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Home ownership is the West’s biggest economic-policy mistake

economist.com

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Re: Home ownership is the West’s biggest economic-policy mistake

#61

Post by tpm »

Traster wrote: post #48

I don't think this article makes a logical argument at all. It says house ownership is bad because it gives people a vested interest in constraining the supply of housing. That's true but that's not a problem. If people didn't own houses then someone would, and that someone is still incentivized to constrain the supply. I'm also not sure that reducing home ownership is a good idea - "let's make everyone poorer" doesn…

"If people didn't own houses then someone would, and that someone is still incentivized to constrain the supply."

that does not follow - if that someone does not want to sell them or make profit on the rent, why would he constrain the supply?

"What's the actual alternative to people owning their own homes."

The state, the city, not-for-profit entities owning them, for example.

"I also take issue with this idea that we should all be living in skyscrapers."

I agree with that and also think it's much better to live in about 5-story high buildings; the quality of life and price is much better with those.

Re: Home ownership is the West’s biggest economic-policy mistake

#62

Post by nly »

Traster wrote: post #48

I don't think this article makes a logical argument at all. It says house ownership is bad because it gives people a vested interest in constraining the supply of housing. That's true but that's not a problem. If people didn't own houses then someone would, and that someone is still incentivized to constrain the supply. I'm also not sure that reducing home ownership is a good idea - "let's make everyone poorer" doesn…

Old Victorian houses in London have been broken up in to 6-8 flats or more since the 80s. The original properties are just too large for single owner occupiers.

Of course the resulting 2 bed flats are still on the market for $1M USD.

Re: Home ownership is the West’s biggest economic-policy mistake

#63

Post by nly »

dr_dshiv wrote: post #37

What if renters could have a way to pay more to gain partial ownership of their property? E.g., could progressively own up to 10%. That woulf allow for more of the feeling of ownership and allow renters to participate in the appreciation. That would mitigate some of the negative impacts of gentrification. Has anyone given this sort of renter-ownership blend a thought?

Most hybrid schemes end up being scams. You end up with the disadvantages of renting with equity tied up as well.

Re: Home ownership is the West’s biggest economic-policy mistake

#64

Post by tejtm »

klodolph wrote: post #35
docflabby wrote: post #26

Owner occupation of property vs rent seeking ownership are 2 very different paradigms. The former results in community, and investment and a large number of beneficial economic effects. The later is simply an economic parasite Only have to look to the past to see what happened with farming. Substance farming and feudaliam was inefficient and disincentified investment.(why improve land you don't own and someone else r…

Subsistence farming? That just means that most of what you farm is used to feed yourself and your family. It's not really that subsistence farming is inefficient, it's just that subsistence farmers (by definition) are not selling food on the market.

tenant farmer. share cropping; where the "farmer" is guaranteed to be left with nothing above subsistence if that.

Re: Home ownership is the West’s biggest economic-policy mistake

#65

Post by presentation »

wahern wrote: post #41
Animats wrote: post #4

What's this obsession with increasing housing density? Population in the developing world is leveling off. Most of the developed world is already at "peak child".[1] Housing shortages come from migration to cities, not more people. [1] https://ourworldindata.org/peak-child

> What's this obsession with increasing housing density? Wealth inequality is compounded when urban real estate appreciates faster. The Economist blithely ignores why governments are obsessed with homeownership, though--because homeownership tends to negatively correlate with wealth inequality. That is, the greater rate of homeownership, the less wealth inequality. So rents may be stable in Germany, but so is its mod…

I personally think the issue isn’t really homeownership per se, but homeownership as an investment. The biggest long term difference I see between my life here in Japan and in San Francisco is that people here view their homes as a place to live in, and that there’s no shortage of options of places to buy - but don’t expect a profit on it unless you’re within 5 minutes from the most coveted stations.

Otherwise, you buy because it’s better value than renting, and so I see that my Japanese friends can be young, middle class, and still benefit from the economies of scale of living in the largest city on Earth.

Meanwhile countless people are excluded from San Francisco’s business nexus because it’s just too expensive to justify. Meanwhile my landlord had already bought over 10 properties to rent and had accumulated otherworldly wealth from the fact that he was born 30 years before me. Many of my friends have virtually 0 prospects of ever reaching home ownership in a major American city, and so long as everyone’s home values rises indefinitely, it’s only going to become more unattainable.

