[HN Gopher] Maybe treating housing as an investment was a mistake
___________________________________________________________________
Maybe treating housing as an investment was a mistake
Author : kqr2
Score : 788 points
Date : 2023-03-06 17:06 UTC (5 hours ago)
(HTM) web link (goodreason.substack.com)
(TXT) w3m dump (goodreason.substack.com)
| [deleted]
| yboris wrote:
| Related: _Is It Better to Rent or Buy?_ - an interactive data
| visualization / calculator.
|
| https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...
| higgins wrote:
| is there a non-paywall version of this online?
| CatWChainsaw wrote:
| try uBlock origin (and/or uMatrix, it's still very useful
| even though it's out of support).
| yboris wrote:
| Try incognito? For some reason I see the visualization with
| no block - and I'm not registered / paying to NYT.
| Joel_Mckay wrote:
| When residential zoned buildings are used for commercial
| purposes, a fundamental shift in the communities purpose occurs.
| The situation we have now is people leveraging overvalued assets
| to acquire more speculative risk with nonexistent equity.
|
| Tip about the "200 month rule": if a rented property valuation is
| more than 200 months revenue (empty occupancy adjusts to $0
| unlike the "creative accounting"), than you can be 100% certain a
| market correction is coming soon.
|
| I would recommend reviewing post-hype markets in Japan if you
| want to understand where this cycle ends in more detail. No, your
| shed in a gloomy remote town is not worth what you paid for it
| friend. As interest rates must increase to dampen inflation, the
| overexposed gamblers will lose their assets in the next 3 years.
|
| Try to find a ETF that isn't a dumping ground for a firms real-
| estate mistakes... Hint, it is mission difficult indeed, as
| cultural bias drives most of these markets.
|
| Get some popcorn, and invest wisely friend. =)
| nemo44x wrote:
| There's millions of affordable homes available but they aren't
| where you think you deserve to live. 30m or less commute by train
| in and around Newark, NJ to NYC for peanuts (and they're safe
| places). But, it's not sexy so you don't want to live in it.
| raverbashing wrote:
| Investment return on housing should have been on the first sale
| or through rental, and that's pretty much it
|
| But then the main issue with real estate prices is the limited
| supply side, which for the most part has no reason to be
| TheBigSalad wrote:
| One major mistake in this article is comparing houses to cars or
| appliances and saying they should lose value. Things go wrong in
| houses but while cars and appliances can't last forever, houses
| can last for hundreds of years with regular maintenance costs.
| endisneigh wrote:
| As long as land has different levels of productivity it's
| impossible to not make housing an investment. The only solution
| are exponentially increasing taxes on land, in order to ensure
| that land usage is always used in tandem with the potential
| productivity (which has its own issues), or make most housing
| nationalized like Singapore.
|
| In the end, for better or for worse, the issue is a dissonance
| between the struggle of renters and political activity.
| Homeowners do not make up the majority of the electorate (though
| interestingly the majority of households "own" the household in
| which they reside). You'd think that renters would the laws in
| their areas reflect their will, but alas, renters have low voter
| turnout.
| madduci wrote:
| The article might be based on the US market, but actually it has
| some fallacies, as seen in European cities:
|
| - house prices go really up in in-demand cities (Lisbon, Berlin,
| Milan among others)
|
| - rents do go up as well, you don't have fixed rent for 30 years,
| but, instead, you get an increase of 1.5-3% every year (so is
| seen in Berlin), sometimes you get contracts where rent is
| adjusted based on inflation as well
|
| - you can still buy an house, use and enjoy it and decide to sell
| it when you want to move somewhere else. You don't loose all the
| money (if you are lucky, you might earn actually ). With rent,
| all the money paid is lost forever.
| adameasterling wrote:
| "Housing prices only keep pace with inflation. America realizes
| it totally forgot about a few million homes it built, greatly
| expanding supply. Housing prices rise only 2%. Alice is much,
| much worse off for buying. In total, buying costs ~$1.75M, where
| renting would have cost her ~$1.3M."
|
| Err.
|
| What?
|
| In this scenario, Alice lives in a world where a homeowner is
| allowed to subdivide their lot and sell homes worth about the
| same to N more people. Sure, one "home" costs the same, but
| she'll be allowed to fit a lot more homes onto her lot. She comes
| out way ahead in this world.
| arcticbull wrote:
| My refrain remains: housing cannot be both affordable in
| perpetuity and a good investment. These are mutually exclusive
| goals. Let people build.
| VHRanger wrote:
| Japan has plenty of societal ills, but at least Tokyo has been
| doing amazing on this front.
| beebmam wrote:
| China has an enormous amount of housing. Their prices are
| still sky high
| samstave wrote:
| When very few can purchase a luxury suit in a ghost city in
| china, the infra build costs were high, but the available
| buyer population is way fn low - its inverse to
| supply&demand when it comes to chinese real estate.
|
| The buyers would have to fund ALL the infra to power,
| water, feed such ghost city homes, and where will they
| work?
|
| I used to work with a guy in SF that had a consultancy that
| would bring chinese 'students' on tours of the US to
| various universities to have them pick where they wanted to
| go to school.
|
| These were the children of chinese oligarchs - and they
| would land in SFO with luggage full of cash - and, not
| knowing how things worked in the US, would jusr bribe their
| way through every transaction at ~$10,000 a time...
|
| The chinese oligarchs own more of america than you may
| know.
| credit_guy wrote:
| Housing in ghost cities doesn't count. Housing needs to be
| available where the jobs are.
| pif wrote:
| I think it's time to reverse the equation: jobs have to
| be available where housing is!
|
| In other words, we must learn how to improve the economy
| without turning the cities into antlers.
| svachalek wrote:
| There's a huge cultural difference there though -- people
| don't trust stocks, bonds, or bank accounts. Housing is the
| only investment most people will consider.
| pzone wrote:
| The Chinese situation is caused by government rather than
| by their culture. Chinese corporations are forced into
| inefficient state-mandated investments and provide meager
| rates of returns for shareholders. They get tons of shiny
| public infrastructure while savers are given nothing, and
| are not allowed to invest internationally. In other
| words, it is pure financial repression.
| hinkley wrote:
| There are old men who still remember their neighbors
| being dragged out of those houses, tried, and executed by
| Mao's kangaroo courts.
|
| Most martial arts schools with ties to China have stories
| of expatriation or of practicing in the dark in
| basements.
|
| All those houses bought in Vancouver aren't just about
| financial investments, they're also a potential bolt-hole
| if things get ugly again.
| btilly wrote:
| Also those houses are being bought with money being
| smuggled out of China. For all of the reasons that
| patio11 gives in
| https://www.bitsaboutmoney.com/archive/money-laundering-
| and-..., real estate is an excellent investment for money
| whose provenance you wish to be hard to discover.
| redmorphium wrote:
| This is a negative way to look at China's history.
|
| As a Chinese-American, whose family and friends all
| profited greatly from China's rise, I do wonder, how much
| of that profit was just being lucky enough to support the
| "winning team," and how much blood was shed on the other
| side.
|
| I guess the only true mindset is a neutral one.
| hinkley wrote:
| We have a model for that in your birth country (American
| Civil War). But from my fractured knowledge of Chinese
| history, there's been a lot less backpedaling vis-a-vis
| the Civil War on ideological differences between the
| winning and losing side (and we mostly lament those as
| regression instead of progress).
|
| In China, things have come back. People who escaped were
| invited back with promises of better treatment, even
| given platforms (eg, martial arts) but who knows what we
| Earthlings have lost from people who didn't.
| Biomechanics, biology, art, technology, philosophy...
| ianlevesque wrote:
| Nor should they, cultural or not. Look how the government
| destroyed the Ant group recently. When they can
| unilaterally do that, how can you find a safe stock?
| majani wrote:
| Land in China is all leased from the government, so
| there's no escaping government risk there without leaving
| the country
| seunosewa wrote:
| Why do you think that is?
| sgt101 wrote:
| I have an answer: there is nothing else to invest in for
| the average person.
| arcticbull wrote:
| Federalized zoning rules. Congress has the authority.
|
| https://fred.stlouisfed.org/series/JPNCPIHOUAINMEI
| parineum wrote:
| One size fits all zoning regulations for rural Montana,
| Manhattan and the suburbs of Los Angeles.
| carom wrote:
| Yes. It is your property, build it out as dense as you
| wish. There is not the demand in rural Montana to build
| out a 160 acre ranch with apartments. Just remove density
| restrictions and let people build to meet demand.
| parineum wrote:
| You're proposing removing zoning, parent is proposing
| federalized zoning.
| kurthr wrote:
| Every time I see this I have to laugh. If you live in Tokyo,
| I'd love to hear your anecdotal experience.
|
| I have stayed and visited japan for the last 35 years, and
| find all of the "Tokyo is so affordable and buildable" is
| hilarious. The breathless articles I read about it leave out
| fundamental aspects (the incredible density, the absolute
| destruction 70 years ago, the corruption [especially in
| Shinjuku], the size of the "livable apartments", the need to
| rebuild anything from before 1980 for earthquake safety, that
| youth population falling by half, the stagnation of wages),
| and the fact that most people who can leave Tokyo to raise
| children do (even if it means commuting 2hrs each way every
| day on a train).
|
| This just doesn't match anywhere in the US or frankly almost
| anywhere else in the world. I know 2 people who actually
| still live in Tokyo. One is a 28 year old single foreigner,
| and the other is stuck in a 100 year mortgage with their
| extended family. All the rest moved.
| arcticbull wrote:
| > and the fact that most people who can leave Tokyo to
| raise children do (even if it means commuting 2hrs each way
| every day on a train).
|
| Is that why the population is 14M - 34M in the metro?
| Bigger than every American city and about the size of all
| of Canada combined? They just can't get out to where it
| should by all accounts be cheaper? Is there a fence or
| something?
| kurthr wrote:
| It takes too long to get there by train. Shinkansen is
| too expensive for daily commuting (for normal people).
| Two hours each way sleeping on a commuter train is about
| the limit of what people can tolerate. I love Tokyo and
| the rest of Japan. It's amazing, but if you put any other
| culture in Tokyo, it would be unlivable.
| cjmb wrote:
| Agreed. Don't forget the massive implosion of the real
| estate market 30 years ago that turned a whole generation
| off of buying property and bankrupted vast swathes of the
| population.
|
| Said "breathless articles" usually just grab some "rate of
| price increase" chart benchmarked to the most severe
| recession in recent decades and start celebrating just
| because Tokyo _also_ has good housing policy. But in trying
| to advocate for good policy elsewhere, they just end up
| championing national recession, international stagnation,
| depressed wage growth, and more.
|
| see charts & data etc here:
| https://www.conradbastable.com/essays/japans-housing-
| crisis-...
| goosedragons wrote:
| So why is the population of Tokyo steadily increasing while
| the population of Japan overall is decreasing? Is it all
| just foreigners explaining 2+% growth rate in recent years
| despite them making up less than 3% of the cities total
| population? Or are the people stuck in 100 year mortgages
| just having lots more kids than everybody else?
| [deleted]
| kurthr wrote:
| The pricing is set by the marginal housing. Marginal
| housing is older tiny apartments that would be considered
| deathtraps in the US or Europe. Those older 7 story
| buildings are torn down and replaced with 30+ story
| apartments (in less corrupt ways than in the past at
| densities that most other countries would consider too
| high) which are unaffordable to the people who are forced
| to leave and commute long distances to newer/safer, but
| similarly high density housing.
|
| Because ALL of the jobs are in Tokyo (or Osaka, or
| Fukuoka). Note that Chiba city is growing faster than
| Tokyo and it's a suburb (same with Tsukuba)! Shin-
| Yokohama is getting too expensive.
| goosedragons wrote:
| Meanwhile in western countries the prices go up for no
| reason! That 30 year old house? It's worth double what it
| was 10 years ago! And now it's a 30 year old house
| instead of a 20 year old house. This is reality where I
| grew up. Most of my peers are priced out too. And I grew
| up out of the city centre...
| kurthr wrote:
| And interest rates went from 20% in 1980 to 2% in 2021.
| Like fashion bags and NFTs they were financialized. The
| market can remain irrational longer than you can remain
| solvent. Seen China and the massive building there, but
| it didn't lower prices... they're higher than SF or NY!
|
| It's not just housing. Look at bare land or abandoned
| buildings in CA. Those also grew by similar amounts or
| even more! Why develop it when it goes up in value? Why
| not own multiple empty homes when they "only" go up in
| price. Well, welcome to higher interest rates and likely
| a less deflationary world (deglobalization) with non-wage
| inflation that prevents the Fed put.
| Firmwarrior wrote:
| I don't want to be too combative here, but Kurthr's
| comments are completely unrelated to the sentiment of
| most people in Japan. I don't know where they came from.
| I lived in Tokyo for years and still have an apartment
| there. You can work part time for minimum wage and still
| afford an apartment you can live in comfortably.
|
| It's not going to be a US-style giant house with a green
| lawn, but it isn't some dystopian hole in the wall or
| giant share-house like non-wealthy San Francisco
| residents are stuck in.
|
| You can fire up Netflix and watch some of "The Full-Time
| Wife Escapist" on there to see a normal small apartment
| in action. It's tiny by US standards, but people can live
| there comfortably.
| s1artibartfast wrote:
| I don't think that is true at all. A good investment can be one
| that tracks inflation and simply pays out the labor and capital
| you put into it.
|
| Owning should be cheaper than renting in the long run for the
| same reason it is cheaper to cook at home than eating out.
|
| Savings by owning should be commensurate with the risk taken,
| cost of upkeep, and time value of money.
| mixmastamyk wrote:
| Returning your money (at 0% ROI) is not what people want in
| an investment. What you're describing is a savings account,
| or even a bit less. Historically you might make a percent or
| two after inflation, but not the last couple of decades.
| s1artibartfast wrote:
| I disagree. I think a lot of people would be fine with a 0%
| ROI investment if it comes coupled with a free house to
| live in for the rest of their lives.
|
| A house is not a stock, bond, or number in a savings
| account. You get utility from living in it as well.
|
| A 0% ROI would however make that investment unattractive
| for 3rd parties who don't live in the house.
| mixmastamyk wrote:
| This sounds like an "inflation hedge" rather than an
| ordinary investment:
|
| https://www.investopedia.com/terms/i/inflation-hedge.asp
| s1artibartfast wrote:
| There are lots of different types of investments. Housing
| is historically considered an excellent hedge against
| inflation ("Land, they aren't making it anymore")
|
| However, purchasing a house it is not _just_ an inflation
| hedge. It comes with a house you can live in! This is an
| attractive quality for many of us humans who like living
| in homes.
| ethanbond wrote:
| A high Land Value Tax accomplishes this. It negates the
| appreciation generated merely by land scarcity and value of
| surrounding land, which means the only way to get gains from
| your real estate holdings is indeed to put labor and capital
| into improving it.
| s1artibartfast wrote:
| I think annual land value taxes are efficient at resource
| allocation but unacceptably punitive on owners. You should
| not be penalized or motivated to sell simply because a 3rd
| party can get a higher return.
|
| Similarly, value gains from land appreciation _are_ taxed
| at the time of sale. IF I pay annual taxes on land
| appreciation, I should be exempt from taxes at the point of
| sale, otherwise I am paying for that appreciation twice.
| ethanbond wrote:
| Yep I (and many other LVTers) are okay with zero taxes at
| time of sale.
| HDThoreaun wrote:
| Land belongs to society, not whoever has a house on it.
| If you are using it ineffectively you deserve to be
| punished by society via taxes because you are directly
| making the community worse off.
| s1artibartfast wrote:
| If you don't believe in property ownership, I think it
| unlikely we will find common ground.
| HDThoreaun wrote:
| I absolutely believe in property ownership. And that land
| is such a unique and important asset that it is utterly
| immoral for anyone except society as a whole to own it
| and tax those on it at close to its full value.
| s1artibartfast wrote:
| In this we have similarly strong feelings but opposite
| conclusion. I also think that land is a fundamental and
| important asset, but conclude from that it is immoral for
| an individual possession to be reliant and dependent on
| society.
|
| I feel it in the same way that I would not want my
| ability to beath air to depend on some social utilitarian
| function that could decide it is better used elsewhere.
|
| I suppose you might view this as anti-social.
| aeturnum wrote:
| I agree that the sort of investment you are describing makes
| sense - but in practice those kinds of investments are out-
| competed by ones with better yields. If you are a developer,
| there is simply no financial incentives to choosing a lower
| yield financial vehicle. You'll just have more trouble
| finding funding and have less of a cushion for cost overruns.
|
| I also think there's a strong economies of scale argument
| that "we" (society) would prefer most people rent (and use
| some sort of fixed or low-profit system that does maintenance
| at scale) as it'll result in lower overall costs. However
| it's absolutely true that home ownership is the best vehicle
| we've found for building inter-generational wealth so I'm not
| against it. Also one can simply prefer a society with more
| individual owners and slightly higher overall costs -
| reasonable people can disagree.
| s1artibartfast wrote:
| >I agree that the sort of investment you are describing
| makes sense - but in practice those kinds of investments
| are out-competed by ones with better yields.
|
| I think that is a an advantage, not a disadvantage. There
| is no need for housing investments to have competitive
| yields. If you can make a profit building houses which have
| more value to buyers than your cost of inputs, someone will
| make them. It just won't be a speculative investment good.
|
| I don't worry that people will stop making socks, shoes, or
| food because the profit margin in that business is lower
| than the market yield. If there is on opportunity for
| profit, someone will want do it. They just might not be
| funded by some massive financial hedge fund, which again, I
| think is an advantage.
|
| Historically, home ownership has been a vehicle for
| intergeneration wealth building because it means taking on
| more responsibility, work, and risk instead of paying a 3rd
| party to do so.
|
| I would argue that most people renting would not result in
| the lowest cost, because it turns responsibilities that a
| homeowner can do for free into 3rd party services which
| must be paid for. It is like saying that city run food
| kitchens would be more efficient than people cooking at
| home. Maybe it is "more efficient" if you count the
| homeowners implicit labor, but the dollar cost to the
| cooker is still going up.
|
| I think most people would agree the goal is higher
| ownership and lower costs than now. I think this is
| actually reasonable if we fix some of the conditions that
| lead to house exorbitant growth in house value
| aeturnum wrote:
| > _There is no need for housing investments to have
| competitive yields_
|
| I personally agree but you are not describing the
| economic system we live in.
|
| > _I don 't worry that people will stop making socks,
| shoes, or food because the profit margin in that business
| is lower than the market yield. _
|
| This happens all of the time - but the market finds
| another equilibrium and continues to provide the good.
|
| > _It is like saying that city run food kitchens would be
| more efficient than people cooking at home._
|
| Generally agreed - this would be more efficient. I also
| do not want it. It's more efficient in every way. There
| are significant economies of scale. There is a reason
| armies do not have each individual soldier cook their
| meals.
|
| > _I think most people would agree the goal is higher
| ownership and lower costs than now._
|
| 100% agree - but my point is that this is a local maxima.
| If we wish to globally minimize "total resource
| expenditure" then the Platonic best system is some
| perfectly managed hyper-apartment arrangement with the
| "optimal" allocation of affordances. Though, as I said,
| reasonable people can value things other than costs. We
| are generally always in a local maxima - but it's good to
| remember it.
| s1artibartfast wrote:
| >I personally agree but you are not describing the
| economic system we live in... This happens all of the
| time - but the market finds another equilibrium and
| continues to provide the good
|
| I just dont think we are on the same page here or think
| this is accurate for our system. The 1% profitable sock
| factory doesn't shut down because some investor somewhere
| starts making 100% ROI on bitcoins or tech stock. A
| carpenter doesn't lay down his tools because fund manager
| somewhere is making big bucks. I agree the prevailing
| rates on capital can have impacts on _new growth_ in
| capital intensive industries, but that doesn 't mean you
| wont be able to find a homebuilder if you have cash in
| your pocket.
|
| >Generally agreed - this would be more efficient. I also
| do not want it. It's more efficient in every way. There
| are significant economies of scale. There is a reason
| armies do not have each individual soldier cook their
| meals.
|
| I don't think resources like labor and time are truly
| fungible and can be treated as interchangeable.
| Efficiency is relative to the measure of value and the
| person making the valuation.
|
| If I don't value my time or even enjoy cooking, paying
| someone to do it is not efficient _for me_ , even if
| there are huge economies of scale. It might be efficient
| in terms of total hours to some central planner, but
| their valuation of my time and labor is not the same as
| mine. I am still paying money for labor that would
| otherwise be free. It may be horribly inefficient.
|
| There is no maximally efficient platonic system without a
| universally imposed definition of the measures being
| optimized.
| nikanj wrote:
| But for the previous generation or three it was both. A house
| could be bought for relatively little, and rose quickly in
| value.
|
| Like a lot of pyramid schemes, it's actually quite good if you
| got in early
| hot_gril wrote:
| At the national scale, people can build. Despite this, a house
| can be a good investment if a certain area becomes sought-
| after, and there are reasonable limits to how much can be built
| there.
| dboreham wrote:
| Still, an asset that long term tracks average salaries is not
| bad.
| agrajag wrote:
| The author is right that treating housing as an investment is a
| mistake, but doesn't take their analysis far enough. In the case
| where no new houses are built and their house appreciates
| significantly, after they sell their house _they still need a
| place to live._ Their next house will cost just as much,
| regardless of if they rent or buy, effectively eliminating all
| the gains they made selling the first house. The only real ways
| out of this are to move somewhere else with lower housing costs,
| or die. And really, it's worse than this, because their children
| will need housing too unless they're ok with them living at home
| forever.
|
| The mentality that housing is an investment good has created a
| lot of perverse incentives (buy as much house as you can, you'll
| make more money!), that we really need to curb so that we can
| lower the cost of housing for everyone. Housing needs to be a
| consumptive good, where much like cars there's incentives to
| drive prices down and keep overall spending on the sector low.
| horsawlarway wrote:
| I think you'll find it really tricky to remove the idea of land
| as an investment.
|
| And that's what we're really talking about when we talk about
| housing as an investment (the land is appreciating, the house
| is a pile of goods that's slowly rotting)
|
| There are lots of houses (and lots of land) that no one wants
| and is dirt cheap.
|
| There is lots of land that is very attractive because of the
| investment made in it (structural improvements, clearings,
| landscaping)
|
| There is also lots of land that is very attractive because of
| the investment made in the areas surrounding it (hospitals,
| entertainment, jobs, infrastructure).
|
| The problem is that at some point, people actually invested
| time/money/resources/energy/etc into making those areas
| "attractive". So now those areas are in high demand and the
| number of dollars seeking them out is far in excess of the
| amount of the space available, so prices rise.
|
| As a side note - if people can't make land an investment
| through housing, it absolutely does not guarantee that folks
| will lower the price of houses in those areas. It may well mean
| that they remove the housing and make the investment something
| else (industrial/agricultural/power).
|
| ---
|
| So really - to remove the idea that land is an investment, you
| have to remove the population growth in an area. Otherwise it's
| unavoidable. There is a limited amount of land, and more people
| competing for it.
|
| When people say things like "Housing isn't an investment in
| [area]" most times they really mean population is decreasing in
| that market (japan is a perfect example).
| donnowhy wrote:
| most certainly.
|
| another example of dumb and costly mistakes is putting a
| capitalistic-optimization scheme in charge of medical care
|
| alas, for some reason (many of them, indeed) most of these
| 'problems' cannot be corrected. for a few powerful interests
| these aren't problems at all.
| fulafel wrote:
| Of course expecting a house to go up in value is speculation, is
| this controversial?
| koolba wrote:
| The biggest real world advantage for the average person for
| buying a house is forced savings.
|
| If a mortgage is $3K and rent is $2K per month, Joe Sixpack is
| not going to save $1K in a sinking fund. He's going to spend some
| extra non-zero portion of that money. So in the long run, for
| average real consumers, not a theoretical economically minded
| consumer, a mortgage forces frugality.
| legohead wrote:
| That's definitely the case for my family. Every time we gain
| some extra money, it disappears. 5 years later however, our
| house has gained a ton of value, and we can upgrade to a better
| house with the same mortgage. And in my experience, the better
| house rises in value faster than our previous houses. My homes
| have gained far, far more value than I've ever added thru my
| own equity payments.
|
| Not that I'm promoting this system. The cost of housing and
| rent is so insane at the moment, I don't know what to do about
| my kids who are growing up fast...
| ohgodplsno wrote:
| In many countries, mortages cannot be over a certain fixed
| percentage of your income. In my case, in France, it is 33%. I
| currently pay over 40% of my income as rent. This has a double
| effect:
|
| * I'm paying for a landlord's mortgage, for a good that should
| be easily accessible, at insane prices.
|
| * I cannot save up that money, while my landlord does, allowing
| them to purchase more houses.
|
| Rent is theft.
| iso1631 wrote:
| It amuses me this recent panic in the US. The UK has had this
| housing problem for over 20 years.
|
| Reality in the UK is that if you can find the downpayment on a
| mortgage, the monthly outgoings in that mortgage (both the
| interest and the capital) are less than the rent. Sure you
| might have to replace a roof every 50-100 years (I had a quote
| in 2021 for my 60 year old roof for 4% of the value of the
| house), or a new heating system every 30 years (just replaced
| mine from the 80s, 3% of the cost of the house), but on the
| whole the vast majority of the cost is in that mortgage payment
| oldstrangers wrote:
| Rental payments are higher than mortgages in most large cities.
| And those renters usually can't even qualify for a mortgage,
| despite paying more in rent.
| notyourday wrote:
| There's a very simple solution to this problem:
|
| * any and every landlord immediately pays taxes based on the
| asking rent, no matter what rent it is.
|
| If a landlord is asking $2500/mo for something, the
| government immediately values the property based on whatever
| the formula is based off the asking rent, even if the
| landlord cannot fill the space.
| anonymouskimmer wrote:
| > any and every landlord immediately pays taxes based on
| the asking rent, no matter what rent it is.
|
| To work to _decrease_ or cap rents this would have to be a
| dramatically increasing progressive tax. It would have to
| be a complicated progressive tax to work with both small,
| less desirable residences and mansions.
| notyourday wrote:
| No, because if they happened to own a small place they
| won't be able to rent it for a wishing price as there's a
| price pressure from above thus anyone with a smaller
| place will pay smaller taxes.
| 8note wrote:
| That rent will be 3K or higher. The competition is for who can
| pay the highest rent, _and_ it won 't be saved.
|
| Without a mortgage, eventually Joe Sixpack's full paycheck goes
| to rent
| lnsru wrote:
| Close to my numbers. My old rent plus monthly savings are close
| to monthly bank payment for my home. My real consumption is
| dropping to zero since I want to get rid of mortgage as quick
| as I can.
| misiti3780 wrote:
| why do you want to pay off your mortgage so fast?
| yonran wrote:
| This post makes a good point, in particular that one generation's
| house price appreciation (really, land rent and price
| appreciation) is the next generation's shelter price inflation.
| And the obvious solution is higher land taxes and more incentives
| to construct new housing.
|
| However, I would add nuance that using the word "investment" as
| synonymous with price appreciation is only partly true because
| any investment's value comes from capital gains _or dividends_.
| And I dispute his claim that if buying is a good investment, then
| prices need to increase faster than inflation (although expected
| rent growth due to supply restrictions may be priced in in the
| example of Littleton, CO). A house can be both affordable to all
| generations and a good investment, just as a laptop or a pickup
| truck or any capital good can be both broadly available and a
| good investment. You buy a car instead of leasing it because it
| is a good investment even though it depreciates and even though
| there is a healthy market of auto leases. Kevin Erdmann has a
| clear-eyed series on the role of landlords even in a healthy
| housing market, which is much like the role of lessors of any
| capital good https://www.mercatus.org/economic-insights/expert-
| commentary...
|
| The key variable that he is forgetting in the nytimes rent
| calculator is rent inflation. In almost any market, there will be
| rental investors, and that's a good thing; otherwise you would
| not be able to rent a house. What really matters for the long-
| term health of the country is making sure that rents don't
| increase (YIMBYism) and turning inevitable central city rents
| into public goods (Georgism).
| whiddershins wrote:
| 7% return on the market is the bad assumption that makes it so
| you need the other bad assumption to make home ownership worth
| it.
| arberx wrote:
| That implies housing has risks. Since 2009, that risk has been
| eliminated by the FED owning 30% of all mortgages on its balance
| sheet.
|
| We've nationalized housing risk and privatized the gains.
| nvarsj wrote:
| Housing in America was basically a backdoor pension system for
| the working/middle class. Without the dramatic rise in housing
| prices, the boomer generation would be struggling to retire.
| atemerev wrote:
| And the fed is absolutely, 100% riskless, right? Nothing ever
| will happen to it?
| TremendousJudge wrote:
| If something happens to it it'd be alongside some sort of
| low-probability event that will leave you with more pressing
| things to worry about than the value of your investments
| treeman79 wrote:
| Well we still have 60 and 90 year mortgages as tricks to use.
| Plus paying for mortgages on places that don't yet (never
| will) exist. So government can probably increase house prices
| several times over before whole thing collapses.
|
| See China for how that's working out. (Not well)
| atomicnumber3 wrote:
| I'm not sure if you're being glib or not, but if something
| "happens to" the Fed, we have much bigger problems than
| anything as boring as investing risks. It probably means WW3
| or California is seceding or something.
| donnowhy wrote:
| I think atm the Fed is the main force holing the USA
| together, considering all the bi-partisan polarization
|
| all ways to divert the "voltage" across elite and commoner
| classes which are the real source of this tension.
|
| I'm saying that wealth inequality creates something quite
| comparable to 'voltage', this creates a tension which WILL
| get released (because physics). But due to active
| (social-)technological management this tension is getting
| re-focused into blue Vs red bi-partisan politics, as well
| as other expressions of winners fighting losers (including
| gender 'equality' tensions, trans and transphobics, etc..)
| hot_gril wrote:
| "Risk-free" is a common term you'll hear in finances that
| basically means, no risk aside from a governmental collapse.
| That's still a risk but falls outside their scope.
| mitt_romney_12 wrote:
| If the fed goes under then you have far bigger concerns
| aeternum wrote:
| Not sure if it counts as privatized when the vast majority of
| Americans are homeowners.
|
| The gov had a ton of programs to increase the home ownership
| rate over the last 50 years, they were somewhat successful. Now
| you have a situation where the networth of 65-70% of the
| population is tightly coupled to their home price.
|
| And we wonder why it's so hard to get them to vote for new
| housing.
|
| As Munger says, Show me the incentives and I'll show you the
| outcome.
| TheRealDunkirk wrote:
| There's enough government involvement to insure the paper-
| printing game everyone is playing, and that's all that
| counts. They guarantee the low end with the FHA, and that
| props up everything else.
| aeternum wrote:
| Right, a better solution would be to package demand-
| stimulating legislation like FHA with supply-stimulating
| legislation like reductions in zoning restrictions.
|
| The results of stimulating demand (FHA and similar) without
| changing supply is econ 101.
| loldk wrote:
| [dead]
| Keegs wrote:
| The majority of homes in America are occupied by their owners
| (this is what home-ownership rates measure). It is not true
| to to say the majority of American adults are homeowners -
| that ratio is a lot lower.
| aeternum wrote:
| Looking at the flip statistic, 36% of households rent so
| the numbers do seem to add up.
|
| For many households, some of the residents may not
| technically share ownership of the house (not on the deed)
| such as kids or extended family living together, but still
| have a vested interest in the value going up.
| [deleted]
| photon12 wrote:
| > Meanwhile, renters are desperate. They're begging for housing
| prices not just to slow, but to fall.
|
| I have a friend who is a head chef at a decently popular bar and
| restaurant on Broadway in Capitol Hill, Seattle (very trendy part
| of town if you aren't familiar, steep commercial rent). He lives
| in a 400 sq ft studio and is barely, barely making it from one
| paycheck to the next. I am sitting on a 2.6% interest rate
| mortgage and my prices are set for the next 30 years. I probably
| work half as hard as he does, if not even less than half. I have
| a lot of cognitive dissonance associated with that.
| tempsy wrote:
| This is an absurd statement.
|
| Median rent in Seattle for a 1 bedroom is $2k. Using the 40x
| rule someone who makes $80k could easily afford this, which is
| a low bar for someone with a moderately decent job.
|
| Locking in a low rate alone has nothing to do with whether
| owning is more affordable than renting. The rate could be 0%
| but with a sales price high ala 2021-2022 buying mania and then
| adding property taxes, insurance, maintenance, and HOA the vast
| majority of "high" cost metros have and will continue to be
| much more expensive to buy in than rent in whether rates go up
| or down.
| photon12 wrote:
| > $80k could easily afford this, which is a low bar for
| someone with a moderately decent job.
|
| $80k is not a low bar, and this is insulting to really
| talented people I know stuck in below $40k jobs.
| tempsy wrote:
| so rent is now considered a massive burden on everyone
| because someone making the minimum wage cannot easily
| afford the median rent in the city they live in?
|
| that's not how it works at all
| troll555 wrote:
| [dead]
| mypalmike wrote:
| The median annual salary in Seattle is around $60K. So $80K
| is, based on the actual data, a high bar.
| distrill wrote:
| 80K is a lot for restaurant work. While $40 an hour is not
| unheard of in the seattle restaurant area, I would not
| consider this a low bar to reach in that industry (or many
| others outside of tech tbh).
| uoaei wrote:
| This take is an example of a phenomenon I've come to describe
| as "stat-rot".
|
| Completely missing the point about how people live because of
| a hyper-focus on _median_ statistics. By definition, the
| median describes exactly one person to perfect resolution,
| and the rest of the population only in a binary higher /lower
| relation. The explanatory power of median statistics is
| marginally better than mean statistics, but it is not a
| substitute for and cannot serve to explain outcomes that do
| not fit the restrictive mold of the "median" person.
| jejeyyy77 wrote:
| I know people who made good investments in the stock
| market/crypto that sold at the right time. They are set for
| life. I also know people who are founders of startups and they
| grind day in day out but haven't gotten traction (yet?).
|
| Luck. Choices. Right time, right place. Such is life.
| distrill wrote:
| I feel similar cognitive dissonance every time I compare myself
| to people I know outside of tech. Pretty much without
| exception, they work harder jobs than me or my colleagues with
| worse hours and for a fraction of the income. I don't think my
| observation is tied to the housing market, other than it being
| a vehicle to expedite the wealth gap.
| waynesonfire wrote:
| what are you doing to deal with this?
| nh23423fefe wrote:
| Do you believe your income is unearned? Or are you just
| virtue signaling about what the labor market values?
| CobrastanJorji wrote:
| I'm with them. "Earned" is really the big question. If I
| feel I earned my pay, and then I see someone else who's
| working harder and getting paid much less, it follows that
| I must also feel that they are receiving less than they
| have earned.
| pc86 wrote:
| This assumes that pay is correlated to how hard you work,
| which it isn't and never has been.
| distrill wrote:
| it does not assume that pay is or ever was correlated to
| how hard you work. it suggests that maybe it should be.
| distrill wrote:
| well, this is sort of the point of the cognitive dissonance
| isn't it?
|
| clearly my labor is valued at the value it produces, and i
| will continue to maximize the income and comfort of my
| family. is it virtue signaling to notice that my siblings
| literally work more hours than me and tolerate conditions i
| would not tolerate?
|
| i don't know. i continue to push them towards tech jobs.
| they continue to think they are "not smart enough for it",
| which is an insane position.
| yt-sdb wrote:
| That's quite the either/or.
| patcon wrote:
| Bah, "virtue signaling" accusations are such a toxic
| thought-terminating cliche :/
| CobrastanJorji wrote:
| Sometimes people worry that they are a little broken for
| not feeling compassion or empathy for others, and one way
| to feel better is to decide that anyone who does feel
| empathy is a liar engaged in virtue signaling. "It's not
| that I am wrong for not caring for the downtrodden, it's
| that neither of us cares, but I am honest about it and
| you are a liar."
| pb7 wrote:
| >they work harder jobs than me
|
| What makes it harder? Could they do your job? Or do they miss
| the bar for doing the level of knowledge work that you do?
|
| This "they work harder" cliche is really tired. They might
| work hard but they're easily replaced. You are likely not,
| and even more likely, they wouldn't be able to do your job.
| If you really feel so bad, donate some of your money to them,
| otherwise it's just empty virtue signaling.
| distrill wrote:
| idk why this position is so offensive.
|
| yes i think most of the population can sub into most tech
| work. honestly a bootcamp will make most people ready to
| perform at an acceptable level for your average FAANG swe
| role. admittedly the interview process is a tougher
| experience and keeps many people out but does not reflect
| the actual work.
|
| your being tired of this "cliche" does not make it untrue
| and this response is as lazy as "if you have any criticism
| of the current climate why don't you just leave". wah.
|
| there are other ways to help people than just giving them
| money, like by getting them into tech. i have done this for
| a number of friends and they're thriving, despite initial
| reservations.
| pb7 wrote:
| I don't know if I would call it offensive, maybe
| misguided? Naive?
|
| Most of the population could _not_ sub into most tech
| work. I know this because a large portion of the
| population can hardly even _use_ tech, beyond the lowest
| hanging fruit like social media and other ultra-refined
| experiences. You have a high opinion of the average
| person and that 's fine but it will stick out in
| conversations like this.
|
| Your attempts to get them into tech are great! That'll
| test whether they're capable of doing the work, get them
| out of the "harder" work if they are, and is an
| actionable effort rather than signaling your distaste for
| some alleged injustice.
| distrill wrote:
| i did not allude to some great injustice, i shared an
| observation that gives me pause when i interact with
| people outside of this bubble.
|
| i don't have a particularly high opinion of the average
| person, i think this community has particularly high
| opinions of themselves, and does not like the idea that
| we are not differentiated other than having interests
| that pay well.
| [deleted]
| volfied wrote:
| I am completely with you on this. We were able to buy a house
| years ago at %3.75 rate and our mortgage is less than most
| people's rent now. I hear a lot of laments from other parent
| friends about how they are 'wasting' their money on rent. And
| these people aren't usually in tech.
|
| The self comparison is supposed to make me feel grateful and
| happy about my situation, and yet I feel guilty for having
| the freedom and flexibility of my tech job with it's pay and
| all other benefits. Doubly so when I look at my son's
| kindergarten teacher and everything she deals with. I
| volunteer at the classroom to help as much as I can, which
| helps both me feel better about what I have, and helps the
| teacher and the kids.
|
| But that cognitive dissonance / guilt is always there in the
| back.
| hnburnsy wrote:
| Your property taxes and homeowner's insurance costs are not
| 'set'.
| FredPret wrote:
| First let me say that rent and real estate should go way down
| and Seattle should make it easier for people like your friend
| to live there.
|
| Second, there is no direct connection between work done, value
| added + money earned. The connection is a loose correlation at
| best.
|
| As an example, you can do back-breaking labour painstakingly
| paving roads with one cobblestone at a time, 16 hours a day,
| for decades. Or you can write a dozen lines of code that speeds
| up a critical business process. One is super hard and makes
| little difference in the world, and thus pays almost nothing.
| The other is easy if you know how and adds enough value that
| there's scope for lots of money to be involved.
| theGnuMe wrote:
| I dunno, if that paver got a royalty for ever car that used
| his road then he would be very rich!
| cornholio wrote:
| But the problem of your friend is not that you treat your house
| as an investment.
|
| By definition, if people "invest" in goods that can be produced
| at a certain price, then production should kick in and restore
| balance. In a functional housing market you _shouldn 't_ be
| able to get a better appreciation of housing than the inflation
| rate, except for perhaps some very limited and irreplaceble
| houses in the Hamptons or designed by famous architects.
|
| Housing should behave much like the painting market: a few are
| worth millions, but everybody can get a cheap painting for
| their living room because more painters are born every day.
|
| So the actual problem that enables this housing pyramid scheme
| is the lack of production and the entrenched policies of class
| and race discrimination in real estate development. Existing
| homeowners rationally want to exclude builders away from their
| neighborhoods to keep supply limited, so they are politically
| fighting for restrictive legislation. This problem can only be
| solved politically, with the state taking a major role in the
| supply of housing.
| pdonis wrote:
| _> This problem can only be solved politically, with the
| state taking a major role in the supply of housing_
|
| The state _already_ takes a major role in the supply of
| housing, as you yourself acknowledge. That 's the problem,
| not the solution.
| cornholio wrote:
| The upper levels of government can and should correct the
| failures of the lower levels which are captive to local
| homeowner interests.
|
| The ideea that you can eject the state from regulating the
| use of a resource with so many externalities is a pipe
| dream, you either get some sort of favela or the residents
| re-invent a much more exclusionary and bigoted version of
| the state, for example the HOA.
| pdonis wrote:
| _> The upper levels of government can and should correct
| the failures of the lower levels which are captive to
| local homeowner interests._
|
| They have been, for decades. That's where things like the
| Community Reinvestment Act, which played a significant
| role in causing the crash of 2008, came from. Not to
| mention the decades-old policy of encouraging mortgages
| by funding them with money printed by the Fed's printing
| press.
|
| _> The ideea that you can eject the state from
| regulating the use of a resource with so many
| externalities is a pipe dream_
|
| No, what is a pipe dream is the idea that governments can
| somehow fix problems with externalities or market
| failures. They can't; they make them worse. That's
| because governments are not magical entities that somehow
| always do what is best. They are organizations run by
| human beings, and their incentive structure is even worse
| than that of free markets.
