
The High Cost of a Home Is Turning American Millennials into the New Serfs - shawndumas
http://www.thedailybeast.com/articles/2017/02/04/the-high-cost-of-a-home-is-turning-american-millennials-into-the-new-serfs.html
======
bitwize
Millennials want to live in cities.

Specifically, millennials want to live _near city centers_ , where they can
commute to work by foot, bike, train, bus, or Segway. Basic laws of supply and
demand dictate that the value of property, and the rents, must go up, since as
society urbanizes there are an increasing number of people vying for a fixed
amount of real estate.

Part of the American dream of owning a home was predicated on the fact that
land would be developed outside the major cities, and homeowners would use
newly affordable automobiles to get to their workplace and anywhere else they
might want to go. Which led to drab, soulless, lifesucking suburbs and an
obsession with gas-guzzling, air-polluting, global-temperature-raising motor
vehicles. Ewwwwwwwwwww. How bourgeois, how planet-unconscious, how typically
_American_.

So while millennials may not particularly dislike owning homes, they have made
lifestyle choices that tend to make home ownership more difficult.
Unfortunately, those are the constraints of modern capitalism. Personally, I
think we need to rethink our whole economic system. It'd be great if someone
came up with an alternative economic system in which one can have one's cake
and eat it too, but until that happens we're stuck with the situation we're
in.

Meanwhile, houses in the boonies are cheap. If you can remote-work your way
into a boonie lifestyle, you can own a home on a rather modest income indeed.

~~~
yourapostasy
As long as we're using capitalism to explain what is happening, then by all
means let's use more capitalism in the US housing market.

1\. Remove all government sponsorship of mortgages, gradually spool off all
existing GSE mortgages into private markets. Possible exception: owner-
occupied homes, limit one per

2\. Remove all implicit government backing of insurers and re-insurers of
anything having to do with mortgages.

3\. Remove mortgage interest deduction.

4\. Valuations reported to IRS, property insurers, permitting offices and bank
loans link back to publicly-available property tax records.

5\. Property developers, not taxpayers, pay for initial costs to extend
infrastructure, foot the bill for floating the bonds to maintain the
extensions, and residents moving in must pay into the bond fund over time,
gradually paying off the initial buyers of the bond; bonds are reissued as old
bonds mature.

6\. Bill back costs of developing (up to inner core density, with adjustments
to purchase fast public transport into inner core) further out from urban core
back to inner core residents as increased property taxes spread over 7 years,
if inner core residents vote down densification, and rebate some of the
collected funds to developers of outer core.

7\. Standardize all government building codes to a single set, specifying
function/intent/goal and not form, thereby allowing offshore for example
factory-built modules to access a contiguous national market, or alternative
construction techniques without lengthy permitting.

These and other measures that open up competition for real estate development
would be wildly politically unpopular in most areas and constituencies of the
US. The US real estate market is superficially capitalist for a number of very
interconnected reasons, and I've observed similar dynamics in other nations
I've enquired about property within. Property is an extremely special-case
asset, with privileged market protections/distortions few other asset
categories enjoy.

~~~
fennecfoxen
While the rest are generally sound, Number 6 abandons the market and
capitalism in favor of government intervention again, which is unfortunate and
invites the system to be abused and gamed by the usual set of cronies. I'm
against it.

Number 1 should avoid use of the proposed exception for the same reason that
mortgage interest shouldn't be deductible: it's a subsidy that distorts the
market and is unfair to the good people who are still renting (who are,
broadly speaking, probably not as well off in general, so it's a regressive
subsidy where we pay the rich).

You should add a #8 to remove all government subsidies of flood insurance and
similar vehicles, especially along rivers and coasts, as they're basically
paying people money to build homes (often luxury or vacation homes) in
dangerous places.

~~~
mattferderer
I don't have data to back this up but in regards to #1, wouldn't most people
who are paying mortgage interest be middle class? Wealthy enough to own a
house but not to buy it outright? I also believe that if you own multiple
homes, you can only deduct this on your primary residence. I've always felt
this is a small tax break for middle class.

~~~
jdavis703
Then lower the middle class taxes so people can choose how to keep the
savings, instead of being forced to buy a house to take advantage of a
specific tax break. (I'm being the devil's advocate here, I realize some taxes
(or breaks) exist to incentivize behaviour.

------
matt_wulfeck
Trumps proposed economic plan is going to _blast_ so many of the benefits to
owning a home since the standard deduction will be doubled[1]. It will be
cheaper to rent and it will really help maximize space. Say what we will about
the president but this will be a massive boon to renting nomads.

Coupled with the fact that soon state tax might not be deductible, and there
may be an entire class of people who find it better to sell their home and
live elsewhere.

1\. [https://www.donaldjtrump.com/policies/tax-
plan](https://www.donaldjtrump.com/policies/tax-plan)

~~~
greesil
1) Any hopeful homebuying millennials would also have not have the benefit of
the deductions. 2) Wouldn't this just pass the cost onto renters?

This seems more like a way to shift the tax burden to the middle class.

