An actress lived for decades in this NYC apartment for $28 a month (2018)
edition.cnn.com
edition.cnn.com
The reasoning why it doesn’t work probably won’t surprise anyone here. But in it they talk about how the very wealthy Nat Sherman was able to pay $355/month for a rarely used 6br apartment. That’s quite an efficiency problem.
Without rent control you just have the market force people into musical chairs for highest bidders, for the benefits of the landlords.
The few good ideas seem to essentially be to treat housing as infrastructure. Of course building infrastructure is a problem in itself for many countries.
Those who need it? We're not getting that from rent control, either, because many people suffer from high rent who don't have a rent-controlled apartment. Some of this may be due to those who don't need it getting it, but I suspect the numbers of such cases aren't enough to account for all those who need it who don't get it.
> someone occupying an apartment at a low margin is only really a problem if we can't produce more apartments, or more opportunities, at the same price.
That's exactly the problem with rent control. Let's say that there are a shortage of apartments for $100/month in NYC. Who is going to try to build more apartments in NYC for $100/month? Anybody who tries is going to lose their shirt. We can't produce them at that price. Rent control doesn't make that problem go away.
$100 per month isn't realistic, $500 might be. While construction costs do rise, you are mostly paying for the exclusivity.
"High-rise apartment buildings cost an average $302 per square foot."
https://therealdeal.com/2018/05/15/surprise-nyc-remains-most...
You might be able to do it for $800/month, though.
We tax normal people on a similar basis — if you settle a debt, you’ll get a 1099 for whatever was written off and must pay tax unless you are insolvent.
But that doesn't really change things, does it? Prices completely out of wack with market.
But my objection to rent control has always been that it is wealth distribution by lottery. The wealth is not redistributed based on need or any other principle. It is totally arbitrary. Did your apartment become rent controlled or were you born into a rent controlled apartment? Congratulations, you get to live in a highly desirable area at below market rates. Didn't get so lucky? Well, sucks to be you.
Most lower class people don't receive housing assistance of any kind. Why should a random selection of people (from all tax brackets) get rent control?
If your aunt had won the lottery, that would also be a good outcome for her. But I don't think it then follows that the lottery is a progressive social policy.
Everything is a lottery. My parents bought a house in a marginal neighborhood in NYC for $20k in the 70s and made a 100x return at retirement time. By accident of birth, I bought a beautiful house in a different place in the 2000s that hasn’t gained much value. Renters on the other hand always get screwed as capital concentrates and rent is pushed up. Even in my case where I’m not making money, my expenses are flat and equity growing. That’s not an option today for most people.
In my aunts case, she lived into her late 80s independently. If she had lived in a typical suburban environment, she would have almost certainly been in a nursing facility and would have incurred 10x higher taxpayer costs and a much lower quality of life.
> Renters on the other hand always get screwed as capital concentrates and rent is pushed up.
You seem to have a very strong pro-housing bias. Here you imply that renters are people who cannot afford to buy a house. There are other ways to invest, right? Those investments can cover increasing rents and even beat real-estate investing.
Keeping children in school, keeping jobs, etc all are far more difficult for folks in society that have the least ability to cope with change.
I’ve heard the argument on HN before that renting and investing might be better than buying a house, and while I’m certain it’s true for a few people, I’m still a bit puzzled by the argument that if you can afford a house that rent and investing might be better. Can you elaborate a bit on when that makes financial sense?
If you can afford a house, wouldn’t buying and investing be even better than renting and investing? The problem with rent is that it’s 100% money loss, while buying is under most normal circumstances returned, usually at a profit, sometimes at a small loss, and almost never a complete loss comparable to rent.
In order for renting to make more sense than buying, you have to be able to make returns on your investment that exceed your rent plus whatever returns you’d get investing while buying a house. What I think this means is that your down payment on your house needs to be the thing than enables investment returns of an extra $1k or more above investing while renting, in other words, offset whatever rent would have been. It’s not clear to me that starting with, say, $200k more to invest, could actually yield so much bigger returns that suddenly renting makes more sense.
Is my analysis way off somehow? If so, would you be willing to outline a renting & buying scenario where investing + renting makes more money? Does it require a narrow band of income where you can afford to buy but not invest any extra?
