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Maybe treating housing as an investment was a mistake

goodreason.substack.com

201–210 of 1001 posts

Re: Maybe treating housing as an investment was a mistake

#201
post #12

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 provi…

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.

Re: Maybe treating housing as an investment was a mistake

#202
post #10

> 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 ho…

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.

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.

Re: Maybe treating housing as an investment was a mistake

#204
post #6

> 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…

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.

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.

Re: Maybe treating housing as an investment was a mistake

#205

Earlier quoted context omitted.

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.

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 m…

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.

Re: Maybe treating housing as an investment was a mistake

#206

Earlier quoted context omitted.

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.

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 m…

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...

Re: Maybe treating housing as an investment was a mistake

#207
post #126

Earlier quoted context omitted.

Normative statements don't hold much weight for justifying why things are the way they are.

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.

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.

Re: Maybe treating housing as an investment was a mistake

#208
post #64
post #25

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…

> 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 th…

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.

Re: Maybe treating housing as an investment was a mistake

#209
post #57

Earlier quoted context omitted.

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 w…

"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.

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.

Re: Maybe treating housing as an investment was a mistake

#210
post #6

> 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…

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.

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.
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