
How housing became the world’s biggest asset class - yarapavan
https://www.economist.com/special-report/2020/01/16/how-housing-became-the-worlds-biggest-asset-class
======
davidw
The entire special report is well worth a read:
[https://www.economist.com/special-
report/2020/01/16/housing-...](https://www.economist.com/special-
report/2020/01/16/housing-is-at-the-root-of-many-of-the-rich-worlds-problems)

There's a lot of information, history and a broad perspective on how things
work in various countries.

Housing politics is key to so many things:

* The economy - allowing people to live in productive places is a benefit to them, and all of us, because they put their talents to more productive use. California, where the housing crisis is worst, also has the highest poverty levels of the US when cost of living (which is mostly housing) is factored in.

* The environment - cities are more environmentally friendly than sprawling suburbs.

* Equality and "social justice": the history of how people of color have been frozen out of the housing 'ladder' in the US is not as well known as more blatant and vicious examples of racism, but it is a huge reason why certain disparities have persisted.

~~~
tonyedgecombe
>The environment - cities are more environmentally friendly than sprawling
suburbs.

I'm not sure that is true, 50% of the world lives in cities but cities produce
70% of the worlds emissions.

~~~
onlyrealcuzzo
A person's carbon footprint is directly related to their wealth/income. If 80%
of wealth/income is in cities, this isn't surprising.

Further, the definition of "city" can include a lot of sprawl in places like
Houston, Phoenix, and even Beijing and Tokyo.

Even further, can you cute your source? I'm skeptical of both numbers. And it
would be very easy to cherry pick either side of these numbers.

For example, a lot of concrete is pored in cities to build mid/high rises.
Concrete produces a fuck-ton of carbon. Is this amortized over the expected
lifespan of the building? Where is the carbon cost accounted for? A lot of the
carbon is emitted in rural areas. But is it all just lumped into the city
because that's where it's used? That seems unfair. A lot of rural wealth comes
from natural resource extraction used to build and power cities...

Most power plants and factories are outside of cities. Yes, they mostly power
the city and produce goods for the city -- but their providing a lot of
income/wealth to rural areas...

~~~
transect
For citation here are two sources:

50% of population: [https://ourworldindata.org/urbanization#how-urban-is-the-
wor...](https://ourworldindata.org/urbanization#how-urban-is-the-world)

70% of emissions:
[https://www.c40.org/why_cities](https://www.c40.org/why_cities)

This is based on the concept of a "consumption emission", which is an
interesting concept. The point being that cities (especially western cities)
have seen their emissions drop due to de-industrialization, but consumption
has increased (hence your statement about carbon footprints correlating to
wealth/income). To say that cities impacts are smaller when they just
outsource all of their carbon impact is disingenuous.

~~~
ced
From your source: _It usually incorporates the population in a city or town
plus that in the suburban areas lying outside of, but being adjacent to, the
city boundaries._

GGP suggested that suburban living is greener. How does the 50%/70% support
his point if cities include the suburbs?

------
blackrock
When will it finally crash? Housing prices has reached a level of nonsense
again.

Back in 2007, there was a report of some guy spending an astronomical $800,000
USD for a house somewhere outside of Silicon Valley, like in Tracy, I think.
This was bonkers back then.

But now, nobody bats an eye anymore, and thinks it’s perfectly normal to spend
that much on a house in previously economically depressed areas.

QE has impoverished us all (except for the fat bankers).

What is the black swan event that will finally trigger the stock market melt
down? The price of SPY has gone exponential. A look at it, and it appears to
defy gravity. But yet, everyone is celebrating on the streets it seems, as if
the good times will finally last forever.

~~~
TomMckenny
It will not crash. There maybe a temporary double digit dip in prices
described in hyperbolic "end of the world crash" terms to demand government
intervention to prop up prices. But without large social-economic change,
land/housing prices will quickly recover and continue to outpace wage growth
and many other productive investments.

We have shifted to an economy that increasingly favors rent seeking in every
field and land is quintessentially that. Even without that trend, land reform
meets enormous resistance under any circumstances but given that shift, even
more so now.

Note that we know people will endure housing conditions seen everywhere at all
time up until the 20th century, and unless the people hurt[1] by this do
something remarkably effective, that state of affairs is guaranteed to return:
there is no invisible hand guaranteeing even one family per room let alone per
unit.

[1] disproportionately wage earners and the young but also all paying rent and
mortgage interest.

~~~
readhn
>> It will not crash.

you are wrong and you do not know history. it will crash and then it will
recover and then it will crash again. real estate is cyclical.

~~~
Bombthecat
I would argue, it will crash. But not anytime soon. More around 10ish years or
even more.

States, money and firms are now in a tight gridlock. Way more than before.

So will just pumping out more money. Fear the day "they" decide to flood the
real market with money and not just stocks and shares.

~~~
readhn
Do you know what is the average time difference (in years) between peaks in
construction (and land values as a result), historically speaking?

------
jalgos_eminator
Ok, so something has been bothering me ever since I started thinking about
housing in an economic sense. Housing prices seem to consistently rise faster
than inflation over long periods (at least in large/medium metros). This means
that housing is currently more expensive to people than it was 30 years ago.
So what happens 50 years from now? or 100 years from now? Who will be able to
afford to buy a house? Will people spend more than 50% of their take-home pay
on mortgage payments? This doesn't seem sustainable long term.

~~~
banannaise
That's basically the direction, yes. It's like healthcare in the US: Since
people can't opt out of it, the system continuously optimizes for taking as
much of their income as possible for the same good.

I started shopping for a home a few years back, and I noticed something
interesting: prices had adjusted so that the total cost of owning (including
mortgage interest, taxes, maintenance costs, etc.) was almost exactly the same
as the total cost of renting! It didn't matter what I did; the choice had been
reduced to "Do I want to make a leveraged bet on the housing market, or not?"

I did. That bet was basically a wash when I sold last year. After final
calculations... I paid within $100 a month of market rent for the place.

The only way you can get out of the trap is to acquire enough cash to simply
buy outright (and then hope you never get the itch to move). And, of course,
then that money is locked out of the investment market.