|
| _> the residents re-invent a much more exclusionary and
| bigoted version of the state, for example the HOA_
|
| While I'm no fan of HOAs, at least the people in them
| have skin in the game, being members of the community
| themselves. However flawed this model is, it's still
| preferable to having unelected bureaucrats in a city a
| thousand miles away micromanaging people's lives.
| cornholio wrote:
| Governments fix market failures all the time. For
| example, there is not a single country on earth with
| unregulated environment policies, a high standard of
| living, and where the air is still breathable and water
| potable. Or one with no food safety regulations where
| street-food is somehow magically 100% safe to eat by
| virtue of the invisible hand. Or where banking is
| reliable despite no financial regulation. Or where
| justice is equitably delivered by for-hire private
| judges.
|
| Those things take coordination and effort to achieve, and
| some governments do achieve them, some to such a large
| extent that we come to take them for granted.
| pdonis wrote:
| _> Governments fix market failures all the time._
|
| Governments _claim_ to fix market failures all the time.
| That doesn 't mean they actually do.
|
| _> Those things take coordination and effort to achieve_
|
| That is true, but governments are not the only way to do
| coordination. In fact they are usually the worst way.
| pdonis wrote:
| _> there is not a single country on earth with
| unregulated environment policies, a high standard of
| living, and where the air is still breathable and water
| potable. Or one with no food safety regulations where
| street-food is somehow magically 100% safe to eat by
| virtue of the invisible hand. Or where banking is
| reliable despite no financial regulation. Or where
| justice is equitably delivered by for-hire private
| judges._
|
| This is historically false. There have been many human
| societies in history that have done at least as well, if
| not better, than societies with governments at providing
| these things, taking into account the available
| technology of the time.
|
| Also, you are assuming that societies _with_ governments
| have all of these wonderful blessings. That is, to say
| the least, not obvious.
| cozzyd wrote:
| Aren't condos basically illegal in many places? That's at
| least part of the problem, since obviously single family
| homes can't sprawl forever
| dheera wrote:
| > I am sitting on a 2.6% interest rate mortgage and my prices
| are set for the next 30 years.
|
| You're being shafted too. The fact that you even have to pay
| interest at all, is messed up.
|
| Society should have allowed you to buy a house with cash, but
| because none of us have enough cash (because we pay so much in
| rent that we can't save), lower income people are forced to buy
| with borrowed money AND pay interest on top of that. It's a
| system designed specifically to keep lower income people (i.e.
| people who cannot afford houses with cash) stuck at lower
| income levels. While the rich lazy-bums with 10 houses keep
| sucking interest from the poor so they can enjoy their Michelin
| private jet life and buy that 11th house so they can nickel-
| and-dime 4 more dirt poor college students to buy that 12th
| house.
| sclarisse wrote:
| Who exactly is being "shafted" by occupying $100,000 worth of
| house/land, that has not otherwise been paid for, for $216 a
| month? That's a great rate.
| dheera wrote:
| No, that's not a great rate.
|
| It's only "$100K worth" because some _other_ rich bums have
| collectively occupied and bought multiple houses that they
| don 't live in and increased the price of land, AND lobbied
| for no more housing to be built to artifically keep the
| market price high. They treat housing as an investment,
| rather than a dwelling, which is exactly what's being
| discussed here.
|
| It's ridiculous that 99%+ of people are not able to buy a
| reasonable place to live in by 30.
|
| We should be subsidizing it for those who cannot afford
| housing, not charging them $216 more just to line the
| pockets of the already rich.
| sclarisse wrote:
| It sounds like your main objection is to the price of the
| house. That might indeed be pretty terrible. The answer
| is to build more houses in places that we need them, or
| extend the alternatives. (And we would, as a society,
| save for the barriers that are put up.)
|
| But opportunity costs are real. The time value of money
| is a thing. If you distort the price of capital, then
| capital is misallocated, and society ends up with
| overbuilt nonsense like McMansions in Stockton that it
| didn't ever need, as in 2007, and other damaging bubbles.
|
| 2.6% is dirt cheap for money. If anything it's way _too_
| cheap, and encourages excess demand, raising prices all
| around.
| dheera wrote:
| > 2.6% is dirt cheap for money.
|
| For something that isn't a basic necessity, yes, money
| isn't free and that's a good rate.
|
| But for basic things like a house, transportation, food,
| and clothing, I am of the view that we shouldn't be
| charging interest from those who cannot afford these
| things, particularly housing, since it's the most
| expensive of the four. Society should perhaps even be
| _subsidizing_ it with negative interest rates while
| taxing the hell out of people who own more than one
| house.
|
| Mortgages are _part_ of the entire housing-as-an-
| investment scheme that 's the very subject of this
| article and thread. It's capitalism at an extreme being
| used to extract an extra 2.6% from lower- and middle-
| class people who cannot afford it, instead of extracting
| that 2.6% from the billionaires who can afford it.
|
| McMansions in Stockton is perfectly fine. We need more
| housing bubbles. We need the housing market to collapse.
| We need housing to become available for people to _live_
| in, not as an investment.
|
| (Oh, and more direct, fast 300 km/h service between
| Stockton and SJ/SF with local light rail that reaches all
| the houses would make all that housing much more usable.
| The ACE train is an abomination.)
| housewrecking wrote:
| This simply doesn't make sense without $0 materials and
| $0 labor (ideally robotic). Like it's so far outside the
| realm of possible why even bother writing it?
| squokko wrote:
| If you look at places in America where land is
| effectively free, a quality house will still cost you
| $100K minimum. It's not just land rent-seeking, housing
| structures cost money.
| carlosjobim wrote:
| You are of course completely right, even if people are
| downvoting you.
|
| Remember that one of the strongest instincts that have been
| instilled into the modern population is the concept of
| ownership of land and of real estate, where the people who
| actually built the real estate are long dead. That's why you
| will find the fucking insane belief among your fellow man
| that a person who labours has a duty to pay taxes on his
| wages. His life is not sacred, while the ownership of
| property is sacred.
| nineplay wrote:
| People aren't paid by how hard they work, they're paid by how
| much money they generate and how hard they are to replace. A
| head chef might be hard to replace but popular bars and
| restaurants are not, as we saw during Covid. They have often
| been replaced by people deciding to save money and eat at home.
|
| Your cognitive dissonance isn't unusual but I think it does a
| disservice to our ability to have productive discussions on any
| number of issues. Whenever issues come up of who deserves to
| make more or less, they get bogged down with who works harder
| and who's work is more meaningful.
|
| It's economics and it starts and ends with raw numbers.
| Acknowledge that first, then move on to how to make it better.
| dcre wrote:
| There's no reason to want to make it better (or understand it
| at all) unless you're also thinking about something besides
| the raw numbers.
| nineplay wrote:
| There's no way to make it better if you don't start with
| the root cause.
| jensensbutton wrote:
| You start with a problem statement, not a root cause.
|
| And root causes, especially for problems as complex this,
| is a fallacy.
| gurumeditations wrote:
| They're talking about how it is ridiculous that nothing but
| pure luck and circumstance of a screwed up housing
| market/system means they ended up with a sweet deal with
| affordable quality housing while their friend is forced to
| deal with living in a closet for much higher prices despite
| working hard.
| dcre wrote:
| Generous of you to explain.
| nineplay wrote:
| I get that but
|
| > despite working hard
|
| that's a non-sequitur. Migrant laborers on farms work
| absurdly hard. "Work hard and get more" is practically a
| boomerism at this point. There are many reasons to work
| hard, but none of them have to do with guaranteed home
| ownership
| GoodJokes wrote:
| [dead]
| borroka wrote:
| > People aren't paid by how hard they work, they're paid by
| how much money they generate and how hard they are to
| replace.
|
| On average, this may be true, although "how hard they are to
| replace" is difficult to quantify and most of the scarcity is
| artificial. But there is enormous variability in the
| relationship between pay and revenue/profits provided and
| opportunities for replacement. I am certainly paid much more
| than I should be, since I work in a cost center and in that
| group I am definitely not the one bringing in work or
| revenue, and I suspect I would be very easy to replace. But
| at the time the contract was signed, I had the right
| certifications (e.g., PhD) and the right resume. Like many
| others, though.
| greenie_beans wrote:
| this is true, but it doesn't make it right.
| convolvatron wrote:
| this is not even true. i've witnessed plenty of very highly
| paid people who actively undermine the organizations paying
| them
| greenie_beans wrote:
| you're right, though it's a prevailing truth in
| economics, and thus whatever bullshit they come up with
| influences how markets work, it's true.
| z3c0 wrote:
| > It's economics and it starts and ends with raw numbers.
|
| No, it starts and ends with _peoples ' lives_ and how much of
| it they must expend to keep it going. There are no such thing
| as "raw numbers".
| kazen44 wrote:
| also, economics isn't a hard science.
|
| We as a society can define how our economy looks like, it
| is not some hard defined concept like the speed of light or
| the very basic principles of mathematics.
|
| Economics is a soft science, and we should treat it is
| suchs.
|
| The raw numbers don't say much, expect the result of how we
| have shaped our economy. There is very little preventing us
| from changing the way the housing market is structured in a
| real, hard fact kind of sense.
| NineStarPoint wrote:
| While you're right that how hard someone works doesn't
| determine their pay, how much money someone brings in at best
| loosely correlates to their pay as well. I think a lot of
| people have dissonance there as well, thinking "well surely
| if it's not how hard the work is, it's how much value they
| bring in!" But no, all that matters from a business
| perspective is that the sum of all paychecks is less than is
| needed to make a profit. It's all about the cost of
| replacement, or how much money it would take to hire the next
| best chef you can find. It's the supply demand curve of "how
| many chefs are looking for work" vs "how many people want to
| hire them". If there are many more people who want to be
| chefs than there are slots for chefs, they can easily end up
| working for many times less than they bring in to the
| business.
| s1artibartfast wrote:
| How much you bring in makes an upper bound on comp. How
| much you can be replaced for makes a lower bound.
| Michaelfonzolo wrote:
| In theory sure, but in practice the internal complexity
| of organizations leave plenty of room for obfuscating
| that ideal. Throw in nepotism, favoritism, corruption,
| and an inflated valuation of upper management roles and
| you've got plenty of jobs that pay well past what they
| "bring in", which is itself nebulously defined at best,
| especially in white collar industries. Hell I know some
| companies that would've been better off just axing some
| of their c-level suite.
| anigbrowl wrote:
| You ignored the information about the restaurant's
| popularity, which indicates that the gp took demand for teh
| chef's services into account.
|
| _it starts and ends with raw numbers_
|
| No it doesn't. If that were true markets would be reliably
| self-correcting and market failures would never occur, rent
| seeking wouldn't be profitable and so on. In reality there
| are variations in elasticity of demand and supply, regulatory
| issues, and economic network phenomena like preferential
| attachment, all of which substantially complicate the
| picture.
| greenie_beans wrote:
| this is a good example of the myth of bootstraps.
|
| i bet you can find a response to this comment that says, "well
| your friend should find another job or move to a city with a
| lower cost of living."
| dfxm12 wrote:
| What sucks is a lot of young renters with steady jobs can
| afford to pay off a mortgage month to month, but they just
| can't afford that down payment (especially the 20% needed so as
| to not need to get mortgage insurance)! I was in that position
| for a while. Every time it seemed like I could afford to put
| that money down, the housing prices went up! It took a handful
| of years of renting cheap places (with roommates), living with
| my parents when I could and getting a few raises at work that I
| could finally save up enough for a down payment.
| lolinder wrote:
| > especially the 20% needed so as to not need to get mortgage
| insurance
|
| The mortgage insurance isn't nothing, but it's not a big
| enough cost to warrant waiting until you have 20% down if
| that's still a long way off. You can also very easily remove
| the mortgage insurance once you get to 20% equity, so it's
| not like it sticks around throughout the entire mortgage if
| you can't scrape enough together at the beginning.
| undersuit wrote:
| I scraped together 10% and various fees brought it down to
| 8%. Still closed on a house(2019) and now dog-friendly
| rentals in my area have passed my monthly mortgage. Math
| changes away from my favor if I didn't choose to have dogs.
| politician wrote:
| The problem appears when you try to buy a home from a
| seller entertaining 10 other offers, most of which are cash
| offers for 10-20% over listing price with escalation
| clauses. It can be really hard to buy a home, especially in
| markets like Seattle, because the seller chooses which
| offer to accept and, all else being equal, will accept the
| offer with the fewest conditions (no financing required,
| inspection waived, etc).
| lolinder wrote:
| Yes, this can be a real problem.
|
| The mortgage company that we chose had a program where
| they did all of the underwriting before we even started
| making offers, and part of our offer was a certificate
| entitling the seller to $5000 at the mortgage company's
| expense if we couldn't get financing. Kind of like extra
| earnest money from the mortgage company offered as a
| guarantee that there wouldn't be any problems in closing.
|
| We ended up getting the first house we made an offer on
| in spite of an insane market, so I guess it worked!
| hd95489 wrote:
| Luck or you just offered enough more that the seller bit.
| 5k is nothing on a 1m deal.
| lolinder wrote:
| It's not the money that's the point, it's that the
| mortgage company is putting skin in the game. The value
| of a cash offer, aside from going above the appraisal
| value, is that there is no risk of it falling through due
| to financing problems. The $5k is nothing _except_ that
| it shows that our offer may as well have been cash as far
| as that concern goes.
| hd95489 wrote:
| That was 6 months ago offer asking now and you will get
| it
| the_gastropod wrote:
| Yep. This. I'm living in a much lower COL area, but it's
| still crazy. I've been hunting for a house for the past
| ~6 months. And have been outbid in every offer by someone
| else waiving inspection, waiving appraisal, and/or paying
| all-cash. It's wild how many people are apparently able
| to / willing to behave that way.
| giobox wrote:
| This! I strongly advise anyone stuck thinking they can't do
| a thing till they hit 20% to talk to a professional, there
| are options, especially if you have a reasonable tech
| income and good credit scores.
|
| Granted, this advice was a lot easier to consume when
| interest rates were at record lows...
| Spivak wrote:
| If all you care about is the monthly payment then sure
| but got damn it adds up now that money isn't free
| anymore. Even with the the projected rent increases it's
| significantly cheaper over my lifetime to just rent until
| I can basically buy a house in cash.
| prds_lost wrote:
| With the exception of FHA (life for < 10% down, otherwise
| 11 years prior to ability to request MIP removal).
| swatcoder wrote:
| That only applies within the original loan.
|
| You can just refinance out of it (when the numbers are
| right), and it's often easy since you now have equity, a
| proven payment history, and are presumably looking at
| even lower payments on the new loan.
| keerthiko wrote:
| In NYC, a lot of the affordable housing stock are part of
| co-ops, where the board has to approve your finances before
| you can move forward with a purchase. If your monthly
| income is less than a certain multiple (you would think 3x,
| but it's usually 5x - 10x depending on the co-op) of your
| monthly payments ie maintenance + mortgage + insurance,
| they can reject your application.
|
| And even if you found a condo (usually 2x as expensive as a
| co-op for same QoL) without a board to reject you or just
| lived in a city without co-ops holding a lot of housing
| stock, banks have similar requirements in co-op
| applications as well. So you really need to have a massive
| income to go in without a >20% down.
|
| Among the young people who may like to buy a house, this
| probably applies to a few rare folks working for a bay area
| tech company salary but are allowed to live in any other
| city where the home prices are more affordable.
| Nemo_bis wrote:
| "A lot"? I've been researching this earlier in another
| place and didn't come up with much, do you have a link on
| how to list them?
| theIV wrote:
| Anecdotal, but: Head over to https://streeteasy.com/ & do
| some searches with whatever you deem to be "affordable,"
| then compare between the various "building types" in
| their filtering.
|
| It's been a little while since I've done this-I, at least
| temporarily, gave up the idea of buying something in the
| city-but I noticed similar trends to keerthiko. Similar
| to when I was actually looking at places with a broker.
| keerthiko wrote:
| I used streeteasy[0] almost exclusively during my home
| search. They label every listing by home type (co-op,
| condo, townhouse, etc)
|
| I don't think I found a condo under 800k, while there are
| plenty of co-ops across the boroughs, including
| Manhattan, in the 300-800k range.
|
| EDIT: just noted you said "in another place". In my
| experience it's very hard to find this information in
| America outside NYC without investigating individual
| buildings.
|
| [0]: https://streeteasy.com/for-
| sale/nyc/price:300000-800000
| Nemo_bis wrote:
| Thanks! I was looking in https://opencorporates.com (for
| Georgia) but I didn't know what to look for.
|
| Super interesting: "Today, there are over 1,100 HDFC
| coops that make up a significant part of the fabric of
| New York City's affordable housing stock. "
| https://www.nyc.gov/site/hpd/services-and-
| information/hdfc.p...
|
| "5,578 NYC Co-ops and Apartments for Sale"
| https://streeteasy.com/coops/nyc
|
| Though many of these might be from giant projects, it's
| still interesting. https://en.wikipedia.org/wiki/Mitchell
| %E2%80%93Lama_Housing_...
|
| This is what you can do if you don't delegate all the
| management of the housing market to the Fed.
| smallerfish wrote:
| I did an FHA loan on my first house 15 years ago, and the
| down payment was peanuts. Unless you have a poor FICO or your
| debt ratio is high, you probably qualify.
| https://www.fha.com/fha_loan_requirements
| loeg wrote:
| You may still need 3.5% down, and there are income limits
| on the FHA program. It doesn't fix the problems with high
| housing prices, either.
| smallerfish wrote:
| 3.5% down is not ridiculous if you are being realistic
| about what you can afford as a first time purchase (and
| certainly better than 20%).
|
| And as for income:
| https://www.nerdwallet.com/article/mortgages/fha-loan-
| requir...
| sbarre wrote:
| How much was your total mortgage? Because housing prices
| have gone up dramatically in the last 15 years, and the
| math that worked back then (in terms of total mortgage
| amount, monthly payments, etc) doesn't work anymore today
| for a lot of people.
| smallerfish wrote:
| We bought a fixer upper (borderline tear-down) for
| roughly 2x my income at the time (and then sold it for 2x
| after 5 years after fixing it up). But just for
| argument's sake, let's say you buy a house (or apartment)
| for $400k, which you can absolutely do in DC (for
| example):
|
| https://www.zillow.com/homes/for_sale/?searchQueryState=%
| 7B%... (hopefully that abysmal URL still works for you).
|
| $400,000 x 3.5% = $14,000. If you can't save a $14k down
| payment, you probably can't afford the mortgage on that
| and the associated upkeep anyway.
|
| Don't get me wrong, I'm not defending the housing market.
| I just wanted to point out the FHA program since it
| helped me, personally.
| billiam wrote:
| I don't think you got the point of this article. Maybe read
| it again?
| smallerfish wrote:
| I was replying to the parent who said that getting a 20%
| down payment is a big obstacle. Maybe read the comment in
| context of the discussion again?
| SoftTalker wrote:
| That's normal. I bought my first house in the early 1990s.
| Saving the down payment was tough. I lived in a real shithole
| apartment, anything nice and the rent ate up too much of my
| cash flow. And I I had to pay PMI, but the monthly payment
| was still cheaper than rent.
| uoaei wrote:
| Normative statements don't hold much weight for justifying
| why things are the way they are.
| nostromo wrote:
| Downpayments need to be substantial because the owner
| needs to have skin in the game. Otherwise the borrower
| could walk away from the house and the mortgage with very
| little downside.
| briantakita wrote:
| The owner does have skin in the game. It's their home. If
| the down payment is too high, many people are prevented
| from owning a home. This causes these people to be stuck
| in the rental trap, paying >2x what a mortgage payment
| would cost. Good for landlords & those in the rental
| industry, bad for everyone else.
| hd95489 wrote:
| There is no rental trap. The problem is runaway inflation
| that destroys savings and taxes investment gains. The
| only reason housing is such a good deal is that the first
| 500k is tax free.
| AstralStorm wrote:
| The rental trap is a very real thing for people who are
| below middle class. (Which is thinning out.)
|
| They are extremely unlikely to be able to save for even a
| downpayment on a property in two lifetimes combined.
|
| It gets worse when you cannot inherit, which is a
| situation all too common these days.
| ejb999 wrote:
| They don't have skin in the game if they borrow 100% of
| the value of a house - house drops 20% in value, they
| just return the keys and walk away - heads I win, tails
| you lose. Banks don't want to play that game and I can't
| blame them.
| hd95489 wrote:
| Only in a non recourse state
| cool_dude85 wrote:
| You're describing a "heads I win, tails you win"
| situation with no down payment. If the house drops in
| value, the borrower walks away and "wins". If the house
| appreciates in value, the borrower stays and the bank
| receives X% interest, on time, in full, for 30 years and
| "wins."
| Retric wrote:
| Someone walking away from a house doesn't destroy the
| house.
|
| The lender's risk is therefore limited to the difference
| between purchase price and actual value of the property.
| Which is something they can hedge or simply not make a
| loan if they think the property is wildly overvalued.
| bumby wrote:
| > _Someone walking away from a house doesn't destroy the
| house._
|
| The experience of the foreclosure crisis seems to differ.
| I know people who moved into houses where holes were
| punched into walls and everything was removed that could
| be, from door knobs to outdoor deck planks.
| uoaei wrote:
| You describe damage to a property that a bank owns.
| Therefore the costs fall on the bank. This is part of the
| definition of the concept of "taking on risk" and if
| banks are not accounting for these outcomes in their
| business model, they're simply bad at business.
| bumby wrote:
| Yes (except in the cases of short sales, where I've seen
| the same). My point was not about who assumes that risk,
| just pushing back on the idea that people wouldn't damage
| a house they were going to be forced out of.
| sokoloff wrote:
| A down payment of 20% provides some of that exact cushion
| (and makes it less likely for a borrower to casually walk
| away from a house that fell in value or was otherwise a
| poor purchase).
| Retric wrote:
| In theory sure, but 20% is an arbitrary regulation not
| some measurement of risk.
| sokoloff wrote:
| Do you think it was chosen without any regard to the
| risk-mitigation that it offered?
| ejb999 wrote:
| >>Which is something they can hedge
|
| Which is precisely what PMI is for.
| Retric wrote:
| PMI is held buy the purchaser not the lender. It's one of
| the few financial transactions set up like this.
| rootusrootus wrote:
| The whole point of interest is supposed to account for
| that risk.
|
| People buy cars all the time that cost a decent fraction
| of what a house does, and nobody bats an eye when they
| finance 100% (or more) of the value. And a car
| depreciates and _moves_. The bank knows where to find the
| collateral for a mortgage, and the value generally
| appreciates.
| makomk wrote:
| We had a whole, massive global financial crisis that was
| essentially caused by the fact that this does not work
| for housing because the risks are so heavily correlated:
| a large chunk of society finds that they cannot afford
| the downpayments and defaults all at once, which causes
| house prices to decrease and the economy to collapse,
| which in turn means that more people default on their
| mortgages. It's a systemic risk that affects everyone and
| that the markets alone do not protect against, which is
| why regulators have cracked down on mortgage lending so
| strongly.
| olddustytrail wrote:
| No, we didn't have a global financial crash because a few
| poor people couldn't pay their mortgage. We had that
| crash because some people gambled huge amounts of other
| people's money on whether these mortgages would be paid.
|
| I used to write some lengthy posts about this and then a
| few months ago The Big Short was on TV, I watched it for
| the first time, and realised it was saying exactly what
| I'd been trying to explain for years. So just watch that.
|
| Plus it has Margot Robbie explaining the technical terms
| in a bubble bath, so if you don't get it the first time,
| you can rewind and watch again.
| adgjlsfhk1 wrote:
| the problem isn't not requiring 20% down. the problem is
| not setting interest rates appropriately. the banks did a
| calculation of interest based on housing prices growth,
| but if you just do the calculation with stagnation/minor
| depreciation you get an appropriate interest rate for the
| lower collateral
| __derek__ wrote:
| Your GP wrote:
|
| > I had to pay PMI
|
| ... meaning that they did not have a substantial
| downpayment. Assuming they bought in Washington state,
| they probably also had a non-recourse mortgage.
| uoaei wrote:
| That's a much better reason, or, at least, something to
| respond to. Thank you.
|
| Accountability on the part of the prospective owner can
| be achieved in multiple ways, but using down payments
| probably minimizes the amount of bureaucracy and
| following-up in how authorities manage this kind of
| thing.
|
| Of course, implementing it this way creates "structural
| inequity", i.e., a process that inherently separates one
| group into two groups along lines that members of that
| group have little to no control over. Obviously the
| property not-having-money is correlated with other
| factors such as skin color and whether your parents went
| to college, which creates divisions along lines that are
| not just economic but socio-economic, and influence the
| development of not just that person but also everyone who
| depends on that person, including future generations.
|
| I would be very interested to hear more from systems
| theorists on other kinds of methods that don't reproduce
| these kinds of correlated outcomes.
| TheOtherHobbes wrote:
| Are these outcomes unintended?
|
| Hierarchies need hierarchy. Economic apartheid is one of
| the most common - and least questioned - ways to enforce
| hierarchy.
|
| It's the usual problem of defining the difference between
| a progressive and a regressive economy. Regressive
| economies claim to be about "freedom" but in practice
| it's a very selective freedom that benefits a few small
| sectors and acts as a brake on innovation, development,
| and entrepreneurship for everyone else.
|
| Consider all the businesses that could have been started
| by talented people currently spending all of their income
| on rent. It's a brittle, oppressive outcome.
|
| Progressive economies rely on wealth redistribution to
| create something closer to a genuine meritocracy.
|
| There's a whole PR industry devoted to denying this, but
| it's not a coincidence that the US was a powerhouse of
| innovation when redistributive taxes were at their
| highest. And has stagnated as economic apartheid has
| become more entrenched.
| kitsunesoba wrote:
| I too went for a down payment below 20% (somewhere closer
| to 5%) because saving up a full 20% would've been daunting
| to say the least, and as such pay PMI. Still a better deal
| than renting by a large margin, and the feeling that the
| cash being put into payments is going towards owning
| something rather than being set aflame is nice.
|
| That said I agree with the sibling comments that 20% down
| payments shouldn't be as out of reach to as many people as
| they are. Housing prices are ridiculous.
| findthewords wrote:
| We can take a look at the St. Louis Fed "Fred" database
| take a look at historical affordability of 20 % down
| payment. Let's divide two numbers, a and b to get a ratio
| of yearly median wage divided by median house price, from
| 1980 to 2023. [1]
|
| a) Employed full time: Median usual weekly real earnings:
| Wage and salary workers: 16 years and over
|
| b) Median Sales Price of Houses Sold for the United
| States
|
| We see that the a/b ratio was 0.25 in 1980, and has
| declined to 0.05 today.
|
| Therefore, a 20 % down payment in 1980 would equal to a 4
| % down payment today. Conversely, a 20 % down payment on
| a house in 2023 (median wage, median house) is equal to a
| (25/5)*20 % = 100 % down payment in 1980!
|
| [1] https://fred.stlouisfed.org/series/LES1252881600Q#0
| kitsunesoba wrote:
| Wow, that's brutal. Not much more can be said.
| actionablefiber wrote:
| > I bought my first house in the early 1990s. Saving the
| down payment was tough.
|
| Compare housing prices since 1990 vs. wage growth over the
| same period. For the overwhelming majority of people
| entering the workforce today, there is no way to
| realistically save for a down payment unless you forego
| saving for anything else - no 401k, no IRA, no emergency
| fund, no car, no family.
| chipsa wrote:
| With a Roth IRA, you can withdraw the principle penalty
| free, while the earnings stay in the account. Also, you
| can withdraw 10k for buying a house from either IRA type,
| penalty free. You lose out on the future earnings from
| that withdrawal, but you can use it.
| jalk wrote:
| Don't forget that the interest rate was around 10% in the
| early 1990ies
| ejb999 wrote:
| My first mortgage was 10.5% in 1989.
| triceratops wrote:
| Yeah that's one reason why houses in the 90s were more
| affordable.
| Scoundreller wrote:
| Affordable for people planning on paying down the
| mortgage, but horrible for investors expecting to just
| refi and refi while maintaining a constant high double-
| digit LTV. Think about them! /s
| cko wrote:
| I think a more apt comparison would be monthly mortgage +
| interest payment divided by price per square ft over
| time. I suspect it just barely tracks inflation.
|
| Houses have gotten bigger and interest rates have fallen
| since then.
| actionablefiber wrote:
| I understand the bit about interest rates. But the
| disappearance of starter homes from the market is _part
| of the problem_ , not a cool accounting trick to hide it.
| turndown wrote:
| Thank God things were done terribly back then too, or else
| you'd agree with progress!
| nemo44x wrote:
| Buy a "starter house" and begin to build equity. It's how
| people have always done it. You buy a really small house that
| isn't in the most desirable location and start making
| payments into it. Down the road you have built equity and you
| can sell your starter home and buy a nicer, larger house. You
| maybe have some family to support then and need more room.
|
| But you see young people renting for 15 years in expensive
| places of cities because they want to be close to
| nightlife/etc. and then trying to figure out how to come up
| with a 15%-20% down payment on a dream house when they're
| nearing 40 and wondering how anyone does it and complain the
| system is broken.
|
| They do it by buying a small house in an expensive location
| and building equity and then upgrading.
| HarryHirsch wrote:
| Have you tried buying a "starter house" around Western MA
| recently? Builder specials start around 200 kUSD, something
| that is actually move-in ready is at least 50 kUSD more.
| (Yes, you can try gentrifying McKnight or Upper Hill in
| Springfield, MA if you want to pay less, lovely Victorians,
| free bullet holes from the regular shootings included. You
| go first!)
|
| The advice is completely out of touch because there is a
| generic undersupply of housing in the US, especially of
| entry-level housing in areas where the jobs are. What
| starter houses exist have reached the end of their
| serviceable lifespan. My starter house in the Midwest
| (affordable because construction is happening around town,
| would have preferred staying in MA) has a roof issue and in
| the medium term 80 feet of sewage pipe will have to be
| replaced. I was discussing these issues with a builder, and
| at some point it stops being economical. But meanwhile you
| need a roof over the head, especially when you own a large
| dog.
|
| I'm actually angry at the unserviceable advice from people.
| Please field-test first before opening mouth.
| hd95489 wrote:
| A lot of this work you can diy it just seems
| intimidating. You can absolutely rent a digger and do
| your own pipe. You can also to your own roof. It's not
| really worth it if you make 200k a year but if you make
| 50 it is.
| dsfyu404ed wrote:
| I did what you're saying can't be done.
|
| It's fucking great. The occasional late night poppity
| pop, the nip bottles in the street, the un-mowed lawns
| gaurded by un-trained dogs, they all serve as amazingly
| effective repellent for the types of people who think
| they know how I or anybody else ought to live.
| HarryHirsch wrote:
| Good on you! I didn't have the stomach for Upper Hill,
| not everyone does. (Out of curiosity, where did you buy?)
| dsfyu404ed wrote:
| Not Springfield but basically the same thing. I don't
| feel like sharing that kind of info here. Go down the
| list of former industrial cities that make white collar
| Boston types squeamish and it'll probably be on the list.
| They're all pretty close to the same in my experience.
| Marsymars wrote:
| In a reasonable market where house values just track
| inflation, you don't build much equity though.
|
| e.g. If you buy a $200k house with 20% down at 2% on a
| 25-year amort, over five years you accumulate about $26k in
| equity not counting your down-payment. In my jurisdiction,
| standard realtor fees on that would be about $10k, going
| with the 1% rule of thumb for maintenance would run you
| another $10k, and property taxes would be another $6k.
| You're already at zero net profit before you even have to
| pay insurance or utilities. (All that isn't to say that you
| wouldn't have lost _more_ money renting.)
| bumby wrote:
| This is also, IMO, part of the problem. As you "move up"
| more and more undiversified wealth is tied up in your
| illiquid "investment" leading to overly protectionist
| policies.
|
| Imagine if 70% of Americans invested their wealth in, I
| dunno, IBM. Don't you think that's going to incentivize
| some crony policies?
| chipsa wrote:
| This implies that you can buy a starter house. The problem
| is that they stopped building them, so it's a decreasing
| proportion of the houses built. And that's largely because
| of increased regulation making it unprofitable to build
| small instead of large.
| rs999gti wrote:
| I don't know why you are being downvoted. Buying small,
| building equity, and trading up has always been a thing in
| home ownership.
| borroka wrote:
| Because this assumes that the value of the property
| increases more than inflation. And this assumption means
| that you see and treat the place where you live as an
| investment.
| sokoloff wrote:
| It doesn't have to increase faster than inflation for it
| to be a good investment for a leveraged buyer.
|
| Imagine inflation and property appreciation at exactly 5%
| and an interest-only mortgage (principal paydown is just
| forced savings, hitting cashflow, but not expenses).
|
| Buyer buys a $500K house, puts $100K down. Next year, the
| house is worth $525K, meaning that $100K in equity they
| put down is now $125K, for a 25% increase, even though
| the value of the property exactly tracked inflation.
| borroka wrote:
| These are costs associated with owning a property (taxes,
| insurance) that come out of the portfolio + others that
| do not appear in the excel file, such as the risk
| associated with owning a property that is not covered by
| insurance, opportunity costs (less flexibility in terms
| of relocation if better professional opportunities arise
| elsewhere), and the occasional real estate crisis that
| can blow away all the gains on paper in a couple of
| months.
|
| If real estate values do not rise faster than inflation
| (I would say substantially faster), it would be a very
| poor investment or not an investment at all.
|
| Yesterday I was reading in the subreddit of the town
| where I live about people's complaints regarding the
| absurd cost of living here. It was funny and puzzling
| that people were saying, "Yes, it's so hard to live here,
| housing is so expensive. We were lucky to buy 10 years
| ago for $500,000, now our house is valued at $1.4
| million." Not recognizing that they are the problem.
| sokoloff wrote:
| > Not recognizing that they are the problem.
|
| How are _they_ the problem? They bought one house and
| occupy it as a family. That 's fair play by anyone's
| measure, I'd think.
|
| If more other people want to move into the town than
| there are units of housing for them and, as a result, bid
| up the housing that's available, it's not the fault of
| the people in the town who bought one house 10 years ago
| and have lived in it for those 10 years.
|
| We bought our place in 2007 (and lived in it
| continuously). It's worth roughly 2x what we paid for it.
| That's a CAGR of just under 5% per year. Was that a good
| investment? Hard to say, but let's look: The S&P total
| return was a CAGR of 8.5% over that time, but would have
| been 8.5% CAGR on X (downpayment amount) or about +2.4X.
| The house was 4.8% CAGR on 5X or about +5.4X.
|
| Along the way, we've spent around 0.8X on repairs,
| improvements, and maintenance that I can think of and
| around 1.1X on taxes and insurance. Mortgage interest
| (after taxes) was another several X. Our house is vastly
| more pleasing to live in than our old apartment was and
| we've had two kids and a dog here comfortably for 15
| years. The non-financial aspects dominate the financial
| aspects, but for a property that's appreciated about
| inline with inflation, it's been OK financially and great
| psychologically.
| borroka wrote:
| It is quite easy to understand why they are the problem.
| Of course, they are part of the problem, but this is the
| comment section of a forum and not an official statement
| from a public figure.
|
| The reason for the absurd rise in housing prices is that
| not enough housing is being built to meet demand, and the
| main reason is that homeowners (obviously not all, bear
| with me if I generalize) and their cartels oppose any new
| development. It is a problem with a very simple solution,
| made complicated by people who make money by throwing
| smoke. A good place to start is to look at how other
| countries or regions have solved the problem. It is
| somewhat parallel to homelessness; there is no will on
| the part of politicians and institutions to solve a
| problem that is easily solved (from a system
| perspective).
|
| The housing stock is fixed because certain interests
| (i.e., homeowners and real estate investors) want their
| capital to increase in value and/or their neighborhoods
| to remain sculpted over time. The calculations in the
| comment are, outside the specific case, largely
| irrelevant: dilapidated houses infested with rats and
| mold in desirable locations have increased in value
| 10-fold over 20-30 years because the housing stock has
| not increased over time.
| AstralStorm wrote:
| They are not the problem directly. There's however just
| no intrinsic reason for the valuation to go up unless:
|
| * investors bought out most of the housing and made it
| "scarce" or otherwise inflated prices - tacit cartel is
| common
|
| * the area has been restructured to make it impossible
| for non-rich people to live there even if they get the
| housing for free (gentrification)
|
| * people cannot inherit property as they cannot pay the
| inheritance tax on the inflated valuation
|
| * there is an external scarcity factor like well paid
| jobs or at least opportunity for them
|
| Note that lack of space to live or overloaded services
| actually tends to depress prices.
|
| The statement already implies the people live there for a
| long time and have focused on the valuation for some
| reason. They will give their inheritors a problem they
| cannot pay off and have to try to sell. The ones being
| able to buy such property are likely to be investors. Now
| multiply that times a lot and you have the shape of the
| problem.
| sokoloff wrote:
| > people cannot inherit property as they cannot pay the
| inheritance tax on the inflated valuation
|
| I don't understand the mechanism by which this would
| represent a driver for the valuation to go up. This
| effect would seem to be small in any case, but also tend
| to reduce (not increase) prices in its small effect, all
| else being equal. Unless I'm misunderstanding your point
| somehow.
| AstralStorm wrote:
| The valuation is always extrinsic, and as such, a tacit
| cartel.
|
| Property should depreciate. If you hear that it doesn't,
| there's a massive structural problem, likely one of the
| described above.
|
| And these people using the property thinking they're
| gaining something are not doing anything about it,
| dooming their heritors.
| sokoloff wrote:
| _Buildings_ should depreciate with wear (in real [after
| inflation] terms). _Land_ should not, at least not land
| used for residential purposes.
| nemo44x wrote:
| It's the same people who voluntarily choose to pay top
| dollar to go to an out of state university when their
| local university is just as good and then find themselves
| 100k in debt and with an unemployable degree and complain
| the system is broken.
| hd95489 wrote:
| The new play may be buying big and buying the building
| not the land. Inflation on goods and services is having
| trouble keeping up with rates
| Miraste wrote:
| "Buying small" is often no longer possible due to the
| insane increase in housing cost relative to wages, making
| that advice out of touch. Going on to blame this on the
| youth and their nightlives doesn't exactly reverse this
| impression.
| Miraste wrote:
| This is completely ignoring the increase in house prices,
| unless by "not the most desirable location" you mean "move
| to the middle of Kansas."
|
| The fact is, in many areas, buying any house at all is not
| feasible for the vast majority of young adults.
| nemo44x wrote:
| > This is completely ignoring the increase in house
| prices
|
| Guess what, the small and lower cost place you bought 10
| years ago went up in price too. So you have equity and
| you've been in the rising market.
|
| > The fact is, in many areas, buying any house at all is
| not feasible for the vast majority of young adults.
|
| 100% untrue. Buying a house in the place they feel they
| deserve to live is. You can buy a home that is a 30m
| commute by train or bus to NYC for <= $400k.
| Miraste wrote:
| > the small and lower cost place you bought 10 years ago
| went up in price too.
|
| Exactly, that's the problem. There exist people who did
| not buy houses 10 years ago, due to personal failings
| such as being teenagers at the time. Yet the houses
| continued to appreciate much faster than inflation and
| are now out of reach.
|
| > Buying a house in the place they feel they deserve to
| live is. You can buy a home that is a 30m commute by
| train or bus to NYC for <= $400k.
|
| A: You absolutely cannot.
|
| B: Why don't they deserve it? Why should would-be buyers
| be forced out of every major city and even the
| surrounding areas, due to artificial price increases,
| when that was never the case for previous generations?
| nemo44x wrote:
| > A: You absolutely cannot.
|
| https://www.zillow.com/harrison-nj/
|
| PATH train, 22m to WTC.
|
| Not a bad area either, just not where the whiners who
| think they deserve prime Brooklyn dream apartment want to
| live.
| lordfrito wrote:
| > _Why don 't they deserve it?_
|
| It's not about _deserving_ it... it 's basic supply and
| demand. If the house is desirable, people will bid up the
| price. People with more money than young adults (older
| adults with more career experience) can afford to pay
| more and so will bid up the price on the most attractive
| housing until they get it.
|
| I gave up air conditioning (among other things) for a few
| years to help save money for a down payment on my first
| house. What makes a person who didn't sacrifice/safe more
| _deserving_ of the house than I (who can afford to pay
| more)?
|
| A famous person once said "there are a million things in
| this universe you can have and there are a million things
| you can't have".
|
| We all can't live in high rise penthouses and lakefront
| mansions. The whole point of markets and
| pricing/discovery is to decide who gets what. There's not
| enough for everyone.
| MaxfordAndSons wrote:
| 30 minutes to <the border of an enormous metropolitan
| area> is not a very useful metric in practice.
| lotsofpulp wrote:
| While I agree with the sentiment of your comment, I would
| need proof of this:
|
| > You can buy a home that is a 30m commute by train or
| bus to NYC for <= $400k.
|
| Even a door to door commute from Secaucus, NJ station,
| one stop from Midtown is 20min+. I would say 60min is at
| least the commute you would need for housing at $400k.
| nemo44x wrote:
| Clifton, NJ is 30m by bus. You can get a Cape Cod there
| for 400k. Harrison,NJ and other places around Newark are
| cheap and close. Maybe not door to door but you're at
| Penn or WTC by then. Most people that live in NYC aren't
| 30m door to door to work.
