Home Ownership Is The West’s Biggest Economic-Policy Mistake

[jtown,man]

Originally Posted by eschaton

I think I'd disagree it's preferable for the vast majority of Americans. Only 64.2% of American households are homeowners, which is a majority, but not a vast one. If you add to this total people who own homes in areas where property values are either falling or appreciating at a rate that is less than the CPI, or those that cannot afford to move to a higher-cost area or a home that fits their needs better, it's assuredly significantly less than 50%.

Aside from high-net-worth individuals, policies incentivizing home-ownership work best for empty nesters and retirees, who either have either paid off their homes or pay very low mortgages from decades ago. But there's no particular reason why we as a society should provide incentives for these people to stay in their homes. Every empty nester staying in a four-bedroom house rather than downgrading to something smaller means one less family-sized home available for those who need it. Retired people of course often like to stay where they lived historically, but in utilitarian terms their taking up homes near job concentrations while workers have to commute from much further is bad policy. And the truly elderly should not age in place, as it often results in deferred maintenance (up to and including structural problems caused by things like roofs not being repaired) which can destroy the value of homes.

Sounds like you would support gentrification based on this post.

[Shawn]

Originally Posted by eschaton

The Japanese system - which treats homes more as a disposable consumer good rather than an asset - seems in a lot of ways preferable. There are things I don't like about the Japanese system - like the waste because basically all homes are demolished after 20 years, and the almost total lack of historic preservation. But it is very good at ensuring there is almost no real increase in housing costs over time, even in high-demand areas with growing populations.

Sort of.

Any place growing here is necessarily growing via robbing Peter to pay Paul. And Peter is running out of stuff to rob.

High demand areas absolutely do see land appreciation. Just because the house is ephemeral by Western standards doesn’t mean the land itself doesn’t appreciate. But this demand has a clear time window.

But the real reason housing in Japan is readily available is because the place has an inverse demo pyramid the likes of which should scare away any long term investor. There is more available housing (and land...) in Tokyo right... now... than there was when you started reading this sentence. This is a dying country with no political will to reverse the population decline. There will never be any Mexicans to save the Rust Belt equivalents here.

[lio45]

Originally Posted by Shawn

Sort of.

Any place growing here is necessarily growing via robbing Peter to pay Paul. And Peter is running out of stuff to rob.

High demand areas absolutely do see land appreciation. Just because the house is ephemeral by Western standards doesn’t mean the land itself doesn’t appreciate. But this demand has a clear time window.

But the real reason housing in Japan is readily available is because the place has an inverse demo pyramid the likes of which should scare away any long term investor. There is more available housing (and land...) in Tokyo right... now... than there was when you started reading this sentence. This is a dying country with no political will to reverse the population decline. There will never be any Mexicans to save the Rust Belt equivalents here.

Exactly.

And if you want cheap property, no need to move to Japan for it, just pick a corner of the USA that's in decline, and it'll be at least as affordable as Japan.

https://www.realtor.com/realestatean...3_M40390-90071

[kool maudit]

Originally Posted by Shawn

This is a dying country with no political will to reverse the population decline.

While I understand the importance of certain demographic ratios for national economies, should national populations expand for perpetuity on a finite planet?

[Shawn]

Originally Posted by kool maudit

While I understand the importance of certain demographic ratios for national economies, should national populations expand for perpetuity on a finite planet?

Future sustainability aside, any nation state with a modern pension system needs at least replacement-level growth to avoid social security collapse. Especially in societies where people typically live into their early 90s. For a myriad of reasons both avoidable and inevitable, the Japanese themselves are unlikely to get back to replacement-level. Plenty of qualified Indonesian, Filipino, Vietnamese, Thai, and Nepalese caregivers, construction workers, nurses and other tradesmen are ready, willing, and able to come here. But, you know...Japan.

[Shawn]

Originally Posted by lio45

Exactly.

And if you want cheap property, no need to move to Japan for it, just pick a corner of the USA that's in decline, and it'll be at least as affordable as Japan.

https://www.realtor.com/realestatean...3_M40390-90071

Another thing people don’t realize about houses in Japan is that in many cases, people build a house on leased land; they own the house and have a mortgage, but they don’t own the land the house is on. The land lease and the mortgage are tied together. It’s called shakuchiken. This is how a middle class family making 70k a year affords home ownership in central Tokyo.

As an American, that seemed silly to me; without the land, you build zero equity. The land I own is now alone worth more than what I paid for the land and house construction combined 4 years ago.

[kool maudit]

I absolutely understand the problems faced by pension-system nations whose working-age populations are shrinking relative to the aged and dependent.

That said, the problem may lie with the systems rather than the nations contracting in size. After all, we cannot expand our populations on this planet forever; this is particularly important to recognize given the ecological issues altering our climate, among other things.