~~~
matt_wulfeck
The beauty of the standard deduction is that it goes unqualified to everyone.
The rich itemize their taxes almost without exception.

IANAA, but interest on a rental is a business expense, therefore will be be
unaffected by this change.

------
nickthemagicman
I'm never home. Between work and social life, I'm literally only home to
sleep. I have minimal amounts of stuff too. How come there's no just, beds for
rent, for like 200 bucks a month?

~~~
unimpressive
You want
[https://en.wikipedia.org/wiki/Capsule_hotel](https://en.wikipedia.org/wiki/Capsule_hotel)

Not very popular in the states yet, but we'll see.

~~~
dfischer
Those are pretty expensive though aren't they? Comparatively $50 a night.

~~~
amyjess
Yeah, I have a friend who just moved to Japan (and he's lived there before)
who told me the same thing.

Some friends and I ate lunch with him the day before he left, and he mentioned
that living in Japan isn't too expensive if you know where to live, and he
knows how to only pay $300/month in rent. So I asked him if he meant capsule
hotels. He told me what you said, and then he said that he meant hostels.
Hostels are dirt cheap, even if you pay extra for a private room. You can
probably live in Japan for _less_ than $300/month rent if you're willing to
sleep in the hostel's common area.

------
amyjess
Millennial here.

I actively _don 't want to own_. I don't want to have to worry about paying
for my own maintenance or landscaping. I rent a townhouse in the suburbs, and
I'm perfectly happy with it. I guess I kinda split the difference between the
"stereotypical Millennial" and the reality the article points out: I prefer
living in the burbs, but I don't want to own.

Here's something that happened to me last month: something in my downstairs
toilet broke, and it caused the toilet to repeatedly fill up its tank and dump
it on the floor. Imagine my shock when I came downstairs to find that the
carpet on a third of my first floor was soaked through, with the bathroom
having a few inches of standing water. What did I do? I pulled out my phone
and called the leasing office, telling them I had a plumbing emergency. Within
an hour, the maintenance guy was here, and he fixed my toilet at ho cost to
me. He also told me he was sending for a guy with a wetvac. An hour later, the
carpet cleaner showed up to wetvac the carpet and replace the padding, again
at no cost to me.

Also, in the past I've had several problems with my air conditioner. I've had
the fan die, I've had the AC unit die, I've had the internal AC unit start
dripping water on the carpet. All of those times, I just called the leasing
office, and they sent someone out to fix it at no cost to me. Meanwhile, one
of my friends who owns his own house has ranted on Facebook several times
about how his AC problems are bankrupting him, and he's already sunk five
figures into replacing stuff.

Why would I _ever_ want to own when I get free maintenance and don't have to
worry about a down payment?

~~~
maxsilver
> Why would I ever want to own when I get free maintenance and don't have to
> worry about a down payment?

Because in fifteen years, you'll be paying 2x to 3x your current rent, but
your neighbor who owns his/her place will still be paying the 1x rate you pay
today.

That's why common advice is "rent for short term, buy for long term" (for
various definitions of "short" and "long").

\---

If maintenance is your sore spot, you can hire maintenance and insurance
services for your own property. Unless your landlord is personally fixing your
problems, that's likely exactly what he/she is doing too.

~~~
marssaxman
Do you seriously expect your life to have changed so little over the course of
the next fifteen years that you'll still want to have exactly the same living
arrangement? That sounds like a serious constraint. Being that locked in makes
me feel really nervous. Life just isn't that predictable.

~~~
maxsilver
> Do you seriously expect your life to have changed so little over the course
> of the next fifteen years that you'll still want to have exactly the same
> living arrangement?

No, of course not. If life changes, you sell it.

------
dmolony
American greatness was long premised on the common assumption was that each
generation would do better than previous one.

