Maybe treating housing as an investment was a mistake

I have a friend who is a head chef at a decently popular bar and restaurant on Broadway in Capitol Hill, Seattle (very trendy part of town if you aren't familiar, steep commercial rent). He lives in a 400 sq ft studio and is barely, barely making it from one paycheck to the next. I am sitting on a 2.6% interest rate mortgage and my prices are set for the next 30 years. I probably work half as hard as he does, if not even less than half. I have a lot of cognitive dissonance associated with that.

This is pretty much the crux of it. High housing prices could be "fixed" almost overnight, but for almost every citizen of the first world, their house is the single biggest investment they will ever make in their life. You'd be destroying everyone's retirement plans and there'd be major economic repercussions.

But there's also the second-order problem which is the people who realize that governments will never let the value of housing decrease because of the above, so you have upper middle class people owning "investment homes", or foreign investors buying homes they never intend to live in (or, in many cities, never even bother renting out), or even corporations like BlackRock buying up houses because they know it's such a safe investment.

Traditionally, the solution has been violent revolution. That's really the only way to (for example) tell 66% of Americans that their biggest asset that they've spent a lifetime saving for and investing in is now worthless because trust us, everyone is better off when housing isn't an investment.

But America is in a strange place in human development. There are enough bread and circuses in the form of cheap Netflix, cell phones, and food supply where even the totally destitute just don't have the desire to grab a pitchfork and physically march to their capital building. (And I would argue that January 6 was more of a social-media-fueled livestream event than any kind of attempt at coherent political change.)

Plus, suburban sprawl and the isolated, car-based lifestyle we've cultivated in the past century means that even if you wanted to get a group of like-minded revolutionaries together and march, how would you even physically do that? How does a poor person in suburban Tulsa even meet 20 like-minded people, and where would they go to express their displeasure physically? Once they got there, where would they all park?

1) first home tax-free - the address you submit your yearly taxes on. Incentivize people to own at least one home.

2) second property you pay taxes for both homes now - no more tax free benefit since you are able to afford more than one place.

3) more than 2 properties you pay taxes for all of them times some factor 0.05*N houses. Fudge around with the factor to allow more supply for all the first home buyers since now it it is more expensive to hold multiple properties.

Not sure if this falls under Georgism.

We've nationalized housing risk and privatized the gains.

It's currently hard to take small steps toward stabilizing housing prices and reducing homelessness. Housing is easy to talk about, just like inequality. But it's hard to see evidence of much political will to solve these problems.

It will take a lot more housing inaccessibility, especially if it hits the currently affluent class.

Mortgages before the 80's were tied to your income, and for most households that was a single income. House prices couldn't rise beyond a fairly low point because no-one could get a mortgage for them.

Then in the 90's this broke two ways: most households had 2 incomes as the norm became that married women also worked, and the banks started giving mortgages on much higher ratios, leading to the 100% no-deposit mayhem of the early 00's and eventually to 2008's crash.

We will spend as much as we can on a house. If you lend us 3x our salary, we'll buy the best house we can with that. If you lend us 10x our salary, we won't sensibly buy a house that costs 3x our salary, we'll buy the best house we can find for that 10x loan.

House prices are therefore free to rise spectacularly fast, as they did, because any dip in supply leads to price increases. Until we're here, where no-one can afford to buy a house unless they have a house to sell.

Yes, that's detrimental to those who already have homes (like me). But if I were a dispassionate judge-of-the-world, and I were weighing these two groups needs, I'd err on the side of supporting those without homes over those who have them.

Also, increase the supply of SMALL homes. Why is every new house a McMansion? Why do we have to buy 50+ year old homes to get something smaller? Those smaller homes are the entry to the market, and seemingly no one is making them, unless you count condos (which I do not).

Of course, I understand builders are building the homes that make them the most money. I'm not suggesting they're doing anything wrong.

But there is an underserved market for entry-level homes, and if the free market isn't going to solve the supply issue, it seems fair for governments to step in, build affordable homes, and sell them at a reasonable (10-20%) profit.

The analysis from 1, 2, and 3 seem obviously financially bad. Because they stop at a particular point in time. The point of buying over renting, when using a fixed-APR mortgage, is to lock in a monthly rate (that will eventually sunset to only the cost of maintenance and taxes). And peace of mind that only an act of god or being fired will force you to move. This is never guaranteed with rent, unless you have one of those multi-decade leases. And good luck finding a house with a multi-decade lease.

For an investing analogy, buying a house is like buying an annuity. Not buying the market. When a person buys an annuity they are still considered to be "investing".

Uber and Airbnb were both pretty much illegal from the get go, but ultimately worked because they were incredibly popular. They forced the laws to change to accommodate what people actually wanted.

Similarly, living in tents and RVs on city streets is illegal but common because RVs and tents are so easy to set up.

No one builds an illegal fourplex because it takes a year and a million dollars. It's too expensive to shoulder the shutdown risk. But what if it took a day and $100k?

I'm not talking one or two people either, this was an extremely common situation, it was a common lunch time topic of conversation at every job I had in the 09-13 era. Even my parents were against my buying a house at the time, as they were severely underwater on the poorly-built boom-time piece-of-crap they ended up buying.

