Until you can't afford to pay the taxes, utilities, insurance, and maintenance. My grandma bought her house outright with my grandpa's life insurance money. No mortgage ever. It was a terrible choice because she didn't have the money or wherewithal for maintenance or utilities. 30 years later the house was literary falling apart. As you can imagine, the utility bills for a house with gaping holes in the roof were astronomical. It was a positive feedback loop. She lived with massive anxiety about shit getting old and breaking. We all really hoped her house would stay upright until she died. It did, thankfully. She would have lived a much better quality of life in an apartment.
>2. A paid-off home frees up cash flow. It allows the owner to divert his earnings into other activities or investments or reduce the amount he has to earn monthly.
Renting frees up cash flow sooner thus allowing interest to compound much more.
> Real estate can be borrowed against. Try that with stocks. If you are an entrepreneur, your home is likely the asset you will use to acquire bank financing for your business.
You can borrow against your 401(k). Then there's the people who borrow against their 401(k) to buy a home, yes, those exist... I personally know some.
Anyways, I own a home, I'm not anti-home ownership. I just can't stand the myths about home ownership.
The utilities it's what gets to you first. My parents used to be middle-class people in the late-1990s Eastern Europe until they both lost their jobs when the one big steel-factory in my home-town got closed down. In a matter of a just a couple of years they had to sell our family car and our city apartment (where we were all living), because utility bills have the nasty habit of coming in your mail-box even though you're out of a job. We only managed to got through all this because my parents still had a half-finished house in the countryside which has been their primary residence for more than 15 years now (and is still unfinished) while I got to go to college and managed to earn some financial assistance from my school for the first couple of years (and then found a job during school).
I know that the usual HN user comes from an Western country and has never had to deal with very big societal changes that can see political systems disappear over night, high-double-digit or triple-digit inflation or real-estate values collapsing to 5 or 10% of their initial value, but these will eventually happen in there, too.
It's already happened. Contrary to popular belief, Western countries are not uniformly rich and successful places where everyone drives a Ferrari and owns three houses.
This stereotype is really annoying to those of us who suffered through the industrial collapse and saw the society of whole regions destroyed (larger than most eastern European countries.)
* https://en.wikipedia.org/wiki/Rust_Belt * https://en.wikipedia.org/wiki/Deindustrialisation_by_country... * https://en.wikipedia.org/wiki/Stagflation * https://en.wikipedia.org/wiki/History_of_the_United_States_(... * etc.
The point is that "westerners," even HN readers, are not all a bunch of naive rich people who have never experienced and cannot understand large scale social change.
Reasons aside, while my monthly expenses have increased a bit (not terribly much) I've been much happier and care-free now. The hundreds that I would put away for inevitable fixups and maintenance, I can now put in stocks, index funds. I personally can't hold the hammer the right way in my hand so it's been costly.
It's not customary in Finland to take second mortgages against house so having money in stocks is vastly more easily liquidable as well.
It is difficult to ski without skis. But most people don't buy skis, they rent them. Renting skis do not mean that no skis will be manufactured. There is a need for house, houses will be constructed, irrespective of whether people will over-bid on them or not.
> A paid off home is a social safety net against homelessness
Stocks and savings are equally a safety net against loss of primary income.
> Real estate can be borrowed against
Borrowing against your home to finance your business is no different than selling some stocks to invest into your business. In both cases you are using previous savings.
> I think there's a lot of sense in NOT taxing one's first home
Why? Again you are assuming that the alternative to owning a home is renting one and having no savings. The cost of housing (renting) would be much lower in a country without massive over-bidding on property. There is no reason to give a tax benefit to this particular type of investment (property) over any other types of investment.
Until you have a 2007 collapse again (predicted by some to happen again soon), where you both lose your job and a massive amount in stocks. Savings have been at extremely low rates for a long period of time in the US.
One extreme downside of thinking of your home as an investment vehicle is how poorly it is diversified. It is almost exactly directly correlated to the local job market...and to macro trends like the MBS issues we saw in 2008.
