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Comment by nanis | Hacker News Reader

Wealth is a stock measure, income is flow.

You accumulate wealth out of what you can set aside out of the flow.

Some of us immigrants do not come to this country with an existing stock of wealth either back home or here. We are also not in the favored group of immigrants. We have human capital which we are trying to convert to financial capital for the next generation.

Then, when we sort of "make it" here, people who have family homes worth close to million and up (you can draw on that home equity, you know), people who know people (either family or others) who can "help" them with down-payments etc label us rich based on the flow we are receiving right now. These people tend to themselves make in the $150K range, in my experience and do not realize that the wealth they have was already accumulated in the less punitive environment of the 80s and the 90s.

I do not begrudge anyone for what they have. But I do find people who got a "hand-me down" apartment in Manhattan after growing up in a nice house in Westchester lecturing me about "the rich" and "the poor".

Except that my ability to make it in today's corporate environment depends on their political sensibilities.

View on HN

I think this is an excellent comment. What makes me very sad is that during the past 14 months the divide between those who own assets and those who don't has reached gargantuan proportions.

I mean, in my raging inferno of a housing market, over the past couple of years home prices have easily doubled. So a 400k house from 2018 now sells for 800k. Yes, if I want to move to another house in my area I'll pay similarly astronomical prices, but that just means it's about a wash for me, and of course I have many more options like moving to a cheaper locale or a cash out refi.

But if I (or my parents) don't already own a home, it means my chances of ever owning a home in my area just went to about zero. People made vastly more money just sitting around in their houses in the past couple years than I made in my job as an "essential" worker over the past decade.

I just don't see how this ends well.

Taxes even that out a bit. The person with an 800k house pays twice as much in property taxes. In many states, the amount that the state can raise taxes on someone whose house may have "increased" in value is limited.

They don't because houses don't produce income (unless you rent them). So if you had your house when you could afford it but cannot anymore you get made even less wealthy with the property taxes. Taxes should be proportional to income. There should be a more fair way to do that: to not tax main house when in use, tax only at the time of sale on benefit only (corrected by inflation).

Only if renters are allowed to pay rent out of pre-tax income.

Good point. If it is for the main living place.

You have a lot of reading to do about property taxes in California.

That's rarely true. Property taxes are typically set by dividing the budget by the total value of all real estate to set the mill rate and then allocating it by the specific value of your property, so if the entire market increases the tax impact based on assessed value doesn't change much. You only see dramatic changes when certain areas in a taxed area increase or decrease significantly relative to others.

Not in California. Prop 13 keeps property taxes at the value when you purchased your home.

IMO this is a massive contributor to inflated property values, now leaking into other state economies.

What is your theorized mechanism for the freezing of property tax rates at the purchase price causing inflated property values?

I could see it making an upward or downward trend worse. In an upward trend buying before increase would be tax advantaged. In a downward trend buying after anticipated decreases would have the advantage. All in all, more people would be advantaged by just staying in place. Maybe that reduces total inventory, making the remaining properties on the market cost more?

Its way more simple than you think. Lower taxes just lower the yearly cost of a house. That means you can get a bigger loan instead.

It's really simple. California has a housing supply problem. If taxes are never raised, housing supply is even more suppressed. Owners have zero incentive to sell.

Here's an example. My mother inherited a beach house in Carpinteria. My grandparents purchased it for $14k in 1924. It's worth north of $10M. Annual taxes are under $5k. She can rent this out during summer months for over $50k/mo. Why on earth would she ever sell? She has an asset that appreciates at or above index funds and pays amazing dividends. This is an extreme example but it works the same at every level.

Prop 13 encourages people to accumulate housing / property and removes basic market economics. Artificially low housing supply leads to artificially inflated housing prices.

I remember Prop 13 from a case study in a government class. I had totally forgotten about it until you mentioned it.

Prop 13 was pushed by rental property owners---primarily apartment complexes, because they don't change hands very often. It's one thing to enjoy the value increase on a house you own for 5-10 years and another the increase on an apartment complex that you own for 20-30.

> Prop 13 keeps property taxes at the value when you purchased your home.

That's a myth. Prop 13 limits assessed value from increasing by more than inflation rate and is limited to 2%/year overall. So yes, property taxes stay artificially low, especially over long times, but they do go up every year.