In terms of your first statement, it seems true. However, I also think it's true that most people are unreasonably scared of the stock market while being unreasonably comfortable with investing 500% of their life savings into one property. And I think that for many people owning a house is similar to having a child, is not up for debate. You can't tell them they can't afford it. They will go deep into debt because they want to experience that aspect of life. Unlike, say, buying S&P 500 which is usually done purely for investing reasons.
> buying is under most normal circumstances returned, usually at a profit, sometimes at a small loss, and almost never a complete loss comparable to rent.
I would like to see numbers to back it up. It's very easy to lose track of how much money you spent on your house that you wouldn't have spent if you were renting: buying fees, longer commute, repairs, bigger-than-otherwise utility bills, property tax, mortgage interest, PMI, possible HOA fees, etc. It's also easy to lose track of how much money you didn't make on the market by not investing. This is obviously cherry picking (even though this very often happens when people discuss their housing returns) but over the last 10 years S&P 500 nearly 4x-ed.
In terms of housing vs stock market as an investment, check out this calculator [1]. You might not be able to get a good mortgage for the duration of your home ownership. The housing growth rate can stall relative to market based on local conditions. Property taxes and home-ownership fees can add up. The cost of buying and selling your home can be high. There are many variables that can tilt things one way or another. And lastly, housing is a market just like the stock market and they are interconnected.
I just don't believe in free money. I believe in the 'efficient-enough market hypothesis.' For a given amount of risk you should expect the same return. If you are looking at an unreasonably good investment you are likely just underestimating the risk. Gains are made via relative price differences. The better an investment seems the more pressure there is to buy it thus raising its absolute price thus reducing growth opportunities for subsequent buyers. When does the buying pressure stop? It stops when the investment doesn't seem better than others. Thus the markets settle on maximum uncertainty. To me housing is an investment, one of many. It's not automatically the best one in all circumstances.
[1] https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...
FWIW, I'm not trying to contradict you, I'm trying to understand you. But, above you said "Here you imply that renters are people who cannot afford to buy a house." I was responding directly to that. Isn't is actually true that the majority of renters are not smart stock/bond market investors, and that the majority of renters cannot afford a down payment on a house, even if they want to, and that's why they're renting?
> I would like to see numbers to back it up. It's very easy to lose track of how much money you spent on your house that you wouldn't have spent if you were renting...
I was talking about the sale price of a house (getting your money back) compared to paying rent (not getting your money back). You want evidence that most housing sales aren't normally 0 and a total loss for the owner, is that what you mean?
It's fairly easy to Google average house return rates, I guess, but I honestly don't think my statement that housing returns aren't normally 0 needs any numbers to back it up. Here's the first hit I see: "Average annual returns in long-term real estate investing vary by the area of concentration in the sector. Average 20-year returns in the commercial real estate slightly outperform the S&P 500 Index, running at around 9.5%. Residential and diversified real estate investments do a bit better, averaging 10.6%. Real estate investment trusts (REITS) perform best, with an average annual return of 11.8%."
https://www.investopedia.com/ask/answers/060415/what-average...
> check out this calculator
Thank you, this calculator does what I was asking for -- it compares buying and later selling a house to renting for that same duration.
To be honest, and just for the sake of discussion, my reaction is that I'm somewhat skeptical about it, and here's specifically why:
- It ends up calculating twice the recurring costs of buying vs renting. It's not immediately obvious that any of the variables are wrong, but the sum total doesn't seem very plausible, it doesn't really pass the smell test. A landlord is simply not going to rent for less than maintenance costs. Renting should be assumed by default to cost more than buying in the long term. All things being equal, the maintenance costs are the same, the difference is the landlord's markup.
- For everywhere I've ever lived (CA, NY & UT), the price that it calculates for rent as "equivalent" would not be able to get you an equivalent house, not even close. It's one thing to say an equivalent dollar amount exists, but it's another thing entirely to have such options. Generally speaking, the same monthly dollar amount spent on rent vs buy is going to net you a bigger space if you buy than if you rent.
- It assumes renters don't pay utilities, which is often not the case. But, again, it needs to be assumed that renters and buyers both pay the same utilities somehow, regardless of whether they're paying the landlord or the utility companies. It almost doesn't make sense to factor utilities into the comparison, especially only on one side of it.
