
Home ownership is the West’s biggest economic-policy mistake - prostoalex
https://www.economist.com/leaders/2020/01/16/home-ownership-is-the-wests-biggest-economic-policy-mistake
======
TheHeretic12
That had to be one of the most half-baked articles Ive seen out of "The
Economist," and Ive read their stuff on and off for years. They identify the
symptoms correctly, and then spend 1000 words misleading you on the cause, so
they can sell you "The Fix."

Here's the real problems:

1\. Rent-seeking behavior by the land-owning generation, seeking to retire and
live off rental income and a reverse mortgage, instead of building
generational wealth.

2\. Rent-seeking behavior by local councils and cities, all but demanding
bribes and kickbacks; they hold up permitting for building anything beyond
single-family dwelling.

3\. Rent-seeking behavior by the majority holders of capital - the banks.
Because a majority of properties are subject to mortgage, this has allowed for
massive speculation, in funny money, on limited amounts of real property. This
drives up prices.

4\. Rent-seeking behavior by all levels of government. Property taxes are the
most efficient means of destroying wealth.

To be brief, the rents are too damn high! Theres no law you can write that
will fix these issues, either. It will bloat and overheat until it collapses
like a cake in the oven.

~~~
perl4ever
The phrase "rent seeking" is a technical term with a meaning.

How can the government be accused of it? When private entities engage in rent
seeking, they are manipulating the government for profit.

And when private entities do things that do not involve manipulating the
government, then how can it be rent seeking?

Rent seeking does not mean literally, simply, "seeking rent". I know people
like to say the meaning of words change, but you have to be talking about the
same thing as other people using the same word.

~~~
beatgammit
As far as I understand it, rent seeking means increasing your share of
existing wealth without creating any in the process. Raising rent generally on
physical properties is one way of doing that, as is mucking about with
government to get tax dollars and whatnot coming your way.

As I see it, governments themselves are often rent seeking operations. By
increasing taxes, they increase their share of the wealth of the nation, and
depending on how that money is used, it could very well be considered rent
seeking. Usually the term is used for business sectors interacting with
government to get those tax dollars, but I don't think that's the only valid
use.

~~~
perl4ever
In order for a concept to be meaningful, it has to have things that fall
within and outside of it.

If the normal functioning of the government is rent seeking, then everything
is rent seeking. If everything is rent seeking, then the term doesn't
distinguish anything in reality from anything else.

You can't have a discussion about rent seeking without the context that there
is such a thing as legitimate government that functions in such a way as to
provide public goods.

------
paulus_magnus2
Housing is only expensive in (big) cities but we all need to go there because
of jobs. Good hobs are only created in (big) cities because that's where the
talent is. Solution is to build more cities and provide seed / anchor jobs.
Government could do that easily.

Rural land is cheap. Government could build a "starter pack" of 1000 homes and
move one of their offices from a big city there to provide employment. Borrow
/ print money to do this instead of QE. Heck, with the current prices the
whole thing could be financed by leasing or reselling gov owned buildings in
"old city" cenres.

~~~
sien
There's plenty of affordable housing in America where people do want to live
as well:

"According to Bureau of Labor Statistics data, lightly-regulated Houston has
seen its civilian labor force grow by 20 percent in the last decade, compared
to the San Francisco metro area's 16 percent. Some 21 Fortune 500 companies
have their headquarters in Houston. What's more, for every job the Houston
metro area has added, it's also permitted another unit of housing. As a
result, the average rent for a one-bedroom apartment is $841, and home prices
are below the national average."

From here :

[https://reason.com/2019/11/05/bernie-sanders-blames-apple-
fo...](https://reason.com/2019/11/05/bernie-sanders-blames-apple-fo..).

It's not rocket science. If you want affordable housing make it easy for
people to build and increase supply. It's remarkable how Silicon Valley is all
about solving big problems for the world but demonstrates with Bay Area
housing that some problems don't need technology, they just need reasonable
government and if you don't have that, well, things don't work.

To be fair, this problem is global. Many places that are doing well that
haven't allowed enough construction like London, Sydney, Stockholm, Melbourne,
Paris and other places demonstrate the same failure to enable enough housing
construction.

Posted the same comment earlier this week.

The Economist's take on housing this week isn't up to their usual standard.
They ignore the parts of the US where houses are still cheap and there is
economic growth like Texas, Atlanta and other places. The special is worth
reading though, there are interesting facts about how around the world supply
has kept up with demand.

Home ownership is compatible with cheaper housing. It's just that rules need
to be made to ensure that you can keep supply going. That means rezoning
things on a regular basis to keep housing affordable. Also probably a land
value tax would help.

~~~
hurricanetc
Have you ever looked at Houston on a map? I’m not trying to be sarcastic. It’s
enormous and the sprawl is incredible. The metro area dwarfs the size of every
major city in California, combined. People drive an hour to work each
direction on one of many 12 lane highways.

The “special thing” that Houston has done is have virtually infinite land, a
giant ocean port, and absolutely zero care or concern for the climate or the
future.

