
Housing Can’t Be Both Affordable and a Good Investment (2018) - dredmorbius
https://www.citylab.com/perspective/2018/11/housing-cant-both-be-a-good-investment-and-be-affordable/574813/
======
cletus
So much written about housing is just... Wrong. And I don't mean factually
inaccurate. I mean based on false premises.

Owning your own home serves several purposes:

1\. Security

2\. Stability

3\. As a hedge against inflation

4\. As a hedge against market forces

That doesn't mean buying is always a good idea. Clearly or isn't. Like don't
but in a town where 70% of the adults are employed by the local coal mine, for
example.

Here's how I like to think about it: you are never out of the housing market.
By not owning you have a large short position in real estate. Given that rents
eventually track prices, if prices go down you benefit (you're rent will
eventually go down and you didn't lose capital). If prices go up you lose. You
missed a gain and your rent will go up.

Given that, you buy your house to remove risk of local changes to your
detriment.

~~~
bumby
Maybe I'm not old enough or it's due to the markets I've worked in, but I've
literally never seen rent go down in price.

During the housing crisis, for example, rent went UP because as people became
evicted there was higher demand for rentals. I acknowledge this was a black
swan event though.

~~~
tmh79
I think a bigger concern with investing in housing WRT alternatives is this:

Rents don't usually go down, but they often stagnate ESPECIALLY in units owned
mom n pop landlords. If your rent doesn't change for 5 years, but inflation is
2%, at the end of the period, your rent has effectively declined by about 10%
in real terms. Additionally, you have your 20% down that would be paid for a
house, but instead you invest in the stock market that returns 6% annually, at
the end of 5 years, you have increased your assets by 33%

If you bought a home, and the home price did not increase for 5 years and you
pay the normal 20% down mortgage, %6 closing costs, and 1.5% annual property
tax, you're looking at some significant loss of net worth when compared to the
rent alternative.

~~~
bluGill
If your timeframe is less than 7 years buying a house is almost always a bad
idea because of the risks. As you get over 7 years odds start to get good that
you are even after the downturn (that is the loss in value during the downturn
is just a loss back to what you paid in the first place), at which point your
house payment vs rent is the only difference, and the foregone gains from the
down payment investment. As you get over about 10 years you start to need to
consider the costs of remodeling a house, but your rent would almost certainly
gone up so again you are roughly even other than the down payment investments.
As your get over 20 years rent has gone up again, but your house payment has
not and so you are starting to catch up on the down payment investment. At 30
yours rent has gone up again, but the house payment is gone and you can really
work at that down payment investment difference. At 40 years both retire, the
renter has still more rent increases which need to be paid for from that down
payment investment. AT 55 years both move to assisted living, the renter just
sees another rent increase, while the homeowner sells the house and has a big
influx of cash that should take care of rent until they die. Ideally both give
their last 20 to the taxi outside the hospital 20 minutes before they die. The
renter's highest investment balance was higher than the homeowners, but the
renter had larger expenses latter in life and so had a bigger draw down of
principal.

There are a number of assumptions in the above. Each that is different for you
changes the analysis. In particular it assumes disciplined savings such that
rent+savings == house payment + house maintenance + savings. It assumes that
house maintenance and remodeling is not making the house more luxurious. Its
assumes similar levels of luxury (renters are likely to go for a cheaper
apartment and spend the difference in housing luxury on travel).

As always, location, location, location. Different areas have different
situations that can make one significantly worse than the other.

------
thorwasdfasdf
People are always surprised when I tell them, in the long term housing can
only increase an amount equivalent to inflation or wages. Anything more,
simply isn't sustainable or even desirable (for society anyway). In fact, in
the longer term, if we were making actual progress in creating shelter for
humanity, then housing should increase a bit less than inflation and return
negative real rate of return.

~~~
ThrustVectoring
There's a fixed amount of "desirable" land, and a growing population competing
over it. This means some combination of "up" and "out" is necessary - either
we end up using less land per person (density), or new growth gets channeled
into marginally desirable locations (sprawl).

~~~
wpietri
> There's a fixed amount of "desirable" land

I don't think this is true at all. Even the nature of "desirable" land has
changed drastically over the last few hundred years. There's no reason to
think that change won't continue to happen. Especially given the rise of
internet, climate change, and the necessary decarbonization of our economy,
what's "desirable", it's ridiculous to think where people want to live is
fixed.

~~~
mikeash
Just to reinforce this: for the vast majority of people who don’t live in the
countryside, desirability is almost all about nearby human activities. Look at
what makes a location desirable: good schools, good job prospects, retail,
night life, transportation, etc. It should be pretty clear that this is
definitely not fixed.

~~~
ThrustVectoring
That's uhh, way less true than you think it is. There's some pretty important
geographical considerations.

1\. Cheap shipping via navigable rivers 2\. Deep water ports 3\. Not subject
to periodic flooding 4\. Flatness (not a _huge_ deal, but it does make
construction cheaper) 5\. Soil suitability for construction (especially
relevant is where the bedrock is, and what kind of soil lies atop it)

Granted, a lot of this _is_ merely the reason why network effects got started
where they did. But they are still highly relevant considerations that add
completely natural value to land, regardless of what people would decide to do
with it.

~~~
wpietri
I would submit that the first two are effectively irrelevant today. I agree
they were historically important, but today we have cheap shipping handled.

Note also that your "uhh" is something many people find objectionable. E.g.
[https://web.archive.org/web/20070105163441/http://www.televi...](https://web.archive.org/web/20070105163441/http://www.televisionwithoutpity.com/articles/content/a12088/)
with more discussion here:
[http://languagelog.ldc.upenn.edu/nll/?p=28802](http://languagelog.ldc.upenn.edu/nll/?p=28802)

------
jimmysong
Housing is treated as a good investment because it is scarce. Stuff that's
affordable is usually not scarce. Hence you can't have both something that's
scarce and affordable.

