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> To solve the housing crisis, Americans need to be deprogrammed out of this belief that owning a home is supposed to yield a return. It makes literally no sense to expect or feel entitled to a return just for owning property. You did nothing to earn $300K or however much your home appreciated since you bought it.

I think people expect this because it happens. You will not be able to change the expectation without first making a dent in the phenomenon's consistency.

So then we're back to the question about how to make housing costs go down. One way or another, a lot of new houses would have to be built, or rationing would have to occur.

How bout some rationing? There’s no reason a publicly traded company should be able to own thousands and thousands of houses.

Unfortunately, this conflicts with basic tenets of how capital and free markets work: if you deny capital a market competitive return then the capital quickly moves elsewhere. For private housing, that means squalor and slums.

Market competitive returns for housing need to account for taxes, maintenance and management, vacancies and risk. This needs to EXCEED stock market returns or prospective landlords put their capital into the market. Already, the US quietly subsidizes housing returns with tax policy including 1031 exchange, tax deductions for every conceivable expense and more -- and even then, residential real estate is risky, illiquid and a hassle vs just buying ETFs.

This also affects builders: if they're starved of returns, they're quickly starved of capital, which means no new housing.

Public housing can be a nice solution: compete with the free market by offering a low cost option devoid of the capital constraints. When this works, you get Swedish housing, when it doesn't you get NYCHA. It's worth nothing that neither one has kept up with demand, with very long waitlists. Neither system supports transfers out of region, which destroys social mobility i.e. great inventors/etc are not able to develop themselves and do great work because they can't afford to move. All of these is theoretically fixable, but extremely hard in practice.

https://www.google.com/search?q=swedish+public+housing

https://www.google.com/search?q=swedish+public+housing+waiti...

https://www.google.com/search?q=nycha+assessment

--- Overall Findings

Overall, the NYSDOH inspection teams found hazardous environmental and health conditions throughout the NYCHA system. Approximately 83 percent (212 out of 255) of all units inspected contained at least one high severity environmental quality hazard. Inspection teams found similar issues in building common areas with 75 percent (48 out of 64) containing at least one high severity hazard. The top three high severity issues found in NYCHA units were insect infestation (mostly cockroach infestations), issues with walls and/or floors and the presence of mold growth.

https://www.governor.ny.gov/sites/default/files/atoms/files/...

In the UK, there is a similar mechanism, but also with a perverse twist.

Housing is very expensive, and buying your first house is often a titanic effort. It requires years of saving, often ain informal loan from family and then a substantial mortgage.

So once you buy this thing, your biggest fear is that it will depreciate. Never mind making money out of it.

This creates a lot of very strong local NIMBYism, and in the UK it's not that hard for the local population to stop housing projects.

When phrased like this, I do sympathise, even if it's "selfish". A mere announcement of new housing projects in the vicinity can cut your house value by 10%, or easily more.

So we created a world where house owning club is super expensive to join, and once you're in, it is your existential imperative to keep house prices high.

All this before you even say "appreciation". I posit that most people in the UK would be quite happy with affordable housing whose price is linked to inflation or sth.

This is a very good point! Thanks for adding. This is definitely also true in the US and homeowners will explicitly discuss "real estate value": X increases RE value and Y hurts RE value. It's a big deal.

I came to exactly the same conclusion when looking at a far worse housing market (Australia). Promoting housing as a vehicle for middle class wealth creation will soon be viewed as one of the stupidest economic policies ever pursued by democratic countries. It's unsustainable for the exact reasons you laid out.

I do wonder if a handful of countries (Canada and Australia in particular) are going to suffer drawn-out stagflation, since incomes need to increase to account for increased housing costs, but homeowners won't vote for anything that will temper their investments, so the cycle continues until demographics swing the voter base in favour of non-homeowners.

Is Australia really worse than the major cities in Canada? What crazy examples have you seen?

I meant worse than the market the parent mentioned (USA). Canada is definitely worse than Australia, but the gap is narrowing.

I own the house I live in and would prefer its value did not increase! What do I benefit if my house is worth more? I pay higher rates (council -- ie. local government), have less options to move house (because other houses are just like mine, increasing in cost), and it makes me less mobile for work (because rents are likely to be up elsewhere to).