~~~
thedaemon
>It's like healthcare in the US: Since people can't opt out of it

We do not have a national healthcare system as most of the world does. We are
not forced to have healthcare. Yes there are provisions of Patient Protection
and Affordable Care Act that charge a tax penalty if you are not covered or
exempt.

~~~
banannaise
You're not forced to have healthcare COVERAGE. You can't opt out of actually
having healthcare; if you do, you get sick and/or die.

------
heymartinadams
Here’s a mostly overlooked fact: Housing hasn’t become the biggest asset class
— the land underneath each house has.

Housing itself is cheap to build. Location, however, is expensive. And that’s
also what makes people win or lose in Monopoly.

I’ve written about it extensively: a book
([https://www.unitism.com](https://www.unitism.com)), articles
([https://www.progress.org/authors/martin-
adams](https://www.progress.org/authors/martin-adams)), etc.

~~~
wayoutthere
The other part people don't think about: your ownership of land is only as
valid as your (or the government's) ability to enforce it. A lot of major
civil wars in the 20th century have been fought over land rights -- in many
cases, it has been local citizens seizing land back from foreign corporations
and land barons. Many countries have laws on the books restricting land
ownership to citizens as a result.

~~~
opportune
The US has also basically had unrestricted capital accumulation barely
interrupted by war / mass societal reorganization (only the high tax rates
around WWII and abolition of slavery) for over two centuries. Now that there
is no more frontier there’s no more land that is both cheap/free and desirable

------
closeparen
I'm a big fan of the folk wisdom that the power of housing as an investment is
essentially a self-discipline mind trick. Paying your mortgage feels more
urgent than contributing to a brokerage account, withdrawing home equity feels
dirtier than withdrawing stock portfolio value, and holding onto your house
during a downturn is easier than holding onto your crashing stock portfolio.

Once you know those things, you can rig yourself similar safeguards around
other asset classes (automatic payroll contributions, tax sheltered accounts
with early withdrawal penalties, etc).

~~~
chiefalchemist
Housing as investment is a mindtrick, and a dangerous one at that.

With it often comes property taxes. There's the time and cost of maintenance.
There's the friction of being able to easily relocate for a better paying job.

Worst of all, past performance is no indication of future returns. That is,
it's possible your property won't appreciate, at least not sufficiently. For
example, think Detroit. Or beachfront property in say 25 yrs. Or McMansions.
Will smaller less consumption-minded families in the future want them?

Housing works as an investment because everyone is in on the scheme. The gov.
The banks. Everyone. And it's still a roll of the dice.

~~~
the_gastropod
No idea why you're being downvoted here. You're absolutely right. As an
investment, housing has some incredibly awful attributes:

\- Incredibly low liquidity—takes months of effort to buy or sell

\- Very complex to buy/sell (usually requires lawyers, lots of inspections,
documentation, etc)

\- High fees to both buy AND sell it

\- It's taxed every year, regardless of whether you actually earn any money on
it (aka: sell it)

\- It's constantly falling apart, and requiring upkeep maintenance

\- It's completely undiversified: subject to not only one country, one state,
one city, one neighborhood, but a single tiny plot of land at one specific
location that could be hit by any sort of natural disaster, get bad neighbors,
have the local economy collapse, etc. Its pool of potential buyers is also
limited to this very tiny location.

\- Returns are relatively low, roughly in-line with inflation

\- It's almost always leveraged (often good, but that cuts both ways, and you
have to pay the interest on it regardless of what happens)

Sounds like a wonderful deal, eh?

~~~
maxsilver
> \- Returns are relatively low, roughly in-line with inflation

I wish. The problem with housing is that the returns _are not low_ , they're
_reasonably_ high and _really safe_.

You can buy a property in basically any city, sit on it for 5-30 years, and be
guaranteed to beat inflation by at least a small margin -- often a wide one.
Sometimes this is true, even if you never maintain the place, even if you
level the existing structure, and it's just an empty grass lot.

I _wish_ housing was not a good investment. If housing could depreciate the
way a car does, that alone would solve like 40% all problems in the housing
market today.

~~~
the_gastropod
The Case-Shiller Index [1] has increased ~3.4% annually since 1900. The
general rate of inflation over that same period has been about 2.9%, leaving
you with a ~0.5% rate of return. Savings accounts tend to have significantly
better returns. Even if you account for the effects of leverage. Note: this
doesn't include maintenance costs, taxes, buy/selling fees, inspections, or
anything else. So all-in, RE very likely under-performs inflation.

[1]
[https://en.wikipedia.org/wiki/Case–Shiller_index#/media/File...](https://en.wikipedia.org/wiki/Case–Shiller_index#/media/File:Case–Shiller_Index.svg)

ETA: I wonder why this is such a common belief? Is it because most HN (myself
included) readers live in booming real-estate markets like NYC and SF? Those
markets have done very well in the past 10 years. But remember: places like
Detroit, Atlanta, Chicago, and Cleveland also exist.

