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I've been thinking about this for a long time and am going to try to explain it as best I can.

> "Housing can either be an investment or affordable."

This an important point although I'd describe it slightly differently

> Housing can either be a speculation backed by NIMBY or affordable.

In general parlance, an investment is something you buy that makes you money. I think this terminology is overly broad. In economics, capital is something that helps you produce something else, e.g. tools and locations to produce. The proper price of capital is tied to the returns on investment over time. Usually when economists talk of investment, they are talking of capital purchases.

Housing (e.g. a house, apartment, condo etc) is an asset, but it doesn't really do the thing that most capital does because -- much like food -- past the basics to live it is a lifestyle consumption good. Housing is consumed as you live in a place, the wear and tear that occurs. We produce more as we repair housing or build new ones. But the housing doesn't really provide a return, unless you sell it to others through renting.

When people are told to "invest" in a house, they are being encouraged to purchase _and speculate_ on their own consumption good. This speculation is based on the assumption the price will go up, not that you will earn a stream of payments because it improves your ability to produce. The only way for this asset to grow in value is for the supply to be artificially constricted.

So the fact that people have been sold an investment lie and tie up so much of their wealth in it leads to exactly the political results you have pointed out.

> Housing is consumed as you live in a place, the wear and tear that occurs.

the building is consumed. But housing is more than just the building - the location is also part of said "housing". Location doesn't get "consumed". And in fact, it is the location that appreciates (while the building itself does depreciate over time).

The investment is not in the building (tho you do pay for it - minus the depreciated portion i suppose, if you're a savvy buyer). It is in the location.

Part of the "invest in your future through buying a house" is a notion of investing into your own safety, as contrasted to renting. Rents may go up unsustainably, but your house is still yours. Nobody can evict you from your house for not paying rent. A house is a relatively liquid asset, so if something really demanding happens, you can move and downsize, unlocking some of the wealth invested into the house. If you rent, you can also move to a cheaper place, but it won't free up a lump sum.

So the idea of "investing" is not purely speculatory.

It is speculative for the simple reason that the land value may not increase over the long term.

I live in Washington, D.C., which could very well lose a substantial portion of its population permanently. I suspect we will be underwater on our mortgage at some point in the next few years, and would be surprised if in the next ten we experienced any increase in wealth attributable to buying rather than renting.

> sold an investment lie

But it's not a lie if the majority of people do it.

Housing might be the major wealth store for the middle class (although I doubt the lower class is collectively storing much wealth in housing), but its the rich who own most of the land and collect rent from most of the lower class and some of the middle class. The rich may not care so long as they collect checks, but I think they stand to lose the most in absolute dollars if more housing is built that they don't own.

IMO, its the middle class holding up the show because they are actually owning homes, and even though they may never actually sell their home they cling to an ever rising hypothetical valuation.

> I doubt the lower class is collectively storing much wealth in housing

Doesn't directly answer your point regarding wealth, but FWIW 47% of people in the bottom quintile own their home. https://www.minneapolisfed.org/article/2024/homeownership-am... It's actually near a 35 year peak.

47% is still substantially lower than housing owned by the rich. On top of that, the housing owned by the lower class tends to be lower value. They probably “own” their house through big mortgages, which is just another form of rent paid to the rich.

> 47% is still substantially lower than housing owned by the rich.

Yes, which is 80+%. Though it's only slightly less than the homeownership rates for the middle quintiles.

> They probably “own” their house through big mortgages, which is just another form of rent paid to the rich.

That article also mentions that home equity constitutes 38% of total assets--the largest chunk--for homeowners in the bottom quintile. Which AFAICT (in a quick search) is greater than the top quintile but less than the middle quintiles, though it's unclear if those other numbers are for just homeowners in those quintiles, or overall averages.

The value of their home for the lower quartile, and probably the bottom 3 quartiles will be >100% of their net worth.

Unless I’m missing something, that’s quintiles of absolute wealth. I’d be curious how the data shakes out for the lowest quintile calculated relative to costs of living.

Same thing with people’s retirement accounts. If everyone’s savings were just in the bank getting 1% interest no one except the wealthy would care if the stock market eats shit. Instead we can’t stop the insanity of individuals with 100s of billions of dollars due to the entire worlds retirement savings fueling insane market prices.

Independent retirement would be impossible with 1% returns. With the market's historic rate of return (around 6% after inflation), an investment doubles every ~12 years. A dollar saved at 30 years old is worth ~8 dollars by 65. In a scenario where 1% returns were the norm, a dollar invested at 30 would only be worth $1.40 at 65!

Also, since you wouldn't get much income from investments while retired, you'd have to save way more in that scenario to be able to retire. Sounds like a miserable alternative.

Exactly, it is an artifact of the definition of wealth. If a family needs a house to live whether that goes up or down is irrelevant for them.

It will be useful wealth once they die or they are forced to sell and move out to the countryside in their old age. Available income or what can be liquidated without affecting once life is actual rich peoples wealth.

> that would be devastating in the short term to the middle class

Well, the thing there is, that wealth doesn't really exist for most people. Housing "wealth" in the US is basically imaginary because you can't use it without moving somewhere else, and everywhere else is equally expensive!