That aside, the reason why people have been using housing as an investment
vehicle is because there really aren't that many good investment opportunities
over the long term. You have stuff like gold and stocks, but they have their
own problems. Housing has the additional utility of the ability to live in it.

I suspect that the reason housing/real estate wouldn't be considered such a
great investment if there were a better store of value.

~~~
lopmotr
In a lot of America, the scarcity is kind of artificial or unstable though, so
it's still a risky investment. Look at California City - land there is
anything but scarce. Or Detroit where the seemingly indestructible world-
leading industry it depended on for house value shifted out from under it. Or
the concepts of white flight and gentrification where neighborhoods can be
tipped one way or the other in a self-perpetuating avalanche effect that
doesn't necessarily correspond to any fundamental change in their utility.
What's scarce isn't property in general, but property near rich people. If the
rich people move away, so do the property values. I'd say property investors
are chasing after rich people extracting value out of their desire to
congregate together.

Housing investment doesn't really have the ability to live in it. If you don't
rent out your house, you're losing investment returns. Plenty of property
investors depend on rents, not just price rises for their profit. As long as
you live in a house in the free market, you're paying for that privilege,
whether you own it or not. What it does provide over renting is you can't be
kicked out so easily. I think that could be the main reason families prefer to
buy houses instead of rent.

~~~
ralusek
> gentrification where neighborhoods can be tipped one way or the other in a
> self-perpetuating avalanche effect that doesn't necessarily correspond to
> any fundamental change in their utility

No fundamental change in their utility? Gentrification goes hand in hand with
reduced crime rates, better education, increase in available public
spaces/restaurants/bars. It's a feedback loop based off of people's
tolerances. In one common model, for example, it begins with more desperate
braver artists starting to congregate in an area because it's what they can
afford. Their presence alone will typically change the dynamics of an area to
a certain degree that is enough to create a tolerable pocket for the more
adventurous that are better off (think software engineers opting to live in
Mission/Oakland 5-10 years ago for the cultural element of the neighborhood).
More tax money starts coming in, policing goes up and is partly responsible
for crime going down, which also goes down due to demographic shift to
wealthier people who are less likely to feel as though they must engage in
crime. The children of these people can create a large enough community of
kids that are culturally primed to take education seriously that the critical
mass of a classroom can shift from boisterous and unruly to more manageable,
further stabilizing the education situation for those that come after.

The point is, very little of this is just some arbitrary decision with no
impact on the function of neighborhoods. Over the course of gentrification,
neighborhoods change dramatically in ways other than demographic shift.

~~~
dredmorbius
The value changes from gentrification or owner flight (see' most mid-century
US cities) come from the _community_ rather than any significant owner-
initiated changes to the propety itself.

You do nothing, rich people move in around you, value increases.

You do nothing, rich people move out around you, value decreases.

The direct utility of the property is unchanged. The owner has made, net, an
insignificant contribution to the surrounding community. And yet value accrues
(or diminishes) all the same.

Housing and real estate internalise the net community utility changes. The
pathological cases are where the owners or investors are outside the community
and strip-mine the resulting wealth.

Land value taxes both dampen wild valuation swings and internalise value gains
to the community to provide infrastructure, institutions, and services.

~~~
lopmotr
Unfortunately, it's hard to find a way to allocate land without using the
market. Yes it's unfair that rich people have to pay more to live where they
want than poor people who are happy living near other poor people, but how
else can you allocate land that gives the useful land to the people who'll get
the most value from it? Central planning doesn't get it right, a lottery would
mean people can't group themselves together so they would lose that important
value (eg programmers in Silicon Valley).

Land value tax would take money from people who don't need those community
services and give it to different people who happen to live nearby. That's not
really fair. It's still a kind of rent seeking that also happens to give the
rent to charity but not back to the original payers in proportion to what they
paid. But it does sound more reasonable than the luck of the draw that
property owners get.

~~~
dredmorbius
Long-term leases and LVT seem among the better solutions.

It's the assetification of an essential economic input that seems to be the
root of the problem. Bernhard J. Stern commented on this in the 1930s in
several works I've submitted (to no traction) in recent weeks.

[https://doi.org/10.1177%2F000271623820000104](https://doi.org/10.1177%2F000271623820000104)

[https://archive.org/details/technologicaltre1937unitrich/pag...](https://archive.org/details/technologicaltre1937unitrich/page/39)

------
verisimilitudes
I agree that a necessity such as housing being treated as an investment is
insane. I usually bring this up to people whenever housing is discussed.

Most people I talk to are more concerned with eventually renting out their
homes they bought decades ago and using that to buy another house, though. I'm
really inclined to believe renting homes shouldn't be legal, perhaps, because
eventually you wind up with a situation where no one even has the option of
buying their own house.

~~~
djakjxnanjak
By renting a home, I can let somebody else tie up a million dollars in capital
and all I have to pay them is a few thousand a month. This seems like a great
deal for me, why do you want to ban me from engaging in this transaction?

~~~
petra
Housing is such a big problem. And a collective thing.

The key to solving it is to make sure everyone is focused on affordable
housing.

Once you got a impactful part of society focused on something else, for
example extracting rent - you've lost.

That's why Germany managed to create a working, affordable housing system
after ww2.

And that's why Israel, in it's early years, managed to do the same, and offer
affordable housing to everyone,while working under dire economic situation.

~~~
djakjxnanjak
I think the solution is clear. Legalize tall buildings. Requiring someone to
own or rent thousands of square feet of land to get access to hundreds of
square feet of housing is guaranteed to lead to shortages.

~~~
thatfrenchguy
And abolish prop 13 in California and other tax pyramid schemes ? Especially
for entities that are not people.

