
Housing can’t both be a good investment and be affordable - DoreenMichele
http://cityobservatory.org/housing-cant-be-affordable_and_be-a-good-investment/
======
corysama
A lot of people here are playing semantics and ignoring the message of the
article just to be "clever". The message of the article is we can't have our
"housing values are always increasing" cake and eat our "housing is always
affordable" dream too. If we want to keep housing affordable, we'll have to
settle for valuations staying pretty much constant in real dollars forever and
resign ourselves to be happy with only the savings opportunities everyone here
are so cleverly pointing out.

~~~
Alex3917
> If we want to keep housing affordable, we'll have to settle for valuations
> staying pretty much constant in real dollars forever

This is basically the argument for buying into a co-op rather than buying an
apartment. You aren't allowed to flip them for a profit, which means they're
less expensive because you're giving up optionality. (At least when they
actually are implemented as originally intended.)

To me this makes a ton of sense, because there are a lot of benefits to home
ownership for both the individual and society, but real estate generally isn't
a good place to put investible dollars unless you're super wealthy and just
want some (relatively) predictable income from renters.

What we really need though is public housing for the middle class and upper
middle class, rather than just for low-income families. Right now public
housing is basically just a scam to transfer money from the middle class to
the super wealthy by using money from the middle class to subsidize labor at
below a living wage, when in reality everyone needs a house so it's a textbook
example of a market where there should be a public option.

~~~
bko
Co ops are just apartments whose land is owned by a corporation. The
corporation usually has a perpetual interest only loan on the land. So when
you buy a co op you are leasing the land and own a share in the apartment. You
tend to give up options but no one really benefits. I don’t know other markets
but condos in nyc are prob 30-50% more valuable in part due to these options.
It’s cheaper but only because it’s objectively worse as anyone who had to deal
with a co op board can attest. You can make things cheaper by making hem less
valuable sure, but that’s just destroying value for no reason. Imagine you
don’t like how expensive cars are so you make it so that you need a background
check and waiting period to buy a car. Will new car prices go down? Probably,
but that’s not a good thing

~~~
quadrangle
A cohousing community done well can be a dramatically superior quality of life
worth _extra_ cost.

[https://www.youtube.com/watch?v=DmWrx0ntATU](https://www.youtube.com/watch?v=DmWrx0ntATU)

~~~
asdfasgasdgasdg
That's cool, but that's also not what a coop is, at least in the context of
this thread.

~~~
quadrangle
The living arrangements in the video are absolutely co-ops. I'm not sure I get
how the context is different, other than that there exists other mediocre (or
worse) cohousing co-ops.

------
jrnvs
Great, so you made $50k because your $200k house is now worth $250k - a 25%
increase. You now have a family and bigger income and are looking at a bigger
house priced $500k. You are really glad that you “made” $50k on your old
house.

But wait, if the new house is in the same neighbourhood, it’s price increase
was probably _also_ close to 25%. If prices had stayed the same, it would be
worth $400k today.

So you just gained $50k on your old house but are paying $100k more on the new
one.

This is only beneficial if you move from a large house in a popular area to a
smaller house in a less popular area.

If you have kids, they might inherit the wealth gained from your housing
“investment” - after splitting with their siblings and after taxes of course.
Sounds good, until you realise that they will have to spend it all - and put
in extra - on housing because of the price increases.

In a world where housing prices stay the same, or become slightly cheaper year
by year, everyone is better of. The prices of common utilities such as food
and clothing have gone down spectacularly in the last decades while quality
has gone up. No one would rather live in a world where these had instead
become more expensive. It’s time we start thinking about housing in the same
way.

~~~
TomMarius
Could you please describe exactly how could housing get continuously cheaper
when there are more people every year and the demand for good locations is
increasing?

(Edit: I asked a sincere question. Don't downvote without explanation, please.
It's really tiring, anti-discussion and makes it seem like you don't have any
good point at all.)

~~~
Lazare
Yes, there are more people every year, but in the US, there aren't a _lot_
more people every year. Population growth is at 0.7% and falling.

On the other hand, I see no reason to think that "demand for good locations is
increasing". What counts as a "good location" is in flux, but people always
want to live in "good locations". I see no reason that it's _more_ important
to live in a "good location" today than 5 years ago, or 50, or 3000.

So what I see is a _fairly_ static number of people who'd like to live all
over the place, but a decent chunk wanting to live in large, dense, desirable
cities. Which are, not surprisingly, quite expensive.

> how could housing get continuously cheaper

Housing, as opposed to land, is a manufactured good, and we're getting better
at manufacturing things every year.

As for land, we can use it more efficiently (higher density, fewer parking
lots, more transit, etc.) It's well documented that many cities (Los Angeles
is an infamous example) drive up the cost of housing and bias new developments
towards luxury units due to building codes that, eg, require very inefficient
land use and a large number of parking places.

Alternatively, we can work towards changing what is desirable. In 1920
something like 5% of the entire US population lived in New York City; now
things are much more spread out. Today a hefty slice of software engineers
live (or want to live) in San Francisco, but that's not an immutable law of
nature.

I mean, taken to an extreme, if you build an absurd number of houses in San
Francisco without sufficient infrastructure, the combination of massively
increased supply (all the new units) and decreased demand (because it's no
longer a great place to live) would absolutely lead to house prices dropping.
That doesn't sound like a good policy (and is certainly not what the parent
comment was suggesting!) but there's no particular reason why house prices
can't continuously fall.