| the_gastropod wrote:
| Currently on Zillow, there are no homes listed for sale
| in Harrison, NJ for < $400k. The cheapest option is a
| condo listed for $419k. And it has a $440/month HOA fee.
| wankle wrote:
| 20% is a huge requirement. The following can help anyone
| who's a veteran and reading this, regarding the downpayment:
|
| https://www.benefits.va.gov/homeloans/
| gwright wrote:
| > It took a handful of years of renting cheap places (with
| roommates)
|
| Is this now considered unusual? I didn't purchase my own home
| for almost 12 years after graduation from college. I lived at
| home, then with roommates, which was a completely normal
| thing to do at the time (1987 college graduation).
| TedShiller wrote:
| [flagged]
| cool_dude85 wrote:
| It's more usual than ever, but living at home or with
| roommates still makes it very difficult to ever afford a
| home. Let's take a look:
|
| 1999 median home cost: $165,000; 1999 median household
| annual income: $42,000; 1999 home cost / annual income: 3.9
|
| 2022 median home cost: $468,000; 2022 median household
| annual income: $71,000; 2022 home cost / annual income: 6.6
| staringback wrote:
| You can't mention home prices without the interest rate
| as well.
|
| 1999 interest rate: 4.74% 2022 interest rate: 0.08%
|
| Source:
| https://www.statista.com/statistics/187616/effective-
| rate-of...
| 93po wrote:
| Mortgage rates were around 8% in 1999. They're about 6%
| now. But it's also a moot point because it doesn't make
| housing any more affordable when the offset is higher
| house prices.
| NDizzle wrote:
| "2022 interest rate: 0.08%" that's not true for 2022 as a
| whole. Did you mean 2021?!
| gwright wrote:
| I wonder what the square footage of those median homes
| were in 1999 vs 2022.
| sb8244 wrote:
| I bought a house in 2021 and not only was the mortgage rate
| 2.75, they also waived PMI for 10% down. I don't think we
| would've gotten this same house without that combination.
| Feels like it will be a while before it's that low again
| bastardoperator wrote:
| Even if they can FHA with much less down, they're stuck with
| PMI which is the biggest bank grift in the history of
| America. I'm extremely fortunate to have a VA loan. We need
| more loan programs that are like the VA but don't require
| people to give up 5 years of their life or being forced to
| fight in wars.
|
| The bottomline is being less fortunate shouldn't cost you
| more.
| kongolongo wrote:
| I don't think that necessarily is a a bad thing. Just because
| someone can theoretically afford a mortgage payment now its
| pretty difficult to predict say 5+ years out whether or not
| that steady job will hold, especially if they're young and
| have a short credit history. The down payment adds a cushion
| for that risk. There's less inherent risk to renting, you're
| looking at a commitment of 6 months to a max of maybe 2 years
| for most least terms.
|
| Being too risky with handing out mortgages is partly what
| lead to the housing bubble in 2008 afterall.
|
| If they're really certain their job will be stable long term
| PMIs shouldn't really be a deterrent, most PMI can be
| terminated after meeting 20% in equity.
| freitzkriesler2 wrote:
| You don't need 20% down. This is a lie that keeps getting
| perpetuated.
|
| I put 3.5% down on my first house and even with PMI the
| mortgage payment is less than rent.
|
| To add insult to injury, the massive housing inflation of
| the past 2 years got the LTV well above 20% which then
| allowed me to remove PMI lowering my payments even further.
| jackson1442 wrote:
| My rent for a 1 bed, 1 bath apartment is higher than the
| mortgage on a family member's 4 bed, 3 bath. _That's_ the
| issue: homeowners are putting less money into an investment
| vehicle while renters are burning even more money.
|
| If rent actually reflected the value received versus owning
| a home I'd be less opposed to it.
| lotsofpulp wrote:
| *In some places.
| mgkimsal wrote:
| > Being too risky with handing out mortgages is partly what
| lead to the housing bubble in 2008 afterall.
|
| Being aggressively risky with little downside was a bigger
| root.
|
| I worked in a mortgage comp for a bit before the big crash.
| "You want a 150% loan-to-value loan, no money down, no
| intention of proving income or ability to repay... sure,
| that'll be 7% instead of 5%. Sign on the dotted line..."
|
| I was blown away when I learned about 'no down, no doc'
| loans, which... yes, it's another variation, but... the
| interest rate was all of ~2% higher, which seemed in no way
| to cover the risk. But no one cared, because everything was
| just sold to someone else, and packaged up in to CDOs, and
| resold again.
|
| Someone who has 'only' 18% of a purchase price down, good
| credit, and steady income... to be charged extra PMI -
| possibly for years, because "we need to re-valuate the
| property 3 more times".... seems to be just more price
| gouging, not actually addressing real risk.
| throwway120385 wrote:
| The real risk with renting to a person is if they refuse to
| pay and refuse to leave. Most places you still have to let
| them live there for several months while you go through the
| eviction process. And in retaliation they can destroy your
| house.
| rs999gti wrote:
| > but they just can't afford that down payment (especially
| the 20% needed so as to not need to get mortgage insurance)
|
| Mortgage insurance is not a bad thing. But the FHA loans in
| the US solves the 20% issue by only requiring 3.5% down.
| bumby wrote:
| I think their point was that the additional cost of
| insurance may skew the affordability
| waynesonfire wrote:
| do you know why they can't afford a down payment? dave ramsey
| has some ideas, maybe related to the boom in the luxury
| industry?
|
| https://finance.yahoo.com/news/momma-cant-protect-dave-
| ramse...
| lacrosse_tannin wrote:
| The mortage payment isn't less than rent, at least for me. IF
| I got a "3.5% FHA loan" it'd be.. more. I don't know how to
| check how much mortage insurance would add at the moment.
|
| OK I found a calculator and it'd be 5k instead of 3k per
| month.
| binarymax wrote:
| Depending on the jurisdiction, the taxes are what get you.
| The mortgage looks cheap but pile on another 3.5% of the
| assessed house value per year and it's not fun.
|
| That being said - I think it's good to get a property of your
| own as soon as possible. The rent situation is only getting
| worse.
| duncan-donuts wrote:
| When my wife and I bought our first house we made
| significantly less money but were in this situation. We
| worked with a local bank that would do downpayment assistance
| where you'd have 2 mortgages, but your primary mortgage would
| get a 20% downpayment that would prevent having to carry
| mortgage insurance for the life of the loan. It worked our
| pretty well for us. I dunno how common this is or available
| it is to people.
| kortilla wrote:
| Mortgage insurance isn't much. It's really just the
| difference in extra interest on the larger balance that gets
| you. You also get worse rates in general for under 20%.
| judge2020 wrote:
| > especially the 20% needed so as to not need to get mortgage
| insurance
|
| PMI affects the affordability but not by much - maybe
| $300-400/mo or so, and if you can get a conventional loan
| with a 3-4% down payment (which do exist) then it'll drop off
| once you've paid off 20% of the principal.
|
| For conventional mortgages, the max DTI most lenders will be
| fine with is 45%, but let's be safe and go 40%. Let's take a
| household income of 150k, that's $12,500 a month, so you can
| have up to $5000 in monthly debts (DTI is based on GROSS
| income). If you have, say $1000 in monthly debts (eg. minimum
| student loan payments, minimum CC payments, and cars), you'd
| likely be approved for up to $4000 in housing expenses, which
| with 3.5% down and a worst case scenario interest rate of
| 7.3%, means a maximum home price of about $500,000. But when
| you factor in PMI, you'd only qualify for $450,000 since PMI
| is about $358 a month.
|
| That's not all that much of an affordability drop - the
| difference is that you're basically forced to fall in line
| with urban sprawl by buying a smaller house further out,
| maybe even to the point where you're driving 40+ miles to
| work.
| smileysteve wrote:
| > maybe $300-400
|
| If you're paying this in PMI; while your monthly principle
| payment is also less than $300-$400; you're renting from
| the bank -- ignoring outlier home price increases.
| hd95489 wrote:
| And you are so over levered the only way you can get out
| of pmi is if the house market goes up 25-30% (re
| appraisal Usally comes in low)
| Muromec wrote:
| And here at the bottom of the see, there is no down payment
| (financing up to 100%), but young renters still can't get the
| a mortage of the same monthly amount as they pay rent,
| because of regulatory reasons -- mortage ceiling is defined
| as something like 5x gross yearly salary.
|
| Somehow it's fine to pay half the salary in rent, but not
| fine if it's financing the mortage.
| oldgradstudent wrote:
| > Somehow it's fine to pay half the salary in rent, but not
| fine if it's financing the mortage.
|
| 50% of income as mortgage payments are extremely risky
| mortgages. We've just had the entire financial system
| collapse not so long ago because of such shenanigans.
|
| Don't people remember the 2008 mortgage crisis?
|
| If you can't pay the rent, you rent something cheaper. It
| is not nearly that easy when you have a mortgage.
| jedberg wrote:
| That sort of makes sense. When you own a property, you have
| to maintain it and pay property taxes. When you add all
| that up, you either need a lot more than rent, or you need
| the mortgage to be lower than rent so you can afford those
| other expenses.
| mxkdodi wrote:
| It makes absolute sense, because maintenance costs are
| non-negligible. I just paid a fifteen thousand dollar
| plumbing bill. Since rent would include the ability to
| call the landlord to make him fix that, I sure would
| expect rent to be higher for the same place than my
| mortgage is.
|
| Last year I spent twenty grand on a new roof. What's
| next? Idk, but that's why my mortgage isn't half of my
| salary. If it was rent, these things wouldn't be my
| problem.
|
| That's the trade-off.
| ghaff wrote:
| Depending on what you include I figure property taxes,
| insurance, ongoing maintenance of my house and property
| are a good $1K/month (obviously with a fair bit of
| lumpiness for large projects). Some things you can
| postpone and some things you can trade money for your
| time & effort but it's still a non-trivial amount.
| sokoloff wrote:
| I'd love if all that was $1K/mo total. My property taxes
| alone are $1001/mo (for 2021; they went up a little bit
| last year, but I could quickly look up 2021 online).
| ghaff wrote:
| Property taxes vary a lot. Mine are about $350/month.
|
| $1K/month is probably low for me though if I added up all
| the expenses a renter wouldn't generally have although a
| renter also probably wouldn't be renting a house like
| mine for an extended period so it's a bit hard to do
| apples to apples.
|
| In any case, living in a house is very much not free even
| once you're paid off the mortgage--especially if you make
| an effort to prevent a lot of maintenance debt from
| accumulating.
| wankle wrote:
| Our home was $200K. If we own it for 30 years, the
| property taxes will average to about $180K over that
| time. If we have $70K expenses (roof, HVAC, etc.) then
| the total would be 250K.
|
| If we sell our home at the end of 30 years for exactly
| what we bought it for, no raise in value at all, 200K,
| then 250K of maintenance works out to around $700 per
| month for each month of those 30 years.
|
| Any amount we can sell the house for over the original
| $200K price, reduces the taxes and maintenance down from
| $700 potentially to zero.
|
| If we sell at the end of 30 years for $450K, even
| accounting for taxes and maintenance, we lived rent free
| for 30 years.
| dbjacobs wrote:
| Don't forget the opportunity cost of that $200K of
| equity. If that money invested earned 5%/yr on average
| that is another $10K/yr bringing your $700/mo to
| $1,533/mo. If you sell at $450K after 30 years, that
| mostly just makes up for that opportunity cost (30yrs at
| 5% would be 432K).
| hd95489 wrote:
| No tax on the house. 30% tax on investment.
| nathants wrote:
| tax free for profit up to 250k or 500k if married. after
| that it's taxed 30% too.
| jedberg wrote:
| You're confusing assets and cashflow.
|
| Yes, after 30 years, you came out ahead. But also, you
| can't sell your house when the drain breaks and you need
| $10,000 _today_ to pay for fixing it. Especially if you
| just bought the house.
|
| Also, you forgot to account for the $180K in mortgage
| interest.
| Spooky23 wrote:
| Don't forgot that rent goes up. Renters pay taxes too.
|
| My apartment that was $900/month in 2001 is $2200 today.
| Outside of some of the really stupid markets, it's almost
| always better to own. You'll be fixing that drain every
| year.
| wankle wrote:
| I'll throw in the 180K mortgage interest and the mortgage
| insurance which I also forgot and wager I still come out
| ahead. Rent would be somewhere between $750K to $1M over
| that time and none of it is returned.
|
| Since we control our mortgage, we paid it off early, at
| around 15-16 year mark (due to my wife making me realize
| the importance of it). We live rent and mortgage free the
| rest of our lives thank God. I only wish I'd kept either
| of our 2 former houses instead of taking better job
| offers requiring moving ultimately to the bay area where
| we couldn't afford to buy a home. Texas is nice though!
|
| My Dad always said, buy a house as soon as you can.
| jedberg wrote:
| Just use this calculator:
|
| https://www.nytimes.com/interactive/2014/upshot/buy-rent-
| cal...
|
| In most Bay Area markets, it makes more sense to rent
| than buy from a purely financial perspective. It's only
| if you value the ability to modify the home or have a
| sense of permanence that it starts to flip.
| DanTheManPR wrote:
| But it's not as though property taxes and ongoing
| maintenance costs don't exist for apartments. The income
| the owner receives from the rents has to cover all of
| that.
| RHSeeger wrote:
| Well, yes and no. If you own and the roof needs
| replacing, you need to have that money on hand (or be
| able to take out another loan to cover it, which isn't
| always possible). If you rent, you don't.
| jedberg wrote:
| Exactly. That's why if your mortgage == rent then you're
| behind. Because rent already includes those things.
| BobbyJo wrote:
| 100%. If it's an older house, the mortgage might not even
| be half your costs for the first few years, while you get
| everything that breaks back in good condition.
| kortilla wrote:
| Property taxes are usually collected as part of the
| mortgage payment for just that reason. The bank doesn't
| want another lien risk lurking there.
| notahacker wrote:
| Also, it's a little easier to _just scrape by_ for 12
| months of a rental contract than for a couple of decades
| of a mortgage, and a lot more difficult to repossess a
| house.
|
| And I think we all saw why banks should be expected to be
| a lot more cautious in rating homebuyers' ability to pay
| than some individual landlords might be about their
| tenants in 2008
| eloisant wrote:
| Also if your revenue drop, it's easier to move as a
| tenant than to sell your house.
| loeg wrote:
| > mortage ceiling is defined as something like 5x gross
| yearly salary.
|
| No -- mortgages are limited to 50% debt-to-income. The
| exact principal that relates to income depends on
| prevailing interest rates.
|
| You can see this fairly easily by using any mortgage
| calculator, e.g., Google's (in the "Purchase budget" tab).
|
| Keeping fixed: $100k household income, 0% down, California,
| Google's tax and fees estimates, 800+ credit score (just to
| eliminate that as a factor).
|
| At 2% interest, Google thinks you can get a $512k (~5.1x
| income) mortgage (at 50% DTI).
|
| At 6% interest, that falls to $368k (~3.7x income).
|
| At 10%, $274k. You get the idea.
|
| (For all of these loans, your annual payments would be
| about $50k/year.)
| weard_beard wrote:
| Bought a house in 2019. Downpayment and Credit Score will
| make a huge difference. This seems accurate to my
| experience though. At 5% down, $170k household income.
| 740 credit score. (Credit Score bumped us from a 2.5%
| interest rate to 3) The bank said we could afford $680k
| max.
| dragonwriter wrote:
| > Somehow it's fine to pay half the salary in rent, but not
| fine if it's financing the mortage.
|
| Because eviction is easier than foreclosure (and, actually,
| a lot of big property management companies look at similar
| affordability criteria as lending banks, but you can find
| mom & pop landlords; mom & pop mortgage lenders, unless
| they are _literally_ rich family members making an informal
| loan, probably not.)
| mattgreenrocks wrote:
| Dirty secret: many people get help from their parents to get
| over the hump of the initial down payment.
|
| IMO, that is the best use of an inheritance: helping kids
| secure assets earlier rather than later, which sets up the
| rest of their life.
| lacrosse_tannin wrote:
| The mortage payment isn't less than rent, at least for me. IF
| I got a "3.5% FHA loan" it'd be.. more. I don't know how to
| check how much mortage insurance would add at the moment.
|
| I'm glad everyone was able to make it work 15 years ago
| though!
| vondur wrote:
| Wasn't that a part of the problem with the real estate
| meltdown back in 2008? We had people getting into loans with
| either zero down or far less than 20% paying only the
| interest and not the principal for the first 5 years. They
| were told that real estate value only ever increases and
| they'll be able to refinance the loan and put the new equity
| into a standard loan. That worked fine until it didn't and
| the whole thing came crashing down. I thought I saw that 10%
| down mortgages are more common now, except you will have to
| pay for PMI until you have enough equity to cover a certain
| amount of the loan.
| parineum wrote:
| You're missing a major factor.
|
| Those loans had variable interest rates and balloon
| payments.
|
| They were told they could refinance before the balloon
| payments came due into conventional loans but when housing
| prices drop, you can't refinance because you owe more than
| it's worth. Combined with "no document" loans (aka, people
| lying about their income), people were buying houses that
| they very literally couldn't afford, not just in the
| "that's too much of your income" way, actually in the,
| "that's more than your income" way. Those were the subprime
| loans you hear about.
|
| 2008 would have been very different if everyone was on a
| conventional 30yr fixed loan.
| throwswaydollar wrote:
| Maybe wallstreet is trying their luck again
| fghsqwads wrote:
| It was even worse than that at the bottom of the market.
| There were people getting 'nodoc' loans where they did not
| prove their income. People were inclined to mark their
| income down as the presumed appreciation of the home value,
| like some sort of financial Ouroboros.
| dangwhy wrote:
| > I am sitting on a 2.6% interest rate mortgage and my prices
| are set for the next 30 years. I probably work half as hard as
| he does, if not even less than half.
|
| If i follow this correctly. you will work half as hard because
| your housing costs are set while his will keep increasing ?
| lbotos wrote:
| I don't think it's "they will work half as hard" but "working
| a tech desk job is easier". The two thoughts are separate as
| I read it.
| Firmwarrior wrote:
| Yeah, man. My friend lived in Capital Hill back in the early
| 2000s and was able to keep ahead of the rent on his comically
| small apartment just working part time
|
| Nowadays, though, Seattle residents not making obscene tech
| money have to either live in a submarine-esque cramped
| environment or spend 2-4 hours commuting every day
| pb7 wrote:
| Pay is not exclusively a function of how hard you work.
| e40 wrote:
| Yeah, my mortgage is $800 for a 2,000 sq ft house and my son's
| rent for 1/2 of a 1 bdrm apt is $1700. The situation is
| completely out of control. (We're both in CA.)
| gwright wrote:
| I'm not saying there isn't a disparity but a comparison like
| this would need to include taxes, maintenance, and utilities
| on top of the mortgage to be comparable to a rent (well
| utilities may or may not be included).
| goosinmouse wrote:
| And at the end of 3 years the homeowner will have 3 years
| of equity and the renter will have nothing.
| pc86 wrote:
| And the homeowner has to stay there unless they can get
| someone to buy it, while the renter can just leave.
|
| They're completely different situations.
| fxtentacle wrote:
| For comparison, in northern Germany one can rent a 1000 sq ft
| house + 1000 sq ft garden in walking distance from offices,
| supermarkets, restaurants, etc. for about $1000 cold per
| month.
|
| Sounds like CA is 5x more expensive for young people. But
| salaries are "only" 2x to 3x those of Germany.
| [deleted]
| yieldcrv wrote:
| > I have a lot of cognitive dissonance associated with that.
|
| Play the cards you're dealt.
|
| Rate of capital is intended to exceed rate of labor. If you're
| from a working class background, its common to think more labor
| = more rate of labor .... and that's it. Not how the higher
| rate transitions into more capital earning more than the labor.
| adamrezich wrote:
| it's interesting that so many here are quick to jump to the
| generalization that there's some sort of national problem here,
| when it's really just the big urban centers (and some other
| outliers) that have the problem. I just bought a three-bedroom
| house for $300k here in the Black Hills of South Dakota, where
| housing prices are (relatively) skyrocketing due to the local
| Air Force base expanding, yet this was entirely achievable with
| my modest <$70k salary working as a programmer for the local
| public school district. the United States is a huge country
| with tons of options for places to live, and I've never
| understood the apparent _need_ to live in big population
| centers, even after trying it out myself for some years.
|
| if the big cities are making it miserable to live there if your
| income isn't ridiculously massive, then why stay? why not give
| one of the other bazillion places to live in the US a try?
| sure, you may have to deal with less-than-optimally-temperate
| weather. sure, you may not have access to a rich variety of
| ethnic dining options. sure, you may not have access to all
| sorts of trendy places to shop/dine/be entertained.
|
| but why is trading all of that away to have a decent place to
| live so unthinkable for so many? I've rented for the past 13
| years, and now I finally have a home to call my own, and I
| wouldn't trade that for anything.
| highwaylights wrote:
| This astonishes me about the US real estate market and is
| something I was only educated to on HN in the last week or so.
|
| I had absolutely no idea that 30 year fixed mortgages were not
| only widely available but the common standard there.
| bluSCALE4 wrote:
| Yep, just need work history and you're set. Lot of people
| don't want to own because it's a maintenance nightmare and
| they're not work. I'm out about 60k not including refinancing
| due to maintenance and I'm handy.
| ipsi wrote:
| In Germany, 5 - 20 years seems to be pretty common. I haven't
| seen 30 years, but I wouldn't say it was impossible.
| scruple wrote:
| What are the mortgage terms where you're from? In always
| curious to understand how other countries and systems deal
| with this but I'm largely ignorant to it outside of anecdotes
| like this.
| brazzy wrote:
| In Germany, standard terms are to have the interest rate
| fixed for 10, 15 or 20 years, independant of how long it
| takes to pay off. Additionally, the customer has the right
| to refinance at current rates after 10 years. So a longer
| fixed rate is always an advantage to the customer, and thus
| more expensive.
| kspacewalk2 wrote:
| The standard in Canada, for example, is a 25 year mortgage
| which you renew every 5 years (fixed or variable, your
| choice).
| gwright wrote:
| Could you clarify what you mean by "renew"? That sounds a
| mortgage with rates that are reset every five years,
| which doesn't sound like "fixed" to me.
| orangepurple wrote:
| I think the technical term for this is a 5/5 ARM which is
| NOT a "fixed" rate loan. Most of the world borrows with
| ARMs.
| kgwgk wrote:
| (in some countries) the technical term is "fixed-rate (as
| opposed to variable-rate) mortgage" - but the mortgage
| term can be much lower than the amortization period.
| mitthrowaway2 wrote:
| Yes. In countries like Canada, the term "fixed rate
| mortgage" maps to what Americans would call an ARM.
| 25-year fixed-rate mortgages are simply not available to
| individual homebuyers. 5 years is generally the highest
| rate at which you don't have to pay a steep (ie, 1000
| bps) premium for, essentially, adding a call option on
| your loan.
| kgwgk wrote:
| > a steep (ie, 1000 bps) premium
|
| I think that you have an extra zero there?
| mitthrowaway2 wrote:
| Maybe we should split the difference! The best 25-year
| fixed-rate mortgage currently appears to be 9.75%, which
| is about 500 bps higher than the best 5-year fixed-rate
| mortgage [1]. But in 2021 with 5-year fixed mortgage
| rates near 2%, the 25-year fixed-rate was still around
| this level. So it looks like the premium has gone down a
| bit since the last time I checked. Perhaps that's partly
| a result of the yield curve inversion we have these days,
| since the Canada 30-year bond yield is presently just
| 3.2%. [2]
|
| [1]: https://www.ratehub.ca/best-mortgage-
| rates/25-year/fixed
|
| [2]: https://www.marketwatch.com/investing/bond/tmbmkca-3
| 0y?count...
| pixelesque wrote:
| If it's the same as in the UK, Australia and NZ, then the
| rates are "fixed" for sub-durations within the overall
| length of the mortgage/home loan, and at the end of the
| sub-duration, you negotiate what the "fixed" rate is for
| the next sub-duration with the bank / mortgage lender.
|
| So for a twenty year "fixed" mortgage, you could end up
| splitting that into "fixed" rate chunks of 3 years, 3
| years, 5 years, 3 years, 1 year, 3 years, years, 2 years.
|
| So the rate is "fixed" for what's often called the "fixed
| period" (sub-duration), giving you a bit of stability,
| but over the longer term of the overall mortgage, things
| can track interest rates more generally as you renew the
| rate.
| Dma54rhs wrote:
| Also the same for the Nordic countries and few eastern
| Europe ones I'm aware of.
| nimos wrote:
| Basically correct - fixed is fixed over the 5 years,
| variable changes within those 5 years.
| pc86 wrote:
| So variable, not fixed. Fixed means fixed over the term
| of the loan. As soon as you recalculate interest rates,
| it is not longer fixed by any definition.
|
| Nothing wrong with variable rates in certain
| circumstances but you can't call a 5/5 ARM fixed.
| mitthrowaway2 wrote:
| The terminology, unfortunately, varies with country. Your
| terminology is correct for America but in most of the
| world, "fixed" has a different meaning, because American-
| style fixed products are nonexistent.
| kgwgk wrote:
| As a matter of fact, you can.
|
| https://www.ons.gov.uk/peoplepopulationandcommunity/housi
| ng/...
|
| "More than 1.4 million households in the UK are facing
| the prospect of interest rate rises when they renew their
| fixed rate mortgages in 2023.
|
| "The majority of fixed rate mortgages in the UK (57%)
| coming up for renewal in 2023 were fixed at interest
| rates below 2%. Those deals that are due to mature
| through the course of 2024 will be from two-year fixed
| rate deals made in 2022 and five-year fixed rate deals
| made in 2019, when mortgage rates were generally higher
| than 2%."
|
| To be clear, the rate is fixed during the term of the
| mortgage (say 5 years) but the amortization period is
| different (say 25 years).
|
| https://www.canada.ca/en/financial-consumer-
| agency/services/...
| gwright wrote:
| Yet another reminder how challenging cross-cultural
| communication can be. There is no right or wrong here,
| just different. They key is recognizing the differences
| as early as possible to avoid confusion.
| hnuser847 wrote:
| It's because our federal government purchases the majority of
| residential mortgages, and therefore indirectly sets the
| standard for the entire market. It's a major reason why real
| estate is such an attractive investment.
| Nemo_bis wrote:
| Yes. The problem with the article is that it focuses on the
| value of the asset but forgets the costs. The entire system
| is stacked in favor of home-ownership by means of tax and
| bank subsidies.
| mortehu wrote:
| I just love this quote from Sid Verma:
|
| "A lot of Americans are bragging that in their country they
| can get a fixed mortgage for 30 years. But it's worth
| remembering that for cultural and historic reasons, a lot of
| Europeans choose to reject socialism."
|
| https://twitter.com/_SidVerma/status/1575185906218442752?s=2.
| ..
|
| Note that the mortgages aren't even fixed rate, since you can
| replace them with a lower rate mortgage if rates drop, with
| insignificant penalty. Nobody will sell a mortgage like that
| if their goal is profit (other than to hand off to the US
| government).
| kgwgk wrote:
| > Nobody will sell a mortgage like that if their goal is
| profit (other than to hand off to the US government).
|
| Almost one third of the MBS outstanding are held by the Fed
| - but that means that more than two thirds are held by
| someone else.
| orangepurple wrote:
| Insignificant penalty?! Maybe if all you think about is
| your monthly payment and not the total payment amount over
| time.
|
| You should check the amortization schedule of a typical 30
| year fixed rate loan. You are paying nearly nothing but
| interest for about 10 years, THEN you start paying down the
| principal balance significantly more. The first ten years
| you are basically renting your property from the bank. When
| you refinance the property the amortization schedule starts
| all over again where you are barely paying down your
| principal balance. The banks always need their cut before
| you are allowed to build equity.
| pc86 wrote:
| I've seen people decry the amortization schedule before
| as if it's because there's some cabal of evil bankers in
| monocles twisting their mustaches and cackling about how
| they're screwing everyone over. It's just how the math
| works out when you have a 360-payment loan for half a
| million dollars - there's nothing remotely sinister about
| it.
|
| Just like renting vs. buying there are times where
| refinancing to a lower rate will save you money in terms
| of total paid, and times where you may a similar or
| higher amount but will save in monthly payments. Like
| everything else you just need to do the math and see if
| it's worth the fees to get the new loan or not.
| WalterBright wrote:
| I've refinanced many times to get lower interest rates.
| Did not pay any "points" or penalties to do so.
|
| > The banks always need their cut before you are allowed
| to build equity.
|
| I've never had a mortgage that had any sort of prepayment
| penalty. (Always read the mortgage contract front to back
| to make sure there isn't one.)
| mortehu wrote:
| Prepayment penalties are illegal after three years so
| there's no reason you would pay only interest for 10
| years. If you can get a better loan, you can pay all the
| principal instantly and no more interest.
| entangledqubit wrote:
| I think the point was that people with mortgages will opt
| into lower interest rates but will clearly not opt into
| higher rates. (Assuming the interest savings is greater
| than the refinance cost.)
|
| I'm not sure why you bring up the amortization schedule
| since since you definitely save on the overall interest
| side of the mortgage. Put another way, if you get the
| lower interest rate and keep paying the same monthly
| payment you were paying before, you'll pay everything off
| faster.
| pc86 wrote:
| One of the biggest benefits to refinancing is being able
| to lower your payment and put that money to work
| elsewhere. Yes you can just keep making the same payment
| and save some money (less and less the farther along in
| the loan you are) but most people have debt that is at a
| higher interest rate than their mortgage so they're
| better off putting the money there.
| bluedino wrote:
| ~15% of the mortgage market is ARM in the US
| ska wrote:
| I can't think of another country that has anything like it,
| and it's largely because of the government market
| interference (via Fannie/Freddy especially)
|
| It's going to continue to have some weird knock on effects.
| thatfrenchguy wrote:
| France has fixed rate mortgages
| kazen44 wrote:
| So has the netherlands. (although getting a 30 year long
| one might be hard, 20 years is far more common).
| highwaylights wrote:
| That are fixed to 30 years out?
|
| This is legitimately fascinating to me that someone would
| offer that deal.
| [deleted]
| mayormcmatt wrote:
| Too lazy to do the legwork for the actual information, but
| Japan has, or had, similar mortgages to the US -- even
| 100-year intergenerational mortgages. An anecdote related
| to this: when I worked at a Japanese company, one of my
| coworkers' parents had gone underwater on some commercial
| real estate in Tokyo after the bubble burst there in the
| 90s. They had taken out such a mortgage and now the adult
| children were all working day and night jobs to pay it off.
| bluGill wrote:
| The Us has bankruptcy laws so that the children don't
| have to work to pay it off. Though depending on your
| situation and belief in the future maybe you would want
| to - if things turn around you have that building, while
| if you go bankrupt it is sold. (of course we are talking
| above Japan of 30 years ago so you can now check how
| things have gone, but that doesn't mean they will go the
| same next time)
| xapata wrote:
| I'm an economist, yet I only recently realized that
| adjustable-rate mortgages are economists' consensus best
| choice for consumers. Based on the expectation that personal
| economics are well-correlated with broad market economics,
| and that interest rates will decline when the economy
| struggles.
| sokoloff wrote:
| I have a hard time squaring that with 15 year fixed rate
| mortgages being under 3% for several years in the very
| recent past and 30 year fixed mortgages being at/under 3%
| for part of that time.
|
| How would an adjustable rate mortgage be the best choice
| for consumers in that situation?
|
| I got an initial mortgage at 5.625%, refi'd to 3.875%, then
| again to some ~3% 15-year. I never seriously considered an
| ARM (and now wish I'd refi'd a third time back to a fresh
| 30-year fixed just to keep using that cheap money for
| longer).
| Ekaros wrote:
| In past 10 year, variable rates commonly used in Europe
| have even been sub-0%. Meaning effective rate could have
| been under 1%.
| [deleted]
| __derek__ wrote:
| Most homebuyers don't hold their mortgage to term,
| whether due to selling or refinancing (like you). All
| things equal, an ARM will be priced lower than a longer-
| term FRM, so taking out the ARM with the intention to
| sell or refinance will mean lower guaranteed costs on the
| initial mortgage. They're basically a call option on
| rates during/after the initial fixed term. Even if rates
| go up a lot (like now), the pre-defined ratchet probably
| keeps them competitive relative to FRMs. Eventually, a
| weaker economy probably brings lower rates, especially
| combined with more equity and a shorter term.
|
| When 30-year FRM rates are 3%, though, _take the fixed_.
| kilgnad wrote:
| Why don't you get fixed rate so that the rate never goes
| up. When the background rate goes down you refinance for
| another lower fixed rate.
| sokoloff wrote:
| It used to be the case that the adjustable rates were
| lower than the fixed rate. When a 30-year fixed was 8%, a
| 5/1 (5-year fixed, then adjusting every year) mortgage
| may have been 5% and a 10/1 may have been 6% for the
| fixed period.
|
| Once fixed rates got down to the 3-4% range, that seemed
| to no longer hold and I was frequently offered fixed-rate
| jumbo mortgages at rates slightly lower than adjustables
| (I have no idea why they even bothered to quote an
| adjustable at that point).
|
| If you could get a 10/1 cheaper than a fixed-30 and were
| pretty sure you'd be moving in 7 years, that's why
| someone would take out an ARM. (Or, if they could qualify
| for the ARM but not the fixed-rate payment.)
| pc86 wrote:
| When have adjustable rates for the same property and
| money down been higher than fixed? They'd sell
| approximately zero adjusted rates if that ever happened.
| sokoloff wrote:
| Dec 2008-May 2009 and July 2020-Feb 2021 (for much of
| early pandemic, I was looking to refinance to lock in an
| even lower rate that I already had; I didn't manage to
| lock in the absolute low, but ended with ~3%)
|
| https://fred.stlouisfed.org/series/MORTGAGE30US
|
| https://fred.stlouisfed.org/series/MORTGAGE5US
|
| You do see a sharp reduction in ARM mortgages as a share
| of total with the interest rate reductions post 2008:
| https://i2.wp.com/financialsamurai.com/wp-
| content/uploads/20...
| Godel_unicode wrote:
| That math is my favorite example of economists not living
| in the real world. It doesn't account for the ability to
| refinance.
| sircastor wrote:
| I had a coworker whose previous career had been as a pastry
| chef. She worked at a hotel and told me that she'd topped out
| for income and it was somewhere around $50k/year. After
| learning to program (and I think she did a boot camp in the
| earlier days) she started programming. She now programs (not, I
| think in the finance part of the company though) for an
| investment firm you've heard of. She is easily past 6 figures.
| purpleblue wrote:
| I hate to break it to the lower income people, but what people
| don't seem to realize is that if house prices plummet, those of
| us with houses and high income won't be suffering, we will be
| buying more houses. I have friends that bought a ton of houses
| during the Financial Crisis, in various areas like Las Vegas,
| Phoenix, Stockton, Austin, etc. Those same friends are
| salivating over the opportunity to buy during another housing
| crash (although unlikely this time around). The hedge funds
| like Blackrock will also buy up all the extra houses as well,
| like they did during the run up.
|
| Because of the ridiculous income inequality gap accelerated by
| Obama and ZIRP by the Fed because of the Financial Crisis,
| those with stock exposure have made a shit ton, and they will
| be spending that money on houses and turning them into rentals.
| There won't be any room for the lower income people to squeeze
| their way into housing unless they get places in less desirable
| areas.
| JenrHywy wrote:
| Locking in 2.6% for 30 years, from an outsider (Aus)
| perspective, seems insane. That must inflate prices like no
| one's business.
|
| Here, the longest easily available fixed term is 5 years, and
| you usually pay a decent rate premium (maybe ~2% above the
| current variable rate).
| joshocar wrote:
| In general, chefs, and anyone who works in the kitchen, are
| severally underpaid for the skill and amount of work the job
| takes. It's long hours in a hot, cramped, very high stress
| environment for peanuts. Not to mention the terrible hours. I
| have a very brief stint in the food industry when I was a kid
| and it was enough for me to say I would never do it as a
| career.
| lbotos wrote:
| Is them being underpaid not a function of buyers not willing
| to pay more for the goods?
|
| I'm not under the impression that most restaurateurs are
| "raking it in" staff be damned. Sure, at the ultra high end,
| yes, but for most restaurants a chef pay is function of the
| market, right?
| missedthecue wrote:
| I agree. It's already $60 minimum for two people to eat out
| in the US. What's it going to be in order for everyone to
| have "fair" wages? $50 a plate for hamburgers?
| lotsofpulp wrote:
| It is a combination of people willing to work for low pay,
| and buyers not willing to pay more.
| carlosjobim wrote:
| The restaurateurs might be raking it if they own the real
| estate. If you pay rent for your location you are probably
| scraping by, and whipping your staff to bring in the money
| for your landlord.
|
| A chef's pay is a function of the market, and that's why
| everybody is exiting the industry right now. Head chefs and
| restaurant owners are used to decades of low wages and
| think it's quite insulting that anybody would dare ask for
| a better wage. Then they wonder why "nobody wants to work
| anymore". At the same time, chances of advancing your
| career are very limited. If you manage to stick around for
| a few years as a chef, you will already be able to manage
| your own restaurant, but the salary for that will be just
| marginally higher. Unless you want to strike it out on your
| own, and take on massive debt for a business with low
| margins.
|
| Working in a kitchen is the worst career choice a young
| person can make. If you have that skill, ambition, passion
| and drive, you will be much better rewarded in any other
| sector.
| anonymouskimmer wrote:
| I thought a new means of breaking out on your own are
| food trucks. A quick search shows that they often net 6
| figures, though I don't know if that includes the
| salaries of the help.
| carlosjobim wrote:
| To me that's a whole different game, since the fact of
| being in a truck greatly limits the quality and variety
| of food and service you can offer. But I think it can be
| a good business, with less costs. The main problem with
| food trucks is that you can't sell alcoholic beverages,
| so you'll lose the most important part of your income.
|
| Edit: To add to my previous point: A person who can be a
| successful food truck entrepreneur would probably make a
| much better return investing his skill and money into a
| non-food venture. Food trucks are expensive, for the
| price you need to pay to get that business going, you
| could buy the equipment needed to start a more lucrative
| business.
| asoneth wrote:
| A restaurateur who only makes money because they own real
| estate seems like a landlord with a side hobby.
| carlosjobim wrote:
| I don't understand exactly what you mean? He would be his
| own landlord.
| jjoonathan wrote:
| The easy money is sucked out through real estate, not
| management.
| treis wrote:
| The solution in the past was for people to move to a different
| city. Migration is way down compared to generations past and
| continues to fall:
|
| https://www.pewresearch.org/fact-tank/2021/12/16/in-2020-few...
|
| The change in city living is also a big difference. Cities used
| to have parts of the city with the lowest cost of living in the
| metro area. Things like boarding houses and single room
| apartments w/ shared bathrooms & kitchens. That's no longer the
| case in a lot of cities. Places like Seattle and SF are
| comprised of pretty much all expensive places to live. That
| squeezes poor people more since they often have to rely on
| public transportation and can't take advantage of cheaper
| suburban living.
| hindsightbias wrote:
| SF dropped from ~75K SROs 50 years ago to maybe 20K now. Even
| if you were an addict or going to jail occasionally, there
| was enough turnover to get back in.
|
| All those big cities are probably similar.
| aeternum wrote:
| It is strange that it is easier than ever to move and stay
| connected yet most people don't.
| anigbrowl wrote:
| It is not strange: moving is more expensive than it used to
| be, and the odds of being able to move somewhere that's
| cheaper to live without taking a proportional or greater
| hit to your income are low. Staying connected with other
| people is hardly the only determining factor. Lots of
| people traditionally moved because they didn't want to stay
| connected with a place, and figured thre would be better
| opportunities elsewhere.
| NineStarPoint wrote:
| It's worth noting that these stats don't show a difference in
| moving between cities, but between residences. And if you do
| look at stats showing moves between counties, those have been
| fairly flat going back to at least 2005 (I couldn't find data
| going back farther).
|
| Which is to say that it seems people find less reason to move
| from one house to another where they already live than they
| used to. I expect this is because the difference between your
| current house and a better house has become substantially
| more expensive than it used to be, making it harder for
| people to improve their standard of living over time.
| treis wrote:
| I haven't been able to find great statistics, but you can
| look at state populations to get an idea. California, as an
| example, went from ~5 million to ~30 million in a few
| decades post WWII.
| NineStarPoint wrote:
| California is a pretty substantial outlier there, not
| exactly representative of the country as a whole, and
| even then doesn't actually need a super high inter-state
| immigration rate to get those numbers. It's worth noting
| that the entire country grew 2X larger during those 5
| decades. So we're looking at a 3X increase compared to
| the average. Which is a lot! But even ignoring the effect
| of people moving there in the early decades themselves
| having children that speed up the process...to get a 3X
| growth over 50 years requires an annual immigration rate
| of 2.2%. Which would be in 1980, .29% of the US's
| population moving to California.
|
| (And as a side note, the above numbers are ignoring
| immigration. In 1980 California was 15% foreign born
| people, about 2.5X times the national average. And people
| who immigrated in 1940s-1960s would themselves have
| children that lowered the needed inter-state moves even
| more)
|
| Point is, 5 decades is a long time, only takes a small
| percent a year to compound. California, by far the most
| popular state to move to in the country historically,
| still doesn't need that high a percent change to get from
| 5 to 30 million.