The fact that Prop 13 applies to everyone by default is the mistake. It should be something you can apply for when your tax burden increases unreasonably quickly and even then the freeze would only last 10 years so that you can plan to leave if the tax rate becomes unaffordable.

I would love to see a parallel universe where in 2008 no one is bailed out and bankers are either on the hook for the risks they took or actually are sent to prison.

Taking it further back, what if the tech bubble of the 90s is allowed to collapse, interests aren't set at almost 0, and a housing bubble isn't blown by exploiting minorities.

And last year airlines, and other corporations who didn't account for black swan events, go bankrupt, and new management take them over (or employees), or they disappear altogether and new startups can fill the void.

I am convinced the USA is in the place it is because since about 99, no rich person has been allowed to fail or lose money, not really.

I'm not a leftie, but it really is capitalism for the poor, socialism for the rich right now. But I have to say, the problem is collusion between the rich who are close to politics, and the problem is the GOVERNMENT enabled all this.

The problem is NOT all rich people. Only the ones who are part of this system. And this distinction needs to be made, otherwise the US is headed for a communist disaster of hating the rich. But the problem is the corrupt rich, not all rich.

I agree with your sentiment, injustice-outrage, but suspect that had things gone that way we'd be in Japan's real estate quagmire still, unemployment at 50%.

Why is Japans' real estate a "quagmire" and why would unemployment be 50% when Japan post 1990 averaged 3.5% (with a few short-lived peaks up to 5.5%)?

Trickle down economics. The only problem was that it was and still is a lie. Corporate welfare doesn’t translate to the general public. Cutting corporate taxes didn’t massively increase jobs. During the Trump Administration several companies made public statements that the tax cuts proposed and the enacted would allow them to keep their manufacturing in the US. Then after they were made law what did they do? Harley Davidson decided that actually they were going to offshore anyways and close their factory.

Not all rich people are bad. There are very wealthy people advocating for increased taxes on themselves. But many have a vested interest in maintaining and accumulating more wealth. The government allowed these things to happen, specifically because people with wealth and in power colluded to change and create policy. This is the point of lobbying, not to mention literal regulatory capture (FCC, Ajit Pai).

Republicans/conservatives howl and scream about social welfare programs but are all too happy and eager to provide corporate welfare. The result is plain to see.

I understand the sentiment, but even with the bailouts 2.5 million people lost their jobs and we continue to see second order effects of the crisis, like deferred home purchases, declining birth rates, low or nonexistent retirement savings, and political instability.

Imagine how bad it would be if there was a total collapse of the financial system. That's what the situation was before the bail outs.

> I would love to see a parallel universe where in 2008 no one is bailed out and bankers are either on the hook for the risks they took or actually are sent to prison.

That wouldn't solve anything. 2008 was 9/11 for banking. Lending is now more restrictive than before. Without a bailout people's deposits would be on the line.

>Taking it further back, what if the tech bubble of the 90s is allowed to collapse, interests aren't set at almost 0, and a housing bubble isn't blown by exploiting minorities.

Interest rates should be negative but that's impossible in practice so instead we are stuck with 0% interest rates and hope that inflation reduces real interest rates enough to convince people to invest their money again and by investing I mean growing their businesses by hiring people.

>I am convinced the USA is in the place it is because since about 99, no rich person has been allowed to fail or lose money, not really.

Well, that is close but it is not a perfect explanation. Structurally it is very easy to be rich. Inflation was low, anything you did, no matter how stupid or unproductive, was enough to get past inflation.

>I'm not a leftie, but it really is capitalism for the poor, socialism for the rich right now. But I have to say, the problem is collusion between the rich who are close to politics, and the problem is the GOVERNMENT enabled all this.

From a hardcore capitalist productivity growth maximalist mindset the USA is doing extremely poorly. Instead, rich people get to enjoy an exploited labor force. Over the long term things can only go wrong, especially since the labor pool is shrinking through aging.

When half the population consists of retirees they want to live in a world where infrastructure investments have already been made back when the labor pool was plentiful. The truth is that the only way you can save for retirement is by building something today that will keep existing by the time you retire. Housing is a good option because it can last a long time. Roads are good because they can be built in your 50s and not require maintenance until you are dead. Power generation is good because wind turbines and solar panels can last 20-30 years and preventing climate change lasts forever (hopefully).

