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

[Acajack]

Originally Posted by Bailey

Not true, you can rent (even in the heart of the city) and have your investments add up to $400k. With renting, it is more of a fixed monthly cost with taxes already rolled in. If you think it's too high, you can always find a new apartment that fits within your budget that allows you to invest. Renting comes with less overhead costs...water/ trash + renters insurance which is peanuts compared to home insurance. Also, your transportation costs are typically less because you have more options closer in and your maintenance costs are zero.

Home ownership is great for a number of reasons but not because it's a good investments.....there are better, quicker, cleaner ways to amass that $400 k we were talking about. And actually the point of my post was that you were spending WAY more than $400 k to get there..WAY more. It's just not the best way...homeowners typically fail to record ALL the costs associated with home ownership when bragging about their increase in value. You cant leave those out to make it a fair comparison.

I am not going to get into clichés about "living for free" in my house, but mine has more than doubled in value since I've been living here, and the increased equity that I could cash into easily covers all of the mortgage payments (principal + interest) and property taxes over the period since I bought it. With some money left over even.

As I said, I won't claim that I've been living for free here, but I have been living in a pretty nice place at a fairly marginal cost.

[jtown,man]

Originally Posted by Steely Dan

besides, i think you'd be hard-pressed to find many financial planners who would say that home ownership, as one piece of a diversified investment strategy, is a bad idea in general.

I think that's the key point here. We all have to live somewhere, so it might as well be an investment. Sure, if you are pumping 100% of your investable income into a home, not a great idea. But as you said, if it is a piece of your investment strategy, awesome.

[TexasPlaya]

Originally Posted by jtown,man

I think that's the key point here. We all have to live somewhere, so it might as well be an investment. Sure, if you are pumping 100% of your investable income into a home, not a great idea. But as you said, if it is a piece of your investment strategy, awesome.

This.

The system has always been tilted towards the “wealthy” but it’s also titled towards those who make prudent decisions with their time and money.

[Bailey]

Originally Posted by Crawford

I'm not clear how renting is a "fixed monthly cost" and a standard mortgage isn't. You're also not considering the costs with investing. Investors are in a higher tax bracket and pay considerable capital gains taxes every year.

But the biggest reason that a regular, non-wealthy person is more likely to put money towards a home is because he needs somewhere to live. No one needs to invest (outside of retirement accounts, but that's not what we're talking about).

A standard mortgage isn't because you have to add in property taxes which are based on the appraised value of the house. You have to add in maintenance fees or capital improvement expenses, and you have to add in home insurance rates which could change.

With an apartment, you agree to a rate for a fixed period- taxes are included, as are maintenance fees and capital improvements. Rental insurance isn't but that is very low.

[Crawford]

Originally Posted by Bailey

A standard mortgage isn't because you have to add in property taxes which are based on the appraised value of the house.

Appraised values don't vary much year-to-year, except in a few superheated or cratered markets. Usually around inflation. I've never even think about taxes/insurance, because they're built into my overall monthly sum, which changes once a year, based on a recalibration of upcoming taxes/insurance by the servicer.

Originally Posted by Bailey

With an apartment, you agree to a rate for a fixed period

Yeah, a fixed period, like a month, or year. And in most jurisdictions you can be thrown out with 30 days notice. So useless for anyone who has children, stuff or a social life. Long-term renting only makes sense in the few tenant-friendly markets with renter protections.

[Acajack]

The "rent + invest" argument is relatively and effectively moot given the fact that only a tiny fraction of people are disciplined enough to invest every single penny (or even much of what) they save on property taxes, maintenance, etc., as opposed to blowing it on clothes, trips, restaurants, gadgets, etc.

[JManc]

While owning a home is an investment, people buy a home for very different reasons than they do when they open up an investment account and a home is often a main source of 'wealth' for many which can be passed down from one generation to the next. This is the single biggest obstacle for wealth accumulation in many black communities; no equity.

[chris08876]

I feel the people who are against home ownership are the ones that either don't own a home (or never have) or rent. Own a home, and than report back.

On a side note, a lot of folks that buy homes are not thinking about wealth. A roof over their head, a place for their screaming kids, and screaming wife, and in areas with good schools with safety in mind. That's what a lot of Americans are thinking. Hell, some like to buy away from the cities because they hate traffic, noise, want a yard, and hate people (less people generally in some rural suburb).

For the urban lovers and development crackfiends that makes up our beloved SSP community (including myself, an architecture addict), this might seem like blasphemy, but for your average guy named Todd and average wife named Sarah, these are the main thought points that come up with home ownership. Not wealth, at least not in the acute sense.

[chris08876]

The suburbs remain as key areas where home ownership makes sense. As much as we all love cities, some cities quite frankly are not realistic for some folks. And the neighborhoods that have good schools, low crime, good transit options... well... good luck buying in those areas. If you have the money... sure... why not... but with things like families, many will continue to choose the suburbs as the bastion where home ownership can flourish.

Just to parrot "Investing in Chicago"... its a long term game.

[Steely Dan]

^ and some of us urban loving development crackfiends with screaming kids, a screaming wife, and schools & safety on our minds own homes for our families in city neighborhoods too.

life doesn't just boil down to either a 250 SF micro-apartment rental in the heart of downtown or a massive 5 bedroom 4,000 SF mcmansion on 2 acres out in the boonies.

there is LOTS of in-between stuff.

creamy middles are delicious!

