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Comment by lpolovets | Hacker News Reader

I liked the visualization and data, but I don't think it makes sense to compare home prices to wages w/o considering alternatives to home ownership. Home prices don't exit in a vacuum. That is, if a home is 10x the median salary, you can't really say "well, if I didn't buy a home I could work 10 years less." That's because the alternative to buying is renting, which is also expensive. So sure, a mortgage in SF is $6k/mo. But rent might be $6k/mo as well -- and you don't earn any equity or tax write-offs while renting.

I think what the alternative title to this blog post could be is: "How many years of life does that city cost?" What it's really comparing is the relative cost of having a roof over your head in different areas. Would you rather work 40 years and live in SF or work 30 years and live in rural Wisconsin? (I don't have an opinion on those two options. I'm sure there are many people in both of those places that are happy with their choices.)

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You also have to factor in the opportunity cost of what you could've done with that down payment (e.g. What would a $100k downpayment invested for 30 years in the stock market be worth vs how much is that worth in your home in 30 years?)

The NYT has a buy vs rent calculator that helps make some of these decisions:

https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...

And of course the NYTimes calculator also factors in home prices appreciation. This is not really academic; it's fairly important. In cheaper housing markets with limited growth, it might be cheaper to rent because the expected cost of a major repair (and return on that investment) are both so low.

Of course, you can't ever recognize the value of your house unless you sell it and move somewhere cheaper (or buy a 2nd house and rent out the first one, but that's just another side of the same coin).

Reverse mortgages are an option too, especially around retirement. I didn't do too much research and I'm sure on paper it's a scam, but with no kids and no one to really give the house to beyond charity when my wife and I kick the bucket, I am considering making my place part of my retirement plan.

Or just sell it to pay rent for the rest of your life. Either way it's a pretty big boon.

Not really. End of life care can drag on and is expensive. Even if you're really lucky and net $1 million from your house a single illness could wipe that out quickly. Retirement homes cost much more than comparable rent/mortgages.

Those things can be mitigated with some smart financial planning. You can take your lump sum and buy an annuity and use those annuity payments for health and long term care insurance. I would also add long term care insurance is doubly important for the grandparent commenter who doesn't have children who could help care or support them if something goes wrong.

Annuities are mostly scams with so many knobs & levers that are designed to get unsavvy people on hook with weird mix of investment and insurance. best to keep them separate.

Consider moving to a cheaper country.

Old people have Medicare, they're almost completely insulated from healthcare costs.

Sell it and rent. The bank won't even come close to the true value of the home for a reverse mortgage.

Selling it means I can't live in it anymore. Renting is the ideal option, but if I'm 85 years old, maintaining a rental property or dealing with property managers would be tricky at best.

(My actual goal with my current property is to sell it once I'm having trouble going up the 3 flight of stairs leading to my unit and using the money to live in a much smaller place as people mentionned already)

IMO he meant sell the property and rent for Yourself. invest the proceeds.

There's something called Bare Ownership sale that's popular among widows with no children here in Uruguay, that retain the right to use the property until death :

bare-ownership is a right of virtual ownership. For example, the bare owner of a property has no right to occupy it or rent it out. On the other hand, when the usufruct holder dies, full ownership of the property is carried over to the bare owner without any liability for inheritance tax. He can then dispose of it (by sale, gift, bequest, etc.) as he wishes.

The maximum duration of usufruct generally corresponds to the usufruct holder’s lifetime – in that case, it is called usufruit viager, or life usufruct. But it is possible to set a predefined term (10 years, for example), which is called temporary usufruct.

http://www.french-riviera-property.com/en/news-detail/4301-t...

http://bareownership.com/wp-content/uploads/2012/02/Property...

http://www.nytimes.com/1995/12/29/world/a-120-year-lease-on-...

PARIS, Dec. 28— Andre-Francois Raffray thought he had a great deal 30 years ago: He would pay a 90-year-old woman 2,500 francs (about $500) a month until she died, then move into her grand apartment in a town Vincent van Gogh once roamed.

But this Christmas, Mr. Raffray died at age 77, having laid out the equivalent of more than $184,000 for an apartment he never got to live in.

To be fair: What were the chances, that this 90-year old women would become the Guinness Book of Records entry for "oldest person on the planet"?

I think this highlights how expensive living is and how little income is. If we're going to have a "free economy" without an end of life safety net (i.e. Social security) then it has to be possible to work a lifetime and retire on savings made. But most indicators show little to no saving for most people. It sure seems something is deeply wrong.

Many people simply spend what they make and live paycheck to paycheck, even when they make quite good money.

I think you are having the wrong mindset. A stronger social net would not solve this problem of relative cost of housing. Already, there are many many homes that are very affordable for the median income.

There are most certainly many things deeply wrong.

Most people have negative savings every year. They have more debt. If one has bought a house, then it is very easy to go into more debt every year, when house prices are rising. Then they fall.

