Another area that gets too little focus (imo) is that the transaction costs for real estate are so high that people feel that rapid appreciation is needed in order to be able to trade houses later in life (up or down). Cutting into high realtor fees, title fees, loan origination fees, transaction taxes, etc is severely needed.
1. Saying that housing is a poor investment by comparing housing returns to the S&P 500 (for instance) doesn't account for the fact that house buyers are extremely leveraged, often paying only 10% to 20% down. Most stock investors are not similarly leveraged and wouldn't even be permitted by their brokers to be so leveraged. Once the leverage is taken into account, the "return on investment" for the housing down payment becomes much more attractive (and housing prices seem much less volatile than the S&P 500, which makes the leverage even more attractive).
2. I think that house buyers *do* benefit from rising house prices (and see this benefit) in that the ultimate end-game is to sell one's big house and down-size later in life, taking a much bigger profit.
I'm not even in a top 50 (by population) city, but the rising home prices in every area has become unbearable. I feel like I'm constantly teetering on the edge of affordability. Renting did me some real good when I was unstable and got hit with a layoff. But now I would really enjoy owning a home of my own. There's something to be said about building your own nest. Some level of security as well as the ability to modify the space as you see fit. As a renter, it's hard to care about improving the place, because at the end of the day, it would just benefit the landlord.
It's frustrating to enter this rat race of ever increasing home values. Real estate agents in my area have had it on easy mode for 10 years and they provide negative value to the whole experience. Low interest rates got me bidding against people who saw these places as secondary income, not as a place to live. I spoke with a homeowner who really worked to sell me on his place. He talked about how similar our situations were when he first bought the place. Single guy in his 30s looking to end the rent trap. But he needed to buy another house fast and so he went for a 100% cash offer instead.
The higher interest rates has helped a bit. Houses are no longer listed for 7 days with deferred negotiation. They stay on the market for a month or so and get negotiated down in price. I hate to be mean, but I know of some real estate agents who I will be happy to see lose their shirts. It will be nice to see them have to try to make a sale for once.
As much as I support YIMBYism, my biggest fear is that with declining birth rates and a general sourness on immigration, we will enter a period of oversupply in a few decades. I don't know what that will mean in practicality. You already see less economically robust areas of the country that are just filled with abandoned or decrepit housing. It's not good for the neighborhood, or the environment, or the market. But in today's hot markets, we could benefit from a more consumption oriented housing market and build build build.
We lived in the Bay Area for 20 years and saw a lot of what you describe. When the housing market was hot, longtime residents who might’ve been interested in selling had nowhere to go. So we stayed in our house for 18 years when we decided to sell in 2015, we wanted to stay in the Bay Area. We couldn’t find anything that we could afford even with our windfall after the sale of our house. We moved in Philadelphia.
Agree with much of this, but need to add a few points:
1) While I think it’s fine to try to get people to conceptualize housing as consumption rather than investment, the main reason homeownership is broadly beneficial to society is that it’s a mechanism for forced savings, subsidized by the government through tax policy. Even if there was no real appreciation in house prices, homeowners build wealth through the equity in their homes. While in theory renters can do the same by just keeping in a bank the amount that would go to principal repayment if they were homeowners, in practice that is not typical consumer behavior, leaving long-term renters worse off on average (and society with more consumption, less investment).
2) I see another commenter beat me to the point about housing being a leveraged investment. Downstream of this important fact is being a mortgage holder is very helpful for the establishment of good credit.
3) All well and good to analogize a house to a car -- though a house has such a longer useful life the comparison is more tenuous than it seems -- but homeowners are also landowners, and land cannot be consumed. As such, even if your logic around reducing the price of housing being broadly beneficial is convincing to the public, homeowners will always benefit from raising the price of land they own. This doesn’t necessarily cut in strictly NIMBY directions, and can be addressed through tax policy in theory, but complicates your argument.
Irrespective of all the government tipping of the scale towards homeownership, Demsas overlooks the actual, not artificial, supply constraints in high density places that people want to live. You can't zone Santa Monica to have more Santa Monica. There's only so much room for the single family homes in places that people want to live/own in. It is an inherent constraint that winners and losers will exist. More people want SFH's than exist room to put them in places people want to be.
This really depends on the market. Places like the bay area where the value is in the land and not the house, most of the costs of the transaction is noise. Even realtor costs are a smaller percentage than the rest of the country.
I agree rent stabilization is a short term solution with long term negative consequences. Mountain View passed rent stabilization a number of years ago and now all their low income apartments have been torn down and replaced with town houses (reducing the housing density).