[Shawn]

Originally Posted by kool maudit

That said, the problem may lie with the systems rather than the nations contracting in size. After all, we cannot expand our populations on this planet forever; this is particularly important to recognize given the ecological issues altering our climate, among other things.

Im with you on this one. But it’s a problem that’s three steps ahead of where we’re at now. I want my parents-in-law when they’re 80 to actually receive return on the pension they paid into for 50 years. My wife and I assume we will not.

[kool maudit]

Fair enough, I hear you.

[Obadno]

Originally Posted by M II A II R II K

Home Ownership Is The West’s Biggest Economic-Policy Mistake


January 16, 2020



Read More: https://www.economist.com/leaders/20...policy-mistake

"Owning Property is bad!"

If you ever want to have real wealth you should strive to own property, house, land, agriculture land, commercial buildings anything really. Land ownership has been a sure way to build wealth since the concept of property came into existence.

This article is hot trash Don't take it seriously.

[Baronvonellis]

Originally Posted by Investing In Chicago

You're also the poster who has my award of dumbest post in the history of the internet by suggesting banks should be able to, legally, increase the principle of a loan based on equity gained in the home.

To address your post: It isn't a zero sum game, invest in the home and the market, it's all about diversification. How can you possibly not understand this.

Using your leverage to purchase a home is far smarter than paying cash, you're also ignoring all of the tax benefits associated with owning a home.

Additionally, it's tough to average 12% gains in the market over a significant period of time. Both investments in the market and home ownership should be looked at through a very long term lens.

Your advise is just plain stupid, to be blunt.

Your extremely rude and arrogant, there's no need to resort to petty name calling when we are just discussing things. It's seems your really triggered by this discussion. Why do you have to insult my intelligence and every post bring up something from months ago? It was my opinion and a thought experiment first of all.

Second, the S&P 500 has averaged 12% per year for the last almost 100 years since 1923. Or more recently, from 1987 to 2016, it’s averaged 11.66% If you are so savvy you should know that. So yes on average you should expect that over the long term. I've averaged 30% return for the last couple years in my investments.

Yes, it's a zero sum game since you only have limited money you earn every year. If your putting your capital into the stock market you will make far more money per year with it than in a house, and if you live in it its not a liquid asset anyway. It's a forced savings plan with a modest return. With compounding interest you can grow your capital far bigger and faster with stock.

[Baronvonellis]

Originally Posted by Jonesy55

But that $300k house in year 1 is probably going to cost a lot more than $328k in year 15.

Plus you would have to pay 15 years worth of rent which the homeowner wouldn't need to pay.

And that's assuming you can get 12% annual returns over 15 years, which might be a bit optimistic.

Well if you are on a 30 year mortgage, you haven't paid off the house at year 15 either and are making payments every month just as a renter would, while also paying insurance, interest to the bank, taxes, and maintenance on it. By year 30 the owner has paid off his house, while if you would have invested the downpayment for 30 years, you would have $1.8 million! I don't think the $300k house would be worth that much as the average growth of house value in the US is 2%. At that rate after 30 years the house would be worth $543k. With your $1.8 million you could buy the $500k house with cash and have $1.3 million left in the bank.

[Jonesy55]

Assuming that you can achieve 12% returns over 30 years (which is optimistic, the S&P has an annualised return including dividends of 6% since 2000), and ignoring the 30 years worth of rent you will have paid in that time then yes.

A lot of it depends on local circumstances I think, here in the UK we don't have mortgage interest tax relief for instance, it was abolished 20 years ago. But then again my buildings insurance is next to nothing, about $150 a year, mortgage interest is like 2%, barely above inflation, and you pay property taxes whether you own or rent so that makes no difference in the equation. Maintenance is minimal I find, and the costs of that are going to be built into rent payments anyway if you go down that route.

If I was living somewhere with declining demographics and little potential for property prices rising then renting a home and investing all my capital elsewhere might look more attractive.

[lio45]

Originally Posted by Shawn

Another thing people don’t realize about houses in Japan is that in many cases, people build a house on leased land; they own the house and have a mortgage, but they don’t own the land the house is on. The land lease and the mortgage are tied together. It’s called shakuchiken. This is how a middle class family making 70k a year affords home ownership in central Tokyo.

As an American, that seemed silly to me; without the land, you build zero equity. The land I own is now alone worth more than what I paid for the land and house construction combined 4 years ago.

Without even knowing it was somewhat normal in Japan, this was my real estate exit plan for my hometown portfolio (mixed use in the downtown of a midsize Canadian city, typically 4 stories with ground floor retail and the rest residential). I figured I'd endure a while of doing the dirty landlording job myself but in the long run, I imagined I'd sell the buildings only at a really attractive cap rate (like 25%-30%) while keeping the land and setting up a permanent land lease for the lots (something along the lines of, yearly rent pegged at 5% of govt appraised value at that point in time, which logically is always going to be somewhat related to cost of living and local rents and wages, therefore reasonably proportional to the building owner's income), with perpetual renewal option for the leaser (who I expect to be the happy owner-operator of a high cash flow building).

