Where I lived in Italy, people certainly purchase houses, but they don't expect them to have crazy returns like in the US. It's just a way to not pay rent and have something that you can hang on to even if there's inflation or other funny business (something that Italy has seen a lot of).
People even invest in, say, apartments, but it's a similar story: they expect them to hold their value and pay themselves off over a number of years. There are certainly returns on it, but they are seen as steady, long term investments.
Where I live in Oregon, during the most recent boom, there were houses "earning" more than 100,000 a year, just sitting there. That's more than the median household.
Yeah, it's a bit apples to oranges, but still, it's really out of kilter.
Long term, it'd be healthiest if housing were 'boring', neither gaining or losing much. That'd also facilitate people swapping out different housing at different stages of their lives without worrying about timing the market.
For instance, there are a lot of people getting older in the town I live in. Are they always going to want to or be able to shovel snow? Mow their lawns? Maybe a townhouse or a condo would be a better alternative that lets them stay in their general neighborhood.
https://www.nytimes.com/2022/02/20/business/economy/spokane-...
We need some more fundamental reforms.
The merging of Seattle and Tacoma was inevitable. The same thing has happened to a lot of cities that are separate by <1hr commutes via highways.
Basically, "(re)legalize housing", along with things like corner stores and neighborhood commercial like corner stores and barber shops.
Only caveats are you need to enjoy seclusion (check) and be good at remote employment (this year will be my 10 year anniversary of being 100% remote). Energy costs are a bit high, so I installed 20 kW of solar and will be switching to an air-sourced heat pump for heating & cooling. Even adding these costs to the purchase price results in paying less.
Agreed, we didn't buy house as an investment vehicle, we bought it for living expenses consistency over time. It's the speculators that ruin any market.
Reasonable tax breaks for your primary or only home, and none for second homes / investments you let out.
That gives a valve to perform qualitative easing on the housing market whenever you need to, and is not uncommon in other parts of the world.
However, you don't have to if you die and pass the property down to your spouse and/or children. This is the step-up in basis and is key to building generational wealth in the US.
Yes, but for most people, that's not really a benefit. It's possible to exclude the first few hundred thousand of capital gains taxes on a primary residence anyway. So even without the step-up basis, the tax burden on these properties would be tiny.
Property taxes are a much more significant form of taxation than capital gains. And would be even without any preferential treatment.
In those high-demand areas, owners will simply pass those tax costs down to their tenants, and the rents prices will go up, leading to even less affordability.
Not everyone wants to buy.
Renting doesn't need to be handled solely or even at all by the private market.
If you make the costs of real estate investment so onerous that it’s only attractive to owner-occupants then it becomes far harder for your landlord to exploit you as a tenant, as the option for you to buy much more cheaply will be there even if you choose never to do so.
I wonder if one way out would be to 1) build government rental-housing projects again, to fill the immediate housing need, and 2) implement other policies to increase home-building (but only enough to keep price increases below inflation).
One serious problem would be the association of housing projects with crime and poverty, but maybe that could be addressed by putting police stations on the first floor (or something) and eminent-domaining them into upscale areas over luxury housing.
It’s not really the crime that matters, at the core, but rather the perception of “other”. The single-issue anti-housing people don’t want police in their neighborhoods, they want police in other people’s neighborhoods keeping those people out of the “nice” neighborhoods.
Sadly, most people do in fact want more housing for people who are less well off than them, even if it means they have to run shoulders with strangers. But these are the people who work and don’t have time to show up to community meetings about a new apartment going up, and don’t usually decide who to vote for based on neighborhood aesthetics.
Because the problem is mostly political, most of the solution is political as well: identify, train and support local politicians who will vote to build more housing, and help them write new laws that do so. And convince them (by consistently winning at the ballot box) that the anti-housing crowd is loud but not actually large, so there’s little danger in losing their votes.
It's a cultural thing too. We're brainwashed to look down on government housing simply because of the racist practices of the past. It wouldn't even have to be government funded necessarily. The problem could be fixed with non-market housing similar to Europe, where the building costs are fulfilled by a loan, and the HOA or housing entity is setup without the goal of making a profit off the rent, setting rental rates at a margin to cover only the loan and necessary expenses.
My off the cuff (and thus probably naive) thought would be to charge progressive federal taxes on home ownership which progresses based on the unit count owned by an entity. Whether you're an individual or a corporation: your first house is free (0% federal tax). If you own two houses, you pay 3% on the value (of both houses) every year for the right to own them. Maybe at three houses it's already at 10%, and by the time you get to ~10 houses owned, it caps out at 100% tax on the value every year, making large-scale home investing completely unprofitable. The funds from this new tax could be set aside specifically to fund affordable housing programs of some kind.
