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

[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

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Vibrant cities without space to grow; ageing homeowners sitting in half-empty homes who are keen to protect their view; and a generation of young people who cannot easily afford to rent or buy and think capitalism has let them down. As our special report this week explains, much of the blame lies with warped housing policies that date back to the second world war and which are intertwined with an infatuation with home ownership. They have caused one of the rich world’s most serious and longest-running economic failures. A fresh architecture is urgently needed.

- At the root of that failure is a lack of building, especially near the thriving cities in which jobs are plentiful. From Sydney to Sydenham, fiddly regulations protect an elite of existing homeowners and prevent developers from building the skyscrapers and flats that the modern economy demands. The resulting high rents and house prices make it hard for workers to move to where the most productive jobs are, and have slowed growth. Overall housing costs in America absorb 11% of GDP, up from 8% in the 1970s. If just three big cities—New York, San Francisco and San Jose—relaxed planning rules, America’s GDP could be 4% higher. That is an enormous prize.

- As well as being merely inefficient, housing markets are deeply unfair. Over a period of decades, falling interest rates have compounded inadequate supply and led to a surge in prices. In America the frenzy is concentrated in thriving cities; in other rich countries average national prices have soared, especially in English-speaking countries where punting on property is a national sport. The financial crisis did not kill off the trend. In Britain inflation-adjusted house prices are roughly equal to their pre-crisis peak, while real wages are no higher. In Australia, despite recent falls, prices remain 20% higher than in 2008. In Canada they are up by half.

- Yet there has been some progress. America has capped its tax break for mortgage-interest payments. Britain has banned murky upfront fees from rental contracts and curbed risky mortgage lending. A fledgling YIMBY—“yes in my backyard”—movement has sprung up in many successful cities to promote construction. Those, like this newspaper, who want popular support for free markets to endure should hope that such movements succeed. Far from shoring up capitalism, housing policies have made the system unsafe, inefficient and unfair. Time to tear down this rotten edifice and build a new housing market that works.

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[badrunner]

Donald Trump was right

• Video Link

[Nouvellecosse]

Originally Posted by badrunner

Donald Trump was right

• Video Link

Identifying that there's a problem is the easy part since a big enough problem tends to be obvious to practically everyone. The hard part is correctly identifying the source of the problem and proposing appropriate solutions.

[Handro]

Originally Posted by badrunner

Donald Trump was right

• Video Link

I guess that makes the 99% movement a decade before him downright prophetic

[jd3189]

Home ownership was never interesting to me, even when others would make the case that it was. I plan to travel a lot and donate to a lot of causes. The least I would own would be a condo.

[GreaterMontréal]

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

[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.

[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.

[llamaorama]

"Home ownership is too expensive! Let's give up on it and make it impossible!"

Screw the economist and this neoliberal garbage. I guess only the rich should be free of wasting money on rent and able to build family wealth?

Time to tear down this rotten edifice and build a new housing market that works.

And what is that exactly? In what sense would it work? What's the desired end game? By what metrics do our economic know-better overlords measure success? High interest rates and down payments so if you eat rice and beans daily maybe by age 50 you can buy a lovely flat, just like in Germany and much of Europe?

[mthd]

Originally Posted by llamaorama

...
And what is that exactly? In what sense would it work? What's the desired end game? By what metrics do our economic know-better overlords measure success? High interest rates and down payments so if you eat rice and beans daily maybe by age 50 you can buy a lovely flat, just like in Germany and much of Europe?

the desired end game is a sustainable, inclusive future.

land is finite. unrestricted ownership of it combined with restrictive zoning (to "protect" people's investments, of course!) forces unsustainable sprawl as population increases or patterns of settlement and economy shift. it's a fundamentally broken model. the people owning the property control the only means (density) by which the amount of it could be expanded to meet the needs of a growing society.

at some point residences went from "something you need to live like food, water, health care, clothing" to "generational piggy bank." the current system MIGHT make sense if there was a massive tax on inherited real estate.

[38R]

The real solution is to make it illegal to own a home that you don't live in. One home per person maximum. Everybody wins except for landlords.

[Crawford]

Originally Posted by 38R

The real solution is to make it illegal to own a home that you don't live in. One home per person maximum. Everybody wins except for landlords.

...and investors, and tenants, and families. My wife and I own her parents house, for a variety of reasons. Not sure why that should be disallowed.

I read that article and have no idea what they're talking about. The premise is wrong. Housing ownership has been a fantastic wealth-generating vehcile that distinguishes the Anglosphere from other developed nations. The UK is overall poorer than Germany but millions of UK households are much better off than their German counterparts due to homeownership. Germans traditionally rent, or if they own, inherit homes.

[iheartthed]

I can't read it because of the paywall but sounds like the premise is somewhat correct and the examples are wrong. NYC and SF have the lowest home ownership rates in the country, and the most consistently vibrant economies. Other parts of the country, particularly in the Rust Belt, have high rates of home ownership and economies that have struggled to renew for the information age.

[whatnext]

Originally Posted by Crawford

...and investors, and tenants, and families. My wife and I own her parents house, for a variety of reasons. Not sure why that should be disallowed.

I read that article and have no idea what they're talking about. The premise is wrong. Housing ownership has been a fantastic wealth-generating vehcile that distinguishes the Anglosphere from other developed nations. The UK is overall poorer than Germany but millions of UK households are much better off than their German counterparts due to homeownership. Germans traditionally rent, or if they own, inherit homes.

Who is happier?

Having travelled extensively in both countries, Germany comes across as by far more more prosperous.

[jtown,man]

Originally Posted by 38R

The real solution is to make it illegal to own a home that you don't live in. One home per person maximum. Everybody wins except for landlords.

So, there would be zero rentals? EVERYONE WINS!

[The North One]

^ The examples are spot on, they're saying housing is completely fucked in those cities and it is.

[iheartthed]

Originally Posted by The North One

^ The examples are spot on, they're saying housing is completely fucked in those cities and it is.

But it's not. Housing is more efficient in New York than it is in Detroit. People in New York don't pay more in taxes than their houses are worth because of upside down markets.