~~~
bcrosby95
The SF bay area in general has done very well for the past 50 years, not just
10. The San Jose house my parents bought brand new for $34k in 1973 was sold
for $95k in 1978. Similar houses in that neighborhood sell for a bit over 1
million dollars today.

~~~
thorwasdfasdf
Those returns can't continue. When people spend 30% of their income on housing
and housing doubles in cost, it means they'll now have to spend 60% on
housing. From there it simply can't double again, not without coping
strategies exceeding anything reasonable (1 family per room, families living
in garages, commutes that exceed 6 hours a day).

Every coping strategy has it's limit. You can't commute more hours than there
are in the day. YOu can't have more than 3 people living per room (at least
not legally). Once you move in with your parents, you can't do it again. etc.
I think we've reached that limit in the bayarea (at least the core bay area)
so we can look forward to housing returns of roughly inflation.

Even with the severe dystopian restriction on supply, it will just force more
and more people out of the bay area.

Maybe some of the outskirt areas still have room to go up, like Tracy,
antioch, brentwood, etc. some of those places haven't yet been gentrified.

------
plughs
> In 2001 William Fischel of Harvard University proposed his “homevoter
> hypothesis”. The thinking runs that owner-occupiers have an incentive to
> resist development in their local area, since doing so helps preserve the
> value of their property.

This is a common sentiment that, I think, misses the point and makes a lot of
the discussion around housing costs unproductive.

I'm a homeowner and I've seen the resistance to new construction. The concerns
are often

* more traffic

* more students at schools that are already overcrowded

* more noise

* etc.

Also proposals to build more houses often are planned on property that is
already occupied. In a nearby area they want to tear down an existing school,
in other areas they want to take away open space that is used as
walking/running/biking paths.

Now I'm not going to pretend that homeowners are otherwise pure and virtuous
and not even slightly concerned about the price of their house. But that's
rarely the only concern.

I don't say that to shut discussion down - maybe homeowners are still wrong to
have these concerns. Maybe they just need to deal with more traffic and trust
that the schools will address overcrowding as needed.

But that conversation never happens. It is _always_ greedy homeowners who
worry only about their house price at the expense of everyone else. As long as
the conversation is framed that way, I don't think it will ever move forward.

~~~
lsc
>* more traffic

Homeowners generally don't fight nearly as hard against new office buildings.
The bay area, for example, wouldn't have a housing problem if we built
apartments like we build offices, and our traffic problem would decrease.

The problem is that the home value model of homeowner motivation fits the data
much better than any other model.

Show me a bay area "homeowners for better public transit" rally and maybe I'll
change my mind.

~~~
plughs
The bay area is such an outlier that I almost feel like it should be exempt
from broader 'housing cost' discussions. Fixing the bay area housing crisis is
a whole other set of concerns.

No one in our area wants more office space. I don't know that there's much of
a demand for new office space, the buildings we have are full of vacancies.

~~~
davidw
The Bay Area is where it's worst, but it's essentially the same problem there
as it elsewhere. Also, what people do down there has a ripple effect
everywhere else. Where I live in Bend, Oregon, we see a lot of people moving
up from California who either 1) made out like bandits because of scarce
housing, prop 13, etc... and can afford to sell out and live like kings
because housing is "cheap" here (for them, not for the rest of us), or 2)
can't hope to afford a home there, so move somewhere like here seeking that
opportunity.

~~~
0xffff2
Funny to see Bend pop up, since I was just looking at houses there on Zillow
today and I came away pretty shocked. I work in Silicon Valley but I already
own a house in South Central Oregon because I'll never be able to afford one
in California. The only problem is that it's rural enough that I can't get any
kind of internet other than satellite.

I've been half-seriously looking at houses in Bend or Klamath Falls where I
could work full-time remote, but there aren't a lot of houses that I could
afford in Bend! It's nothing like the Bay Area, but the percentage of $1m+
houses was really surprising to me, and when you look at the price history,
it's a very recent phenomenon.

~~~
davidw
Happy to talk to you about Bend if you're curious; my email is in my profile.

Bend is very different from K-falls, these days. And yeah, the prices here
bounce around a lot - they were the fastest in the US going up before the
previous bubble popped, then they cratered, now they're skyrocketing again.
I'd consider waiting...

Whereabouts is your house? South central Oregon off the grid brings this story
to mind: [https://magazine.atavist.com/outlaw-country-klamath-
county-o...](https://magazine.atavist.com/outlaw-country-klamath-county-
oregon-guns-murder)

~~~
0xffff2
Yeah, I've spent a day in Bend here and there and lots of time in K-Falls
since it's the nearest town to me and "different" barely even begins to
capture it. Klamath county certainly has its charms, but a bastion of
civilization it is not.

Thanks for the link! Haven't read the whole story in the link yet, but it's
definitely not the first I've read about the Tableland. I'm halfway between
Chiloquin and Sprague River so that's practically my back yard. The stories
abound. I haven't decided just how true some of them are yet.

I'm just close enough to civilization to buy power from the grid, but nothing
else. I'm going to wait at least a year or two to see if Musk's Starlink
project delivers. If it lives up to its full potential I might be able to work
from the boonies.

~~~
davidw
Wow, that's really remote. Interesting book about a ranch just north of there:
[https://www.amazon.com/Yamsi-Year-Life-Wilderness-
Ranch/dp/B...](https://www.amazon.com/Yamsi-Year-Life-Wilderness-
Ranch/dp/B007XAEQD2) \- you'd probably recognize some of the places in the
book.

~~~
0xffff2
Indeed. You're not the first to recommend that one. I've got it on my
bookshelf. Haven't had a chance to read it yet.

------
yonran
This series of articles raises good questions, but for a series on how
homeownership is the “biggest economic policy mistake,” I wish they would have
spent more time on taxation. Adjusting the property tax (or equivalently rent
and imputed rent income tax) rate allows the government to capture an
arbitrarily high fraction of the rental value and capital gains of the
property. It can be set anywhere from fully allodial (0 property tax) to fully
social (tax on 100% of rental value). Homeownership wouldn’t a problem if
homeowners had no privileges on the land rent. In California, we had an
average property tax rate of about 2% before Proposition 13 cut it in half in
1978, encouraging homeowners to restrict supply and reap all the capital
gains. So when comparing jurisdictions, I think it is also important to note
what the taxes on the property are.