~~~
r00fus
I wonder why even with a super majority, Dems still haven’t raised split-roll
for removing prop13 for corporations.

~~~
Ericson2314
A very good question!

------
isaacyes
In the UK, since WW2, ROI for buying a house and renting it out has on average
kept pace with the stock market, albeit with far less volatility. This is
including the house price growth and income from renting it out exceeding the
debt.

This shouldn't happen - there should be a premium return for investing in
something risky. The reason it has happened is because of policies such as
being able to discount mortgage costs from rent before you pay tax on the rent
(the government is phasing this out).

What has been the result of this? People who can borrow a lot (the rich) have
hoovered up houses, reducing home ownership, raising house prices & rents, and
making lots of money in a not very productive way. This is bad - a few decades
ago average house prices were about 4x average salary, now it is 10+.
Incentives to work hard are becoming out of touch. Also, all the money people
are investing in housing could have been invested in starting a new company,
or something risky but rewarding.

------
analog31
My family lives in a relatively modest house in mid sized city. A thought that
went through my mind when considering the house as an "investment" is that
it's a portion of our overall investment portfolio, and it functions as a
hedge against a rise in the cost of housing. It's an assurance that except
under extreme circumstances, we can always afford a place to live without
massive disruption to our lives.

~~~
sys_64738
When your final mortgage payment occurs then the sense of freedom is
immeasurable. This feeling is beyond dollars and cents so my recommendation is
always to buy and pay down your mortgage ASAP.

~~~
snowwrestler
I felt this way when my liquid assets exceeded my mortgage balance, a sort of
"I could pay it off if I wanted to" feeling.

But I have decided not to pay it off yet, because the return on keeping my
capital in equities is much higher than my mortgage rate.

~~~
sys_64738
If you owned you home free and clear then would you mortgage it to invest?
That's what your statement suggests. I won't gamble with my primary residence
as I don't want the risk or stress.

------
inflatableDodo
Here's where we are currently -

>...Each pod has its own front door, balcony, kitchen and TV. The small, but
perfectly formed units also feature a mezzanine floor with a desk, doubled
bed, bathroom and storage space.

>The units cost between £80,000 and £120,000 to build and install depending on
the specification.

>Designer of the pods, Bill Dunster, believes the homes are perfect for packed
cities with little land space as the units can be built above existing
structures such as car parks.

>“Importantly the ZEDPod concept decouples housing provision from land prices
using air rights over car parks,” Mr Dunster said.

>“This enables affordable, quality city homes where land is scarce or
expensive to be put up quickly, helping keyworkers to live near their work and
at the same time maintaining precious parking spaces.

>“We are working with key partners to create a development model that allows
Local Authorities and others to create communities of affordable houses at
almost zero capital outlay.”

[https://www.bristolpost.co.uk/news/bristol-news/pre-built-
ho...](https://www.bristolpost.co.uk/news/bristol-news/pre-built-homes-could-
popping-2054429)

One thing I noted from this article, was this is pretty much the most
affordable you can get and they are being aimed at employed keyworkers. Given
the market insists on having 'range' for marketing segment purposes, if the
plan is for vital keyworkers to be living in these, what exactly is the plan
for people lower down the social ladder?

------
jmpman
Amend Prop 13 to allow tax increase of up to 10% per year on rental
properties. Houses will flood the resale market as owners try to avoid the
taxes, driving down housing prices. Prop 13 wasn’t intended as a giveaway to
rent seekers, and yet it’s made it crazy for anyone to sell if they can rent.
That needs to be reversed.

~~~
pkaye
Will you allow rents to increase to cover increased costs?

~~~
brewdad
The rents as they are now have no relation to the underlying costs.

------
ggm
"good" is relative. the longterm rate of return on investment is 7% so a
stable property portfolio returning 5% or less _reliably_ can counter-balance
higher risk exposure above 15%

remember that the rate of return in property investment has two components:
the rent, offsets against tax for the maintenance of costs, and the capital
gain. the show isn't over until the deal is done and like gambling you have to
know when to hold 'em and know when to fold them into somebody else's property
portfolio.

also, social housing is "good" for reasons which can go to longer term
investment outcome. What if holding cheap housing stock in your portfolio also
prevents competition setting up closer to your other valuable investment?

~~~
ivalm
From the position of affordability housing should not appreciate faster than
the income profile of the population. Since median income increased minimally
(inflation adjusted) in the past 50 years one would expect that "affordable"
housing should not increase beyond the rate of inflation. As such, 5% is far
greater appreciation rate than what is sustainable (2-3% being more in line
with income).

~~~
ggm
Yes. So _rent_ had to be regulated and controlled. The ROI is across rent as
income and capital gain. Capital gain would make up a lot of the long-term ROI
of owning property. Even cooperative housing and co-owner models have to
recognize this.

~~~
ivalm
A lot of people buy housing with the idea that the house they live in is
somehow an investment. This is also what was discussed in the article. Long
term, this is not sustainable. If you rent out property, then it makes sense
you can make more than inflation, but if you live in the house, you should
have the same ROI as income growth in your area.

~~~
ggm
Yes. I think believing your home is an investment beyond providing your home
is a huge mistake. But, its a common huge mistake.

The point I was trying to head to, is that rent doesn't have to rise, simply
because people think rental investment has to return some arbitrary ROI for
the capital invested in it. Lots of forms of investment exist, some of which
return less than others, and we have a mix of investments for a mix of
reasons.

In Brisbane (where I live, and co-own a house I live in which I do not regard
as an investment in that sense), rents fell last year due to oversupply.
Prices fell too, but the two were somewhat de-coupled. Supply of affordable
housing fell too. Some people think there is a nexus, I think the fall in
affordable housing is down to lack of rent controls, long term tenancies, and
state and federal convergeance on housing policy.

