction, maintenance, and real estate sales and services are all a fantastic employment program. The suburbs were basically a postwar work program.

In the US, home ownership has already been moralised. Renting is looked down on, renters are second-class citizens.

The moralising started well before HappyFunGuy2's comment.

Actually, I don't read his comment at moralising at all -- that's a tone argument, and is frequently nonconstructive. He's parried it well, that's rare.

Addressing your low interest rates: the question is why that should have driven massive investments in investment-class assets (including real estate) rather than productive capital. Secular declines in productive return on capital investment beginning in the 1960s suggest exeptionally deep structural issues in the real, nonfinancial economy, as many have been arguing, including increasingly economists and economic analysts (see Robert Gordon's The Rise and Fall of American Growth, or Deloitte's "Shift Index").

More people like you, increasing capacity, instead of price, are the solution. Be proud. You are the solution to high prices. I would call that 1031 exchange an unfair benefit to the already over benefitted by capital gains tax being half of income tax class though.

The world needs more houses with more people in them. That requires lower house prices, or richer people. I do not like the attitude home owners have that their future must be paid for by the pain of others not being able to afford homes. And that the profit they make on that low production asset subsidises their leisure lifestyle. Building is better than speculating, for speculating is 1 layer removed from production.

> The world needs more houses with more people in them.

Really? Is it impossible to have a fun and healthy society without a rising population? That sounds like a pyramid scheme.

Do you plan to colonize the stars, or wait for this sun to die out?

We'll lose fewer people if we colonize the planets.

We're a long way from being able to do so in a population-saving way.

Which planets and moons in our solar system could support human life? Apart from the Earth, the answer is none. We may be able to build small colonies on Mars and/or Europa but the difficulty in building sizeable colonies in/on these places would be huge (cost of transport, cost of base building and maintenance, differences in gravity, decreased sunlight, transforming local resources into forms we can more easily use, etc...), the effort would be much better spent securing the life-support mechanisms of our own planet.

Do you base your economic decisions on what will happen in 3-4 billion years?

I choose the rights of other humans to live over your aesthetic preference.

Very noble, but ever thought that thinking in terms of billion years is not really productive, and in fact can be counter-productive and destructive?

What with "thousand year" projects turning dictatorial and even "hundred year plans" looking obsolete and becoming laughing stock a few decades after they were devised.

I don't see how one can purport to be the judge on how future generations should live for them, and what the end goal should be millions of years ahead.

Besides, the Sun's death is a really minor issue. It's avoiding the heat death of the universe that will take really good planning...

I don't think he's advocating indefinite growth as much as observing that there are fewer houses than people/families whom want a house. We don't have enough housing to meet the demands of the current population.

Despite that, many projections of human population expect a peak this century: https://en.wikipedia.org/wiki/Projections_of_population_grow...

> I'll leave out the moralistic component. When it comes to value, some other considerations are the low interest rates we experience, the fixed 30-year loan, in the U.S. that is, and interest tax deductions. So one isn't pummeling 1M in investment that could otherwise go into a business. One is putting in 200k, even less with an FHA loan, and deducting the price of the loan.

IMO, until savers max out tax advantaged retirement savings options, mortgaging a primary residence isn't close to a sound investment. And that's really what this article is about: your home is not an investment, and you'd be better off renting one (or taking out an interest only loan) and investing the principle payments you would be making into the broader market.

> you'd be better off renting one (or taking out an interest only loan) and investing the principle payments you would be making into the broader market

How do I invest the principal payments in the market when I need that money to pay my rent?

That's a useless blanket statement. There are many places where it makes sense to buy a home even if you can't max out your 401k -- places where your mortgage payments are a bit cheaper than your rent would be. You wouldn't be able to max out your 401k either way, so you might as well take the cheaper housing option, which is ownership, and put a little more into your 401k than you could otherwise.

    places where your mortgage payments are a bit cheaper than your rent would be

And where you have the stability to stay put and maintain those payments. You can't (easily) sell your house every year and move to a new one.

