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

[Crawford]

Originally Posted by The North One

Nobody in Metro Detroit pays more taxes than what their home is worth

Actually, 92% of Detroit homes were illegally overassessed, per the City of Detroit. Tens of thousands of Detroit families were kicked out of their homes, in part due to owing more taxes than what their home was worth. Now the city claims it can't pay them back, because it's supposedly broke, just a few years after declaring bankruptcy.

https://www.detroitnews.com/story/ne...on/2698518001/

NYC has laughably low residential property taxes. It has stratospheric commercial property taxes, though.

[badrunner]

Originally Posted by GreaterMontréal

The American dream still exists in smaller cities, at least here in Canada. The outer suburbs of Montréal are a bargain.

There's plenty of cheap housing available in America as well. But the American dream isn't just about buying a cheap house in an area nobody wants to live in, it's about generational wealth building through homeownership, and for that you really need to get in on the ground floor of a hot real estate market, preferably in an area with homeowner friendly tax policies (like prop 13 in CA). There's a lot of middle class professionals who became millionaires through homeownership, and it's still possible today for capable people in select markets.

[Steely Dan]

Home ownership has been very good to me.

From a very modest studio condo 15 years ago, to a large family-sized home now, jumping upon, and riding up, the property escalator has been one of the best decisions I've ever made.

[Investing In Chicago]

Originally Posted by badrunner

There's plenty of cheap housing available in America as well. But the American dream isn't just about buying a cheap house in an area nobody wants to live in, it's about generational wealth building through homeownership, and for that you really need to get in on the ground floor of a hot real estate market, preferably in an area with homeowner friendly tax policies (like prop 13 in CA). There's a lot of middle class professionals who became millionaires through homeownership, and it's still possible today for capable people in select markets.

Why does housing have to be "cheap", relatively speaking? Home ownership is still the greatest wealth building vehicle there is for like 90% of Americans, and those who choose not to participate in that opportunity are fools.

In my personal experience, The San Francisco Bay Area is basically the only market in the US where home ownership is very difficult, as it's basically expense everywhere.

I own investment properties in NYC, Chicago, Ann Arbor, DC and looking at LA with an investment partner of mine.

I get asked quite often from Family and Friends for advise on how to begin investing in Real Estate, and the answer is simple: House Hacking - buy a multi unit property, live in one unit and rent the others. I did this at the age of 21 and literally made money every month to live in my home. When I was ready to leave Ann Arbor (College) I held the property, and turn my free housing situation into pretty considerable cash flow. Rinse and repeat.

Real Estate is not a get rich quick scheme, it is slow and steady investing. Buy and hold, despite what the market is doing, and you are almost guaranteed to see a considerable return on your investment.

[iheartthed]

So I don't think that the article is saying that people shouldn't own real estate; or, at least that's not the issue I was raising, since I can't read the article. I think the article is questioning the virtue of government policies that prioritize home ownership. If it were not for federally back home loans and various tax breaks, the bar to home ownership would be substantially higher, and real estate would be mostly held by savvier investors than the average homeowner.

But lower rates of home ownership doesn't necessarily mean a lower quality of life, nor does it even mean instability. I think there is quite a bit of evidence that cities with lower rates of home ownership are more stable than those with high levels of home ownership.

[The North One]

Originally Posted by iheartthed

You're talking about two different things. The subject is home ownership, not the cost of renting.

You made generalized claims about overall housing efficiency which includes both renting and ownership.

[The North One]

Originally Posted by JManc

The New Yorkers leaving for NC are mostly from areas where housing values or more or less the same..aka Upstate. They are getting away from a sluggish economy and high taxes not so much the prohibitive cost of home ownership seen in Downtstate.

That might have been your situation but this is not true. There are tons of native New Yorker City-ers (lol) who leave for other states every year. They're escaping a grind and an oppressive cost of living. New York's massive population loss is happening mostly downstate.

They're in NC, they're in Georgia, they're in Tennessee, hell they're even in Ohio and Michigan.

[JManc]

Originally Posted by The North One

That might have been your situation but this is not true. There are tons of native New Yorker City-ers (lol) who leave for other states every year. They're escaping a grind and an oppressive cost of living. New York's massive population loss is happening mostly downstate.

They're in NC, they're in Georgia, they're in Tennessee, hell they're even in Ohio and Michigan.

This is incorrect. NYC might lose people to other cities but so does every other city. Houston loses thousands of people each year...including to New York but if you were to visit NYC and then Upstate, it's clear which one was contributing to New York's overall population loss. NYC is at its peak, Upstate has negative population growth. Much of the growth in places like Charlotte is fueled by people moving down from places like Buffalo, Rochester and the rest of Upstate. I saw Bills and Sabres stuff everywhere in NC. While Southern Florida felt like Downstate South while the Tampa Bay area felt like Upstate South. Generally, people from Downstate scattered more unless they retired...then its off to:

[The North One]

Originally Posted by JManc

This is incorrect.

No it's not, not now, Downstate has seen far larger population losses in the last three years than Upstate, even the percentage was bigger in the latest year.

During the 12-month period ending last July 1, the 50 counties of upstate New York lost another 8,719 residents, a decrease of 0.14 percent, while the downstate region (New York City, Long Island and the lower Hudson Valley) lost a combined total of 39,791 people, or 0.30 percent.

https://www.empirecenter.org/publications/census2019/

The last few decades upstate has lost more but Downstate has still had negative domestic migration for a long time. Every decade has over a million in negative domestic migration.

[JManc]

The 2010-2018 map shown on your link shows a very different picture one where downstate has been growing and one that would have made more of an impact on population and demographic shifts in the Carolinas and other states. It's too soon to see if the changes in 2018-2019 could signal a trend. Also, NYC, Long Island and the lower Hudson Valley has 13 million so a loss of 39,000 is negligible. Upstate losing another 8,000 is continuation of decades long decline albeit far slower than in the past which is a positive sign. Population in my hometown bottomed out and stabilized after decades of double digit losses.