Why is editing so poor these days?

~~~
eli_gottlieb
Because nobody wants to pay for it.

------
davidf18
Scarcity leads to higher prices and in the case of the high cost of housing in
NYC, DC, Boston, London, SF, LA (and perhaps much of CA) is political use of
zoning density restrictions to create artificial scarcity which benefits land
owners at the expense of renters or those who wish to buy a house. This is a
form of "rent seeking" which creates a market failure or market inefficiency.
Because of these regulations Donald Trump is far wealthier than he would be in
an efficient market and is a major, major source of inequality.

I recently read that in London which has a green belt used to create land
scarcity, the cost of land as a proportion of housing has risen from about 2
percent to 75 percent of housing costs.

In NYC, taxi medallions were valued at $1.2 million because government created
artificial scarcity limiting medallions to 13,000 for a population of 8.5
million. Taxi drivers who leased cabs paid high costs because of the medallion
scarcity and passengers would pay much higher fares. Then Uber/Lyft/Gett/Via
came along and relieved the politically induced scarcity. Now, not only are
bailable cabs much, much more available, but prices have come down, sometimes
substantially. The price of the taxi medallions decreased from $1.2 million to
$500,000 to $700,000.

Happily, the fix to high housing costs does not cost any money. It simply
needs laws reversed that created artificial scarcity of land. This would
require millennials (and others) to get an education that teaches them at
least the most basic of economics and then to vote out of office politicians
who are for the zoning density restrictions and the high cost of housing.

David Ricardo in reference to combatting the "Corn Laws" of Britain first
discussed "rent seeking" \-- the use of politics to create market
inefficiencies and scarcity benefiting special interests. In that context,
there was an import tax on any grain including wheat to make bread. This lead
to a higher cost of food. British farmers would receive more money for their
grain which enabled the landowners of the farms to charge a higher lease for
their land. So, workers were forced to subsidize landholders because of the
politically induced scarcity "rent seeking" of grain. David Ricardo, a wealthy
broker, joined Parliament to reverse the Corn Laws.

------
dsfyu404ed
>By the 2030s, large swaths of the state—particularly along the coast—could
become geriatric belts, with an affluent older boomer population served by a
largely minority servant class. How feudal!

The irony of California having anything in common with Florida would drive
some people insane. Those are exactly the kind of people I want to see driven
insane.

------
obstinate
Is it really, though? How much more efficient is owning than renting in most
markets? My sense was that, given the rate at which people typically move,
it's normally a wash.

~~~
rahimnathwani
"My sense was that, given the rate at which people typically move, it's
normally a wash."

The difference between renting and buying isn't just the monthly payment. It's
also the range of outcomes. If you buy a place with 20% down, and the property
price goes up by 20% whilst you're living there, you've doubled your net
worth.

In some US states (e.g. California) mortgages are nonrecourse[0], so it's a
bit with unlimited upside, but capped downside. If the property price crashes
to 50% of the purchase price, you can walk away, losing only your initial
deposit.

[0] [http://www.financialsamurai.com/non-recourse-states-walk-
awa...](http://www.financialsamurai.com/non-recourse-states-walk-away-from-
mortgage/)

~~~
Swizec
The caveat is that for that $200k+ deposit on a 1-bedroom in SF, you could go
travel the world for 4 or 5 years.

Or have 4.7 years of rent for the same place. After which you're likely to get
tired of SF anyway and move somewhere else. Oh and in the 4.7 years you've
been paying rent out of savings, you've saved up enough for the next 4.7 years
of rent in NYC ... or many many years of rent anywhere else.

So yeah, I for one am def not ever buying unless I can cash it out in one go.

Then again, there are many things you could do for a million dollars in cash.
Like retire for 10 years and do cool shit.

~~~
vonmoltke
If the real estate market is so out of whack that you can rent a $1MM property
for $3500/month of course I would rent. You aren't going to find that in a
healthy market, though.

~~~
rahimnathwani
3500/month is 42000/year. So that a gross rental yield of 4.2%, which is in
line with home loan interest rates. So it doesn't seem out of whack at all.

------
lazyant
USA basically has the cheapest housing in the world
[https://www.numbeo.com/property-
investment/rankings_by_count...](https://www.numbeo.com/property-
investment/rankings_by_country.jsp)

~~~
droidist2
Interesting. But what if you factor commute time? It may be cheap to live 50
highway exits away from your job but it comes with its own costs.

------
Dowwie
s/home/college tuition and student loan debt/g

------
solidsnack9000
People are always being turned into serfs somehow. It never quite succeeds.

~~~
Broken_Hippo
"It never quite succeeds."

Until, you know, it does - and it does occasionally. That's why we talk about
them in history classes.

NO one wants to be labeled a serf, though, so modern folks are rarely actually
given that formal title. It'd be bad for other people's business.

------
thedevil
The argument that people today live worse than people in the 80s is insane.

Yes, it seems so in the real GDP numbers, but it defies the rising standards
of living that surround us, showing up everywhere but the numbers. Would
anyone here want to live like the average Joe of the eighties, using only
goods and services available then?

Traditional GDP and inflation figures seem to be losing usefulness

They clearly don't capture most of the tech gains (which have been huge).

And I suspect they don't adequately capture quality improvements.

~~~
norea-armozel
The tech gains are mostly in areas which don't benefit consumers beyond
fancier phones and bigger TV screens. Where it counts such as lower cost of
living, better healthcare, and the like it's hasn't materialized for those in
the lower economic segments. They're still coasting by on the Great Society
programs despite their repeated gutting. If the current POTUS can't replace it
with livable wages and jobs I suspect we'll see something akin to a Jacobin
uprising (blood, heads, and all).

~~~
thedevil
> The tech gains are mostly in areas which don't benefit consumers beyond
> fancier phones and bigger TV screens.

Mobile payments, video calls, mp3s, social networks, wikipedia, google,
driving directions with live traffic updates, Coursera, YouTube, Uber, Upwork.

These are not trivial changes. Coursera, for example, was a life-changer for
me as it allowed me to switch careers long after college.

Inequality and inefficient healthcare are big issues, sure, but I wouldn't
trivialize the benefits of technology because of that.