Since the beginning of written history (the first written records are records of debts) there are stories and parables about the evil of debt and the need for debt jubilees. Also the idea that lending with interest is immoral is found through out time. Having such easy access to debt/credit from strangers seems not to work well over the long term for human societies.

I mean, is it a good thing that one can get a "Rocket Mortgage" where you can "Get Approved Fast. Get an approval to buy a home or refinance your mortgage in minutes."? [1]

[1] https://rocket.quickenloans.com/

> Since the beginning of written history (the first written records are records of debts) there are stories and parables about the evil of debt and the need for debt jubilees. Also the idea that lending with interest is immoral is found through out time. Having such easy access to debt/credit from strangers seems not to work well over the long term for human societies.

I suppose shrimp and pork and beef are also unquestionably evil... Debt didn't historically work because property rights were poorly recorded. This meant enforcing one's debt involved mafia tactics. Modern debt is cleaner and subject to bankruptcy, a process that occurs on a case-by-case basis when it's needed, a far better solution than randomly cancelling debt every so many years.

Well, the trend is now removing bankruptcy on certain forms of debt as an option, replacing it with cancelling it after X years. This is student debt.

That isn't new and it only applies to very specific cases: student debt is one of a very short lists of debt that aren't cancelable via bankruptcy.

It is new.

Easy access to credit is an important component to a free market. Making borrowing illegal just leads to all sorts of inefficient contortions to do it another way.

For example, businesses often need to borrow money in order to get started.

For another, "bridge" loans and "revolving lines of credit" allow a business to operate when the timing of receiving payments does not line up with the timing of when bills are due.

Forgiving debts means that interest rates must rise to cover those losses.

> Forgiving debts means that interest rates must rise to cover those losses.

Exactly. Interests rates are way too low at the moment.

I agree credit can be very useful and good, but most people are not using debt to try an investment that allows them to pay back the debt and make some profit. They are buying consumables: dinners out, clothing, gadgets, vacations, cars, even housing is really a cost of something you are using. A depreciating asset and not an investment. I think it would be really good to use some of this education everyone gets to get across the fact that consuming using debt with is very bad. Some counter to all the other marketing in the world that says, "Buy, buy, buy". Not immune to it myself.

The problem again is that consuming using available funds is not possible if you need to work 10 years of median salary for it - that in the more affordable states.

The figures mentioned use full salary, in reality you might get some 50% of that possible to allocate to paying off the debt. You still get to pay utilities, cost of life for the family, transportation, education and probably extras. Note I've even ignored any savings - and with high mortgage debt, you can be wiped out by any more expensive health problem.

True; house prices are crazy high in some areas. A decent 3 or 4 bedroom house can be built for 100-200 thousand dollars. In these expensive places, land is the major cost. People can bid up the land cost of housing because of loans especially ones with low down payments. If people had to have %50 down, like not that very long ago, buying a house would be much more inline with incomes. Anywhere where rent is much cheaper than house payment + prop tax + upkeep, the prices are being push higher by home ownership subsidies/lock out of one kind or another.

As a counterpoint Arab traders did very well for hundreds of years without interest (until Europeans came). Interestingly they are probably where our free market ideas come from: there should be no worldly market interference, the market is shaped by the invisible hand which means the rules given by god.

Interest based credit is important for capitalism (use money to make more money), but certainly not for market economies (Use money as a tool to exchange goods you want/need). Both are distinct and can exist independently.

Islamic banks are issuing loans without interest to this day. They have a clever fee schedule though, and I'm not sure it works out any differently for the borrower at the end of the day.

There was a Planet Money episode [1] where a bank setup a no-interest loan to a Muslim family because Islamic law prohibits charging interest.

In the end it was basically just a workaround that was effectively the same as charging interest and that same Muslim family ended up taking a conventional loan when they moved instead of an "Islamic-compliant" mortgage because it was a lot easier.

[1] http://www.npr.org/sections/money/2016/05/13/477956675/episo...

We no longer have a free market. Central banks print and buy stocks, bonds, and mortgage backed securities. China prints and their citizens buy homes in foreign countries.

Most people I know that don't have white collar jobs don't have any expectation they will ever be able to retire. I'd be very surprised if the majority of americans were in a position to be able to retire.

I'm in my thirties and work for a government funded research organisation doing work on a particle accelerator. I don't expect or want to retire, but then 'retirement' means different things. I would definitely want to retire if I worked as a brick layer.

Pensions are a Ponzi scheme, don't fall for it.

http://www.bbc.co.uk/news/business-41204209

No, the math is very different from a Ponzi scheme. Pensions are awesome if you don't have kids.

Consider if you have a 5% chance to die at or before 65 who get's the money? Well what if you could get together with 10,000 people and split it with those who live. Now your investments are boosted by those who die and there is no downside as who cares what happens after you die.

Unfortunately, such schemes are illegal unless it's though a company. Because really the long tail is living to 120 which means you don't want to aim to be broke at say 95 then turn 95 and be in good health.