| treis wrote:
| >2X larger during those 5 decades
|
| If the natural growth was 2x in those 5 decades then 5 to
| 30 is a surplus of 20 million people. A bit less than 10%
| of the US population in 1990.
| NineStarPoint wrote:
| Sure, but the point of the rest of those words was to
| show that to get a 20 million surplus over 5 decades
| requires, at absolute maximum, .3% of the US to move to
| California per year in that time frame. (Or more
| accurately .3% more of the population moving to than
| moving away from California)
| angarg12 wrote:
| I'm a new immigrant to the US, and housing is my single biggest
| worry together with my work visa.
|
| Our household income is north of 300k, but housing still seems
| unaffordable. It might sound like whining, but we only achieve
| this level of income recently, so our lifelong savings are in
| the low 6 figures. We got no assets or property abroad, and no
| family that can help us to get in the property ladder.
|
| Even old, basic houses in our suburbs outside town go for ~$1M.
| I spend an inordinate amount of mental energy calculating how
| we can jump into the property ladder as quickly and safely as
| possible. My current plan involves saving for a few years and
| dump a good chunk of cash into a down payment; it doesn't seem
| we could ever afford a property otherwise.
|
| I wonder how property prices affect "the american dream". It's
| baffling to me that I'm so worried about housing while making a
| top ~5% income.
| bityard wrote:
| I don't mean to be blunt, but if modest homes in your area
| are $1m, then you are in a VERY high-cost-of-living area and
| what you see here is not at all typical of the rest of the
| country. Where I live, a charming 1200sqft starter home in a
| blue collar neighborhood goes for $150-$200k.
| itsoktocry wrote:
| Yes, but unless you have a job that's open to fully remote
| work, you probably aren't going make 95-percentile
| household income in that city.
| vjk800 wrote:
| Indeed. If your complaint is that you need to be a
| millionaire to get basic housing, it's because you live
| with other rich people. Since the overwhelming majority of
| humanity lives in houses with value far below 1M$, we can
| conclude that no-one really has to live in a place with
| only 1M$ houses, but you, for some reason, want to do so.
|
| Living in a posh neighbourhood is a luxury, like Ferrari
| (which, by the way, costs much less) or a golden watch. If
| you want rich people lifestyle, then you should be prepared
| to pay rich people money for it.
| fxleach wrote:
| I don't think you are in touch with the reality of the
| housing market right now. That "posh" neighbourhood that
| you're referring to is most likely where people were born
| and raised and the first place you want to buy a home. I
| live in Etobicoke, Canada. My neighbour across the street
| growing up recalled a time they built the houses in the
| neighbourhood and it was previously farm fields. My
| parents bought their house, a cottage, and paid both off
| quickly. Property is now selling for almost $2 million.
| In 2 generations it went from field to affordable to
| completely unaffordable, and Etobicoke is far from any
| kind of "rich people lifestyle".
|
| Here's a fun game you can play:
| https://www.crackshackormansion.com/part2.html
| lumb63 wrote:
| "Rich" is highly relative. If someone lives in an area
| where everything costs on average twice as much as
| somewhere else, their money is effectively equivalent to
| half of what it would be somewhere else. The reality is
| they're probably looking to afford a upper middle class
| lifestyle and make an upper middle class household
| income. They don't sound "rich".
| AstralStorm wrote:
| On the other hand, wealthy is not quite as relative.
|
| A person having a jet that costs $100 can do about as
| much with it as a person with one costing $100 billion.
|
| Same goes with housing, mostly, with some obvious wealth
| breakpoints. The confounder is location, as defined by
| time to travel and job availability.
|
| Quantization artifacts dominate. Having access to basics
| vs not has a much bigger effect than either quality or
| quantity.
|
| This is why having just one house is not an investment -
| you cannot afford to not have one unless you're so rich
| you could outright get multiples of them in some places,
| get there and live comfortably.
| lotsofpulp wrote:
| But why does everything cost twice as much as somewhere
| else? Perhaps living there itself is the wealth. Access
| to high paying jobs, rubbing shoulders with other high
| achievers, the weather, the beach, the mountains, year
| round fruits and vegetables, better labor laws etc.
|
| As the saying goes "I would rather be dead in <X> than
| live in <Y>".
| ok_dad wrote:
| > If your complaint is that you need to be a millionaire
| to get basic housing, it's because you live with other
| rich people.
|
| Hawaii would like to have a word with you, unless you
| suggest every single non-rich local would just have to
| move to the mainland. I believe the cheapest home I've
| seen available, where the neighbors aren't cooking meth,
| is probably in the $500-600k range and going up.
| kyllo wrote:
| That is also happening--lots of Hawaiians are being
| forced to move to the mainland because they can't afford
| housing in their home state.
| https://news.yahoo.com/native-hawaiians-flock-las-
| vegas-1357...
| dinvlad wrote:
| The sad reality of it is such expensive neighborhoods as
| we see on east and west coasts, don't actually _feel_
| luxurious - there's barely enough infrastructure and
| convenience associated with them, compared to living far
| away. The standard of living just isn't as high as the
| price.
| olyjohn wrote:
| Dude, this guy isn't talking about some posh high end
| part of Seattle. I just sold my "quaint 1200sqft starter
| house" in a remote South Seattle neighborhood for
| $675,000. It's 45+ minutes by transit to downtown. You
| know what I paid for that just 5 years earlier? $350,000.
|
| This is the part of town where the grocery store has
| security guards all over the place, and the bank has
| thick bulletproof glass between you and the teller, and
| the transit options such big time. If you want to live
| anywhere remotely near where the jobs are, every house is
| near $1m+ now.
|
| Conclude what you want, you're completely wrong and out
| of touch with current housing prices in a lot cities.
| rootsudo wrote:
| Going to the Safeway on Rainer is really _on you._ It
| does get dicey at night, but the day is okay.
|
| One reason I would never live in "South Seattle" it's a
| literal food desert. The WinCo being in Kent is it's only
| saving grace, but even the QFC a bit north of the Safeway
| on Rainer - yeah.
|
| The fun part is, all the good brands are routinely on
| sale/discounted heavily because the local population
| either does not like or can't afford it - e.g. cheeses.
| Always 20-40% discount on cheese.
|
| Not so common in north outside Seattle limits, or even
| along the border - but yeah to go back to point -
|
| "This is the part of town where the grocery store has
| security guards all over the place, and the bank has
| thick bulletproof glass between you and the teller, and
| the transit options such big time. If you want to live
| anywhere remotely near where the jobs are, every house is
| near $1m+ now."
|
| Is why the good houses cost 1,000,000+. Community and
| neighborhood alongside school district.
| angarg12 wrote:
| Funny reading some comments. I currently live in the
| northern part of Kirkland, in a very average suburb.
|
| This isn't rich people houses folks, these are middle
| (possibly lower middle) class houses. Most people here
| didn't pay 1M for their homes, they most likely paid a
| very affordable price many years ago. It's worth
| repeating that house prices increased an average of ~40%
| since the beginning of Covid. That should help to put
| prices on perspective.
| nvarsj wrote:
| Not really true. Urban areas suffer from this everywhere
| due to chronic lack of building (due to government
| policies mostly driven by nimbyism and similar factors).
| As a result absolute dumps on the bad side of town go for
| ridiculous sums.
| BurningFrog wrote:
| Well, the jobs that pay the high incomes _are_ in the very
| high-cost-of-living areas.
|
| This is a huge problem for economic growth. If housing
| costs in the Bay Area were at US average, easily 10M more
| people could live here and get high paying jobs. But that
| path to a better life is very constrained.
| HWR_14 wrote:
| Alternatively, those jobs are only high paying because
| the red are very people who can fill them solely because
| of housing and far less so about skill. If 10M people
| could move to the Bay Area tomorrow, those jobs would pay
| a lot less.
|
| Also why people insisting on teleworking as a permanent
| option haven't really thought it through.
| jimmydddd wrote:
| Back in the day, many of my friends and I lived a cool
| city life before we had kids. After kids we couldn't
| afford the city any more, and moved out to the boondocks
| with daily 3-4 hour round trip commutes that included
| cars, trains and subways. I know the problem is worse
| now, but city life being more expensive has always been a
| thing.
| narrator wrote:
| I may get flagged for saying this, but I got karma to burn
| and it is so glaringly obvious living in the Bay Area,
| especially the Peninsula.
|
| The reason that I think the Bay Area and other tech hubs
| are so expensive is that asians with PHDs who fly in for
| their $500k/year machine learning tech job want to live
| around other asians. They do not want to live in rural Utah
| where you can get a nice house for $200k and remote work,
| but there are no asians around and there's probably more
| discrimination.
|
| The growth in Asian populations in San Francisco[2] and
| other formerly "liberal" counties[1] is probably also a
| huge reason for the increasing friction in the bay area
| between Asians and other ethnic minorities. It's probably
| also a reason for the political backlash against leftist
| politics in San Francisco where the soft on crime
| prosecutor got thrown out and the school board got thrown
| out because they wanted to get rid of AP programs and the
| elite status of Lowell high school because not enough non-
| asian minorities were getting in there. In 10 years San
| Francisco will probably have a tough on crime mayor and
| completely obliterated the homeless problem if this trend
| keeps up. Maybe not quite yet, but there is a great dip
| buying opportunity in San Francisco commercial real estate
| when this trend finally materializes.
|
| [1]https://usafacts.org/data/topics/people-
| society/population-a...
|
| [2]https://usafacts.org/data/topics/people-
| society/population-a...
| inconceivable wrote:
| i'd say you're describing something that's pretty obvious
| on its face.
|
| what's not obvious is this dynamic has been going on for
| over a century and a half in california and the greater
| american west in general. the white native reaction was
| at first the chinese exclusion act, then japanese
| internment / asset seizure.
|
| the difference is this time the legacy white property
| owners are cashing out (cashing in?) in a huge way in
| both sales and rent as asians move in, so you can expect
| it to continue.
|
| it's white flight, but financially inverted. in other
| words.... asian gentrification.
| cronix wrote:
| > The reason that I think the Bay Area and other tech
| hubs are so expensive is that asians with PHDs who fly in
| for their $500k/year machine learning tech job want to
| live around other asians. They do not want to live in
| rural Utah where you can get a nice house for $200k and
| remote work, but there are no asians around and there's
| probably more discrimination.
|
| You can probably safely extrapolate that to all races who
| move to a foreign country. They tend to want to live
| amongst themselves. Not necessarily for racist reasons,
| but because it's a bit more familiar and you have an
| easier time communicating with others speaking your
| dialect, as well as having similar customs and social
| norms.
| petsfed wrote:
| Great, if only there were adequate jobs in those places, so
| we could all own homes without needing $300K annual family
| income.
|
| The dissonance comes from the fact that a lot of hackernews
| readers make apparently high incomes, but the cost of
| living in their areas keeps them squarely working class.
|
| The best example I can give is in the Bay Area. I lucked
| out with $2850/month to rent a 1400 square foot house in
| San Leandro. Except that I worked in South San Francisco,
| and my commute was 45 minutes to 90 minutes each way, every
| day. I looked into it, even did the math with average
| commute times and Health and Human Services housing cost
| data, and found that if I wanted to cut 15 minutes off of
| that commute would cost me an extra $1000 a month, or I'd
| lose the yard and the other bedroom. With a kid, a stay-at-
| home spouse (a lot cheaper than child care given wages for
| my wife's field in the bay area) and a dog, that was just a
| non-starter. I knew people who drove in from Vacaville or
| Tracey, every day, just to keep the housing prices within
| their means.
|
| Prior to that experience, I honestly thought $140K a year
| was the best I could ever hope for. I was top 15% of
| individual wage earners in the country but I was
| considerably more stressed out than when I was making
| minimum wage at an office supply store in suburban Oregon.
| PeterisP wrote:
| In effect, your example demonstrates that a key effect of
| USA tech industry is taking vast amounts of customers'
| and tech investors' money and handing it over to
| California landlords / real estate investors.
| vel0city wrote:
| Ever thought about maybe not living in California?
|
| You don't need to be on the West Coast to have a tech
| job.
| avmich wrote:
| This is the thought which comes around often.
|
| The problem is, for an intellectual, it's important to
| live in an environment rich with mental talent. Bay Area
| is the intellectual capital of the world, and while
| Einstein could maintain his patent clerkship and have
| famous physicists visit him in Bern
| (http://norvig.com/performance-review.html) for the
| lesser minds in another era settling on another place is
| a loss.
| alistairSH wrote:
| _Bay Area is the intellectual capital of the world_
|
| Say what?
|
| Switzerland (or possibly Slovenia) has the highest STEM
| PhDs per capita.
|
| There are many counties and cities in the US with higher
| PhD rates than any of the Bay Area counties. Most have
| major R1 unis, but not all.
|
| SV is the VC capital of the world. I'll give you that.
| But, that's not even remotely the same as being the
| intellectual capital.
| cowpig wrote:
| I agree about as much with the idea that the Bay Area is
| the intellectual capital of the world as I do with the
| idea that "STEM PhDs per capita" is somehow a measure of
| intellect.
| tchaffee wrote:
| You're surrounded by the intellectuals who aren't clever
| enough to figure out how to surround themselves with
| brilliant people without paying the SF premium.
| selimthegrim wrote:
| <s>Yes, because all universities in the US are in 5
| places only. </s>
| idiotsecant wrote:
| >The problem is, for an intellectual, it's important to
| live in an environment rich with mental talent.
|
| My eyes rolled straight into the back of my head.
|
| I agree that an 'intellectual' (as a social class
| construct) might require similar socially oriented
| individuals to feel like they're among equals. I have no
| respect for such 'intellectuals'. I have a great deal of
| respect for people who are curious about the world around
| them and love to make new and wonderful things and think
| novel ideas.
|
| I find that those two groups rarely overlap.
| nobaddays wrote:
| > Bay Area is the intellectual capital of the world,
|
| Lol. Damn, the 0 interest rate era/tech bubble really
| made you guys cocky didnt it
| vel0city wrote:
| So your argument is the only place to find intellectual
| people to hang out with is the Bay Area?
|
| I grew up surrounded by literally rocket scientists and
| some of the top minds in biochemistry and mechanical
| engineering as neighbors. Incredibly intellectual people.
| I did not grow up in California.
|
| Its not like the Bay Area is the only place with smart
| people.
| petsfed wrote:
| I was living happily in Wyoming when my employer said
| "move to California, or find another job" which, if you
| don't know the Wyoming economy, translated to "leave
| Wyoming for us, leave Wyoming for somebody else, or go
| work in a coal mine".
| krferriter wrote:
| A lot of jobs are in high cost of living areas. The reason
| they're high cost of living is because there are jobs
| there, the demand to live there is high, and they haven't
| built nearly enough housing. Some bay area municipalities
| have essentially not added any housing in the last 50
| years. They made it illegal, because incumbent property
| owners don't want more people to be allowed to live there.
|
| And it's not just the bay area. The populations of
| Cambridge and Boston have gone _down_ since 1950, because a
| series of laws were passed that put tight restrictions on
| residential construction that reduced the allowed density
| and effectively made almost all of the existing housing
| stock illegal (but it was grandfathered in) and anything
| more dense than that, like even building a 5 story
| residential building in a lot zoned for 4 stories, when
| that lot is surrounded by 4 and 5 story buildings, is an
| expensive, long process of arguing with the zoning board
| and going through arbitrarily subjective design review
| processes.
| khazhoux wrote:
| I would rather Google and Facebook and the other mega-
| hire companies would build up outside the bay area,
| rather than continuing to pack more people in.
| jdminhbg wrote:
| The Bay Area isn't remotely "packed in." It's good that
| the state of California is starting to take steps to
| prevent its current inhabitants from pulling the ladder
| up behind them.
| dayvid wrote:
| They are. Durham, NC; Pittsburgh, PH; Atlanta. They
| already have facilities or will grow. Remote will also
| have an impact. Housing prices will still grow with more
| tech jobs, though certain areas can absorb that impact
| better than others. The remote push from COVID also drew
| a lot of housing increases across the country.
| turtlebits wrote:
| I'm not sure if I believe this. The places you "want" to live
| may cost 1M+, but I refuse to believe that if you just go
| another 15 minutes out (or add 15 mins to your commute), you
| can't get something for 2/3 of the price.
| s1artibartfast wrote:
| What exactly seems to be the problem or concern?
|
| With 300k income you should be able to save a 200k/20% down
| payment in a year, especially if you have 6 figures already.
| With todays rates you looking at 70k/year mortgage and <25%
| of your income.
| yawnr wrote:
| What...?
|
| 300K post taxes is basically 150K, the are probably paying
| 60K+ in rent and another 30+ in other basic cost of living
| expenses.
| aetherson wrote:
| People with a $300k/year income don't face a 50% tax rate
| all in.
| s1artibartfast wrote:
| If you take your numbers at face value and don't try to
| cut costs, that is still 60k savings per year and would
| take 2 years instead of 1 to hit a down payment.
|
| If you take the mortgage interest tax deduction, you will
| be spending about 35k/yr less on taxes and have more
| disposable income relative than renting at 60k/yr rent VS
| (70k mortgage - 35k less taxes).
|
| If two years is too long for the road map, you can rent a
| room in Palo Alto for 15k/yr or a 1Br apartment for
| 30k/yr.
|
| If you are paying a 50% tax rate, I would also look at
| tax avoidance strategies. Maxing out the 401k and HSAs to
| get that down. Each person can always borrow 50k back
| from the 401 account to put toward the down payment.
| angarg12 wrote:
| Cost of living is definitely much bigger than you make it
| to be. Just paying rent, car, bills, etc. easily cost 5k
| a month. A good chunk of my comp is stocks, which could
| go up or down with time, so a bit of a wildcard there. My
| wife is a freelancer, and she can bring home anywhere
| from 1k-10k each month depending on the market (and
| market is REALLY bad now), so can't count on that.
|
| I might be able to save all my stocks, pray that they
| don't go down any further, and cash all of them for a
| down payment. Then I have to pray to not have any
| unexpected emergency or lose my job, since I dumped most
| of my life savings in a down payment.
|
| Hardly what i'd call a middle class lifestyle.
| silisili wrote:
| 300k isn't 300k, as we all know. Probably want to drop 40k
| in 401k, maybe some in an HSA, probably paying for health
| insurance. Then the Fed and potentially state/city want
| their share, which is about a third if you're lucky, closer
| to half if you're not. Then you're paying outrageous rents,
| transportation/parking costs, etc.
|
| It's easy for me to believe that a family making 300k in
| Seattle could be living paycheck to paycheck without being
| extravagant. Definitely not frugal, though, either.
| throwaway6734 wrote:
| >It's easy for me to believe that a family making 300k in
| Seattle could be living paycheck to paycheck without
| being extravagant
|
| This is incredibly out of touch with what it means to
| actually live paycheck to paycheck. 300k is at a minimum
| 160k post tax which is a little over 13k a month
| s1artibartfast wrote:
| I believe that anyone at any income can be living
| paycheck to paycheck or even growing their debt.
|
| However, having lived through it, I think more of the
| challenge is prioritization and sticker shock for high
| earners, opposed to financial impossibility. For example,
| you are allowed to take a year off contributing to your
| 401k to buy a house if it is a higher priority to you, or
| simply borrow the down payment from the 401k. Smart
| people often get bogged down in opportunity costs and
| wanting it all.
| eddsh1994 wrote:
| Are you in the Bay Area? If so I saw an ad in SF for condos/1
| bed flats starting at high $300k on the weekend. With recent
| zoning changes it might get easier for you soon.
| balaji1 wrote:
| It might be good investment when you sell it in a few
| years. But lets leave the specifics...
|
| To live (with long term attachment and commitment) at a
| place, people want something that is decent and new-ish and
| much bigger than a 1B condo. Especially given how laborious
| and costly the buying and selling process.
| zjp wrote:
| Those condos are likely to be reserved as Below Market Rate
| housing stock for households making somewhere around the
| area median income (who, honestly, still can't afford
| them). You get the same incentive structure that the
| medicaid gap created.
|
| It's very frustrating to be /in/ the gap. Bay Area
| homeowners act like the apocalypse is coming if increased
| supply means poors who /only/ make 100k are allowed to buy
| next to them. The horror. The humanity.
| angarg12 wrote:
| Nope, Greater Seattle Area.
|
| Still, we are a couple nearing our 40s, it seems insane to
| me that we need to "settle down" for a 1 bedroom flat while
| making ~3x the median local income.
| mfer wrote:
| There are a few areas where housing values are massively
| higher than the rest of the country. You are in one of
| them.
|
| Have you looked at how many people need to commute there
| to work because they can't afford to live there
| eddsh1994 wrote:
| Oh I agree! But better to avoid renting in general imo,
| if it's a possibility.
| fallingknife wrote:
| Not correct. In most HCOL cities in the US, you can rent
| space for less than the equivalent cost to own.
|
| https://www.nytimes.com/2022/06/23/realestate/owning-
| renting...
| taude wrote:
| Before Covid, there's sections of my city where you could
| either A) put 500K down + have 1M in outstanding mortgage
| (whatever that payment was) + 1600/month taxes +
| 1600/month condo fees or B) Rent a place in the same
| building for $4K/Month for similar sized apartment
| fallingknife wrote:
| So don't buy. $300K is enough to easily afford rent. And if
| you compare what you pay to rent vs cost to own equivalent in
| the Bay Area, in most places renting is actually cheaper.
|
| https://www.nytimes.com/2022/06/23/realestate/owning-
| renting...
| MarcoZavala wrote:
| [dead]
| difflens wrote:
| The worry is understandable. As someone who's been in a
| similar situation before, the worry with a work visa and
| housing tends to go away one way or another. Either you get
| out of a work visa at some point, or you accept that you will
| never receive a green card in your productive years and you
| jump into the property market with that risk anyway.
| notlukesky wrote:
| The irony is that the influx of millions of foreigners to
| urban areas increases the demand for existing housing stock
| whilst the same people who are for millions of immigrants are
| against new housing built. The price pressure will only be
| upwards and benefits the existing landlords (and the big
| funds who own property like Carlyle and BlackRock and are big
| political donors).
| dinvlad wrote:
| I think the positive net affect of immigration on the
| economy far outweighs any negatives associated with it.
| wil421 wrote:
| $300k is a very very good family income and is in the top 90%
| if not more. Even if you just got the job you should be able
| to afford a house. $1m for an old suburban house is very high
| for most places in the US.
| swatcoder wrote:
| > My current plan involves saving for a few years and dump a
| good chunk of cash into a down payment
|
| That's exactly the on-paper ideal for how one comes to buy a
| home here. With rents soaking available income, and a high
| average debt load because of education costs, most young
| American's now struggle to see any non-negligible growth in
| their savings until later in life (if then). If you have
| substantial savings and anticipate growing it further in the
| near future, you're already winning the game. You're fine.
| [deleted]
| korroziya wrote:
| Most working class people die with savings below five
| figures. You should re-evaluate how good you're doing.
|
| Of course, if you live in California or New York, you're
| basically broke, since the cost of living in those states is
| designed to keep people poor. But that's why people left
| those two states in droves over the last few years.
| danaris wrote:
| New York _City_. New York State, once you get outside the
| city, is a fairly average state with a lot of rural area
| that has moderate-to-low cost of living.
|
| I would venture to say that more _land area_ of California
| is in the "unaffordable to average people" range than that
| in New York, either as an absolute or as a percentage of
| the state.
| vore wrote:
| I don't think the parent post was punching down on working
| class people, but rather making the point that if housing
| is unaffordable for even someone with a 300k household
| income, it is truly catastrophic for people on the average
| wage.
| angarg12 wrote:
| Thank you for this comment, in case someone misunderstood
| my original post.
|
| I'm from a working class family myself. My parents were
| factory workers, and they managed to buy a new 4 bed
| apartment in a new part of town and raise 3 children.
|
| And yet I don't feel I'm doing materially better than my
| parents at my age. I definitely don't feel upper middle
| class even if my income suggest so. As you point out I
| can't imagine how people with more average incomes get
| by.
| tchaffee wrote:
| > I spend an inordinate amount of mental energy calculating
| how we can jump into the property ladder as quickly and
| safely as possible
|
| You buy a cheap house far away from where you work, and rent
| it to someone. Let them pay your mortgage and before you know
| it, you've got enough equity to put towards another house.
| Rinse and repeat.
| Eumenes wrote:
| This means nothing to me without having data on your life
| choices
| lotsofpulp wrote:
| Cognitive dissonance means harboring contradicting thoughts.
| The difference in you and your friend's situation is caused by
| the fact that they are selling labor which has a much lower
| price than the labor you are selling. This is not
| contradictory, just a consequence of supply and demand.
| phkahler wrote:
| >> The difference in you and your friend's situation is
| caused by the fact that they are selling labor which has a
| much lower price than the labor you are selling. This is not
| contradictory, just a consequence of supply and demand.
|
| I think the difference between labor and engineering is that
| most engineering (and software development) is a precursor to
| charging rent. Lets look a bit closer:
|
| The marginal cost of software is zero. Therefore, every
| commercial software package is collecting rent for its use -
| SaaS being the most blatant (but honest) form. They will
| ostensibly be using the money to fund future versions of the
| software, but the efficiency of that effort is not terribly
| relevant - profits can be had, and high pay to developers.
|
| In product design and manufacturing, the engineering effort
| goes into designing a product and plant to produce it. The
| key thing the business looks at is something like ROI (return
| on investment). Since the lifetime of a product isn't
| certain, anything that goes beyond the planned lifespan is
| pure profit. One could view the business as collecting rent
| on the equipment/process that makes the product.
|
| At the highest level, investors are looking for a return on
| their investment. The investors don't actually have any part
| in the transaction between the company and its customers.
| Only when raising funds do investors bring anything to the
| table. After that, people trading stocks bring nothing and
| are looking for ROI. It's probably not correct to call ROI
| rent, but it's got some similarities.
|
| So the low-end labor guy is getting paid to do work. All our
| fancy office jobs are building systems to generate revenue
| for someone. That may be the primary reason those jobs pay so
| much better. One is labor to an end customer, the other is
| labor to the money-making machine that is a large company ;-)
|
| On a related tangent, perhaps engineering should not be
| considered a cost center but an investment.
| uoaei wrote:
| "It is the way it is" is technically true and profoundly
| uninsightful.
| lotsofpulp wrote:
| My comment was about incorrect use of the term "cognitive
| dissonance".
|
| https://en.wikipedia.org/wiki/Cognitive_dissonance
| giantg2 wrote:
| The contradictory part is likely that they were raised, like
| most, on the idea of this being a meritocracy. The harder you
| work and the better you are at something the more you should
| get paid. But of course that's not how the world works.
| carlosjobim wrote:
| Supply and demand is created by the rulers when they create
| the money supply. Their decision for the past decades has
| been that money should be created by real estate mortgages
| and thus there has been an immense shift of wealth to the
| elderly and real estate owners. Being head chef in a
| successful restaurant is an incredibly hard skill, but with
| financial consequences such as the poster you're replying to.
| Borrowing money at the right time and doing absolutely
| nothing or the bare minimum has had a much better return than
| working hard and becoming the best of your trade. That's why
| so many are dropping out of the regular work force and entire
| industries are collapsing right now. Is that sustainable in
| the long run? Are we all to sit on our asses, borrow more
| money and wait for inflation of real estate value to pay for
| us? Because, that has clearly been the most successful career
| as long as I remember.
| riku_iki wrote:
| > The difference in you and your friend's situation is caused
| by the fact that they are selling labor which has a much
| lower price than the labor you are selling.
|
| and multiplied by fiscal and other policies: those who
| couldn't afford buying now need to pay 5-10 times more
| compared to wealthy who could afford buying house 10 years
| ago and another 5 years ago and lock loan interest.
| photon12 wrote:
| Yes, there is an inconsistency in the amount of effort
| expended to survive versus the outcomes of that effort. I
| can't reconcile them in my head. I'm watching my friend
| trying not to physically deteriorate and have some modicum of
| comfort while I sit here on my couch living off savings from
| the job I recently quit. Nothing I do can be _so_ much more
| valuable than what he does.
| giraffe_lady wrote:
| Everyone trying to convince you to be ok with this but no,
| you have seen it correctly and it is wrong. People can work
| themselves to death doing jobs that benefit us, and what
| they receive for it is misery and precarity. Trust your own
| judgement and don't accept this as a natural, inevitable,
| or just state.
| lotsofpulp wrote:
| Then how do you allocate who gets to live in a highly
| desirable place like Seattle?
| giraffe_lady wrote:
| Would it even _be_ highly desirable without any of the
| restaurants, retail and other services that don 't
| provide a high enough wage to live there? My guess is
| that for a lot of the people living there now the answer
| is no.
|
| We require these services but don't don't provide an
| acceptable living to those offering them, expecting them
| to sacrifice their health and comfort for our benefit.
|
| I don't have a solution to how to "allocate" who "gets
| to" live in a certain city, and it's not in my role or
| expertise to. But the problem exists currently regardless
| of that, and what we do have is not a solution.
| lotsofpulp wrote:
| > Would it even be highly desirable without any of the
| restaurants, retail and other services that don't provide
| a high enough wage to live there?
|
| My guess is yes. Temperate weather, world class scenery,
| cheap electricity, clean water, a convenient deep and
| protected harbor, and a productive workforce.
|
| All are subject to change of course, but that combination
| precludes the existence of businesses with low elasticity
| of demand (and hence higher value). The luxuries like
| restaurants and retail follow after those other
| businesses.
|
| Of course, they do enhance the desirability, and it very
| well could be that rents are too high in the short term,
| and that landlords are making Seattle less desirable in
| the near future, but that is always a dynamic
| relationship.
| Firmwarrior wrote:
| I think you're both right actually
|
| The answer is very simple. They just need to tear down a
| small fraction of those endless twisting mazes full of
| tiny single-family homes and replace them with large
| apartment buildings like you see in Asia. Right now
| there's no free market at work, since there are too many
| artificial restrictions on building.
|
| In Tokyo, you can work part time as a janitor and still
| live within a 10 minute train ride to work.
| czbond wrote:
| I mean... that's life. What schools should teach is not
| just "here is a career that matches you're skills" - but
| more so, "if you choose this career, these are the most
| probable outcomes and life paths you'll end up in"
|
| If AI takes engineering, medical, and law work away from
| those professionals - they too could have spent many hours
| to learn, to then earn little.
|
| Every human has worth, but we all value the type of work
| differently.
| pcthrowaway wrote:
| Medical and Legal are 2 of the last professions that are
| likely to get automated.
|
| Lawyers are entirely composed of people who can legislate
| away the threat of AI practicing law (taking their jobs)
|
| And robots aren't known for their bedside manner yet.
| Also, there's a lot of liability in practicing medicine,
| which companies would probably be unwise to take on
| czbond wrote:
| Counter argument:
|
| Law AI will be used for case defense prep, argument
| creation, research, analysis (essentially what law
| graduates and non-partner style attorneys do) as cost
| savings / ROI enhancement. Attorneys will have to
| specialize in mostly customer facing / court facing
| roles. This will cut the staff needed to perform those
| duties.
|
| Real Law AI change will have to be consumer driven.
|
| Medical AI.... with so much malpractice & liability, AI
| will reduce those risks for practicioners, increase ROI
| to practiciioners (less payments to insurance), and also
| require back office practicioners to become more customer
| facing. Maybe instead of 10 radiologists, you can use 1.
|
| Medical AI will be used on low tier ailments (eg: urgent
| care headaches, etc) to help nurses see more cases, etc -
| initially replacing the low end work. Doctors can then
| have a more normal schedule, but feed a collective AI
| model to where 1 doctor can then oversee 50...200 cases.
| Those models will first be rolled out to developing
| countries until a generation of doctors in the US are
| dwindled except in emergency care situations.
| lotsofpulp wrote:
| That is how it is already going with physician assistants
| and nurse practitioners, as I understand. Instead of 1
| doctor seeing 20 patients in a day, 1 doctor "oversees" a
| bunch of PA/NP each seeing 20 patients in a day.
| pcthrowaway wrote:
| We do still have massive doctor shortages though (at
| least here in Canada) so I wouldn't worry about doctors
| not having jobs any time soon
|
| It's gotten pretty ugly with provinces trying to poach
| doctors from other provinces, competing with each other
| to offer incentives to entice doctors from other
| provinces
| giraffe_lady wrote:
| "that's life" like this is an inevitable fact of the
| universe we must live with? No, this is the world _we
| have made_. To some extent you have to come to terms with
| it and find a place to live within it, yes. But those
| terms can be "this sucks, this is wrong, it should
| change" which it seems that's where the other commenter
| is headed.
| czbond wrote:
| I don't disagree with your sentiment and the need for
| that effort, but the probability path is that since the
| medieval times or longer this has been attempted with no
| long term success. Make bets on the most probable until
| real change has occurred.
| steveBK123 wrote:
| Any job where the amount of labor has a fixed proportion to
| the possible economic output will at best track inflation.
|
| Software can pay well because the code you write can
| service 100, 1K, 1M, or 1B customers.. with some time spent
| on scaling.
|
| There's not much a single chef can do such that their labor
| which serves 100 tables/night can suddenly scale to serve
| 1000 tables/night.
|
| The only way the replicate that kind of outcome in
| restaurant trade is to for example, open multiple
| restaurants with investor capital, hire cheaper chefs as
| your understudy to run each location, while you set menus,
| standards, and find efficiency on things like procurement,
| accounting, lease deals, etc.
|
| Other options are to move more aggressively into some sort
| of profitable takeaway menu, selling food kids, branded
| merchandise, etc.
| yeahwhatever10 wrote:
| The correlation between effort expended and outcome is
| misguided. The plow takes more effort than the tractor and
| produces a worse outcome.
| lotsofpulp wrote:
| One can define effort in that way, and arrive at the
| conclusion you did, but it is not what cognitive dissonance
| is typically used to mean.
|
| But that definition of effort as it relates to the ability
| to "survive" does not seem useful to me. It takes a lot of
| effort to manually dig a ditch compared to using an
| excavator, but you would not pay the person that shows up
| with a shovel more than the person that shows up with an
| excavator.
|
| Edit: this is not intended to say your friend does not
| deserve a better pay to quality of life (QoL) ratio.
| However, the fact that you have a comparably favorable pay
| to QoL and they have an undesirable pay to QoL ratio means
| society does not want more people to be selling that labor,
| but rather more people to be selling your labor.
| photon12 wrote:
| I used to dig ditches in places where excavators couldn't
| go for a living, and I'm familiar with the contract rate
| differences for that type of labor and equipment.
|
| My point is that the disparity is _such a chasm_ that my
| brain can 't reconcile it. We aren't talking about ditch
| digging, we are talking about serving food to the people
| of Seattle. All the software engineers in Seattle, in my
| experience, love to frequent dining establishments. Their
| quality of life is dependent on the labor of people
| serving them. There's no way I can accept the disparity
| as "just the way it is." My gut can't take it.
| theonlybutlet wrote:
| Not really in response to your comment, but there is an
| assumption from those commenting on your post. In that
| the labour market is a perfect market. When in truth it
| is far from it. There's systemic issues such as imperfect
| information, misallocated risk (they don't know what the
| market rate is for their work/they're too scared to look
| for another job) , and friction such as monopoly,
| oligopoly and legislation. And then after all to consider
| labour isnt your typical resource, people do not simply
| disapear when they become obsolete, they need to eat.
| [deleted]
| FollowingTheDao wrote:
| This is what a profit driven society does. I am not
| condemning it, but that is just the reality.
|
| If you had to pay more at their restaurant then your
| quality of life (profit) will go down.
|
| I am glad you are still human and your gut cannot take
| it. Maybe look at using some of your savings to help the
| chef start a coop restaurant?
| lotsofpulp wrote:
| Seattle real estate is some of the most desirable in the
| world. It very well could be that owning (and renting)
| land there could be so expensive, that food service
| workers having a higher pay to QoL ratio means eating out
| is "unaffordable" for most people in the Seattle area
| (under current quantities of housing).
|
| I put "unaffordable" in quotes because eating out is
| easily replaced by eating at home, or eating frozen
| dinners, etc, so restaurants do not have the pricing
| power they might need to allow the food service workers
| to have decent pay to QoL ratio in a place like Seattle.
| uoaei wrote:
| I think you are missing the point.
|
| The other commenter is not confused about _why_ things
| are the way they are. They understand these things
| already, obviously they think about it a lot. You explain
| it, they agree that things are that way due to the
| reasons you describe, but that does not explain why the
| disparity _ought_ to exist.
| lotsofpulp wrote:
| Sorry, my original intent was to inform that they were
| not experiencing cognitive dissonance, as typically
| defined.
|
| https://en.wikipedia.org/wiki/Cognitive_dissonance
| SoftTalker wrote:
| So give the guy some money?
| Firmwarrior wrote:
| I guess the answer is to pay $150 for a medium-quality
| meal for one, that way we don't have to build any more
| high rise apartments
| ep103 wrote:
| My rent for my cockroach invested, 150 sq ft apartment is
| larger than my parent's mortgage for their suburban McMansion
| about 45m-1h away, and my rent is absolutely on the cheap side
| for a 1bd room in the area.
| hinkley wrote:
| In Seattle, 45 minutes away is still within the city limits,
| unless you're right on the edge of the city limits to start
| with. And if it's toward Everett even that doesn't save you.
|
| In traffic I often thought about how when I was a kid we got
| uprooted to a new school at a bad time to save my dad 45
| minutes of commute each way, and how 2 hours a day doesn't
| sound that awful.
| ep103 wrote:
| Yeah, its 45 without traffic, 1h-1:10 on a normal day, 1.5h
| during the morning and evening commutes. So they're solidly
| outside the city radius.
|
| The thing is, before I moved in, I did research on 1bdroom
| apartments within a large radius of the city.
|
| And basically, unless I was willing to move to a very
| unsafe area or very unsafe or clearly problematic
| apartment, rents simply do not go beneath my current rent
| price.
|
| There seems to be an agreed upon price floor from all
| landlords, and the only thing that changes as you get
| further from the city center is the size and quality of the
| apartment.
|
| But that means literally every apartment in about an hour
| circle of my location is more than my parent's mortgage. At
| least the roaches and I don't have major commuting costs as
| well.
| WalterBright wrote:
| > There seems to be an agreed upon price floor from all
| landlords
|
| I doubt there's collusion. Being a landlord is expensive,
| and they're not going to set rents at loss levels.
| vabavhasb wrote:
| https://news.ycombinator.com/item?id=34926683
|
| > _Specifically, every morning, RealPage provides
| participating Lessors with recommended price levels. ...
| If Lessors wish to diverge from the "approved pricing"
| they must submit reasoning for doing so and await
| approval. ... But RealPage emphasizes the need for
| discipline among participating Lessors and urges them
| that for its coordinated algorithmic pricing to be the
| most successful in increasing rents, participating
| Lessors must adopt RealPage's pricing at least 80% of the
| time._
| WalterBright wrote:
| Nobody is required to follow RealPage.
| vabavhasb wrote:
| Who implied they were _required_ to?
|
| > _In one neighborhood in Seattle, ProPublica found, 70%
| of apartments were overseen by just 10 property managers,
| every single one of which used pricing software sold by
| RealPage._
| WalterBright wrote:
| Using software for information and advice doesn't mean
| they use it to set prices.
| kgwgk wrote:
| > cockroach invested
|
| Appropriate typo.
| joejerryronnie wrote:
| If this is not worth it for you (maybe it is because of
| amenities), couldn't you just buy a place closer to where
| your parents live?
| treeman79 wrote:
| Yep. My rent is 1200 a month more than 4 years ago. 1500 to
| 2700. Which is on par with entire region.
|
| With inflation my budget is drastically tighter than just a few
| years ago.
| mdgrech23 wrote:
| I majored in economics and it still boggles my mind what we
| make as software engineers versus the guy who unclogged my
| sewer drain allowing me to use the toilet.
| codegeek wrote:
| You will be surprised how much good plumbers make in the USA.
| You probably used a bad example.
|
| Source: I know my trusted plumber makes well over six figures
| a year and he cannot take all calls. I asked him once if he
| has problems generating leads and he smiled saying "I have
| too much business that I turn people away". He is a "master
| plumber" which these days is not easy to get certified for in
| many states. He told me he cannot find enough skilled master
| plumbers to help him (state of NJ).
| vkou wrote:
| Your guy's about as much a plumber as Sundar Pichai is a
| programmer.
|
| The 90% of the folks who make up the bottom of the trades
| pyramid make decent, but not great money.
| jedberg wrote:
| Master plumbers are still plumbers, they still get down
| and get their hands dirty. My guy is also a master
| plumber, and often works alone. When he does have help,
| he's often doing the hardest work, the other guy is just
| handing him pipes and tools.
| mawadev wrote:
| This is always the same logic, where a plumber makes a ton
| of money. The reality is that your trusted plumber is
| actually a business owner. If you start out as a plumber,
| you need a ton of work to get to this spot by working for
| someone else for a bad wage. Meanwhile as a dev, I can
| comfortably work for someone else and don't have all the
| risk.
| bumby wrote:
| You might need to define a "bad" wage. According to BLS,
| the median wage for a plumber is slightly above the
| median wage in the US as a whole.
