Maybe treating housing as an investment was a mistake • Hacker News Board

Re: Maybe treating housing as an investment was a mistake

#431

Post by hintymad » Mon, Mar 06, 2023, 6:29 PM UTC

photon12 wrote: 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…

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.

Re: Maybe treating housing as an investment was a mistake

#432

Post by misiti3780 » Mon, Mar 06, 2023, 6:29 PM UTC

ParksNet wrote: post #415

lalos wrote: post #116

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 a…

Simpler than that: just enact State, County, or HOA bans on corporations from owning single-family homes. Let them pour money into apartment complexes.

this is a much better idea.

Re: Maybe treating housing as an investment was a mistake

#433

Post by riku_iki » Mon, Mar 06, 2023, 6:29 PM UTC

lotsofpulp wrote: post #20

photon12 wrote: 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…

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.

> 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.

Re: Maybe treating housing as an investment was a mistake

#434

Post by luckylion » Mon, Mar 06, 2023, 6:29 PM UTC

s1artibartfast wrote: post #364

luckylion wrote: post #152

Earlier quoted context omitted.

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.

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.

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.

Re: Maybe treating housing as an investment was a mistake

#435

Post by gknapp » Mon, Mar 06, 2023, 6:29 PM UTC

photon12 wrote: 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…

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?

Re: Maybe treating housing as an investment was a mistake

#436

Post by jeppine » Mon, Mar 06, 2023, 6:29 PM UTC

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.

Re: Maybe treating housing as an investment was a mistake

#437

Post by eloisant » Mon, Mar 06, 2023, 6:29 PM UTC

jedberg wrote: post #195

Muromec wrote: post #165

Earlier quoted context omitted.

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.

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.

Also if your revenue drop, it's easier to move as a tenant than to sell your house.

Re: Maybe treating housing as an investment was a mistake

#438

Post by aeturnum » Mon, Mar 06, 2023, 6:30 PM UTC

s1artibartfast wrote: post #332

arcticbull wrote: post #3

My refrain remains: housing cannot be both affordable in perpetuity and a good investment. These are mutually exclusive goals. Let people build.

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.

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.

Re: Maybe treating housing as an investment was a mistake

#439

Post by paxys » Mon, Mar 06, 2023, 6:30 PM UTC

mjr00 wrote: 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…

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.

Re: Maybe treating housing as an investment was a mistake

#440

Post by hindsightbias » Mon, Mar 06, 2023, 6:30 PM UTC

treis wrote: post #231

photon12 wrote: 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…

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 bathroom…

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.