~~~
mrep
Greater LA: 33,954 sq mi [0]

Greater Houston: 10,062 sq mi [1]

For the combined statistical area population / metro area, houston is actually
even more dense than LA at 715 versus 553 people per square mile.

Not disagreeing with your main point though especially in regards to the bay
area. There's just no land left to sprawl there and people don't want to build
up so it'll forever remain unaffordable.

[0]:
[https://en.wikipedia.org/wiki/Greater_Los_Angeles](https://en.wikipedia.org/wiki/Greater_Los_Angeles)

[1]:
[https://en.wikipedia.org/wiki/Greater_Houston](https://en.wikipedia.org/wiki/Greater_Houston)

~~~
CuriouslyC
Greater LA includes a lot of stuff like Ventura/Oxnard/Riverside/San Bernadino
that while on the fringes of the LA metro area, shouldn't fairly be considered
LA proper. This skews the square milage of LA up, and the density down, where
in reality if you take a more realistic view of "Los Angeles" it's definitely
more dense and concentrated than Houston. I say this as a former resident of
both places.

------
adventured
In the US the present order of economic policy mistakes is:

Federal spending[1] > Healthcare costs[2] > Energy investment[3] > University
degrees[4] > Infrastructure investment[5] > Home ownership > New vehicles

[1] Economic output grows by 4%, spending grows by 12%. Entitlement costs go
up, taxes go down. Military spending. $900b (3.x% of GDP equivalent) per year
in debt interest costs projected for 2028 (CBO), most of which shouldn't exist
and should be going to infrastructure, healthcare, Social Security, and so on.

[2] Not healthcare unto itself, healthcare costs. Spending $3.6 trillion on
healthcare nationally when we should be spending $2.4 trillion or less (the UK
equivalent ratio would be more like ~$1.5 trillion).

[3] Not building a lot more nuclear. Not phasing out coal fast enough. Not
building an obnoxious amount of off-shore wind. Not upgrading our grid to
widely distribute from large output centers better (the central wind corridor
can probably eventually export vast wind power to the coasts). Not better
preparing our grid for the all-electric consumer vehicle future that is
inbound. Etc.

[4] Pushing the notion that you absolutely must get at least a four year
degree is akin to the dogma that you must own a home. A subset to that is the
notion that you should spend a particularly absurd amount of money when you
could get a degree of similar outcome effectiveness at half the price from an
in-state public school.

[5] Lack thereof. Including not building high-speed rail (even if only
regionally) and not aggressively going after the vast urban deployment of
electric buses. Maybe we can't build cheap subways or rail anymore, however we
can buy relatively cheap electric buses and dedicate routes to a lot of them
and we can do it damn easily.

------
choeger
Why should home owners give up their way of life just because a particular
city is now hip and everyone pushes into the new hyper-dense zones? I demand
space for living, a little bit of nature, and privacy. So go build some effing
infrastructure instead of pushing everyone to live like a chicken in an egg
factory, ffs.

~~~
Retric
IMO, apply a flat 1% property tax on the value of a property ignoring zoning
restrictions and as long as you pay it feel free. However, understand that tax
actually represents paying for physical infrastructure and actual costs people
are paying so nobody gets a tax break on it.

Because what’s valuable is not the house but the infrastructure around it. Low
density housing requires more infrastructure and higher transportation costs
such as longer commutes.

However, I realize everyone loves a hand out, especially when they can pretend
it’s not a handout. So, I don’t see this changing any time soon.

~~~
choeger
Bullshit. Infrastructure and transportation have generally always been paid by
the owners. There may be cases where residents have successfully lobbied their
community to build something for them, but that's not how things work where I
live.

But even if there was such a support for honeowners, a property tax would be
nothing else but theft. Charge the real cost of you want but then leave the
people in peace.

~~~
yardie
> Charge the real cost of you want but then leave the people in peace.

And thats the problem. Infrastructure has not been priced correctly. A lot of
towns are still paying the bond on initial construction. Leaving very little
for maintenance and replacement. And then when the road/sewer/water system
needs to be replaced voters don’t have the appetite to pay for it. You see
this in older towns in the northeast. Water and sewer mains are corroding.
taxes go up to cover it. And the residents flee for newer, cheaper
developments. The town eventually becomes insolvent.

------
arm64future
You really do have to wonder about the sincerity of such an article,
especially coming from such a prominent publication as the Economist. Why
don't they just admit what they are instead of using subtle propaganda to
influence people into their political ideology? Even more concerning is how
half or more of the people in here seem to actually agree with it.