------
dalbasal
The specifics here are somewhat inaccurate, but the overall point is simple
sense. If house prices consistently increase, housing will be unaffordable.

Specifics matter though. Home ownership can be sensible as a hedge against
price changes, as a forced savings, as an intergenerational asset, as a
security for loans... These all relate to "wealth building" and they make
sense in a stable-price world. They make sense for low income people, who have
more need of stability.

So yes, rising prices contradicts affordability. But no, home ownership
doesn't stop making sense if they don't.

There was a thread yesterday, o. Clayton Home's (allegedly) predatory
practices.

A notable point (to me) is that the low income market (where land is cheap,
this doesn't apply to dense urban areas) seems well served by the market, in
that case, pre-fab homes. They _are_ affordable.

Where the problems start is in the lending market. High interest rates,
affordability problems, hard sells and a general market that gets a suboptimal
(or downright abusive) product to the customer.

This is a recurring theme. Lending/financial markets either don't serve the
bottom third of the new income distribution or they gauge them. It happened
with the subprime markets, rolling debt markets. Payday loans are an example.
..long list.

I think affordable housing is two distinct problems. One is prices, and that's
mostly an urban issue. The second is loans, one of the most "it's expensive to
be poor" markets there is.

I'm in the "capitalism doesn't apply to money markets" camp.

------
ineedasername
Housing only needs to be a decent investment because is soaks up so much
capital and in doing so, opportunity cost.

If housing was significantly cheaper there would be no need for it to be a
good investment because you could use the money you would have spent on more
expensive housing and put it into an _actual_ investment.

------
esotericn
The fundamental issue with housing is that you cannot rent a home. You can
rent a house. These are really very different.

Retiring in a (privately) rented property is so impractical in the UK that I
would feel fairly comfortable in calling it impossible.

I would be extremely surprised to hear of more than a few token examples in
London who have been privately renting the same property for the past 20
years, for example.

From the council, with secure tenure and at below-market rents? Sure.

Performing anything other than basic improvements to a rented property is also
fairly pointless, so your options are to live in a cookie-cutter new build, a
run down conversion, or if you're lucky an ex-family home.

I tend to think that this effect causes prices to skyrocket far beyond what
they normally would do because there's such an enormous gulf between renting
and ownership far beyond the basic financial calculations.

~~~
fjsolwmv
What is a home?

Why can't you negotiate improvements with your landlord?

~~~
jlokier
Have you ever tried negotiating improvements with a landlord?

Often what happens is one of (a) they don't like it so you can't - "I think
no, let's stick with white for the walls so the next tenants won't be put
off".

Or (b) it's a disruptive improvement with no obvious benefit to them while
you're there - "no, let's keep the useless and ugly blocked-up fireplace that
nobody can use but takes up a wall, I agree it's in the way but the next
tenant might like it". Or "I'm not going to invest in solar panels, this is a
business not a charity, and it's you paying electricity bills not me".

Or (c) it's a genuine improvement they go for, which makes the property more
valuable to rent. So they kick you out at the next renewal (no reason given),
and raise the rent by 30% when they advertise next.

Sometimes you're lucky. Most times, you're lucky to have working facilities
and no mould, be grateful scum etc. I once had a wall knocked down onto my bed
by builders while I was away. When I got back there was rubble on my bed, big
chunks of wall on the floor throughout the house, old plaster dust in the food
in the kitchen, and my bike which was kept indoors was making a grinding
noise. The landlord's representative turned up and said they saw nothing wrong
with the place, what was I complaining about... It was cleaned up eventually,
but the cockroaches remained. Did I mention my friend whose landlord-provided
bathroom has no floor, only broken-up rough crumbly concrete, no hot water,
mould throughout the house, no door on the bedroom, etc... And my other friend
who moved out of one place and into another, only to be told after getting
there that she would need to "stay away at the weekends because we use your
room to 'have girls over'"; we had to move her stuff out and get her to safe,
temporary accomodation very quickly. Then there was that time I was about to
fly home for Christmas, and my landlord told me he had sold the flat and I had
2 weeks to find somewhere else, which of course was impossible.

Such landlords do not budge when it comes to improvements, unless they think
it will make them money.

I personally live in a nice enough place these days. But honestly, in 30 years
of renting about 15 different places, negotiating anything but negligable
improvements has been unrealistic most of the time. Even with the nicest
landlords, who can be very kind, negotiating is usually limited to minor,
cosmetic things. I've known some exceptions, but it's rare.

Curiously, commercial landlords (business rentals) are different. They will do
all sorts of major works as part of a deal with the tenant.

------
sjg007
It's a good investment because it reduces your lifetime housing cost to zero.
You can achieve that in other ways or basically just not care about it. There
was a women in NYC who paid $25 a month since 1950... she got a deal. It
wasn't zero and she didn't make money but she got a deal.

~~~
larrik
Not zero (taxes, upkeep, etc), but yes. This is the main thing.

~~~
CydeWeys
Taxes, upkeep, etc., is easily going to run into the tens of thousands of
dollars annually depending on where you live. It's very far from zero.

I don't get OP's argument at all. You're never going to get housing costs
anywhere close to zero unless you're grifting off someone else or living on
the street.

~~~
sjg007
Appreciation.

~~~
CydeWeys
The long term average return on a primary residence doesn't even keep up with
inflation.

~~~
sjg007
You are mistaken.

~~~
rifung
"Home prices look remarkably stable when corrected for inflation. Over the 100
years ending in 1990 — before the recent housing boom — real home prices rose
only 0.2 percent a year, on average. The smallness of that increase seems best
explained by rising productivity in construction, which offset increasing
costs of land and labor."