~~~
fredgrott
but its not just house prices themselves if you look at a map of value of
farmland in the US you will find that more accurately reflects the current
house price upward rise.

Example...in NW Indiana farm land is about $35k per acre which reflects the
amount of revenue earned per acre. In California its 3 times that.

Its we are running out of farm land acre to feed the world that is driving up
the house price in the US

~~~
moorhosj
Housing can be built vertically.

~~~
ben_w
At significantly higher cost. If you’ll excuse a very broad brushstroke, this
is why California — with lots of land — builds so many single-story buildings
compared to the UK where there is so little land available for construction.
(That the difference is in part due to policy doesn’t change that there is
less availability).

I’m looking forward to more automation in construction so that vertical is not
significantly more expensive.

~~~
moorhosj
==At significantly higher cost.==

Significantly higher building costs, but lower land acquisition costs.

Excerpt from a BuildZoom analysis:

"The high cost of housing in expensive coastal metros is not driven by
construction costs. It is driven by the high cost of land which, in turn,
reflects a scarcity of zoned units, not a scarcity of land per se."

[https://www.buildzoom.com/blog/paying-for-dirt-where-have-
ho...](https://www.buildzoom.com/blog/paying-for-dirt-where-have-home-values-
detached-from-construction-costs)

==That the difference is in part due to policy doesn’t change that there is
less availability==

Except the current policy explicitly limits the availability, they are one in
the same.

------
dangjc
If you don't own a home, you are effectively short the housing market. If you
own one home you are neutral: you can't sell it to make a profit because you
always need one roof over your head. If you own more than one house, you are a
landlord/investor and I don't know why we are giving you special treatment
relative to other asset classes.

It would be better for everyone if housing was not an investment.

~~~
dragonwriter
> If you don't own a home, you are effectively short the housing market.

No, the same way that you aren't short on Tesla if you merely don't own any
Tesla shares.

> If you own one home you are neutral

Long, actually.

> you can't sell it to make a profit because you always need one roof over
> your head.

Yes, you can; you may prefer to have a home, but people do in fact live
without them, and, further unless you own the most minimal home allowed by
habitability laws in the most inexpensive neighborhood, you can always
downgrade while still having a roof over your head.

> If you own more than one house, you are a landlord/investor

That's no more true that it is of “if you own more than the least expensive
house possible”; it is quite possible to own multiple homes only for personal
use value, viewing them neither as investment for resale or things to rent
out.

> It would be better for everyone if housing was not an investment

If it wasn't, how would development happen? It only happens because housing is
an investment for the first owners, the one building it.

~~~
dantheman
Many things are created with out them being 'investments.' The builder just
needs to be able to sell the home for more than the cost of labor, material,
and land. The owner buys it as a place to live and not as an investment.

Much like a car - many things are expensive and not expected to go up in
value.

~~~
dragonwriter
> Many things are created with out them being 'investments.' The builder just
> needs to be able to sell the home for more than the cost of labor, material,
> and land.

Spending money on something in th expectation of being able to resell it later
for greater than the cost is, exactly, an investment.

------
codingdave
> ...its price would need to increase faster than the rate of inflation.

If you don't own a home, you pay rent, and rent increases over time. Even if
you never made a dime on selling the home years later, the difference between
years of rent vs. the total of your mortgage may still come out ahead. Or,
keep the house, and live the rest of your live only having to pay property
taxes and utilities. Either way, inflation goes up, rents go up, mortgages go
down.

I'm not sure that invalidates the larger points within the article. I just
worry about the perspective of treating a home purely as an investment when
their primary benefit is to be a roof over your head.

~~~
lotsofpulp
If you’re single or a couple with no dependents who doesn’t mind moving every
now and then, renting isn’t so bad. You avoid the risk of dealing with damage
to the structure, fixing things, labor markets being disrupted (like factory
towns or smaller towns everywhere in the US). Take all that saved up money and
put it in a low cost index fund, you very well might come ahead, and be liquid
when you need to move because the jobs disappeared. And rents definitely don’t
always go up.

~~~
dba7dba
I've known a few families over the years in California who rented detached
houses. They rented houses (didn't have the down payment) to get the benefits
of more space (ex: 3-bedroom place), yard (well small yard, this is
California), garage, and washer/dryer.

Every single one of them had to move out before their kids grew up old enough
to go to college. In fact they didn't last more than a few years at each house
because every landlord would come around and ask the renters to move out.