I'd argue part of the problem is an entire generation of people saw houses as anti-investments and avoided buying them when they were $80-120k because one look at the pricing history showed they used to be $100-140k for the same house just six years earlier. Renting was (at the time) cheap, had none of the maintenance requirements, and was less risky if you wanted to move.

Of course, the contrarian people who had a long-term outlook made out like bandits. People who bought those heavily discounted houses with ultra-low interest rates using the housing buyers credit are enjoying the housing boom right now.

1. Values go up because of density changes related to location desirability. My house is more valuable because more people want to live here, but space is finite. This should lead to it being worthwhile to pay me to leave so an apartment complex can replace the single family homes on my block. But it's more likely that someone will pay a lot to have the single family experience at a larger price.

2. The value of location has increased. I could buy a nice home for $350k in a small town that would go for $650k in my city. But we can't move there because the downsides of working there for my SO are too large.

3. Not being adjacent to a major urban area is in many respects like going back in time some proportion to your distance from one. Finding appropriate doctors is harder. Finding employment that has modern working conditions is harder. Etc.

That said, I think it's reasonable to expect housing to be stable relative to inflation rather than being a high performance asset. And retaining wealth at the rate of inflation minus borrowing costs should beat just renting at the rate of inflation without a need for tremendous price growth. But there's obviously a big issue with supply.

I didn't buy a home as an investment with the hope that the value will appreciate: I bought it so that I can build equity instead of paying rent every month and getting nothing.

The only way home owners truly lose money over renting is when their total expenses[1] after selling the house is greater than the rent they would have paid for the same home over the same period. My home could lose value by a significant amount over the course of my mortgage, and I'd still come out ahead of renters because of equity.

1. Maintenance can get expensive

If a mortgage is $3K and rent is $2K per month, Joe Sixpack is not going to save $1K in a sinking fund. He’s going to spend some extra non-zero portion of that money. So in the long run, for average real consumers, not a theoretical economically minded consumer, a mortgage forces frugality.

At least in the US. Not Japan, which seems to hit the economic problems of the US about 20-30 years earlier. House price growth came partly from population growth. But population growth is over in the developed world.

The US fertility rate is around 1.8 babies/female. 2.1 is breakeven. It peaked at 3.8 in 1958. "Peak Baby" for the US was in 2018. The US population hasn't started to decline yet, but it will.

House prices increasing faster than inflation started in the 1950s. US housing used to be cheap. In the 1950s, NYC residents spent, on average, 12% of income on housing. [cite needed]. Clothing and food were bigger items. Now, with a declining population, that trend turns around.

There's no way I'd be able to afford my current home today. It almost feels unfair.

1. In our highly financialized society, and with many of us essentially worshipping money, it first needs to be said that not every choice needs to be financially optimal to be the best choice for your life. Buying a home is not just a financial choice, but a lifestyle change. They work with different units so the math cannot cross over, save for maybe considering comparable goods/utility in an economic sense (what else could you do with the same financial outcomes, which do you prefer)

2. Buying a house comes as a mix of rarifying asset, high value depreciating good, and liability. The land in a growing city is increasingly becoming rare (like the art example in the article), a depreciating house (eg, depreciate your roof over 20 yrs, your hot water tank over 5-10 etc), and a liability -- you now have to pay HOA + taxes on the value of the property until disposed of. (And note the steep exit fee that using a realtor costs. That significantly eats into your appreciation)

3. Because your house's rental market value is roughly proportional to it's underlying asset value, the more your house appreciates, the more marginal opportunity you give up by living in it. That is, you essentially are consuming the rental value of the house as a lifestyle choice -- that's essentially the definition of a liability, therefore 4.

4. The home you live in is a liability (a recurring cost center and lost opportunity cost, potentially still at net profit after the appreciation of the land), a property you rent out is an income producing asset (potentially still at a loss after expenses).

5. Anecdotally, most people who I have seen swear they made "so much money" on their home are actually failing to do the math well. Total cost of ownership of a home + buy/sell transaction costs + tax burden + maintenance + lost opportunity to invest in other assets has rarely, if ever, been profitable in my maths. Speculating on distressed assets at market bottoms or other contrarian times would be the exception, but that can be very profitable for experts with capital in most any asset market (eg used cars made money for a few years there).

If I had $100k to put as a down payment on a $500k house, and was able to rent at a rate that would pay, mortgage, taxes and upkeep. In 30 years, even assuming the price of housing stayed the same, it would have been a pretty good investment.

What is better though is if anytime within the 30 years the house doubles in price. I can sell it tax free and have enough money to buy an even more expensive house and potentially have a better retirement.

As long as I keep shifting the money from one house to another, I never pay taxes. I am also able to continue to rent the property and bring in a nice continuous income.

The fun little trick to this is you have to find a new property within 45 days of selling the previous property to keep the tax deferral benefits.

I think this 45 day window combined with low interest rates and limited inventory caused most of this crazy increase in housing prices.

Unfortunately, the landlords have increased their rents to correspond with local housing prices, and normal hardworking people are getting squeezed more than they ever have been.

I don't think this is sustainable, and as soon as there is a drop in renters in an area, and the rental properties start losing money. The housing prices will start to fall. The question is how long this will take.