From Nobel Prize winner Robert Shiller

[https://awealthofcommonsense.com/2013/04/robert-shiller-
on-r...](https://awealthofcommonsense.com/2013/04/robert-shiller-on-real-
estate-investments/)

~~~
sjg007
When corrected for inflation equals zero. And 1990 was 29 years ago.

------
6841iam
In related news, I built a simple tool to track real estate. For e.g. in San
Francisco prices are down by about 3% across all property types (Condos,
Townhomes, etc) compared to 6 months ago:

[https://agentsunlocked.com/trends/San-
Francisco](https://agentsunlocked.com/trends/San-Francisco)

Out in the East Bay, in the city of Milpitas, prices are down by about 10%
across all property types:

[https://agentsunlocked.com/trends/Milpitas](https://agentsunlocked.com/trends/Milpitas)

You can very quickly get a snapshot of the latest price trends with just a few
clicks for each of the 300+ cities in the Bay Area. Check it out -
[https://agentsunlocked.com/](https://agentsunlocked.com/)

------
teekert
I have met so many people telling me what their house it worth, getting euro
sings in their eyes! But your next house is also more expensive and your kids'
house even more so!

In similar vain I have friends who cried after the 2008 crash that they had to
use all their savings to pay for what they lost in value and then happily
moving into a house bought from people that lost even more, in other words, a
house they couldn't even afford before the crisis. And they are lucky too
because they don't pay interest over the savings they were forced to spend.
But somehow people don't see it it seems.

It's a trap.

------
andy_ppp
I am just about to buy a place in London which is basically clearing out
everything I have saved up and putting me in substantial dept. There is as
much home building as there is space in London, as far as I can see, unless we
start building Hong Kong style thirty plus story blocks. Land values take away
most developers profits here so in a world where we build more houses, where
on Earth does this land come from and who is willing to sell this land
(probably for less than it’s worth with planning for a sky scraper)? I don’t
get it.

~~~
baybal2
> There is as much home building as there is space in London as far as I can
> see unless we start building Hong Kong style thirty plus story buildings.

Why not?

I think all and every Chinese from the mainland I met tells me of shock they
get when they see people in rich countries living in wooden or brick "huts"

They have hard time understanding why rich people go along with such standards
of living

~~~
EB66
I think that's an inaccurate generalization.

I'm pretty sure the rich mainland Chinese gobbling up single family homes on
the US west coast don't view their purchases as substandard "wooden huts"...

------
justin
Actually housing could be a good investment and affordable. It just can’t be
both in the same place. If we continued to make new cities with tons of
housing and accepted that all the people who couldn’t afford housing should
move there, we could accomplish both goals.

For the record I think this is a terrible idea.

~~~
smt88
> _make new cities with tons of housing_

China does this. It doesn't work.

1\. [https://en.wikipedia.org/wiki/Under-
occupied_developments_in...](https://en.wikipedia.org/wiki/Under-
occupied_developments_in_China)

2\. [https://www.abc.net.au/news/2018-06-27/china-ghost-cities-
sh...](https://www.abc.net.au/news/2018-06-27/china-ghost-cities-show-growth-
driven-by-debt/9912186)

~~~
apexalpha
What percentage of new housing in China would fall in the 'ghost-city'
category now?

People tend to forget there are 1,6 Billion Chinese. 10 cities failing in the
last 10 years would be a low percentage.

~~~
smt88
I think the relevant question is, "When China builds a brand new city in an
area that isn't currently desirable to live in, do people move there?"

The answer seems to be no. People want to live where friends, family, jobs,
history, and culture already exist. It's not like low rent is still valuable
to someone when everything else in their life is awful.

------
WheelsAtLarge
Learned this from experience. Real estate prices are a function of supply and
demand. Buy into a market where the population/job market is declining then be
sure that the prices will fall. Buy into a market where the population is
increasing then watch the prices rise. It won't be straight up but long term
they will rise.

Determine if you will stick around and which way the population numbers are
moving then you can decide whether to buy or rent.

In Los Angeles, people are always bitching about housing costs. But as long as
people want to live there, it will always be a good time to buy vs rent -if
you plan to stick around. Sure there will be declines but house prices will
increase in the long run.

------
verelo
There are two types of houses: The house you live in, and the house you rent
to others (and sometimes one house is a mix of the two). One of these is an
investment, one is an expense. If you can get on board with that mindset,
you'll be ok and probably make good investment choices with the rest of your
capital.

Maybe you will get lucky, and you wont have a true expense due to
appreciation, but it's not something you should bank on. Houses take a lot of
money to maintain, time to manage and sometimes just your mental capacity...be
careful where you spread your effort.

------
angarg12
On a similar note, recently I was recounting how in my career I have always
moved to places with more opportunities, higher salaries and consequently,
higher cost of living.

As some places become unbearable expensive, I see some people asking for
locations with good salaries and career opportunities AND low cost of living.
I believe that such places can't exist (unless you achieve the coveted 100%
remote), as good opportunities and high salaries will inevitably be followed
by increased cost of living soon after.

------
jgreen10
Due to unprecedented urbanisation you effectively have runaway inflation in
large cities, which is wiping out whole economic classes. Raising interest
rates would be the only sane thing to do from the city perspective, but
outside of the cities high interest rates would wreak havoc to the small
amount of industry and jobs that remain there. I don't think any country has
come up with a solution to the economic imbalance created by the flight of
capital to cities.

------
dredmorbius
For those intrested in digging into dusty nooks of this topic, and away from
the current Sturm und Drang, I recommend taking a look at Richard T. Ely,
founder of the American Economic Association and scholar of land value
economics:

[https://en.wikipedia.org/wiki/Richard_T._Ely](https://en.wikipedia.org/wiki/Richard_T._Ely)

Elements Of Land Economics (1926)

[https://archive.org/details/in.ernet.dli.2015.13745/page/n7](https://archive.org/details/in.ernet.dli.2015.13745/page/n7)

Property And Contract In Their Relations To The Distribution Of Wealth

Vol 1:
[https://archive.org/details/propertycontract01elyr](https://archive.org/details/propertycontract01elyr)

Vol 2:
[https://archive.org/details/in.ernet.dli.2015.241476](https://archive.org/details/in.ernet.dli.2015.241476)

------
austincheney
That article makes sense only in the context of California coastal
communities. None of the assumptions or logic mentioned apply in my housing
market where they simply build new houses without end.