~~~
neilparikh
To add some more context, the effective property tax rate in California is
~0.7%. Unsurprisingly, the lowest effective property tax rates are in the
richest cities, while the highest are in the poorest. For example, Palo Alto
has an effective property tax rate of ~0.4%.

~~~
chii
what's an "effective tax rate"? isn't it the same in the same state?

~~~
yonran
The property tax bill is calculated as rate × assessed value. In almost every
other state, the assessed value is directly proportional to the current fair
market value, but in California, Proposition 13 lowered the legal tax rate and
also changed the assessed value to be the price that you (or your ancestors
thanks to Proposition 58 and 193) originally acquired the property, adjusted
for inflation. What this means is that some people pay outdated property taxes
that are a fraction of what their new neighbors are paying, while they benefit
from receiving market-rate rents or benefit from modern amenities (schools and
jobs). The effective tax rate is the property tax amount divided by the fair
market value, which allows us to compare fair market tax burdens given the
unfair property assessments:
[https://www.trulia.com/research/prop-13/](https://www.trulia.com/research/prop-13/).

To my point above, property taxes are intertwined with the debate about
homeownership because Proposition 13’s low property tax rate increases wealth
inequality (since landowners instead of governments capture the value of
increased rents), increases wealth inequality (since governments are forced to
increase regressive sales taxes and fees instead of property tax), increases
wealth inequality (since the US income tax often does not capture increases in
imputed rent and capital gains), disincentivizes cities from zoning for more
housing (since the property taxes from new housing no longer pays for the
infrastructure costs), and encourages NIMBYism (since homeowners have to
purchase the land at a high price and then become extremely risk-averse). In
addition, Proposition 13’s unfair asssesed value system further encourages
NIMBYism (since landlords and homeowners get to benefit from displacing the
poor without having to pay any higher property taxes) and encourages long-term
property speculation without investment (since long-term property owners have
low holding costs despite being in expensive locations). In another state,
where homeowners have to pay taxes for the privilege of excluding others,
homeownership would not be harmful to society.

~~~
dragonwriter
> in California, Proposition 13 lowered the legal tax rate and also changed
> the assessed value to be the price that you (or your ancestors thanks to
> Proposition 58 and 193) originally acquired the property, adjusted for
> inflation.

No, it didn't.

It's the lower of the actual fair market value or the value at time of
qualifying event (mostly purchase and other non-exempt transfer, but certain
improvements also are included at their full value) plus 2%/year. The actual
rate of inflation is not a factor.

~~~
yonran
Yes, there are several details that I did not mention (Proposition 8
reductions, appraisal of improvements, base year value transfers, etc.)

> The actual rate of inflation is not a factor.

Incorrect. The change in base year value is less than or equal to inflation.
Proposition 13 allowed annual adjustments to the base year value by “the
inflationary rate not to exceed 2 percent” (California Constitution XIII A
[http://leginfo.legislature.ca.gov/faces/codes_displayText.xh...](http://leginfo.legislature.ca.gov/faces/codes_displayText.xhtml?lawCode=CONS&division=&title=&part=&chapter=&article=XIII%20A)),
which the legislature implemented as the lesser of “the California Consumer
Price Index for all items” and 2% (RTC 51
[http://leginfo.legislature.ca.gov/faces/codes_displaySection...](http://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC&sectionNum=51.)).
See the most recent letter to assessors for the actual numbers
([https://www.boe.ca.gov/proptaxes/pdf/lta19050.pdf](https://www.boe.ca.gov/proptaxes/pdf/lta19050.pdf)).
But I take your point that I should have said “adjusted by up to 2% per year”
instead of “adjusted for inflation” above, since it usually isn’t fully
adjusted for inflation.

------
thorwasdfasdf
everyone thinks housing is supposed to be a great/high yield investment.
that's only true if you're renting it out and even then, the rent to own ratio
tends to be about 3-5% minus expenses and property taxes and insurance and
taxes, which ultimately gets you to about 1-2% per year, plus the
appreciation.

In the very long term housing can not increase in value quicker than wages
(roughly inflation). And, if we were to actually make any progress in the
industry of providing shelter, housing should actually lag inflation.

~~~
cmuguythrow
1-2% returns on rentals is far too low (REITs return ~12% and require no
headache) but even if that was true, housing is one of the few places where a
"Regular Joe" with just a little bit of research can actually gain a market
advantage and "beat the market". I can link you properties right now that can
be bought and instantly rented for 15+% returns with no work and >20% with
some fix up work. This is possible because of 1. easy to access leverage vs.
other asset types and 2. difficulty of scale, which prevents the Blackrocks of
the world from just buying up all of the property that could actually return
20% and making the market efficient. If I had to guess, the reason you are
seeing 1-2% returns is because you are looking at really "hot" markets where
the prices reflect an assumption of future appreciation.

~~~
aianus
> difficulty of scale, which prevents the Blackrocks of the world from just
> buying up all of the property that could actually return 20% and making the
> market efficient

What exactly is stopping House Flipping BigCo from doing what you're proposing
at scale?

~~~
opportune
Housing asset management only scales linearly because you need several people
to physically inspect/validate each property before purchase to make sure
there are no serious issues.

Also you need to assess the rental conditions for each property on a case by
case basis, and contract everything out to property management.

A lot of REITs invest in medium-large sized complexes to avoid the potential
headaches. I’ve lived in a few of these and found them to be quite well
managed.

------
samschooler
[https://outline.com/EfEz3V](https://outline.com/EfEz3V) (Non-Archive.org
link)

------
neonate
[https://web.archive.org/web/20200117004259/https://www.econo...](https://web.archive.org/web/20200117004259/https://www.economist.com/special-
report/2020/01/16/how-housing-became-the-worlds-biggest-asset-class)

Edit: visiting the OP with JS turned off also works for some.