There's information missing from your argument, or something doesn't make sense.

I'm guessing what you meant to say was, all things being equal, investing principal payments is worse than some tax-deferred savings account.

But I'm not really sure that's ever really the tradeoff for most people? Like I stated above, I pay out of pocket for my primary residence, after tax deductions of interest, principal payments (which come back to me), and rental income from the portion of my home I rent out, LESS than what I would be paying for a tiny studio in a bad neighborhood. If I were a renter, and renting the portion of the house I live in now, I'd be paying more than triple, to some landlord who is taking advantage of these benefits. I prefer to pay myself.

Is it fair that there are all these tax deductions? I didn't even mention that improvements to the house can be factored in, and part of my utilities.

The following is a tangent. I regularly come across people who are huge proponents of savings for retirement as a priority 1. I'm in my 30's and am on my path towards independence already (though I have a way to go). The idea that I should defer risk and investment today, so that I can reap the benefits when I'm 67, is beyond comprehension to me, but it must be a personality thing.

> I'm guessing what you meant to say was, all things being equal, investing principal payments is worse than some tax-deferred savings account.

Correct.

> But I'm not really sure that's ever really the tradeoff for most people?

It's a lot harder to separate out rent from the various home owner expenses involved in a 30 year mortgage than anyone, including myself is willing to engage in in this thread. And it's rare that you'll find enough chances to either rent or buy the exact same property to come up with a solid formula for which side is better.

> The following is a tangent. I regularly come across people who are huge proponents of savings for retirement as a priority 1. I'm in my 30's and am on my path towards independence already (though I have a way to go). The idea that I should defer risk and investment today, so that I can reap the benefits when I'm 67, is beyond comprehension to me, but it must be a personality thing.

You're assuming a retirement date of 67. My spreadsheet projection suggests my investments will be earning more at age 40 than I currently live on, and at age 47 will be earning more than I currently make gross. To get there I actually have to take defer some pleasures and take risk today -- high exposure to equities volatility, etc. I personally view buying a home as the "normal," "safe" option.

The important thing to me is that the money is liquid; it's not locked in a house where transaction fees are 6 percent of the asset. I can pull a chunk of money out of my Roth IRA for anything I want at any time, and the earnings are also lootable for a downpayment should the math turn in my favor. I can also take out loans against my 403b, for down payments or for a variety of causes. My 457b is doesn't have a minimum age for distribution, I just have to employed elsewhere, providing early retirement access.

Your home investment isn't "locked"...there is an entire industry set up to let you borrow against your equity if you so wish

Did you get special incentives on your mortgage because you are renting out all or part of your property? (E.g. buy-to-let in the UK (London at least), where it's easier to buy a house you plan to rent out than it is to buy a house to live in.) I agree your out-of-pocket costs are probably lower than renting. It sounds like you are saying everyone can and should become a landlord, but how much of a downpayment did you need to come up with for your house?

I didn't get special incentives because I'm renting out my property, not in the sense you mentioned Buy to Let in the UK. Instead, I have a few additional tax breaks: instead of paying income tax on the rental income, I can offset it against the depreciation of the property (that will increase the spread between sale price and the price I paid, which will 'go down', so when I sell it I will report higher profit ); I can tax deduct the mortgage interest like any homeowner already can ; I can tax deduct house wide expenses such as heating and common utilities, including repairs to the rental unit (and even linens and furniture if I AirBnB it but that's a different tax schedule). I can declare loss when a unit is not rented. I used a special loan called an FHA loan which meant I needed less than 20% down payment, but I was punished with a high insurance from the bank. I recently refinanced out of that into a normal mortgage, because the value of my property went up and the 20% figure magically became true. And most of us here (unlike in the UK) have 30 year fixed-rate mortgages.

If I rented out my units and moved out, I'd make 2K a month over and above my mortgage payment and taxes. I regard the negativity towards housing above with a lot of amusement. I could withstand a housing crash, a job loss, and a lot more now. I am much more worried about a fire, or crime in my neighborhood, or construction next door.