Despite the constant stream of new housing my house has almost doubled in
value over that last 10 years and yet still remains affordable.

------
gridlockd
This article completely ignores rent as the means for wealth-building with
real estate. Instead it focuses on the _price_ of real estate. Even when
prices stop rising, real estate can keep generating income.

Really, the opposite of the headline is true: If prices go too high, real
estate _stops_ becoming a good investment, because you can get better ROI
elsewhere.

------
willio58
Any safe housing is a good investment. It is the bottom of the hierarchy of
needs. While you might not make a profit on the property, you should at least
come out even when selling. It provides a way to save money (to eventually own
the home) and you can use that money to slowly climb into another better house
and so on.

~~~
dredmorbius
What if title isn't clear?

Hernando de Soto on _Capital_ is recommended, specifically as regards Latin
America.

[https://www.worldcat.org/title/mystery-of-capital-why-
capita...](https://www.worldcat.org/title/mystery-of-capital-why-capitalism-
triumphs-in-the-west-and-fails-everywhere-else/oclc/54624555)

[https://en.wikipedia.org/wiki/Hernando_de_Soto_Polar#Main_th...](https://en.wikipedia.org/wiki/Hernando_de_Soto_Polar#Main_thesis)

------
thorwasdfasdf
Considering the shear magnitude of the housing problem, I'm a little
disappointed we haven't seen more startups/VC money chasing this problem.
After all, housing in the US is worth 30+ trillion dollar industry, and that's
just the US.

~~~
twblalock
The only way to solve the problem is to build more housing, and the only way
to do that is to change the zoning laws. A startup cannot do much about that.

The only way to change the zoning laws is to convince the majority of voters
that they need to be changed. A nonprofit would have just as much luck doing
this as a VC-backed startup.

~~~
thorwasdfasdf
Well, as the decades roll by more and more innovation will be constrained by
regulation (not just housing, but also transportation, medical, etc). Instead
of tech startups, I think we may need political startups the aim of which is
to change public policy, regulations and educate voters.

------
macinjosh
This is like the saying: Quality, speed, and affordability, pick two. Except
with housing it is something like: affordability, quality, location, pick two.

Are people so dumb that they think simply buying any property is an
investment? You have to be smart about it. You have to be willing to put work
and money into the property to improve it. Housing CAN be affordable and a
good investment. You just have to look at the right places. Also, it is
supposed to be a long-term investment (30 years, traditionally). Not something
you flip after a few years hoping the market has gone nuts and you luck into
cashing out. That's speculation not investing.

There is no way to regulate your way out of scarcity. If you tear down the
regulations that are causing scarcity inventory will go up and prices will
come down. Admittedly, that will probably impact what makes SF a desirable
place to live (at least to the NIMBY types).

------
UweSchmidt
Housing can both be reasonably affordable, roughly corresponding to underlying
market forces and provide stability to renters, while at the same time be a
decent investment, with enough incentives for construction and maintenance.

------
tfolbrecht
It could be both if there were more diverse types of housing that fit the
different stages of life.

Apartments and cohousing early in life, single family homes when you have
children, and then downsizing.

------
otabdeveloper2
Of course it can.

The question is the time period you're looking at.

Real estate is one of those things that don't spoil with time, so it's
conceivable to have a return on investment in 500 years.

------
karimf
Previous discussion:
[https://news.ycombinator.com/item?id=18367680](https://news.ycombinator.com/item?id=18367680)

------
ThrustVectoring
Housing affordability is part of a larger demographic/economic problem - due
to extended longevity and declining birth rates, many Western societies are
facing a higher ratio of retirees to workers.

This is a problem because essentially all current consumption is created by
current workers, and retirees aren't working. The transfer from workers to
retirees happens in one of two ways: either through taxation ("Pay As You Go"
systems like Social Security), or in exchange for transferring a financial
claim from retirees to workers. So as the retiree ratio increases, a
combination of several things have to happen to balance the flows of goods and
services:

1\. Retiree consumption decreases.

2\. Worker productivity goes up.

3\. Taxes go up.

4\. Workers spend more of their money on financial claims.

If you look at what happens when the first three are relatively fixed, what
does the last one happening look like? The only household budget items big
enough to swing the needle are things like paying back student loan debt,
their rent or mortgage (basically equivalent here), 401k contributions and
other retirement investments, and to a lesser extent automobile financing and
other consumer debt.

Note that this is more like an energy-based physics analysis than a force-
based ones - it illustrates the overall tradeoffs that have to get made
somewhere, but doesn't specify causal mechanisms. The actual causal path is
something like the increase in saving pushing down interest rates, which makes
financing desirable long-term goods (housing, education) more affordable on a
monthly cash flow basis, which drives up prices until the market clears once
more. In other words, college and housing became more expensive because the
aging population needs to loan more money to the next generation to fund their
retirement.

Also, the demographic that's currently getting squeezed the hardest by all
this isn't Millennials. It's middle-aged folks stuck in the awful gap of
having aging parents and maturing children. After all, "retiree consumption
decreases" is a really bland euphemism for what goes on at the ground level -
retirees not having enough food to eat or being unable to afford medical care.
And on the other end, it's getting harder for children to afford to take the
steps required to become independent, so this unfortunate demographic also has
to set aside more housing and other resources for their children than before.

I really don't have good ideas for any sort of practical action to resolve
these tensions. It's extraordinarily depressing. Personally, I'm expecting
these trends to continue, and for this all to result in lower per-capita
retiree consumption when I'm of the appropriate age, so I'm saving at a higher
clip now to compensate. All this does is, though, is increase current retiree
consumption and improve my rank-ordering in my retirement cohort; saving more
doesn't fix the problems my cohort will end up facing.