The excuses given were: \- I'm selling the house (turned out it wasn't sold
years) \- I'm remodeling the house (nope, not true)

Pretty much in all cases, the owner of the house was forcing the renter out so
that they could raise up the rent much higher with the next, new renters.

~~~
usaar333
> They rented houses (didn't have the down payment) to get the benefits of
> more space

This is just a statement that living beyond your means is bad. Even in markets
where renting is cheaper ([https://medium.com/@usaar33/why-you-shouldnt-buy-a-
home-in-t...](https://medium.com/@usaar33/why-you-shouldnt-buy-a-home-in-the-
bay-area-right-now-9eff37da8d6)), you have to ensure your savings rate is high
enough to absorb any reasonable rent appreciation.

Realistically, you might be able to get 20% more house than what you can buy -
I imagine your friends were pushing more than that.

~~~
dba7dba
But you are assuming they were living beyond their means.

They were really not. They were able to find another place near paying similar
rent.

The point is the house owners were basically getting around a local laws meant
to protect renters against unreasonable rent increases.

Where I live, there is a law against raising monthly rent substantially on an
existing renter. Owner can raise the rent for existing tenant say about 3 -
5%, once a year. I'm not sure about the exact percentage, but it is allowed
only once a year for sure, to a specific percentage of the existing rent.

So the house owner gets around this law by periodically forcing out the renter
with bogus reasons, so that they can rent out the property to the next renter
at a substantially higher rate.

Instead of being able to increase rent from $2500 to $2700 after the renters
lived there for first 2 years, property owner can raise the rent from $2500 to
$3000 or even $3500. The property owner is basically getting around the local
law to protect renters.

~~~
usaar333
> They were able to find another place near paying similar rent.

I'm a bit confused here. I assume the new place was inferior in some way?
Otherwise, I don't see why the landlord would try to force them out if they
are paying market rent.

~~~
dba7dba
Well it seems some owners seem to think they can beat the market and get
higher rent by chasing renters out every few years. So they can raise rent by
7- 10% instead of just say 3%.

------
eo3x0
The real problem is that there hasn’t been any attempt at policy changes to
correct this. In order to do so, society needs to chip away at the problem in
steps.

Right now, real estate is simply a good investment regardless of everything
else because of the tax benefits of transferring properties to heirs.
Depreciation and tax bases are reset, essentially making real estate a double
whammy of tax benefits for the current owners as well as their heirs.
Depreciation means tens of thousands of dollars saved in taxes per year per
property. Transfer benefits means never having to pay that back due to
generational reset. Take away the transfer and estate benefits first.

Once that first dent is made, the wealthy/NIMBYs will naturally vote for the
next correct move, which is to take away policies that make housing
unaffordable to their own children. As the law is right now, there is no
incentive for land owners to be altruistic to society because their children
are sheltered from affordability problems due to transfer benefits.

My wager is that all it would take is removing transfer benefits on commercial
properties (e.g. like kind exchange, or enforcing depreciation recapture upon
transfers, including 1031) to see the first domino fall on the way to an
eventual partial rollback of laws like prop 13 and more property development
due to fewer NIMBY incentives. That’s a very small bite to chew that leads to
much greater changes down the road because it realigns incentives
tremendously.

I say this as someone who has Bay Area real-estate. The strategy to reverse
things doesn’t exist at the moment.

------
issa
This article misses two points that are so basic that I'm shocked. 1) Home
prices don't need to go up in order to make it a good investment 2) Banks pay
a huge percentage of the cost of buying a house, but the consumer keeps 100%
of the profit.

To use the example in the article, if you bought a house for $200,000 and sold
it ten years later for $256,000, you didn't only make $56,000. You also paid
down your mortgage over that time. A typical mortgage isn't much more than
rent, so minus interest, that's more money for you. Also, you only needed to
put down $40,000 and the bank paid the other $160k for the house purchase. So
for $40k plus the cost of rent, you did pretty well. You also would have done
better than renting if the house had only appreciated half as much.

~~~
nostromo
> Also, you only needed to put down $40,000 and the bank paid the other $160k
> for the house purchase.

In this scenario the bank just creates the money out of thin air. And then
they get to keep all of the interest payments.

So, yeah, it's good for the home owner, but it's _great_ for the bank -- so
long as most people keep paying back their loans.

------
joejerryronnie
Housing is always going to be expensive in desirable areas. No amount of
social justice or zoning reform is going to make mid-town Manhattan or
downtown SF easily affordable for anyone who wants to live there. Sure, these
areas are culturally vibrant but the real draw of high cost of living areas is
the job opportunities. Many people would gladly try out a different area of
the country or move back home if only the job prospects were reasonable. I
think there's much more bang for the buck in economic revitalization than
trying to make every city in America "affordable". Although opposed to
government intervention in general, I am much more in favor of proactive,
growth-based policies than reactive redistribution-minded reforms.

------
elyobo
Most points also apply equally to the Australian housing crisis in Sydney and
Melbourne. No mortgage interest tax deduction here for home owners, although
there is for investors, among various other incentives. Governments
consistently fail to do anything about affordability because they're too
worried about "mum and dad" investors (not to mention their own
portfolios[1]).

[1] [https://www.businessinsider.com.au/australias-federal-
politi...](https://www.businessinsider.com.au/australias-federal-politicians-
own-a-staggering-524-properties-2017-4) "Australia's 226 federal politicians
own a staggering 524 properties ..."