Owners who are using housing as an investment may want house prices to rise, but I don't. The shortfall between those two can be managed with tax, surely? I am no expert in this market, but owning one extra house would mean I assist with rental supply, owning two maybe moreso, but owning 5? 10? 100? Why is property tax not applied at a greater rate/value as the number of properties you own increases?

And of course, if there is money to be made investing in housing, institutional investors will capture that value readily, as they have done in Australia (and probably elsewhere I would imagine).

> Housing cannot simultaneously be affordable if it is also supposed to increase in value endlessly. Someone has to lose.

If there's a God and they are just then the renters would win.

Not to all the current homeowners that have bought over the last 30 years which is a LOT of people.

The only realistic way both sides win is with government mandated rent caps on some housing in dense urban areas coupled with opening up of newer markets in smaller cities where people without a lot of financial resources should be able to buy at lower rates while developing new urban centers.

We already have these things and it hasn't done any good. Housing is still treated as an investment (these new growing markets sound like an opportunity) and it gets passed down to the renters.

Really though this is true of basically everything in our society, the lower classes essentially subsidize the higher classes. Below the lowest classes in North America are the poor of the rest of the world who are left with almost nothing.

I don't view my home as an investment, or expect a return from it, but that hasn't stopped it from appreciating 50% in the past decade. How would deprogramming this belief more widely lead to a material change in market conditions?

Your home has appreciated because you either live in an area that has gone through a major growth period (it has improved relative to other areas) or because other owners around you have voted to keep the value of their property increasing and your property has appreciated along with theirs as a result.

Probably both.

“Deprogramming” would help with the latter cause of appreciation. It would allow policy makers to enact laws and regulations to keep housing costs stable without facing a mass revolt from homeowners who have basically all made a $100K-$nM bet on their house increasing in value much faster than inflation.

Actually, when housing value grows faster than inflation, rents stay low, and you could have observed that yourself in 2010-2020, when the capital gains in the property value subsidized renters. When the growth stops is the time for rents to catch up.

>To solve the housing crisis, Americans need to be deprogrammed out of this belief that owning a home is supposed to yield a return.

Markets don't quite work like that. A seller will sell at the highest price offered (as same as the buyer will buy at the lowest price), if you were able to "deprogram" this behavior, you'd put the entire market, not just the real estate, in complete chaos.

> A seller will sell at the highest price offered

Not if the highest price offered is too low for the seller and they are sitting on a low fixed rate mortgage and/or low property taxes.

That is the difference between land or space and most other items in the market. If the annual costs are low enough, many times it makes sense to just wait for the government to bring back easy money, and you get to profit for doing nothing.

Someone who is not selling is not a seller, is he? And, predicting the next correction, someone who cannot afford to buy even at the lowest price, also, is not a buyer.

A properly functioning market requires lots of sellers and buyers. Hence people complaining about extended time of empty storefronts and empty housing, it shows the lack of a properly functioning market.

This depends on your definition of "properly", a market doesn't require either. E.g. a market for fine art usually has no sellers most of the time, it might not be properly functioning but it's a market and still follows the same principle: people will sell for as much as they can possibly get and buy for as little as possible.

Let’s change to efficient and inefficient instead of properly and improperly.

No one is hurt by a less efficient art market, so there is no outcry about it.

An inefficient property/land/house/space market leads to all sorts of problems in society.

The market efficiency is a theory that asserts that the seller sells at the highest price available and the buyer buys at the lowest, it doesn't not put any requirements on having lots of either [1]

1.https://www.investopedia.com/terms/e/efficientmarkethypothes...

EMH assumes good price discovery (since it is always referring to deep markets like publicly listed stocks), which depends on having many buyers and sellers:

https://en.wikipedia.org/wiki/Price_discovery

Not really: if Mona Lisa went on sale, I am sure all the prospective buyers learned about such an event despite having just one possible seller. The information propagation on the American RE market is also quite robust, most of properties go through the MLS and even if not, buyers scout for possible deals very vigilantly.

>>To solve the housing crisis, Americans need to be deprogrammed out of this belief that owning a home is supposed to yield a return.