Anyway, I totally buy that there's opportunity cost in a down payment, and that someone could use that money to invest in other ways that might outperform rent. I do not buy that there's any other savings possible when renting in a free market, generally speaking. (I'm specifically excluding rent control in my thinking here.)
Personally, I can easily say after having rented for a decade and owned two houses for a decade, that the houses were a far and away better deal financially than renting, like not even close. So much so that I very much regret not buying earlier. All in all, including maintenance and remodels on both houses, buying houses has increased my savings considerably, where renting decreased it.
My experience makes me wonder whether arguments in favor of renting aren't somewhat designed to make people who don't have a choice about renting feel okay about their situation. That's not necessarily a bad thing in my mind, even if the argument doesn't line up with reality.
> I was talking about the sale price of a house (getting your money back) compared to paying rent (not getting your money back).
This is biased framing that favors owning. In both cases you sign up for ongoing sunk costs and for an investment. You sell your investment then subtract the sunk costs, that is what we are comparing.
> You want evidence that most housing sales aren't normally 0 and a total loss for the owner, is that what you mean?
Even this is a bit biased. If you simply look at home sales you will miss all of the people who are not selling because their house value is too low for them. So they sit there making all kinds of sacrifices to avoid selling.
> It's fairly easy to Google average house return rates, I guess, but I honestly don't think my statement that housing returns aren't normally 0 needs any numbers to back it up.
It doesn't seem that easy and I think the fact that you don't think they need backing up tips your hand.
> "Average annual returns in long-term real estate investing vary by the area of concentration in the sector. Average 20-year returns in the commercial real estate slightly outperform the S&P 500 Index, running at around 9.5%. Residential and diversified real estate investments do a bit better, averaging 10.6%. Real estate investment trusts (REITS) perform best, with an average annual return of 11.8%."
I don't buy these un-sourced numbers for a second. For starters, averages are completely useless here. A few booming places can hide thousands of cities that are underwater. Zillow [1] has median data for the entire country for the last 10 years and it shows prices went from 170k to 230k. That is 3% yoy. And you can even lie with this number because it doesn't capture variance. 3% could be 6% in half the country and 0% in the other half. Unlike with the stock market you cannot fractionally diversify unless you are mega rich. This 3% is also not purely profit as it is missing local property taxes and other sunk costs. Also let's not forget inflation is 2-3% yoy...
In terms of renters taking on the owners costs, sure renting is more freeing so the renters pay a premium for a short contract and no down-payment and such. Sometimes that is done as a choice and not because its the only option. And some fees like repairs are amortized by landlords as they own many units. It's not the same as you hiring a third party to fix something in your house, it will cost more for you. And, again, to my point, this varies by locality and living situation.
That calculator is a great starting point to get you to realize all of the factors that go into making the decision. It's actually still missing a lot of them. Any diligent investor should make their own in spreadsheets before making that big decision.
There are great reasons to rent, you've mentioned some, but comparing them directly, not talking about external investments, buying has to be cheaper than renting for one simple reason: when I rent, I'm paying a buyer.
The overall costs are the same either way, they have to be. To rent is to pay extra to not have to pay a lump sum, not have to fix things, and be able to stop anytime. Renters pay for maintenance and improvements one way or another. Inflation and real-estate prices affect renters and buyers equally in the long run. Renting must cost more than buying, on average. The rent system cannot work unless that's true.
So for me, the only remaining question is whether a down payment invested elsewhere can yield a return that offsets rent reliably, and how.
> In both cases you sign up for ongoing sunk costs and for an investment.
That's a suggestive symmetry, but not comparing renting to buying directly, it's assuming an unspecified optional investment only for the renter. And rent is a known, fixed, high ongoing sunk cost. Buying might not be, considering the future sale. Whether costs are sunk when buying depends on many things. In my case, I put tens of thousands into a house, and it all came back when I sold.
> It doesn't seem that easy and I think the fact that you don't think they need backing up tips your hand.