[Crawford]

The movement south from the NE is very different depending on location. A Long Islander moving to Florida or North Carolina is moving for different reasons than a Buffaloan. In either case, neither are moving because prices are too high.

And Downstate has had negative domestic migration since forever. Probably had it since its Dutch founding. It has always been an entry point, obviously. Not related to the issues Upstate.

[Xelebes]

A major consideration that needs to take place is asset price protection. The Economist eschews from this kind of analysis because it runs counter to what much they imagine the solution might be. But a major folly is the protection of asset prices at the cost of returns needed to service those assets. We are seeing the underhanded manoeuvres used by asset-holders who are trying to protect the price of their assets and the consequent inability to offload assets when they realise that they have become trapped in their pursuit to protect those prices.

This problem is especially bad in housing markets as we have been told the last five decades that we can raise asset prices by making things more efficient or whatever rhetorical gobbledigook we use. Increasing asset prices only serves to benefit those who already have the assets, handing more power to them but also make them more jealous of holding those assets.

It is perhaps time to look at the rules we use to protect assets. This is going to cause pain but in the US is being hurt in very human ways (decreased life expectancy, delayed family starting) so the pain we might cause is perhaps lesser than we fear.

[chris08876]

Originally Posted by Investing In Chicago

Why does housing have to be "cheap", relatively speaking? Home ownership is still the greatest wealth building vehicle there is for like 90% of Americans, and those who choose not to participate in that opportunity are fools.

[...]

I get asked quite often from Family and Friends for advise on how to begin investing in Real Estate, and the answer is simple: House Hacking - buy a multi unit property, live in one unit and rent the others. I did this at the age of 21 and literally made money every month to live in my home. When I was ready to leave Ann Arbor (College) I held the property, and turn my free housing situation into pretty considerable cash flow. Rinse and repeat.

Real Estate is not a get rich quick scheme, it is slow and steady investing. Buy and hold, despite what the market is doing, and you are almost guaranteed to see a considerable return on your investment.

This is a great post.

[dubu]

thats like saying gold is the best rock you can find because you will be rich.

[chris08876]

Originally Posted by dubu

thats like saying gold is the best rock you can find because you will be rich.

If your able to find some Francium or Californium, and somehow stabilize it, make sure you prevent the radiation from radiating yourself, you'd be a very rich Dubu.

But no, its not like saying that. But is a solid piece of advice, IMO.

Like any other business, capital is crucial, and not all businesses succeed, just like real estate. Remember, its a risk. Just because one invests in real estate, DOES NOT guarantee success. The only thing that guarantees quick riches assuming you don't get caught or shot is selling rocks. No... not the ones you study in geology, but rocks! Ideally, purity wise, to business folks and wall street. Make it to the top of the rock market.

What he was saying is true for your "average" American. A big chunk of families net worth is in thier home. Not everyone is making 200/300k a year. For your family that brings in 40 or even 70k after taxes, home ownership is still the main driver of net worth growth.

You need money to make money, but you also need some good judgement and understanding of conditions. Luck is an element as well.

Just look around society. People are not swimming in cash. If it was that easy, everyone would have vast portfolios of properties. Lets not forget that some folks struggle just to pay the mortgage on one house... that they live in!

I think key is for a majority, which does not include the minority.

That's why I use the word "Chunk"... because it implies that there's a left over portion that this does not apply to. And "big", because a proportion is heavily favored towards the premise that home ownership is a wealth builder for the majority of Americans.

[dubu]

the quickest way to get rich is to sell drugs and to sell data. but if you can buy a house then that might be better. you dont want to get sued or shot/ put in jail.

[eschaton]

The major issue in public policy in the west is we treat housing - a basic human need - as an asset - an investment.

Why is this an issue? Because assets value is in part defined by scarcity. If you hold stock in a company for example, and the company has a secondary offering of shares, the value of the existing shares is diluted, which generally causes at least a temporary fall in share prices. Generally speaking however, the existing shareholders don't have enough control of the company to stop management from issuing further shares if its determined to be in a company's interest.

Similarly, if you buy a commodity with some scarcity - say gold, or oil - and there's a major new source discovered, it will dilute the value of your price. Of course, you cannot as an individual asset-holder have any control over this.

Things are different with housing. While it's arguable that on the local level increasing supply does not always cause a drop in price, homeowners act as though it does. Further, homeowners typically have some measure of control over the housing supply in their area. If they're in a smaller municipality like a suburb they have direct control. Even if a single neighborhood in a larger city, the way that the system is structured often gives local residents - even a single local resident, if they are willing to hire a lawyer - effective veto power over any development which needs a variance. This means no more housing gets built than the incumbent homeowners desire, which is potentially great for incumbent homeowners, but bad for everyone else.

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.

[Investing In Chicago]

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.

Preferable for whom? For the vast majority of Americans, this is a horrible policy.

[eschaton]

Originally Posted by Investing In Chicago

Preferable for whom? For the vast majority of Americans, this is a horrible policy.

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.

[Investing In Chicago]

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.

Whether somebody owns a home in whatever moment of time isn't relevant, and doesn't tell the entire story.
The fact is, Home Ownership is by far the #1 wealth creator for the vast majority of Americans. If people choose not to take advantage of the benefits home ownership provides, that is on them, not cause to revamp the entire system.
With that said, home ownership is not a get rich fast scheme, it typically means you need to ride out several peaks and valley's in the market, and stay the course. There are very few instances where a family holds on to a home they own for 20+ years and says "gee, I wish I didn't purchase and pay off that home".