PS: Remember, returns after inflation can be <3% over 20 years. I want a hedge for that risk other than just having a massive amount of money I can't really spend.

I agree that private pensions are not necessarily Ponzi schemes. It is possible that they are operated that way. It is also possible that they are operated like an actual investment fund. Without looking at the books, it is difficult to tell.

However, social security and other government funded pensions are Ponzi schemes. The money you pay in is given to people who are retired at that time. The money you get out is paid by people who are working at that time.

Social Security is running a ~$2.79 trillion dollar 'surplus' as they have collected more than they have paid out. Which means they have not been paying out 1:1 with money paid in.

It's also not just a pension fund as you can receive benefits well before 62. Death of spouse with under age children or permanent disability.

Now, this does not mean it's a great or even a good investment. But, the trade off of safety vs returns is not actually that bad assuming you live longer than average.

PS: Another way of looking at it is there are no 100% safe approaches to investing 10's of trillions of dollars. Your stuck leveraging GDP growth which is only slightly better than inflation and frankly that's what SS does.

Keeping retired people alive requires devoting some proportion of current economic output to their welfare. Whether that proportion is paid from private savings, public savings, or current taxation ultimately doesn't change the fact that it comes out of current production. You can't save (nice) food, health workers, winter heating, etc.

So the real fight is what proportion of current output goes to old people. Private schemes try to ensure wealthy old people get the biggest slice. Public schemes are more vote driven. It doesn't make them Ponzi schemes.

Yes, pensions can be awesome. One of my colleagues is retiring soon with a very nice final salary pension the likes of which will not be seen by anyone starting now.

Most pensions also will not be enough to cover long term care costs if you are unlucky enough to get some form of dementia.

Pensions as a concept were a great idea when life expectancy was shorter and most people could mostly look after themselves in old age.

I don't think they can survive large numbers of people living until 90 -100 with dementia and needing 24h care. Lets hope the Ai/robotics gamble pays out.

Just curious - how many software developers would have retired by now? And at what age?

> Pensions are a Ponzi scheme, don't fall for it.

Pensions are mostly just highly tax advantaged wrappers for investments now. They are most definitely not ponzi schemes.

Your link is for a defined benefit pension, which is not typical anymore.

That's the point.

Large numbers of current retirees have been promised unaffordable pensions.

Telling people to "not fall for it" sounds like talking about what people will currently be offered. Given the level of misunderstanding about pensions generally I think just telling people this is dangerous.

It may not be typical anymore but CalPERS is a defined benefit plan and the largest public pension fund in the US. [1]

The problem is they bump up those benefits when their fund is doing well but when it isn't doing well there's little or no adjustment. It's so big it's fund is influential in the market and also in politics.

[1] https://en.wikipedia.org/wiki/CalPERS

Parent says "Pensions are a Ponzi scheme, don't fall for it."

While public pensions like social security have certain features of a Ponzi scheme, they can be sustainable forever, unlike other Ponzi schemes. In fact, they can be more efficient than everyone saving and investing for retirement themselves: https://www.economist.com/news/economics-brief/21727877-fina...

A lot of people with white collar jobs don't have any expectation they'll ever be able to retire either. As much focus as there is on web development/software engineering/other tech related jobs with decent income possibilities, a lot of other white collar jobs don't pay all that well at all.

I don't get how this is supposed to fit in with the fact that discrimination against older workers is a big thing. Who is supposed to be hiring these 70 year olds with no savings?

Maybe for SF. The article indicates that homes are quite affordable in much of the country.

I have very little sympathy for the 40% or so of the population who could save for retirement but don't.

Citations for that number? Why don’t they save for retirement? Can someone on minimum wage with a family save for retirement?

Does someone who makes bad choices deserve to be homeless and destitute later in life?

>Does someone who makes bad choices deserve to be homeless and destitute later in life?

The rest of us don't deserve to pay for their bad choices.

Bad choices don't happen in a vacuum any more than good choices do.

I have other things I'd rather do with my money.

Suppose your odds of landing in that exact scenerio are .001%. If you are unlucky, should we pay for you? What about your kids?

It seems valuable to society to not have old, homeless people causing trouble. But that's just me.

That .001% is what charity is for.

Personally, I think people should pay the price for their stupidity. Subsidizing stupidity never works out in the end.

Next time, please provide a source for your percentages.

The problem is you're not thinking of externalities of homelessness, much like a functioning health system w/ insurance.

Ultimately, saying neither of these is worth spending communal government revenues on collapses down to "I'm okay with people dying on the street."

Which is not offered as a straw man, but because that's a very possible outcome. And given that, if we're not okay with that, then we're going to spend significant resources to keep that from happening (ER care, homeless programs).

Social security attempts to invest that earlier in a person's life, so that the money treating more dire circumstances can be saved.