~~~
Gustomaximus
Side point: Thanks for the link but I don't like seeing archive.org encouraged
to beat paywalls. They do a great job archiving information and might see
their access reduced if people use them in this way.

Hope that doesn't sound like I'm having a go at you, and I may be wrong in my
understanding of this landscape but thought I would mention.

~~~
saiya-jin
So what do you propose? Rarely is there any other usable access link

~~~
JshWright
I mean... paying for high quality journalism is an option (for most HN
readers, anyway)

~~~
naravara
In the old days, you could either subscribe to a periodical OR go to a
newsstand and make a one-time payment for a single issue. E-commerce has not
yet figured out an analogous model to let me just read one thing without
subscribing. We get "free articles" but no "pay a $1 and read this thing"
option.

~~~
sib
From the late 1990's to early 2000's, there were a number of online companies
(would now be called SaaS) including Qpass in Seattle that solved this problem
for companies like NY Times, Wall Street Journal, and many more. Turns out
that customers really didn't want to do that for written articles;
subscriptions just worked better.

That turned out differently for things like mobile apps.

(Source - worked at Qpass for multiple years.)

------
alakin
It's pretty interesting to think about happens from an economic perspective.
Say I buy a house on loan (money withdrawn from capital markets). I hand cash
to the previous owner and they use it to pay back their loan (return money
back to the capital markets, keep the difference).

Consider the synchronous chain. Me: Myprofit=future_profit-cost1 Prev owner:
profit=cost1-cost2 Prev owner 2: profit=cost2-cost3 And so on...

Also consider a parallel behavior where I can simultaneously buy and sell
multiple properties though debt.

It would be fun to model this whole chain and understand what this recursively
unfolding process actually does with capital. Is it a capital sync? What
behavior does it incentivize? Does it guarantee expansion/recession cycles?

~~~
chii
the capital consists of pre-existing capital, and newly created capital from
debt (from a bank). This is literally how money is created (vs direct printing
from the Feds).

And it does guarantee recession and expansion, as explained here by ray dalio
[https://www.youtube.com/watch?v=PHe0bXAIuk0](https://www.youtube.com/watch?v=PHe0bXAIuk0)

------
thdrdt
Unless a house does generate income it is a liability.

I think most people underestimate this. There are some many people who can't
pay their mortgage while they thought the house was an asset.

~~~
munificent
Food is a liability too. Not all products exist to provide _future_ value.
Some provide value _right now_ , like a place to live.

~~~
frankbreetz
If that's the case, why not rent? Anything that cost money, and doesn't create
more money then it costs is a liability. They are just business terms everyone
has to spend some money on liabilities.

~~~
chii
different people value things differently. For a renter, they may value the
lower cost (compared to buying a property to live), and invest the difference.

Some people prefer to own their home because a renter cannot modify the home
(usually). They may also prefer the stability.

There's no universal answer really, since a lot of individual circumstance
come into play making this choice.

------
narrator
Housing would be much cheaper if it wasn't collateral for loans. That
collateral aspect of it makes it the foundation for money creation in the
private banking system and thus all the new money in the economy flows through
housing first.

------
myroon5
Investment Asset Classes by Market Size [Image] (2016):
[https://www.claconnect.com/-/media/cla-image-
repository/gene...](https://www.claconnect.com/-/media/cla-image-
repository/general/illustrations_and_objects/the-investable-universe.jpg)

~~~
marcosdumay
It's disconcerting. Take a look at the darker bar that gathers everything that
adds value to society.

If we could make all that money go to productive ends, society would be just
much fairer.

------
adaisadais
It’s so unfortunate that houses have become more expensive but the actual
value proposition hasn’t really changed. It makes more sense for lots of
urbanites to rent instead of own in some cases.

Houses (and apartments) are so poorly designed. In my mind the floors should
be like an hair hockey table that vacuums itself up. Appliances should be
built into the house and should handle each job when something becomes dirty.
The dishwasher should be smaller and wash each item as soon as it’s been used.
Same for the dreaded washer & dryer... the fact that they are two different
devices greatly perturbs me.

Rant over.

------
age_bronze
I think mortgages as a concept are bad, and do more harm than good to the
people who need to take them. I think gradually banning mortgages, by
increasing the minimum required percentage of house price required to start a
mortgage all the way to 100% (when you can't really take a mortage), will be a
good thing.

The way house investors view mortgages is as a very cheap leverage. So
investing in housing will always be fundamentally skewed, because every single
person can so easily get cheap leveraged investment in a house, so housing as
an investment can perform much more poorly compared to other investment as
still beat them by far because of the mortgage. This is so skewed up that a
house now has an extra value: as a 'token' to get a cheap loan. This extra
value is paid by everyone buying a house.

The way the average family looking to buy a house is completely different:
they are looking to compete in the housing market with other families with
similar financial abilities, to purchase a house. When you offer all sides of
the competition the ability to enter a cheap loan, the side that doesn't take
the loan loses the house. But if all sides didn't have the possibility to take
a loan and pay more for the house, they would all pay less. Allowing buyers to
take mortgages sets them off in a prisoner dilemma against every other buyers,
and they all come out losing. If you outlaw mortgages, everyone interested in
the house itself wins.

Moreover, once you have lured a family into strangulating themselves with a
mortgage, they are now prone to financial stress that will cause them to take
loans with much worse terms than a mortgage, therefore nullifying all the
possible gains they had from taking the cheap loan. So while investors fully
benefit from the cheap credit of the mortgage, families often follow up with
mistakes and bad loans which, in total, make the mortgage costly loan.

The more you think about it, the more you should realize the winners from the
concept of mortgages are real estate companies, investors and banks, and the
biggest losers are the average family which are forced to take it from the
Nash Equilibrium of a prisoners dilemma.

Moreover, if mortgages didn't exist, overall spending across the economy would
rise, which will be a good thing.