|
| I do think some of the inflated values of some jobs is
| they are somewhat opaque, while the stuff of jobs like
| plumbing is easier to at least conceptualize, even if the
| work itself still requires skill and care. It's easier
| for a BS job to inflate its importance if people don't
| know exactly how it works.
| spacedcowboy wrote:
| The thing is that top-end software engineers in a FAANG
| company (the equivalent of a master-plumber / master-
| electriction / etc.) are either pushing towards 7 figures
| or have already got there - in total comp, not in wages,
| but still.
|
| I'm an ICT5 at Apple (not the best-paying, but hey, less
| layoffs) and I reported ~$750k last year. There are ICT
| levels going up to 9...
| dangwhy wrote:
| Yes I have family who make ~100k in chicago.
| ominous_prime wrote:
| You will be surprised how much good software engineers make
| in the USA -- still many multiples of most successful
| plumbers, and without the long-term physical consequences
| of that type of labor. Yes, there's still going to be
| better examples to highlight the disparity.
| WaitWaitWha wrote:
| There are no comparable "long-term physical consequences
| of that type of labor" software engineers do?
| ominous_prime wrote:
| Maybe? Anecdotal I guess, but I've met more plumbers with
| chronic knee and back problems than software engineers.
| But being a plumber in the US isn't too physically
| demanding, and makes OK money, so it's probably the
| example of disparity the GP was trying to highlight.
| WaitWaitWha wrote:
| A software programmer will be front of a computer screen,
| 8 hours, 5 days a week in a sedentary position - they are
| at risk for problems of eyes, back & neck problems,
| carpal tunnel, weight gain, anxiety, heart disease,
| insomnia, deep vein thrombosis just top of my head.
| anonymouskimmer wrote:
| They technically have the option of a chording
| keyboard/mouse and a wearable computer. Or at the very
| least a standing desk (or even a treadmill desk). Along
| with special glasses or monitor filters.
|
| How does a plumber avoid kneeling?
| WaitWaitWha wrote:
| > How does a plumber avoid kneeling?
|
| They technically have the option of reducing weight,
| exercise, proper shoes, knee braces and knee pads,
| kneeling pads, and such.
|
| What I am suggesting is that both (all?) jobs have their
| own health related demons.
| pc86 wrote:
| Yes in the way that someone with a multi-million dollar
| trust fund who wants to buy a nicer car or bigger house
| and someone working for minimum wage both have money
| problems.
|
| Especially when working from home any health-related
| dangers around software development can be all but
| completely eliminated. This isn't even remotely
| comparable to any of the health or occupational risks in
| the trades.
| codegeek wrote:
| As a software engineer myself, I am not disputing that.
| All I am saying is that GP to whom I initially replied
| was using the comparison with plumbers that they make
| shit money and that is not the case necessarily in the
| United States. I am not delusional to think that plumbers
| can beat FAANG income unless they are running an entire
| business/company with employees.
| voisin wrote:
| The fruits of your labour can be sold continuously at low
| marginal cost. His cannot.
| anonymouskimmer wrote:
| I don't know. An unclogged pipe is used multiple times per
| day.
| vjk800 wrote:
| A point that used to be made a lot in copyright wars
| discussions a decade ago was that most "old fashioned"
| professions (like plumber, carpenter, architect, etc.)
| only get paid once, not every time someone uses their
| product, whereas creators of digital goods somehow are
| entitled to get money every time someone uses their
| creation. Super star musicians and software engineers
| making obscene amounts of money is a direct result of
| this.
| AstralStorm wrote:
| The ignored corollary is that the market for these
| products will get saturated much more quickly, and thus
| the product needs to change to stay relevant. Plus
| there's a low(ish) bar to entry.
|
| How long has a quality carpentry been sold now? Cost of
| entry is also relatively stable.
|
| Music styles change every decade now and it is speeding
| up as marginal costs of entry fall. Likely similar with
| other entertainment, which is why every entertainment
| corporation is now looking for lock-in.
| layer8 wrote:
| Plumbers should get into the PaaS business (pipes as a
| service).
| lotsofpulp wrote:
| If plumbers can figure out how to sell flushing as a
| service, this whole disparity can be resolved. They might
| need to hire a software engineer though.
| anonymouskimmer wrote:
| :D
|
| Your comment got a chuckle out loud. And then I saw your
| user name and can't stop.
| anonymouskimmer wrote:
| Your job is incredibly tedious and boring dealing as it does
| with human-constructed Kafka-esque instructional systems.
| You're effectively psychiatrists for machines. Having taken a
| couple of introductory programming courses, and thrown
| together some VBScript and some R markdown, I'm fine with you
| making the big bucks.
| czbond wrote:
| Will GPT-6 replace a plumber? I think not.
|
| Will GPT-6 replace some subset 10..80% of engineering, law,
| medical hours? absolutely
| gwright wrote:
| I'm not so sure. There is a Planet Money episode that talks
| about the effect the digital spreadsheet had on accounting
| employment:
|
| > Thanks to spreadsheets, there are 400,000 fewer
| accounting clerks than in 1980, but 600,000 more regular
| accountants.
|
| Might something like GPT-6 cause employment to shift to
| higher value job responsibilities?
|
| https://www.npr.org/sections/money/2015/02/25/389027988/epi
| s...
| Workaccount2 wrote:
| People raise arguments like this frequently, but in every
| other case throughout history people were made obsolete
| by tools that intelligences use. Never before has the
| intelligence part been made obsolete though.
| gwright wrote:
| Well you've changed the assertion a little bit there. I
| shared that one particular technical innovation shifted
| the mix of jobs towards more skilled jobs. That doesn't
| say anything about any individual person of course.
|
| Your statement says that "people were made obsolete",
| which I take to mean that some people are individually
| unable to switch to the more skilled jobs.
|
| I think the effect on current employees due to technical
| innovation is a reasonable issue to be concerned about
| but it's not the same phenomenon as the job "mix"
| changing towards more skilled jobs, even some that didn't
| exist before. The two phenomena aren't mutually exclusive
| either.
|
| We don't have too many stagecoach drivers these days but
| we do have a lot more "drivers".
| hindsightbias wrote:
| Developers are really dumb wanting to optimize code
| development.
| gwright wrote:
| This seems like a pretty limited viewpoint. We could all
| be coding in assembler still but generally we find value
| in using something higher level. Does that make us all
| dumb?
| __derek__ wrote:
| Wait, why 6?
| czbond wrote:
| Picked a higher number to not be scary. "supposedly"
| GPT-4 can pass the bar exam
| __derek__ wrote:
| Gotcha. I thought maybe they were planning to skip GPT-5
| or something.
|
| That's actually a pretty low bar, FWIW. ( _rimshot_ ) Law
| students spend a few months in bar prep to memorize a
| bunch of crap that doesn't even apply to their real jobs.
| Maybe the AI will encourage bar associations to finally
| ditch it, a development that gained some steam during the
| pandemic.[1]
|
| [1]: https://www.reuters.com/legal/legalindustry/bar-
| exam-who-nee...
| Ekaros wrote:
| Bar exam has quite little to do with actual legal work.
| Or being effective in it.
|
| I'm not actually surprised that a AI-model could pass it.
| The corpus is well known and well defined and test
| directly draws from that.
| Kon-Peki wrote:
| > Capitol Hill, Seattle
|
| My cousin owns a mansion in Capitol Hill. Because she was a
| broke-ass student at UW and couldn't afford rent. Back in the
| 1980s, buying a house there was seen as a crazy, insanely risky
| thing to do and likely to end up in death.
|
| The modern equivalent is the area around 105th and Euclid in
| Cleveland, near Case Western and the Cleveland Clinic. 150
| years ago, that was _the_ wealthiest neighborhood in the entire
| United States, now you are though to be insane to want to buy a
| house there. But if you did, would you end up with Capitol-Hill
| like appreciation in 40 years???
| harambae wrote:
| > But if you did, would you end up with Capitol-Hill like
| appreciation in 40 years???
|
| My friend recently applied this same concept in a very rough
| area of South Bend, Indiana buying a house with bullet holes
| in the side using the same general logic ("it'll get
| gentrified someday").
|
| The issue he's running into is that it turns out a city
| doesn't have to charge you property taxes on the actual sale
| price (which was only $3k) but can charge you property taxes
| on a higher amount of their choosing ($40k I think he said)
| in order to encourage revitalization and not just hoarding of
| slum houses, probably.
|
| He's trying to fight that property tax assessment, but I'm
| not a lawyer and neither is he and he'll probably lose. In
| which case the holding costs defeat his whole plan.
| steveBK123 wrote:
| To be fair, being a chef has never been a well paying role.
| Read Bourdain's writing on the NYC restaurant scene in the 90s.
| Hard work, hard drugs and hard life.
| bacchusracine wrote:
| >Hard work, hard drugs and hard life.
|
| Not having read the book I must admit my kneejerk response is
| to wonder if the latter part could have been avoided by not
| indulging in the middle part? Not to say that hard work
| always pays off or anything but drugs are expensive are they
| not?
| mypalmike wrote:
| A lot of restaurant workers I've known in Seattle make like
| $30K. And no they aren't drug users.
| glonq wrote:
| My daughter recently moved from Vancouver BC (which sucks for
| housing) to Seattle, which sucks for housing.
|
| Despite having a good university degree and a decent-paying
| white-collar job, she gets by in Seattle thanks to couch
| surfing and pet-sitting. It beats the alternative -- sharing
| with numerous flaky/crazy roommates.
| silverlake wrote:
| People don't seem to understand supply vs. demand. More people
| are moving to cities. Cities have onerous zoning laws. The
| construction industry is still skittish after 2008's meltdown.
| Enormous demand && limited supply in cities == high prices. My
| hometown in the midwest is selling homes for $100/sqft. Dallas
| suburbs are $150/sqft. Manhattan is over $2000/sqft.
| hintymad wrote:
| Supply and demand is a big issue too. Take Bay Area as an
| example. The number of newly minted millionaire families every
| year on average exceeds the number of newly added houses around
| those job centers. In the meantime, we've been having an asset
| inflation in the past 10+ years. As a result, the housing cost
| in the bay area just keeps climbing up. This has serious
| consequences too, as such ridiculous housing cost drives away
| excellent teachers, cops, and etc.
| lvl102 wrote:
| Meanwhile some mainland Chinese 18yo drops in with a bag full
| of cash to buy a place outright. Something is very wrong with
| that picture for Americans.
| gknapp wrote:
| I know this is anecdotal, but whenever I hear these stories,
| I'm curious about the details. A quick search leads me to
| believe that head chef pay in Seattle typically ranges from
| about 90k-110k per year. Finding apartments off Broadway in Cap
| Hill, I can see that studios, though relatively expensive,
| range around $1.5-2k a month.
|
| An income tax calculator estimates about a 22% total tax
| bracket and a monthly adjusted income of just over 6k. To me,
| that means that this person is falling right around 33% of
| their income devoted towards housing, which seems typical. What
| am I missing?
| Robotbeat wrote:
| "House poor" was typically having to pay at least 25% of your
| take-home income on housing.
| gambiting wrote:
| Sure but obviously that number needs some common sense,
| right. To make a clearly ridiculous example - if you were
| making 100k a month and paying 25k for rent you wouldn't be
| poor in any possible meaning of that word.
|
| If you bring home 6k a month after taxes, and after rent
| you're left with 4.5k, I'd also argue that's not "barely
| making ends meet". That leaves a very comfortable breathing
| room that is unimaginable luxury for most of the world.
| nottathrowaway3 wrote:
| >If you bring home 6k a month after taxes, and after rent
| you're left with 4.5k, I'd also argue that's not "barely
| making ends meet". That leaves a very comfortable
| breathing room that is unimaginable luxury for most of
| the world.
|
| Another aspect of this issue is that, when you take out a
| typical mortgage, you take a 4-5x leveraged long position
| on real estate. Rent for a nice 1br in Seattle area is
| $2K, but the hidden aspect is the landlord is holding the
| RE risk on your behalf.
|
| Even if mortgage was $1K/mo, I would rather rent (which I
| do) to avoid this risk in volatile, tech-dependent area
| like Seattle.
| pertymcpert wrote:
| That's true about the risk, however before the recent
| spike in rates, that leverage was ultra-cheap.
| nottathrowaway3 wrote:
| >however leverage was ultra-cheap
|
| In nominal dollars yes... but the downside risk was the
| true cost.
|
| Get in at a low rate and comfortably afford it, then
| you're doing great despite maybe being underwater for
| now. But default while underwater and lose whatever you
| put down plus the difference in price.
|
| TINFA but, exposure to real estate is
| generally/historically a good hedge to keep pace with
| wage inflation. I disagree with OP; getting in before
| rate hikes wasn't necessarily a mistake. But mortgages
| work the same way that ESPPs and RSU grants work,
| banks/companies/governments hedge downside risk by
| convincing a whole bunch of people to be long on a stock
| (or real estate).
| llbeansandrice wrote:
| Now add on:
|
| - All forms of insurance - saving for retirement - Rising
| food costs - Any Healthcare expenses - Car costs - Child
| care - Subscriptions (phone, internet) - Utilities
|
| All in Seattle
| [deleted]
| gambiting wrote:
| If you can't fit all of that in four and a half thousand
| dollars then I don't know what to tell you. I'll repeat
| myself - someone who has 4.5k left after paying rent is
| not struggling to make ends meet by any definition of the
| word, in Seattle or elsewhere.
| pertymcpert wrote:
| Ummm childcare is like 2k a month.
| gambiting wrote:
| Ok, that leaves another 2.5k to use. Once again, that's
| not struggling to make ends meet.
| AstralStorm wrote:
| That's assuming you do not want to save anything, or a
| medical emergency does not wipe you out. Or a car crash.
| Or any other utterly forseeable common event.
|
| This is called precariousness, not comfort.
| gambiting wrote:
| Again, nothing to do with struggling to make ends meet.
| By going further with your argument you aren't fully
| comfortable until you can cover any possible event that
| might happen, since a dire enough event will exhaust any
| possible amount of savings you could have unless you're a
| billionaire. Medical emergencies and car crashes are
| covered by insurance for nearly everyone, if you make
| that much money I would think you have appropriate
| policies in place.
| hahla wrote:
| Most of these costs (saving for retirement, insurance,
| subscriptions, car) would be consistent across the US and
| is not unique to Seattle. $100k in a very expensive city
| is not much by any means, however what's more concerning
| is the costs you outlined are consistent and rising for
| even those living in LCOL or making even less than $100k.
| whateveracct wrote:
| $90k salary and $2k rent was my situation when I moved to
| Seattle many years ago. It definitely was comfortable.
|
| My wife was able to also get comparable work and that
| money wasn't at all needed to help make ends meet, so it
| went right into student loans and those got paid right
| quick.
|
| I moved from the Midwest and people warned me about the
| CoL etc. But you just gross more even if the apartment
| etc is a bigger percent. And cash is king especially if
| you have debt or just like buying nice things or both.
| judge2020 wrote:
| "was"? When?
|
| Federal DTI maximum for mortgages is 45% with a good credit
| score and/or cash reserves. For apartment complexes, they
| typically won't lease, or will require a bigger deposit, if
| your gross monthly income isn't 3x the rent (which
| typically means it's 40%+ of your net income).
|
| If 25% 'was' house poor, then at least 90% of today's
| mortgage-holding and rent-paying Americans are house poor.
| t-writescode wrote:
| Yes. Correct.
| judge2020 wrote:
| It also matters where and how far you are from things.
| Walkability is a big draw, so if you're within a mile of a
| major district with tons of food, entertainment, and culture,
| chances are any well-kept apartment building will raise their
| prices to account for that (and account for you not having a
| monthly car payment or auto insurance payment), and if this
| chef is within a few blocks of their work, it's not hard to
| believe their rent could be over 3,000 a month or 50%+ of
| their income (although, typically, management companies want
| to see your gross income be 3x or more of the rent).
| RHSeeger wrote:
| > if you're within a mile of a major district with tons of
| food, entertainment, and culture
|
| If you're within a mile of _that_, it seems reasonable to
| define the housing in that area as "prime" and expect it to
| cost a lot more than further away. The fact that rents for
| that housing has a cost that is prohibitive for the vast
| majority of people doesn't seem odd to me.
| judge2020 wrote:
| This is why I'm replying to a comment stating "I'm
| curious about the details". Without someone explaining
| their debts or where they live, we're guessing and
| arguing about what could drive someone to live in a 400
| sqft studio where they make 3x the rent but still live
| paycheck to paycheck. You pay to live in that area. Even
| if we vastly increase the supply, these areas will always
| have an order of magnitude more demand than some
| apartment complex outside the city's beltway because
| living in these complexes allows you to drop your car
| dependency.
| t-writescode wrote:
| * They're a head-chef, that seems like a high-ranking
| position. * That used to feed and house a whole family,
| easily. * They can now **only afford a studio**
| varispeed wrote:
| I used to know a chef who worked at michelin star
| restaurant and he had to move to a flat share because he
| found himself not being able to afford much after paying
| rent in London.
|
| That sent him to a severe depression and later on an
| unsuccessful suicide attempt that rendered him unable to
| work and he became homeless.
| vjk800 wrote:
| I have absolutely no knowledge of how well chefs in Seattle
| are paid, but I've heard from elsewhere that operating a
| high-end restaurant is far from a money machine.
|
| Head chef, unlike senior software developer or something,
| is a job that doesn't scale much. A rock star chef in a
| posh neighbourhood is only so much more productive than a
| mediocre chef in cheaper neighbourhood so, economically
| speaking, the salaries are not expected to scale all that
| much.
| lukeschlather wrote:
| In a well-functioning city, a head chef should be able to
| comfortably afford to rent a 2-3 bedroom apartment within
| walking distance of their restaurant. They should not be
| spending 1/3rd of their income and only getting a studio out
| of it.
| ericmay wrote:
| You can, just move out of Capitol Hill in Seattle which is
| one of the most desirable areas in one of the most
| desirable cities located in one of the most desirable
| geographies in the wealthiest country on earth.
|
| This place looks nice!
| https://www.zillow.com/homedetails/2742-Lincoln-St-NE-
| Minnea...
| sbarre wrote:
| And where would that chef work then?
|
| Should they simply give up on their own ambitions and
| career goals?
| ericmay wrote:
| I've only ever been to the airport, but I imagine there
| are great restaurants and innovative career-oriented
| chefs in Minneapolis too.
| OnlineGladiator wrote:
| You're essentially saying Seattle is too expensive for
| chefs to live in, which means it's too expensive for nice
| restaurants, which means it's too expensive to function.
|
| Now extend your own logic to teachers, service workers,
| etc.
| hd95489 wrote:
| It's too expensive for chefs to live in Seattle it really
| is. People here don't spend enough money eating out to
| justify the number on chefs so they can't afford to live
| in decent housing
| kevviiinn wrote:
| The Free Market(tm) has decided we don't need teachers,
| obviously
| hd95489 wrote:
| At some point it would if no teachers would work in
| Seattle
| AstralStorm wrote:
| Market will move instead to where it is reasonably cheap
| and labor is available, leaving a ghost town behind.
| Ultimately this results in high concentration.
|
| There's literally no force compelling it to invest in a
| failing area, or one perceived to be failing.
| randomdata wrote:
| He's saying that the people who spend money in Seattle
| don't care if the chefs leave. That comes with the
| freedom to choose what to spend on.
| NDizzle wrote:
| Specific to Seattle, once you see what the teachers are
| teaching kids there you'll see that they soon won't
| actually need teachers. Nobody that has both a
| functioning brain and children would put their kids in
| Seattle schools.
|
| The problem kind of solves itself.
| ericmay wrote:
| > which means it's too expensive to function
|
| Well it functions up until people such as this head chef
| say "screw these housing prices" and relocate somewhere
| else and open their restaurant and have a better life and
| then whoever is living in Seattle gets crappy or
| extremely expensive restaurants to account for the high
| housing prices.
| swatcoder wrote:
| I'm not sure if you meant to, since you seemed to be
| talking framing it around individual choice, but you've
| just made the case that something is fundamentally
| damning the economy in cities like Seattle. That's
| _exactly_ why issues like housing affordability need to
| be identified and treated at the systemic level.
|
| If people can't satisfyingly live near their work, then
| they can't work there, and then the work can't be done.
| If workers has to move to another state to practice their
| craft, a city needs to proactively recognize and address
| the problem if they want to avoid a coming blight.
| ericmay wrote:
| Well because individual choice and governance choices
| both exist simultaneously and dynamically.
|
| In this particular case, though, I think the thing that
| is daming Seattle (and similar locations: Santa Barbara,
| San Francisco, Denver, Aspen, anywhere remotely
| desirable) is geography and climate and there isn't much
| you can do to fix that because you can't create new
| geography out of thin air. "Ohio is so boring", "I need
| to be near mountains and fresh air", "I like to surf", "I
| love to hike" are all things that can't be effectively
| replicated and so wherever those things exist prices will
| skyrocket relative to other locations.
|
| Can Seattle literally build more? Yes. Will that solve
| Seattle's housing affordability problems? No it won't. In
| the short term interest rates and cost to build mean that
| most units will be higher end. Certainly won't mean a
| 2-3br house anyway. In the long-term unless something
| drastically changes Seattle is just desirable and there
| will be many more people who want to live there than
| there will be homes unless we could just snap our fingers
| and create new housing, nevermind governance issues, it
| just isn't happening folks.
|
| I do empathize though. Please don't mistake my comments
| for callousness. But sometimes the truth (as I see it)
| just needs to be state. If you want to work as a chef and
| afford a 2br house it just is not happening in Seattle
| and you should make peace with that.
| whymauri wrote:
| There are many cities in the world where a head chef can
| live in the desirable neighborhood within a desirable
| city while working at their desirable restaurant. For
| example, the owners of a local wine bar where I live in
| Bogota are able to operate a wine bar below their
| apartment with relaxed zoning laws. Just not possible in
| the U.S.
|
| Not just high-end restaurant jobs. The local owner of the
| ferreteria (home repair goods) lives above his store as
| does a window/glass store owner. And this is in a
| relatively pricey, high end neighborhood. In other
| neighborhoods is even more common. My family recently
| sold a restaurant in Bogota and the new owners are
| converting the top floor into a home for themselves.
| BolexNOLA wrote:
| The people who build, own, and operate the very luxury
| services (such as culinary destinations) that contribute
| to an area's reputation as "one of the most desirable
| areas in one of the most desirable cities located in one
| of the most desirable geographies in the wealthiest
| country on earth" should be able to afford living there.
| [deleted]
| thepasswordis wrote:
| >should
|
| Why?
| mrWiz wrote:
| >Why?
|
| Because if they leave then they will no longer contribute
| to the area's desirable reputation.
| hd95489 wrote:
| In the free market they will leave and get replaced. Or
| enough will leave and wages will go up
| pb7 wrote:
| But they can commute in like many people do, right?
| BolexNOLA wrote:
| My comment contains the "why" already.
| djmips wrote:
| But then you'd have to live in Minneapolis?
| bluGill wrote:
| I grew up there. It is a good place to live: education is
| valued, lots of nice people, many good jobs.
|
| The weather isn't the best in winter, but if you know how
| to put on a coat it isn't that bad.
| djmips wrote:
| Why don't you still live there?
| jimbokun wrote:
| Which is maybe why rent in Seattle is so relatively
| expensive?
| recursive wrote:
| Instead of Seattle? What's the catch?
| amyamyamy2 wrote:
| Most people are not willing to move away from all of
| their family, friends, and career. Software engineers are
| uniquely privileged in that we can work remotely, many,
| many other careers cannot do that
| ericmay wrote:
| Remote isn't available for all tech employees (software
| or otherwise) and historically we have advocated that
| people move to places like the Bay Area to obtain
| corresponding higher wages (I have to move to California
| and uproot all of my friends, family, and career ??).
| YCombinator itself famously required(s) entrepreneurs to
| uproot their friends, family, and career to move to the
| Bay Area.
|
| At the end of the day people can make the right mix of
| economic and sociological choices that they want. But
| what's _not_ going to happen is everyone in Seattle gets
| a 2-3 bedroom house and you can make peace with that fact
| of life or continue to be frustrated.
| mzmzmzm wrote:
| The studio is worth it if you're walking to your
| restaurant 6 or 7 days a week and checking out other
| neighborhood hot spots. If you're commuting to an office
| tower a few days and on Zoom or hiking the rest, it's
| not. And of course if you make it easier or harder to
| drive to the office (and consequently worse or better to
| get around on foot) the prices would shift to reflect
| that, a good example of how the crisis Andre Cooper is
| writing about hamstrings unrelated things like
| transportation policy.
| turtlebits wrote:
| That sounds more of a problem of low wages than housing
| affordability. Also, in these times of title inflation,
| "head chef" could apply to many positions depending on the
| size of the restaurant.
| hahla wrote:
| I just pulled up plenty of 2bd rentals on zillow for under
| $2,500 with a short commute. Am I missing something here?
| Or does being a head chef mean you should be able to afford
| rent on top of the restaurant you serve?
| jimbokun wrote:
| When, and in what city, has that ever been the case?
|
| I haven't been to Seattle, but in major cities space is at
| a major premium and many dwellings are tiny. This is offset
| by the amenities living in a prominent city have to offer.
| rootsudo wrote:
| I would argue that the salary of 110k/yr isn't accurate. That
| is still entry - mid level tech in Seattle. Granted it has
| changed recently to be 125-135k, but I do find it hard that a
| head chef in Seattle would make 110k. 65-85K I can.
|
| Capitol Hill (no one calls it Cap Hill.) is pricy, though
| $2,000 should find a studio easily, and no car is needed,
| it's a close knit enough neighborhood.
| Analemma_ wrote:
| > A quick search leads me to believe that head chef pay in
| Seattle typically ranges from about 90k-110k per year.
|
| This doesn't sound right to me. Maybe it's true for the very
| fancy quasi-Michelin places like Canlis or Shiro's, but for a
| nice-but-average gastropub in Cap Hill it's probably much
| less.
| MrMan wrote:
| if its Coastal Kitchen I could see and would hope the chef
| is making a grownup amount of money
| JohnFen wrote:
| > I can see that studios, though relatively expensive, range
| around $1.5-2k a month.
|
| Is that all? That's crazy cheap by the standards of my area.
| Where I live (a smallish city in western US), the cheapest
| housing you can find, in the least desirable part of town,
| starts at $1200/mo.
| kevviiinn wrote:
| And its crazy expensive by the standards of my area where
| you can find a nice 2bed with laundry in the unit for under
| 1k
| isodev wrote:
| I think 33% is very high. Also converting the value to %
| erases the fact that this is still a very high price for what
| you get in return. Perhaps it's time to reevaluate the
| economics around housing - maybe betting against human lives
| doesn't feel right. Also, with overpopulation and climate
| changes, access to housing and the need for relocation will
| drastically change the landscape of what one needs to do to
| put a proper roof over their head.
| nottathrowaway3 wrote:
| >maybe betting against human lives doesn't feel right
|
| This is an inappropriate emotional appeal. Real estate is
| dependent upon the price/value of labor. It's betting
| for/against labor prices.
|
| Labor is not your life. You are more than your job.
| zo1 wrote:
| Warning, uncomfortable honesty ahead. I'd be betting
| against labor. With all the automation going on, and the
| _" Huge"_ technological advancements I foresee probably <
| 20 years away, I don't see why I should do otherwise. I
| also don't see violent revolutions being a possibility
| with all the societal level monitoring and controls all
| countries are putting in place, so I'm betting on pure
| "capital" and "the means of production". The more I have
| of it, the more likely I'll be part of the upper strata
| of society when whatever dystopian tech hell hole we end
| up getting.
|
| Of course, I won't step on others, and I'll help where my
| conscience requires me. But at the end of the day (or the
| end of the world) I am here to provide a safe future for
| my children, and perhaps secondary, my culture's
| children... but definitely not to save the world. The
| world is beyond saving at this point.
| nottathrowaway3 wrote:
| >The more I have of it [capital], the more likely I'll be
| part of the upper strata of society when whatever
| dystopian tech hell hole we end up getting.
|
| Why do you conclude that money will keep you safe? Easy
| to hyperinflate currency, freeze bank accounts, seize
| gold, etc. Typically in a "violent revolution" you
| mentioned, power lies in the military.
| AstralStorm wrote:
| Capital comes in many form, and money is just one.
| Probably most problematic in times of strife.
|
| Assets, in particular high value, portable or hard to
| destroy ones, that are easy to defend, or skills that are
| very hard to replace without destroying you or their
| value.
|
| Military is strong mostly due to the assets it has -
| obedient manpower and destructive hardware. The problem
| is, however, that using these assets destroys value in
| the medium term, not creates.
|
| A factory making guns is worth much more than guns
| themselves. People who know how to operate it, as well. A
| working mine is worth more than a mountain.
|
| Every conqueror wants submission and instead reaps
| destruction.
| nottathrowaway3 wrote:
| >portable defensible assets
|
| Yes if they have inherent value.
|
| >factory ownership
|
| You only own said factory because government says you do
| and will enforce your ownership. A junta or communist
| party might not agree you own it anymore.
| nottathrowaway3 wrote:
| My point is, more things than not have dependency on
| government or legal system. In case of widespread
| automation via AGI, the rich are not safe. Probably drone
| swarms and wilderness survival are your best bet. Who
| would want to survive like a rat in such a world, though.
|
| To quote the mars man: "all things considered with regard
| to AGI existential angst, I would prefer to be alive now
| to witness AGI than be alive in the past and not".
| ejb999 wrote:
| >>I think 33% is very high. Also converting the value to %
| erases the fact that this is still a very high price for
| what you get in return.
|
| Guess it depends on how each person defines 'what you get
| in return'. It seems this chef values living in a
| particular expensive neighborhood in Seattle, presumably
| close to where s/he works - and s/he values that. The
| smallish apartment size is the tradeoff they make.
| donkey-hotei wrote:
| Totally relate with this feeling.
| dukeofdoom wrote:
| From landlords perspective. things are build with very poor
| quality materials, that require constant maintenance. Also
| weather damage of all sorts from trees to roofs, to water in
| basement. plumbing now made from plastic that leaks. long list.
| Also people fail to consider how much of the rent money is going
| to interest, about half over a lifetime. In cities like Toronto,
| the rent doesn't even cover the mortgage on most rented out
| houses. So landlord will need to pay the difference, with the
| hope of getting it back evnetually do to inflation or rising
| prices.
| lalos wrote:
| Easily fixed with a tax system:
|
| 1) first home tax-free - the address you submit your yearly taxes
| on. Incentivize people to own at least one home.
|
| 2) second property you pay taxes for both homes now - no more tax
| free benefit since you are able to afford more than one place.
|
| 3) more than 2 properties you pay taxes for all of them times
| some factor 0.05*N houses. Fudge around with the factor to allow
| more supply for all the first home buyers since now it it is more
| expensive to hold multiple properties.
|
| Not sure if this falls under Georgism.
| ParksNet wrote:
| Simpler than that: just enact State, County, or HOA bans on
| corporations from owning single-family homes. Let them pour
| money into apartment complexes.
| misiti3780 wrote:
| this is a much better idea.
| jb12 wrote:
| I buy one house, my wife buys one house, we set up one trust
| each for two of our kids to own one house, we get four houses
| tax free
| lalos wrote:
| Yeah, now your wife and each kid will fill taxes by
| themselves and you crack down on that there - you give the
| free tax benefit as a deduction on your income tax so if your
| 3 year old doesn't have income there's no benefit. The trust
| itself can fill taxes, you allow the tax-free benefit to
| apply to only single individual tax form and force a trust to
| pay tax.
| mordae wrote:
| Who cares? The problem is with people or companies that own
| 3+ houses and a whole high-rise building.
| mulmen wrote:
| Just give the tax break on your primary residence. If you
| don't live there 51% of the year you pay oppressive property
| tax. Give property tax breaks to landlords that provide
| affordable housing up to the needs of the area.
| cced wrote:
| I think OP's point is the introduction of limits to the
| benefit of owning multiple properties. Hard to see OP
| replying with "Oh gosh, darn it you got me again" as a
| response to your comment and much more likely to further
| develop policy that would stay true to the idea that being
| able to afford more means you should pull more weight.
| triceratops wrote:
| Good thing legislators will never think of that if they ever
| make a law, in good faith, to tax multiple property
| ownership. /s
| ImHereToVote wrote:
| If you register that you live in those different houses but
| live in the same house. Straight to jail.
| adverbly wrote:
| I feel like I'm taking crazy pills. Georgism(LVT) would fix so
| many things.
|
| I'd literally vote for a single issue party to get it passed at
| this point.
| nwah1 wrote:
| Same.
| jqr- wrote:
| For those that don't know what this refers to (myself
| included): https://en.wikipedia.org/wiki/Land_value_tax
| TheBigSalad wrote:
| It already works something like that.
| adverbly wrote:
| If by "something like that", you mean "at a tax rate so low
| that it's irrelevant"...
| pzone wrote:
| Incentivizing people to own their primary residence tax-free
| kills almost 90% of the Georgist incentive structure. The only
| justification for doing that is if you consider homes an
| investment asset. Almost all homeowners own only one home and
| would have the exact same incentives to advocate development
| restrictions. Governments would forego almost all of the land
| value tax and be forced to continue with high levels of other
| less efficient taxes.
| hot_gril wrote:
| Doesn't fix it. People end up buying bigger homes just as a
| place to park money. The root of the problem is that housing is
| a subsidized investment; you're getting free money from the
| government by taking out a mortgage, and the market will figure
| out ways to take advantage of that with silly results.
| noelsusman wrote:
| What taxes are you talking about? If you're talking about
| property taxes then you just created a giant hole in every
| local government's budget. If you're talking about taxes on
| profits after you sell then that's basically how it works
| already.
|
| And no, that would not fall under Georgism.
| SMAAART wrote:
| I am from the "older generation" mentioned in the article, but I
| never once thought that the house/apartment that I bought for
| living was primarly an investment: it was a comfortable place to
| live that I enjoyed.
|
| Of course I made sure I paid the right price and not overpay, and
| that I financed it accordingly by shopping around for the
| cheapest 30Yr fixed rate mtg with 20% down. And I only refinanced
| once when the delta in interest rate made a lot of sense, but I
| kept the same duration as the end of the original 30 years.
|
| My Real Estate (first house and then apartment due to a move to
| NYC) appreciated well, but it doesn't matter much to me. I am
| still enjoying where I live and it works for me.
|
| I never bought any Real Estate that I could not afford, and never
| refinanced to "farm my equity" and/or paying off other debt.
|
| Life goes on.
|
| Financial literacy is more a matter of habits (and math) than
| anything else.
|
| IMO the
| https://en.wikipedia.org/wiki/Stanford_marshmallow_experimen...
| is a good predictor of financial behavior. I am the type of kid
| who would wait to get 2 marshmallows.
| fnordpiglet wrote:
| This ascribes morality to an amoral thing like population growth
| and markets. Buying anything is an investment. That's what
| investment means - you take resources and invest them. The growth
| in value of an investment in a market is an artifact of supply
| and demand. Not all homes rise in value, some decline, and many
| are fairly stable over time. Likewise rent doesn't rise steadily
| everywhere.
|
| The absurdity of the story here is reflected in the person with
| the rent vs buy calculator trying to see which decision makes the
| most sense, then feeling a moral outrage that in order to make
| money the price of the house has to go up. This is like being
| morally outraged that X-Y is only positive if X is greater than
| Y. You certainly can be, but what's the point and why on earth
| would you talk about that publicly?
|
| By the way, home prices are most easily thought of as a proxy for
| rent utility. If you can buy a house on debt and rent it for more
| than the principal risk and debt cost then you've got an
| arbitrage opportunity and prices will go up. Likewise if you
| can't and you'll lose money prices will go down because prices
| are too high. So complaining about house prices and rent as
| orthogonal ignores that they're intertwined.
|
| Mark Twain gave the advice to invest in real estate, they're not
| making any more of it. Ignoring that you should never take
| investing advice from Mark Twain, there's truth to it. Lack of
| affordability has to do with scarcity - if everyone is moving to
| San Francisco and expecting to be able to buy a beautiful
| Victorian in the Castro, expect the prices and rents to be sky
| high as there's only so many and there will never be more than
| there was effectively 50 years ago. There's nothing immoral about
| this. It might feel unfair in some "the universe owes me a
| beautiful life" way, but it's actually not unfair. It might feel
| unfair that someone working for the city who moved into the
| Castro in 1970 got a great deal on a beautiful house while you
| live in a SRO in the Tendergroin with 15 roommates working as a
| senior principal engineer at google, but it's actually not. It's
| just the way things are. If you don't like it, it's not the city
| workers fault for being a nimby that you can't afford their
| house, or that the city they live in attracted so many wealthy
| people and the value of their house exploded.
|
| There simply no morality at play here. There's no way not make
| ownership of property not an investment. There's no entitlement
| to affordable housing. We can work to make more house available
| so more people can afford it, but we also probably can't ensure
| everyone on earth can move to San Francisco and have a nice house
| in Noe Valley.
| secabeen wrote:
| > She's grateful she bought, but her life wouldn't be much
| different had she rented.
|
| This completely overlooks the reliability of owning. If Alice
| rented, she would always be at risk that the owner of the home
| she's living in would decide to stop renting it, or sell it to
| someone who didn't want to rent it, etc. The most important piece
| of owning a home to me is knowing that I cannot be forced out of
| my home as easily as a renter.
| billiam wrote:
| I think the real problem is that we have rigged our the nominally
| democratic but mostly capitalist system to favor wealth
| accumulation above all else, and have given most people a crappy
| deal: provide some incentives (in the tax code and local laws)
| for most people to use their home as their primary wealth
| repository as long as they don't make a peep about the
| essentially untaxed wealth of rich people and corporations.
| Taxing income instead of wealth (except for homes, which is most
| of us) is really the way modern society is broken, and until we
| address it we will continue to pull away from each other.
| [deleted]
| wonderwonder wrote:
| Most people are probably better off renting, especially those
| without a good deal of disposable income after expenses.
| Unexpected costs for a house just keep coming and the insurance
| company just laughs at you when you file a claim.
|
| My fence blew down and my sunken living room flooded in a storm
| and insurance classified it as a basement so it's not covered.
| That's been a 40k hit. I have to get trees trimmed, $3,500.
| Garage door opener stopped working. The hits keep coming. If I
| rented all it costs me is a phone call to my landlord.
| judge2020 wrote:
| > If I rented all it costs me is a phone call to my landlord.
|
| Do you think your landlord would be fine staying in the red
| when all of these expenses creep up? Why wouldn't they just
| increase your monthly rent by 1/12th what they've spent upon
| lease renewal? Or is is that they actually get their
| Homeowner's Insurance claims taken seriously because they have
| n > 1 insured homes with the same provider?
| wonderwonder wrote:
| A landlord increasing rent is capped by comparables in the
| area. It's not realistic for a landlord to increase rent by
| over $3,300 a month. They would never be able to rent it. So
| while they can increase rent it still has to be competitive
| with comparable rentals.
| judge2020 wrote:
| If you're already in a lease, chances are they will try to
| rent it for a few percent more than what they'd list it for
| on the open market. Many people are not attune to moving
| every year, especially if it's a house instead of an
| apartment, and will weigh the costs (incl. mental) of
| moving with the money they have left in their budget.
| wonderwonder wrote:
| Sure, but in the meantime all of the repairs have been
| completed vs the renter being unable to come up with 40k
| and their house remains flooded and damaged.
|
| Even simple maintenance likely covers the increase. I
| spend at least a $1000 a year just on ac maintenance. Add
| in lawn care and that's another $1500 (you could of
| course do it yourself). Need trees trimmed $2000 or 1
| fell into your house?. Roof leak, $5000? Water heater,
| $3000? AC needs to be replaced, $8000? Someone backed
| into your mailbox? These are all large bills that many
| renters could not cover. Many of these happen in the same
| year.
| nisegami wrote:
| Inaccessibility of housing is one of those problems that will
| inevitably be solved. Societies must choose which solution they
| prefer and the US is certainly choosing a particularly
| undesirable solution right now.
| reocha wrote:
| Housing is a requirement for life, working to decommoditize
| housing should be a requirement for a modern state.
| zpeti wrote:
| This is all the feds fault. It sounds very 2010 but people need
| to get back to what the occupy movement was about.
|
| The fed should NOT look at house prices as an asset, for almost
| everyone it's an expense and if it's going up in price that's
| just plain old inflation, nothing else.
|
| Interest rates never should have been this low for so long. It
| was a massive wealth transfer to the existing asset owners from
| working people.
|
| I just can't believe there's been zero blowback about this. And
| the entire 2008 crises. Many many people should be in prison.
| Animats wrote:
| "The idea that home prices should outpace inflation is insane and
| maybe has broken modern society."
|
| At least in the US. Not Japan, which seems to hit the economic
| problems of the US about 20-30 years earlier. House price growth
| came partly from population growth. But population growth is over
| in the developed world.
|
| The US fertility rate is around 1.8 babies/female. 2.1 is
| breakeven. It peaked at 3.8 in 1958. "Peak Baby" for the US was
| in 2018. The US population hasn't started to decline yet, but it
| will.
|
| House prices increasing faster than inflation started in the
| 1950s. US housing used to be cheap. In the 1950s, NYC residents
| spent, on average, 12% of income on housing. [cite needed].
| Clothing and food were bigger items. Now, with a declining
| population, that trend turns around.