She is looking at national details. Real-estate prices are very much localized in my experience. I can have a property that is plummeting in value, while a neighborhood just on the other side of the main road is nicely increasing in value.

To me if I sell for no profit at the time the house is sold, I won. If I pay rent X every month, I will never get that rent back. If I pay the same X amount on a mortgage, even if I get half of it back, that is a gain of 50% over rent.

The land your house is build on doesn't get wear-and-tear, 100 years ago or 100 years from now it's still the same number of m2 of land. And it's getting rare because the population is still increasing and everyone want to live in the same big cities.

If you find it ridiculous that everyone pays a fortune to live packed together (it kinda is) just buy a house in rural Alabama! It will be super cheap.

I suspect that most housing demand stems from just people wanting in on this (subsidized) investment. From what I can tell, this is the retirement plan foundation for many Americans.

I guess this works until you come up on a generation that can't afford the last generation's houses? Or you need to be a company to afford the house and it gets "permanently" removed from the individual market.

I'm wondering if lowering the maximum fixed mortgage length by one year every 2-3 years until we get down to 10 years would help moderate some of this due to there being a bit more risk to consider.

In the short run, everybody is happy- developers make money and build houses, consumers and investors can borrow cheap money with little leverage to get a worthwhile asset, and existing homeowners see their house appreciate and can re-fi to take advantage of the cheap cash.

However, this strategy doesn’t scale. You can only make mortgages so attainable, before you get 2008 all over again.

I think inflation has been the answer- with massive inflation, we can decrease the real value of a house and make mortgates more expensive without people ending up underwater.

Of course, inflation has many of its own problems, like we’re seeing today

To use more in-vogue economic terms, the increase in value of housing is typically a result of positive externalities. The government adding taxes to the system to allow it to account for the externality is a very reasonable method of dealing with this problem.

It doesn’t solve the problem for everyone who bought into the pyramid scheme, though. Personally, though, I don’t have much sympathy for people using homes as more than a home.

[0]: https://en.m.wikipedia.org/wiki/Unearned_increment

Vetocracy and NIMBYism is something that is deeply embedded to modern western society. For larger housing developments, getting permits can take several times longer than actually building it, can be attacked at courts by almost anybody and significant improvement would be blocked by zoning anyways. That essentially caps housing supply in popular places, which means the price is determined just by demand (i.e. wages and mortgage rate), which grows fast in booming areas.

There, I fixed it for you.

But markets are also cyclical and ground shifts work both way. Right now anyone owning a home seems like a genius and anyone renting seems like a poor sucker. I suspect that eventually the pendulum will swing back for unforeseen reasons and people will swear off ever owning more things than they need. The minimalist theme seems to come up every cycle.

Btw, to the point about housing not producing anything but relying on the greater fool theory- that is not unique to housing. For example, right now beyond meat is an investment nobody is interested in. But suppose you get some sort of terrible virus that wipes out half the cattle population and the price of beef goes up 80x. All of a sudden beyond meat will likely have more demand than they can satisfy. They didn’t necessarily innovate more than they did previously, but a ground shift brought them a spike in demand. Housing is no different. ZIRP followed by a very fast move to 4% on the 10 year created an environment of owners who suddenly found themselves locked into low interest mortgages in a very high interest rate environment. There doesn’t have to be an increase in productivity for an asset price to increase, just an increase in demand for it.

If you buy a home, you're living rent free, that's true regardless if the price goes up. If you live in it for 30 years and sell for exactly what you bought it for, you still made money because you lived rent free for 30 years. That's even including the cost of maintaining the home, roof replacement, HVAC, water heaters, appliances. Then there's the reduced taxes on mortgage interest.

The scarcity of housing, as the author correctly points out, is related to location, location, location. The old saw is "buy land; they're not making any more of it". As the population continues to grow, there may be more houses, but there certainly will not be more houses in desirable locations that are already built up.

The madness here is the perpetual growth. The author's entire analysis is irrelevant because perpetual growth cannot continue in a finite environment.

Whether or not housing prices rise to beat inflation, and whether we vote for Bernie and AOC or not, our houses will soon be worth nothing because we will all be dead. This is the inevitable outcome of the perpetual growth paradigm.

The only sane way to stabilize housing prices and to prevent the inevitable post-apocalyptic collapse, therefore, is by achieving sustainable numbers.

The insects are gone. The animals and the oceans are going. We are immediately next. If you doubt this, and if you continue your consumer lifestyle, you are insane.

The mentality that housing is an investment good has created a lot of perverse incentives (buy as much house as you can, you'll make more money!), that we really need to curb so that we can lower the cost of housing for everyone. Housing needs to be a consumptive good, where much like cars there's incentives to drive prices down and keep overall spending on the sector low.

There was a reason why in Australia for example that housing prices were pretty flat for a 100 years and only took off after late 1980's following financial deregulation of banks.

It would be great of course if we didn't centrally plan and set the most important price (the price of money i.e. the interest rates) via fiat. It should be set by the market i.e. the demand for money (borrowing) and supply (savings). But governments will never let go of that power so it is not realistic.

Maybe after this round of global recession / depression with property price crashes we will do the first step.