~~~
evanlivingston
Almost no one in the US has the cash to purchase a home. How would eliminating
mortgages not dramatically shift land ownership to the wealthy and turn
everyone into renters?

~~~
age_bronze
Because it would make houses an unattractive investment. Once you get rid of
the cheap leverage, housing will never compete with other investments. You
always need to pay for like 40% of the house to start a mortgage anyway, this
will not change the fact you need a significant savings before you can buy a
house.

~~~
evanlivingston
As another sibling said it's fairly usual in the US for put down between
3.5%-5% for a house. Additionally, There are a ton of assistance programs for
low-income people to get cash grants or loan assistance.

If the only way to purchase a home was with cash I suspect that nearly every
home would be owned by a real estate investment company. Who else would have
the cash to purchase a home? You already are seeing this happen on the west
coast. I'm very skeptical that consolidating ownership of land into even
larger businesses would be accompanied by fair and equitable renter's rights.
I believe that the entire stock of housing in cities being owned by large, far
away entities would have a negative impact on living standards and mobility.

~~~
chii
why would having large commercial landlords be any different than individual
landlords?

I'd say that a big commercial landlord has some edge over an individual
landlord by being able to operate at scale, and thus lower the cost of
maintenance. This would be reflected as lowered rents.

~~~
evanlivingston
Because large commercial interests have increased power in city, state and
national politics. Rent control? Screw it! Background checks for rental units?
Mandatory. If there is a monopoly on housing there's the potential for some
pretty nasty stuff.

------
rland
The planning of housing stock is a seesaw. On one end, you have industrial
capital, and on the other you have financial capital. Industrial capital will
always lobby for lowing the cost of housing, as cheap housing will make it
possible to pay out less in salary. Financial capital, on the other hand, will
always lobby for increasing the cost of housing, as higher rents will produce
more in return.

During the fantastic industrial expansion which characterized the growth of
the world's great cities, industrial capital dominated, other than in very
small pockets. Workers flocked to cities, whose planning boards were in favor
of expanding stock -- so incentivized by industrial capital.

At some point during the last generation, the power consensus flipped:
industrial interests waned, and financial interests exploded. In our new
economy, financial capital holds all the cards. Predictably, planning has
followed where the incentives are.

Making the world turn simply doesn't as many workers as it used to --
especially in cities. Industries that do require cheap housing stock for labor
typically opt to build on the outskirts of town. So entrenched are financial
interests.

The answer is to change the incentives. Tax the crap out of real estate, and
the people who hold real estate. Let them put their vast wealth into sectors
which actually _build_ and _invent_ new things to make our lives better.

------
istorical
I believe self-driving RVs will massively disrupt housing. Wish there was
startup level funding for it.

~~~
milkytron
Why do you think that?

~~~
istorical
Three things:

So much of the price of housing is related to the cost of a high value
location - city center, near a transit stop, in a metro area with good jobs,
near a nice natural feature, near a beach, etc.

Mobile housing that can dock somewhere cheap at night but take you into a city
while you are still sleeping or allow you to commute from the comfort of bed
or a desk or couch alleviates that cost by making it possible to both live and
work in these high cost locations while avoiding paying for the price of land
there.

Second is the added value of being able to go on vacation or visit friends
while bringing your house with you.

Set a destination, go to bed, and wake up several states away in your friends
driveway. Makes a trip to Chicago for the weekend much cheaper if you only
need to pay for a lot to park and the cost of charging your presumably
electric vehicle. As opposed to renting an Airbnb or hotel.

Third reason - climate change. If we start seeing major property value losses
to coastal areas, people will start to see a lot of value in the idea of
having their home be mobile.

~~~
0xffff2
How do you think that's going to go when you get into a collision going 65mph
and you're lying in bed? Where are all of these commuter RVs going to park
during the day? Why not just leave them there instead of driving back out of
the city every day?

------
partingshots
I thought land ownership was the de facto means of storing wealth since pretty
much the advent of human civilization. Is that not true?

------
StillBored
Whats crazy is how much it actually costs to build something these days. Where
I live, I doubt you could build a 1200 SQft house for less than 180K. Yet,
just a little over a decade ago I knew people who built nice houses for $60 a
square foot. Just pouring the foundation is almost as much as it cost for the
whole house 25 years ago.

------
yhoiseth
The Common Ownership Self-Assessed Tax (COST) [1] might be at least part of a
solution.

1\. [http://radicalmarkets.com/chapters/property-is-
monopoly/](http://radicalmarkets.com/chapters/property-is-monopoly/)

~~~
perceptronas
This violates private property rights. What If I don't want to sell my
property no matter the price?

~~~
yhoiseth
> This violates private property rights.

That's correct.

> What If I don't want to sell my property no matter the price?

That wouldn't be possible. You could set an extremely high price, but then
your tax bill would also be extremely high.

------
sunsu
Answer: Our governments printed a shit-ton of money.