| dougmwne wrote:
| The US is immune to demographic problems. There's an infinite
| supply of young people willing to immigrate and an extremely
| heterogeneous society really to integrate them. Japan has never
| figured out how to integrate immigrants.
| darod wrote:
| The math is suspect. Author doesn't take into consideration that
| rents increase annually vs a locked mortgage with a conventional
| loan. Rent is also 100% loss vs mortgage you're gaining equity.
| Additionally if you think beyond one generation, your kids have
| an asset they can use to borrow against, rent out, and live in if
| they so choose, which if it's paid off by that time, they just
| have to worry about maintenance and taxes.
| mywittyname wrote:
| I'm 38, so I basically came of age during the Great Financial
| Crisis. I had so many friends who were slightly older than I lose
| their asses on houses. Multiple of my single friends had partners
| who also owned houses, and when they finally got hitched, they
| had to either pay the mortgage for a house that sat empty, come
| up with five figures to pay someone to buy their house, try to
| negotiate a short sale (in a recourse state), or risk renting it
| out.
|
| I'm not talking one or two people either, this was an extremely
| common situation, it was a common lunch time topic of
| conversation at every job I had in the 09-13 era. Even my parents
| were against my buying a house at the time, as they were severely
| underwater on the poorly-built boom-time piece-of-crap they ended
| up buying.
|
| I'd argue part of the problem is an entire generation of people
| saw houses as anti-investments and avoided buying them when they
| were $80-120k because one look at the pricing history showed they
| used to be $100-140k for the same house just six years earlier.
| Renting was (at the time) cheap, had none of the maintenance
| requirements, and was less risky if you wanted to move.
|
| Of course, the _contrarian_ people who had a long-term outlook
| made out like bandits. People who bought those heavily discounted
| houses with ultra-low interest rates using the housing buyers
| credit are enjoying the housing boom right now.
| hendersoon wrote:
| As the article correctly notes, it all depends on location. I
| live in Manhattan, and my apartment has appreciated quite nicely
| over the past decade, but even if it just kept up with inflation,
| it would honestly be worthwhile to buy just to avoid the
| annoyance of some of the worst people in the world, NYC
| landlords, viciously screwing with me every year on renewals.
|
| If you live in the suburbs somewhere and rent from a reputable
| legitimate property company, you may not care about that.
| WalterBright wrote:
| > I hear advice from the older generation that "buying a house is
| an investment". [...] With all due respect, this is a crock of
| shit.
|
| I was lucky that my dad (an economist) told me that houses are
| lousy investments. It's been true for me. I've lived in serial
| houses that I've owned, and toting things up over the years,
| they've been a lousy investment.
| [deleted]
| wankle wrote:
| > But now, if she buys a home, she needs housing prices to keep
| going up to make her decision financially sound.
|
| If you buy a home, you're living rent free, that's true
| regardless if the price goes up. If you live in it for 30 years
| and sell for exactly what you bought it for, you still made money
| because you lived rent free for 30 years. That's even including
| the cost of maintaining the home, roof replacement, HVAC, water
| heaters, appliances. Then there's the reduced taxes on mortgage
| interest.
| asperous wrote:
| You paid "rent" to the bank in terms of interest.
| Night_Thastus wrote:
| The age of owning a home is going away.
|
| No one wants to hear it, it sounds like nonsense, but I really
| think it's true.
|
| Over the next few decades, home ownership will be reserved for
| the very wealthy. Everyone else will be renting in some form or
| another. If you're less well off it will be a cheap apartment. If
| you have a better job, it might be a nicer single-family home.
|
| But it'll all be rented, because that's where the real money is
| and the system is successfully squeezing out the possibility of
| ownership.
| pfannkuchen wrote:
| Have we considered simply making mortgages illegal? Allowing the
| inclusion of future money (and thus future labor, usually) in
| bids must increase the cost of land (at least) as a percent of
| income, no?
| kqr2 wrote:
| I don't think we need to make mortgages illegal. We just need
| the government to not subsidize and guarantee mortgages. 30
| year fixed rate mortgage most likely would not exist. Instead
| ARMs would likely be the norm which would probably drive down
| purchase prices due to future rate risks.
| ed25519FUUU wrote:
| Ctrl+F federal reserve, CTRL+F interest rates-- nothing in the
| article. Should I even bother to read it?
|
| Housing prices can be "fixed" overnight if we'll stomach the
| medicine.
| hedon1 wrote:
| The article and most of the comments: Wet streets cause rain.
| whiddershins wrote:
| got to the free nerd wallet calculator
|
| https://www.nerdwallet.com/mortgages/rent-vs-buy-calculator
|
| plug in all the numbers given in TFA with this reasonable
| modification:
|
| Increase in housing prices (rent and buy) exactly match whatever
| your inflation number is.
|
| return on investment is 4% over inflation, and you pay 15%
| capital gains on it.
|
| Lo and behold, the break even point is 20 years, after which
| buying is actually better.
|
| tweak a couple of variables ... move your marginal tax rate up to
| what someone making 175,000/year makes in NY or CA and the break
| even point gets earlier.
|
| Etc.
|
| Real Estate doesn't have to beat inflation to be a good
| investment. It only has to beat inflation when the price it is
| being sold at assumes it will beat inflation in the future and
| has baked that in.
|
| The article is drawing way too much conclusion from a small
| amount of observation.
| notShabu wrote:
| Many economic systems around the world rely on various kinds of
| "demand sponges" to soak up excess spending. This keeps inflation
| in check b/c excess spending can be directed towards a "Better
| Future" nest egg as the Future has theoretically infinite storage
| capacity.
|
| In the U.S. the SPY and real estate soak up most of this excess
| spending. In poorer countries, physical U.S. dollars. In China,
| real estate is _the_ primary sink. In certain subcultures, GME
| /AMC/DOGE.
|
| One of the philosophical ideals of "hard money" is that there
| should be a way of transporting spending power into the future
| without loss that is primarily useless. The issue with using real
| estate and the stock market to transport wealth is that they have
| real use cases. People need to live in houses, stock prices need
| to be rooted in fundamentals otherwise everything is built on
| pillars of sand, etc...
|
| Gold and art are the most traditional ways of transporting wealth
| across time while bitcoin is one that is very techno but also
| very volatile. However, even for the very wealthy, a diversified
| stock portfolio is likely still the most pragmatic.
|
| Most normal people rely on real estate (to a fault, e.g. w/ 2008)
| b/c investing in the stock market has operational risk &
| psychological risk ("investors" end up gamblers). The FIRE
| movement tries to get around this via SPY dollar cost averaging
| but the end result is using the SPY as a hopefully-too-big-to-
| fail pension plan replacement.
|
| Through this lens, "just increase the supply of housing" is naive
| because it fails to account for the existing web of incentives.
| It's the engineering equivalent of re-routing entire rivers of
| cashflow. China's supply of ghost cities for e.g hasn't helped
| with housing b/c it's only certain locations where the traits of
| being a massive demand sponge are satisfied.
|
| Governments need to prop up the asset prices of these stores of
| value b/c so much is already invested in them. They need to
| prevent a "bank run" on these de-facto inflation-adjusted
| savings.
|
| Gold and bitcoin "solve" this problem because the withdrawals are
| theoretically distributed across infinite time as they are
| immortal systems. However most people do not think like vampires
| & instead want to solve problems like "how do we buy a house in a
| good neighborhood before we are past child-bearing age?" The
| assets become a carrier to play high volatility (but low expected
| return) games that are perceived as the only way to "win"
| (rational application of hail mary strategies)
|
| To summarize, real estate price appreciation is due to it
| absorbing the "inflation" that would otherwise be distributed
| across other assets and commodities. This river of inflow has a
| lot of cultural momentum and pragmatism behind it. (the demand is
| real) Redirecting this river requires an alternative sink of
| money that 1. Has enough volume and low barrier to entry to
| constantly absorb this flow. 2. Has non-homogenous motivations
| for entering/exiting to prevent bank runs 3. Preserves spending
| power across both short, medium, and long time horizons.
|
| Like the CAP theorem, it's unlikely one asset can satisfy
| everything b/c it's market value would be infinite. However it's
| interesting to think about the housing problem through the lens
| of demand sponges and all the layers of historical solutions and
| new solutions towards incentivizing/manipulating demand.
| riskcomplex wrote:
| I'm one of the lucky ones. Bought a house for $350k during my
| PhD, while everyone tried to talk me out of it. This was 6 years
| ago. Today, not is my mortgage $1,300/month (while renters are
| paying double for a single bedroom apartment) but the house is
| valued at $800k-$900k.
|
| There's no way I'd be able to afford my current home today. It
| almost feels unfair.
| dougmwne wrote:
| Well, yeah, it is unfair!
|
| But unfortunately, this is not a case of good for you, too bad
| for them. Unaffordable housing will cause political extremism
| and will increase crime as more people realize that the deck is
| hopelessly stacked against them and that they will not receive
| any reward for playing along with our current economic system.
|
| Basically, California is an early experiment in this. Take a
| zig-zagging walk from the top of Market street to the Mission
| and you will know the future of America if we don't keep
| housing affordable.
| abeppu wrote:
| I do think one of the rare things about Alice in the example at
| the top is that she realizes the change in her incentives in a
| very self-aware way.
|
| I recall speaking to a Boomer who has owned their own home for
| decades, whose daughter and son-in-law were both living with her.
| She seemed genuinely perplexed at why it was considerably harder
| for her daughter to be able to afford her own place. "Everyone
| who wanted their home value to increase got what they wanted;
| housing is more expensive now because you closed the door behind
| you" was not the response she wanted.
|
| I similarly recall being at a Q&A with a state politician in
| front of an audience of high school students. He was asked a
| question about affordability of higher education, and gave some
| self-righteous up-by-your-bootstraps answer about having waited
| tables to put himself through school. He didn't seem willing to
| grapple with the idea that if you want that to be achievable then
| state school tuition can't increase faster than wages for
| multiple decades.
| chadlavi wrote:
| I could afford something like a $6k/mo mortgage, but I don't have
| the ridiculous lump sum easily at hand required to put a
| downpayment on a home. So I guess I'll just keep flushing my
| money away in rent forever. Landlords should be the first against
| the wall.
| whiddershins wrote:
| First time homeowners have many special loan options available
| to them, which you might be aware of if you weren't directing
| your thoughts towards threats of violence against millions of
| people.
| chadlavi wrote:
| ah yes, my errant comment on the internet is the cause of my
| woes, thanks mate, cheers
| whiddershins wrote:
| Your comment is murderous, I don't care particularly about
| your woes.
| jvanderbot wrote:
| I've never understood buying a house for the investment. I bought
| one because I love the location, love the house, have a
| propensity for doing things that landlords don't like, and
| _really_ hate moving. The rentals around here are junk.
| latchkey wrote:
| You invested in yourself, nothing wrong with that at all. =)
| michaelje wrote:
| This was a thoughtful read - but found the conclusion avoided the
| biggest challenge of all - that housing is not _just_ a financial
| decision - but rather, people require housing to live their
| lives.
| michaelje wrote:
| This was a thoughtful read - but found the conclusion avoided the
| biggest challenge of all - that housing is not *just* a financial
| decision - but rather, people require housing to live their
| lives.
| keeptrying wrote:
| "Upside" problems/opportunities that take a generation to
| solve/understand (w.r.t a family context):
|
| 1. value of going to college
|
| 2. investing in real estate
|
| 3. creating a profitable business
|
| Once your parents achieve one of these, in a lot of cases, kids
| learn via osmosis.
|
| "Downside" problems that are also usually generational:
|
| 1. creating/maintaining a strong relationship with spouse (not
| getting divorced)
|
| 2. staying healthy - no type 3 diabetes etc.
| denton-scratch wrote:
| > Some people say home prices rise because of "sweat equity",
| i.e., the work homeowners do improving the house. > With all due
| respect, this is a crock of shit.
|
| Don't agree. Well, I'm from the UK; authorities are introducing
| more and more regulations requiring _significant_ improvement in
| the housing stock. These kick in when you let the place or sell
| up; they are to do with insulation, damp and mould, fuel
| efficiency and so on. The authorities don 't regulate granite
| counter-tops.
|
| There is a lot of old housing stock in the UK. I think that in a
| lot of the USA, it's common to knock down the house you bought
| and build a new one; that's not common here, although it happens.
| There are good things about old houses; if it's stood for 120
| years, it'll probably manage another hundred.
|
| I know that's not why house prices rise; they rise because of
| increasing demand against a limited supply. But be fair; home
| improvement isn't all about paint, putting up shelves, or
| redesigning the kitchen. A lot of HI projects result in an
| objectively better house.
| theandrewbailey wrote:
| > I think that in a lot of the USA, it's common to knock down
| the house you bought and build a new one.
|
| Maybe in specific places (like Detroit), but generally, no.
| Most new houses are built on empty lots that never had a
| structure on them. Though I've heard that cheap McMansions
| built 20-30 years ago are deteriorating alarmingly fast, so
| demolition might be more common in the near future.
| myshpa wrote:
| The problem is zoning and regulation and animal agriculture,
| imho.
|
| Hear me out.
|
| Just 1% of habitable land is urban and built-up land (1.5 mil
| km2). Buy a land (native Americans didn't believe that anyone can
| own the land, that land belongs to everybody - maybe there was
| something true about that) and try to build a house on it.
|
| So many regulations - where you can build, what you can build,
| how it would look, what materials are acceptable, etc.
|
| Try to build a house from hempcrete, for example. A material used
| for several thousand years in Europe, but now it's much harder to
| build and to certify such house (due to regulations and approval
| processes), that everybody builds with bricks and wraps their
| house in mountains of polystyrene instead. That doesn't make
| sense .. you have to build a house from a material with abysmal
| insulation properties, and then wrap it in several layers (10
| maybe) of additional materials just to have a working shell. Then
| stuff it with plastic stuff inside - that for example lowered
| time the buildings are fire resistant from 15 minutes to mere 2-3
| minutes now (IIRC).
|
| Or try to build something with earth pressed blocks. Also pretty
| common historical method from the area where I'm from, very
| comfortable living, breathable, low-cost, ecologic. That's
| something almost never used now, although it has a lot of pluses
| compared to the "modern" ways of building.
|
| Try to purchase a land and build a block of flats on it. No, the
| building office will say, no such houses in the area, just single
| family homes here, single floor, minimum land 800m2. No way to
| build small flats or houses with those minimum area requirements.
|
| We don't have enough place to build new homes, you say? We use
| just 1% of all habitable land for buildings and stuff. What about
| those 37 mil. km2 we use for "livestock" [0]? I for one can't
| wait for the times when the majority will switch to plant based
| diets. This is just one of the many things that would solve ...
|
| [0] https://ourworldindata.org/land-use
| ben7799 wrote:
| The math in the article seems wonky and oversimplified to support
| the author's viewpoint. It seems the writer doesn't have enough
| perspective as the answer to the question of whether a house is a
| good investment has to do with which house you buy in which
| market at which time. Some houses in some areas are bad buys at
| some times. Lots of other houses in lots of other areas are good
| buys at other times.
|
| The author completely glosses over:
|
| - Land space near powerful economic areas is finite
|
| - No one will let you build infinite new houses if it requires
| you making them sell and move off the land they already own
|
| - The article makes it out like you could pay the same rent your
| whole life and/or stay in the same place all that time. That's
| unlikely, smart landlords are always going to raise prices as
| much as they can, not overspend on anything to do with services,
| and will decide to not renew your lease if they decide you're not
| worth it.
|
| - The math about a $700k house versus a $2900/month mortgage is
| highly suspect. $2900 is not renting much of a house in an area
| where a house is $700k. $700k here will get you a modest older
| house. $2900 will rent a studio in my area. (Expensive area).
| There are many 2 bedroom apartments going for $5000/month. I've
| been in my house 13 years and my mortgage payment has gone down
| 3x as interest rates fell and we were able to re-finance. The
| last apartment I was renting has more than doubled in rent in the
| last 13 years. It is 2.5x what the mortgage on the house is, and
| the house is 4x the size of the apartment and we actually own
| land.
|
| - Nailing down a fixed rate mortgage with a payment that doesn't
| rise versus ever ascending rent means you can actually save money
| to invest in other things if you're smart and diversify your
| assets.
|
| Not all of us are going to see what the Baby Boomers saw. But
| owning a house is still a way to get ahead of peers. Certainly
| smarter than burning massive money on expensive cars every few
| years and lots of the other excessive spending that happens. You
| have to keep in mind the returns the baby boomers got were due to
| massive changes in the economy and interest rates over their
| lifetime. Boomers bought their starter homes sometimes with
| 15-20% interest rates back in the 1970s. Those sky high interest
| rates were what kept house prices so low back then. Population
| growth & density in the areas they bought in made land scarce
| while interest rates fell to nothing so it was natural for prices
| to skyrocket.
| acabal wrote:
| Indeed, and the article is right in saying there isn't really a
| way out. Humanity paints itself into these kinds of corners
| fairly frequently over the course of history: entrenched systems
| where many suffer, but where too many powerful people benefit for
| it to be able to change.
|
| Traditionally, the solution has been violent revolution. That's
| really the only way to (for example) tell 66% of Americans that
| their biggest asset that they've spent a lifetime saving for and
| investing in is now worthless because trust us, everyone is
| better off when housing isn't an investment.
|
| But America is in a strange place in human development. There are
| enough bread and circuses in the form of cheap Netflix, cell
| phones, and food supply where even the totally destitute just
| don't have the desire to grab a pitchfork and physically march to
| their capital building. (And I would argue that January 6 was
| more of a social-media-fueled livestream event than any kind of
| attempt at coherent political change.)
|
| Plus, suburban sprawl and the isolated, car-based lifestyle we've
| cultivated in the past century means that even if you wanted to
| get a group of like-minded revolutionaries together and march,
| how would you even physically do that? How does a poor person in
| suburban Tulsa even meet 20 like-minded people, and where would
| they go to express their displeasure physically? Once they got
| there, where would they all park?
| jahewson wrote:
| > Traditionally, the solution has been violent revolution.
|
| No that's not a solution, it's a means. A means to what end
| exactly? Magical economy unicorns?
| Firmwarrior wrote:
| I think we're going to see a lot more Trump and Bernie-style
| candidates taking on more aggressive positions as time goes on,
| unless something changes. The powers-that-be have done a pretty
| amazing job of defusing "Occupy Wall Street" and similar
| movements, but they'll keep springing up.
|
| People aren't taking kindly to the status quo.
|
| Maybe not, though, I don't have a lot of hard data.. MOST of my
| extended network of friends and family have honestly been able
| to get by well enough with our current system. A few people
| ended up completely screwed over through no fault of their own,
| unable to get a decent career going or get an opportunity to
| save any money. A lot of people made a few bad choices that
| snowballed and left them destitute. Pretty much all of them
| would have been fine in the 50s-70s when you could just roll up
| your sleeves and work hard to make a decent living.
|
| Modern society feels like a huge scam to me. If you do what
| conventional wisdom says (go to college, get a job, buy a car,
| buy a house, buy a big wedding, buy vacations, etc) you're
| probably going to end up with crushing lifelong debt, spending
| 2+ hours a day angrily driving your car to and from work
| mulmen wrote:
| > And I would argue that January 6 was more of a social-media-
| fueled livestream event than any kind of attempt at coherent
| political change.
|
| It wasn't isolated:
| https://www.npr.org/2020/08/25/905785548/unmasked-
| protesters....
|
| I don't know if any of them had pitchforks but some of them had
| guns.
| loldk wrote:
| [dead]
| djent wrote:
| Suggesting that the conclusion is telling homeowners that their
| asset is now "worthless" is extreme hyperbole. Homeowners live
| in their house. You need only apply the same metaphor from the
| article. Nobody might be willing to pay money for my couch, but
| I still keep it in my living room and use it.
| mulmen wrote:
| Yep. Even if I bought a house at the peak and the market
| tanks I can still sell it (at a loss) and buy a comparable
| house because those are cheaper too. The people who get
| screwed are the multiple-home-owning rent seekers and I'm ok
| with that.
|
| Treating your primary residence as an investment has been bad
| financial philosophy for all of time.
| gaoshan wrote:
| I've been making this argument for many, many years and it's
| interesting to see the tide turning from "What are you, an idiot?
| Some kind of communist?!" to "<specific edge case that applies to
| someone they know which invalidates my entire premise>" to "You
| may have a point".
|
| One tipping point, sadly because as the article points out there
| are many more valid criticisms, seems to be foreign ownership.
| Enough foreign ownership in certain markets finally brought this
| to the forefront as locals were priced out en masse and people
| looked for someone to blame. At least the issue is being
| discussed because it has been a serious problem for a long time.
| cosmin800 wrote:
| TLDR; let me guess, buying a house is a very wrong to do thing,
| Renting is always better. Circle is complete. You will own
| nothing and will be happy, everything will be available to rent
| ...
| falcolas wrote:
| This doesn't even touch on the fact that you will always require
| housing, so you can never truly liquidate your primary residence.
| At best, you can borrow against it. At worst, you sell it once
| and rejoin the rental market.
| kitsunesoba wrote:
| This is actually why as a homeowner, I'm not particularly
| bothered by the value of my house dropping.
|
| Don't get me wrong, it's not exactly _fun_ to watch its price
| tag drop, but the supposed dollar value of the house isn 't
| "real" unless I'm looking to sell, which I'm not going to be
| doing unless I'm changing living arrangements, whether that be
| buying a different house or renting. Its value to me is that
| it's 1) a home and 2) a semi-fixed cost that won't ever be
| dramatically changing rather than increasing several percent
| each year.
| falcolas wrote:
| One problem with the value dropping (assuming you're still
| paying off the mortgage): lenders can freak out and call the
| entire mortgage due and foreclose on your home. They did this
| extensively after the subprime mortgage issue.
| thfuran wrote:
| And even if they don't, if it happens early in the
| mortgage, it can pretty easily make it impossible for
| someone to be able to move.
| vanilla_nut wrote:
| If you plan on living there for a long time, isn't it nice to
| think that your property tax bill will drop?
| latchkey wrote:
| > At best, you can borrow against it.
|
| Borrowing against it is a fantastic idea, what's wrong with
| that? People really need to learn that their assets can be used
| to generate additional returns. Otherwise you just have money
| sitting there, not doing anything. Where is the fun in that?
| falcolas wrote:
| Nothing's wrong with it, but it's a bit orthogonal as viewing
| the property itself as an investment. Instead it's acting as
| guarantee against other investments.
| s1artibartfast wrote:
| Housing inaugurably should be an investment. The question is what
| the return on that investment is optimal, and what are the
| factors drive that.
| Glyptodon wrote:
| I think there are some factors missing in this piece:
|
| 1. Values go up because of density changes related to location
| desirability. My house is more valuable because more people want
| to live here, but space is finite. This should lead to it being
| worthwhile to pay me to leave so an apartment complex can replace
| the single family homes on my block. But it's more likely that
| someone will pay a lot to have the single family experience at a
| larger price.
|
| 2. The value of location has increased. I could buy a nice home
| for $350k in a small town that would go for $650k in my city. But
| we can't move there because the downsides of working there for my
| SO are too large.
|
| 3. Not being adjacent to a major urban area is in many respects
| like going back in time some proportion to your distance from
| one. Finding appropriate doctors is harder. Finding employment
| that has modern working conditions is harder. Etc.
|
| That said, I think it's reasonable to expect housing to be stable
| relative to inflation rather than being a high performance asset.
| And retaining wealth at the rate of inflation minus borrowing
| costs _should_ beat just renting at the rate of inflation without
| a need for tremendous price growth. But there 's obviously a big
| issue with supply.
| horsawlarway wrote:
| > Not being adjacent to a major urban area is in many respects
| like going back in time some proportion to your distance from
| one.
|
| This whole conversation devolves into this single point, in my
| opinion.
|
| There is land out there that is cheap as fuck-all. Lots of
| places will flat out hand you the deed if you promise to live
| there and build a house.
|
| Some places will subsidize you moving into a house for $1. You
| just have to do it. Vermont and Ohio will literally PAY YOU to
| have you move into some areas (10k).
|
| The problem is that young folks generally don't want to live in
| those locations.
|
| So while I'm certainly a fan of increasing housing supply in
| existing metros, I think as long as metro populations keep
| rising, prices in those areas will continue to to beat
| inflation because demand is rising.
|
| ---
|
| If the US wants to alleviate housing costs, the most effective
| route I think we could go is to simply make it more appealing
| to live in rural areas. (ex: force those cable companies we
| paid billions to for rural broadband to go actually install
| rural broadband)
|
| The whole "Californian diaspora" effect we got during covid is
| actually a wonderful example of the right way to do this.
|
| If the high price metro is roughly equal in appeal to the lower
| cost areas, people will exist the high price metro in favor of
| the lower cost areas, working to equalize costs across the two
| (prices fall in SF, prices rise in the small towns around it).
| krisroadruck wrote:
| I've lived all over the country (35ish moves in 41 years).
| There are a lot of things you can do to make other areas more
| appealing vs California (or the west coast in genera), but
| one thing you can't really fix is the weather. A lot of
| people really hate super cold winters or super hot humid
| summers, and for them there is no replacement for the rather
| unique climate conditions that exist along the west coast.
|
| Here is a map of the world which shows where that relatively
| mild west coast climate exists - it exceedingly rare:
|
| https://en.wikipedia.org/wiki/Mediterranean_climate#/media/F.
| ..
| tstrimple wrote:
| The push to spread further out makes no sense to me. Suburban
| communities are already unsustainable, rural communities even
| worse. Economies of scale matter a whole lot here. The number
| of miles of road needed to service a rural community is
| exponentially higher than urban areas. This cost is not borne
| by those communities, but rather is subsidized heavily by
| urban workers. Rural areas also have a higher carbon
| footprint per-capita because of all of these different
| services which now have to be pushed dozens of miles out to
| support a handful of people. Pushing more people into areas
| with few opportunities just exacerbates this problem.
|
| https://www.smartcitiesdive.com/ex/sustainablecitiescollecti.
| ..
|
| > "What we have found is that the underlying financing
| mechanisms of the suburban era -- our post-World War II
| pattern of development -- operates like a classic Ponzi
| scheme, with ever-increasing rates of growth necessary to
| sustain long-term liabilities . . .
|
| > "In each of these mechanisms, the local unit of government
| benefits from the enhanced revenues associated with new
| growth. But it also typically assumes the long-term liability
| for maintaining the new infrastructure. This exchange -- a
| near-term cash advantage for a long-term financial obligation
| -- is one element of a Ponzi scheme.
|
| > "The other is the realization that the revenue collected
| does not come near to covering the costs of maintaining the
| infrastructure. In America, we have a ticking time bomb of
| unfunded liability for infrastructure maintenance . . .
|
| > "We've done this because, as with any Ponzi scheme, new
| growth provides the illusion of prosperity. In the near term,
| revenue grows, while the corresponding maintenance
| obligations -- which are not counted on the public balance
| sheet -- are a generation away."
| horsawlarway wrote:
| Everywhere was once rural(ish - depending on how far back
| you want to go).
|
| Nothing you're saying is wrong, but it belies the point.
|
| At some point, someone has to do the investment that makes
| a place appealing. I'm not saying "everyone should live
| like current rural residents".
|
| I'm saying the investment that should be happening is "take
| a rural space and make a medium/high density area". Usually
| by creating a foundational lynchpin for income (ex: battery
| factory, chip factory, etc) and encouraging remote work.
|
| > Pushing more people into areas with few opportunities
| just exacerbates this problem.
|
| Pushing more people into areas with few opportunities
| creates opportunities in those areas.
| tstrimple wrote:
| I've lived most of my life in rural areas. People are
| leaving these communities in droves because of the lack
| of opportunity. It's folly to think sending more people
| back to them will make them somehow viable. I'm not
| convinced you can artificially create demand for housing
| folk in rural areas. China has been trying that for
| decades and the results are ghost cities.
|
| https://uschinatoday.org/features/2022/01/11/cities-lost-
| in-...
|
| Edit: To expand on this, the internet has killed rural
| communities. There's little to no need for corner stores
| which used to support these areas and hell you can get
| alcohol shipped to you as well so you dwindle down to a
| few bars. Maybe one hairdresser, but everyone knows
| someone's aunt who cuts hair out of her house. Same with
| an auto shop. There's maybe one attached to the only gas
| station in town. Most people know someone's uncle who can
| fix anything with a motor so there's little demand for
| more. There's just not enough people there to sustain the
| support community that would prosper from moving in. You
| can't artificially create either the supply side or the
| demand side in rural areas short of forced migrations and
| the supply side is unsustainable in these areas short of
| banning online orders or removing mail subsidies for
| shipped packages so that you can force more local
| commerce.
|
| Forget about anything culturally divergent. Theaters
| require specific tastes which require a significant
| enough of a population to support performances outside of
| a churches Christmas pageant. Same with food. You'll get
| a few mom and pop shops one Mexican restaurant and maybe
| a Chinese restaurant if you're lucky. Otherwise it's
| chain stores like McDonald's and Pizza Hut. Oh and gas
| station pizza is popular. There just isn't a large enough
| of a population to support more eclectic food options.
| There's no draw to providing these services to a
| population too small to create a living off of.
|
| And company towns aren't the solution either. Very, very
| few companies require enough people concentrated in an
| area to justify building a town much less a city around.
| And it's been shown time and time again that companies
| are perfectly willing to abandon areas when they can find
| more profit elsewhere. See the entire history of cities
| built around shipping and mining and logging and
| automotive construction being completely wiped out when
| the sole industries which supported them collapse or move
| elsewhere.
| marcus_holmes wrote:
| I love this, but it missed out one factor: the banks.
|
| Mortgages before the 80's were tied to your income, and for most
| households that was a single income. House prices _couldn 't_
| rise beyond a fairly low point because no-one could get a
| mortgage for them.
|
| Then in the 90's this broke two ways: most households had 2
| incomes as the norm became that married women also worked, and
| the banks started giving mortgages on much higher ratios, leading
| to the 100% no-deposit mayhem of the early 00's and eventually to
| 2008's crash.
|
| We will spend as much as we can on a house. If you lend us 3x our
| salary, we'll buy the best house we can with that. If you lend us
| 10x our salary, we won't sensibly buy a house that costs 3x our
| salary, we'll buy the best house we can find for that 10x loan.
|
| House prices are therefore free to rise spectacularly fast, as
| they did, because any dip in supply leads to price increases.
| Until we're here, where no-one can afford to buy a house unless
| they have a house to sell.
| Nemo_bis wrote:
| Hence in many countries in Europe, e.g. in the Nordics, there's
| one simple way to gradually reduce prices: reduce the supply of
| mortgages for more expensive housing. The state backstops most
| mortgages, but by the same mechanism (or with the help of the
| banking regulator) also sets the rules on how to give them.
| When prices get too hot, the regulators simply decrease, or
| refuse to increase, the nominal amount of the max mortgage you
| can get with the state's support, and/or the maximum allowed
| mortgage repayment as a percentage of your monthly income (in a
| stress-test at 6 % interest rates). Lowering the demand
| immediately pushes down housing prices; regulators stop when
| prices are down 15-20 % so that the banks avoid losses.
|
| This is possible in the USA too, given nearly all mortgages are
| federally supported.
| marcus_holmes wrote:
| This is great. I wish Australia did this
| jahewson wrote:
| The more expensive housing in the US is famous for all-cash
| transactions so I don't think this works.
| Nemo_bis wrote:
| Do the people doing those "all-cash" transactions have zero
| liabilities towards banks? I doubt it.
| mjr00 wrote:
| > While the rich are more likely to own homes, tons of middle
| class and poor people also bought homes and planned their lives
| under the assumption that housing prices would go up. Tanking
| housing prices would destroy their trust in the system that they
| bet everything on.
|
| This is pretty much the crux of it. High housing prices could be
| "fixed" almost overnight, but for almost every citizen of the
| first world, their house is the single biggest investment they
| will ever make in their life. You'd be destroying everyone's
| retirement plans and there'd be major economic repercussions.
|
| But there's also the second-order problem which is the people who
| realize that governments will never let the value of housing
| decrease because of the above, so you have upper middle class
| people owning "investment homes", or foreign investors buying
| homes they never intend to live in (or, in many cities, never
| even bother renting out), or even corporations like BlackRock
| buying up houses because they know it's such a safe investment.
| paxys wrote:
| That's the problem isn't it? In most countries in the world (
| _including_ many in the "first world") a house is something
| that solidifies your place in the community and is handed down
| from one generation to the next. What dollar value it can
| command isn't even a concern for people living in them.
| nerdponx wrote:
| What I think would help at least is if prices stopped
| increasing. That way, people who buy now at least won't _lose_
| money, but the expectation that valuations will continue to go
| up will have to taper off.
|
| Also, in the case of high-cost coastal cities, I don't think
| the issue is trust in _government_ propping up prices, as much
| as it 's trust that demand will continue to outpace supply for
| the next several years at least.
| NovemberWhiskey wrote:
| That isn't an equilibrium. If the market formed the
| expectations that property values were going to stop
| increasing, then property values would _drop_ - because the
| current price bakes in the assumption that they 're going to
| keep increasing.
| macawfish wrote:
| Doesn't lack of affordable housing kinda destroy everyone's
| retirement plans too? So it's kind of a losing situation.
| davidw wrote:
| > every citizen of the first world
|
| Where I lived in Italy, people certainly purchase houses, but
| they don't expect them to have crazy returns like in the US.
| It's just a way to not pay rent and have something that you can
| hang on to even if there's inflation or other funny business
| (something that Italy has seen a lot of).
|
| People even invest in, say, apartments, but it's a similar
| story: they expect them to hold their value and pay themselves
| off over a number of years. There are certainly returns on it,
| but they are seen as steady, long term investments.
|
| Where I live in Oregon, during the most recent boom, there were
| houses "earning" more than 100,000 a year, just sitting there.
| That's more than the median household.
|
| Yeah, it's a bit apples to oranges, but still, it's really out
| of kilter.
|
| Long term, it'd be healthiest if housing were 'boring', neither
| gaining or losing much. That'd also facilitate people swapping
| out different housing at different stages of their lives
| without worrying about timing the market.
|
| For instance, there are a lot of people getting older in the
| town I live in. Are they always going to want to or be able to
| shovel snow? Mow their lawns? Maybe a townhouse or a condo
| would be a better alternative that lets them stay in their
| general neighborhood.
| lotsofpulp wrote:
| There is lots of boring housing in the US. It is not going to
| be in the Willamette Valley in Oregon. Just like houses in
| the Alps in Italy versus less desirable places in Italy.
| davidw wrote:
| "Just go somewhere else" is causing even the 'boring'
| places to have problems:
|
| https://www.nytimes.com/2022/02/20/business/economy/spokane
| -...
|
| We need some more fundamental reforms.
| irq wrote:
| Check out upstate NY. I found a <20 year old 4000sqft
| home, >40 acres, gigabit fiber internet, in ground pool,
| outbuildings, and a backup generator for well under
| $500k. Even with the higher taxes here vs the west coast,
| I'm ahead.
|
| Only caveats are you need to enjoy seclusion (check) and
| be good at remote employment (this year will be my 10
| year anniversary of being 100% remote). Energy costs are
| a bit high, so I installed 20 kW of solar and will be
| switching to an air-sourced heat pump for heating &
| cooling. Even adding these costs to the purchase price
| results in paying less.
| mywittyname wrote:
| Such as what?
|
| The merging of Seattle and Tacoma was inevitable. The
| same thing has happened to a lot of cities that are
| separate by <1hr commutes via highways.
| davidw wrote:
| Hopefully this year, Washington will follow in Oregon's
| footsteps and re-legalize things like 4-plexes, or maybe
| go even further in big cities like Seattle.
|
| Basically, "(re)legalize housing", along with things like
| corner stores and neighborhood commercial like corner
| stores and barber shops.
| wankle wrote:
| > Where I lived in Italy, people certainly purchase houses,
| but they don't expect them to have crazy returns like in the
| US. It's just a way to not pay rent and have something that
| you can hang on to even if there's inflation or other funny
| business (something that Italy has seen a lot of).
|
| Agreed, we didn't buy house as an investment vehicle, we
| bought it for living expenses consistency over time. It's the
| speculators that ruin any market.
| [deleted]
| kevin_thibedeau wrote:
| s/retirement plans/state endorsed pyramid schemes/
|
| It's going to collapse one way or another.
| 93po wrote:
| > You'd be destroying everyone's retirement plans and there'd
| be major economic repercussions.
|
| Investments have risks. If you invested most of your net worth
| into something that's a necessity for decent life without any
| thought into how shifting societal priorities may impact that
| investment, then you made a poor investment choice.
| [deleted]
| grumple wrote:
| This misses the two biggest problems with prices going down:
|
| 1) if losses are small, people will refuse to move / sell,
| reducing housing stock.
|
| 2) the really, really big problem is if prices go down enough
| that people have to start taking big losses when selling, or if
| it stops making sense to pay the mortgage. People would instead
| default on the mortgages, sending our economy into a 2008-like
| crash. This would lead to less construction (again) and more
| housing capture by the wealthiest people and corporations.
|
| The biggest problem we have right now is insufficient supply.
| Builders won't build if they can't profit; if they can't sell
| at relatively high prices, they can't profit.
| fnordpiglet wrote:
| I don't understand this. There are a lot of places in the US,
| and certainly globally, where housing prices decrease. There
| are also plenty of folks who got soaked in 2008 and lost
| everything, and no one helped them. How precisely does "the
| government" do this house price propping up? Via loan
| guarantees to ensure liquidity in the mortgage market? These
| make houses affordable and accessible to most people. Without
| loan guarantees people would still be buying houses all cash,
| and through loans for high credit quality, but primarily by
| high value entities who can afford to buy and rent many
| properties. In this world housing would largely be corporate
| owned rental units. Prices alone wouldn't be keeping people
| out, but rather lack of loan liquidity would ensure a lack of
| lending. What keeps housing values high isn't loan liquidity,
| it's the ability to convert property into cash flow via
| rentals. Ultimately to stay risk neutral in pricing the cash
| flow option for renting is what supports home values.
|
| But I've seen nothing that guarantees anyone pricing continues
| to rise or that their home investment will make them rich. What
| it does do is force savings by allocating a portion of their
| loan to principal growth. Even if it doesn't grow at all or
| even declines, it'll be worth a lot more later than the latte
| they forwent 20 years ago.
|
| If you want guaranteed returns, buy treasuries.
| dan-robertson wrote:
| I think you make a good point about places in the US seeing
| falling prices.
|
| It is obviously incorrect to say that prices are guaranteed
| to rise but I don't think that's what anyone claims.
|
| I think the general claim is that policies around housing
| tend to prop prices up by restricting supply (zoning,
| permitting, higher building costs due to various regulations
| like stricter codes or safety standards as well as stuff like
| parking requirements, giving old properties lower taxes) or
| subsidising demand (loan guarantees, buyer assistance, etc).
| That is, governments choose housing policies that keep prices
| high at cost to taxpayers instead of policies that reduce
| house prices, which is what is meant about governments not
| wanting them to fall. Also, if house prices fall and the
| people think the government is responsible, the government
| probably gets voted out.
|
| The reason that loan assistance for people (ie not including
| companies) causes house prices to go up is that it means for
| a given house price, mortgage payments will be lower so more
| people will be able to afford that price. Instead people tend
| to pay for the most they can afford and (for a non-silly
| definition of afford) and so they end up paying more because
| they are competing for the same houses.
| fnordpiglet wrote:
| On the loans, if you make loans less liquid and less
| accessible then fewer people will own homes because they
| can't leverage into a house the can afford over 30 years
| but not this year. It likely won't decrease the cost of
| housing because people still need housing, and will instead
| have to rent. There is enough capital on earth that those
| with capital will want that cash flow. See my point on rent
| : mortgage cash flow arbitrage. This would not lead to
| cheaper housing, just less people owning housing vs renting
| and more housing owned by fewer people - mostly
| corporations that have vast access to leverage at rates
| considerably more favorable. That seems like lose lose to
| me.
|
| Zoning IMO is a red herring. Developers have no interest in
| driving property prices down with their marginal
| developments. They will develop in a way that sees prices
| stable or rise, which is favorable to them as property
| investors. People betting zoning law repeals will magically
| result in vast Soviet style SRO arcologies housing everyone
| affordably will be disappointed that the Victorian single
| family home torn down and redeveloped as a duplex is
| developed as a four story duplex with twice as much space,
| with each duplex roughly the same price as the original
| single family home. There also won't be a massive selling
| of existing property because, well, NIMBYs like where they
| live. Ultimately we will just have less Victorians that
| will never be rebuilt and a handful more luxury duplexes.
| BurningFrog wrote:
| > _How precisely does "the government" do this house price
| propping up?_
|
| Primarily by not allowing construction of new housing supply.
| fnordpiglet wrote:
| All the economic research I've read says repealing zoning
| laws induced no meaningful decrease in home price. That
| makes sense - home builders build to maximize profit and
| aren't in the business of devaluing property they buy to
| develop. They develop it in a way that appreciates prices
| to improve their margins. But like this piece there seems
| to be some view that market forces are shaped by immoral
| behavior on someone's part, rather than simply that's how
| things work in a world of scarcity.
