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Comment by noodlesUK | Hacker News Reader

One thing I have never quite understood is the desire for housing prices to constantly go up.

Even a current homeowner might want to move one day, and if house prices uniformly fell by 50% relative to current earnings, they would find themselves more able to upgrade their house. The only people it would hurt would be people moving from owned accommodation to rented accommodation or cheaper owned accommodation.

What am I misunderstanding here?

EDIT: It seems I was forgetting a key fact: mortgages. When people hold a mortgage and their property value goes down, they can be left holding the bag.

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Aside from investors, the people who benefit from high housing prices are property owners who are downgrading, specifically moving to a smaller home or cheaper area, which is what older folks whose kids have moved out do.

As an oversimplified example, let's say in one world you're a senior who moves from your family home worth $200,000 to a condo worth $100,000; that's $100k in profit. If housing prices are uniformly 4x that, you're moving from a home worth $800k to $400k; your profit is also 4x. So it's in your best interest for housing prices to be uniformly high.

You're right that for those looking to upgrade it's not beneficial, but as with everything, the 50+ age bracket are the voters and politicians, so the policies that benefit them are what get put into place.

Doesn't higher housing processes allows owners to leverage this asset to refinance the house, thus allowing them to purchase a second property whilst they can rent/AirBnb their existing one? Once they have two properties, they can rinse and repeat at infinitum.

One aspect I've observed is that people have bought into the financialized paradigm so hard that they narrate their personal home as some kind of "investment", instead of the reality that the building is a depreciating capital good that they're depleting. Rather than taking responsibility for renovations as things they're spending money on to make them personally happy and comfortable, they justify new kitchens/baths/etc as objective "investments" that "increase the value of their home". Since the building is still actually a depreciating capital good, and since the value is an illiquid paper figure, land prices have to go up to complete the illusion. And when they don't, homeowners throw a fit because they have already committed an outsized proportion of their wealth/income to that one asset.

Then they would not be able to leave because they wouldn't be allowed to sell. If they foreclosed, they would be losing not only the money they paid in but also their down payment and on top of that, they would have a dark mark on their credit preventing them from buying again.

The best case is increasing at inflation for a long period of time, encouraging living in your house but discouraging it as a form of wealth accumulation. As long as wage growth matches inflation, you're golden. Now, I think that to correct, you'd need to have a decade or two where price growth is below inflation or flat, but the equilibrium is ideal.

Most homeowners have a mortgage, and that doesn’t go down when the house price goes down. This can result in negative equity and it traps people in their current property until they can pay off the original debt.

the number of mortgage-free residential homes in the USA is at record levels, increasing steadily in the last 20 years. Contrast this to the demographic bulge of middle class born shortly after WW II, and the financial advantages of long-term home ownership with low monthly costs.

There is a tax exemption on your first 250k of capital gains when you sell your house. The interest on your mortgage is tax deductible. If home prices increase 10% each year, then you can maximize earnings by moving to a more expensove house every few years.

In this way, your home is like a leveraged tax sheltered investment, and the limits are much higher than an IRA.

So if you buy a house for 200k, keep it for 30 years and sell for 700k, you have to pay tax

But buy a house for 200k, sell after 15 years for 450k, buy a new one for 450k, then sell that after 15 years for 700k, you pay no tax?

In the U.S., yeah that’s how it works.

In the US most people file taxes with the standard deduction since 2017. I’ve been homeowner with a mortgage since 2005 but haven’t gotten a mortgage deduction in like 6 years.

https://www.cnet.com/personal-finance/taxes/should-you-itemi...

Ahh, so it seems that mortgage interest payments come off before tax?!

Rising housing prices in the US is basically how a lot of people are able to retire - and if they're lucky, provide some gift to their children/grand-children to start off.

This causes people near retirement age to fiercely oppose anything that would devalue their house. It represents their life's savings.

Others have mentioned a few of the (huge) problems of falling prices on mortgaged houses.

But on the "upside" - for most people, the idea that they are quickly getting richer and richer, because they have a house - that has a massive emotional appeal.

Ideally, housing should rise near inflation. You most certainly don't want it to go down significantly, or there will be knock-on effects in the larger economy.

To buy a house, you put money down and sign a mortgage. Over 30 years, you use that mortgage to build equity. If prices crash, new homebuyers potentially get wiped out or even end up "upside down," where they can't sell because they owe more money than their house is now worth. This was a prime contributor to the Great Recession.

