Apparently I'm the lone dissenter on this, but I think for many people this is a side benefit that they may hope for, but the primary objective is simply to own a home that they can live in and raise a family.
In the modern era, if you don't own a home already you probably couldn't care less about the investment quality of a home. You just want a home to live in and call yours without an 80 minute commute.
The "investment" should not be "I can sell this in 20 years for a boatload of profit" but rather "I don't have to pay rent when retired, only property taxes + maintenance + energy".
But when property values are wielded as arguments to beat down proposals for growth, for transit, etc, it's clear that this isn't the meaning in use.
I just put together a spreadsheet assuming 1% maintenance, 1% tax rate, and 3.5% mortgage rate on a 250k house. You still would need a 5% annual rate of return to make money. After 15 years you would have hit your $250k capital gains limit, but you'd only have $70k in profit after taxes, interest and maintenance. At 3%, you lose money until well after the house is paid off.
Further, your mortgage interest up to $750K is also tax deductible, and you have to index the whole thing to inflation. Once you do all that the costs are either nominal or negative on a 3.5% 30 year fixed deducted from a Bay Area income. Until Donny took us for a ride property taxes were deductible too.
This is what it looks like when owners vote.
Unless you end up getting a reverse mortgage, in which case I guess you were renting all along.
In California, demand is high, and prices have been inflated by constraining supply due to a lack of upzoning. It also doesn't help that CA has proposition 13, which locks you into your purchase price tax rate in perpetuity. You should see wilshire country club's property tax bill, it's like a couple buttons and pocket lint.
But it also decreases turnover. Say its 1970, you buy a house in LA for 50k, have your kids, they move out, you are old and want a smaller place, it's 2019, and your house is worth 1m but your taxed as if it was worth 50k. You can cash out, but if you want to continue to live in LA in another 1m property, you pay taxes on that 1m.
It's like rent control for homeowners only you can also give your house and that sweet sweet 1970 tax burden to your kids, perpetuating the landed aristocracy at the cost of the working class.
I think most of this comes down to the fact that Americans generally had little savings outside of their home equity. This only became relevant in the 90-00s when home equity loans/LoCs took off and were widely available to almost anyone. Suddenly, it mattered how much equity you had in your home because you could spend it.
There's another group of people that look at their parents' home and realize that it has doubled in value since the early 90s. But these people usually don't account for interest, tax, and maintenance payments over those 20 years.
Others might have other reasons for similar state.
This is more meant to attack the idea of a primary residence being an "investment". If people insist on calling it an investment, then it's fair for me to insist that it's only covering a short position, because you need somewhere to live.
I think, if anything, this position is actually supportive of making an educated rent vs buy comparison, by discarding any kind of "investment" potential on the buy side.
TBH I stole that from an article I read a while ago that I can't seem to Google now...
You can't liquidate any built up equity either, since you probably need income or assets to get a rental or equity loan. So it's completely possible that you lose any built up equity in the event of a foreclosure too.
However, this could just be because I grew up in Chicago where there is endless farmland that can be developed and thus expecting greater than inflation appreciation on your house is foolish as someone else can just develop some farmland and sell it for the cost of building the house thus forever increasing the supply at the marginal cost of building a house.
Wasn't a big issue for us at least as we have double decker commutator trains. The one that ran through my town has 3 tracks even so the train only has to stop at a few stations and then it hops onto the middle track and drives the rest of the way downtown. Only took 30 minutes to go 20 miles downtown and going out further doesn't add much time as your just adding distance traveled at top speed.
> better town
Not sure what metric you are interested in that regard but if it is school wise, I went to one of the highest rated public schools and you could still find smaller more affordable homes in the school district. While there were plenty of wealthy people, I had some friends whose parents were firefighters and USPS delivery men.
Even expecting the house to hold its value is rather strange. You would naturally expect the value of a home to decrease by some amount each year. Most of us would prefer a modern home to an older home. The only reason it does not is because supply of new homes is restricted.
In well functioning markets like Tokyo, that's exactly what we see: homes tend to lose value each year until around 25-30 years most are simply torn down and re-built.
So in Tokyo, not only is the average rent sharply lower than a city like San Francisco, the housing is also more modern. The average age of a home in Tokyo is 20 years. More than half of Tokyo's housing stock has been built since the year 2000.
In San Francisco, more than half of the housing stock was built before 1940.
If you deduct maintenance from your home value, it more-or-less does. I don't see why a maintained home "should" decrease in value, though. A lot of the value of a home is in the structure, which tends to wear much more gracefully than, say, a car's body.
It results in farcical scenarios, like homeowners opposing workforce housing for the local school district because the people teaching their kids are too low-income to fit in. https://www.citylab.com/equity/2018/10/san-jose-trying-build...
And owning that home, as opposed to renting it, is an investment.