~~~
hugh-avherald
No mortgage interest tax deduction for owner-occupied dwellings but the
exemption of capital gains tax is far larger in terms of revenue foregone.

~~~
elyobo
Probably; they're both massive, no doubt about that. Interest rates are low
right now, but in general you're probably paying around double the value of a
property over a 30 year mortgage, that's a sizeable tax deduction.

------
zamfi
This is only a contradiction if the type of housing remains constant, which it
does in low-development, high-construction-cost markets like San Francisco
where public policy prevents the modification of (almost) any housing to
increase density.

Here’s how it would work otherwise: family buys single family home in year A
for $100k. Lives there for a while, then sells in year B for $200k. The buyer
is a developer, who then constructs a larger building on that same lot
consisting of 4 apartments that now each sell for $100k again. Original family
gains in wealth, developer makes tidy profit, new families can still buy a
place to live for $100k. All numbers inflation-adjusted, you pick A and B to
make whatever return you think is reasonable.

This is how densification happened almost everywhere until zoning laws stopped
development mid-century.

Note what you don’t get out of this arrangement: a neighborhood that doesn’t
change for 40 years; the ability to live in the same type of house your
parents did, in the same neighborhood, for the same price. But you could have
the same amount of (indoor) space they did, and outdoor space through public
parks and the like.

What’s not sustainable is everyone having a suburban style detached single
family home without increasing density in perpetuity. _That_ is what leads to
this contradiction.

The non-density alternative is sprawl, where prices rise in long-established
neighborhoods, and outlying new developments are where you can buy new houses
for less — which is what you see all over California.

------
Dowwie
Surprisingly, no one has discussed the transaction costs of real estate, which
takes a large bite out of any potential gains. You don't necessarily come out
ahead when you sell, even in a growing market, once commissions and attorney
fees are paid.

~~~
thedevil
I tend to rent despite owning real estate.

I tend to move often and only buy real estate if I'm willing to hold it
forever. So I buy what I think is a good long term investment and live where I
want to live.

------
apo
_While funds for low-income subsidized housing languish, much larger pots of
money are set aside for promoting homeownership through subsidies like the
mortgage interest deduction and capital gains exemption, most of which goes to
upper-middle- or upper-class households._

Looking for reasons why house price increases outpace inflation? These two US
tax policies are a big part of the answer.

Commentators bewailing the high price of housing and wealth inequality rarely
even discuss these two massive giveaways. Deficit hawks rarely point to the
mind-boggling amount of tax revenue left on the table by this federal
government dole.

Ending the mortgage deduction and the capital gains exemption would be a very
effective and quick way to bring about housing affordability and promote
wealth equality.

But any representative proposing such a solution would be committing political
suicide today. Still, it's interesting to think about the conditions that
might be necessary to force a change in sentiment on the issue.

------
mrhappyunhappy
I once read an article about how in Japan wealth does not accumulate from
generation to generation. The article went on talking about housing valuation
and how homes devalue instead of appreciating in value of the course of their
life. He article made it sound like a terrible thing. Of course, if you look
at it from a personal perspective it IS terrible not being able to pass on
appreciated properly to your kids. Who doesn’t want their family to be better
off from generation to generation?! But if you think about it from
affordability and societal perspective, it isn’t so bad to have your property
remain the same value or depreciate. Of course there are other issues to
debate there such as environmental pollution that comes with wasted resources
every time you build and scrap a new home. The upside is having to live in a
new house that’s more affordable than in the western nations.

------
Waterluvian
I would gladly buy a house that cost it's value in parts and labor and sold
for the same amount + inflation decades later.

I just don't need or want an investment like that.

~~~
gwbas1c
You'll get ripped off. New homes depreciate quite a bit because of the ongoing
cost of maintenance after 7-16 years. (Except in the Bay Area.) The catch is
that inflation usually hides the depreciation.

You will find this out if you ever compare the cost of a new home to an older
home, or plan to build your own. Where I live, a 15-20 year old home is about
60-80% of the cost of a similar new home.

~~~
Waterluvian
Yeah I hear you. I'm not speaking of buying a new home in today's world. I'm
speaking of a hypothetical world where homes weren't priced as investments,
they were priced as products.