Housing prices only keep pace with inflation. America realizes it totally forgot about a few million homes it built, greatly expanding supply. Housing prices rise only 2%. Alice is much, much worse off for buying. In total, buying costs ~$1.75M, where renting would have cost her ~$1.3M. Because her finances were tied up in the house while the home value has gone up so little, Alice has minimal savings. Her daughter receives some financial aid, but takes on hundreds of thousands of student loan debt to go to college.

Yes, in 18 years Alice will spend $1.75M, but she'll also own a big share or all of the house. On the other side when renting she ends owning nothing after 18 years. Or is the calculator taking in consideration the selling price of the house?

The type of "housing as investments" that are high risk is when you buy to let, using your home as a pure investment (which could have been an index fund instead). I know zero people who ever did that.

Also, whether the investment is sound depends on the interest rates. Mine is now a fixed 5yr at 1.5% which is pretty decent, but obviously when that's renegotiated in 3 years the rates will most likely be much higher. In any case, it's basically been a free ride to live with a 1-2% interest rates for the past decade.

In the end, for better or for worse, the issue is a dissonance between the struggle of renters and political activity. Homeowners do not make up the majority of the electorate (though interestingly the majority of households "own" the household in which they reside). You'd think that renters would the laws in their areas reflect their will, but alas, renters have low voter turnout.

Hear me out.

Just 1% of habitable land is urban and built-up land (1.5 mil km2). Buy a land (native Americans didn't believe that anyone can own the land, that land belongs to everybody - maybe there was something true about that) and try to build a house on it.

So many regulations - where you can build, what you can build, how it would look, what materials are acceptable, etc.

Try to build a house from hempcrete, for example. A material used for several thousand years in Europe, but now it's much harder to build and to certify such house (due to regulations and approval processes), that everybody builds with bricks and wraps their house in mountains of polystyrene instead. That doesn't make sense .. you have to build a house from a material with abysmal insulation properties, and then wrap it in several layers (10 maybe) of additional materials just to have a working shell. Then stuff it with plastic stuff inside - that for example lowered time the buildings are fire resistant from 15 minutes to mere 2-3 minutes now (IIRC).

Or try to build something with earth pressed blocks. Also pretty common historical method from the area where I'm from, very comfortable living, breathable, low-cost, ecologic. That's something almost never used now, although it has a lot of pluses compared to the "modern" ways of building.

Try to purchase a land and build a block of flats on it. No, the building office will say, no such houses in the area, just single family homes here, single floor, minimum land 800m2. No way to build small flats or houses with those minimum area requirements.

We don't have enough place to build new homes, you say? We use just 1% of all habitable land for buildings and stuff. What about those 37 mil. km2 we use for "livestock" [0]? I for one can't wait for the times when the majority will switch to plant based diets. This is just one of the many things that would solve ...

[0] https://ourworldindata.org/land-use

The other reason why I chose to buy is self-discipline. Yes, renting typically leaves you with some money at the end of the month that you can use to invest in the stock market - which oftentimes yields more benefits in the long run over buying (and financing) a home. But that’s just theory. In practice, many people (and I’m including myself here) will use the extra money not to invest in stocks etc. but to consume at a higher level - to buy the more expensive car, to take the more expensive trip, eat out for dinner a lot etc. Knowing that I rather chose to buy and finance a home because that way I am forced to spend my money in something that even my kids will benefit from rather than consuming it.

- I know people who rent who have had their period end by the owner. The owner plans to "update" the place and rent it for a lot more. Renting prices do go up over time. This sucks if one wants to be in one place long term.

- There aren't enough homes out there. And, in many locations there are not enough people to build them. A lack of skilled trades to do the work. This drives up home prices because of supply/demand.

- I know financial people who say NOT to treat your primary home as an investment. It's something you aren't really going to be able to leverage while your thriving in life.

And so much more...

- house prices go really up in in-demand cities (Lisbon, Berlin, Milan among others)

- rents do go up as well, you don't have fixed rent for 30 years, but, instead, you get an increase of 1.5-3% every year (so is seen in Berlin), sometimes you get contracts where rent is adjusted based on inflation as well

- you can still buy an house, use and enjoy it and decide to sell it when you want to move somewhere else. You don't loose all the money (if you are lucky, you might earn actually ). With rent, all the money paid is lost forever.

Supply and demand is of course a real and powerful force, however if you tear down a single family house and build something more dense in its place, then you can build many units where there used to be only one. My intuition is that the cost of existing houses would not take such a big hit (and might even continue to appreciate), because existing houses have more land and thus more potential to build multiple units within that footprint.

Why is renting in a world where we build a lot more housing somehow more expensive than buying in a world where we don't?

I think this writeup also doesn't meaningfully touch on the _end_ of the scenario, when it's assumed that Alice sells the home, and is again faced with the choice of where to live next, and whether to buy or rent. In the case where housing prices have increased substantially, she's realized a considerable gain, but all the other houses are also substantially more expensive, and that gain is all directed at paying for her own future cost of housing. I.e. even if you're a homeowner and you've gotten your home value to increase, you don't really get to realize that gain if you still need to live somewhere.