> Markets don't quite work like that. A seller will sell at the highest price offered (as same as the buyer will buy at the lowest price), if you were able to "deprogram" this behavior, you'd put the entire market, not just the real estate, in complete chaos.

I don't think your criticism here works. The point is that people buy with expectations of return, and therefore are willing to pay investment prices rather than just equivalent-to-renting prices. Your reply doesn't address that at all.

If I understood correctly, you are saying that the buyers on the RE market pay more than they could have to clear the deal? I'd like to see some sources for that.

No. I'm saying that the demand side price for "a place to live plus an investment" is higher than for "a place to live"[1]. Within that dynamic, prices are where they have to be to clear the deal.

[1] I think this is intuitively obvious. The promise of future return will never have a price of zero.

That's quite possible but then I don't understand your critique. Investment driven demand appears to result from the already raising prices. I don't know who could possibly manipulate the market if it has been naturally declining, the capital requirements for that are insane.

I'm saying that, in your reply to _vertigo, you are thinking (or at least replying as if you think) that _vertigo wants to break the "accepting the highest price offered" behavior of sellers. I don't think that's _vertigo's point at all. I think the point is to change the "I can offer more because it's going to go up in value after I buy" psychology of buyers. That will change the offered prices, of which sellers will still accept the best.

> Investment driven demand appears to result from the already raising prices.

This is more on point... and it's also almost the definition of a bubble (people buying as an investment because the price is going up, and the money coming in raising prices further). I don't know any way to fix it except to increase supply enough to soak up all the money coming in, plus a bit. But, worse, I don't know any way to fix it that won't damage people who bought it as an investment.

I guess the only thing I can see is to build more, but not absolutely flood the market, so that the price goes down (or at least stops going up) but doesn't absolutely crater.

Yeah, _vertigo is mistaken IMHO, believing that the prices on housing raise through some kind of "programming" and not through the market as I observe in reality.

If people believing something is a sound investment made something an investment you could just buy random equities on the stock market and make bank as everyone* on that market believes that they make a sound investment.

* Statistically everyone, there might be some individuals intentionally taking a loss, I imagine.

Housing wouldn't be expensive if you could teleport anywhere instantaneously. No matter how hard homeowners wanted to keep prices high. I see some much cheaper more luxurious homes listed in less dense cities than mine. I suspect we've finally begun to exhaust the available land within a reasonable commute from the top populated cities that was opened up after creating the interstates. If we found a way to reliably go twice as fast out of the city in many directions we'd open up four times as much land. I'd bet everything house prices would hardly rise for many years.

Self driving cars might make a difference. The longest acceptable commute is longer if you don't have to drive it yourself.

If that leads to a significant increase in traffic, then the length of your commute will probably stay roughly the same at the tolerable level.

> To solve the housing crisis, Americans need to be deprogrammed out of this belief that owning a home is supposed to yield a return.

It's not about programming or entitlement.

It's because there is literally no other social safety net. Even here in Canada, where we laud our healthcare to Americans (despite it's massive flaws), there is no social safety net for retirement.

For a substantial percentage of north american homeowners, the expectation is you hold on to your home, downsize when you retire, and live off the difference until you die.

This needs to be fixed if we otherwise break this fundamental ssumption.

You forgot to account for 2 things:

1) population growth. If population grows faster than the housing, you would expect house prices to go up.

2) limited amount of land, especially in places where people want to live

> Americans need to be deprogrammed out of this belief that owning a home is supposed to yield a return

I think you have the cause and effect reversed. They believe a home yields a return because it does. They aren't delusional or stupid - they're making money. There's nothing to "deprogram".

Maybe dive one layer deeper and ask why investing in houses has been better than investing in stocks or bonds/CDs.

Is it? I’m fairly certain that my returns on index funds beat risk adjusted real estate gambles in most markets over most time ranges.

And certainly when factoring in liquidity and peace of mind, which is different for different people but has real value to many.

Houses are where the average person gets to be a leveraged investor. If I invest in an index fund and it goes up 10%, I've made 10%. If I invest in a house and it goes up 10%, but I invested with 5% down, I have tripled my money.