And I do appreciate why it doesn't work that way.

~~~
gwbas1c
> homes weren't priced as investments, they were priced as products

Careful there, you really need to understand the difference between an
investment and a product.

I bought a very nice lawn tractor as an "investment" so I wouldn't have to pay
someone to mow my lawn.

The land your home is on is always an investment. Land doesn't depreciate like
a product does.

But even then, when you use the term investment, I think you conflate "for
profit" versus better deal. A home can be an investment as long as you have a
tangible benefit over renting. That can be anything from lower long-term cost,
to having the exact kind of living space you want.

For example: I owned a home for a little over 3 years before I had to move. We
sold it for inflation + cost of some improvements, and at the end it was
slightly cheaper than renting... But we enjoyed the house so much more, and
the house was in much better condition than a rental. We were able to do
things like install an electric car charger and central air conditioning;
things that would be much more difficult in a rental situation.

------
MarkMc
Seems to ignore the idea that as long as supply can increase, and a single
house can be converted to a block of 6 units, housing _can_ be both a good
investment and affordable. I think the problem is that while development
currently benefits house owners, apartment owners have no incentive to
increase supply. We need to tax property development and distribute it to all
local households. In this way it won't just benefit house owners and it will
have much greater support from locals.

------
tomohawk
Housing is a cost and a necessity. The goal with housing is to minimize both
cost and risk.

Renting and ownership both carry their costs and risks. We have not had
inflation for a long time, but I remember the Carter years where we had
inflation and people who rented were in a world of hurt. Owners had no such
problems. The 2008 crash hurt owners, but only if they had to sell. At least
where we are, prices are more than fully recovered.

Since you need housing for your whole life, you have to take into account
these sorts of historical occurrences. If you are an owner, you can ride out
most of these things. If you are a renter, your rent will go up unavoidably.

Ownership is the best approach to avoiding cost/risk, but only if you (a)
build up a 20% minimum down payment, (b) attack your mortgage and pay it off
early, (c) have a minimum 6 month emergency fund (which you should have
whether owning or renting).

If you approach ownership like a rental, only looking at the monthly payment,
you are taking a big risk and subjecting yourself to higher cost and risk. The
same can be said about renting, though. What will you do if you lose your job
and do not have a 6 month fund built up and have to pay rent?

Having a paid off home and not having to worry about rising rents contributes
to peace of mind, and opens the door to other life modes, such as early
retirement or taking extensive time off.

~~~
usaar333
> We have not had inflation for a long time, but I remember the Carter years
> where we had inflation and people who rented were in a world of hurt. Owners
> had no such problems.

I could see how an owner with a mortgage benefits with unexpected inflation,
but why our renters hurt? If their incomes rise with inflation, shouldn't it
be neutral?

> The 2008 crash hurt owners, but only if they had to sell. At least where we
> are, prices are more than fully recovered.

You can't ignore opportunity costs. The question is how would an owner on a
mortgage performed if instead they were renting, had lower payments, and
directed additional savings into the stock market?

~~~
tomohawk
What would you do if your rent went up 10% - 20% a year? Rents follow
inflation.

As for opportunity, there is immediate opportunity and deferred opportunity.
You could chase the stock market now, and have no gains for 10 years, or great
gains. If you buy a house and pay it off, you guarantee lower expenses going
forward.

If you're the grasshopper, then by all means rent. If you're the ant, then
buying probably makes more sense.

~~~
usaar333
> What would you do if your rent went up 10% - 20% a year? Rents follow
> inflation.

So does my salary expectations.

Not getting the ant/grasshopper metaphor. The trade-off is solely a function
of risk ability & willingness (higher risk tolerance pushes toward renting
more), not hard work/lazing. In certain markets buying looks bad if you have
high enough risk tolerance to handle stocks:

[https://medium.com/@usaar33/why-you-shouldnt-buy-a-home-
in-t...](https://medium.com/@usaar33/why-you-shouldnt-buy-a-home-in-the-bay-
area-right-now-9eff37da8d6)

~~~
tomohawk
In inflationary times, your rent will likely outstrip any salary increase. I
suppose if you work for the federal gov't or something you might get cola, but
I wouldn't count on it. The Carter years were hard times.

I didn't mean the metaphor in an negative way. The grasshopper likes the
lifestyle of pay as you go. The ant worries more about a possible winter
coming.

------
vparikh
Well housing is a good investment once you pay it off and stay in that home
for an extended period of time. The problem is people just want buy ever
larger homes. I mean look at the average square footage of homes in the 1970s
which was 1500 sqft and by 2014 its 2,657 sqft
([https://247wallst.com/special-report/2016/05/25/the-size-
of-...](https://247wallst.com/special-report/2016/05/25/the-size-of-a-home-
the-year-you-were-born/11/)). People are buying way over their means.

I purchased a 1800 sq ft home when I was 22 that I am still living in today (I
am 45) with a 15 year fixed mortgage. I paid the mortgage off and have lived
rent/mortgage free for the past 8 years. Assuming I live here for another 12
years, that will be 20 years of rent/mortgage free living. And yes I am
married and have a 2 year old.

And when I do eventually sell, I will get back all the interest I paid and
then some even adjusted for inflation. The problem is people just keep jumping
int every larger homes. As soon as they can.

------
taprun
It can be when borrowing terms are artificially loose.

Imagine a world in which you can get a zero-ish percent interest-only loan.
The "value" can keep going up even though the monthly cost remains low until
the end of the term at which point you sell to someone else for even more
money at a zero-ish percent rate.

~~~
gowld
Who is giving out 0% loans forever, when they could be buying up real estate
instead?

------
village-idiot
Houses shouldn’t grow in value for well established areas, they should roughly
track with the population and inflation. If demand hasn’t changed, why should
homes change value?

Aside from homes slowly rotting, that is. In fact that should _reduce_ the
value of a home over time.

