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Maybe treating housing as an investment was a mistake

goodreason.substack.com

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Re: Maybe treating housing as an investment was a mistake

#451

Post by notyourday »

anonymouskimmer wrote: post #142
notyourday wrote: post #74

Earlier quoted context omitted.

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.

> 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.

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.

Re: Maybe treating housing as an investment was a mistake

#452

Post by triceratops »

jalk wrote: post #343
actionablefiber wrote: post #163

Earlier quoted context omitted.

> 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.

Don't forget that the interest rate was around 10% in the early 1990ies

Yeah that's one reason why houses in the 90s were more affordable.

Re: Maybe treating housing as an investment was a mistake

#453

Post by bastardoperator »

dfxm12 wrote: post #58
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…

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), l…

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.

Re: Maybe treating housing as an investment was a mistake

#454

Post by abeppu »

btilly wrote: post #382
abeppu wrote: post #297

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 th…

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 millio…

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.

Re: Maybe treating housing as an investment was a mistake

#455

Post by gambiting »

Robotbeat wrote: post #442
gknapp wrote: post #435

Earlier quoted context omitted.

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…

“House poor” was typically having to pay at least 25% of your take-home income on housing.

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.

Re: Maybe treating housing as an investment was a mistake

#456

Post by politician »

lolinder wrote: post #383
dfxm12 wrote: post #58

Earlier quoted context omitted.

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), l…

> 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.

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).

Re: Maybe treating housing as an investment was a mistake

#457

Post by giobox »

lolinder wrote: post #383
dfxm12 wrote: post #58

Earlier quoted context omitted.

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), l…

> 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.

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...

Re: Maybe treating housing as an investment was a mistake

#458

Post by vannevar »

nickelcitymario wrote: post #314

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? Wh…

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.

Re: Maybe treating housing as an investment was a mistake

#459

Post by riku_iki »

piqi wrote: post #251
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…

> ...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?

> low/no-risk investment

foreclosure makes it no-risk leveraged investment modulo downpayment.

Re: Maybe treating housing as an investment was a mistake

#460

Post by acabal »

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?

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