~~~
nerfhammer
then we should expect similar inflation for prices of all types of things, but
that's not what we're seeing.

~~~
rurp
Stocks, startup valuations, and crypto coins all fit the same trend as housing
prices. Which investment vehicles in the US haven't skyrocketed in value the
past 10 years?

------
jakobmi
Remove all the housing regulation in California and allow builders to build.
You'll smoothly see rents going down to $500/month. Start having integrity and
finally do what's best for your country, not best for just yourself.
Otherwise... All other countries are quickly catching up (esp. Europe and
Asia) and soon, it will be irrelevant.

~~~
z3ncyberpunk
The regulations which are the only thing allowing many people to still afford
their lifelong houses die to rent inflation and gentrification? The
regulations preventing many areas from becoming ugly skyscraper apartments?
Which regulations are you talking about?

------
antb123
They miss Baumol cost disease

[https://en.wikipedia.org/wiki/Baumol%27s_cost_disease](https://en.wikipedia.org/wiki/Baumol%27s_cost_disease)

Basically there haven't been major productivity increases in construction.

------
shusson
An Australian perspective: [https://www.abc.net.au/news/2020-01-20/bigger-
house-price-fa...](https://www.abc.net.au/news/2020-01-20/bigger-house-price-
fall-would-have-been-better-ian-macfarlane/11876758)

~~~
sien
The RBA wrote a paper on the effect of zoning in Australia that is also worth
a read :

[https://www.rba.gov.au/publications/rdp/2018/pdf/rdp2018-03....](https://www.rba.gov.au/publications/rdp/2018/pdf/rdp2018-03.pdf)

It uses the approach from here:

[https://www.nber.org/papers/w8835](https://www.nber.org/papers/w8835)

------
personjerry
Hasn't land and property been the defining assets of the wealthy going back as
far as the Romans?

------
monadic2
Land and buildings as an asset has never made sense to me—it allows charging
many times the investment cost as rent, which seems incredibly inefficient,
without comparable depreciation on resale. What can I read to understand this
perspective?

------
40acres
Cynical view: the laws passed in the mid 20th century to lock out black and
brown folks from homeownership are now starting to affect white people.
Sprinkle historically low interest rates and you have the modern day housing
market.

------
thulecitizen
The documentary Push shows this scary reality beautifully:
[https://www.youtube.com/watch?v=2iLWpuZrd-I](https://www.youtube.com/watch?v=2iLWpuZrd-I)

------
bitxbit
Housing should not be an asset class. Financial institutes will try to
convince you that securitization is what made housing affordable but that’s
far from the truth.

------
CalRobert
The trick is:

* Introduce laws that make it harder to (legally) build housing. Note that much of New York would be illegal to build today, for instance.

* Use these laws to create scarcity. Ensure that there's never quite as much housing as people who need homes.

* Make massive amounts of debt available for said housing.

You now have an entire class of people who want to be sure their house only
goes up in price, and that there is only just barely enough housing built to
stop their region from collapsing. After all, who wants to be underwater on a
mortgage?

I don't know how to break this on a policy level. Few people vote for the
politician who says "I want your house to go down in price" so we get insane
levels of rube-goldberg devices to make housing "more affordable" while also
making it ever more expensive.

The more debt you make available, the more housing soaks it up. Sweden
recently made the maximum mortgage length 105 years!

On the bright side, if you look at stuff that no bank will lend on
(dilapidated structures, etc) there are some good deals to be had.

~~~
rb808
Surely you're missing something about having highest paying jobs concentrated
in a few cities where lots of people want to move to. Most of American has
cheap housing, just many people would rather move to the most expensive places
(which is why they're expensive).

~~~
nerfhammer
cities have only been like that for the last 10,000 years or so. they're the
engine of growth of civilization. the artificial housing shortage trap has
only been going on in the west since starting around 1960 or so.

~~~
s_y_n_t_a_x
It's been a problem since industrialization. There was a mass migration in the
19th century to cities from small towns for work. It has caused the
overcrowding you see today. Hopefully remote work, low orbit sat internet,
solar efficiency, electric & autonomous cars will all lead to further
decentralization.

I don't see why if you could both live green and have space you wouldn't
choose to do so. It doesn't seem to be a popular opinion here.

All of the big city problems are caused by centralization. I certainly don't
see why HN isn't embracing this perspective or at least entertaining it. I see
cases brought against centralization of technologies every single day here.

Luckily it's not up to you guys and it will naturally happen as we advance in
technologies that allow us to spread out.

Ironically y'all are developing it via Zoom, Slack, Figma, and any other
collaboration tool that further allows us to asynchronously and remotely
collaborate.

What's the alternative? Abandoning the people that already live there and all
the progress we've made in transportation in the last century.

The writing is on the wall, the technologies and ideas are pointing in that
direction. The current solutions are falling apart and covered in shit.

~~~
bobthepanda
There was a golden age after the war and before the Interstate system, at
least in the US.

Decentralization causes more issues than it solves; it's extremely inefficient
both from an energy and tax perspective (lots more infrastructure to serve the
same people) and it ruins farmlands and existing biospheres. Density is very
environmentally friendly, both in terms of energy use per person and in the
fact that it limits the impact of human development.

~~~
notfromhere
It really doesn’t. These cities already exist and are depopulating. It would
be inefficient to not use these already existing metropolises, many of which
were built pre-mass transit and are actually more energy efficient than the
post-ww2 boomtowns.

Up until the 1980s, the variation in earnings and cost of living was around
20%. Meaning someone in rural Missouri could earn on average roughly 80% of a
New Yorkers average wage. That wage premium has now skyrocketed, as has
housing.

Allowing capital to concentrate in so few cities is why we have a few high
performing metros and a ton of depopulated ones. And why we have Bay Area
residents bidding six to seven figures for SFHs that would be condemned
elsewhere.

~~~
mcguire
Overall, I agree with your assessment, but the median household income in NYC
is $57k; in Missouri, it's $53k.

I don't have access to a breakdown now, but I would guess the difference is <
50%.