------
grigjd3
So one might consider "the original intent" of your home as an investment to
be something other than throwing your money at rent. If I put $2000 towards
rent in a month, I have a place to live that month. If I instead put $2000
towards a mortgage, I have some of that money in equity (and a place to live
for a month). It "builds wealth" in that some of my monthly spend is resulting
in value for me beyond the place to live for those 30 or so days. I think if
people are generically looking to treat their home like any other financial
instrument, they're courting danger.

~~~
Axsuul
Except a $2000 rent will not get you the same place as a $2000 mortgage.

------
8bitsrule
Gambling using housing as gaming pieces was fun in monopoly. Then late-night
TV started encouraging people to do that in real life.

Until there is an affordable HOME for all US citizens who need one, we in the
US need to stop thinking of them as HOUSES and stop them being used as
gambling chips.

As for public-housing, it needs to be permanently off-limits to speculative
investing. Otherwise why should the well-intentioned public agree to investing
their tax dollars in public housing? Ownership of these HOMES should only be
available to people eligible for public-housing.

------
ss64
Supply and demand in the housing market is not about the supply of houses but
about the supply of CREDIT.

As long as the banks are happy to lend large sums at low rates prices will go
up, and as soon as the banks become more cautious, either raising rates or
restricting how much they will lend, then prices will fall.

I'm sure many will continue to blame immigration but I challenge anyone to
come up with any solid data to back up that claim.

We have seen this happen before and that wasn't because millions of people
suddenly left the country overnight.

~~~
cinquemb
Exactly.

And people still want to pretend that owning a home now is good
diversification from the stock market which now is also filled with companies
that are utterly dependent on the supply of credit.

The pressure on RE market is already keeling over, not just in the US but
around the world (thanks to CB's following largely the same policies for so
long in this synchronized "recovery").

------
Tsubasachan
I don't know, social housing is a good investment for society. Giving everyone
a decent roof over their heads isn't just good for karma but also social and
political stability.

Not cheap though.

~~~
tryptophan
It actually is cheap. But we have tons of laws that outlaw cheap housing
because it "causes" "undesirable" neighborhoods.

------
purplezooey
We need some big strokes to fix this. Personally I think the long-term
solution, at least in CA, is for the state to buy out owners in critical
areas, taking land with eminent domain as a last resort, then selling the land
back to developers on the condition that density is tripled or quadrupled.
That's the only way to move the needle. Doesn't everyone ask you, when
visiting from out of state, "why don't you guys just build _up_?"

~~~
rcpt
In California we could easily solve the housing shortage by eliminating prop
13.

Because land isn't taxed based on it's current value landowners have little
incentive to develop their land in order to get the most out of it. They
simply bank land as much as possible as it's the most surefire way to turn a
profit. It's why we have golf courses
([https://www.planetizen.com/node/93284/la-country-clubs-
takin...](https://www.planetizen.com/node/93284/la-country-clubs-taking-more-
their-share-and-paying-less)) in city centers, dilapidated shacks
([https://www.theguardian.com/technology/2016/dec/15/google-
ca...](https://www.theguardian.com/technology/2016/dec/15/google-campus-
silicon-valley-farm-martinellis)) next to Google's global HQ, and empty lots
([https://www.zillow.com/homedetails/811-Pelton-Ave-Santa-
Cruz...](https://www.zillow.com/homedetails/811-Pelton-Ave-Santa-Cruz-
CA-95060/96053991_zpid/)) right on the beach in Santa Cruz.

Additionally, prop 13 gives landowners every incentive to lobby for policies
that restrict development in order to drive up prices instead of fighting for
the right to build 4 story apartments on their property.

Impact fees are too high because cities can't rely on property tax. This stops
all but the most luxurious developments:
[https://lao.ca.gov/publications/report/3497#Did_Proposition....](https://lao.ca.gov/publications/report/3497#Did_Proposition.A013_Increase_Fees_on_Developers.3F_)

And then there's the fact that prop 13 transfers wealth from young to old,
from poor and middle-class to rich, from black and Latino to white, and from
renter to owner
([http://www.betterinstitutions.com/blog/2015/07/prop-13-calif...](http://www.betterinstitutions.com/blog/2015/07/prop-13-california-
broken-property-tax-part-1)). Making it harder for people to save up in hope
of buying one day.

~~~
amanaplanacanal
Yes. I understand why prop 13 was passed, it was in a time of high inflation,
and the increased valuations meant that property taxes had a huge impact,
especially on retired people with fixed incomes.

But all the downstream effects of that have made rather large distortions in
the housing market.

------
camgunz
The gain on your house will never outpace the interest on your mortgage.
Houses as wealth generation (in this simple way, they're still obviously
better than nothing and helpful to borrow against) is essentially a scam
literally sold by banks. You'll pay $170k on a $100k house over 30 years. If
you put that same $70k in Vanguard you'll have over $400k after 30 years (at a
modest 6% return).

------
jgalt212
Housing is f'd up b/c of some combination of Baumol's cost disease and ZIRP.
Just not sure how to correctly apportion the blame.

------
resalisbury
"Affordable housing and rising home values are mutually incompatible."[1]

[1] [https://medium.com/yimby/why-a-healthy-housing-market-is-
bad...](https://medium.com/yimby/why-a-healthy-housing-market-is-bad-for-
people-bd48a5399686?source=user_profile---------42------------------)

------
derekp7
My counter to this article is that you have to live somewhere. So you either
rent a big chunk of money that you can use to buy a house, or you rent housing
directly. If the principle, interest, taxes, insurance and maintenance is
about the same as renting over the course of a number of years then you are
better off buying.

The risk is that you may need to move before you are at the break-even point.
And risk is sometimes location dependant (how varied are the industries that
provide good employment in your area, etc). And you risk rising costs (I
wasn't prepared for property taxes and insurance to outpace inflation 4 to 1,
for example).

But the biggest mistake that I feel people make (at least in my case) is
getting more house than I needed. I would have been better off getting a much
smaller / less desirable property that I could have paid off in 7 years,
instead of the 30 year mortgage. Because then after 7 years, if property rates
rise, well I can sell and have more money for a down payment on a better
house. And if the fall, I can still sell and put the money down on the same
better house, which is also much cheaper (assuming similar area / cost of
living).