What I am seeing instead is that we are at a time where the population is still reasonably young and labor is plentiful and we waste it on doing nothing useful with it and then 30 years later the population is old and there is no way you can ever catch up on all the lost potential.

The government definitively plays a big role but it is primarily the local government, the federal government mostly has complacent politicians that support the status quo (the motto of the republicans) but none of them are really trying to make things actively worse, they just hope that the problem goes away on its own. (it won't)

>The problem is NOT all rich people. Only the ones who are part of this system.

Yes, exactly. The problem isn't all rich people because there have been times where an effort has been made to keep things in balance. That effort is gone and there are not many counter balancing forces left. Specifically, it is rich people who do not use their wealth to grow productive companies. A lot of them just want to protect inefficient business models that are unsustainable over the long run.

> And this distinction needs to be made, otherwise the US is headed for a communist disaster of hating the rich.

That's true. If you can restore the balance there is no need for the guillotine, ultimately all of this is for the benefit of everyone, the poor and the rich. If they follow up on their social responsibility (invest their savings) they can keep everything they have.

The problems start with the fact that they can growth their wealth without following up on their social responsibility and the first step toward a solution is raising inflation because inflation hurts those who do not invest their savings.

Here is an interesting "specimen" of a self declared rich person: https://i.imgur.com/ky5uLpF.png He claims that he has enough money but "oddly" enough he is scared of inflation and considers low prices thanks to exploitative wages a good thing, as if the free market (the status quo) he so praises could hurt him. It's the choice mindset mentioned in the article in action.

I made this imgur album for absolutely no reason: https://imgur.com/a/Oaxrt33

> what if the tech bubble of the 90s is allowed to collapse

It collapsed in the dot.com crash (remember pets.com).

> I am convinced the USA is in the place it is because since about 99, no rich person has been allowed to fail or lose money, not really.

Well, I was a tech bubble paper millionaire in '99, and had nothing by 2002. It all evaporated.

Then the smaller bubble of the 2000s crashed in 2008.

The huge bubble of the 2010s.. hasn't crashed. I sure can't predict when, but cycles suggest it'll crash at some point.

The solution is to move to an area with cheaper housing.

Moving to opportunity is the American way

Hmmm.... I've been looking at real estate in the midwest — Kansas City, Omaha — and surprised by how much it has skyrocketed there as well.

At the same time (as seen on HN recently) they're "giving away" land in small-town Kansas and Nebraska.

No jobs. You are responsibly for building the house. Lots of other caveats.

I think a real-estate collapse or a sustained wave of affordable housing starts is more likely.

The government will not allow real estate to stay collapsed. Look what happened after 2008: https://fred.stlouisfed.org/graph/?g=EcTD

That worked for early movers at beginning of Covid. In Canada, 12 months later, previously "cheap" provinces have doubled in prices too.

Still cheaper than Vancouver or Toronto of course; but given lower income in those areas, and the growing pains they're about to have in catching up their infrastructure etc, it's no longer a straightforward gain anymore.

Cheaper housing => longer and more expensive commute.

Or worse job opportunities. Then people tell you to move where the jobs are. Which has really expensive housing.

The free market tends to flatten this stuff out

The free market caused this situation in the first place.

We had a free market in the past, but I would say that today it is a rigged market.

> We had a free market in the past…

This is so sweet. Only Mogadishu has a truly free market. Not many takers.

Free market would mean no zoning regulations. Housing is not a free market whatsoever (for a good reason, in some cases).

I don't see how that follows. Free market must have rules to be free - market with no rules undergoes self-destruction quite efficiently, just like free speech doesn't mean you can say whatever you want without consequences. Just mention zoning regulations explicitly.

Tight downzoning took all the unfairness of the existing market for real estate and amplified it hugely. Today, housing market is driven by rentierism, which is pretty much the opposite of "free". I agree 100% that regulations create and drive markets, but the regulations have been put in place to ensure a steady transfer of wealth from those with less to those with land.

The downzoning trend that started in the 1970s, driven by the twin forces of 1) racism (not wanting to allow non-whites into white neighborhoods after the civil rights movement tried to allow integration), and 2) Malthusian thinking (keep the population down by letting fewer people live near me), led to a transformation of real estate, making it even worse.