For that reason, I think the downside to building a lot more is less dramatic than this writeup suggests. If your particular home value drops because you're in an uninsurable flood zone, that's a problem. If _all_ home values drop, then your house can still be sold and used to buy another similar house. Yes, when you die your family will inherit a less valuable house -- but they will also be richer in the sense of having smaller housing costs.

The fed should NOT look at house prices as an asset, for almost everyone it’s an expense and if it’s going up in price that’s just plain old inflation, nothing else.

Interest rates never should have been this low for so long. It was a massive wealth transfer to the existing asset owners from working people.

I just can’t believe there’s been zero blowback about this. And the entire 2008 crises. Many many people should be in prison.

One is a more traditional idea of investment, which isn’t so much about money, or cashing in later - it’s about having this particular dirt here for myself after some period of time. I may never get a financial reward, but this plot of land is MINE.

Another way “investment” is used is indeed about a financial reward and being able to sell for more later. Basically speculation.

Regarding the former, this is a natural way to think about it and while it might be expensive, the rational makes sense even if I don’t agree with it.

Regarding the latter, I think this came about more recently as people empirically observed housing prices going up, often faster than inflation. Without really understanding WHY it’s doing that, you might think of it like stock.

But the real reason housing had been going up over the last decades is that the government (US, and many others) have poured a lot of money into that market in various ways: tax incentives, loans, etc.

Supply restrictions come into play as well, but that’s a very local thing and not generally applicable.

So it’s not connected to real outputs like an investment. It will only keep going up as long as the government keeps pouring in more money. And when they don’t, or can’t, it won’t. And that’s when the “investment” will start to look a lot more like a speculation gone wrong.

No one wants to hear it, it sounds like nonsense, but I really think it's true.

Over the next few decades, home ownership will be reserved for the very wealthy. Everyone else will be renting in some form or another. If you're less well off it will be a cheap apartment. If you have a better job, it might be a nicer single-family home.

But it'll all be rented, because that's where the real money is and the system is successfully squeezing out the possibility of ownership.

They overstate this. All she needs is for rent to continue to rise for it to be worth it. With most sane mortgages the costs are fixed for the life of the mortgage. Rent is going up. Always. Well, almost. With the regulatory costs of new residential building in most of the West stifling growth, there will be no over-abundance of new rentals hitting the market any time soon.

That said, how did I do it? My wife and I knew we didn't know how to do it. So we asked someone who had made a lot of mistakes and was finally successful at owning property. "Take a Dave Ramsey class", they said. I didn't want to take the class, but I finally realized that I didn't know what I didn't know. It was shortly after someone I know well said something like, "suck it up buttercup!"

That was 9 years ago and our dream was to own a modest home on about 5 acres. 4 years later after changing our entire outlook on spending we bought a 3 bedroom, 2 bath home on 8 acres. Living through a pandemic on 8 acres was way better than the postage stamp we moved from. It was a blessing. My recommendation: Buy now before the next "Good Reason" to live in the country hits the fan. Look an hour to an hour and a half away from downtown in good traffic.

Have Fun!

The only fallacy here is that most renters I know do not pocket "all that money I am saving renting not buying", AND, the article assumes in 18 years the rent price does not change. But the fixed mortgage would have _not_ changed. Interesting.

This completely overlooks the reliability of owning. If Alice rented, she would always be at risk that the owner of the home she's living in would decide to stop renting it, or sell it to someone who didn't want to rent it, etc. The most important piece of owning a home to me is knowing that I cannot be forced out of my home as easily as a renter.

However, I would add nuance that using the word “investment” as synonymous with price appreciation is only partly true because any investment’s value comes from capital gains or dividends. And I dispute his claim that if buying is a good investment, then prices need to increase faster than inflation (although expected rent growth due to supply restrictions may be priced in in the example of Littleton, CO). A house can be both affordable to all generations and a good investment, just as a laptop or a pickup truck or any capital good can be both broadly available and a good investment. You buy a car instead of leasing it because it is a good investment even though it depreciates and even though there is a healthy market of auto leases. Kevin Erdmann has a clear-eyed series on the role of landlords even in a healthy housing market, which is much like the role of lessors of any capital good https://www.mercatus.org/economic-insights/expert-commentary...

The key variable that he is forgetting in the nytimes rent calculator is rent inflation. In almost any market, there will be rental investors, and that’s a good thing; otherwise you would not be able to rent a house. What really matters for the long-term health of the country is making sure that rents don’t increase (YIMBYism) and turning inevitable central city rents into public goods (Georgism).

1) it’s a market that is exceedingly difficult to exit. If you still at the top of the market, you generally have to also buy your next home at the top of the market as well

2) because of the disproportionate amount of peoples wealth is tied up in their home, it makes their overall wealth poorly diversified. This leads them to protect this one asset more than anything else

I guess the only difference is whether that 20% downpayment on the loan better spent sitting in a house or in bonds/ETFs.

Don't agree. Well, I'm from the UK; authorities are introducing more and more regulations requiring significant improvement in the housing stock. These kick in when you let the place or sell up; they are to do with insulation, damp and mould, fuel efficiency and so on. The authorities don't regulate granite counter-tops.