~~~
pchristensen
It sounds like you get it, but comparing a city to a state is misleading,
especially for cities with a huge metro area that contains a lot of the
prosperity. St. Louis County's median income is $35k (61% of NYC avg), and
Jackson County (main part of Kansas City) is $26k (46% of NYC).

The county median incomes NYC counties: Manhattan (New York County) is $67k,
Brooklyn (Kings) is $25k, Queens is $26k, Bronx is $18k, and Staten Island
(Richmond County) is $32k.

[https://en.wikipedia.org/wiki/List_of_United_States_counties...](https://en.wikipedia.org/wiki/List_of_United_States_counties_by_per_capita_income)

------
kingkawn
Ownership of property has always been so

------
chrischen
Once all the land in the world is apportioned, what happens to all future
generations that do not have land? They become slaves to landowners? Will
capitalism fall apart then?

I get that land ownership incentivizes the development of the land by
rewarding the owner, but what happens after all the land is gone and someone
is born into a world of such legacies?

~~~
chii
> someone is born into a world of such legacies?

they obtain the portion that their parents purchased. Or if they are
productive enough, they buy out land from somebody else less productive.

There's no natural right for somebody to be able to own land.

~~~
chrischen
But that creates a class of people who don't have to do that just because they
got lucky.

------
maneesh
Um...are we forgetting derivatives? Real estate isn't even close...

[https://i0.wp.com/money.visualcapitalist.com/wp-
content/uplo...](https://i0.wp.com/money.visualcapitalist.com/wp-
content/uploads/2017/10/all-the-worlds-money-mp-
infographic-1360.png?zoom=3.5&w=1360)

------
adamnemecek
It's going to screw everyone over.

~~~
frockington1
It should be a win for everyone who owns property right? I plan on renting my
current house when its paid off and moving up to something bigger.

------
ecoled_ame
this is how nature disappears ..

------
arexxbifs
Owning a home is sooo last decade. Housing as a Service is where it’s at! Now
sit back and relax while we install this wallpaper with non-stop animated ads,
tailored to suit _your_ way of life.

------
claudeganon
This is my problem with YIMBYism. It’s entirely possible for tons of housing
to be built and for that housing to serve as a speculative asset for private
equity, as a foreign cash store, or be used for money laundering. In fact,
because were living in an age of massive inequality, flat wages, low interest
rates, and QE-driven distortion, there’s material incentive to do this instead
of building what the vast majority of people need.

Any comprehensive housing plan has to be rooted in building more AND cutting
out all of this global Capital chicanery. I see lots of advocacy for the
former and little for the latter.

~~~
helen___keller
Supply and demand is still a thing for rentals.

If it's legal for a non-global-capitalist to replace their 1 unit single
family home with say a 2 unit duplex (and if the regulations are sufficiently
streamlined that they can do so in a cheap-enough and timely manner), many
individuals will do so on a home equity loan or similar type of loan and then
rent out the second unit for extra income.

When enough individuals with 1 unit single family homes own duplexes with
rental units, this applies negative pressure to rental prices (because supply
and demand does exist in the rental space)

When rental prices are depressed, this will (slowly and over the long run)
apply negative pressure to the inherently-speculative purchase price for a
housing unit. Aside from "prize units" like skyscraper penthouses, your
average rental unit sells at a speculative price based on rental income and
perceived future appreciation. When you depress the rental income, you also
depress the perceived future appreciation.

You CAN fight speculation with free market economics, but it requires more
than luxury condos, it requires ordinary people with ordinary properties in
ordinary neighborhoods who can take a loan to make their land more productive.

~~~
claudeganon
All current home owners take on debt so they can remodel their houses and
become landlords seems like an insane proposition relative to the government
just building housing and charging rent pegged to their wages, no?

~~~
helen___keller
> All current home owners take on debt so they can remodel their houses and
> become landlords

Not all of them, just whoever wants to. It becomes a natural balancing act, as
rent swings higher, so do the incentives to replace a single family home with
a duplex (or heaven forbid, a 3-unit or 4-unit home, which I may add all use
single family construction techniques and have similar costs per sqft to
construct). I mean, that's how free market economics is SUPPOSED to work, if a
commodity is overvalued then more people enter the market to sell and bid the
price back down. What we have now is some abomination where there's a limited
quantity of housing with a growing number of elite bidding it up and up and
up.

> seems like an insane proposition relative to the government just building
> housing and charging rent pegged to their wages, no?

I mean, that sounds great to you, and it also sounds great to me, but in the
united states atleast I'm sure a large percentage of the population would view
this as blasphemy.

To be specific, this is politically infeasible in most or all of the country.
Most places can't even agree that "building housing" should be legal at all,
much less building done by and managed by the government and all the policy
implications built around financing that operation.

Furthermore, in the places where this is needed most, cost of construction is
already high (part of the reason why rent is so high, see my section on supply
and demand), which means a municipal government could only afford to build a
very few number of units. So either way the first step is to lower the costs
of housing, both by making it legal to utilize land more efficiently and by
streamlining regulations that hamper construction.

------
d_burfoot
Tech people should reflect a bit on our responsibility for this situation.

It's not that housing is scarce in absolute terms. There's a ton of housing in
rural or suburban areas. There's even a lot of housing in cities - just not
the "desirable" cities. And what are the "desirable" cities? Almost without
exception, they are places where tech workers tend to cluster - SF, NYC,
Seattle, Boston, Austin, etc.

We should try to alleviate this problem by lobbying the leadership of big tech
companies to open more branch offices in middle-tier cities, and also to
increase support for remote workers.