This is what I cannot understand about people who advocate buying homes in the United States for small-time investors - how can you not see this? How does it make any sense to divert almost all of your cash flow into a single, massively leveraged, illiquid investment? Miss a few payments on your mortgage and you are totally wiped out (and without a place to live!). At least stocks can bounce back and maybe you can get 30% back on bad bonds. And no one is stopping you from holding cash or TIPS.
If you are wealthy and a house is a small part of your portfolio the impact of the possible downsides is qualitatively different, but as a small-time investor tying up most of my wealth into home ownership on the hope that "house prices always go up" (which really means treating the future generation as suckers that will pay inflated prices for your home) and that the risk of mortgage default does not exist does not make sense to me.
Stocks and bonds aren't any better anymore--the bottom could drop out again anytime and leave you with half or less of what you previously had.
We're in a crap storm of epic proportions in this country, but we avoid the reality of it.
That was my experience in Ann Arbor as well.
$1200 is really the minimum for a 2 bedroom apartment here. There are a few that are maybe $100 - $200 lower, but I wouldn't want to live there.
Landlords and letting agencies can be kind-of funny beasts, they're not necessarily happy to have an unemployed guy as a tenant even if he owns a pile of shares.
That's a ridiculous analogy. Renting vs. buying skis is like renting a hotel room vs. buying a condo when you spend a weekend in a different city. There's a good reason hotels are profitable businesses: no one wants to buy a home if they're going to spend 2 weeks or less in a location.
A better analogy is cars: what kind of moron would rent a car for commuting to work every day? No one, because it'd be a massive waste of money. Rental cars are for people who only need a car occasionally, or who are traveling by air and can't bring their own car with them. Otherwise, it's much cheaper to just own your own car, so you aren't paying tons of money to some company in the form of profit.
>Stocks and savings are equally a safety net against loss of primary income.
The 2008 crash disproves this, as does every stock market crash throughout history. Right at the moment you need that money the most, because the crash caused you to lose your job, your stock portfolio has tanked. This isn't the case with houses: if you own your house outright, you're safe (as long as you keep paying property tax, which is minimal in many places), and even with a mortgage, the terms of the mortgage are constant so you can budget for the payment and keep that much liquid cash on hand. Rent, OTOH, can change whenever your lease expires, or even at any time if you're on a month-to-month lease.
>The cost of housing (renting) would be much lower in a country without massive over-bidding on property.
And which country is that? Somalia? Every time I've looked at rents in Europe, they're much higher than here in the US, along with cost of living in general, even after our price inflation in the wake of the 2008 crash.
The simple fact is that, when you rent, part of your rental price goes to pay for profit for whoever owns the property. If there were no (or little) profit in it, no one would bother being a property owner. When you own something, you take the middleman out of the equation.
Do you also think it's a good idea to rent things like computers, printers, phones, furniture, appliances, clothes, cars, etc.?
Also, given the amount of labor force mobility in US now vs 30 years ago it anyways does not makes sense to force people to 'settle down'.
The state provides this safety net in Germany. When both my parents were unemployed, we didn't have to move out of our apartment. The unemployment benefits were enough to pay the rent.
> 2. A paid-off home frees up cash flow. It allows the owner to divert his earnings into other activities or investments or reduce the amount he has to earn monthly.
Having to pay off a home binds cash flow at first, compared to renting.
> 3. Real estate can be borrowed against. Try that with stocks. If you are an entrepreneur, your home is likely the asset you will use to acquire bank financing for your business.
Can you borrow against a house you have not paid off yet? I think you shouldn't be able to, since the house is already a security for your mortgage. If you use your money to buy a house and then borrow to start a business, that seems horribly inefficient to me.
> 4. With unskilled / low-skilled jobs vanishing left and right, homebuilding is one of the few markets which still relies entirely on a giant low-skilled workforce. It's one of the few sectors that can keep a lot of people productively employed. I think there are valid arguments against stimulating homebuilding to reduce unemployment among low-skill workers, but there is nevertheless a societal logic here.