[lio45]

Originally Posted by Crawford

Appraised values don't vary much year-to-year, except in a few superheated or cratered markets.

Actually, I know that what you meant to say here was either

1) that the product [current appraised value * current mill rate] never varies much over time;

2) that the yearly costs of running the city don't vary drastically year after year.

(It's two versions of the same idea.)


Appraised values can vary, and it's not that unusual. I've personally witnessed the doubling/tripling of appraised values from one roll to the next in my Canadian hometown after the 2008 GFC crash, and I've personally witnessed the tripling+ of appraised values in my neck of the woods in FL, in all cases the yearly tax bills did not vary that much because mill rates were revised to balance the gains in values.

[lio45]

Originally Posted by eschaton

Again, the question isn't whether home ownership is a bad idea for everyone. It's whether it's a good idea for the government to actively incentivize it. The sort of people who are marginal homeowners are the people who have the hardest time affording things like property tax and paying for adequate property maintenance - the exact people for whom home ownership often isn't the best idea. Regular middle/upper middle class families would buy homes anyway, so they don't really need things like the mortgage deduction in order to do so.

If our general goal in terms of public policy is to ensure that housing remains plentiful and relatively affordable, spending less money subsidizing home ownership and more money dealing with supply issues (particularly for affordable housing) seems a better bet.

Great post.

Everyone should agree that right now, home ownership is a good idea as an investment (especially in all the jurisdictions where capital gains on one's primary residence are tax-free...) but the question is, everything that we've been doing to help make it a greater investment than it would naturally be, for some reason... did it ever make "greater good" sense to do all of that, or not?

"[Greatly Financially-Incentivized Thing] is the smart thing to do financially" is pretty much a truism; the version of it that's actually a question is "Should we incentivize [thing] or not?"

[Steely Dan]

^ that is a good question to ask, but when ~2/3 of US households (and i assume the rate is similar in canada) own their own home, and count the value of that home as a MAJOR component of their overall financial security, where does the political will come from to change the current system of greatly incentivizing home ownership?

the political inertia on this issue is particularly large.

[Baronvonellis]

Originally Posted by lio45

My reaction exactly - this guy says it's easy to get great returns year after year yet can't spare a tiny $60k?!? Not exactly convincing.

It's obviously not doable in every single market, but back in 2004/2005 it only took me one year to set aside enough of a cashdown to buy my first building. Still possible today in many cities.

Nice things about real estate is that it's 1) safer than stocks and 2) much more hands-on than stocks.

I still owned some stocks back then I and remember quickly realizing that with my building, I could take it into my own hands to do a bunch of things to improve profitability and create value, while by contrast, with my stocks, I could only sit and hope the directors/management would be doing these exact same things.

I'm not going to share my finance statements on a forum, but up till 2016 I was living paycheck to paycheck basically. I wasn't able to invest anything till 2016 when I got a big raise, and finally had a cushion to travel and invest. My whole life I've always dreamed of going to Europe. So I took some trips to Europe that changed my life, now I am focusing on saving.

If you start from nothing it takes a while to make alot of money. So yea since I started investing in 2016, I more than doubled my money, but I don't have $60k yet. I'm on my way there now!

[JManc]

Originally Posted by lio45

My reaction exactly - this guy says it's easy to get great returns year after year yet can't spare a tiny $60k?!? Not exactly convincing.

Earth...come back down to it. $60k is not "tiny" and I certainly have that and then some plus this guy may be just starting out in his career and it does takes time to accumulate wealth despite great returns year after year.

[iheartthed]

Originally Posted by chris08876

I feel the people who are against home ownership are the ones that either don't own a home (or never have) or rent. Own a home, and than report back.

On a side note, a lot of folks that buy homes are not thinking about wealth. A roof over their head, a place for their screaming kids, and screaming wife, and in areas with good schools with safety in mind. That's what a lot of Americans are thinking. Hell, some like to buy away from the cities because they hate traffic, noise, want a yard, and hate people (less people generally in some rural suburb).

For the urban lovers and development crackfiends that makes up our beloved SSP community (including myself, an architecture addict), this might seem like blasphemy, but for your average guy named Todd and average wife named Sarah, these are the main thought points that come up with home ownership. Not wealth, at least not in the acute sense.

That's good if you like owning your own home, but as a taxpayer I don't think I should be subsidizing that for you. That's what we're talking about here.

[TexasPlaya]

Originally Posted by iheartthed

That's good if you like owning your own home, but as a taxpayer I don't think I should be subsidizing that for you. That's what we're talking about here.

That’s called society, we subsidize things for each other. Is it home ownership that’s the issue or land use?

[iheartthed]

Originally Posted by TexasPlaya

That’s called society, we subsidize things for each other. Is it home ownership that’s the issue or land use?

Qué? Why should I subsidize your house?

[Investing In Chicago]

Originally Posted by iheartthed

Qué? Why should I subsidize your house?

Why should I subsidize your Health Care, Food Stamps, Public Transportation, etc.?

[iheartthed]

Originally Posted by Investing In Chicago

Why should I subsidize your Health Care, Food Stamps, Public Transportation, etc.?

I don't mind helping poor people not die from cancer, eat, and get to work. Especially since health care and transit would also benefit me. But why should my tax dollars be used to subsidize home ownership for people who are not poor?