~~~
dools
This is only a problem if you take the view that a nation needs to (and is
able to) save for its future in terms of a currency it issues.

Increased taxation is not required to support a growing population of
retirees, increased production is.

Taxation is neither here nor there: it is required as an inflation control and
to give value to the currency but the limits on spending at the federal level
(where social security/pensions SHOULD reside instead of in privately held
pension funds) are total spending this year, not tax receipts last year.

Tax receipts extinguish a liability that was created when the federal
government spent the money into existence in the first place.

It's not true that current consumption is created by current workers. Retirees
spend. What's true is that we have an incredibly inefficient means of funding
their retirement through property as an asset class which sucks money out of
the current working population _via private financial institutions_ and hands
it to retirees, some of whom support their kids in purchasing exorbitantly
priced property, placing them in a very precarious financial position which
lowers birth rates and further exacerbates the problem down the line.

Property isn't required as an asset class, it's just a convenient thing most
people understand and governments worldwide have been able to conveniently
take their hands off the wheel.

~~~
ThrustVectoring
>This is only a problem if you take the view that a nation needs to (and is
able to) save for its future in terms of a currency it issues.

If you track the real goods and services involved, nations are essentially
incapable of saving for the future. Ignore the financial claims and just look
at the goods involved - today's retirees are consuming the fruit of today's
labor, essentially. They're not making a car in 1980 so that they can drive it
around today.

>Increased taxation is not required to support a growing population of
retirees, increased production is.

Increased productivity definitely helps (see point 2 above). It has to grow in
excess of the rate of growth of the gross retiree consumption, though, or else
you're just facing a less intense version of the prior dilemma.

>Taxation is neither here nor there: it is required as an inflation control

Saying you don't have to tax workers and can allow inflation to rise instead
is solving the problem through point 1: reducing the consumption of retirees
(by inflating away their purchasing power).

> It's not true that current consumption is created by current workers.

Apologies for saying things in an unclear way - I probably should have used
"produced" instead of "created", because I was getting at the physical act of
producing goods and services for consumption, rather than the desire and means
to consume goods and services.

------
m3kw9
It can be if it crashes, but it will only be affordable for a very short
period when prices normalizes again to market forces

------
shmerl
If it's not affordable, how is it a good investment then? Going into crazy
debts is not a good thing.

------
marcell
Isn’t this obviously wrong because of density?

Suppose I own 1 unit in a 10 unit condo worth $100k. Then a few years later
the condo is demolished and rebuilt as a 20 unit condo, of which I own 2
units. I sell them each for $100k, doubling my original price.

This example ignore construction costs, but the point is density means you can
have both ROI in real estate and affordable housing.

------
JumpCrisscross
Land prices can increase faster than inflation and wages while house prices
actually drop. Housing is measured in square feet. Land can hold multiples of
square feet depending on the number of floors it’s permitted to hold. Land can
thus be a good investment while housing remains affordable if the NIMBYs are
restricted from strangling property growth.

------
yonran
The article is true if you limit the definition of “good investment” and
“wealth-building” to mean rent appreciation. But if you take a broader
definition of investment (as in a farmer invested in a tractor, or a
contractor invested in a pickup truck, or a property owner invested in
improvements, or a landlord invested in buying an underpriced property with an
unusually high capitalization rate), then it is counterproductive. When people
talk about housing as an investment around the country, how often are they
referring to zero-sum rent increases, vs. how often are they referring to
capital expenditures that expand the pie? And how do we get people to
celebrate one type of investing (capitalism) instead of the other kind of
investing (rentiers).

~~~
lopmotr
Perhaps by national governments preventing local governments from artificially
restricting the supply of housing? Local governments will always want those
restrictions because their local homeowner voters will want it.

~~~
sokoloff
At least one national government was founded on the basis that those powers
not explicitly granted to the national government nor reserved for the people
remain in control of the states which united to form it. (That's not to say
that they've followed that doctrine, but I predict it would be a long
Constitutional challenge for that country to settle that real property
[generally immobile, of course] is part of "interstate commerce".)

That national government could however put a lot of _pressure_ on the states
and local governments by banning federally guaranteed housing loans in areas
where zoning laws were not to their liking. This would have a temporary effect
(while it was being battled out) of smashing the property values of the little
guy homeowners (whose next buyer will likely be taking a federal-supported
loan), while leaving the jumbo loan market relatively untouched, so it's a
pretty nuclear option to try to accomplish in any kind of a rapid fashion.

------
EGreg
Sure it can. You are forgetting UBI.

Here is where single payer systems may be better than UBI:

Collective Negotiating Power drives prices down for the basics as buyers don’t
compete for the basics.

That’s why Medicare for All would have lower prices for the same services than
a UBI which people could spend on private insurance companies.

The question is - as Marx would say - why should society allow the “market
value” of housing to greatly exceed the “use value”, and who does that
speculation really help? Today, 11% of all housing sits unused even as people
struggle to pay their rent and homeless have increased. In a plutocracy, the
percentage would be even higher.

We may want to transition to a society with a UBI + single payer systems for
the basics.

------
timwaagh
it can be if you take into account the rent you don't have to pay. or the rent
you might gain from renting it out.

------
orthecreedence
I'll just say it. Commodification of housing is stupid and is a sign of
cultural sickness. We can do better.

If housing was protected from market forces, then increases in productivity
would actually be realized instead of spending all the gains we make over time
as a society _back_ into ever-increasing housing prices.

Capitalism is supposed to make things cheaper over time. It does not with
housing, because housing cannot be "produced" more efficiently and is in
somewhat limited supply. Because housing is also _necessary_ (unless you find
living in a van sufficient), then I believe it makes sense for all apartments,
condos, duplexes, etc that are 4br or less to be municipally-owned.

We should reap the rewards of our gains in productivity, not increase our
spending to match our income.

EDIT: As an addendum, we should also start trying to stabilize our population.
The Earth ain't gettin any bigger.

------
bubblewrap
Sorry, without reading the article, isn't that a contradiction in itself? How
can it be affordable, if it isn't a good investment? That would imply the
money would be better spent elsewhere?

Edit: OK having read the article: can there be such a thing as a "good
investment" in the terms of the article? I mean something that is guaranteed
to be a good investment? I don't think that is possible in general, not just
for housing, but for anything.

------
anbop
My favorite solution is that all rental agreements, commercial and
residential, include a 2% ownership transfer per year. You own something for
50 years when you buy it and rent it out (or leave vacant). Make the
improvements immediately, because time is running out.

------
willand31
False. What's not affordable is having human beings not able to have access to
shelter.