COVID has changed the calculation, but I still think cities will remain economically dominant into the future.

Re: Home ownership is the West’s biggest economic-policy mistake

#66

Post by Nursie »

imtringued wrote: post #54
stepbeek wrote: post #7

I agreee that speculation on property solely as an asset is an issue, but don't really agree with the premise early in the article around the growth of cities. The argument strikes me as something like this: * An increase in the size of urban areas would increase GDP by 4% * Anything which blocks this growth is bad * Home ownership blocks this increase * Therefore, home ownership is bad The implicit premise is that a…

Speculation isn't the problem. Speculation is like a time machine for prices. Speculators use information to discover the true price of an asset and keep buying until the difference between the market price and the "true price" shrinks to 0. In other words, they are making the market more efficient for buyers and sellers. Buyers benefit when the asset would be overpriced because of volatility. Sellers benefit when th…

You ignore the fact that speculation adds significant demand in itself. If speculators can be seen to make money, more will join the market. This drives demand beyond what would be present if only owner-occupiers and landlords were buying. And what’s more in some markets like London it removes real-estate from use entirely as investment properties sit empty.

Your idea of a ‘true’ price is silly and part of the reason prices may go up in future is indeed the presence of ever more speculators. As they drive prices up, people end up paying more for smaller properties, stretching out their debt load just a little further, and raising the whole market. There is no ‘True’ price.

Re: Home ownership is the West’s biggest economic-policy mistake

#67

Post by neilwilson »

Animats wrote: post #4

What's this obsession with increasing housing density? Population in the developing world is leveling off. Most of the developed world is already at "peak child".[1] Housing shortages come from migration to cities, not more people. [1] https://ourworldindata.org/peak-child

Mainstream economics is obsessed with gravity theories. One of the underlying beliefs is that ramming people into smaller spaces causes more things to happen (agglomeration). Whether that leads to a better quality of life is beside the point when the metric you are optimising towards is national GDP growth.

Re: Home ownership is the West’s biggest economic-policy mistake

#68

Post by tlarkworthy »

Next up, living in families shown to be inefficient, newborns should be matched in a skills based auction at birth.

=> There is more to life than supply and demand, and home ownership has a hidden effect on societal responsibility, wellbeing and a life milestone

Re: Home ownership is the West’s biggest economic-policy mistake

#69

Post by brobdingnagians »

est31 wrote: post #59
DocTomoe wrote: post #50

Earlier quoted context omitted.

Seen from another angle, homeownership (once the mortgage has been paid) grants freedom, while a rent-dweller will remain a slave to his landlord forever, with Damocles's sword named "Eviction and homelessness" always dangling over their heads.

rent dwellers on the other hand can move whenever they want while home owners are chained to their property. Each time they sell and buy a new property they run a risk of buying lower quality than advertised, selling under value, and they do lose money in fees. Also, home ownership doesn't make you immune from gentrification due to property taxes. Especially if you "only" own a flat in a multi storey building, then y…

Brings up a key point; there are pros and cons to each; and, like most things, there are risks to each. The great thing is being able to look at your own situation and preferences and choose which you think you want. I love economics because it is one big decentralized computation for a future that we don't know. The difficulty is when people start cramming one size fits all on everyone, everyone gets the same result, which is usually worse than people choosing according to their own situation and evaluating pros, cons, and risks. The issue I have with a lot of think tanks is they often have an agenda of forcing one size fits all on everybody because they think they are smarter than the collective decentralized decision making of people with skin in the game.

Re: Home ownership is the West’s biggest economic-policy mistake

#70

Post by Mengkudulangsat »

DocTomoe wrote: post #50
joshuahughes wrote: post #42

So am I reading this right, that the Economist is suggesting “mortgage bad, rental good”?? Seems I’ve seen something similar referenced quite a lot recently... https://www.weforum.org/agenda/2016/11/how-life-could-change...

Seen from another angle, homeownership (once the mortgage has been paid) grants freedom, while a rent-dweller will remain a slave to his landlord forever, with Damocles's sword named "Eviction and homelessness" always dangling over their heads.

I'm a millennial and I plan to rent forever because I value the ability to move out whenever I liked. Even homeowners can't escape that sword of Damocles you describe.

IMO as long as you have assets (stocks, cash, etc.) that you can periodically liquidate to cover expenses, the form of those assets doesn't matter.

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