They aren't making any more land, as they say. Which is what drives the value of it up so much in certain locations, the locations where people want to be. But by downzoning so that no more people can use the same bits of land, the structures themselves acquire the really insidious property of land that makes it a really bad for for markets.

Not in tech. Opportunities are abound. My parents had no assets and were rather poor. Tech has allowed me to live in a cheap area and make an extraordinary income and build up wealth for the first time in my family remotely. I work from home and have never had to commute.

Some people pretend the Midwest doesn't exist.

Plenty of jobs and cheap housing. You don't get FAANG salaries, but if you're setting FAANG to be the standard, you are on of the "rich people who have trouble understanding what it's like to be poor".

Before the pandemic, someone on a typical engineer salary in the Midwest would afford a 2000 sqft home with a nonworking spouse and a few kids. 2000 sq ft is not big over there.

For the record there are FAANGs paying their salaries in the Midwest. I could transfer to Detroit or Madison fairly easily.

Those would still be the exception rather than the rule. Not the ‘standard.’

I’d argue it’s pretty close to the baseline now. I’m considered a below average engineer (by compensation), but being L5 at even the least impressive FANG can provide quite a bit of mobility internally.

I think what he meant was that getting a FAANG job is the exception.

My original comment was with a standard, lower paying non-FAANG job in the Midwest. You don't need to work at a FAANG to afford a 2000+ sq ft house, have 2 cars, and have a bunch of kids and pay for their college.

>Or worse job opportunities. Then people tell you to move where the jobs are. Which has really expensive housing.

This is not entirely true. I live in Baltimore City and there's cheap housing + access to the great tech market between baltimore and dc

I understand Baltimore has insanely cheap housing for its size, but I’ve always imagined it as a Detroit like situation, where yeah the housing is often cheap, but not areas you want to live. It may not actually be as bad as I think though.

It's very block by block but there are some ok areas with housing near/under 200k (at least pre-pandemic).

Last time I was in Baltimore was probably 15 years ago, but from the terrible street/traffic design to my general feelings of personal safety it was, holistically, the worst city I have ever visited.

what about the street design?

>general feelings of personal safety

ymmv depending on your level of comfort around lower income black people

It's been a while so my memories may be incomplete, but I recall coming on instances where traffic would use the same lanes of a stretch of road in both directions controlled by a light (so running a red light would result in a head on collision) which made me feel uncomfortable. I remember other Kafkaesque scenarios also, like encountering a 5 way intersection with 4 one-way roads going into it and a single two way potential exit which was under construction and lead to a truly bizarre detour back out a one-way street. Just in general I got the sense that whoever was in charge of street design was asleep at the wheel.

I have no discomfort around black people and have been lower income for most of my life. Most of my safety concerns were around aggressive traffic and sketchy-looking public infrastructure.

House prices have gone up everywhere, your suggestion is uh, silly.

People made vastly more money just sitting around in their houses in the past couple years than I made in my job as an "essential" worker over the past decade.

This is not an accident. It’s a result of deliberate policy choices. The incumbent homeowners voted themselves massive returns. And they felt self righteous while they were doing it to boot.

What are you talking about?

Presumably restrictive zoning policies that make it incredibly difficult to build the amount of additional housing that is needed in many areas.

That, but also the entire GSEs edifice, the Fed’s MBS purchases, and lots more.

Overpriced houses make construction arbitrage easier. It's easier to build a new house than to buy an existing one.

The places I’ve lived all my life have few or no empty lots. To build a new house you need to buy and tear down an existing one.

There are a lot of 'deliberate' policy decisions which both depress low-skilled workers' wages, and lead to higher property prices. On the wage side, good examples are that:

1) the minimum wage doesn't get increased with inflation

2) many jobs require a higher degree (which takes capital to pay for), or effectively require working for free via internships (which requires capital or someone else subsidizing you)

3) many higher paying jobs preclude you from working there if you have a criminal history (which is very disproportionately likely to be true for some demographics than others, in many cases just due to disparate enforcement), which effectively suppresses wages for many millions of people.

