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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

#741

Post by s1artibartfast »

angarg12 wrote: post #551
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'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…

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.

Re: Maybe treating housing as an investment was a mistake

#742

Post by aeturnum »

s1artibartfast wrote: post #622
aeturnum wrote: post #438

Earlier quoted context omitted.

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…

>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…

> 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.

Re: Maybe treating housing as an investment was a mistake

#743

Post by Grimburger »

bmitc wrote: post #236
highwaylights wrote: post #175

Earlier quoted context omitted.

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 he…

I agree with that. Investment homes, second or maybe just third homes, etc. should be taxed rather extremely aggressively.

So you punish renters for the benefit of prospective homeowners?

Not everyone wants to buy.

Re: Maybe treating housing as an investment was a mistake

#744

Post by fxleach »

vjk800 wrote: post #644
bityard wrote: post #625

Earlier quoted context omitted.

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.

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…

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

Re: Maybe treating housing as an investment was a mistake

#745

Post by turtlebits »

lukeschlather wrote: post #470
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…

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.

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.

Re: Maybe treating housing as an investment was a mistake

#746

Post by Nemo_bis »

marcus_holmes wrote: post #640

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…

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.

Re: Maybe treating housing as an investment was a mistake

#747

Post by 93po »

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…

> 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.

Re: Maybe treating housing as an investment was a mistake

#748

Post by choward »

sbarre wrote: post #449
bmitc wrote: post #236

Earlier quoted context omitted.

I agree with that. Investment homes, second or maybe just third homes, etc. should be taxed rather extremely aggressively.

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.

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.

Re: Maybe treating housing as an investment was a mistake

#749

Post by s1artibartfast »

NineStarPoint wrote: post #420
nineplay wrote: post #268

Earlier quoted context omitted.

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 discussio…

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 mak…

How much you bring in makes an upper bound on comp. How much you can be replaced for makes a lower bound.

Re: Maybe treating housing as an investment was a mistake

#750

Post by mulmen »

jb12 wrote: post #158
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…

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

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.
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