Not sure what you mean, but I can see multiple sites saying the underwater mortgage rate is ~10% nationally, and an article about Chicago being highest in the nation at ~15%. So is it fair to say at least 85% of people are not under water? Foreclosure rate was just under 0.5% in the US in 2018. That's the number of people who experienced a total loss of a partially paid mortgage. I stand by my claim for now.
> If you simply look at home sales you will miss all of the people who are not selling
I don't think that's true. Today's home sales includes all the people who waited until now, and tomorrow's home sales will include the people who are waiting today. Anyway, I ran with the assumption made by the calculator you linked to, and that most people experience: that you sell your house after some time for a moderate positive return against the purchase price of the house.
> A few booming places can hide thousands of cities that are underwater.
Underwater means the house is, at some instant in time, worth less than the principal, not that you lose everything, right? And yes, sure, many people definitely hang on to avoid being underwater, perhaps sometimes just as unreasonably as they avoid investing in the stock market.
Underwater is different than rent, which is always sunk. Underwater might be a total -20% return post sale for some number of people, where rent is always a -100% return for all renters.
Both the grand-parent that started this thread and you look to be using the former comparison and I have been consistently using the latter. It makes no sense to compare renting + no investments to owning with lots of money in equity. Obviously the person with money is better off. That was my initial point. 'Renters get screwed' is less fundamentally true than 'people with less money get screwed.' It seems obvious to me that the only debatable situation is the following
(1) How is a sum of money better spent? Buying a house and selling after X years, or buying other investments and selling after X years while renting?
My stance is that renting+investing comes out ahead more often than people think, especially for specific locations, durations, etc. You really should do your own math and figure it out. What is your stance? You seem to convey unrealistic, unqualified positivity towards owning. And don't take me disagreeing with you as me being anti-owning. I just don't think you've been making the good arguments in favor of owning. By far the best argument for owning is that you get access to non-callable 5x leverage. Every other factor can be hand-waved away except that one.
> The overall costs are the same either way, they have to be. To rent is to pay extra to not have to pay a lump sum, not have to fix things, and be able to stop anytime. Renters pay for maintenance and improvements one way or another.
I already pointed out a mistake in this line of reasoning, economies of scale keep rental unit maintenance fees lower.
> Inflation and real-estate prices affect renters and buyers equally in the long run. Renting must cost more than buying, on average. The rent system cannot work unless that's true.
That is a vague pro-point. Here is a vague counter-point: fully-paid-off owners only have upkeep costs. If the bulk of rental units are from fully-paid-off owners rent prices can asymptotically approach those upkeep costs while making money for the owners. And again, these upkeep costs can be lower than owning a single place due to economies of scale.
> That's a suggestive symmetry, but not comparing renting to buying directly, it's assuming an unspecified optional investment only for the renter.
Your definition of 'directly' does not make sense. (1) is 'directly,' where the renter is the potential owner. Obviously the alternative is to invest the money that was not spent on the house. Obviously that money is only available to the renter. Obviously if there are extra money it can be invested similarly in both cases so there is no point talking about it.
> And rent is a known, fixed, high ongoing sunk cost. Buying might not be, considering the future sale. Whether costs are sunk when buying depends on many things. In my case, I put tens of thousands into a house, and it all came back when I sold.
The shape of your argument seems to be that 'renting has high sunk costs but owning has none, so owning is better.' This argument is not logical.
> > It doesn't seem that easy and I think the fact that you don't think they need backing up tips your hand. > > Not sure what you mean, but I can see multiple sites saying the underwater mortgage rate is ~10% nationally, and an article about Chicago being highest in the nation at ~15%. So is it fair to say at least 85% of people are not under water? Foreclosure rate was just under 0.5% in the US in 2018. That's the number of people who experienced a total loss of a partially paid mortgage. I stand by my claim for now.
What I meant was that you were being overly optimistic and tried to sway mine (and other readers) opinions about a key debate metric without using any data. You just said "housing returns aren't normally 0." This has a thousand interpretations. Inflation adjusted? Cost adjusted? Over what duration of home ownership? Does this take into account mortgage-leverage? Does it take into account historic mortgage rates that are no longer available? How far back are you looking? How much longer do you think it will last? This is a country-wide metric, how does it apply locally? You know Walt Disney and I have 26 oscars between the two of us, is it 13 each? You stated that number as if it's useful, exactly how useful is it?