... And also allows for some measure of human dignity for those who might not have been taught about compound interest at age 6.

I agree, but I think it's more expensive to figure out who has brought their fate upon themselves and doesn't really deserve the money and who genuinely just had bad luck. That's why I'm in favor of a universal social safety net, for example via a basic income.

Good thing that so many smart people are working so hard on this! /s

I know a dude who makes $800k/yr and still lives paycheck to paycheck. Lack of savings is not necessarily caused by lower income. People tend to shovel money out the door as quickly as it comes in.

Wow, I wouldn't even know how to spend that much. If I made that much I'd retire after two or three years.

Lots of travel to exotic destinations, huge house in an expensive neighborhood, fancy car upgrade every couple of years, huge tax bill. All gone.

Maybe. Or maybe not.

I read a great article at some point that advised people who wanted to be writers to just go do that while they were young and poor and not wait until they had saved up money to finance it. Because the reality is that once you have the fancy high paid job and the fancy house, car and clothes that not only go with it but are essentially required, the amount you thought you needed changes.

For certain jobs, expensive suits and other things you might think are frivolous luxuries are nearly impossible to do your job without. It can be nigh impossible to unhook your income from this treadmill where the faster you run, the further behind you fall in certain metrics.

Millionaires are sometimes like the guy who needed the cart to carry cart repair supplies: Once you are rich and famous, now you need that mansion, not for the space or prestige but for security purposes, and you may also need a bodyguard, a bullet proof limo, etc.

Golden handcuffs

On Topic: is the house paid, rented or is he paying off a mortgage? :-)

Rented. He used to pay mortgage but felt too "tied down" and sold the house.

What does he do to make that kind of money?

Manages about 20 people.

Half expected he answer to be 'owns 20 other houses'

The real opportunity cost is not living somewhere else. Run the math and SF is best avoided.

Depends of course. Despite the high cost, many live here because their salary is multiple times higher than they could get elsewhere.

It's not just the salary. It's also the opportunities to do things as in for the SF Bay Area we can go to wine country one weekend, go snow boarding another, sail, surf, hike; there's a lot of stuff to do here. I'm sure people can say the same for the NY metro and other similar places.

I've lived in cheaper but boring places. The financial tradeoff is fair.

Vs NYC there's also Tahoe, the ocean is surfable, there are beaches, it doesn't smell like trash everywhere, the climate is less extreme (less hot humid in the summer no snow), more access to fresh local produce more of the year, etc etc. It's not like rent in Manhattan is cheap, and you'd likely make less in NYC vs SF unless you work in finance.

I probably should have been more specific. People like NYC for different reasons, like the nightlife / club scene where the SF Bay Area doesn't compare at all. There's also culture that you wouldn't find outside NYC like the fashion industry and even art. That said NYC isn't for me either but it is for a lot of people, which is why people endure finance to stay there. Since we're on the subject, LA is another comparable place but not similar place. My point is that you can't these qualities in the boonies and that's why it's expensive to live in these places.

> My point is that you can't these qualities in the boonies and that's why it's expensive to live in these places.

But lots of people are plenty happy in the "boonies". They just have different interests, like doing more outdoor-oriented activities like hunting, hiking, fishing, or building their own workshops from scratch. Or maybe they're more cerebral and like the peace and quiet so they can focus on writing.

It's worth pointing out that far more people live outside of San Fransisco and New York (sure, throw in LA and Chicago, too) than inside those metropolitan areas.

Each of those cities is unique in different things. So they are part of the fatter part of a long thin tail. But that's not the same as "everyone wants to live here!"

> But lots of people are plenty happy in the "boonies". They just have different interests

I don't disagree. Different people want different things. I'm just pointing out 1. why people like living in big metros and 2. the flaw of basing where you live entirely on the cost of living and real estate.

>It's not just the salary. It's also the opportunities to do things as in for the SF Bay Area we can go to wine country one weekend, go snow boarding another, sail, surf, hike; there's a lot of stuff to do here.

You can do all of those same things just living an hour east of SF.

True with those examples. I live 20 minutes out of Seattle. I have hundreds of restaurants, every movie in theaters, hundreds of dance clubs/bars/social clubs within a 20 minute drive.

I can't get a well-paying job, or access to any of the above without being close to the city.

Can't you just commute the 20 minutes to a job in the city?

I thought that's what he just said he was doing.

Doesn't the SF Bay Area include the cities an hour east of SF?

> Doesn't the SF Bay Area include the cities an hour east of SF?

No, an hour east of SF is deep in the Central Valley.

Could be wrong but I feel that's more than an hour east especially when you account for traffic - at least the cities that are actually inexpensive. Dublin, Pleasanton, and Livermore are no longer inexpensive cities with cheap real estate. Neither is Alamo and other nearby cities.

So the problem with living beyond Pleasanton is that you will spend most of your life sitting in traffic. Why do you need to sit in traffic? Because almost all the jobs are in the Bay Area. Maybe that won't be as big of a problem soon though once you have Level 4 autonomous driving. Personally I still wouldn't go for it with that.