There is a lot of old housing stock in the UK. I think that in a lot of the USA, it's common to knock down the house you bought and build a new one; that's not common here, although it happens. There are good things about old houses; if it's stood for 120 years, it'll probably manage another hundred.

I know that's not why house prices rise; they rise because of increasing demand against a limited supply. But be fair; home improvement isn't all about paint, putting up shelves, or redesigning the kitchen. A lot of HI projects result in an objectively better house.

1. value of going to college

2. investing in real estate

3. creating a profitable business

Once your parents achieve one of these, in a lot of cases, kids learn via osmosis.

"Downside" problems that are also usually generational:

1. creating/maintaining a strong relationship with spouse (not getting divorced)

2. staying healthy - no type 3 diabetes etc.

Since NIMBYS want their cities to never change, the solution is to ban or excessively tax multiple unit ownership and only allow new builds to sell units. The problem then solves itself.

Fund UBI with 2.5% SALSA, problem solved.

https://www.radicalxchange.org/concepts/plural-property/

Yes, new problems appear. Maybe new problems are less vexing.

Then you have corporations setting up so called maker spaces, which the real reason for them is to steal ideas from people who can't develop them themselves.

The idea is that even if you come up with great idea you could never make more money than from regular employment.

Big corporations have been lobbying for these for years, so that it is ensured by the system that competition never grows without control of big corporation, investment fund or banks and that the entrance to the wealth club is closed.

You may think that minimum wage should rise, but that just takes pressure off of rents and rents go up.

This is not an easy problem to solve, and every mitigation tends to worsen the problem . We've had inflation for 30 years, most of which piled into housing. Covid accelerated the release of the pandora's box.

the nice part of housing being and investment is that you can live in it.

you wouldn’t treat your index funds like a pet, so don’t treat your house like one either.

buy houses that are newish to avoid maintenance. take out a heloc immediately just in case you need cash later. sell as soon as you max out the tax free profit on a home sale.

if you work remote, be open to moving around. compare new housing in dallas vs austin as an example. it’s like that everywhere. look in the town over, the state over, and in random locations too.

That sounds more like a perpetuum mobile. I wish the author cosidered the third choice that is "an empty lot with a vision to build that exact house from ground up".

Something tells me that the current building costs contribute a lot to the home prices in general and project the "recapture" into the future.

Whether ammortization of the real estate is fairly factored in the price remains unknown.

Also, what is indeed maintaining the scarcity is the land itself, well, that's the part of the "location".

The absurdity of the story here is reflected in the person with the rent vs buy calculator trying to see which decision makes the most sense, then feeling a moral outrage that in order to make money the price of the house has to go up. This is like being morally outraged that X-Y is only positive if X is greater than Y. You certainly can be, but what’s the point and why on earth would you talk about that publicly?

By the way, home prices are most easily thought of as a proxy for rent utility. If you can buy a house on debt and rent it for more than the principal risk and debt cost then you’ve got an arbitrage opportunity and prices will go up. Likewise if you can’t and you’ll lose money prices will go down because prices are too high. So complaining about house prices and rent as orthogonal ignores that they’re intertwined.

Mark Twain gave the advice to invest in real estate, they’re not making any more of it. Ignoring that you should never take investing advice from Mark Twain, there’s truth to it. Lack of affordability has to do with scarcity - if everyone is moving to San Francisco and expecting to be able to buy a beautiful Victorian in the Castro, expect the prices and rents to be sky high as there’s only so many and there will never be more than there was effectively 50 years ago. There’s nothing immoral about this. It might feel unfair in some “the universe owes me a beautiful life” way, but it’s actually not unfair. It might feel unfair that someone working for the city who moved into the Castro in 1970 got a great deal on a beautiful house while you live in a SRO in the Tendergroin with 15 roommates working as a senior principal engineer at google, but it’s actually not. It’s just the way things are. If you don’t like it, it’s not the city workers fault for being a nimby that you can’t afford their house, or that the city they live in attracted so many wealthy people and the value of their house exploded.

There simply no morality at play here. There’s no way not make ownership of property not an investment. There’s no entitlement to affordable housing. We can work to make more house available so more people can afford it, but we also probably can’t ensure everyone on earth can move to San Francisco and have a nice house in Noe Valley.

When the currency is abundant, everything becomes scarce. When the currency is scarce, everything becomes abundant.

Real estate has been monetized because the money is too abundant. The marginal cost of the next dollar is near zero, which is not the case for houses.

The demand that monetized real estate and other scarce assets will find a better home in Bitcoin. At that point, Alice will have no woes about house prices as it will go down to it's utility value. When housing is demonitized, it will once again make sense to rent if you put your downpayment in a hard money.

land value tax

Err.

What?

In this scenario, Alice lives in a world where a homeowner is allowed to subdivide their lot and sell homes worth about the same to N more people. Sure, one "home" costs the same, but she'll be allowed to fit a lot more homes onto her lot. She comes out way ahead in this world.

The city where I live is full of buildings which are all like "this was built by a %landlord name% as a means to support his retirement". This was ~150 years ago.

I joined the board of YIMBY Action who lead the fight for housing affordability in CA and across the US, and I did so because I see the change this movement can bring, and we're making some major gains throughout the US.