Just to pick at your numbers here: seems fair to say at least 85% of people are not underwater. How many people are not underwater because they sold while being underwater? How many people are not underwater, but would be if you take 2-3% yearly inflation into account, thus making their investment below 0 actual growth?
If I have a point at all its that you should express way more uncertainty when speaking about investing in housing.
> I don't think that's true. Today's home sales includes all the people who waited until now, and tomorrow's home sales will include the people who are waiting today. Anyway, I ran with the assumption made by the calculator you linked to, and that most people experience: that you sell your house after some time for a moderate positive return against the purchase price of the house.
I gave you a much more pessimistic yoy growth number than the on you shared. Then I further commented that the real numbers could be even worse. You don't comment on the massive disparity between mine and your housing growth numbers and instead disagree with my hand-waving asterisk...
> Underwater is different than rent, which is always sunk. Underwater might be a total -20% return post sale for some number of people, where rent is always a -100% return for all renters.
You are ignoring the sunk costs of owning and using your funky 'direct compare' definition where the renter has no other investments. Again, bad shape of argument, not necessarily wrong 'feel' of the argument.
Thank you for the discussion, though! I do think I learned a few things. If you have one and feel like it, I'd still love to see a detailed scenario that is easy for a normal person to achieve where renting exceeds buying over a 10 or 20 year term. Is there anything else you'd like to discuss?
> It makes no sense to compare renting + no investments to owning with lots of money in equity.
So, just curious, why did you share and defend the calculator that does exactly this?
> economies of scale keep rental unit maintenance fees lower.
FWIW, that's not what the calculator claims - it states explicitly calculating house rentals comparable to purchases, where there is no economy of scale. I guess the whole point is to make the comparison as fair as possible by keeping everything equal except the method of payment.
> If you have one and feel like it, I'd still love to see a detailed scenario that is easy for a normal person to achieve where renting exceeds buying over a 10 or 20 year term.
I recommend that you understand what that NYT calculator does exactly then punch in the numbers for your area and see if you can find rent for the given amount. It really seems to come down to how bullish you are on your local housing market vs your stock portfolio. Plus the premium you are willing to pay for mobility vs the premium for extra space and a yard.
As a side not, according to [1] only 37% of Americans live in their house for more than 10 years. The median is 8.7 years.
>> It makes no sense to compare renting + no investments to owning with lots of money in equity.
> So, just curious, why did you share and defend the calculator that does exactly this?
I think you are mistaken about the NYT calculator, it does exactly (1).
>> economies of scale keep rental unit maintenance fees lower.
> FWIW, that's not what the calculator claims - it states explicitly calculating house rentals comparable to purchases, where there is no economy of scale. I guess the whole point is to make the comparison as fair as possible by keeping everything equal except the method of payment.
The NYT calculator sets up a hypothetical situation where you are buying a property. Then as an alternative, it takes the down-payment money and invests it and calculates a monthly sunk-cost such that you still break-even during the given time period. As far as I know it makes no distinction as to how you spend that monthly budget. The question it poses is whether you can locally find rental units within that budget that are 'good enough' for you to live in. The extent to which you can come under-budget is the extent by which you are better off renting vs owning.
[1] https://www.financialsamurai.com/the-median-homeownership-du...
You are right. I goofed. Sorry. I remember seeing the investment variables the first time and then I forgot two comments up.
> I think people are way too confident on their housing investment. Some FUD is good.
You might be right about the first part.
There's a lot of luck in how wealth is distributed already.
1. Being born into a wealthy family.
2. Being born into an area with good schools.
3. Being born with good genes that kept you healthy (lower cost of health care)
4. Winning the lottery (powerball or say immigration)
5. Starting 10 startups in the hope that 1 of them will make it big.
6. Funding 10 startups in the hope that 1 of them will be the next unicorn.
I totally agree (all of your examples are good). But how do we improve the situation by also making regulatory policy luck based?
If Social Security worked by giving large pensions randomly to 1 out of every 100 enrollees, and leaving the other 99 with nothing, that might better reflect how wealth is already distributed, but I would argue it is a horrible idea.
I would argue that regulatory policy should attempt to smooth out the distribution of wealth, not make it more erratic.