Under such a scheme, we'd still have rising prices from true single-owner-occupiers under the existing system, but it would slow down and be less-bubbly, at least in the national average, and builders will eventually build new homes to equilibrium, where regulations allow them to. Some moderately-wealthy people could probably still own a second vacation home, or 2-3 rental properties. Some extremely wealthy people might still own 10+ different homes for personal/family use at exorbitant tax cost, but at least the taxes from such scenarios go towards fixing things.
This is a crazy thing to state with almost no justification. How could housing prices be fixed overnight? Please don't say "zoning changes." Plenty of places without zoning issues have really expensive real estate.
Also, in case of California for example, if prop13 got eliminated, it will hit mostly existing house owners, and not new ones.
Not where I live. Housing prices have exploded, like everywhere else, but it's not people's retirement plan. We've got state and employer pensions (from a fund not owned by the employer).
So it's not that. Look elsewhere. E.g. at AirBnB, and at ridiculous (both low and high) salaries.
Everyone?
But I bought it because I wanted to own it and live in it, not to sell and make money off.
Having said that it's obvious that the availability of cheap money has jacked up housing costs to a stupid level, and it's obvious that when it unwinds there is going to be a big mess. What stops it from unwinding - immigration... because as soon as immigration stops the pressure will go out of the housing market and a-la Japan houses will get cheap.
Don't underestimate the inflationary potential of fiat currency. Maybe it'll just stay the same price, but everything else still gets relatively more expensive.
I think taxes should be increased on those with investment homes, second homes, mansions, and the income and wealth of the wealthy rather than just nickel and diming the middle class.
Just looking at my latest report on my property tax bill (which was about $3k USD for 2022):
- about 45% of the amount went to local city administration, which includes civic services like police, fire, etc.; the city had a nearly balanced budget for the year (<$1k US away from balanced)
- about 55% of the amount went to the local school board (who are directly voted on by the city's populace and can directly levy property taxes) for teachers, administrators, building maintenance, etc.; the school board did not have a balanced budget on account of bond issues for new construction in anticipation of ongoing new housing construction
- 3% went to the local library (whose board is partially appointed by the mayor and partially self-selected), which had a small budget surplus
There - fixed it.
Or, you're going to pass on your home to your children, so it becomes part of the value of your estate. Or if you don't have any children, you can just reverse mortgage and get cash out that way.
I think that exaggerates it. Most retirees aren't profiting from the home they own if they live in it. The "income" from it is just imputed rent. So if the housing supply increases dramatically, that imputed rent drops, but it doesn't matter since the cost of housing drops as well.
Really don't agree with this -- retiree doesn't mean "decrepit". You're still very capable of driving. My own parents recently retired to a rural area in the US, in a neighborhood with other retirees, where they're a 5 minute drive from the nearest grocery store and a 30 minute drive from the nearest "city" of ~20k people.
It's very walkable in the sense that there are sidewalks and parks, but not in the sense of living in a downtown core with public transit access to essential services.
and with a $1M house should have a sizeable 401k specifically so they’re not relying literally on the housing market to retire. Any number of events could cause the same scenario you mentioned.. so I’m pretty much any realistic scenario for most people, tax deferred investments dwarf the small boost you get from buying a slightly cheaper house.
And having more $250k houses now means it’s easier for everyone else to build up a retirement plan.
Granted, they can sell at some point and make a 3x their investment. But by then, buying another house will also be 3x, and rent will be 5x, so they're kind of back where they started.
I guess the exception would be if they sold and then moved to a different area with a very different housing market (or left the country), but at least for domestic migration, I suppose the more rural and the cheaper the houses are, the worse the necessities for the elderly will be, e.g. doctors will be far away, no home nursing services, no local shopping.
Second, if you buy a house for a million dollars and sell it for 500K, it doesn't matter if you can buy an equivalent house for 500K, you are still 500k in the hole on the balance sheet.
And yeah, sure, you'll be down 500k in nominal value, but you'll exchange one house for the value of another. If that's 500k or 1m doesn't really matter, if you've lived in that house, you'll need another place to live at. Of course this changes drastically if it was a house you bought only for investment purposes, with no intention of living in it. But at that point, it's pure speculation, and I don't see why we should protected that asset class more than stocks or baseball trading cards.
You rent or move somewhere with lower COL.
If selling your house is how you plan to pay for costs in retirement like food, healthcare, or leisure, you must must cash out at some point. If you have 500k less to spend on food, healthcare, or leisure, it will suck.
If you dont plan to sell your house for the rest of your life, the market value isn't relevant to your retirement. In that case you are right that it doesn't really matter.
Also, in the case of high-cost coastal cities, I don't think the issue is trust in government propping up prices, as much as it's trust that demand will continue to outpace supply for the next several years at least.
It's going to collapse one way or another.
rip the bandaid and cut the losses. The house as investment is the blight on modern society
Is it really anyone's fault but their own? I don't recall housing being offered as a low/no-risk investment with guaranteed profits. Financial blogs, podcasts, and Reddit commenters might have shared that view.