Even just signing up to get the emails or a modest donation is a huge help!

They also have a great Slack for all things housing.

https://yimbyaction.org/

If getting a second mortgage on the higher valuation required the valuation to be used for both property and income tax purposes, people would be much less willing to extract value from their houses. That would then slow down the price increases and lower the inflationary feedback loop.

Using the valuation used for loan collateral as a taxable event would also close the "shares/options as collateral" tax loophole.

Realize the investment underpinning before taking on the investment. RE of a personal residence is rarely a good idea... buy cheap personal homes (small liabilities), and then use the excess to buy rental homes (income asset + depreciation).

If you live in the suburbs somewhere and rent from a reputable legitimate property company, you may not care about that.

They discuss numerous solutions like abolishing zoning laws as well as changing tax code to tax the land and not the value of the home.

I’m still optimistic that technology will disrupt building costs and totally change our options. Imagine if we could buy a 3d printed home for 50 percent of current costs.

Watching boomers pop champagne corks as their homes went astronomically high and their children were priced out of ever living in the middle class neighborhoods they grew up in in CA, and now watching them eat that equity down with reverse mortgages, has made me permanently disgusted with the US housing market.

The only solution I can see is absolute carnage in the housing market, and probably the entire financial system failing. And I'm kind of rooting for that, even though I own a home and financial assets: I have children, and I'd like for them to not be in perpetual two-earners + debt slavery in order to afford what their grand parents were able to afford on one salary.

Surely houses today require electricity, sanitation and water, but how much do these really cost? Lots of people build offgrid and it is not THAT expensive.

Maybe there's an opportunity there, but , given the exorbitant profits of investing , it s doubtful that anyone will care

I was lucky that my dad (an economist) told me that houses are lousy investments. It's been true for me. I've lived in serial houses that I've owned, and toting things up over the years, they've been a lousy investment.

The rest of the article then follows a false syllogism.

Because I calculate my mortgage as being worthwhile by comparing what I pay monthly in interest vs. what I would've paid in rent. Interest payments go down, rent goes up. It's an easy comparison to make - ignoring any capital changes, which is just free money.

Not an investment avenue for the corporate/hedge/elite money holders.

Housing as an "investment" is a tool for extracting crippling debt from the populous as a means of behavioral control through financial stress.

https://www.nerdwallet.com/mortgages/rent-vs-buy-calculator

plug in all the numbers given in TFA with this reasonable modification:

Increase in housing prices (rent and buy) exactly match whatever your inflation number is.

return on investment is 4% over inflation, and you pay 15% capital gains on it.

Lo and behold, the break even point is 20 years, after which buying is actually better.

tweak a couple of variables ... move your marginal tax rate up to what someone making 175,000/year makes in NY or CA and the break even point gets earlier.

Etc.

Real Estate doesn't have to beat inflation to be a good investment. It only has to beat inflation when the price it is being sold at assumes it will beat inflation in the future and has baked that in.

The article is drawing way too much conclusion from a small amount of observation.

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

[0] https://adjusted-for-inflation.com/case-shiller-index/

Tip about the "200 month rule": if a rented property valuation is more than 200 months revenue (empty occupancy adjusts to $0 unlike the "creative accounting"), than you can be 100% certain a market correction is coming soon.

I would recommend reviewing post-hype markets in Japan if you want to understand where this cycle ends in more detail. No, your shed in a gloomy remote town is not worth what you paid for it friend. As interest rates must increase to dampen inflation, the overexposed gamblers will lose their assets in the next 3 years.

Try to find a ETF that isn't a dumping ground for a firms real-estate mistakes... Hint, it is mission difficult indeed, as cultural bias drives most of these markets.

Get some popcorn, and invest wisely friend. =)

1990s: 70-100

2010s: 140-212

2020s: 200-300-???

https://fred.stlouisfed.org/series/CSUSHPINSA

I recall speaking to a Boomer who has owned their own home for decades, whose daughter and son-in-law were both living with her. She seemed genuinely perplexed at why it was considerably harder for her daughter to be able to afford her own place. "Everyone who wanted their home value to increase got what they wanted; housing is more expensive now because you closed the door behind you" was not the response she wanted.

I similarly recall being at a Q&A with a state politician in front of an audience of high school students. He was asked a question about affordability of higher education, and gave some self-righteous up-by-your-bootstraps answer about having waited tables to put himself through school. He didn't seem willing to grapple with the idea that if you want that to be achievable then state school tuition can't increase faster than wages for multiple decades.

The system is rigged on a higher level than talking head politicians can manage or even comprehend. Leaving the normal people just facing a bleak reality of either being slaved as minimum wage renter or having to come up with resources to find a way out through say education.

We are basically the same as we were in Middle-Ages so it's no surprise though. With the peasants being basically property (and lets not talk about US). And the situation is better, no doubt. But accumulating wealth is a rich person's hobby.

Housing prices can be "fixed" overnight if we'll stomach the medicine.

One tipping point, sadly because as the article points out there are many more valid criticisms, seems to be foreign ownership. Enough foreign ownership in certain markets finally brought this to the forefront as locals were priced out en masse and people looked for someone to blame. At least the issue is being discussed because it has been a serious problem for a long time.

