One of the trends that I can only hope continues is getting rid of this idea that home ownership (especially single family home ownership) is the American dream.
I live in and own a detached single family home (was a compromise with my spouse) and to be honest, I hate it. I hate having to take care of the yard, to deal with unreliable tradespeople when things break, to deal with the huge expense of minor home repairs - and this is even after outsourcing as much of that work as possible.
Compare that to renting an apartment, which I loved. If something broke, I just called the super, and that was that. This ridiculous idea that renting is "throwing money away" is absurd. I'm paying someone to deal with all the shit I absolutely don't want to deal with, and more importantly I'm paying for the freedom to easily up and move if something else fits my fancy.
I also hate maintaining a detached single family home with a yard. I also hate being responsible for the fixes. But that situation is still far better than renting.
When we rented, we were subjected to eviction at any time, for nearly any reason, for basically no notice (60 days, which in the US is effectively zero notice). Your subjected to every whim the crazy wildly-irrational housing market throws at you (we've had 12% yearly rental increases for a decade straight now, despite living in bumblefudge-nowhere Midwest).
Renting in the US today is capital-e Evil, and just wholly broken. Unless we're ready to implement some guaranteed nationwide rent controls and guarantees against unjust eviction and harassment, making housing ownership possible for all citizens has to be the number 1 goal. Because home/condo ownership is the only way to gain any sort of housing security in most of the USA today.
The thing I've noticed is that in my area all the modest neighborhoods (2 bed, 1 bath, sub $200k) are being bought up by landlords. This leads to a neighborhood of renters, which is a lot different than a neighborhood of owners. The Havers can buy a lot more houses than the Have-Nots and I'm left wondering what the price of single family homes would be if renting them was illegal and they were all placed on the market.
Yes. That's a "private equity" thing.[1] Blackrock can borrow at lower rates than homeowners. So they can buy up houses and rent them out at a profit. Plus they can keep raising the rent. And they outsource maintenance.
The agency cost of any landlord is much larger than the savings in capital cost. For example, for a tenant there is an incentive to complain over the smallest problem instead of fixing himself or just living with the problem. Management agents charge a fortune to deal with these issues.
This is something I think about as well. In my Midwestern city, some neighborhoods seem to be 60%+ landlord owned and always increasing. For every home sale to a young couple or first time owner it seems like another house is purchased in cash by some mid-size wanna-be property baron or a mega real estate conglomerate that already owns 200+ homes in the city.
It definitely feels like we're moving towards a system of feudal property barons extracting rent from people who are quickly being priced out of the means to own their own home.
It's another example of the high cost of being poor. The rent on my town home is several thousand more per year than what a mortgage (5% down), taxes, HOA fee, PMI, and home insurance would be.
Several thousand more per year doesn't sound too far off: if you own, you're responsible for home repairs: roof, HVAC, electrical, plumbing, appliances, siding, painting, etc.
I budget $2,000 a year for repairs on a modest-sized home; most years it's under $1,000, but HVAC and roof are infrequent and fairly expensive.
Landlords absolutely incorporate home repair costs into rent. I'm shocked at the number of people who assume that landlords just eat the cost of maintenance. Just because you aren't forking over the money directly to the repairman doesn't mean you aren't paying.
Even if we say that the owner is spending those several thousand dollars on maintenance that just means they're cash flow neutral. They are still making thousands through increased equity and appreciation.
Anecdotally speaking, I bought a house in a new minority subdivision in 2003 brand new build. The value went up by about $40K by 2008, crashed to $40K less than I bought it, and today it’s still worth $4K less than I bought it in 2003. It’s still a nice neighborhood so it hasn’t gone “downhill”.
Being the numbers oriented, unemotional person that I am, I did a strategic default in 2012 realizing that I could be eligible for an FHA 3.5% down loan in 3 years after the foreclosure, applied and received a loan exactly three years later and had a house built in a new subdivision in a predominantly White neighborhood. The value of the house has gone up $70K in 3 years and a house with basically the same floor plan is being sold for $70K more than mine was 3 years ago. .
And to hopefully stave off some of the expected replies:
- No the world shouldn’t work like that. But to paraphrase Buffett, “the world can stay racist longer than I can stay solvent”.
- No I’m not racist and it’s not that “I don’t want to be around Black people”. I am Black.
- Yes I know “White Flight” is a real phenomenon. But there is also a well studied “tipping point” when that occurs. I don’t see that tipping point happening.
If you live in your house instead of paying transaction costs to sell, lower property value just means lower property taxes and a more prosocial working class neighbors.
On a typical 30 year mortgage you haven’t paid much principle in the first 5-10 years. So if you’re still down 10% (as some of those cities are), you could still be in the red.
A townhouse in the western Chicago suburbs I bought in 2006 for $280k and walked away from in 2012 finally sold to the next owner this year for $208k. It will still be another decade or two (if ever, depending on the rate at which property taxes rise to offset Illinois pension obligations) before it appreciates back to what I paid.
What it put a dent in was the expectation that real estate prices only went in one direction. (Of course, the popping of several previous real estate bubbles should have dented that before 2008, but....)