Here, that idea would be really strange, but I don't see why it wouldn't make sense to potential buyers. Now I can argue that Shaku Chicken is a legitimate way of looking at real estate

I like owning well-located land, I dislike the job of keeping everything full and tenants happy and rents paid and properties maintained, so I figure, I could spin off the latter and be happy with the former, in a way that's win-win for the buyers of the properties as well.

[eschaton]

Originally Posted by jtown,man

Sounds like you would support gentrification based on this post.

Current housing policy has winners and losers. The winners are typically incumbent homeowners, along with the lucky individuals who can get a rent-controlled unit or into affordable housing units over the longer term. The losers are other renters and anyone looking to become a homeowner for the first time in a high-cost area without access to initial seed capital.

In utilitarian terms, I think it's very hard to argue that we should privilege retirees staying in their homes versus providing housing access for working-class, working-age people. Of course most retirees prefer to age in place in their existing communities, and particularly in urban areas it's helpful to be close to transit and the like if you age out of driving. But it's in everyone's interest that working and lower-middle class people are able to find housing within commuting distance of their jobs. And it's hard to argue that housing policy that results in seniors aging in place in houses which could comfortably fit families of four results in good outcomes.

Still, to be clear, I'm not saying that we should push all retirees to move to Florida, or to assisted living communities out in the exurbs. We need much more dedicated senior housing in urban areas than we have currently, available for varying rates of income. My mother is 69, and she's already somewhat dispirited that almost all of the (market-rate) senior living complexes she'll eventually age into are way out in the suburbs - far away from us, and not close to the walkable businesses she wants to use. But we shouldn't have policies which actively attempt to keep seniors in their homes (like giving them a special property tax discount) because it's to the detriment of everyone else.

[Baronvonellis]

Originally Posted by Jonesy55

Assuming that you can achieve 12% returns over 30 years (which is optimistic, the S&P has an annualised return including dividends of 6% since 2000), and ignoring the 30 years worth of rent you will have paid in that time then yes.

A lot of it depends on local circumstances I think, here in the UK we don't have mortgage interest tax relief for instance, it was abolished 20 years ago. But then again my buildings insurance is next to nothing, about $150 a year, mortgage interest is like 2%, barely above inflation, and you pay property taxes whether you own or rent so that makes no difference in the equation. Maintenance is minimal I find, and the costs of that are going to be built into rent payments anyway if you go down that route.

If I was living somewhere with declining demographics and little potential for property prices rising then renting a home and investing all my capital elsewhere might look more attractive.

Depends what dates you pick, the 2000's were a really bad decade. The past decade was 12 % average return, the 90's was 19% average return. That's why over the long term it's averaged 12% Some years are really good and some are bad.

I'm saying take $60,000 and set it aside invested for 15 or 30 years. Not taking money out of it to pay rent. Then it will grow over the long term. Paying rent monthly or a mortage payment would be the same.

What if you need a new roof, water heater, furnace, washer/dryer someday? Those cost thousands. How much have you paid in maintenance over 15 years?

[Jonesy55]

New roof would be expensive yes, I've never needed that myself, and if you bought a house that needed a new roof it would be reflected in the price.

Over the last 15 years I have had a new water/central heating boiler, around US$2,900, a couple of new washing machines at maybe US$500 each (but don't you buy those if renting too? I'm pretty sure people here do) we've also done work on redecorating, new kitchen appliances, a bit of work on remodelling the yard, maybe $US15,000 to $20,000 over 15 years, which is about $80-110 a month.

Any landlord with any sense renting a property to you will look at how much maintenance costs and will build that into the rent they charge you anyway.

Maybe for you renting works out better, in which case great, for me it almost certainly wouldn't though.

[lio45]

Originally Posted by Baronvonellis

What if you need a new roof, water heater, furnace, washer/dryer someday? Those cost thousands. How much have you paid in maintenance over 15 years?

Jonesy55 is correct in pointing out that all of those would be included in the rent (or else, paid by you anyway, such as the washer/dryer, depending on the jurisdiction).

That's why rent seems high at first sight compared to the monthly costs of a mortgage... but then, when you realize it includes everything (here, rent also covers property taxes, water, etc.) it's not really apples to apples with a mortgage.

Usually, the argument is the opposite - "why would I pay $800 a month to rent if I can pay $700 a month in capital and interest to own?"

And the answer is, at the end of the year, with insurance, property taxes, maintenance, and the reserve you should set aside for future maintenance, that $700 a month will look like $1,000+ a month.