Barely and only without traffic. It's over an hour to Tracy now without traffic and that's right on the Western edge of the central valley. Places "deep" in the valley like Stockton out Manteca are even further.

Or rural eastern Washington, I moved to the bay area from there and other than good restaurants you could do pretty much everything else for less money and no traffic.

That's true in the US. In other areas, leaving the city might not be a realistic option.

Consider Hong Kong as an (extreme) example, where leaving the city means emigrating to another country with another language etc. (yes, HK is technically a Special Administrative Region of China, but can be considered standalone in this respect).

The median apartment price/income ratio here is 18, compared to a US average of 3.9 (the highest cities in the linked article are 13) [1].

These ratios also don't consider what you actually get. The average size of new apartments sold this year in HK was 610 square feet at an average price of US$1.8m and one new development offers apartments the size of Tesla Model X for ~US$500,000 [0].

If you want to go larger, the per square foot cost goes up. At the extreme end, consider a 4000 square foot townhouse that costs US$21,190/square foot [2].

A more ridiculous example is perhaps the sale of a car park earlier this year for US$600,000.

For reference, the median household income is ~US$38k. [1]

Unfortunately those with the most housing affordability issues are those that are least capable of leaving.

[0] https://www.bloomberg.com/news/features/2017-06-14/you-can-b...

[1] http://www.demographia.com/dhi.pdf

[2]http://time.com/4752342/worlds-most-expensive-house-square-f...

Seems like solid evidence that you can't simply "densify" your way out of high prices? Bloomberg says the reason is developers trying to cover the cost of land. Something doesn't add up...

Actually HK has plenty of buildable land in the New Territories and elsewhere, but the real estate tycoons that run the whole show obviously aren't going to allow competition without first getting their cut.

Also, doesn't HK have a policy against tearing down green spaces? Astonishingly, 70% of the dragon islands is forest, the last I read.

Which means that probably ordinary people left Hong Kong and commute to work there each day right? It became like Paris where mostly only upper class lives. Definitely a rent on a minimal $500,000 apartment will also be above median household income.

No, ordinary people live in government subsidized housing (about half the population), or bought their apartment (99%+ of housing are high-rise apartments) in earlier decades when it was a bit more affordable.

For household who already own, their existing apartment also appreciated, so what matters is the cost of trading up. The hardest hit group are younger people between 20 and 35 who are stuck in their parents house for probably forever. 3 generations under 1 roof is pretty common.

The real problem of HK's home affordability is the land release/auction system. It is a highly corrupted system controlled entirely by the local elites and major real estate developers backed by big banks. They managed to push average joes to the very limit when 90%+ of the land in HK is used for reserves/parks under the name of environmental protection.

What is worse, this cancer got exported to mainland China in the 1990s and it was systematically rolled out for all major cities there. $1.8m buys you an 80sqm new apartment in Shanghai in an below average location, when the median household income in Shanghai is definitely lower than US$20k.

It is lucky to be living in HK as there are still public housing options. In cities like Shanghai and Beijing, using the national household median income figure, a Chinese peasant needs to start saving the deposit from the Ming Dynasty (1368–1644) to be able to afford an average apartment there.

Sacrificing parks for more housing just creates more pressure for sacrificing even more parks.

I would really like to see similar graphics for Europe, Asia, Australia, and Canada. I don't know where to get the data though, and I don't think I could make such a beautiful visualisation as he did.

For the data, the Demographia International Housing Affordability Survey provides affordability data for many countries and cities:

http://www.demographia.com/dhi.pdf

The top 10 least affordable with respect to median price/income ratios:

    China Hong Kong              18.1
    Australia Sydney, NSW,       12.2
    Canada Vancouver, BC         11.8
    N.Z. Auckland                10.0
    U.S. San Jose, CA             9.6
    Australia Melbourne, VIC      9.5
    U.S. Honolulu, HI             9.4
    U.S. Los Angeles, CA          9.3
    U.S. San Francisco, CA        9.2
    U.K. Bournemouth & Dorset     8.9

Wait... Bournemouth and Dorset!?!?

Yep, Sandbanks brings the average up http://www.rightmove.co.uk/house-prices/Sandbanks.html

"Sandbanks has, by area, the fourth highest land value in the world" https://en.wikipedia.org/wiki/Sandbanks

Everyone I know in my age group with a house got help with their down payment from parents. Either in the form of low/no interest casual loans or just substantial gifts. It's possible this money wouldn't have been available to them for speculation in the stock market.

Some of us don't have parents who have more money than we do.

Neither do all of my friends. All that's required is having parents that want to help you get a house.

For instance my girlfriend makes twice the money her parents ever did. She still couldn't have afforded the full down payment on her house without a 4% loan from her mother as they were entering retirement. This arrangement ends up being beneficial to all parties.

