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Comment by cle | Hacker News Reader

> The real problem is that housing cannot be both affordable and a financial instrument.

Can you elaborate on this? I don't know much about financial instruments and would like to know why these two are mutually exclusive.

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I'm no economist but it seems blindingly obvious. To be an interesting financial investment, a house must appreciate faster than other means of savings. If that happens, houses will inevitably be unaffordable, because they rise in value faster than people can save to buy them.

That assumes an "interesting" financial investment has to appreciate faster than all other investments that exist and that nobody would ever trade returns for less risk.

People buy bonds, so I don't think that maximizing ROI is always necessarily the criteria for a desirable investment.

So you think people that want to buy a house just need to take on more riskier investments before buying a house? Get lucky, buy a house, get unlucky, ...?

Thanks!

Meta-observation: to me, nothing in economics or finance is "blindingly obvious". Many economic phenomena seem obvious but in reality are way more complex than could be represented by any model that I could understand. Your explanation makes sense at some level, but I don't have much confidence in it, because all I can do is wonder what other mechanisms interact with the mechanism you've described, and what the net impact is.

I'm not sure why you're looking only at the house price change. To be a good investment, the (price change + rent - mortgage repayment - maintenance) value has to be higher than other means of saving. Thus may be true even if the house itself losses some value.

and yet, reasonable people who know what they're doing buy bonds with negative interest rates.

the financial world is more complicated than you realize.

You have your causality hopelessly backwards. Housing did not become a interesting investment because people chose to invest in it. People chose to invest in it because it was an interesting investment.

A stronger case would be "it must be more profitable than the alternatives with the same risk" but you skipped a step and went right to "appreciate faster" which is not the only way it could be profitable. In fact "flipping houses" to make a living at this scale is an artifact of your current time and place which is the US in a massive inflationary bubble [1]

We libertarians have been beating the inflation drum for decades now and been largely ignored and / or laughed at. Maybe it's time to revisit how adding trillions and trillions to the economy every year could maybe possibly lead to higher prices in "inflation hedge" type goods.[2]

[1] https://thumbor.forbes.com/thumbor/960x0/https%3A%2F%2Fblogs...

[2] https://mises.org/library/housing-too-good-be-true

I think parent is referring (with accidental substitution) to the widely cited "Housing Can’t Be Both Affordable and a Good Investment":

https://news.ycombinator.com/item?id=19802482

Taken literally, there's no contradiction between housing being affordable and being a financial instrument.

But I think s/he meant the theme of that article, that housing can't be both a reliable investment we think of it as, and affordable. If you make it reliably affordable, like food, then you can still invest in its related instruments, but it's not a good idea, since e.g. corn futures are not expected to reliably appreciate in value.

A good financial instrument is a good investment, and likely to have the price rise faster than inflation with time.

Affordable housing would be likely to have the price rise no faster than inflation, or it will eventually be out of the price range of people whose incomes are only rising with inflation.

In Houston, the property tax rate is 3%, and inflation is roughly 2%,so for property to be a net gain, it has to increase in value at over 5%, which is faster than the overall economy, and hence gets less affordable over time

You would be paying (indirectly) the property tax even to live in a rental, so I don't think that you should count that as a home ownership cost (any more than you'd count cable, gas, or electric bills as ownership costs) if you are going to live in the property.

Another solution to that equation is that houses increase in value at 2% a year (keep pace with inflation), and yield 3+x % in rent per year, where x is enough to cover administration and provide a modest return.

I'd say housing can't be both affordable and a good investment. By that, I mean that good investments (by definition) go up in value by more (often a multiple of) than inflation. If houses start out affordable and consistently outpace inflation, they will eventually, often quite quickly, cease to be affordable.

I assume the premise is that if we approach a home as something that has an investment value than it means we have an economy of people rent seeking and speculatively buying and investing in property to make money. I guess the alternative would be to make it illegal to own housing you don't live in, which would definitely drive down prices but also possibly have other unforseen effects. In a world full of homelessness and ridiculous housing prices, I consider it worth exploring.

> the alternative would be to make it illegal to own housing you don't live in

In such a world, how would anyone find a rental to live in? There are benefits to being able to rent in many different life situations.

> possibly have other unforseen effects

possibly? besides, as the sibling comment notes, making it impossible for anyone to rent?

a few more seconds of thought notes that it would also cause troubles for anyone inheriting a home. want to keep grandma's house until you can retire and move into it? nope, can only own one house, got to sell it off.

want to move from one city to another, but you're having troubles selling your current house? nope, just got to auction it off and take whatever you get before you're allowed to leave.

Want to borrow money for a mortgage? Banks aren't allowed to foreclose anymore, so mortgage lending is now unsecured, meaning higher down payments and interest rates...

I believe the argument is supply and demand. Housing as an investment works if demand out paces supply or supply lowers. If you don't have some reasonable assurance of housing prices increasing over time then why buy?

I bought so I could be certain I could live in this pile of sticks until I die with no landlord to deal with.

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