The better it does as an investment class, the worse it will become. It's a self perpetuating spiral.
I don't see the market solving this. I only see some regulation helping here - ie any tax filer can at most own 1 SFH (this includes married couples). So no second, third, tenth homes. Corporations and foreign entities also cannot own SFH - bye bye black rock & China.
Obviously some edge cases don't work (ie people who want to put their home in a trust), but generally speaking, people should not be able to own homes as investments.
Building more housing is the best answer. It lowers the price because there is more supply. There simply aren’t enough homes in the Bay Area, NYC and many other major cities.
If you could build many large apartments in the Bay Area you could fill it with people who’d rather live there compared to a tiny old overpriced house. Zoning and existing residents stop that from being built though.
One problem is building more luxury housing leads to more rent-seekers / investment homes / transplants, which doesn't solve the problems the area faces (e.g. lower income families can't make it work, and in addition to it sucking for them, they staff lots of critical functions so it ends up sucking for everyone since the price of everything increases and you get a whole class of supercommuting low-income folks -- ask bay area folks about their daycare teachers).
We need more _affordable_ housing, likely gated on AGI.
I think that what you're complaining about is the financialization of investments, where every investment has an associated dollar value and that dollar value must always go up. This affects more than just homes. The need for monotonically-rising corporate earnings makes corporations pull all sorts of accounting shenanigans, it makes them cut costs and push sales until the product quality is the bare minimum people will buy, and it results in all sorts of pain for workers in the resulting reorgs and layoffs. The usage of Bitcoin as a token whose value just goes up has negatively hurt the development of the crypto economy, because people aren't actually using crypto, they're just hodling and hoping $$$ go up.
The elephant in the room here is fiat currency, positive inflation targeting, and negative real interest rates. If you know that the dollar's value is eventually going to zero (which follows mathematically from inflation being an exponential curve), then the sum of the cash flows from any productive asset becomes infinite, and the only check on its value is that investors can't really reason about infinite time horizons. If inflation were targeted at zero (or at least some value that gave positive real interest rates), then that sum converges and you can speak about properly valuing assets and allocating capital efficiently.
This is such a common mistake. By HODLing, you are using it - to store your wealth. This is what the bitcoin network is optimised for - storing large amounts of value for large periods of time. Nothing else has fundamental properties that come close for this use case.
The proper answer is to accommodate the free choices made by others and regulate where they intersect with others, not paternalistically tell grown adults what they can and can't do.
If zoning codes can make it effectively impossible to build anything but single family homes, we clearly have a legal framework for distinguishing single-family from multi-occupancy apartment buildings. Thus, apply this requirement to single-family homes (or at least homes in single-family zoned areas).
There are a lot of unintended consequences and edge cases to this though, clearly. For example, I live in a building that is "technically" an apartment building right in the middle of nothing but single family homes. You couldn't build an apartment building like this here, now. This is because it was originally a single family home but was converted into a duplex ~100 years ago (2 different electrical services) and has remained a duplex legally ever since. I purchased the land and home jointly with a family member so that each of our families could live in one half of the duplex, which is how we currently live. A home like ours could end up being classified in very different ways depending on the specifics of a law like we're discussing.
Regardless, I still want my home price to crater if it means everyone else I know can buy a home. I hope home prices go down massively and the residential speculative bubble in this country dies a violent death. The only reason we even bought this house was because buying a home cost so much money that we had to buy half a home to make it a possibility. Even if I'm upside down on this house, I'd still rather be stuck paying off the mortgage or going bankrupt than hold everyone else financially hostage. Housing is too important.
Of course you could also allow people to build homes at market clearing prices, so investments would just be undercut.
There is no accident at all. The bankers decided that real estate should be the primary vehicle for new money to be created and released into circulation.
This means that the increase in total real estate monetary value will always be larger than the monetary value of total labour and trade productivity within a nation. It is a mathematical fact that won't change unless the monetary system changes.
In short: the landed gentry will always become richer while the non-landed will always become poorer, under this banking system. If you are both a real estate owner and a worker, then you should expect your main source of income to be the value increase in your real estate. If not already, then soon.