|
| We will see how things go in California! Maybe the anti
| NIMBY dream of style sky high SRO arcologies will come true
| and everyone will be living in communal peace in their
| bleak windowless cement efficiency. My bet is prices
| continue to rise for as long as people move into the region
| and developers don't buy into the egalitarian view of
| affordable housing any more than they ever have.
| graeme wrote:
| In virtually the whole of Canada and the United States,
| dense, walkable neighborhoods are illegal. Even if you
| get rid of one type of zoning, other types remain. For
| example, one of the Texas cities has no zoning laws, but
| it does have mandatory parking minimums, mandatory street
| setbacks, etc. Basically the city must be car oriented
| and low density, even if you can add commercial stuff in
| residential zones.
|
| Japan is the one place in the world that freely allows
| density, and Tokyo has not seen rising prices. Note that
| though Japan's population is shrinking, Tokyo's is
| rising. Unlike North America, new housing production has
| kept up with population growth.
|
| https://www.wsj.com/articles/what-housing-crisis-in-
| japan-ho...
| andrewmutz wrote:
| > You'd be destroying everyone's retirement plans and there'd
| be major economic repercussions
|
| I think that exaggerates it. Most retirees aren't profiting
| from the home they own if they live in it. The "income" from it
| is just imputed rent. So if the housing supply increases
| dramatically, that imputed rent drops, but it doesn't matter
| since the cost of housing drops as well.
| mjr00 wrote:
| Many (most?) retirement plans involve downsizing from the
| large home in a (sub)urban area where they raised children
| and worked for most of their life to a lower-cost area in a
| lower-cost house. If my SFH is worth $1,000,000 and my
| retirement plan involves selling and moving to a $500,000
| condo, that's $500,000 of money in my retirement account. If
| politicians implemented a policy that slashed housing prices
| in half, suddenly I'm going from $500k->$250k, which means I
| only have $250k from the downsizing. This is a significant
| impact to my retirement plan.
| Nanana909 wrote:
| Most people are not downsizing by such massive amounts
| though. The median home price is only $470kish and people
| aren't going to accept massive quality of life drop..I.e.
| very few people are selling $470k homes to buy $150k homes.
| Thus the gains will be much smaller..
|
| and with a $1M house should have a sizeable 401k
| specifically so they're not relying literally on the
| housing market to retire. Any number of events could cause
| the same scenario you mentioned.. so I'm pretty much any
| realistic scenario for most people, tax deferred
| investments dwarf the small boost you get from buying a
| slightly cheaper house.
|
| And having more $250k houses now means it's easier for
| everyone else to build up a retirement plan.
| mjmahone17 wrote:
| On the other hand, we've made it so new condos are so hard
| to get built that a 2 bedroom condo in a walkable
| neighborhood (which you likely need when you retire) is the
| same or more expensive than a 4 bedroom suburban home. In
| order to be able to downsize, you need the smaller unit to
| be less expensive than your current home, and in many
| markets right now that's barely, if at all, the case.
| mjr00 wrote:
| > a walkable neighborhood (which you likely need when you
| retire)
|
| Really don't agree with this -- retiree doesn't mean
| "decrepit". You're still very capable of driving. My own
| parents recently retired to a rural area in the US, in a
| neighborhood with other retirees, where they're a 5
| minute drive from the nearest grocery store and a 30
| minute drive from the nearest "city" of ~20k people.
|
| It's very walkable in the sense that there are sidewalks
| and parks, but not in the sense of living in a downtown
| core with public transit access to essential services.
| vanilla_nut wrote:
| I don't think it's safe to bank entirely on driving-as-
| transportation in old age. My grandparents and my
| partner's grandparents all live(d) in unwalkable places
| in the US, and it was hell on their families when they
| slowly lost the ability to drive. You somehow have to
| either drive them around yourself (expensive and a
| massive time commitment), move them in with you, or move
| them into a retirement community when they eventually
| lose the ability to drive safely around others. It's
| inevitable!
| eloisant wrote:
| The problem isn't retirees who paid out their house already,
| it's the households who still have a big mortgage on their
| house.
| luckylion wrote:
| What would change for them? They still need to pay that
| down in either case, don't they?
|
| Granted, they can sell at some point and make a 3x their
| investment. But by then, buying another house will also be
| 3x, and rent will be 5x, so they're kind of back where they
| started.
| s1artibartfast wrote:
| The point is that if housing prices tank, they won't have
| made 3x on their investment. They are talking about the
| case where you sell below what you paid.
| luckylion wrote:
| But they'd also pay much less for their next house,
| making up for it. If we all take a 90% pay cut but all
| products now cost 90% less, nothing really changes, does
| it?
|
| I guess the exception would be if they sold and then
| moved to a different area with a very different housing
| market (or left the country), but at least for domestic
| migration, I suppose the more rural and the cheaper the
| houses are, the worse the necessities for the elderly
| will be, e.g. doctors will be far away, no home nursing
| services, no local shopping.
| s1artibartfast wrote:
| First, The idea behind housing as a retirement plan is
| that eventually you cash out that retirement plan, not
| take it to the Grave. If you never sell, or buy only
| equivalently priced houses, it's not really helping with
| your retirement.
|
| Second, if you buy a house for a million dollars and sell
| it for 500K, it doesn't matter if you can buy an
| equivalent house for 500K, you are still 500k in the hole
| on the balance sheet.
| luckylion wrote:
| What do you do when you cash out though, live in a van?
| Any house you'll then buy will be at the same price
| level.
|
| And yeah, sure, you'll be down 500k in nominal value, but
| you'll exchange one house for the value of another. If
| that's 500k or 1m doesn't really matter, if you've lived
| in that house, you'll need another place to live at. Of
| course this changes drastically if it was a house you
| bought only for investment purposes, with no intention of
| living in it. But at that point, it's pure speculation,
| and I don't see why we should protected that asset class
| more than stocks or baseball trading cards.
| s1artibartfast wrote:
| >What do you do when you cash out though, live in a van?
| Any house you'll then buy will be at the same price
| level.
|
| You rent or move somewhere with lower COL.
|
| If selling your house is how you plan to pay for costs in
| retirement like food, healthcare, or leisure, you must
| must cash out at some point. If you have 500k less to
| spend on food, healthcare, or leisure, it will suck.
|
| If you dont plan to sell your house for the rest of your
| life, the market value isn't relevant to your retirement.
| In that case you are right that it doesn't really matter.
| irrational wrote:
| The solution there seems to be you only get to profit from your
| primary house that you can prove you have lived in for x years.
| Otherwise, all profit goes to the government. That would stop
| investments and such in a hurry.
| wellthisisgreat wrote:
| > Tanking housing prices would destroy their trust in the
| system that they bet everything on.
|
| rip the bandaid and cut the losses. The house as investment is
| the blight on modern society
| tablespoon wrote:
| > This is pretty much the crux of it. High housing prices could
| be "fixed" almost overnight, but for almost every citizen of
| the first world, their house is the single biggest investment
| they will ever make in their life. You'd be destroying
| everyone's retirement plans and there'd be major economic
| repercussions.
|
| I wonder if one way out would be to 1) build government rental-
| housing projects again, to fill the immediate housing need, and
| 2) implement other policies to increase home-building (but only
| enough to keep price increases below inflation).
|
| One serious problem would be the association of housing
| projects with crime and poverty, but maybe that could be
| addressed by putting police stations on the first floor (or
| something) and eminent-domaining them into upscale areas over
| luxury housing.
| mjmahone17 wrote:
| Yes but 1 is a huge, massive, often insurmountable political
| battle because there are enough single-issue voters who will
| turn on any politician who threatens to enable "undesirable"
| types to share their neighborhood. And 2 is blocked by people
| who think their aesthetic preferences are more important than
| others ability to survive (often the same people as blocking
| 1).
|
| It's not really the crime that matters, at the core, but
| rather the perception of "other". The single-issue anti-
| housing people don't want police in their neighborhoods, they
| want police in other people's neighborhoods keeping those
| people out of the "nice" neighborhoods.
|
| Sadly, most people do in fact want more housing for people
| who are less well off than them, even if it means they have
| to run shoulders with strangers. But these are the people who
| work and don't have time to show up to community meetings
| about a new apartment going up, and don't usually decide who
| to vote for based on neighborhood aesthetics.
|
| Because the problem is mostly political, most of the solution
| is political as well: identify, train and support local
| politicians who will vote to build more housing, and help
| them write new laws that do so. And convince them (by
| consistently winning at the ballot box) that the anti-housing
| crowd is loud but not actually large, so there's little
| danger in losing their votes.
| ff317 wrote:
| Seems like it would be simpler to fix this with regulation on
| housing "investment". Don't allow large corporations to buy
| up giant counts of single family homes (taking them off the
| market and jacking up real estate bubbles). Basically we need
| to stop the predatory act of spending billions to buy many
| thousands of houses out of the market just to turn around and
| rent them to those who can no longer afford to buy in the
| market they're effectively cornering. Some builders are now
| building whole neighborhoods full of single-family homes that
| are being sold directly to rental investment companies from
| the outset.
|
| My off the cuff (and thus probably naive) thought would be to
| charge progressive federal taxes on home ownership which
| progresses based on the unit count owned by an entity.
| Whether you're an individual or a corporation: your first
| house is free (0% federal tax). If you own two houses, you
| pay 3% on the value (of both houses) every year for the right
| to own them. Maybe at three houses it's already at 10%, and
| by the time you get to ~10 houses owned, it caps out at 100%
| tax on the value every year, making large-scale home
| investing completely unprofitable. The funds from this new
| tax could be set aside specifically to fund affordable
| housing programs of some kind.
|
| Under such a scheme, we'd still have rising prices from true
| single-owner-occupiers under the existing system, but it
| would slow down and be less-bubbly, at least in the national
| average, and builders will eventually build new homes to
| equilibrium, where regulations allow them to. Some
| moderately-wealthy people could probably still own a second
| vacation home, or 2-3 rental properties. Some extremely
| wealthy people might still own 10+ different homes for
| personal/family use at exorbitant tax cost, but at least the
| taxes from such scenarios go towards fixing things.
| j_heffe wrote:
| > build government rental-housing projects again
|
| It's a cultural thing too. We're brainwashed to look down on
| government housing simply because of the racist practices of
| the past. It wouldn't even have to be government funded
| necessarily. The problem could be fixed with non-market
| housing similar to Europe, where the building costs are
| fulfilled by a loan, and the HOA or housing entity is setup
| without the goal of making a profit off the rent, setting
| rental rates at a margin to cover only the loan and necessary
| expenses.
| cwkoss wrote:
| Make a multiplier on property tax based on number of properties
| owned. Make it robust against corporations spinning off one-
| shell-per-properly. Make it revenue neutral so the increased
| tax revenue from landlord-companies and airbnb superhosts
| subsidizes tax rates for homes that are full time primary
| residence.
| tgv wrote:
| > You'd be destroying everyone's retirement plans
|
| Not where I live. Housing prices have exploded, like everywhere
| else, but it's not people's retirement plan. We've got state
| and employer pensions (from a fund not owned by the employer).
|
| So it's not that. Look elsewhere. E.g. at AirBnB, and at
| ridiculous (both low and high) salaries.
| rcme wrote:
| > This is pretty much the crux of it. High housing prices could
| be "fixed" almost overnight
|
| This is a crazy thing to state with almost no justification.
| How could housing prices be fixed overnight? Please don't say
| "zoning changes." Plenty of places without zoning issues have
| really expensive real estate.
| riku_iki wrote:
| high enough property tax.
| rcme wrote:
| Wouldn't that make homes less affordable and increase
| rents?
| riku_iki wrote:
| it will make houses less attractive investment vehicle:
| people will start selling rental houses and downsize to
| smaller units, which will create additional supply on the
| market.
|
| Also, in case of California for example, if prop13 got
| eliminated, it will hit mostly existing house owners, and
| not new ones.
| 88913527 wrote:
| How is it exactly a retirement plan if your house goes up 200%
| over N years, but so do all of your neighbor's homes? You
| aren't changing your relative position to them.
| NovemberWhiskey wrote:
| If all homes increase in value by the same percentage, you
| generate a lot of cash by owning for a long time and then
| downsizing, or moving to a location which started out with
| cheaper property (historically, this is the "retire to
| Florida" strategy).
|
| Or, you're going to pass on your home to your children, so it
| becomes part of the value of your estate. Or if you don't
| have any children, you can just reverse mortgage and get cash
| out that way. It's just like any other illiquid asset.
| s1artibartfast wrote:
| You sell your house and go back to renting or get a reverse
| mortgage.
| snapetom wrote:
| And it's not just the home you own. For decades now, the tax
| and financial system, at least in the US, has incentivized
| being a landlord even if you are below middle class.
| _Everything_ you put into a rental is deductible, low down
| payments, rising rents made it very, very easy to at least
| break even against a mortgage payment.
| last_responder wrote:
| >You'd be destroying everyone's retirement plans
|
| Everyone?
| goosedragons wrote:
| The majority homeowner class. Which is why politicians
| enabling it keep getting voted in.
| hinkley wrote:
| The same people who keep your roads full of potholes
| because they piss and moan every time property taxes go up
| 0.08%.
| bmitc wrote:
| My property taxes are about a third of my total payment
| every month, where the other two thirds are the actual
| mortgage. The property taxes are over 50% of what my
| total rent was before I got a house, which was not low.
| I'm happy with my town's management, who seems to use
| their budget quite well, but property taxes can really
| get you.
|
| I think taxes should be increased on those with
| investment homes, second homes, mansions, and the income
| and wealth of the wealthy rather than just nickel and
| diming the middle class.
| ascagnel_ wrote:
| Does your local government provide a breakdown of
| property taxes? If they do, it's well worth checking,
| because it can become one of those things where you don't
| like the total amount, but you find each element of it to
| be reasonable.
|
| Just looking at my latest report on my property tax bill
| (which was about $3k USD for 2022):
|
| - about 45% of the amount went to local city
| administration, which includes civic services like
| police, fire, etc.; the city had a nearly balanced budget
| for the year (<$1k US away from balanced)
|
| - about 55% of the amount went to the local school board
| (who are directly voted on by the city's populace and can
| directly levy property taxes) for teachers,
| administrators, building maintenance, etc.; the school
| board did not have a balanced budget on account of bond
| issues for new construction in anticipation of ongoing
| new housing construction
|
| - 3% went to the local library (whose board is partially
| appointed by the mayor and partially self-selected),
| which had a small budget surplus
| bmitc wrote:
| I'll take a look into that. Thanks for the suggestion! As
| I said, I'm pretty happy with my town's management so
| far. The town I rented in had far worse management, but
| it is a town of landlords and not really homeowners.
| sgt101 wrote:
| yes I agree. I was always told, and believed "a house is for
| living in, not an investment". It figures in my retirement
| plans in the sense of not having to pay rent on my house as I
| will own it. That is really positive because it also means
| not having to pay tax on the money that I would have to have
| to pay rent.
|
| But I bought it because I wanted to own it and live in it,
| not to sell and make money off.
|
| Having said that it's obvious that the availability of cheap
| money has jacked up housing costs to a stupid level, and it's
| obvious that when it unwinds there is going to be a big mess.
| What stops it from unwinding - immigration... because as soon
| as immigration stops the pressure will go out of the housing
| market and a-la Japan houses will get cheap.
| danuker wrote:
| > when it unwinds
|
| Don't underestimate the inflationary potential of fiat
| currency. Maybe it'll just stay the same price, but
| everything else still gets relatively more expensive.
| baloki wrote:
| I assume it's more people who've bought a house, sell it to
| downsize once the kids have moved out and use the excess
| towards their retirement (to make up the difference between
| the low amount they've been able to scrape together over the
| years)
| n00shie wrote:
| everyone that matters...
| reocha wrote:
| I presume by "everyone" they mean upper middle class folks
| sgt101 wrote:
| "everyone that counts"
|
| There - fixed it.
| highwaylights wrote:
| Tax on non-primary properties solves this if you can get it
| past vested interests.
|
| Reasonable tax breaks for your primary or only home, and none
| for second homes / investments you let out.
|
| That gives a valve to perform qualitative easing on the housing
| market whenever you need to, and is not uncommon in other parts
| of the world.
|
| EDIT: Having read the responses below I've realised I didn't
| clearly word what I meant here, that's my bad. I mean a holding
| taxation rather than CGT. Essentially, an elevated annual
| property tax on non-primary properties that would have the
| effect of penalising investors relative to those seeking a home
| to live in.
| kwhitefoot wrote:
| You mean that in the US you don't pay tax on the capital gain
| when you sell a property that is not your home? It's a great
| country to be rich in!
| amluto wrote:
| You can do a "1031 exchange" to trade a non-residence
| property for a different one.
| dirck wrote:
| There is definitely capital gains tax on non-primary
| residence homes. Only primary homes are exempt up to
| certain dollar.
| [deleted]
| redmorphium wrote:
| You do pay tax on that.
|
| However, you don't have to if you die and pass the property
| down to your spouse and/or children. This is the step-up in
| basis and is key to building generational wealth in the US.
| mywittyname wrote:
| > This is the step-up in basis and is key to building
| generational wealth in the US.
|
| Yes, but for most people, that's not really a benefit.
| It's possible to exclude the first few hundred thousand
| of capital gains taxes on a primary residence anyway. So
| even without the step-up basis, the tax burden on these
| properties would be tiny.
|
| Property taxes are a much more significant form of
| taxation than capital gains. And would be even without
| any preferential treatment.
| pksebben wrote:
| capital gains ought to be taxed like regular income. it's
| insane that we cut breaks for wealth generation that
| requires no effort, and is scalable
| bmitc wrote:
| I agree with that. Investment homes, second or maybe just
| third homes, etc. should be taxed rather extremely
| aggressively.
| Grimburger wrote:
| So you punish renters for the benefit of prospective
| homeowners?
|
| Not everyone wants to buy.
| highwaylights wrote:
| Sadly I don't see any better way to _help_ renters.
|
| If you make the costs of real estate investment so
| onerous that it's only attractive to owner-occupants then
| it becomes far harder for your landlord to exploit you as
| a tenant, as the option for you to buy much more cheaply
| will be there even if you choose never to do so.
| amrocha wrote:
| Every time a housing discussion comes up someone comes in
| with this argument. If you stopped to think about it
| you'd realize how silly it is.
|
| Renting doesn't need to be handled solely or even at all
| by the private market.
| sbarre wrote:
| The problem with this approach is the impact it has on
| areas that have availability problems, and where there is
| more demand than supply for housing (think big cities that
| are experiencing condo booms).
|
| In those high-demand areas, owners will simply pass those
| tax costs down to their tenants, and the rents prices will
| go up, leading to even less affordability.
| cwkoss wrote:
| Make the tax scale with number of homes the entity owns.
| choward wrote:
| They might not be able to find someone to pay that rent.
| In which case they might be forced to sell. Ideally
| someone who doesn't own a home will purchase it and won't
| have to pay the tax that caused the original owner to
| sell.
| bmitc wrote:
| In my mind, I was separating out homes for rent from
| investment and second/third/so-on homes. Although, it
| seems tough to separate those out since investment homes
| and non-primary homes are often rented out, although
| sometimes not permanently or continuously as homes
| specifically treated as rental properties. It needs some
| more thought, but I don't like the no holds barred
| approach that takes place right now. I in general don't
| like homes being treated as a business and investments,
| and I think it should be discouraged. Apartment complexes
| are a little different. Even there though, renters need
| better protection. One of my friend's rent just increased
| by 25%. It's ridiculous.
| triceratops wrote:
| If you combine that with looser zoning regs, the higher
| rents will make building more housing more lucrative.
| piqi wrote:
| > ...their house is the single biggest investment
|
| Is it really anyone's fault but their own? I don't recall
| housing being offered as a low/no-risk investment with
| guaranteed profits. Financial blogs, podcasts, and Reddit
| commenters might have shared that view.
|
| Are there any examples of mortgage issuers or home builders
| advertising housing as an investment?
| riku_iki wrote:
| > low/no-risk investment
|
| foreclosure makes it no-risk leveraged investment modulo
| downpayment.
| NovemberWhiskey wrote:
| That depends significantly on state law w.r.t anti-
| deficiency rules and so on. California is a non-recourse
| state where a mortgage lender can only repossess the home,
| but there are other states where the lender can foreclose
| _and then_ come after you for the difference in case of a
| short sale.
| yCombLinks wrote:
| If most people in the system are making similar mistakes,
| then the system is directing them there. Saying it's their
| fault does nothing but ensure it keeps happening.
| piqi wrote:
| Whether or not they make the mistake isn't the point. If
| they were encouraged by a specific entity to treat it as an
| investment, then the blame should be placed on that entity.
| Regulations should be put in place to prevent that (I
| suspect they already are). Otherwise, they have to take the
| L.
|
| I expect banks and home builders are careful with how they
| communicate with customers.
|
| It's less about placing fault on the purchaser. It's more
| that there is no one else to blame. Never-ending bail-outs
| only hurt future generations. I wish I went into deep debt
| to buy a house a lot sooner. I didn't because I knew I
| couldn't afford it.
| sangnoir wrote:
| Why does author ignore home equity in scenario 3 (when house
| prices track with inflation). Paying $1.75M to own a house is
| more savvy than paying $1.3M to rent over 18 years as you can
| still sell the house for $1M.
|
| I didn't buy a home as an investment with the hope that the value
| will appreciate: I bought it so that I can build equity instead
| of paying rent every month and getting nothing.
|
| The only way home owners truly lose money over renting is when
| their total expenses[1] after selling the house is greater than
| the rent they would have paid for the same home over the same
| period. My home could _lose_ value by a significant amount over
| the course of my mortgage, and I 'd still come out ahead of
| renters because of equity.
|
| 1. Maintenance can get expensive
| nickpinkston wrote:
| If you want to make an impact to housing affordability, I'd ask
| you to consider getting involved in the YIMBY movement.
|
| I joined the board of YIMBY Action who lead the fight for housing
| affordability in CA and across the US, and I did so because I see
| the change this movement can bring, and we're making some major
| gains throughout the US.
|
| Even just signing up to get the emails or a modest donation is a
| huge help!
|
| They also have a great Slack for all things housing.
|
| https://yimbyaction.org/
| jpollock wrote:
| I believe that allowing people to refinance a house without it
| becoming a taxable event is the problem.
|
| If getting a second mortgage on the higher valuation required the
| valuation to be used for both property and income tax purposes,
| people would be much less willing to extract value from their
| houses. That would then slow down the price increases and lower
| the inflationary feedback loop.
|
| Using the valuation used for loan collateral as a taxable event
| would also close the "shares/options as collateral" tax loophole.
| readingnews wrote:
| >> Alice is much, much worse off for buying. In total, buying
| costs ~$1.75M, where renting would have cost her ~$1.3M. Because
| her finances were tied up in the house while the home value has
| gone up so little, Alice has minimal savings.
|
| The only fallacy here is that most renters I know do not pocket
| "all that money I am saving renting not buying", AND, the article
| assumes in 18 years the rent price does not change. But the fixed
| mortgage would have _not_ changed. Interesting.
| zachthewf wrote:
| Lately I've been thinking that perhaps the solution to the
| housing shortage is a technology that makes it easy, cheap, and
| extremely fast to build housing that is both attractive and
| illegal.
|
| Uber and Airbnb were both pretty much illegal from the get go,
| but ultimately worked because they were incredibly popular. They
| forced the laws to change to accommodate what people actually
| wanted.
|
| Similarly, living in tents and RVs on city streets is illegal but
| common because RVs and tents are so easy to set up.
|
| No one builds an illegal fourplex because it takes a year and a
| million dollars. It's too expensive to shoulder the shutdown
| risk. But what if it took a day and $100k?
| nemothekid wrote:
| This is a technical solution to a political problem. The cost
| of building housing isn't the problem. As the article
| complains, the problem is housing is an investment and as other
| commenters have pointed out, our government has pretty much
| protected this asset class and all of America has the
| expectation that pricing will continue to go up.
|
| If you flood the market with competitive homes you will destroy
| housing at an asset class; people understand this so they will
| block any technological improvement that would make housing
| cheaper.
| zachthewf wrote:
| In some sense I agree with you, and it would all be much
| simpler if the laws could be changed. But I think this is
| pretty unlikely at least in the next 30 years or so.
|
| But sufficiently cheap/fast technology is very difficult to
| block. Not sure if there's any actual way housing could get
| there (would have to be some sort of modular assembled-on-
| site sort of thing).
| Drunk_Engineer wrote:
| In San Francisco (and other big metros) landlords build
| illegal/unpermitted units all the time.
| zachthewf wrote:
| That is a good point that I hadn't thought of. I lived in an
| illegal unit in San Francisco--a buddy and I got permission
| from our landlord to put up a wall subdividing our bedroom in
| Bernal Heights into two smaller bedrooms. Some of my favorite
| years ever...
|
| What about illegal additions or illegal buildings? This seems
| less common to me.
| Drunk_Engineer wrote:
| Unpermitted additions are extremely common, as are
| "illegal" backyard cottages.
| czbond wrote:
| Interesting thought - you expanded my thinking here....
| [deleted]
| TheDesolate0 wrote:
| [dead]
| eloisant wrote:
| There is nothing bizarre about house appreciating despite being
| used when you realize that it's not the house that appreciate,
| it's the land.
|
| The land your house is build on doesn't get wear-and-tear, 100
| years ago or 100 years from now it's still the same number of m2
| of land. And it's getting rare because the population is still
| increasing and everyone want to live in the same big cities.
|
| If you find it ridiculous that everyone pays a fortune to live
| packed together (it kinda is) just buy a house in rural Alabama!
| It will be super cheap.
| gtop3 wrote:
| The value of a home is usually land value + improvements. The
| improvements might see some appreciation as raw material and
| labor prices increase, but most of the value is in the land.
|
| It is 100% reasonable to assume land prices will increase over
| time. No one is making any more of it, and the wealth and
| population of the country (also planet) continues to increase.
| An increasing amount of resources are bidding on a static
| amount of product. To put this in another way, if the value of
| land in the US was the same as it was 250 years ago then we
| would be giving it away by the square mile.
| steveklabnik wrote:
| > If you find it ridiculous that everyone pays a fortune to
| live packed together (it kinda is)
|
| Different people have different preferences. I would (and do!)
| absolutely pay more to live "packed in with other people" than
| to live in a remote area for cheaper.
| [deleted]
| megiddo wrote:
| House prices don't rise due to "sweat equity", they rise because
| demand outpaces supply.
|
| The rest of the article then follows a false syllogism.
| jonfw wrote:
| I think the issue has been worsened because it was easier,
| politically, to work around the problem by making mortgages more
| attainable rather than by doing something to decrease the value
| of the home.
|
| In the short run, everybody is happy- developers make money and
| build houses, consumers and investors can borrow cheap money with
| little leverage to get a worthwhile asset, and existing
| homeowners see their house appreciate and can re-fi to take
| advantage of the cheap cash.
|
| However, this strategy doesn't scale. You can only make mortgages
| so attainable, before you get 2008 all over again.
|
| I think inflation has been the answer- with massive inflation, we
| can decrease the real value of a house and make mortgates more
| expensive without people ending up underwater.
|
| Of course, inflation has many of its own problems, like we're
| seeing today
| sevenf0ur wrote:
| Housing is, historically, a not-so-great investment. It has
| transaction fees, requires maintenance, and you often do not get
| back the money you put into upgrades. The article paints an
| overly optimistic picture of owning. Nobody expects housing to go
| up like it did the last few years. Invest in stocks or index
| funds. Spend your weekends on your hobbies, not lawn care or
| painting walls.
| adverbly wrote:
| Gonna have to keep commenting this on housing posts until it
| becomes the top comment:
|
| land value tax
| rcme wrote:
| Buying a house is an investment. You're making a bet that worker
| productivity will improve near you. After all, what is the value
| of land? Some land can be farmed or house a factory. But usually,
| when we talk about residential real estate, we're talking about
| land that houses workers. So, the value of that land is directly
| proportional to the economic value those workers can provide. We
| refer to "economic value provided by workers" as "economic
| productivity." As the economic productivity of each worker rises,
| so does the value of the land. Of course, market conditions and
| government incentives can distort the market is weird ways. But
| ultimately, the price of real estate is going up because its
| underlying value is going up. You can't change that.
| hammock wrote:
| Is worker productivity going up?
| svachalek wrote:
| See the graph halfway down the page
| https://www.bls.gov/productivity/home.htm
| hammock wrote:
| Why does the chart start at 1973?
| steveklabnik wrote:
| '73 to '23 is fifty years. I'd imagine it's just the
| arbitrary choosing of the chart maker.
| theandrewbailey wrote:
| https://wtfhappenedin1971.com/
| benlivengood wrote:
| This is one of the key points the article didn't make; the
| structures depreciate and the land (for the most part)
| appreciates because we have positive population and economic
| growth.
|
| Urban areas experience an increase in population density with
| population and economic growth and this drives the higher
| demand for land.
|
| Most likely the way to control individual housing costs is
| systematically lowering the cost of building vertically
| including regulatory and zoning changes as well as new
| construction methods.
|
| There is a bit of a land-value cliff that needs to be smoothed
| over by socializing the costs as well; as single-family homes
| are replaced by highrises the immediate property value of SFH
| drops, and I think this is because housing is priced over ~10
| year periods by residents and more instantaneously by the real
| estate market, so there's a dip in unrealized value for
| residents who can't sell their home for what it would be worth
| in their neighborhood until its value as raw land has reached
| the same level by being squeezed between overly-dense highrises
| and suburbia, effectively forming a very slow-moving barrier to
| densification. SFH owners want suburbia, they paid for it, and
| can only sell at the price they want to folks who can get the
| same. They're incentivized to wait it out because they already
| have a home which is also a huge investment. A financial
| instrument to buy out entire neighborhoods on the expectation
| of profits from higher-density housing sounds like the
| solution, and the risk probably needs to be borne partially by
| the government, and maybe a real-estate tax credit for SFH
| neighborhoods experiencing lower prices from new nearby dense
| construction which incentives them to vote for the zoning
| changes.
| jjoonathan wrote:
| Everyone feels entitled to a bailout for their bad
| investment, lol.
| swexbe wrote:
| This would makes sense if everyone was self-employed. But the
| demand side of housing is decided by salaries which do not
| necessarily follow productivity.
| pxmpxm wrote:
| > bet that worker productivity will improve near you
|
| There's also a huge positive externality of people actually
| having skin in the game in that regard - all the sudden you
| have an incentive to making sure that productivity improvement
| actually happens.
| yvdriess wrote:
| That makes the slowdown of productivity growth only more
| worrisome. The EU area is sitting at -0.2% and the UK is having
| a full blown crisis.
|
| https://data.oecd.org/lprdty/labour-productivity-and-utilisa...
| fooker wrote:
| > You can't change that.
|
| You don't have to change that.
|
| You can just make policies which make speculative investment
| less profitable while still allowing homeowners to buy houses.
| rcme wrote:
| That won't help things, ultimately. Wages have been
| essentially flat since the 70s. Productivity has increased
| massively. Real estate was always going to become more
| unaffordable without real wages increasing.
| [deleted]
| leaving wrote:
| The author misses the big picture: housing is embedded in an
| economic system based upon perpetual growth.
|
| The scarcity of housing, as the author correctly points out, is
| related to location, location, location. The old saw is "buy
| land; they're not making any more of it". As the population
| continues to grow, there may be more houses, but there certainly
| will not be more houses in desirable locations that are already
| built up.
|
| The madness here is the perpetual growth. The author's entire
| analysis is irrelevant because perpetual growth cannot continue
| in a finite environment.
|
| Whether or not housing prices rise to beat inflation, and whether
| we vote for Bernie and AOC or not, our houses will soon be worth
| nothing because we will all be dead. This is the inevitable
| outcome of the perpetual growth paradigm.
|
| The only sane way to stabilize housing prices and to prevent the
| inevitable post-apocalyptic collapse, therefore, is by achieving
| sustainable numbers.
|
| The insects are gone. The animals and the oceans are going. We
| are immediately next. If you doubt this, and if you continue your
| consumer lifestyle, you are insane.
| aeternum wrote:
| We used to make more land in desirable places, much of SF's
| population lives on on man-made land. Scarcity mindset sounds
| right, but most of that status refute it. Known reserves of
| pretty much every resource has only increased over time.
|
| If you take the big picture view, then the earth itself has
| only a temporary lifetime, and thus we should switch to looking
| outside our planet. For that, optimizing for growth and tech
| progress above all else is probably the right goal.
| varispeed wrote:
| This and also commercial property that is unaffordable for small
| business. Imagine you have an idea you want to develop - you
| already need to commit a substantial sum of money to rent a
| workshop. It used to be that you could do stuff in your parents'
| garage, but nobody can afford such a luxury today.
|
| Then you have corporations setting up so called maker spaces,
| which the real reason for them is to steal ideas from people who
| can't develop them themselves.
|
| The idea is that even if you come up with great idea you could
| never make more money than from regular employment.
|
| Big corporations have been lobbying for these for years, so that
| it is ensured by the system that competition never grows without
| control of big corporation, investment fund or banks and that the
| entrance to the wealth club is closed.
| transfire wrote:
| If you can afford a 15 year mortgage it is a much better value
| proposition.
| bumby wrote:
| It's not necessarily that housing/land shouldn't be an
| investment, but that:
|
| 1) it's a market that is exceedingly difficult to exit. If you
| still at the top of the market, you generally have to also buy
| your next home at the top of the market as well
|
| 2) because of the disproportionate amount of peoples wealth is
| tied up in their home, it makes their overall wealth poorly
| diversified. This leads them to protect this one asset more than
| anything else
| anonymouskimmer wrote:
| > But now, if she buys a home, she needs housing prices to keep
| going up to make her decision financially sound.
|
| The analysis from 1, 2, and 3 seem obviously financially bad.
| Because they stop at a particular point in time. The point of
| buying over renting, when using a fixed-APR mortgage, is to lock
| in a monthly rate (that will eventually sunset to only the cost
| of maintenance and taxes). And peace of mind that only an act of
| god or being fired will force you to move. This is never
| guaranteed with rent, unless you have one of those multi-decade
| leases. And good luck finding a house with a multi-decade lease.
|
| For an investing analogy, buying a house is like buying an
| annuity. Not buying the market. When a person buys an annuity
| they are still considered to be "investing".
| aschearer wrote:
| Case-Shiller Index: The same house being tracked through
| subsequent sales over time.
|
| 1990s: 70-100
|
| 2010s: 140-212
|
| 2020s: 200-300-???
|
| https://fred.stlouisfed.org/series/CSUSHPINSA
| georgelyon wrote:
| One thing this doesn't cover is that while we've gotten much
| better at making cars and TVs, but haven't really gotten all that
| much better at building houses. In fact, we seem to have only
| gotten better at using with cheaper, worse materials to build
| houses in ways that the average housing consumer doesn't really
| understand and thus can't properly price.
| whiddershins wrote:
| Because it is illegal to innovate in house building.
| dablweb wrote:
| Maybe a fractional reserve banking system that allows banks to
| create money out of nothing through mortgage contracts and funnel
| it straight into the housing market, causing inflation and
| soaring debt, was a colossal mistake.
|
| There, I fixed it for you.
| mikebenfield wrote:
| I honestly don't understand why this wasn't always obvious. A
| good investment is one that increases in value (aka cost)
| dramatically. Dramatic increases in the cost of housing might
| have negative consequences. What part of this requires deep
| insight to see?
| CatWChainsaw wrote:
| The part where making money is so intoxicating, I assume.
| mfer wrote:
| Homes are incredibly complicated...
|
| - I know people who rent who have had their period end by the
| owner. The owner plans to "update" the place and rent it for a
| lot more. Renting prices do go up over time. This sucks if one
| wants to be in one place long term.
|
| - There aren't enough homes out there. And, in many locations
| there are not enough people to build them. A lack of skilled
| trades to do the work. This drives up home prices because of
| supply/demand.
|
| - I know financial people who say NOT to treat your primary home
| as an investment. It's something you aren't really going to be
| able to leverage while your thriving in life.
|
| And so much more...
| lumb63 wrote:
| This idea is well over one hundred years old (closer to two!)
| [0]. Back when it was conceived of, solutions were proposed
| alongside the problem.
|
| To use more in-vogue economic terms, the increase in value of
| housing is typically a result of positive externalities. The
| government adding taxes to the system to allow it to account for
| the externality is a very reasonable method of dealing with this
| problem.
|
| It doesn't solve the problem for everyone who bought into the
| pyramid scheme, though. Personally, though, I don't have much
| sympathy for people using homes as more than a home.
|
| [0]: https://en.m.wikipedia.org/wiki/Unearned_increment
| samstave wrote:
| Housing should be a _ _National_ _ investment - meaning the
| nations GDP should be invested into the wellbeing, housing and
| quality of life of the populous.
|
| Not an investment avenue for the corporate/hedge/elite money
| holders.
|
| Housing as an "investment" is a tool for extracting crippling
| debt from the populous as a means of behavioral control through
| financial stress.
| wonderwonder wrote:
| Poster appears surprised that home vales are based on "demand
| outstripping supply". That's what any value of anything is based
| on. That's the basics of economics. Housing goes up because there
| are more people that want a home than there are homes. Everything
| else is just noise.
| dkrich wrote:
| Markets are funny. They are colored by recency bias. You have an
| investment nobody cares about for years and years and then all of
| a sudden there's a ground shift and it becomes extremely valuable
| overnight. Then the value seems like it was self-evident all
| along.
|
| But markets are also cyclical and ground shifts work both way.
| Right now anyone owning a home seems like a genius and anyone
| renting seems like a poor sucker. I suspect that eventually the
| pendulum will swing back for unforeseen reasons and people will
| swear off ever owning more things than they need. The minimalist
| theme seems to come up every cycle.
|
| Btw, to the point about housing not producing anything but
| relying on the greater fool theory- that is not unique to
| housing. For example, right now beyond meat is an investment
| nobody is interested in. But suppose you get some sort of
| terrible virus that wipes out half the cattle population and the
| price of beef goes up 80x. All of a sudden beyond meat will
| likely have more demand than they can satisfy. They didn't
| necessarily innovate more than they did previously, but a ground
| shift brought them a spike in demand. Housing is no different.
| ZIRP followed by a very fast move to 4% on the 10 year created an
| environment of owners who suddenly found themselves locked into
| low interest mortgages in a very high interest rate environment.
| There doesn't have to be an increase in productivity for an asset
| price to increase, just an increase in demand for it.
| lokar wrote:
| The part about homes gaining value as they physically wear out
| seems odd. The value is the land and the zoning permission to
| have a structure.
| Idiot_in_Vain wrote:
| I haven't played with the NY times calc, but is the following
| correct:
|
| Housing prices only keep pace with inflation. America realizes it
| totally forgot about a few million homes it built, greatly
| expanding supply. Housing prices rise only 2%. Alice is much,
| much worse off for buying. In total, buying costs ~$1.75M, where
| renting would have cost her ~$1.3M. Because her finances were
| tied up in the house while the home value has gone up so little,
| Alice has minimal savings. Her daughter receives some financial
| aid, but takes on hundreds of thousands of student loan debt to
| go to college.
|
| Yes, in 18 years Alice will spend $1.75M, but she'll also own a
| big share or all of the house. On the other side when renting she
| ends owning nothing after 18 years. Or is the calculator taking
| in consideration the selling price of the house?
| svachalek wrote:
| Principal is only part of the cash flow. You're also paying for
| interest, insurance, taxes, and maintenance, which the renter
| does not, and these are also money down the drain. In my
| experience, owning a house in many (most?) areas is a losing
| proposition unless you assume that housing prices rise at an
| unreasonable rate for a long period of time. However, that's
| exactly what's happened.
| rqtwteye wrote:
| My mortgage (including property tax and insurance) is 1300 of
| which 700 goes to principal. So the money going down the
| drain is around 600. A comparable rental would be at least
| 1500. So basically I can save 800 per month for maintenance.
| Even if prices don't go up or even go down this is still a
| good deal. Especially since rents will probably keep rising
| while my mortgage will be flat for the next 14 years and then
| go to 0.
|
| This equation doesn't work in California where buying makes
| financial sense only if house prices keep going up. But in a
| lot of other areas buying a house is a very good deal.
| Idiot_in_Vain wrote:
| Despite the interest, insurance, taxes, and maintenance when
| paying a mortgage the majority or at least a big part of your
| payment goes to pay off the house - so after 15 or 20 or 30
| years you own a very expensive house. When renting all the
| money you pay goes down the drain and in 30 years you own
| nothing.
| akudha wrote:
| There are lots of things that shouldn't be done _only_ for profit
| - healthcare for example. Food, water. Companies like Nestle do
| all kinds of unethical, but legal stuff and get away with it.
|
| Capitalism is good, but some amount of principles (like treating
| employees fairly, not pillaging the environment etc) with
| capitalism would be nice. Instead the only thing that matters
| today is profit, at the expense of everything/everyone else
| chadlavi wrote:
| I just want to own a home so that I have stable housing expenses
| and don't live at the whim of an absentee landlord who never
| fixes anything, raises the rent by double-digit percentages every
| year, and could choose not to renew my lease any year now.
| abeppu wrote:
| I don't get how the example at the start works. In the scenario
| where housing prices increase dramatically, buying costs $1.1
| today. In the scenario where housing only keeps pace with
| inflation, buying costs $1.75M and renting costs $1.3M.
|
| Why is renting in a world where we build a lot more housing
| somehow more expensive than buying in a world where we don't?