~~~
sopooneo
But can't you also just sell the 7 years worth of equity you've built up over
the start of a 30 mortgage almost as well?

I will concede that the downside risk is higher with the (initially) higher
priced property.

~~~
tdfx
In a conventional mortgage, the proportion of interest you pay is frontloaded
so that you're paying much more interest in the beginning of the loan. So in
the first 7 years of a 30 year mortgage, you will have paid some principal,
but the majority was interest.

------
anthony_barker
A nice economics research article I read a while ago basically showed that
housing prices increase with inflation except in cities like San Francisco,
New York Manhattan or Vancouver that have strict building rules or physical
limitations.

------
joelx
The best thing we can do to have affordable housing used to increase the
supply of housing. If we increase the amount of high-density zoning and reduce
the amount of permit difficulties, housing will become much more affordable.

------
mrnobody_67
Housing in some cities = SoV (Store of Value) for foreigners... NYC, Miami,
etc.

Nothing to do with investment, all about getting money out of dubious places
in the world. Anonymous LLC and Done.

Imagine if they plowed all those dollars into Bitcoin instead.

------
austincheney
Housing in the Bay Area is stupid expensive. I bought my 2900sqft 9 years ago
for $129000 and it’s now worth about double. This is a bit better than average
for my city. My city is one of the 15 largest in the US.

Edit: I don’t live in CA.

~~~
tootie
Double in 9 years is like 8% annually which is roughly equivalent to putting
it in index funds.

~~~
cobookman
But you only put 20% down.

Let's say your 100k house is now 200k. Your initial down payment is 20k. When
you sell your getting much more than 8% compound interest

~~~
autokad
they also ignore the fact you are saving in rent, and you can also rent out
your spare rooms (I did).

My house was and still is very affordable and it was one of the best
investments I have done.

they are not mutually exclusive objectives once you consider everything.

~~~
tootie
You're also paying mortgage interest, taxes and maintenance costs. The formula
isn't straightforward but owning a home is rarely a better strategy than
renting and buying stocks.

~~~
autokad
Homes appreciate on average 3-5%, where as the money saved on rent - taxes,
interest, and maintenance is somewhere between 3-5%.

that's 6-10% (which is about the best you can expect from stocks over the long
run)+ the other benefits of owning a home. I for one rented 2/3 of my rooms
for an additional 12k$/year income (60k over 5 years).

------
gamechangr
My friend would have paid $40,000 more in taxes this year if he didn't have an
a single family rental to depreciate, so perhaps gains vs inflation isn't as
straightforward a measuring stick as you would assume.

~~~
stanleydrew
Your friend will have to repay those taxes when he sells (assuming there is
profit above the then-depreciated value). Seems like a lot of people don't
know this.

Yes it is true that the tax rate is capped at 25% (which is sometimes less
than the normal marginal federal rate you would pay) and there are ways to
defer the tax bill further but it's not just like free money that the
government gives up on collecting from you.

~~~
TomVDB
_If_ he sells.

We have a bunch of rentals around here and we have no plans at all to ever
sell. And when we die the tax basis for our kids will be the value of the
properties at our time of death. (And I think they can even start using
depreciation again.)

~~~
stanleydrew
Agreed, the step up in tax basis at time of inheritance is really the problem
with that though. Which is a problem regardless of depreciation.

The new tax law that was passed I thought might eliminate that loophole, but
the proposal was nixed in the final bill.

~~~
amanaplanacanal
A lot of the simplification and rationalization that was the initial selling
point for the tax bill somehow got traded in for large tax decreases for the
wealthiest before it was signed. In my generous moments I think that they
really did intend simplification and were simply bowled over by the other
interests.

In my less generous moments I notice that they keep saying that they are doing
A, and instead do B. Again and again.

------
forkLding
Kind of shows that at end of the day, the issue is political and depends on
who wants what. We can stop housing price increases and decrease future
profits gained for current homeowners.

------
black6
The major flaw I see in this analysis is believing the only way to build
wealth by "investing" in home-ownership is _increasing property values_. It
completely ignores the equity one builds while paying down a mortgage. If one
intends on staying put for a while (even just a couple-few years in some
cases) then one _can_ build wealth through home ownership without runaway
property valuation. Money is "lost" on interest payments, but if you are
leasing a home, you're paying someone else's mortgage and interest[0].