Q1: Why would one use that rate to compare?

and

Q2: Who here has ever paid that high a rate on their mortgage? We sure haven't! Signed our current floating rate 25 year mortgage back in 2008, so far the only great financial decision we've made.

My feeling is that cheap money has seeded a bunch of problems all over society, not just in the housing markets.

Capitalism is good, but some amount of principles (like treating employees fairly, not pillaging the environment etc) with capitalism would be nice. Instead the only thing that matters today is profit, at the expense of everything/everyone else

doesn't that have something to do with computer programming?

another example of dumb and costly mistakes is putting a capitalistic-optimization scheme in charge of medical care

alas, for some reason (many of them, indeed) most of these 'problems' cannot be corrected. for a few powerful interests these aren't problems at all.

In the U.S. the SPY and real estate soak up most of this excess spending. In poorer countries, physical U.S. dollars. In China, real estate is the primary sink. In certain subcultures, GME/AMC/DOGE.

One of the philosophical ideals of "hard money" is that there should be a way of transporting spending power into the future without loss that is primarily useless. The issue with using real estate and the stock market to transport wealth is that they have real use cases. People need to live in houses, stock prices need to be rooted in fundamentals otherwise everything is built on pillars of sand, etc...

Gold and art are the most traditional ways of transporting wealth across time while bitcoin is one that is very techno but also very volatile. However, even for the very wealthy, a diversified stock portfolio is likely still the most pragmatic.

Most normal people rely on real estate (to a fault, e.g. w/ 2008) b/c investing in the stock market has operational risk & psychological risk ("investors" end up gamblers). The FIRE movement tries to get around this via SPY dollar cost averaging but the end result is using the SPY as a hopefully-too-big-to-fail pension plan replacement.

Through this lens, "just increase the supply of housing" is naive because it fails to account for the existing web of incentives. It's the engineering equivalent of re-routing entire rivers of cashflow. China's supply of ghost cities for e.g hasn't helped with housing b/c it's only certain locations where the traits of being a massive demand sponge are satisfied.

Governments need to prop up the asset prices of these stores of value b/c so much is already invested in them. They need to prevent a "bank run" on these de-facto inflation-adjusted savings.

Gold and bitcoin "solve" this problem because the withdrawals are theoretically distributed across infinite time as they are immortal systems. However most people do not think like vampires & instead want to solve problems like "how do we buy a house in a good neighborhood before we are past child-bearing age?" The assets become a carrier to play high volatility (but low expected return) games that are perceived as the only way to "win" (rational application of hail mary strategies)

To summarize, real estate price appreciation is due to it absorbing the "inflation" that would otherwise be distributed across other assets and commodities. This river of inflow has a lot of cultural momentum and pragmatism behind it. (the demand is real) Redirecting this river requires an alternative sink of money that 1. Has enough volume and low barrier to entry to constantly absorb this flow. 2. Has non-homogenous motivations for entering/exiting to prevent bank runs 3. Preserves spending power across both short, medium, and long time horizons.

Like the CAP theorem, it's unlikely one asset can satisfy everything b/c it's market value would be infinite. However it's interesting to think about the housing problem through the lens of demand sponges and all the layers of historical solutions and new solutions towards incentivizing/manipulating demand.

The author completely glosses over:

- Land space near powerful economic areas is finite

- No one will let you build infinite new houses if it requires you making them sell and move off the land they already own

- The article makes it out like you could pay the same rent your whole life and/or stay in the same place all that time. That's unlikely, smart landlords are always going to raise prices as much as they can, not overspend on anything to do with services, and will decide to not renew your lease if they decide you're not worth it.

- The math about a $700k house versus a $2900/month mortgage is highly suspect. $2900 is not renting much of a house in an area where a house is $700k. $700k here will get you a modest older house. $2900 will rent a studio in my area. (Expensive area). There are many 2 bedroom apartments going for $5000/month. I've been in my house 13 years and my mortgage payment has gone down 3x as interest rates fell and we were able to re-finance. The last apartment I was renting has more than doubled in rent in the last 13 years. It is 2.5x what the mortgage on the house is, and the house is 4x the size of the apartment and we actually own land.

- Nailing down a fixed rate mortgage with a payment that doesn't rise versus ever ascending rent means you can actually save money to invest in other things if you're smart and diversify your assets.

Not all of us are going to see what the Baby Boomers saw. But owning a house is still a way to get ahead of peers. Certainly smarter than burning massive money on expensive cars every few years and lots of the other excessive spending that happens. You have to keep in mind the returns the baby boomers got were due to massive changes in the economy and interest rates over their lifetime. Boomers bought their starter homes sometimes with 15-20% interest rates back in the 1970s. Those sky high interest rates were what kept house prices so low back then. Population growth & density in the areas they bought in made land scarce while interest rates fell to nothing so it was natural for prices to skyrocket.

My fence blew down and my sunken living room flooded in a storm and insurance classified it as a basement so it's not covered. That's been a 40k hit. I have to get trees trimmed, $3,500. Garage door opener stopped working. The hits keep coming. If I rented all it costs me is a phone call to my landlord.

But then the main issue with real estate prices is the limited supply side, which for the most part has no reason to be