[Investing In Chicago]

Originally Posted by Baronvonellis

Your extremely rude and arrogant, there's no need to resort to petty name calling when we are just discussing things. It's seems your really triggered by this discussion. Why do you have to insult my intelligence and every post bring up something from months ago? It was my opinion and a thought experiment first of all.

Second, the S&P 500 has averaged 12% per year for the last almost 100 years since 1923. Or more recently, from 1987 to 2016, it’s averaged 11.66% If you are so savvy you should know that. So yes on average you should expect that over the long term. I've averaged 30% return for the last couple years in my investments.

Yes, it's a zero sum game since you only have limited money you earn every year. If your putting your capital into the stock market you will make far more money per year with it than in a house, and if you live in it its not a liquid asset anyway. It's a forced savings plan with a modest return. With compounding interest you can grow your capital far bigger and faster with stock.

Oh boy, where to start with this….

I’m not triggered at all, but there are not words strong enough to describe how stupid of an idea it is to allow banks to adjust the principle of a loan because of built equity. If that was implemented in society, borrowing of money would come to a complete halt, the markets would crash, there would be complete chaos.
For those reading, this poster is stating he believes a bank should be able to loan somebody $300,000 for a home in the form of a mortgage, then 10 years later when the house is worth $340,000 - the bank should legally have the right to go back to the home owner and add $40,000 the the principle of their loan, because of…….i’m not sure why. That is seriously this guys stance. SERIOUSLY.

The very first thing you should learn about volatile markets is that past performance does not guarantee future returns - If you have a financial advisor telling you the market averaged 11.66% return during XXX time frame, so you should expect that moving forward over the long term….Fire him immediately. Seriously. Not saying you won’t earn that rate over the long term, but it’s not guaranteed. Most people use a threshold of around 8-9% as a good measure of long term gains.

No it is not a zero sum game, I don’t have the time to lay out each scenario investing the $60k in a mutual fund vs. put as down payment, but keep in mind that a couple things:
I’m assuming after the $60K this hypothetical person is still investing in the market via 401K and/or putting an additional post tax dollar amount into some sort of ETF. If this hypothetical person only has $60K to their name and has no ability to save any additional money, then they have no business purchasing a house they can’t afford. So to repeat, it is not a zero sum game, a savvy person can both purchase a home and invest in the stock market through some vehicle.

Tax benefits: Purchasing a home allows the homeowner to deduct Mortgage Insurance and Property Taxes, lowering the overall tax burden. Also keep in mind the 1031 exchange, very few people will grind out 360 payments over 30 years in the same house, real estate allows homeowners to “roll” the equity earned into a new home, tax free. So if the $300,000 home sells for $340,000 the $40,000 in equity is deferred tax, and can be put towards purchase of new home.

Paying down principle: Every month a portion of your mortgage payment pays down the balance of your principle, you are essentially paying yourself to live in your home. Additionally, with a mortgage you are locking in your payment regardless of what the housing market does (hint: it goes up long term), while renting, your monthly rent will surely increase over time, due to inflation.

The best approach is to Own Real Estate and invest in the stock market, not one or the other. I read a stat once that of a surveyed group of self-made millionaires, nearly 95% owned real estate. It’s a proven startegy, and the #1 wealth builder for the vast majority of Americans. If you choose not to invest long term in real estate, that’s your choice, but to try and deny PROVEN PATH to wealth is just plain foolish. Now it should go without saying, but individual circumstances may change this, but generally speaking this is true.

[iheartthed]

Originally Posted by Baronvonellis

Depends what dates you pick, the 2000's were a really bad decade. The past decade was 12 % average return, the 90's was 19% average return. That's why over the long term it's averaged 12% Some years are really good and some are bad.

I'm saying take $60,000 and set it aside invested for 15 or 30 years. Not taking money out of it to pay rent. Then it will grow over the long term. Paying rent monthly or a mortage payment would be the same.

What if you need a new roof, water heater, furnace, washer/dryer someday? Those cost thousands. How much have you paid in maintenance over 15 years?

To make your point, using an investment calculator that is based on the S&P 500 (https://dqydj.com/sp-500-return-calculator/) , if you had invested $100,000 in an index in 1989 then you could expect that investment to be worth roughly $1.3M today, assuming you did not add/remove a single penny since. That would correspond to buying a $100,000 house in 1989 and paying it off this year. The median home price in 1989 was around $125,000 and today its about $226,000. There are very few places where a $100,000 house in 1989 dollars is worth $1.3M today. The people who bought into places where that did happen just got super fucking lucky.

But if you had $100,000 in cash in 1989 then you probably knew that paying cash for a house was a bad investment decision, or at least someone should have told you that. You would have been much better off putting the $100,000 into the stock market and paying rent. If you paid $1,000 in rent every month for 30 years, you would have spent $360,000, and not been responsible for any maintenance costs. You would still be up almost $1M dollars.