On the housing side, any policy that restricts the building of new housing in order to limit supply (and there are a lot of them) will drive up housing prices. This includes things like minimum lot sizes, enforced parking requirements, etc. It's pretty much universally accepted in the US for local politicians to talk about 'protecting home values', which usually has a subtext of [by keeping poor people out of our town]. This is probably the _most_ common policy topic in my well-off suburban community - every proposal for multi-family housing gets fought tooth and nail, it's virtually impossible to build more than 1-bedroom apartments 'lest our schools become overcrowded [by poor people]', etc.

It’s not only a supply issue these days. Even areas that have basically unlimited land and building in Texas have prices going up massively. How do you explain that?

Building supplies have grown at an insane rate. A lot of builders went out of business because of 2008. It is still a supply issue, just not a land supply issue.

Single family homes cannot meet demand, period.

That's a short term problem, it may last 5 years for all I know but it will get solved eventually. Zoning on the other hand is something that will stay for decades and it gets worse over time.

Lumbar as a whole has minimally doubled during the last year[1]. A lot of people are moving to Texas, which raises demand, which raises prices. There is also a current lumbar shortage, which makes house building unpredictable when you have to plan 1+ years out.

You don't just go from 0 to a house. There is usually about a year of designing/planning which have to be approved and meet national and local code, numerous inspections, approvals and permits before ground is broken. Most people who move buy an existing house because they want to move "now." Out of all of the places you've lived, how many did you have custom built vs moving into an existing structure?

Prices are rising pretty quick in Arizona and Idaho as well. Idaho was the quickest growing state in 2020[2]. Those are also hotbeds of people moving to them. Most are trying to escape California, Chicago and NY. CA and NY lost population and even recently had their US House seats reduced as a result[3].

[1] https://fortune.com/2021/04/27/lumber-prices-are-up-232-and-...

[2] https://www.kxly.com/idaho-leads-country-with-amount-of-peop...

[3] https://www.usatoday.com/in-depth/news/politics/elections/20...

For future reference, “lumber” is wood and “lumbar” has to do with your lower back (e.g. “lumbar pain”)

I'm actually sort-of familiar with this, as I have family that lives all around there.

1) Prices have gone up, but not nearly as much as places where supply is much more constrained (i.e. the bay area or NYC metro area).

2) Even if there is 'unlimited land', the land closest to the city centers where most of the employment is located is still limited. A cheaper house 3 hours away from your job doesn't help someone all that much.

3) Texas absolutely has lots of policies that do things like limit housing density. Many of the huge suburban tracts being developed have home owner's associations that enforce a variety of policies like the ones discussed earlier (enforce uniformity in terms of lot size, minimum house size, parking, etc), as well as limiting your ability to do things like rent or subdivide your property

4) You just need the population to be increasing faster than the housing supply to have a 'supply issue'. This last year has both seen a lot of raw material supply issues (and labor issues) due to the pandemic, and a lot of people also trying to relocate (also due to the pandemic). Sometimes temporary housing prices increases are unavoidable while supply and demand adjust, but long term policy decisions can definitely limit supply and force prices higher.

Another commenter also pointed out that low federal interest rates generally promote asset price inflation (as buyers are frequently bidding based on their ability to carry a 30-year monthly mortgage payment, so lower interest rates can almost directly increase home values when people are bidding against each other).

> 1) the minimum wage doesn't get increased with inflation

Sure it does. It's pretty much unchanged since 1980 (in a sawtooth, they build up some pressure due to inflation and then it jumps up due to legislation).

1960-1980 looks to average around 20% higher.

It's funny how these charts differ.

https://www.pewresearch.org/fact-tank/2017/01/04/5-facts-abo...

https://image.cnbcfm.com/api/v1/image/103807392-min-wage-inf...

A strong argument can be made that minimum wage should track GDP, not inflation.

The important thing here is that it’s not indexed to inflation, it’s occasionally increased by legislation, so for most of the ~decade between bills, wages are decreasing in purchasing power for those people. I think you can make a much stronger case that it should track productivity than that it should track GDP, as the latter increases just by virtue of a growing population.

Minimum wage is indexed to inflation some places, such as the most populous state, California. (Minimum wage is actually currently increasing by $1/year, which is substantially more than inflation, and will start being indexed to inflation in 2024 when the minimum hits $15/hr)

> which usually has a subtext of [by keeping poor people out of our town]

It took me a long time to grasp this because I simply refused to believe that people think this way. Just think about what "character of the neighborhood" really means.