In the bay area there is a huge discrepency between what it costs to rent versus what it costs to own. Owning confers stability in your costs (your mortgage doesn't increase, and your taxes increase in a slow predictable way), but it cost much more to buy than rent (and not just in the fixed down payment). While rents of $4000/month sounds high for a home, buying that home means carrying a million+ mortgage, which it 10s of thousands of dollars. If home appreciation even just slowed, these numbers would naturally get closer (though would rents go up, or would housing prices come down?).
Regarding the city leaders who don’t want housing prices to decline, doesn’t that likely reflect the current reality that a decline in housing correlated to other negative outcomes, like population decline, that city leaders hope to avoid?
I think this is related to concern people have about changes that will come from yimby policies. Is there an example of a city that grew quickly that successfully accommodated that growth in a way that broadly satisfied people? My understanding from Seattle as an example is that it’s lead to discontent, but that may just be from people I know as a tech worker.
I live in an expensive area and support more housing, but YIMBYism would benefit from some examples to point to as a model to be emulated.
I think there is a benefit to homeowners of rising prices that is overlooked here. When you sell, sure, you need a new place to live, but you can often get the new place with only a little bit down and the rest as a loan. Your net wealth may not increase by much in this transaction, it may even go down, but you now have a pile of cash while your monthly housing expenses have only modestly changed.
Buying a house is "an investment in living"--consumption indeed, but one that provides stability of place; you don't have to worry whether the rent is going up or the building is going to be sold. But the mantra is that the most important things are "location, location, location" but after that, "terms." If the cost comes down and supply goes up there will be more people buying and that will be a good thing, a further opportunity to have a store of value. All that said, it's a relatively illiquid investment--it's hard to take profits on a primary residence, you still need somewhere to live, and moving is a pain.
Dan Walters (now independent, formerly reporter for the Sacramento Bee) recently wrote that attempts to get more housing built in CA get hamstrung by the requirements for union contracts, as if every private development is a public works program. I am no expert but am skeptical that we will see much building of affordable housing in CA. The solution is reminiscent of the advice of George Carlin's Hippy Dippy Weather Man: "If you don't like the weather--move." If you're in CA and want a starter house--move.
We Need a Better Homeownership Society
Another area that gets too little focus (imo) is that the transaction costs for real estate are so high that people feel that rapid appreciation is needed in order to be able to trade houses later in life (up or down). Cutting into high realtor fees, title fees, loan origination fees, transaction taxes, etc is severely needed.
Two points that I think bear making:
1. Saying that housing is a poor investment by comparing housing returns to the S&P 500 (for instance) doesn't account for the fact that house buyers are extremely leveraged, often paying only 10% to 20% down. Most stock investors are not similarly leveraged and wouldn't even be permitted by their brokers to be so leveraged. Once the leverage is taken into account, the "return on investment" for the housing down payment becomes much more attractive (and housing prices seem much less volatile than the S&P 500, which makes the leverage even more attractive).
2. I think that house buyers *do* benefit from rising house prices (and see this benefit) in that the ultimate end-game is to sell one's big house and down-size later in life, taking a much bigger profit.
I'm not even in a top 50 (by population) city, but the rising home prices in every area has become unbearable. I feel like I'm constantly teetering on the edge of affordability. Renting did me some real good when I was unstable and got hit with a layoff. But now I would really enjoy owning a home of my own. There's something to be said about building your own nest. Some level of security as well as the ability to modify the space as you see fit. As a renter, it's hard to care about improving the place, because at the end of the day, it would just benefit the landlord.
It's frustrating to enter this rat race of ever increasing home values. Real estate agents in my area have had it on easy mode for 10 years and they provide negative value to the whole experience. Low interest rates got me bidding against people who saw these places as secondary income, not as a place to live. I spoke with a homeowner who really worked to sell me on his place. He talked about how similar our situations were when he first bought the place. Single guy in his 30s looking to end the rent trap. But he needed to buy another house fast and so he went for a 100% cash offer instead.
The higher interest rates has helped a bit. Houses are no longer listed for 7 days with deferred negotiation. They stay on the market for a month or so and get negotiated down in price. I hate to be mean, but I know of some real estate agents who I will be happy to see lose their shirts. It will be nice to see them have to try to make a sale for once.
As much as I support YIMBYism, my biggest fear is that with declining birth rates and a general sourness on immigration, we will enter a period of oversupply in a few decades. I don't know what that will mean in practicality. You already see less economically robust areas of the country that are just filled with abandoned or decrepit housing. It's not good for the neighborhood, or the environment, or the market. But in today's hot markets, we could benefit from a more consumption oriented housing market and build build build.