"Demoralization now reaches such areas that previously, not even comrade
Andropov and all his experts would even dream of such a tremendous success.
Most of it is done by Americans to Americans; thanks to a lack of moral
standards. As I mentioned before, exposure to true information does not matter
anymore. A person who is demoralized, he is unable to assess true information,
the facts tell nothing to him. ... Only when a military boot crashes into his
fat bottom, then he will understand."

The Western world has maybe 20-30 years left before serious political upheaval
turns our way of life on its head. Call me a cook conspiracy theorist or make
fun of my old quote from a kgb agent being pushed around in dubious circles
today.

~~~
smallcharleston
I think most informed Economist readers already are aware that they are, to
some extent, being influenced by the “subtle propaganda” of the publication. I
believe it’s part of their “thing”.

------
vannevar
I would argue that failure to adequately address the power of the wealth-
income feedback loop is the West's biggest economic mistake, and that this is
at the root cause of rising housing costs. Housing is consuming a bigger and
bigger share of median income because growth in housing is not keeping up with
growth in income of the top tiers of the population, who can afford to pay
disproportionately more than the median, and the trend is accelerating. While
it's true that increasing supply would help relieve some of the pressure, it
would have to skyrocket to keep up with the meteoric rise in income of the top
10% of the population. All the well-meaning housing policy in the world can
never speed up supply fast enough to keep up with the rate at which the
wealthy are giving themselves raises.

~~~
karmelapple
If large amounts of 1- and 2- bedroom condos or apartments are built in a
fairly densely-populated city, how much are the very rich going to want to buy
or rent these? They may want to own them and rent them out, but if they can’t
make a profit, I don’t see why they’d want to do that.

Luxury condos attract investment from richer people all around the world, but
imho, fairly standard 1 and 2 bedroom apartments likely wouldn’t, especially
if they have to be rented.

Could that be a way to combat the inequality?

The biggest problem I can see: developers love building luxury condos since
the profit is much higher than building non-luxury places.

~~~
javagram
What exactly is the difference between a luxury and non-luxury
condo/apartment? I think it’s mainly a few cheap cosmetic features like
countertops and stainless steel refrigerators. Of course developers label
everything new luxury because why wouldn’t you spend an additional 1% of your
investment on these types of things?

The cost of building a “non-luxury” building is almost identical. In either
case, you need investors to put up the money to pay for construction and
maintenance of the building until enough units have sold/rent to be self
sustaining. So even if you build a slightly less cosmetically appealing
building, you still need investor capital / “the rich” to do so.

------
Merrill
About 37% of homeowners own their homes free and clear. The other 63% have
mortgages that require regular monthly payments. The mortgage payments are in
addition to regular payments of property taxes.

The result is that the burden of debt and property taxes motivates young
adults to work hard and progress economically. This, along with the continual
stream of purchases for the home, is the mainspring of the American economy.

~~~
neilwilson
How is a mortgage payment different from a rent payment. In one you rent the
money to spend on bricks, in the other you rent the bricks directly.

The only difference occurs if asset/land prices rise - which is nothing more
than a transfer from the have nots to the haves and should be dissuaded by
policy. In any functional economy houses would depreciate as they age - just
like cars. And you lease depreciating assets.

~~~
hajile
If someone is smart, they make a small mortgage on a small house and pay it
off in 10-15 years minimizing their interest overhead.

Knowing you don't have to come up with hundreds or thousands of dollars every
month in order to live is an amazing feeling. You can then set aside that same
money every month and upgrade to a better house. Unfortunately, most people
decide they can't wait and take out 30-year mortgages that wind up costing
them almost twice the value of the house.

With proper maintenance, a house can last with continuous use for a hundred
years. With average use, you would be hard-pressed to have a car for more than
15 years before the cost to maintain greatly outstrips the cost to replace.

~~~
cookingrobot
Buying small is the wrong financial decision in a rising real estate market.
By taking a giant mortgage and buying more that you could otherwise afford
you’re essentially investing on margin. And interest rates are even lower than
they seem if you take tax deductions into account. If you buy at the right
time & place and property value increase a lot (which has been true in a lot
of places the last decade), you get the gains. And as a bonus you get to live
in a nicer house that whole time (unlike investing that money elsewhere).

------
blisterpeanuts
I have driven a couple of times between Phoenix and the East coast of the U.S.
and the spaces between cities, particularly in the Southwest, are simply vast.
You can drive for _hours_ without seeing a human structure beyond perhaps a
signpost or U.S. Geological Survey marking. There's room for the entire
world's population to fit into Arizona, New Mexico, and West Texas. The only
limitation is availability of water, and that's solvable with technology
(desalination, atmospheric capture). When existing cities become too
congested, sprawling, or unaffordable, the clear solution is to build new
ones. You can drop a megalopolis or two into the badlands and house an
additional 20 million people in comfortable, modern neighborhoods with home
ownership as the norm. The Economist has a eurocentric perspective that
there's little available land, but not so in North America.