It may sound like it is about architecture and preserving history but the character of a neighborhood isn't made up by that alone, the biggest factor in the character of the neighborhood are the people living in it and therefore preserving it requires keeping certain people out. It really is a code word for classism.

The Federal Reserve's overt mission is to dump new money into the economy to create inflation. But since they only pump it into the overgrown financial sector, we get asset inflation rather than general price inflation.

Every time interest rates are lowered, land prices go up, because the monthly (financial) rent remains the same. Similarly with down payments (20% -> 5%). The next step will be lengthening mortgage terms past 30 years. Each of these steps is aimed at making it more affordable to buy a house, but economic feedback makes sure that is only temporary. Meanwhile as asset valuations go up, one's ability to ever pay off that mortgage goes down.

Their dual mandate is to maximize employment and manage inflation. Their mission is exactly not to create inflation (or at least, too much of it).

"Manage" inflation means to create it. An economy naturally tends towards price deflation, through optimization and technological progress. Business looking for ways to cut costs to compete is intrinsic to a market.

Maybe a competitive economy tends towards deflation. In economies dominated by monopolies/oligopolies, price deflation is not a given.

Each step is aimed at increasing the wealth of incumbent homeowners, not making housing more affordable. The economists at the Fed and GSEs are not stupid.

The Fed mostly wants to decrease unemployment via 2% inflation. The conventional wisdom is that supply side stimulus will create companies that hire workers. So handing out loans should do the trick. Yeah, except building housing which is one of the easiest ways to employ people is illegal.

Why buy specifically mortgage linked instruments? There are lots of other ways to drop money from helicopters. I don’t think that choice was an accident.

The problem with relying on interest rates is that cash provides a lower bound of 0%. It's simply impossible to go negative on deposits without at least abolishing cash. Relying on the federal government doesn't work because the republicans are uncooperative. So the only measure left is to just bypass everything and hand out money directly. I'm actually hoping that the pandemic raises the inflation rate to 2% over the long term and that no intervention becomes necessary in the future.

Given enough inflation, interest rates will go up and then we can start getting rid of zombie companies, increase productivity growth and have growing wages again.

I see where you're coming from and it would be great if it happened that way. But the deflationary pull is getting ever stronger with technology - the more productive we are, the cheaper things should become. So the Fed's actions are the result of having a mandate that is directly incompatible with the technological goal of working less. If we switched to embracing deflation, then people could retire earlier knowing their savings would definitively appreciate in value, rather than having to hope on faux bubble "investments" that are mainly whims of more centralized government policy.

But that seems to be politically impossible. So another way to approach it would be to drastically reduce the legal definition of full time work. It should be under 20 hours already, considering that women entering the workforce nearly doubled overall hours worked. But instead, all of that overproduction got dumped into the hedonic treadmill and bullshit jobs.

> The incumbent homeowners voted themselves massive returns. And they felt self righteous while they were doing it to boot.

We'll see. They're millionaires on paper. If there's one thing about unsophisticated people and investments, they always cash out when it's too late.

> If there's one thing about unsophisticated people and investments, they always cash out when it's too late.

There is no such thing as "too late" in urban housing. Rural areas are so far "left behind" that it will take about ten times the investment that Biden wants to put up to bring it to civilized level, and he's already getting massive resistance... no way that the rural flight trend will be reversed.

> no such thing as too late

Go ahead and buy some homes for investment! Go buy some Dogecoin! Some GME! What a low information take, to say something about rural homes and Biden or whatever.

In the service of curiosity: maybe if you sold your $185,000 home from 1986 for $1.5m today, you’ll walk away a millionaire. A lot of people are looking at that arithmetic in San Francisco. And yet they do not sell! The index for months on market is at record lows. What’s going to really happen? They will watch the market fall, and then say to themselves “guess I should just wait until it goes back up in 10 years.”

> They will watch the market fall

The market won't fall, that is the entire point. It reasonably cannot fall, since the only politics that could make it fall (buildout of rural infrastructure, overriding NIMBY shit) won't ever pass. Inertia is massive.

The debt in the current world economy is unheard of, and the cost of housing is getting out of reach of first home buyers. Something has to give at some point.