I wonder how common even that much help is. That would be completely unthinkable to anyone in my circle. I personally send about $400 per month on average to help my mother make ends meet. I'm certainly not going to be getting a several thousand dollar loan from anyone in my family.

For reference, this is in southern New Jersey and I'm on the older end of the millennials.

Speculation or saving for retirement.

Might depend on your age group. If you were (un)lucky enough to be of home buying age during the 2005ish period, you could get a "NINJA" (No Income? No Job? Approved!) loan. This let you sneak around PMI and even having a down payment by using a 80% LTV conventional 1st mortgage, and a HELOC acting as 2nd mortgage based in order to reach full purchase price. Add in a 10 year interest only period, and you're good to go. What could go wrong?!

Another factor would be the opportunity cost of moving. With an apartment you're free as soon as the lease is up. With a house, even if you get a job across the country the mortgage must be paid. The time investment alone in preparing a house for sale/selling it is nothing to scoff at.

There's also leverage. Banks are willing to loan you a million dollars to buy a house but not for investing in the stock market. (Barring catastrophe, over 30 years, there are usually gains.)

I think he was pointing out how out of reach buying is. I'm sure a lot of people would like to own that are renting in SF right now but that's just not possible. "Having a roof of your head" and home ownership is very different, offering different benefits. For someone with kids, who probably does not want to be moving, renting is a bad option but the only one in a lot of markets.

Often missing from discussions of lower CoL areas is risk from different job markets. This is harder to factor in, but since not everyone can work remotely, you need to consider job market liquidity.

If there is a recession can you easily find another job? Do you have a decent selection of local employers to ensure sufficient competition in terms of wages and benefits? Etc.

Living in a high CoL area seems to correlate with a healthier job market.

The best bet for low risk, high employment, and CoL - https://en.wikipedia.org/wiki/Plano%2C_Texas#Economy

It costs much more than where I live, but it is still incredibly cheap compared to west coast.

I'm not sure how true this is. My coworkers mention that during the 2007/2008 recession in SF they saw all of their coworkers/friends laid off and leave the Bay Area.

It took one of my coworkers a whole year to find another job during that period, even though he was in a high CoL area and initially had a "great selection" of jobs.

I don't know a single person that lost a job in 2007/2008. Everyone just hunkered down. Stopped job hunting, employers stopped hiring, everyone just stayed quiet.

Now, I know my anecdote doesn't mean much, because supposedly unemployment went up. Traffic certainly got better. But my point is, the anecdotes aren't worth a ton. I'm not making mine up -- I'm dead serious. Nobody I know got laid off, nobody I know left the area.

I also know far more people who have moved TO California than out of it, and the only people I know who moved out were a couple of people in the past 3 years.

He mentions a county in Texas as the most affordable — and yet Texas has relatively high property taxes (higher than California). So there's that.

And the more expensive homes will also be an income tap when you retire and sell the house (hint: anyone in the magenta can retire, sell and live out their lives anywhere in the green).

Texas also has no state income tax, though. And property taxes are based on the value of the home, so lower values means lower property taxes.

My understanding is that state income tax can be deducted from federal income tax. Retirement income is usually pretty low as well.

Very few things are directly deductible from federal income tax. Most deductions are from the taxable income.

So if you pay X in state income taxes, you'd deduct X from your overall federally taxed income. You end up only saving your federal tax rate times X, not X in federal taxes. So if you're taxed at 13% state and 35% federally, you'd pay 13% to the state. Then you'd still pay (barring other deductions) your federal taxes on 87% of your income.

Federal taxes don't work as a bare percentage, though. You pay a lower percentage on everything up to some number, then progressively higher percentages on brackets of your income up to your maximum tax rate. https://taxfoundation.org/2017-tax-brackets/

And land values are based on expected net income attainable from the location (whether imputed rent or actual rent). Higher property taxes thus reduce land values, making homes more affordable upfront.

The higher property taxes are the more speculation is suppressed due to the high cost of carry.

>Texas has relatively high property taxes (higher than California)

Compared with most other states, California has lower property tax rate. Since Prop 13 passed in the 70s, the tax rate has been fixed at 1% of assessed value (with maximum yearly increments on the assessed value capped at 2%).

A lot of these calculators seem to miss changing costs to.

Ten years ago, I rented a small apartment for $350 per week. Now a literally identical apartment, 20km further from the CBD is going for $600 per week of rent. (I'm not in the US).

Mortgages don't consistently go up in a way that meets these sorts of increases.

You can sublet and pay people in cash for a lot less than the official renting price. This is particularly true in places with high real estate prices like LA, NY, NJ and SF where there is rent control. Thus it incentivizes long-term tenants to sublet for a sub-market price.

You can't really buy a house in such a fashion though.

FYI, mortgage qualification needs a years rent payment proof, ideally in form of bank transfer or bank check entries. If you pay cash and want a house soon, make sure to get written recites for those cash payments.