|
| I think this writeup also doesn't meaningfully touch on the _end_
| of the scenario, when it's assumed that Alice sells the home, and
| is again faced with the choice of where to live next, and whether
| to buy or rent. In the case where housing prices have increased
| substantially, she's realized a considerable gain, but all the
| other houses are also substantially more expensive, and that gain
| is all directed at paying for her own future cost of housing.
| I.e. even if you're a homeowner and you've gotten your home value
| to increase, you don't really get to realize that gain if you
| still need to live somewhere.
|
| For that reason, I think the downside to building a lot more is
| less dramatic than this writeup suggests. If your particular home
| value drops because you're in an uninsurable flood zone, that's a
| problem. If _all_ home values drop, then your house can still be
| sold and used to buy another similar house. Yes, when you die
| your family will inherit a less valuable house -- but they will
| also be richer in the sense of having smaller housing costs.
| btilly wrote:
| It was presented in a confusing way, but it is accurate. Rent
| tends to move with housing prices. If the price of housing goes
| up, rent also goes up, and vice versa.
|
| In scenario 1, buying cost $1.1 million today and saved $600k,
| meaning that renting cost $1.7 million.
|
| In scenario 2 the house cost more and renting cost left making
| them about equal. We aren't given either number.
|
| In scenario 3 the house cost $1.7 million and renting cost $1.3
| million.
|
| So you see that more houses = cheaper houses and cheaper rent.
| Fewer houses = expensive houses and expensive rent. Building
| housing is a tradeoff between wealth for homeowners and
| affordability for everyone else. For decades we've chosen
| wealth for homeowners and this is visible in everything from
| expensive houses to high rents to a huge homeless problem.
| abeppu wrote:
| I think as presented this still can't be comparing things
| sensibly between these conditions.
|
| > more houses = cheaper houses and cheaper rent
|
| So why do we say that buying in scenario 3 costs ~$1.75M and
| buying in scenario 1 costs ~$1.1M? Everything in the
| preceding paragraphs makes it sound like her mortgage is
| fixed. In scenario 1, property taxes and insurance would be
| higher. Nothing should make scenario 3 more expensive to buy
| in absolute terms.
| btilly wrote:
| They were counting the present value of the buying
| decision. Which includes the present value of the resale 20
| years later.
|
| I have no idea if the calculator that they used factors in
| property taxes and insurance. But insurance averages
| something like $5k/year for $1 million of coverage, so does
| not significantly alter the prices. Whether property taxes
| do depends strongly on where you live. But generally it is
| much less than a mortgage.
| tekkk wrote:
| Well say what you want but imo there's just a huge wealth
| transfer going on with companies hitting record profits and US,
| and other countries, suffering from homelessness, poor education
| and overall worse financial outlook than it was generations ago.
|
| The system is rigged on a higher level than talking head
| politicians can manage or even comprehend. Leaving the normal
| people just facing a bleak reality of either being slaved as
| minimum wage renter or having to come up with resources to find a
| way out through say education.
|
| We are basically the same as we were in Middle-Ages so it's no
| surprise though. With the peasants being basically property (and
| lets not talk about US). And the situation is better, no doubt.
| But accumulating wealth is a rich person's hobby.
| ec109685 wrote:
| Nice thing about housing is you can continually lock in the
| lowest interest rate and keep it locked for 30 years. So the
| example in the article of 7% interest may drop to 3.5% if the fed
| needs to get the economy going again, allowing you to refinance.
| [deleted]
| haberman wrote:
| Articles like this frequently assume that if new housing can be
| built, the value of existing housing will go down. Is there data
| to support this?
|
| Supply and demand is of course a real and powerful force, however
| if you tear down a single family house and build something more
| dense in its place, then you can build many units where there
| used to be only one. My intuition is that the cost of existing
| houses would not take such a big hit (and might even continue to
| appreciate), because existing houses have more land and thus more
| potential to build multiple units within that footprint.
| michael_vo wrote:
| A lot of this is discussed by strong towns. What is appreciating
| is the land underneath the house due to supply and demand. The
| physical house depreciates over time.
|
| They discuss numerous solutions like abolishing zoning laws as
| well as changing tax code to tax the land and not the value of
| the home.
|
| I'm still optimistic that technology will disrupt building costs
| and totally change our options. Imagine if we could buy a 3d
| printed home for 50 percent of current costs.
| rootusrootus wrote:
| I'm having trouble following you.
|
| > What is appreciating is the land underneath the house
|
| > Imagine if we could buy a 3d printed home for 50 percent of
| current costs.
|
| Why would the latter make much difference if the former is
| dominating the price of the house?
|
| We can already test a version of this in the real world. Home
| builders are building largely identical houses now as they were
| 10 years ago, but the houses cost three times as much. I don't
| believe for a minute that my builder pays 3x for the people he
| employes to build the homes, or the materials, as he did in
| 2012. I also doubt very much he's just pocketing a huge amount
| more profit. He's paying a lot more for land now than he did in
| 2012.
| zoomablemind wrote:
| > _"...Moreover, houses are pretty much the only physical good
| that are expected to 1) appreciate in value, and 2) be used all
| the time. "_
|
| That sounds more like a _perpetuum mobile_. I wish the author
| cosidered the third choice that is "an empty lot with a vision
| to build that exact house from ground up".
|
| Something tells me that the current building costs contribute a
| lot to the home prices in general and project the "recapture"
| into the future.
|
| Whether ammortization of the real estate is fairly factored in
| the price remains unknown.
|
| Also, what is indeed maintaining the scarcity is the land itself,
| well, that's the part of the "location".
| holyknight wrote:
| The main problem is inflation, and the second problem is that
| most houses are owned by people (boomers and silent gen people)
| who already have a lot of wealth (not millionares or anything but
| they got the opportunity to buy cheap and save for longer time)
| so there is no real incentive to make housing prices go down and
| make the net worth of that demographic plummet (you must also
| remember that almost all politicians belong to that same
| demographic). So basically us young and poor people are financing
| the wealth and comfort of the older generation through inflation.
| maerF0x0 wrote:
| It's a complex topic, even details are left out in this long form
| article.
|
| 1. In our highly financialized society, and with many of us
| essentially worshipping money, it first needs to be said that not
| every choice needs to be financially optimal to be the best
| choice for your life. Buying a home is not just a financial
| choice, but a lifestyle change. They work with different units so
| the math cannot cross over, save for maybe considering comparable
| goods/utility in an economic sense (what else could you do with
| the same financial outcomes, which do you prefer)
|
| 2. Buying a house comes as a mix of rarifying asset, high value
| depreciating good, and liability. The land in a growing city is
| increasingly becoming rare (like the art example in the article),
| a depreciating house (eg, depreciate your roof over 20 yrs, your
| hot water tank over 5-10 etc), and a liability -- you now have to
| pay HOA + taxes on the value of the property until disposed of.
| (And note the steep exit fee that using a realtor costs. That
| significantly eats into your appreciation)
|
| 3. Because your house's rental market value is roughly
| proportional to it's underlying asset value, the more your house
| appreciates, the more marginal opportunity you give up by living
| in it. That is, you essentially are consuming the rental value of
| the house as a lifestyle choice -- that's essentially the
| definition of a liability, therefore 4.
|
| 4. The home you live in is a liability (a recurring cost center
| and lost opportunity cost, potentially still at net profit after
| the appreciation of the land), a property you rent out is an
| income producing asset (potentially still at a loss after
| expenses).
|
| 5. Anecdotally, most people who I have seen swear they made "so
| much money" on their home are actually failing to do the math
| well. Total cost of ownership of a home + buy/sell transaction
| costs + tax burden + maintenance + lost opportunity to invest in
| other assets has rarely, if ever, been profitable in my maths.
| Speculating on distressed assets at market bottoms or other
| contrarian times would be the exception, but that can be very
| profitable for experts with capital in most any asset market (eg
| used cars made money for a few years there).
| w10-1 wrote:
| "It's a complex topic, even details are left out in this long
| form article"
|
| Some summary and factors...
|
| Commenters have blamed:
|
| - Vetocracy and NIMBYism reducing supply
|
| - Federal reserve ownership of banks
|
| - "housing cannot be both affordable in perpetuity and a good
| investment": the myth of a limited resource
|
| - "Why is every new house a McMansion?" (Because a bigger thing
| has fatter margins, so it's beneficial to reduce the supply of
| smaller things. See cars and computers.)
|
| Why fix it?
|
| - So I can get a better home (my $300K is not enough for $1.2M
| houses)
|
| - To get homeless people off the street (roughly 0.2% of
| people)
|
| - To get more poor and middle-class people off renting into
| homes
|
| - To reduce the incentives for the wealthy to manipulate the
| market
|
| Correct driving factors:
|
| - Mediterranean climate is rare
|
| - "Values go up because of density changes related to location
| desirability" - "You're making a bet that
| worker productivity will improve near you"
|
| Additional amplifying factors:
|
| - Home loans are recourse-free: if you go underwater, the bank
| loses, not you.
|
| - Difference in market power between investors and owner-
| occupiers - Owner-occupiers are forced into a
| location, and have to buy something
|
| (or rent)
|
| - The home _has_ to appreciate at a rate higher than the after-
| tax cost of property taxes - The Republican's
| recent cap on property-tax deductions made this equation worse
| - For nice homes, the property taxes alone can be half the
| median rent
|
| - Renting and buying are not perfect substitutes
| - Most rentals are small, and not in good school districts
| - Most houses are large, so rents are only sensible for large
| families or wealthy - Most jurisdictions exempt
| single-family homes from most restrictions on rentals
| varelse wrote:
| [dead]
| pradn wrote:
| It's practically impossible for US society to get out of treating
| housing as an investment. Americans believe in home ownership as
| evidence of prudence (hard work + savings), acumen (housing
| always goes up so it's smart to buy a house!), and sense of
| security and achievement. These ideas aren't going to change any
| time soon. That's the ideological component. Home-owners also
| protect their investments because they're a very large group
| (including practically every politician) and constitute the donor
| class.
|
| It's currently hard to take small steps toward stabilizing
| housing prices and reducing homelessness. Housing is easy to talk
| about, just like inequality. But it's hard to see evidence of
| much political will to solve these problems.
|
| It will take a lot more housing inaccessibility, especially if it
| hits the currently affluent class.
| spaniard89277 wrote:
| Maybe it's time for young people to use violence. Since housing
| is not just another good, and the rest of the society sees no
| problem on screwing entire generations (barring some high
| earners like here in HN), I think using violence is actually a
| sensible decision.
| rootusrootus wrote:
| That sounds extreme. Rates go up, go down, but it does not
| seem quite as dire as online rhetoric would have you believe
| [0]. Certainly we can try to encourage the trends to head
| back up, but violence won't accomplish that.
|
| [0] https://www.census.gov/housing/hvs/data/charts/fig07.pdf
| davidw wrote:
| Before you go smashing things, you could do some of the
| basics like electing pro-housing people, show up at public
| hearings to say 'yes!' to housing, write letters to the
| editor and all that kind of thing.
|
| It's pretty effective.
| majani wrote:
| This is one of those areas where the "proper channels" are
| heavily compromised though
| davidw wrote:
| I've been having success with these things locally. We
| don't always win, but we have made a lot of progress.
| mulmen wrote:
| Calls to violence are unacceptable. This is irresponsible and
| dangerous rhetoric. Society is not so broken as to justify
| violent revolution. This will not make any living person's
| life better. Participate in your local government. If you
| must, move somewhere with laws that better align with your
| values, or where you have a better chance of driving the
| change you want to see. Violence is not the answer.
| P_I_Staker wrote:
| Yes, violence is the answer!
| lordnacho wrote:
| Not sure that's a wise thing to suggest. Both in terms of
| what you can say on a public forum and in terms of whether it
| would actually be useful.
| nerdponx wrote:
| I am optimistic that if we can at least stop prices from
| increasing faster than growth in real wages, at least the rest
| of the economy can eventually catch up.
|
| > It will take a lot more housing inaccessibility, especially
| if it hits the currently affluent class.
|
| This is already happening. The millennial children of the
| youngest upper-middle-class Baby Boomers are bordering on being
| unable to afford the kinds of houses that they grew up in, at
| the same ages as their parents, without significant
| intergenerational financial assistance that their parents did
| not need or have access to.
| majani wrote:
| Also, aesthetically, you have to admit, most YIMBY cities are
| ugly AF compared to NIMBY cities. Aesthetics are very important
| to human beings; people love pretty things.
| HDThoreaun wrote:
| I don't admit. I think high density cities look much nicer
| than suburbia.
| majani wrote:
| Maybe some look good in high density cities in select areas
| of Europe which are helped by well preserved ancient
| architecture, but that's not replicable elsewhere. Go to
| more modern, large, genuine YIMBY cities where anything
| goes like Tokyo and Lagos and they are quite an eyesore
| davidw wrote:
| > But it's hard to see evidence of much political will to solve
| these problems.
|
| Disagree. The YIMBY movement is picking up steam in a big way.
| Here in Oregon, we re-legalized 4-plexes in our cities and the
| woman responsible, Tina Kotek, is now our governor. She's
| pushing another big housing bill. Our mayor in the city I live
| in regularly attends our YIMBY group meetups.
|
| It's gotten bad enough in enough places that there's a lot of
| interest in reform.
|
| Some good groups to check out:
|
| * https://yimbyaction.org/
|
| * https://welcomingneighbors.us/
| nacho2sweet wrote:
| I mean good luck but the YIMBY movement is a very pro
| investor movement.
|
| Decrepit old SFH selling for $1.6 million turned into a 4
| plex here in Vancouver would see each unit in the 4 plex
| selling for $1.4+ million (maybe $1.1 for the basement
| suite). Friend bought in a converted old place 780 sqft attic
| suite $940k. It doesn't really make stuff affordable.
|
| It was sold here as "the missing middle" and they basically
| dragged a mouse over huge washes of neighbourhoods like
| SimCity and said you could do 5 unit conversions. Fixer-upper
| SFH become gut out conversion SFH and are priced based on the
| investment of the 5plex conversion and what those can be sold
| for.
| davidw wrote:
| Just because someplace is so deep in the housing debt hole
| doesn't mean the approach isn't a good one.
|
| Making more of something when you have a shortage is the
| way to fix it.
|
| 4 nice, brand new 1.4 million dollar homes is 1) more
| housing and 2) cheaper than a decrepit 1.6 million dollar
| home. It sounds like progress even if it hasn't fixed all
| the problems.
|
| Sounds like they need to just keep going down that path of
| legalizing housing. Where I lived in Italy, it was pretty
| normal to have 6/8/10 home buildings, and that was in a
| town of maybe 200K without any serious geographic
| constraints.
|
| BTW, nothing saying you can't also do some things to
| directly help people who can't afford a million dollar
| home. Subsidized housing is good too - just that it's tough
| to create enough of it, so we need to fix the broken market
| too.
| HDThoreaun wrote:
| When you're ten feet deep in a hole you don't see out of it
| by climbing up one foot.
| gautamdivgi wrote:
| School districts are connected to housing. As long as schools
| are "locally funded", you will always have a rush for houses in
| the better schools.
|
| The problem with housing is lack of public transport as well.
| You could get houses farther away from the city. But the lack
| it public transport makes commutes terrible.
|
| If you want a great school district things get really pricey.
| But if you're single or don't have kids I'm not sure if you
| want to pay the taxes.
|
| More than anything if we need to improve housing I would focus
| on public transport more than anything else.
| grecy wrote:
| > _It 's practically impossible for US society to get out of
| treating housing as an investment_
|
| All the reasons you listed are valid and true, but I don't
| think that changes anything.
|
| Yes, _individuals_ see housing as a sign of success, and
| security and happiness. That 's great. Companies should not be
| allowed to invest in housing, only individuals. Everything
| after the 1st home should be heavily, _heavily_ taxed to
| seriously impact owning multiple homes to the point it makes no
| sense.
|
| If a person wants to invest in real estate, there is plenty of
| commercial real estate for that purpose. Leave houses for
| people that need a place to live.
| owenmarshall wrote:
| I'd agree, it's a structural problem. The mortgage interest
| deduction is my favorite example. It is a hugely regressive tax
| break which has been targeted across the political spectrum.
| Seriously, when was the last time you can remember the Cato
| Institute agreeing with Barack Obama on tax policy?
|
| But I can't see how it ever goes away: it would definitely
| increase taxes on voters, so what politician signs up for it?
| It'll probably turn into a culture war third rail like SALT
| deductions first.
| freedude wrote:
| "But now, if she buys a home, she needs housing prices to keep
| going up to make her decision financially sound. And not just go
| up, but outpace inflation and -- almost certainly -- wage growth.
| Otherwise, she's cost herself hundreds of thousands of dollars.
| For buying to be worth it, she needs the price of her home to
| double."
|
| They overstate this. All she needs is for rent to continue to
| rise for it to be worth it. With most sane mortgages the costs
| are fixed for the life of the mortgage. Rent is going up. Always.
| Well, almost. With the regulatory costs of new residential
| building in most of the West stifling growth, there will be no
| over-abundance of new rentals hitting the market any time soon.
|
| That said, how did I do it? My wife and I knew we didn't know how
| to do it. So we asked someone who had made a lot of mistakes and
| was finally successful at owning property. "Take a Dave Ramsey
| class", they said. I didn't want to take the class, but I finally
| realized that I didn't know what I didn't know. It was shortly
| after someone I know well said something like, "suck it up
| buttercup!"
|
| That was 9 years ago and our dream was to own a modest home on
| about 5 acres. 4 years later after changing our entire outlook on
| spending we bought a 3 bedroom, 2 bath home on 8 acres. Living
| through a pandemic on 8 acres was way better than the postage
| stamp we moved from. It was a blessing. My recommendation: Buy
| now before the next "Good Reason" to live in the country hits the
| fan. Look an hour to an hour and a half away from downtown in
| good traffic.
|
| Have Fun!
| fkrentparasites wrote:
| Always amazes me how YC and PG get zero mention on housing
| threads here for AirBnB destroying communities and housing
| worldwide. I've totally lost all respect for their "fuck the
| rules" approach. PG, this is what you get when you turn every
| human need into a VC backed hunger games cesspit.
| Congratulations.
| macawfish wrote:
| I'm old enough to remember when this post would have been
| blasphemy on hacker news.
| freitzkriesler2 wrote:
| The problem is entirely caused by real estate investors both
| domestic and foreign who are looking for yield on their
| investment hot money.
|
| Since NIMBYS want their cities to never change, the solution is
| to ban or excessively tax multiple unit ownership and only allow
| new builds to sell units. The problem then solves itself.
| zajio1am wrote:
| There is no need to look for heterodox explanations. There are
| clear economic and political factors explaining why there is a
| housing shortage and why such shortage causes raise of prices.
|
| Vetocracy and NIMBYism is something that is deeply embedded to
| modern western society. For larger housing developments, getting
| permits can take several times longer than actually building it,
| can be attacked at courts by almost anybody and significant
| improvement would be blocked by zoning anyways. That essentially
| caps housing supply in popular places, which means the price is
| determined just by demand (i.e. wages and mortgage rate), which
| grows fast in booming areas.
| hiergiltdiestfu wrote:
| well, duh
| nwah1 wrote:
| This is why a Land Value Tax is so essential.
| kiwiguy wrote:
| Try buying a house in New Zealand...
| bedhead wrote:
| I've been screaming about the OpenDoor's and RedfinNow's of the
| world for several years. These are in effect payday lenders for
| homes, dangling low all-cash offers to entice desperate sellers
| to hit the bid quickly. Ironically, these companies manage to
| lose money anyway, perhaps yet another sign that SFH's weren't
| meant for this. Incredible that even after 2008, we have yet to
| really learn that the financialization of people's homes should
| be pretty darn close to a non-starter.
| throwway120385 wrote:
| Yeah these scumbags constantly text you and send you fake
| handwritten letters about your house to try to entice you to
| talk to them. My partner and I were getting A LOT more of them
| when interest rates were low. She took a "course" once on
| flipping houses when she was younger and honestly the whole
| idea of flipping is scumbag central, with "wholesalers" and
| "lead generators" whose whole business model is to convince
| people to sell for less than they could get in a proper real-
| estate transaction.
|
| Basically the course boiled down to "find some rich relatives
| to con for investment money" and "look around your neighborhood
| for old people or people who just lost their job and give them
| lowball offers."
| thriftwy wrote:
| Did anyone ever make this decision explicitly?
|
| The city where I live is full of buildings which are all like
| "this was built by a %landlord name% as a means to support his
| retirement". This was ~150 years ago.
| crisdux wrote:
| In my metro, the median listing price for a home just peaked.
| Driven by low supply, high demand - stemming from a variety of
| factors. I've made competitive offers on many homes, only to be
| beaten by all cash offers or people putting more cash down for an
| appraisal gap. I get angry when I think about neighboring
| properties that sold for 50% less only 3 years ago, financed at
| 2.5% interest rates - while I must make a decision to pay 50%
| more and pay 7%. My wage increases during this time do not fill
| the gap. I feel I must accept a lower standard of living than my
| neighbor. This is a massive source of inequality that I feel does
| not get enough attention. I am quietly feeling the stress of
| despair and fomo in regards to my housing situation. How can a
| society function like this?
| nojvek wrote:
| Even on a software eng salary in Seattle area, housing 40m away
| from city took many many years of saving to afford downpayment.
| As we were saving, the price went up faster than we could meet
| 20%. The rents also went up. It feel like the bar kept on
| moving faster than we could catch up.
|
| This was 5 years ago. At current >1M prices, that would not be
| possible. 2 bedroom rents in Bellevue are > $2500/month. Kind
| of nuts.
| thunkshift1 wrote:
| Why the insistence on 20% down? Avoiding pmi is not worth the
| upfront cash
| alkonaut wrote:
| Housing as an investment is when I use money to improve my home,
| hoping I'll get that money back. Which might happen, or it might
| not. Historically it has been a pretty good investment, but
| famously, past returns say nothing about future performance.
|
| The type of "housing as investments" that are high risk is when
| you buy to let, using your home as a pure investment (which could
| have been an index fund instead). I know zero people who ever did
| that.
|
| Also, whether the investment is sound depends on the interest
| rates. Mine is now a fixed 5yr at 1.5% which is pretty decent,
| but obviously when that's renegotiated in 3 years the rates will
| most likely be much higher. In any case, it's basically been a
| free ride to live with a 1-2% interest rates for the past decade.
| Exendroinient00 wrote:
| Threads like this inevitable devolve into socialism vs capitalism
| debates. Better not to engage.
| WaitWaitWha wrote:
| For me, there are two differences between Alice and I, how we
| think about rent v buy.
|
| She is looking at national details. Real-estate prices are very
| much localized in my experience. I can have a property that is
| plummeting in value, while a neighborhood just on the other side
| of the main road is nicely increasing in value.
|
| To me if I _sell for no profit_ at the time the house is sold, I
| won. If I pay rent X every month, I will never get that rent
| back. If I pay the same X amount on a mortgage, even if I get
| half of it back, that is a gain of 50% over rent.
| plaidfuji wrote:
| Somewhat agree, especially with the localized nature of the
| market, but you do have to account for the fact that a mortgage
| is essentially paying 90% rent to the bank for the first ~1/4
| of its lifetime, and the opportunity cost of tying up your down
| payment in housing vs other investments.
|
| It's why I find it odd that first-time homeowners describe
| themselves as, well, owners - in all likelihood you just have a
| new landlord - the bank - and the penalty for not making rent
| is quite a bit worse. Especially if you're looking at a short
| time-frame e.g. less than 5 years, if you sell at the exact
| price you bought, you're out essentially all of your mortgage
| payments (pure interest), opportunity cost of down payment
| appreciation, buyer and seller fees (not insignificant),
| property taxes and insurance (usually rolled into the mortgage
| but worth mentioning), and maintenance. You very likely lose to
| renting.
|
| One aspect that's relevant is the ratio of rent to mortgage
| payment for an equivalent property in a given locale - and this
| varies strongly. Some markets are very favorable to renters and
| vice versa.
| nickelcitymario wrote:
| I may be wrong, but it seems to me like this is a simple
| supply/demand issue. Increase the supply.
|
| Yes, that's detrimental to those who already have homes (like
| me). But if I were a dispassionate judge-of-the-world, and I were
| weighing these two groups needs, I'd err on the side of
| supporting those without homes over those who have them.
|
| Also, increase the supply of SMALL homes. Why is every new house
| a McMansion? Why do we have to buy 50+ year old homes to get
| something smaller? Those smaller homes are the entry to the
| market, and seemingly no one is making them, unless you count
| condos (which I do not).
|
| Of course, I understand builders are building the homes that make
| them the most money. I'm not suggesting they're doing anything
| wrong.
|
| But there is an underserved market for entry-level homes, and if
| the free market isn't going to solve the supply issue, it seems
| fair for governments to step in, build affordable homes, and sell
| them at a reasonable (10-20%) profit.
| vannevar wrote:
| It is a supply/demand issue, but it is not simple. Demand for
| housing in the sense of people needing housing is not the same
| as economic demand for housing. And in order to have economic
| demand for housing, you have to have people with the means to
| buy. The housing market is not a smooth curve from zero to
| McMansion---there is effectively a cutoff. Right now, even if
| builders sold their houses at cost, in places with sufficient
| economic activity to support employment, the real estate cost
| would still put those houses out of reach of most low-income
| buyers. Because real estate in the past few decades has risen
| faster than wages, mortgage payments and rent have risen as a
| percentage of income for most Americans. Renters simply can't
| accumulate the capital needed for a down payment, nor the
| credit rating needed for a reasonable mortgage interest rate.
|
| So while intervening directly in housing is one policy
| solution, another would be to prevent the wealthy from
| continuing to capture a wildly disproportionate share of
| economic growth, which would both slow acute real estate
| appreciation in urban areas (by reducing the capital the
| wealthy have to buy up rental properties) and increase the pool
| of able buyers for lower income housing.
| Fernicia wrote:
| > even if builders sold their houses at cost, in places with
| sufficient economic activity to support employment, the real
| estate cost would still put those houses out of reach of most
| low-income buyers
|
| This makes no sense. Even if the low income families can't
| buy the new units, the people who do vacate their old units
| and there is less demand for the unit those low income
| families currently occupy.
|
| > Renters simply can't accumulate the capital needed for a
| down payment, nor the credit rating needed for a reasonable
| mortgage interest rate.
|
| Both of these are variable costs, depressed by increases to
| the housing supply.
|
| > prevent the wealthy from continuing to capture a wildly
| disproportionate share of economic growth, which would both
| slow acute real estate appreciation in urban areas (by
| reducing the capital the wealthy have to buy up rental
| properties)
|
| This is like banning supermarkets buying from farmers. Do we
| want every property developer to also have to specialise in
| rental management? Or are we trying to get every renter to
| open mortgages?
| vannevar wrote:
| >Even if the low income families can't buy the new units,
| the people who do vacate their old units and there is less
| demand for the unit those low income families currently
| occupy.
|
| You're making the mistake I mentioned, confusing demand for
| actual housing with demand for real estate. It will indeed
| marginally depress demand for housing, but capital can step
| in and absorb the marginal supply, for rental or other
| purposes. As long as there is more demand from capital than
| supply, real estate prices will stay high even if actual
| demand for low income housing remains stable or even
| declines.
|
| >This is like banning supermarkets buying from farmers.
|
| Farmers are selling perishable goods, not income-producing
| assets. As long as real estate is income-producing, it will
| be a viable investment, and as the old saying goes, they
| aren't making more of it. So whatever the dynamics of the
| actual housing market are, the underlying dynamics of the
| real estate market will tilt the table toward capital. And
| the sharper the income gradient is in society, the worse
| the problem will become.
| fiftyfifty wrote:
| It's more than just supply and demand. There are a lot of
| companies and private investors buying up multiple residential
| properties to rent out. There are a significant amount of
| properties simply being rented out on Airbnb/VRBO and their
| ilk. This is having a measurable impact on housing prices, and
| making additional housing unavailable to local residents. We
| need to increase tax penalties on companies and individuals
| buying up residential properties that aren't their primary
| residence and municipalities need to do a better enforcing
| zoning laws that are probably already on the books that should
| prevent short term rentals in residential areas.
|
| https://www.forbes.com/sites/garybarker/2020/02/21/the-airbn...
| wintermutestwin wrote:
| >Also, increase the supply of SMALL homes. Why is every new
| house a McMansion?
|
| This is a huge part of the problem. The issue is that there are
| so many fixed costs to build (permitting, utility, special
| taxes, etc...) that don't depend on sq ft. At the same time,
| all valuation is based on sq ft. This creates a huge incentive
| for builders to max out sq ft.
|
| Solutions are to get all school funding from the state,
| streamline permitting based on pre-approved designs, give
| builders reduced utility hook up costs in areas that are
| lacking viable housing density. IOW - good luck with that
| problem.
|
| Similar to the new ADU laws in CA, it would be awesome if they
| encouraged small communities with tiny houses and some common
| resources.
| tagami wrote:
| It's the land that holds the value. The building depreciates.
| palotasb wrote:
| One thing I haven't understood yet: After I've bought a house to
| live in, why does it matter for me whether housing prices go up?
| Does it matter even if my $X house is worth $3X ten years from
| now? I assume that I must live somewhere, and any any money I'd
| earn selling the house, I'd lose buying a new one.
| rootusrootus wrote:
| You can borrow against equity and that might work to your
| benefit without selling. Or you can move to a less expensive
| location. E.g. if you live in the Bay Area and retire to the
| midwest, your home equity could be your _entire_ retirement
| fund.
| whiplash451 wrote:
| The article is flawed from the very beginning. You rarely find
| similar homes that are both on sale or for rent. The inventories
| are completely different. And so, fail.
| rwmj wrote:
| Ae you familiar with "thought experiments"?
| whiplash451 wrote:
| I absolutely am, thanks.
|
| My point was that buying (or renting) gives you access to
| different inventories.
|
| And so this thought experiment is not useful to describe the
| choice buyers/renters make.
| seydor wrote:
| It's amazing to think that medieval people wouldnt even consider
| housing difficult. Grab a few stones and you re basically done.
|
| Surely houses today require electricity, sanitation and water,
| but how much do these really cost? Lots of people build offgrid
| and it is not THAT expensive.
|
| Maybe there's an opportunity there, but , given the exorbitant
| profits of investing , it s doubtful that anyone will care
| entangledqubit wrote:
| I don't understand why people just don't call out mortgages for
| what they are - leveraged loans that let you get ~4-5x the return
| on housing gains. (Assuming a simplified 20% down scenario and
| you refi on a regular basis.)
|
| I suspect that most housing demand stems from just people wanting
| in on this (subsidized) investment. From what I can tell, this is
| the retirement plan foundation for many Americans.
|
| I guess this works until you come up on a generation that can't
| afford the last generation's houses? Or you need to be a company
| to afford the house and it gets "permanently" removed from the
| individual market.
|
| I'm wondering if lowering the maximum fixed mortgage length by
| one year every 2-3 years until we get down to 10 years would help
| moderate some of this due to there being a bit more risk to
| consider.
| judge2020 wrote:
| > I suspect that most housing demand stems from just people
| wanting in on this (subsidized) investment. From what I can
| tell, this is the retirement plan foundation for many
| Americans.
|
| Renting hardly makes sense when buying is an option. Instead of
| giving your landlord $2k a month or $24,000 a year, it goes
| into a de-facto savings account that either keeps its value or
| goes up in value in case you ever need to sell it (with the
| only obstacles being times like right now where the high
| interest rates make it hard for prospective buyers to qualify -
| a $2,500 payment house at 2% from 2022 is $4,000 today at 7%).
| Nifty3929 wrote:
| I think an important point is that people might mean a couple of
| different things by "investment:"
|
| One is a more traditional idea of investment, which isn't so much
| about money, or cashing in later - it's about having this
| particular dirt here for myself after some period of time. I may
| never get a financial reward, but this plot of land is MINE.
|
| Another way "investment" is used is indeed about a financial
| reward and being able to sell for more later. Basically
| speculation.
|
| Regarding the former, this is a natural way to think about it and
| while it might be expensive, the rational makes sense even if I
| don't agree with it.
|
| Regarding the latter, I think this came about more recently as
| people empirically observed housing prices going up, often faster
| than inflation. Without really understanding WHY it's doing that,
| you might think of it like stock.
|
| But the real reason housing had been going up over the last
| decades is that the government (US, and many others) have poured
| a lot of money into that market in various ways: tax incentives,
| loans, etc.
|
| Supply restrictions come into play as well, but that's a very
| local thing and not generally applicable.
|
| So it's not connected to real outputs like an investment. It will
| only keep going up as long as the government keeps pouring in
| more money. And when they don't, or can't, it won't. And that's
| when the "investment" will start to look a lot more like a
| speculation gone wrong.
| logifail wrote:
| > 30 year fixed rate mortgage at 7%
|
| Q1: Why would one use that rate to compare?
|
| and
|
| Q2: Who here has ever paid that high a rate on their mortgage? We
| sure haven't! Signed our current floating rate 25 year mortgage
| back in 2008, so far the only great financial decision we've
| made.
|
| My feeling is that cheap money has seeded a bunch of problems all
| over society, not just in the housing markets.
| advisedwang wrote:
| Q1: because 7% is roughly the current rate for a 30 year
| mortgage right now.
| https://www.bankrate.com/mortgages/mortgage-rates/
|
| Q2: Anyone you see who is buying a house right now is paying
| that rate.
| logifail wrote:
| Errm, fixed != floating.
|
| Who is _fixing_ at 7% for 30 years?
| advisedwang wrote:
| Per the source I quoted "For today, Monday, March 06, 2023,
| the current average interest rate for the benchmark 30-year
| *fixed* mortgage is 7.08%"
| duped wrote:
| The math at the top seems suspect. In all three cases Alice
| should have "spent" the same amount of money after 18 years. In
| the cases of renting you pay more each year and get no equity
| back, so you should be less able to save _and_ you get none of
| your money back at the end.
|
| I guess the only difference is whether that 20% downpayment on
| the loan better spent sitting in a house or in bonds/ETFs.
| jeppine wrote:
| I think one of the main issues with pricing is the deferral of
| taxation for the sale of rental or investment properties. A lot
| of people are seeing housing as a potential retirement savings
| account that can be reinvested and also produce income at the
| same time.
|
| If I had $100k to put as a down payment on a $500k house, and was
| able to rent at a rate that would pay, mortgage, taxes and
| upkeep. In 30 years, even assuming the price of housing stayed
| the same, it would have been a pretty good investment.
|
| What is better though is if anytime within the 30 years the house
| doubles in price. I can sell it tax free and have enough money to
| buy an even more expensive house and potentially have a better
| retirement.
|
| As long as I keep shifting the money from one house to another, I
| never pay taxes. I am also able to continue to rent the property
| and bring in a nice continuous income.
|
| The fun little trick to this is you have to find a new property
| within 45 days of selling the previous property to keep the tax
| deferral benefits.
|
| I think this 45 day window combined with low interest rates and
| limited inventory caused most of this crazy increase in housing
| prices.
|
| Unfortunately, the landlords have increased their rents to
| correspond with local housing prices, and normal hardworking
| people are getting squeezed more than they ever have been.
|
| I don't think this is sustainable, and as soon as there is a drop
| in renters in an area, and the rental properties start losing
| money. The housing prices will start to fall. The question is how
| long this will take.
| lsllc wrote:
| > The fun little trick to this is you have to find a new
| property within 45 days of selling the previous property to
| keep the tax deferral benefits.
|
| This is a 1031 exchange [0], when selling a business and buying
| a "like" business -- if you can identify the new one within 45
| days of selling the old and close within 180, you can defer
| (not avoid) the long term gains on the deal. So let's say you
| bought a gas station in a crappy part of town, but you want to
| sell it and buy a bigger/better/more profitable one by the
| highway, this is how you do it. If your "business" is rental
| housing, then you can do the same thing.
|
| Tax evasion is illegal, tax avoidance isn't. Why would you want
| to pay 15-20% long term gains tax on your gas-station trade-up
| if you didn't need to?
|
| > Unfortunately, the landlords have increased their rents to
| correspond with local housing prices, and normal hardworking
| people are getting squeezed more than they ever have been.
|
| It's just supply and demand -- capitalism at work. I don't
| think that many landlords are altruistic enough to not want
| match their rates to the "competition" (in this case housing
| prices).
|
| [0] https://www.investopedia.com/financial-
| edge/0110/10-things-t...
| tonymet wrote:
| To pile on to the ills of housing cost inflation - there are high
| order effects on cost. Your $3k / mo day care is expensive
| because the staff is paying $2500 / mo for their apartment. Auto
| repair is now $175+ / hour, so are most plumbers, handymen and
| contractors. The cost of every good & service you are buying is
| in large part the rent for all the laborers that supplied the
| inputs.
|
| You may think that minimum wage should rise, but that just takes
| pressure off of rents and rents go up.
|
| This is not an easy problem to solve, and every mitigation tends
| to worsen the problem . We've had inflation for 30 years, most of
| which piled into housing. Covid accelerated the release of the
| pandora's box.
| tlholaday wrote:
| Policy solution to intractable social differences:
|
| Fund UBI with 2.5% SALSA, problem solved.
|
| https://www.radicalxchange.org/concepts/plural-property/
|
| Yes, new problems appear. Maybe new problems are less vexing.
| czbond wrote:
| Didn't money printing of 2019-2022 show that UBI will cause
| price inflation, lower velocity of money, and thus cause all
| prices to inflate across the board?
|
| UBI sounds great, but once fully in play across a population -
| market forces cause base prices to increase to meet UBI for a
| near net zero benefit.
| pxmpxm wrote:
| Straight out of Libertopia.
|
| Losing your house and being forced to move because of a mistake
| in assessed value or someone else's specualtive bid is as much
| of feature as losing all your money when you mistype a bitcoin
| address.
|
| Tesla moving to Texas? It would take me about 3 days to
| syndicate enough money to displace half of downtown Austin.
| yboris wrote:
| I love this idea! Came across it in _Radical Markets: Uprooting
| Capitalism and Democracy for a Just Society_ by Eric A. Posner
| and Eric Glen Weyl
|
| https://press.princeton.edu/books/hardcover/9780691177502/ra...
| throwway120385 wrote:
| Explain to me how SALSA doesn't immediately result in really
| wealthy people bidding up the value of all of the real property
| in an area simply to turn around and rent it to the people they
| force-bought it from.
| czbond wrote:
| RE was always a "meh" investment (nominal with inflation) - with
| growth due to prior demographic waves; The past 2008+, bubble
| interest rates and money printing have have created a difference
| in real returns and nominal ones. Which have subsided.
|
| Realize the investment underpinning before taking on the
| investment. RE of a personal residence is rarely a good idea...
| buy cheap personal homes (small liabilities), and then use the
| excess to buy rental homes (income asset + depreciation).
| famahar wrote:
| I want to read a hard speculative sci fi story about the
| invention of teleportation and how it collapses the whole housing
| market and transforms how a city looks like.
| recursivedoubts wrote:
| It's all so tiresome.
|
| Watching boomers pop champagne corks as their homes went
| astronomically high and their children were priced out of ever
| living in the middle class neighborhoods they grew up in in CA,
| and now watching them eat that equity down with reverse
| mortgages, has made me permanently disgusted with the US housing
| market.
|
| The only solution I can see is absolute carnage in the housing
| market, and probably the entire financial system failing. And I'm
| kind of rooting for that, even though I own a home and financial
| assets: I have children, and I'd like for them to not be in
| perpetual two-earners + debt slavery in order to afford what
| their grand parents were able to afford on one salary.
| czbond wrote:
| RE hasn't always risen. Boomers who purchased a home from 2004
| - 2006 were under water for 8 - 9 years.
| https://fred.stlouisfed.org/series/USSTHPI
|
| Housing has most under performed the general market (SP500 for
| generalities). Thus if your home appreciates at ~3%/yr, market
| at ~5-9%/yr.... boomers could have increased their wealth 3-5%
| more yr without homes.
| Lich wrote:
| > The only solution I can see is absolute carnage in the
| housing market, and probably the entire financial system
| failing. And I'm kind of rooting for that, even though I own a
| home and financial assets: I have children, and I'd like for
| them to not be in perpetual two-earners + debt slavery in order
| to afford what their grand parents were able to afford on one
| salary.
|
| Exactly my thoughts as well and I am in the same situation too
| (homeowner + kids). I don't want it to happen given the
| probable turmoil and violence that will come along with it, but
| at this point I feel like it's the only thing that will bring
| change.
| Bostonian wrote:
| House prices depend on supply and demand. Housing investors
| increase the supply of housing and are not the problem but part
| of the solution. The problem is land-use restrictions, such as
| limitations on multi-story buildings.
| nathants wrote:
| whether or not housing should be an investment, it is.
| legislation and culture have grown around this idea for decades.
| sometimes the only way to win is actually to play the game.
|
| the nice part of housing being and investment is that you can
| live in it.
|
| you wouldn't treat your index funds like a pet, so don't treat
| your house like one either.
|
| buy houses that are newish to avoid maintenance. take out a heloc
| immediately just in case you need cash later. sell as soon as you
| max out the tax free profit on a home sale.
|
| if you work remote, be open to moving around. compare new housing
| in dallas vs austin as an example. it's like that everywhere.
| look in the town over, the state over, and in random locations
| too.
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