If interest rates rise in the next 10 years then I suspect many will be left with mortgage payments they can't afford.

> If interest rates rise in the next 10 years then I suspect many will be left with mortgage payments they can't afford.

Sure, but there will always be a bigger (Chinese) fish to eat you(r investment). If there is one thing this world does not lack, it's a bunch of individuals and investment funds looking to make money on rent.

Oof a Chinese land grab after a mortgage crash. That's a bad future. I really hope that doesn't happen.

Surely though, it isn't a given rents will stay high in places where they're currently high? No one's trying to make money on rent in, say, Detroit.

> > They will watch the market fall

> The market won't fall, that is the entire point. It reasonably cannot fall, since the only politics that could make it fall (buildout of rural infrastructure, overriding NIMBY shit) won't ever pass. Inertia is massive.

That's probably overoptimistic. There are political circumstances that could cause metropolitan property values to fall on annual or even decadal timescales.

Consider, for example, the possibility of policies that have the effect of curtailing real estate investment by those exfiltrating funds from various regimes.

Or policies that made every school a good school, ending the (sometimes huge) price premium homes in 'good' school districts get.

Suppose house prices fall by twenty percent. People will be furious that their can’t lose investment is losing. People in this case being an outright majority of all adult citizens and disproportionately likely to be voters. Politicians will do everything in their power to reverse the trend and keep the good times going. Someday they may find it impossible, but I find it hard to believe we are close to that.

That 'outright majority' though is being eroded as more people are priced out of the market.

If the percentage of renters continues to grow (and property ownership keeps concentrating), you could see that math get flipped on its head (though there is an intermediate stage where 'likely to donate' outweighs 'likely to vote' to keep things as they are).

There are other possible policy scenarios, though. Sane densification of suburbia for example seems more likely than massive rural infra buildout.

House prices are largely as insane as they are due to the domination of monetary policy. Inflation is eventually going to bite and the slow and painful walk back will begin.

As interest rates begin to climb, house prices shall fall. If inflation forces banks to rapidly increase interest rates, house prices will crash.

Chiming in as someone who has a few million in liquidity and a few more in real estate: some people buy a house to...you know, actually live in it and stuff.

If you sell your primary home out of greed, assuming you otherwise like living there, you are attempting to time the market.

That never ends well.

Another thing that never works is trying to talk sense on the internet.

> Chiming in as someone who has a few million in liquidity and a few more in real estate: some people buy a house to...you know, actually live in it and stuff.

> If you sell your primary home out of greed, assuming you otherwise like living there, you are attempting to time the market.

Very well said. A home is not a stock to trade, trying to time the market. The point of a home is to live in it. Maybe sell in retirement to downsize. The estimated value fluctuations in the middle decades are not relevant to the homeowner.

That’s the theory but in practice it’s been a rigged casino for 40 years. Of course people have changed their behaviors in response to that longstanding a trend.

> And yet they do not sell! The index for months on market is at record lows. What’s going to really happen? They will watch the market fall, and then say to themselves “guess I should just wait until it goes back up in 10 years.”

That's because a home is a place to live. Except for house flippers, nobody is watching the prices as if it were a stock symbol looking for an exit point.

It's a home, purpose is to live there.

> The incumbent homeowners voted themselves massive returns.

This is a popular meme in these threads, but could you be more specific to back that up?

In >20 years owning a home, it has never come up that I've been asked to vote on anything related to giving me any returns. Where are these votes happening?

house owners vote in large numbers against up zoning, against densificatjon and against public transportation funding. (2 sides of the same coin)

Also they’ve been supportive of the GSEs. Even the Republicans only pay lip service to dismantling government domination of the residential lending non-market.

Except you have to pay capital gains tax when you move after 250k or 500k for married. So it's not a wash. Especially if you're talking about more expensive markets.

Only if you don't buy a new house within the year.

Yes that’s true but the $500k goes pretty far. You add all previous home improvements to your cost basis and then deduct real estate agent fees. You can have a million of paper appreciation and not pay very much cap gains tax on it.

>Yes, if I want to move to another house in my area I'll pay similarly astronomical prices, but that just means it's about a wash for me,

In California you may well have doubled your annual property tax bill.