Houses are still being built when everyone rents, they are just large apartment complexes. In Germany, the low-skilled workers you are concerned about are mostly immigrants from poorer countries in Europe, they would move somewhere else if the housing industry stopped employing them.
> 5. In a time when wealth is centralizing as never before, investments in real estate distributes wealth locally. I think there are valid arguments against public policy to distribute wealth, but there is a societal logic here.
In Germany, the state distributes wealth directly. (see 1.)
> 6. Finally: taxing a home is very counterproductive to the well-being of the middle class and the poor. I'm sure in Germany the interest on a mortgage isn't tax deductible as you say, but I'd also guess that steps are taken to refund the property taxes for the lower classes. Otherwise you simply tax the poor out of their homes - a form of confiscation.
You are assuming the poor own their homes to begin with, this is not usually the case in Germany
>> 1. A paid off home is a social safety net against homelessness for an entire family and many of their social circles. Even if all of them are unemployed, all of them have a roof over their heads.
> The state provides this safety net in Germany.
Why do you think it's a bad thing for people to be empowered to not need a state safety net to provide them with jobs?
If "most everyone" owned homes outright, then "most everyone" could be easily insulated from such a significant state burden.
if you're using a taxable margin account(1), your broker will almost certainly be happy to let you borrow some fraction of your stock's value as cash, without any paperwork. depending on the value of your account and the amount being borrowed, the rates might even be decent, compared to a HELOC. (after all, their risk is a lot lower, as they can liquidate your stocks on a moment's notice. much easier than foreclosing on a house. and while you're in debt to them, they can loan your stocks out to other people, which is valuable to them.)
(1): holy crap don't sign up for a margin account without fully understanding what you're doing.
I think this is a good point. Honestly, I don't know the economics of how property ownership is distributed in the US, but as a result, I can't say why we aren't all renting from a small handful of giant land owners, who can control entire cities or even regions. For this reason, though I know that the homeowner subsidy is regressive in many ways, and that home ownership isn't necessarily the most productive investment strategy, I'm hesitant to just get rid of it.
Now, you could argue those themselves have ownership distributed because they are public companies so therefore those mortgages are in fact benefiting shareholders, but banks own the majority of homes in America. And if you pay it off and don't pay taxes, the government does.
I beg to differ. I think that real estate, like farming, has critical societal benefits that are worthwhile to develop and maintain.
Namely, it is very difficult to raise a family of four in a mutual fund. Investing in a home may is absolutely "productive."
See, there are significant societal benefits to home ownership that you are not considering. For example:
1. A paid off home is a social safety net against homelessness for an entire family and many of their social circles. Even if all of them are unemployed, all of them have a roof over their heads.
2. A paid-off home frees up cash flow. It allows the owner to divert his earnings into other activities or investments or reduce the amount he has to earn monthly.
3. Real estate can be borrowed against. Try that with stocks. If you are an entrepreneur, your home is likely the asset you will use to acquire bank financing for your business.
4. With unskilled / low-skilled jobs vanishing left and right, homebuilding is one of the few markets which still relies entirely on a giant low-skilled workforce. It's one of the few sectors that can keep a lot of people productively employed. I think there are valid arguments against stimulating homebuilding to reduce unemployment among low-skill workers, but there is nevertheless a societal logic here.
5. In a time when wealth is centralizing as never before, investments in real estate distributes wealth locally. I think there are valid arguments against public policy to distribute wealth, but there is a societal logic here.
6. Finally: taxing a home is very counterproductive to the well-being of the middle class and the poor. I'm sure in Germany the interest on a mortgage isn't tax deductible as you say, but I'd also guess that steps are taken to refund the property taxes for the lower classes. Otherwise you simply tax the poor out of their homes - a form of confiscation.
I think there's a lot of sense in NOT taxing one's first home, at least not if it's below a certain reasonably high value. All things considered, home ownership is empowering. A second home or income-generating rental property is a different story, but one's domicile should be unconfiscatable by the state.