So no matter how much the people of a nation work and increase their productivity, they will always be short and increasingly indebted, because the monetary system works that way. This is why there has been a frenzied rush into real estate the past decades, because the odds are stacked against you getting ahead by working.
In California specifically this was driven by Prop 13 gutting the property tax system and removing the natural check that higher property taxes impose on homeowners engaging in the sort of anti-development cartelism that has run rampant in California in the last half-century.
And Homes are also generally a bad investment even though there is a whole lobby of people that try to convince you that you need to buy at any price.
The only reason why homes have been a good "investment" for most people is that it is a forced saving through your mortgage, which most people would have spent stupidly otherwise.
But we should normalize renting and investing in actual investments like the SP500. Everyone would be better off and you would end up with more assets.
Again, the main advantage of a mortgage is that it forces you to save. If you are disciplined enough to save and invest in the SP500, you are way better off doing that.
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> But we should normalize renting
Isn’t it investors who would normally own rented homes, and own them specifically as an investment, whether each investor only owns one home or several/many?
I’m guessing you meant that an owner-occupied primary residence shouldn’t be an investment, which is usually good advice.
most attainable is buying stock through IRA account.
For retirement, Fidelity and Vanguard offer "Target-date retirement" funds, which automatically rebalance to reduce risk as you age. This is a misnomer, though, as you could easily select one of those funds for college savings or whatnot.
By that logic, the idea of workers having part ownership of the companies they work for has a lot of upside.
The average worker has enough of their income tied up into one employer already, they don't need to have even more economic concentration. It would perhaps be better if every company was owned by everyone other than its employees, with the employees of every company being forcibly made to invest in every other company. That way everybody gets to have an cushion if they ever lose their job or their company goes under. A bit like a DIY UBI if you will.
And then for shared ownership, governance is often messy.
Individual ownership of a stable asset that you can improve by making your own decisions (deciding what fixes to pay for, at least), is a different thing.
In some jurisdictions, this is alleviated by allowing the sale of excess zoning capacity to others, which now gives people in that situation a way to realize monetary gains. https://caldwellcommercial.com/understanding-commercial-real...
Houses go up in price exactly in keeping with inflation. I buy a house with 10% down[1] as a way of locking in the current price, to avoid my rent going up every six months, even if the initial payment is more than my rent[2].
Time passes. The price of everything doubles. If I had kept my down payment instead of buying the house, it would have grown into twice as many dollars, and still be worth the original amount in actual value. My house has also doubled in value. But I only paid for 10% of it with pre-inflation dollars (and since then I have paid the mortgage with dollars of decreasing value). I come out ahead in that scenario - my net worth has grown, even adjusting for inflation.
[1] Yes, I am ignoring the difficulty of scraping together the down payment.
[2] Yes, I am also ignoring the difficulty of having enough spare cash to make the payments the first year or two.
Yes, but you can't live in a Vanguard account.
No. I like finding middle grounds where possible, but you're asking for something which is inherently contradictory: for something to be a good source of "wealth-building", it to increase in value (i.e. price to the next buyer) forever, or at least most of the time. When that happens to housing, it fucks over the next generation.
There is no fix here that doesn't involve terminating housing as an investment opportunity. It will be a painful transition, but the end state is actually fine. Plenty of countries (e.g. Japan) don't treat housing as a middle-class investment and they function fine.
Additionally, your return over the long term on personal real estate is only 4% per year while the S&P 500 average returns per year are 10%.
Home ownership is not always desirable or the best financial decision for many people.
I think this is a really good insight.
But it also touches on something that many of the HN crowd, especially in the Bay Area find uncomfortable: home ownership.
One of the ownership assets that is most attainable by many Americans is a little plot of real estate, so it's rational that it's a goal of many. But at the same time, once that piece of ownership has been attained it's also rational to want to preserve and maximize the value of that investment. But that can often (but not always) lead to the kind of selfish NIMBY behavior that is criticized everytime anything related to urban development comes up.
Is there a middle ground balance where we respect that ownership of property is an important, attainable kind of wealth building for middle-class people while also accepting that a city must also develop in ways that benefit people that aren't homeowners, or aren't homeowners yet?