Yes, and prop 13 makes all kinds of ridiculous impacts whereby one person living in a 2 million dollar home pays a tenth of the property taxes of their neighbor also living in a 2 million dollar home.

fellow Canadian here ?

Tech stocks are a similar story.

> People made vastly more money just sitting around in their houses

To be fair, that's not exactly making money. Value on paper, based on comparative sales nearby, has gone up in many places. But that's not money one can use to pay bills or buy food.

It can also evaporate same way it showed up, just like the gains from early 2000s evaporated in 2008. Unless one gets lucky timing the market and buys low and cashes out at the peak, it's not real money.

> But that's not money one can use to pay bills or buy food.

I know several people who have refinanced (a good idea in my opinion) and taken cash out (a bad idea in my opinion) to do things like remodel kitchens or and pay other bills.

I understand what you mean; my parents, my sister & I came to Canada in late 90's. We went through normal "new immigrant" jobs - newspaper delivery, cleaning, etc; but eventually my dad got an IT job again.

5-7 years after arriving, our income was nominal. But having arrived to Canada with literally a suitcase of clothes each, the prospects, in particularly retirement, were substantially different.

It works both ways sometimes though - not only is it difficult for those born here to understand the difference, we too have to mentally remind ourselves - just because I make as much money as my best friends, I should not indulge in quite the same lifestyle; when it comes to "wealth", they are WAY ahead (some got an apartment as gift from parents, others had their university education paid for, trusts and RESP/RRSPs, etc etc).

The effect of multi-generational wealth cannot be overstated really. I live in the UK and earn a very good salary (£60k), but I'm far from being "rich". I do feel rich, which is great, but I can walk ten minutes down the road and see multi-million pound houses that, barring some extremely fortuitous event, someone like me will never, ever be able to own.

It doesn't get my down, though. Those people with those houses rarely know what they have. It doesn't make them any happier. I'm happy knowing that everything I have has been earnt by me. I'm not sure I would be so happy if I didn't earn a very good salary, though.

Rich in the UK is rich indeed.

> Some of us immigrants do not come to this country with an existing stock of wealth either back home or here. We are also not in the favored group of immigrants. We have human capital which we are trying to convert to financial capital for the next generation.

And this is where the idea (now myth?) of the American Dream came from.

When America was young, no one really had much capital. Also true for periods of large scale immigration: most folks were 'equal' in the sense of not having much of anything.

Over time wealth got concentrated, but with the Great Depression and the WW2 war economy, capital was generally became more equalized in the early- and mid-20th century.

Of course in the last 50+ years there have been no 'equalization events', and so the concentration of wealth has managed to run for a while without interruption with the obvious results.

Piketty has a lot of historical data that shows this process for number of countries:

* https://en.wikipedia.org/wiki/Capital_in_the_Twenty-First_Ce...

See my comment above, but there could have been equalization events.

The governments had three financial crises, in 99, 2008, and 2020 where it could have chosen not to intervene and save the rich. Yes it would have been hard on everyone, but it would have equalized wealth. A lot of companies would have gone bankrupt, but they could have been bought by new manaments, or employees, or could have been replaced by new startups.

But the government, and society really, chose to keep the status quo and not create a true crises. The result of this is the world we live in now, where basically it’s normal to rescue any large business and not let it go bankrupt.

If you somehow have a high income which is guaranteed never to go away, you don't need to accumulate anything, yet live a wealthy lifestyle.

In an electronic circuit, if you have an unlimited supply of current, you don't need to hoard electrons in big capacitors.

All things bwing equal, if you're wealthy, your income is guaranteed by the state and the law - it will take the collapse of civilization to wipe you out. Whereas if you have a salary, your income is a matter of your luck holding - not being in a major accident, or your employer/industry/ economy imploding for 18+ months

Owning a reliable income stream is an asset, which is wealth.

Either you’re working to get that income (in which case you’re probably saving for retirement) or you need to buy it.

I'm genuinely curious why you chose the USA to migrate to. Would you have been better off in the EU or Asia?

In EU, highly unlikely unless you go to Switzerland (which is not really EU but surrounded by EU).

Switzerland, funny enough, is quite capitalistic and very big on generational wealth you will never participate in as an immigrant.

This so much. Pretty much why I can never ever mingle peacefully with most of my US born friends. They are too woke for me.

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