> you can't use it

you can't "consume" the wealth. But you can use it by leverage into loans, which can be invested elsewhere to make more money.

And if you owned more than 1 property, rental income is an additional vector.

The wealth isn't imaginary. It's just illiquid.

HELOCs are a thing.

>What's best for society is if everyone who's wealth is tied up in property takes a hit to their wealth so that housing becomes affordable and loses it's status as primary wealth store, but that would be devastating in the short term to the middle class and therefore completely politically untenable.

This is true if the "hit" on wealth is linearly distributed. But since income growth is not linearly distributed (it goes up with wealth), it's reasonable that the tax (or whatever form it takes) should also be progressive, perhaps to the point where it excludes properties under $1M, for instance, thus sparing the bulk of the middle class.

If you only do something about homes priced higher than $1M it won't solve the problem that no one can afford a starter home any more.

It's not about the individual homes, it's about the aggregate holdings. If people with large asset portfolios (and corresponding large incomes) stop buying homes because they have an incremental carrying cost to them due to taxes, the prices will drop for everyone. The problem we have now is that big PE firms are buying up single-family homes because they have the massive incomes to out-compete everyone else in the market. They then turn around and lease those homes to increase their income even more.

Anyone who owns a house can sell it, move into a rental, and reinvest the proceeds in the stock market. They’ll be better diversified and can expose themselves to a wider spectrum of risk/reward profiles.

If Americans are clinging to their house because they perceive it as a “store of wealth,” they are not thinking clearly about the full spectrum of their financial options.

You're just trading one kind of risk for another. When you own real estate you have a lot more control over your cost of living.

That said, I think it would be fair to distinguish proper ownership from paying a 30 year mortgage. There's really not much difference in economic terms between renting and 3 decades of structured payments once you factor in insurance, fees, etc.

If you own real estate outright and it's homestead in a place like Texas, your total monthly burn rate could easily be <$1000. Why kill yourself with delusions of grandeur in the market? It's significantly easier to control your own consumption habits if you want to wind up with a net gain.

life is so easy. just plug numbers into a spreadsheet so the math will make rational decisions for you.

The only reason it would be devastating is because of mortgages. People don't want to liquidate their homes, they just want somewhere to live, so shifting house prices would be totally inconsequential for a homeowner. The market price of your house would be lower, but then so would the ones you want to buy. Makes no difference.

This is because houses don't really lose or gain much value. The worst that can happen is the building falls apart.

Houses aren't worth a number in a made up money system. Their worth is real, tangible: shelter, warmth, comfort etc.

Why can't more people see the banks are the cause of this? They can print out money for houses at their leisure. It's not like it's a conspiracy or anything, there's tons of information out there about how 2008 happened including major Hollywood films. They do this openly. Of course it looks like house values are going up more than they should, you're measuring value in numbers that can just be made larger by the banking sector.

I mean the problem with this argument is this: nobody in the affected areas who owns property is actually middle or lower class.

Homeowners in areas where housing is totally unaffordable area either extremely wealthy, by definition, because of their property ownership, or they're wealthy enough to pay a mortgage on an absurdly expensive property.

Where housing-as-good-investment is successful is really only in areas where shortages exist. You're not going to harm the middle class folks in Tracy by fixing the housing crisis in San Francisco.

OK, assume some old lady currently owns a house if SF that would cost $1M to buy. She bought it, say, 50 years ago, say, for $50k. It's an impressive 20x ROI, no doubt.

But does it make this old lady wealthy, if she is not selling her house and moving to Arkansas, where $1M would go much farther than in SF? May it be that she's struggling with her day-to-day expenses in SF?

Wouldn’t the argument then be that it shouldn’t matter to her if her house goes down a bit in value since it wasn’t liquid wealth anyways?

So it’s a win-win in a way - either you’re rich enough to pay the mortgage on an expensive property in which case lowering property values in expensive locations is a bit redistributive or it won’t affect you really in which case who cares?

Net worth calculators[^1] would put this woman at the 88th percentile of wealth in the US. Yes, I think that counts as wealthy.

I obviously think it's mostly absurd if you think a woman who bought 50 years ago in SF has a house worth only 50K. The vast majority of houses in SF that would have cost 50K, 50 years ago. The average home in 1976 was $65K,[^2] and the median home price last year in SF was $1.4M, at effectively the 90th percentile of American net worth. If you don't think top 10% of wealth in America counts as wealthy, then I don't know what to tell you.

[^1]: https://dqydj.com/net-worth-percentile-calculator/

[^2]: https://imgur.com/1976-article-on-housing-prices-sf-bay-area...

>extremely wealthy, by definition, because of their property ownership

That's not true today and probably has never been true

Homes today in SF are worth about $1.5M. That's a non-trivial net worth when you actually look at American net worth by percentile.

I agree it's non-trivial wealth. But it is not a passive asset. Unlike most forms of wealth a) you pay taxes on it and b) it requires constant upkeep as nature is trying to destroy your wealth.

$1.5 m would classify you as extremely wealthy 100 years ago but today it would require an order of magnitude more to be in that class.