>That is, if a home is 10x the median salary, you can't really say "well, if I didn't buy a home I could work 10 years less."

Yes, but what you can say is "If I move to this other place I can work ten fewer years for my house even if I make less money."

There are more alternatives: work remotely, live in cubicle under table, live in a car...

What I do: Land a Silicon Valley tech job but work remotely from the Midwest. I make almost double the median income for my area and I live in the white zone. My employer can pay me 60-70% of the salary they would pay for someone in San Francisco to do my job and I still earn way above median for my area.

I could buy a really decent home here (Southern Missouri) for somewhere between 0.5 to 1.5 times my yearly salary. There are many factors affecting that price but there are some really decent houses at the low end of the price range. Extra bonus: property tax, income tax and sales tax are all relatively low. Unfortunately that doesn't apply to the entire region; some neighboring counties have ~8x higher property tax than where I live.

> I live in the white zone

What is the white zone?

It's the areas on the map in the article where prices are average.

Oh, I thought it was referring to some kind of planning zone (and not, as some might have misread my question, as a racial zone).

I mean also roommates, the classic way to cut costs. I think it's interesting because most New Yorkers I know have roommates into their 30s, 90% all of my SF friends don't.

> So sure, a mortgage in SF is $6k/mo. But rent might be $6k/mo as well -- and you don't earn any equity or tax write-offs while renting.

When you rent, your money is gone. When you buy, you normally get most or all of it back later. There's barely any economic comparison between renting and ownership. The tax write offs is the one of the least of your concerns.

People go completely and absolutely nuts when they end up "underwater" with mortgages, which means the sale price of the house at some point becomes less than what you bought it for, or worse, less than the remainder of what you owe. It's an utter and total disaster if you can only get back 80% of what you paid. And yet nobody blinks an eye about sending 100% of their money down the rental drain.

With ownership, you add to the value/legacy that you can pass to your family when you die. As a renter, you add nothing.

When renting, people often get priced out of their apartments, or evicted for circumstances beyond their control. With ownership, the sale price is once, and generally only rare major disasters can push you out. The risks to renting are greater than the risks for home ownership.

These things are why it's so incredibly important that home ownership is affordable across the country. If it goes out of reach, we will have a huge economic problem with large consequences.

When I sell my house I'm not getting back all my property taxes paid, interest paid, closing costs, inspection cost, realtor commission, insurance payments, and routine maintenance costs.

"When I sell my house I'm not getting back all my property taxes paid, interest paid ..."

Perhaps not - but you are deducting those from your taxes the entire time.

I have no comment to make about the appropriateness of the mortgage interest tax deduction. It exists and should be factored into your economic models.

Interest is a good point. But taxes are in the noise where I live, as is all the rest of your list.

Either way, we could debate a whole bunch of minor costs, and it's obviously not the same for everyone. But that would be missing the point completely.

If you sell your 500k house for a very very bad return of 125k, you will be 125k ahead of where a renter is. Renting returns nothing. Whether or not I get back 100% of what I put in, the point is when you rent you get nothing back.

I think this is an unfair comparison, because by choosing to buy a house rather than rent, you need to account for the opportunity cost of not investing the money you're paying into the mortgage in a stock market. Using the calculator here, over a period of 10 years with a measly S&P 500 annual return of 4.66% if you started out with 125k down payment and invested a mortgage payment of $3125 each month, you would have ended up with 927k. It seems to me that what you ought to be comparing is the growth of index funds (what most people should be investing in), and housing market in your area.

Regarding the example of people losing money selling a house in Detroit, it seems to me that by renting and investing the money you would have been putting into the mortgage, you are better able to diversify the risk of your housing area depreciating in price. However, there are areas that experiencing housing price growth better than stock market return, so there are advantages and disadvantages to renting vs. buying a house. By no means is it as clear-cut as you portray.

[1] https://dqydj.com/sp-500-dividend-reinvestment-and-periodic-...

It takes a pretty good return on an investment to make back what you lose on rent.

The point I'm making is that buying a house is an investment, and renting is not.

I've done both, I've rented for long periods of my life. In San Francisco, among other places. I've also bought two houses.

I wish I had seen the economics of buying much sooner, because renting is throwing money away. When I was younger I was comparing mortgage payments to rent, and it didn't seem to make much difference. But if I'd realized that rent is gone and mortgage payments come back, I'd have tried to buy much sooner.

Renting is more expensive than buying in every county I've ever lived, including SF. So the argument that you could rent and invest instead of buying doesn't make sense to me. If you can rent and invest, then you can buy and invest. As long as you can afford the down payment, which is the main barrier to entry.

In your example, I could end up with 927k, but you have to subtract your rent. If your rent is 3k/mo, then you'd have spent 375k on rent for a net return of 550k. And you had to pay both the 3k/mo investment and 3k/mo rent at the same time.