[0]: Not necessarily the case, but it works for simplicity's sake.

~~~
bufordsharkley
Even if prices are stable, what makes it the case that the system works so
well for those who own land and creates such problems for those who are
landless?

We take it for granted that renting is just a form of having your money stolen
by landowners, without realizing that this is a choice we make: we could just
as easily administer the market so that absentee ownership ceases to be a
smart bet.

~~~
briandear
> administer the market

That’s a scary idea. There are massive unintended consequences to such a
strategy of reducing the benefits of “absentee” ownership. Almost every
private rental property in existence is the result of absentee ownership. A
move to disrupt that would result in a dramatically reduced supply of rental
properties. Not everyone has the resources, credit or responsibility to own
their own home. The financial crisis of 2008 was trigger by a whole bunch of
people buying when they shouldn’t have. The places where people try to
“administer” the market either through aggressive regulation or capping rents
through rent control have the most inefficient and expensive markets.

~~~
bufordsharkley
It's interesting that you jump to "aggressive regulation" or "rent control"
instead of the solution that has close to full consensus from the economic
profession:
[https://en.wikipedia.org/wiki/Land_value_tax](https://en.wikipedia.org/wiki/Land_value_tax)

~~~
scythe
LVT is a good policy but it doesn't make land ownership a bad investment. It
just tends to decrease the price of land, which is not usually a problem
because land is not produced by people, unlike other securities.

~~~
bufordsharkley
The reason that land is a good investment is precisely because of future land
rents that a land buyer expects to receive.

If these land rents are instead paid towards a tax, how wouldn't this make
land less of a good investment?

------
plasticchris
Yeah. Since corporations decided to charge whatever the market would bear,
things everyone need, like housing and health care, have gone crazy

~~~
HarryHirsch
Yes. Consider the price of any orphan drug that Valeant touched. Syprine went
from USD 625 per 100 pills to USD 21000, and despite the combined and very
reasonable protestations of Hillary Clinton and Elizabeth Warren, the price
still hasn't come down.

------
exabrial
You can buy a three bedroom house in Topeka, Kansas for $75k. Regressive taxes
are a much bigger problem.

------
torgian
I call bullshit.

Take housing in China. You can buy a place in China, but making money off of
it with rent? Good luck.

It’s a common problem that people who can afford to buy a place, can’t rent it
for a profit if they are still paying a mortgage.

Why that is, I really don’t know. But the fact is, it can be possible to have
cheap rent available, if the owners are willing to not make a profit. But
that’s just not how capitalism works.

------
tim333
This isn't true if you are an actual property investor - cheap housing has a
better rental yield. If you want to live in a house and have the price shoot
up while you do so then fair enough, that only works if prices shoot up.

------
flaque
Home ownership is only a good investment if the system is broken.

------
thoughtexplorer
Something I've been wondering about: Would it be a good or bad idea to tamp
down on the whole concept of housing as an investment?

It seems fundamentally problematic, but is there any alternative workable
system that wouldn't have unintended consequences?

~~~
fiblye
In Asia, house value is like car value. People want to buy brand new ones, and
the minute it's used, it's worthless. People can live in their old house as
long as they want to, but young people would prefer a clean new house free of
mold (humidity makes it inevitable) and other problems and they can get a new
house relatively affordably.

It works very well. The fact house prices in America/many Western countries
increase with time is an anomaly that applies to no other item as far as I
know, barring the odd historical/valuable antiques. But nobody can predict
their value 10 years from now.

~~~
quickthrower2
What about an old mouldy home in a super desirable location?

Also is brand new outweigh renovated?

~~~
analog31
Tear it down and build it over, especially if you're an investor and can buy a
bunch of mouldy homes on a block.

Example in the US is smaller suburban houses that happen to be located near
commuter rail stations. They are torn down and replaced with new, bigger
houses. The neighborhood across the tracks from my house is another example:
Doctors and professors have bought and "renovated" all of the smaller houses.

I notice something similar with hotels. My experience in a hotel is 100%
proportional to the age of the hotel. The newer the better. Hotel owners
rarely renovate unless they are in super prime downtown locations. They just
let the hotel deteriorate while lowering their room rates while someone builds
a new hotel next door.

------
AznHisoka
So what's a good investment?

The stock market? But I'm not exactly providing any value when I invest in a
stock as my money doesn't go to any company that needs funding.

Bitcoin? But that wastes energy and again, doesn't provide much value to
society, if any.

Gold? But again that doesn't seem to provide much value to society.

Real estate seems to be the only venue where I can make a return on my value,
and provide _some_ value to people.

And now, some people want to take that away.

~~~
usaphp
> Real estate seems to be the only venue where I can make a return on my
> value, and provide some value to people.

What kind of value are you providing by purchasing a house, not living in it
and not selling it? When you purchase 2+ house where you don’t live - you are
basically removing it from the market - thus increasing the demand/offering
ratio and inflating the prices?

~~~
AznHisoka
What about renting it out to people? isnt that providing value?

~~~
elyobo
Depends; if they're only renting because prices have been pushed out of their
reach by speculators, then not really.

Some supply of rental property is required, but much less so when housing
markets are not out of control.