I have very mixed feelings about this.
On the one hand, it casts some light on housing standards from decades ago. The amenities we expect for any and all housing were simply not expected for all housing types.
On the other hand, by some definitions, this woman was "homeless" or at least "inadequately housed." Her two bedroom apartment sounds a bit like a glorified shed.
I'm stunned that this seems to not be making anyone's radar. It's the kind of accommodations that winds up making headlines as illegal and run by an abusive landlord taking advantage of people.
But it was presumably legal when she moved in, so people are fine with this? While decrying SROs as unacceptable housing these days for some reason.
I think my cognitive dissonance is pretty maxed out at the moment.
When she moved in, it was not probably a standard feature to have one; and after all, she did live w/o using one for her whole life (despite even having one installed at the end).
Again, it feels it was HER choice rather than a one forced down her throat.
Rent control hurts tenants, landlords and cities but in this particular case, rent control was a benefit to this lady - letting her rent be subsidizes by various property owners over the years - who were kind enough to roll with it and not kick up a fuss.
this means nothing. The lady can simply have dementia or something like this and even having a loving family and a nurse taking care of her, she still could have eaten from trash.
This is the nature of the disease, unfortunately.
They'll pick people they want to be their neighbours, and is a far more effective way of not renting to drug addicts and gangs than any background check.
Turns out, preventing ice dam damage in a lath and plaster house by keeping the roofs clean makes your landlord like you a lot. As in, we exchange christmas cards now.
Pushing the automatic carpark gate open with the car because it wasn’t fast enough: a couple of times a month.
Putting clothes hangers up through sprinkler heads and setting off the sprinkler: quarterly.
Meth addicts smashing up washing machines: monthly.
Crazy people with crazy demands detailed in multipage letter: weekly.
This also gives better public control of who receives the subsidised housing, usually a combination of needs assessment to qualify and then a queue system.
The important thing we have learned from the 70s/80s (different timing in different countries) is to spread the public housing throughout the community, rather than concentrate it into a single location. That is, rather than have a large apartment building that is purely public housing, have a requirement that a certain percentage of properties of every new development will be made available as government subsidised public housing.
EDIT: if you sell/rent something much below value it can be considered a gift. And tax authorities regularly do so.
This quote from the article nearly makes me cry: “I'm not worthy of these repairs and these improvements.”
Now, whether rent control is good for society as a whole, I think that's a very different question with quite the opposite answer.
It's the classic case of economic myopia. Maybe that new job would put you on a career path to be a millionaire in 10 years, but you can't see anything except how you would be losing money (by giving up your rent controlled apartment) in the short-term.
I for one have stayed in one of the highest paying and costliest metro areas in the world in part because I found a great low rent (not controlled) apartment. Moving elsewhere would cost less but also mean moving to a much less dynamic job and startup market.
It so really depends on the actual people. The ones who really want to pursue new opportunities seldom look at the favorable rent in my opinion.
I don't pay much more for my flat now than I did when I first rented it here in Berlin over a decade ago, and I never will because of rent controls.
I should move. I'm getting too old for the current flat sharing setup. My street has become too popular and noisy and annoying. The building is in bad shape.
To stay in my neighborhood, which I love, my rent would double, at least. I could afford it. But every time I consider it, I ask myself if I'm really that annoyed. I decide I'm not, and then I feel queasily guilty about paying a miniscule rent while newcomers suffer, and then complaining about my suboptimal living situation.
I'm not proud, and it's a strange situation to be in.
Murdering someone in a car "accident" seems like a good method for not getting caught. "It was an accident! So sorry!". The financial benefit to the landlord seems 5,000 a month and people have likely been killed for less.
Maybe it just tipped over his threshold.
I'm not saying I think it's certain, I don't even think it's more likely than not. However, I think it's suspicious enough that it would be worth it to look into and rule things out.
https://www1.nyc.gov/site/rentguidelinesboard/resources/succ...
Basically looks like "no", unless the landlord approves it. Though I suspect, in practice, you would get away with anything that didn't bother the neighbors or made the landlord notice. Like repainting, or new carpet, both being relatively quiet work. As you say, though, that particular apartment probably needs more work than that.