But the reverse is also true. People are hugely sensitive to house prices falling, because they are leveraged. If I owned my home outright (no mortgage) and the value fell 10%, I wouldn't be happy. But if I had a mortgage with 5% down, all my equity got wiped out, and I'm now 5% underwater.

> Housing cannot simultaneously be affordable if it is also supposed to increase in value endlessly. Someone has to lose.

It can if density increases too.

Existing home increases in price, but new homes being built are single-family homes torn down and replaced with 4-plexes, which are then replaced with apartment buildings in turn. Thus SFH price increases over inflation, “housing” price doesn’t have to, because new options are less pricy.

> Renters want housing to remain affordable and to increase no faster than inflation.

> Owners expect (and bank on) the value of their house increasing faster than inflation.

Also: in many hot markets it costs more to buy than to rent, sometimes by 2x or more. Rental and owned stock are not always the same markets, not always the same housing even though it seems like they “have to be”.

Setting homeowners and renters at odds in this way is a straw man, since these are two distinct stocks of housing that only affect each others prices indirectly, and are free to appreciate at different rates to some extent.

It’s more appropriate to consider landlords vs renters, as they are on opposing sides of transactions involving the same housing.

Contrary to your assertion, landlords are not primarily focused on the appreciation of the market value of their assets exceeding inflation but instead on achieving a reliable income stream from rents. This cash flow can be sustainably profitable under stable rents, so the structural conundrum you propose doesn’t exist in the real world.

In Canada, at least, there are many people who have bought 2nd and 3rd+ homes and rented them out. There's more overlap between "landlord" and "homeowner" than you might think.

Sure, a single person can have multiple roles in the system. But this line:

  > Owners expect (and bank on) the value of their house increasing faster than inflation.

may be true for an owner-occupier for whom price appreciation is the only way they can treat their house as an investment, but it’s not at all true for someone receiving monthly rents that exceed their costs. It’s like comparing the prices of two stocks while ignoring the large dividend payments paid by one of them.

While not contending directly for the same stock, homeowners are very interested in matters that influence rental prices, albeit in less direct way, as you say. Try proposing to build affordable housing in a neighborhood and you’ll find yourself drowning in homeowners coming out of the woodwork complaining that “we want more affordable housing, but this project just isn’t right for our neighborhood.”

I think we’re on the same page. As I wrote in my comment, rents and home prices cannot diverge >for long<, and you write that they can diverge >to some extent<. I think we are saying the same thing, just emphasizing different aspects of the same statement.

> Contrary to your assertion, landlords are not primarily focused on the appreciation of the market value of their assets exceeding inflation but instead on achieving a reliable income stream from rents. This cash flow can be sustainably profitable under stable rents, so the structural conundrum you propose doesn’t exist in the real world.

Rare is the landlord who continually settles for a stable rent when increasing it is feasible.

As home prices rise, would-be buyers are forced out of the market and have to contend with existing renters, increasing demand for rental housing, which in turn causes rents to increase. Taxes on rental properties increase, also serving to increase rent.

It depends, but I don't think it's true to say there is no conflict. The article centres around the Canadian market, and in many areas there's a active push against building more types of housing, zoning changes, demographics changing, from both landlords and homeowners that essentially have control over neighborhoods that are already predominantly populated by people who have no option to buy into that same neighborhood, but who otherwise make that neighborhood.

Many homeowners have prejudice against different types of housing other than these behemoth ranch houses or Victorian mansions, yet are perfectly happy enough to literally lift up their house and rebuild their ground floor as a rental unit, effectively preventing renters from doing anything but renting basements.

Homeowners, regardless of whether they're landlords or not, will sometimes actively oppose anything they think will negatively impact their appreciation, regardless of whether it's even remotely true, sometimes even going so far as to preemptively move away if mid-rise apartments go in nearby.

Agreed. Being a landlord isn't a job. You aren't doing work, and don't deserve to be paid for doing nothing. Houses are for people to live in, not an investment.

Being a landlord is an enormous amount of work. I know a few and the amount of work is not worth it, it is why I would never be one.

Being a landlord is a full time job. You’re essentially on call 24/7 or you have to pay someone else to do it out of your relatively thin margins.