Chances are pretty good in some places that if you buy a house for 350k, after 10 years it will sell for 550k, and you could still afford the side 3k investment per month and get the 927k on top of it, for a total of ~1.4M.

It still seems really clear cut to me.

Or the dividends from keeping your down payment in the stock market.

> When you buy, you normally get most or all of it back later.

Whoa! No, not even remotely close.

Oh really? Please explain. I have sold a house before, and I got back more than I paid, after taxes and agent fees, after maintenance and repairs.

*keep in mind that "most" means better than 50%. Are you claiming that the average house sold in the US gets a worse than 50% return?

If we are using "anecdata" then I can say you'll never get your value out of your house - I personally know people who have sold their house for $5K, $20K, $30K, and $50K less than they bought them for. Hell, the entire city of Detroit, Flint, etc. has seen prices plummet so hard they are practically giving away houses and there is a huge arson problem - people are burning their houses for insurance money en mass.

In your "example", if you're very lucky and both buy and sell at the right time during a housing bubble then relocate to an area not experiencing a bubble, then maybe. (I believe you are severely underestimating the carrying costs of a typical house though, it's not just the big stuff.)

However, that's not even remotely close to the typical case. House prices rising fast enough to cover all those costs is indication of an unsustainable bubble.

https://inflationdata.com/articles/inflation-adjusted-prices...

>We can see that if you had bought a house at the peak in 1980 you would have lost purchasing power if you had sold in 1985 (not to mention transaction costs). And then for a little while around 1990 you would have been slightly ahead, but then through most of the 1990’s you would actually be losing money once again. So you’ve paid off half of your 30 year mortgage, you’ve paid taxes, insurance, maintenance, etc. and your house has not kept up with inflation!

You also have to keep in mind the economy of most towns and some cities is very, very volatile and depends heavily on 1-2 employers or industries. Those go away and there's economic collapse. When there's large economic collapse then buy buy home value.

(It's personal preference but I disagree with the idea of leaving family [besides spouse] any significant amount of money/assets when you die - most of my estate is going to charity upon my death)

I'm not sure what your point is. I claim that you get back more than 50% of your money more than 50% of the time. I believe the historical data nation wide agrees with that. When you rent, you get 0% of your money back. 0% is a worse return than x% where x > 0. 0% return is a lot worse than 50%. And there are plenty of people who get better than 100%, I'm not saying it's everyone, but it's a fact that it's common.

So which would you rather have? A 50k loss on your house after 10 or 20 years, or have spent 600k renting a place in San Francisco for 10 years and having 0 dollars back?

There are good reasons to rent, but the long term economic benefits are not one of them. There's just no comparison, and bringing up taxes and fees and repair costs and whether inflation matches, none of that makes a single bit of difference.

I think the point they were trying to make is that, even if you get a large portion of the sale price back, you don't generally end up with much more than if you had rented. Even if you make more than 50% of your money, as you claim is usually the case, this can be very comparable if not less than renting and investing the down payment in index funds.

If you can rent and invest, you can also buy and invest, right? The only way that renting is an investment advantage is the down payment, but you have to subtract your rent from your returns to see if it makes sense. In the example at the top of this thread, 6k/mo rent is 750k over 10 years. You have to have a very large down payment and very good returns consistently for 10 solid years to make that back.

"If you can rent and invest, you can also buy and invest"

Not necessarily, the less you put into the downpayment the more you pay in interest, the less the calculation makes sense.

I'm not disagreeing that there are many scenarios, likely including the 6k/mo example, that buying makes sense. What I take issue with, and I imagine other commenters did as well, is the idea that "When you rent, your money is gone. When you buy, you normally get most or all of it back later." This is far too simple, and there are many cases where the two are equivalent or renting comes out on top. It's easy to find such scenarios in the NYT calculator [0], even when you assume your house goes up in value.

[0] https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...

I hear you, that's fair. Cheers!

The visualizations were great and I think his point was to drive home how long it would take to own a home in the optimal case. In reality you should take his metric and multiply it times 6 or 7 minimally. You're still going to have to pay at least the sale price of the house if you intend to own it free and clear. Also, since banks in the US don't create mortgages for longer than a 40-year term (I believe that's the max), if your value in his metric is greater than 5, and using my 6-7 multiplier, then you're never going to own a home in that location.

That being said, a better metric might be the time to save up for a down payment that brings the mortgage and fees into a reasonable range for your salary. However, that calculation is much more complicated.

Edit: I live in SF and I accept that I will never own a home free and clear here, unless I get exceptionally lucky. My plan is to get a mortgage in SF and eventually sell the place and use the equity to buy in a more affordable market.

A lot of these places are so insane, that insane places like New York look like values by comparison.

My taxes are 75% of my mortgage, but it's still worth 1/3 the salary to pay 1/7 the cost vs living in The Bay Area.

I don't think the point of this was to compare rent vs buy. It was to give information for people who want to own a home where the cheapest place to do so is.

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