Are there any examples of mortgage issuers or home builders advertising housing as an investment?
I expect banks and home builders are careful with how they communicate with customers.
It's less about placing fault on the purchaser. It's more that there is no one else to blame. Never-ending bail-outs only hurt future generations. I wish I went into deep debt to buy a house a lot sooner. I didn't because I knew I couldn't afford it.
foreclosure makes it no-risk leveraged investment modulo downpayment.
But I’ve seen nothing that guarantees anyone pricing continues to rise or that their home investment will make them rich. What it does do is force savings by allocating a portion of their loan to principal growth. Even if it doesn’t grow at all or even declines, it’ll be worth a lot more later than the latte they forwent 20 years ago.
If you want guaranteed returns, buy treasuries.
Primarily by not allowing construction of new housing supply.
We will see how things go in California! Maybe the anti NIMBY dream of style sky high SRO arcologies will come true and everyone will be living in communal peace in their bleak windowless cement efficiency. My bet is prices continue to rise for as long as people move into the region and developers don’t buy into the egalitarian view of affordable housing any more than they ever have.
Japan is the one place in the world that freely allows density, and Tokyo has not seen rising prices. Note that though Japan's population is shrinking, Tokyo's is rising. Unlike North America, new housing production has kept up with population growth.
https://www.wsj.com/articles/what-housing-crisis-in-japan-ho...
https://resources.realestate.co.jp/buy/how-much-does-an-apar...
Utopia!
Thanks for pointing out that prices are rising, I may have misspoke. But the key point is that relative to other major cities Tokyo's prices are not rising anywhere near as fast. The chart from 2000 to 2019 was basically flat, and even from the lowest point maybe a ~15% rise
I expect even the current rise is dwarfed by rises in comparable cities
What way would that be?
All producers of goods and services maximize profit. That doesn't explain the unique housing sector price developments.
It is obviously incorrect to say that prices are guaranteed to rise but I don’t think that’s what anyone claims.
I think the general claim is that policies around housing tend to prop prices up by restricting supply (zoning, permitting, higher building costs due to various regulations like stricter codes or safety standards as well as stuff like parking requirements, giving old properties lower taxes) or subsidising demand (loan guarantees, buyer assistance, etc). That is, governments choose housing policies that keep prices high at cost to taxpayers instead of policies that reduce house prices, which is what is meant about governments not wanting them to fall. Also, if house prices fall and the people think the government is responsible, the government probably gets voted out.
The reason that loan assistance for people (ie not including companies) causes house prices to go up is that it means for a given house price, mortgage payments will be lower so more people will be able to afford that price. Instead people tend to pay for the most they can afford and (for a non-silly definition of afford) and so they end up paying more because they are competing for the same houses.
Zoning IMO is a red herring. Developers have no interest in driving property prices down with their marginal developments. They will develop in a way that sees prices stable or rise, which is favorable to them as property investors. People betting zoning law repeals will magically result in vast Soviet style SRO arcologies housing everyone affordably will be disappointed that the Victorian single family home torn down and redeveloped as a duplex is developed as a four story duplex with twice as much space, with each duplex roughly the same price as the original single family home. There also won’t be a massive selling of existing property because, well, NIMBYs like where they live. Ultimately we will just have less Victorians that will never be rebuilt and a handful more luxury duplexes.
1) if losses are small, people will refuse to move / sell, reducing housing stock.
2) the really, really big problem is if prices go down enough that people have to start taking big losses when selling, or if it stops making sense to pay the mortgage. People would instead default on the mortgages, sending our economy into a 2008-like crash. This would lead to less construction (again) and more housing capture by the wealthiest people and corporations.
The biggest problem we have right now is insufficient supply. Builders won't build if they can't profit; if they can't sell at relatively high prices, they can't profit.
Investments have risks. If you invested most of your net worth into something that's a necessity for decent life without any thought into how shifting societal priorities may impact that investment, then you made a poor investment choice.
My answer is no. I want to live in a world where goods and services are abundant and cheap, including housing. I own a house and benefit from the rise in prices but I'm under no illusion that this is beneficial to society. On the contrary, the rising prices are a calamity.
If we care about the wellbeing of our fellow people, we should desire that homes become cheap.
This is pretty much the crux of it. High housing prices could be "fixed" almost overnight, but for almost every citizen of the first world, their house is the single biggest investment they will ever make in their life. You'd be destroying everyone's retirement plans and there'd be major economic repercussions.
But there's also the second-order problem which is the people who realize that governments will never let the value of housing decrease because of the above, so you have upper middle class people owning "investment homes", or foreign investors buying homes they never intend to live in (or, in many cities, never even bother renting out), or even corporations like BlackRock buying up houses because they know it's such a safe investment.