------
smkellat
So I see this article extolling the virtues of being a nation of skyscrapers
and flats.

Then I smack into a paywall.

Looking around at my nice, rural century home that has a monthly mortgage
payment still far lower than the cheapest local rent...I’m not going to bother
trying to find the article elsewhere. Living in a skyscraper is just not for
me. Even the apartments I’ve lived in previously were comfortable ranch-style
ones out in Nevada that weren’t very densely packed.

I have no need or desire to move to Manhattan or Silicon Valley for the time
being let alone Cleveland or Pittsburgh. That shouldn’t be problematic yet the
current crop of economy optimizers might not leave me that choice. We shall
see in due time.

------
ta999999171
With brand new vehicle "ownership" right behind.

~~~
DarthGhandi
Struggling to see the connection. You won't see existing vehicle owners going
to great lengths to push up the price of new vehicles.

~~~
Red_Leaves_Flyy
Seriously? The cost of used Toyota's (Avalon, Camry, Tacoma, tundra) and jeeps
(wrangler/gladiators) are completely disconnected from reality.

Regardless, the industry is rife with bad actors exploiting an imbalance of
information.

The advertising on vehicles is designed to make you feel bad for not owning
the best. Get slammed with that enough and you won't even realize you just
bought that $90k coupe that will cost $10k in maintenance/yr to keep running
to show off how wealthy you are while you hunt for a mate. Then if you have
kids you'll take a bath on it for the dealer to make a profit when they resell
it.

------
bobsonori
A big and diverse public housing system is the only solution that makes
holistic sense. It’a the only way we can be sure people can go to where jobs
are without risking homelessness.

~~~
riddlemethat
The solution to bad government housing policy is less government housing
policy.

I like the model of forcing new construction projects to have some units setup
for public housing while private owners buy or rent the rest.

It takes people from lower socioeconomic parts of society and pushes them to
mix with folks who are on top.

Church used to do this before religion started to retreat from society.

Lack of mixing of classes is killing civil society in America.

~~~
Red_Leaves_Flyy
The solution to bad government housing policy is reversing policies set by bad
actors in bad faith (E.g. nimbys). Disallow speculative investment into
housing markets by putting heavy taxes on:

second+ homes,

all rentals that cost more than 30% average area take home (with the top 10%
of incomes removed). Scale said taxes with the cost of living in that area.
Double the tax on short term stays in 'rentable units'. (E.g. airbnb).

Everyone deserves a place to call home that is safe, insulated from the
elements, has plumbing, electricity, and internet at a fair price. I simply
don't care if that makes housing speculation, land ownership, and utilities,
unprofitable. Making a profit off of necessities is obscene. Eg everyone
should have access to a basic internet package that costs around $10-30/mo for
~25mbps. Same for everything else. Everyone should get the minimum, and if
they want more they need to find a way to earn more in a way that isn't
extracting value from the vulnerable. Extract from the rich instead, or don't.
You shouldn't starve to death under a bridge if you can't compete in a society
that needs less unskilled labor every day.

~~~
perceptronas
You seem to think housing can be just created from nothing. That is fatal
mistake in your thinking as no value is created from nothing. There has to be
incentive for somebody to build housing in order for it to be built.

Taxes will not discourage housing investment - they will be paid by renters as
housing is driven by supply/demand. Why do we pretend we can regulate markets
when all individuals (except unproductive government layer) benefit most if
they are less regulated?

Deregulating house development will encourage many developers to build housing
as there is huge demand for it. How come you offer looting other people before
you offer removing obvious pillars for the developers?

~~~
Red_Leaves_Flyy
> You seem to think housing can be just created from nothing. That is fatal
> mistake in your thinking as no value is created from nothing. There has to
> be incentive for somebody to build housing in order for it to be built.

That's not what I said.

>Taxes will not discourage housing investment - they will be paid by renters
as housing is driven by supply/demand. Why do we pretend we can regulate
markets when all individuals (except unproductive government layer) benefit
most if they are less regulated?

Maybe tax is the wrong word. Fines might be better. These speculators consume
wealth without doing work. When someone would rather leave units vacant than
charge rational rates they hurt the market. When an entire industry does this
they are extorting the most vulnerable. People without the means to move.
People on fixed incomes. The disabled, the sick, minorities, etc. This is
unconscionable behavior that should be illegal.

Are you in the business of home building?

The industry itself is _rife_ with bad actors. Code gets ignored to save 20
minutes or 20 bucks. Want to report it? Snitches don't get work. Deregulation
will only hurt people. Housing code is like osha. There are graves behind
housing codes.

Perhaps you're talking about zoning regulations? Yeah. I'm fine with telling
nimbys to get bent and building a 50 story apartment complex in their ocean
view so that people have affordable places to live.