~~~
sokoloff
That is literarily eloquent but not logically eloquent. It's not _desirable_ ,
but it seems it's perfectly _affordable_.

------
apo
It's bizarre to talk with someone who views a house as a good "investment" and
who doesn't see the danger of 4:1 leverage that a "standard" mortgage
involves.

These are the kinds of people who get wiped out in real estate declines.

~~~
b_tterc_p
This is really important. I’ve reached income stability to purchase a home,
but a recession seems looming, and even the market seems like it’d be ok
during a recession near me, I feel it’s far too risky. People can’t handle
large numbers well. When everything is hundreds of thousands of dollars more
than you’re used to thinking about, judgments lose their rationality. People
get exposed to all kinds of risk and they don’t realize it.

------
snowwrestler
Why not? Treasury bonds can be affordable and a good investment. Stocks can be
affordable and a good investment.

> Well, in order for your home to offer you a real profit, its price would
> need to increase faster than the rate of inflation.

The entire article rests on the premise of this sentence, which is wrong.

~~~
elyobo
The rest of the article explains it more detail, but the sentence is obviously
correct.

Stocks and bonds remain "affordable" because the minimum purchase size is
small; the same cannot be said for housing.

~~~
snowwrestler
I know this is counterintuitive but the sentence is wrong in several ways.

a) Your home does not have to offer you a real profit in order to be a good
investment; preserving capital and hedging inflation are benefits and
legitimate goals for an investment.

b) The leverage and tax benefits of buying a home with a mortgage can create
returns exceeding other investments even if the home merely keeps up with
inflation. For example, you can keep capital gains from your home tax-free up
to $250,000... a stock with taxable capital gains would have to deliver a real
return of 15% over the same time frame just to match this.

c) The minimum purchase size is not the total value of the house, it's the
down payment, which can be 0% for some people. I paid 5% as a down payment.
(edit: and closing costs)

~~~
elyobo
OK, some fair points, with caveats. I think that property growth matching the
general rate of inflation inevitably tends towards unaffordability because of
the high base cost and that's why I don't entirely agree with your argument.

On the first, even if housing keeps up with inflation it's becoming
significantly more unaffordable due to the high base price - ideally housing
should not keep up with the general rate of inflation, so if it's a "good
investment" in the sense that it successfully hedges against inflation... then
it's inconsistent with being affordable.

On the second point, this depends on the location. In Australia, gains on your
primary residence would be tax free, uncapped, and gains on investment
properties would be reduced by 50% before calculating tax if you'd held it for
more than 12 months (which is exactly the same tax as is applied to stocks).
Note the point above about inflation though; if housing is keeping up with
inflation then it's becoming progressively more unaffordable.

On the third point, this again depends on location. In Australia you _can_ buy
with low deposits (almost impossible to do 0%) but you will be hit with
additional up front costs that get loaded on to your mortgage (Lenders
Mortgage Insurance, ~1-4% of the property value depending on lender and the
exact percent deposit that you have) if you have less than 20%, you will have
access to a much smaller pool of lenders and products so will almost certainly
be paying a significantly worse interest rate, and you will likely have to pay
stamp duty (varies by state, generally about 5% of the property value, some
discounts / waivers available for first home buyers depending on state and
property value). Ideally in Australia, you're normally going to be looking at
a 20% deposit, plus a 5% stamp duty, so you need to have 25% of the purchase
price in cash. You might get away with 10% deposit, and on a first home
purchase in some states pay no stamp duty, but that's still a substantial
burden when median prices are ~$800k Melbourne or $1m Sydney.

------
nightfly
Yes it can. It would be a better investment for me to buy a cheap house then
to rent an apartment at the same mortgage/rent even if the house never
increased in value over time.

~~~
nerfhammer
the article means "good" for society, long-term

------
sologoub
This article takes a really bad situation and paints homeownership in general
with the same brush. That’s really not helpful.

Buying a home is generally a good idea even if the “asset” isn’t growing very
rapidly. There are a lot of socioeconomic benefits to ownership, which I won’t
rehash - google is your friend there.

For the financial benefits, provided interest rates make sense and the buy vs
rent trade-off is sane (in SF it may not be), a mortgage essentially acts as a
forced savings account, while providing you with a place to live.

Say you take out a 30 year loan, in 10 years, roughly 19% of the principle
have been paid down. Assuming the house roughly stays with inflation and you
made ZERO real profit on it, you are still wealthier.

Now, if the market moved significantly down or you had major repairs, it could
still be a crappy savings account. However, all else being equal, it’s
generally better than the exactly equivalent rent.

In the end, everyone’s situation is different - do your research and talk to
professional advisors (the ones that are fiduciaries and not just sales
people).