We lived in the Bay Area for 20 years and saw a lot of what you describe. When the housing market was hot, longtime residents who might’ve been interested in selling had nowhere to go. So we stayed in our house for 18 years when we decided to sell in 2015, we wanted to stay in the Bay Area. We couldn’t find anything that we could afford even with our windfall after the sale of our house. We moved in Philadelphia.
Agree with much of this, but need to add a few points:
1) While I think it’s fine to try to get people to conceptualize housing as consumption rather than investment, the main reason homeownership is broadly beneficial to society is that it’s a mechanism for forced savings, subsidized by the government through tax policy. Even if there was no real appreciation in house prices, homeowners build wealth through the equity in their homes. While in theory renters can do the same by just keeping in a bank the amount that would go to principal repayment if they were homeowners, in practice that is not typical consumer behavior, leaving long-term renters worse off on average (and society with more consumption, less investment).
2) I see another commenter beat me to the point about housing being a leveraged investment. Downstream of this important fact is being a mortgage holder is very helpful for the establishment of good credit.
3) All well and good to analogize a house to a car -- though a house has such a longer useful life the comparison is more tenuous than it seems -- but homeowners are also landowners, and land cannot be consumed. As such, even if your logic around reducing the price of housing being broadly beneficial is convincing to the public, homeowners will always benefit from raising the price of land they own. This doesn’t necessarily cut in strictly NIMBY directions, and can be addressed through tax policy in theory, but complicates your argument.
Irrespective of all the government tipping of the scale towards homeownership, Demsas overlooks the actual, not artificial, supply constraints in high density places that people want to live. You can't zone Santa Monica to have more Santa Monica. There's only so much room for the single family homes in places that people want to live/own in. It is an inherent constraint that winners and losers will exist. More people want SFH's than exist room to put them in places people want to be.
This really depends on the market. Places like the bay area where the value is in the land and not the house, most of the costs of the transaction is noise. Even realtor costs are a smaller percentage than the rest of the country.
I agree rent stabilization is a short term solution with long term negative consequences. Mountain View passed rent stabilization a number of years ago and now all their low income apartments have been torn down and replaced with town houses (reducing the housing density).
In the bay area there is a huge discrepency between what it costs to rent versus what it costs to own. Owning confers stability in your costs (your mortgage doesn't increase, and your taxes increase in a slow predictable way), but it cost much more to buy than rent (and not just in the fixed down payment). While rents of $4000/month sounds high for a home, buying that home means carrying a million+ mortgage, which it 10s of thousands of dollars. If home appreciation even just slowed, these numbers would naturally get closer (though would rents go up, or would housing prices come down?).
bob
Regarding the city leaders who don’t want housing prices to decline, doesn’t that likely reflect the current reality that a decline in housing correlated to other negative outcomes, like population decline, that city leaders hope to avoid?
I think this is related to concern people have about changes that will come from yimby policies. Is there an example of a city that grew quickly that successfully accommodated that growth in a way that broadly satisfied people? My understanding from Seattle as an example is that it’s lead to discontent, but that may just be from people I know as a tech worker.
I live in an expensive area and support more housing, but YIMBYism would benefit from some examples to point to as a model to be emulated.
I think there is a benefit to homeowners of rising prices that is overlooked here. When you sell, sure, you need a new place to live, but you can often get the new place with only a little bit down and the rest as a loan. Your net wealth may not increase by much in this transaction, it may even go down, but you now have a pile of cash while your monthly housing expenses have only modestly changed.
Let's not get mad at homeowners.
Yes, I am one.
It's a choice we made.
Why can't we have both?
Buying a house is "an investment in living"--consumption indeed, but one that provides stability of place; you don't have to worry whether the rent is going up or the building is going to be sold. But the mantra is that the most important things are "location, location, location" but after that, "terms." If the cost comes down and supply goes up there will be more people buying and that will be a good thing, a further opportunity to have a store of value. All that said, it's a relatively illiquid investment--it's hard to take profits on a primary residence, you still need somewhere to live, and moving is a pain.
Dan Walters (now independent, formerly reporter for the Sacramento Bee) recently wrote that attempts to get more housing built in CA get hamstrung by the requirements for union contracts, as if every private development is a public works program. I am no expert but am skeptical that we will see much building of affordable housing in CA. The solution is reminiscent of the advice of George Carlin's Hippy Dippy Weather Man: "If you don't like the weather--move." If you're in CA and want a starter house--move.
Why not LA Josh? Weathers better, and you already have a home on FI? You, do seem to travel there frequently. Just curious……