Suppose the rules changed so that some authority guarantees your right to sell your house at the price you bought it, but only at that price: when you find your next home, you get back the cost of your old one, which is then auctioned off to its next owner. Individuals are protected from falling house prices and no longer treat their homes as investments. The authority takes on that risk, now distributed across many homes, some of which appreciate. How do you think this would play out?

As shittily as every other "experiment" in human history where someone thought they were smart enough to set all the rules for other people and treat them as if they were too stupid to make decisions for themselves.

I guess you could have it "opt in". But unless the guarantied resale price is adjusted for inflation the deal sounds quite bad.

It would probably inflate prices also.

Sounds great to me. After 2008 my flat in the UK was in negative equity -- dropped 40% in 6 months from when I bought in mid 2007.

I eventually sold it in 2016 for just 2% under what I paid for.

Interesting fact about the mortgages - some states (California for example) still have anti-usury laws on the books that mean that purchase mortgages for real estate are non-recourse.

What this means is that in a big housing downturn, you just send the keys to the bank and walk away; they get the (now underwater house) but you don't owe anything additional, though your credit may take a hit for awhile.

The wealth effect of "number go up" is really powerful.

It would hurt people who own property because it would make them relatively less wealthy compared to people who don't own property.

if the emotional reality of humans are "hurt" by others doing "less worse" then they are .. then this signals a powerful downward spiral of the social contract.. It could be said that similar feelings continued long ancient traditions of privileged priesthood, Monarchy and even the institution of slavery

It's not that dramatic. Consider if everyone got a check for $1 million. Except you. Would you like that? Probably not. But not because you're an unkind jealous person. You would not like it because if everyone else suddenly has significantly more money, the money you had before is suddenly worth less in terms of what you can afford to buy for it.

Same goes for other assets like houses. If houses are suddenly worth more your savings are worth less.

You're missing that homeownership is an emotive issue and a psychological issue. People see being underwater on their mortgage as failing. People see selling for less that their purchase price as failing. People who don't own homes really don't understand that human nature and wellbeing drive house prices.

Losing a few hundred grand is quite a bit more concrete than a “feeling”, it is a devastating failure and may derail someone’s life. Suicide level failure, drug abuse type failure.

Just to put a finer point on it

Homeowners are typically going to be leveraged with a mortgage on their homes. This amplifies prices going up or down.

IE: I buy a house for 100 by using 20 of my own money and 80 of the bank's with a mortgage. If the house prices goes up to 120 and I sell, I now have 40 (doubled what I initially put in) after paying off the mortgage. If the price goes down to 50, I now owe the bank 30 (wiped out my initial 20 first then another 10 I'd have to come up with) if I want to sell.

At the classical 20% down 80% mortgage ratio you're in that 5x leveraged bucket for a long time (longer than you think due to amortization).

A home is usually the single largest investment people will ever make in their life. Why wouldn't they want returns on it?

I think the problem is seeing it as an investment. Most people won't say a car is an investment but rather a cost - the investment is transportation and its value is gained external to the sell price of the car. The home itself really ought to be considered a cost, while the land and property as a whole may (but not necessarily) be an investment.

It produces a dividend of shelter for the owner. Assuming labor and material prices are fixed, the asset should be depreciating in value from wear and use which would all point to flat or lowering value.

Assuming that it must make returns, one or more of the following must be true:

* Labor price increases

* Material price increases

* Land value increases

The market is what determines how it is viewed, not the homeowner.

When auto market hit supply constraints during the pandemic, the used car market got bought up and people started investing in cars to flip. There is no escaping "viewed as an investment" in a supply constrained market.

This is true, except we've allowed homeowners to control the supply.

Imagine used car dealers lobbied to make new cars impossible to build/sell. Of course their prices would go up! Homeowners happily lobby and vote for policies that make it difficult to build new supply, to protect their own investments. We need to break that loop and allow the market to actually build supply and rein in prices.

It's pretty easy to understand. It's great for the rich and most of the middle class and "lucky enough poors" have an enormous percentage of their wealth tied to homes.

For them rising prices are often tied to the ability to get a nicer home. You have more money, and this incredibly stressful, risky investment that is less worrisome. There's tons of incentives in place.

I'm seeing a lot of average people (still probably top third tho to be fair) that view homes as an accomplishment and sign of their worth. They DESERVE to be treated better. Their investment must always go up.

For a large number of Americans, their house is a MASSIVE portion of their total wealth. They likely plan to leverage that into retirement (sell and downsize/move out of the city) and/or leave it to their heirs.

Should housing be viewed as an investment in this way? Possibly not, but between various tax incentives and restrictions on supply, that's what we've decided we want (as a society, for better or worse).

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