Think of it instead as a player closer to the money printing machine that is the fractional reserve banking system. This is the inflation the Fed created directly, and these institutions probably are thinking: 'housing prices only go up, so the duration of my borrowing doesn't matter, borrow short term buy long term, it's all gravy!' If you're over 30 and feel like you've heard this story before, you have....
We really need some stronger regulation on renting.
I'd like something along the lines of federal rent control. Limit the rent that can be charged to reduce the profitability of buying up house after house. This would be unpopular with the current owners of homes as it would lower property values, but over time they would remain much more stable.
i agree with your sentiment, but i don't think that rent control is a federal concern. we need to hold our state legislators accountable here. living in CA frustrates me in that regard, because we cannot pass a single f'ing bill about housing affordability generally, even though democrats have a super-majority and every politician and news outlet talks a big game on the topic. i'm ready to vote against every incumbent at this point.
in any case, part of the solution is to equalize the capital gains tax with income tax rates and have the capital gains tax escalate with the number of homes owned (but keep a small tax advantage for long-term owners of a primary lived-in home). and get rid of 1031 exchanges for investment property, which greatly advantage large capital holders over the average citizen.
There are too many loopholes with holding property. You can create and diversify among enough companies and eventually you won't have to pay tax at all.
No politician will vote for this because they know where their bread is buttered. It would be suicide as they would find out when they lose every large donor. I doubt we'll ever get people into office that would vote for anything to disadvantage property holders.
Even if you vote it in through a referendum, I expect a judge will crush it through some weaselly interpretation of the constitution or other precedent. California in particular has had several major referendums reversed by the courts. Will of the oligarchy, not that of the people.
Much simpler would be to raise property taxes to a reasonable level and redistribute that via a citizens' dividend /UBI. That gives you free market efficiency with no rent-seeking non-local owners sucking away the wealth, only reasonable fees for management and liquidity services.
Why federal? The federal government has no authority to do so. Housing is literally, more than any other market, an intra state matter, and the feds cannot regulate intra state trade.
I can't seem to reply to your other comment so I do so here.
It is entirely different to move your company or business to another country vs another state. Most people are not going to expatriate and most companies wouldn't gain much from doing so. Property is already much cheaper in Mexico, but you don't see anybody with a high-skill workforce moving there.
Then we need to fix that. No state will pass legislation along these lines because it will put them at an economic disadvantage to every state that doesn't.
> we've had 12% yearly rental increases for a decade straight now, despite living in bumblefudge-nowhere Midwest
Quick math for the rest of you out there: That means they paid 1000 in 2009 and now pay ~3500 in 2019.
Also, yes, I feel you there. Our rental agreement states a mandatory 10% increase if you rent from year to year. I've no idea why the company is this stupid though. The rents around us are falling or staying steady these days. So we just move to the block over every year and the old place stays empty for 3 months before then being rented out for the same or less than we paid. I'm sure there is some tax thing involved here that makes it so they don't have to care all that much.
Also, yeah, we don't have a lot, and we can just move houses in about a weekend in my 4-door.
It's similar to a telecommunications giant - as the customer, you need to pay a cost of switching (moving expenses, hookup fees etc.).
So it's in their best interests to try to squeeze customers when possible, even with the occasional person that moves out, they'll net a lot more from tenants who just don't bother to dispute the increase.
True! We've decided to be nimble, and it does take a toll (no pool tables, no big patio furniture, smaller couches, etc). But saving the cash is worth it to us. 12% on 1000k/mo rent comes out to an extra 1440/year that could be saved. To us, such a thing is worth the weekend of moving hell.
Don't you also lose a lot of the deposit money you put down on the old apartment and the services that went along with it though? Not to mention that moving is more than a weekend of shuttling around possessions (if you don't own much), you also have to change your address with everyone, sign up for new utilities... I always burn a lot of money and time when moving.
> Don't you also lose a lot of the deposit money you put down on the old apartment and the services that went along with it though?
Wait, what? It's a deposit, you get it back at the end of the lease.
Like, granted, if you have a lot of damage to the carpets, sure, you're gonna be out $80 for the cleaning of them. But I've always gotten it back in full after a month or so.
For me, moving is litterally a weekend (maybe including a Friday afternoon). We really don't have much to move. I'm not joking.
Also, my state allows you to just forward the mail to the new address for free. It only lasts a year, but you can re-up that at any time. We've just done that without much worry and we also have a lot of online stuff that works through the phones and whatnot.
I guess I'm just old hat at doing this kinda moving stuff. It's not much stress for me, though you are right, it is some extra stress. For us, it's worth the savings.
In my experience I lose hundreds on my deposit every time (with very little actual wear to validate that loss). I've only ever rented in major cities though, so maybe it's less aggressively slum-lordy elsewhere.
If you do have more possessions than you can move yourself, or your moving long distances, you end up spending a ton of money. Movers usually cost me 5-10k and I didn't even have a lot of stuff (2bd apartment worth of possessions). Ditto if you need your car(s) moved.
Here it's about $800 for anything less than 3 hours each way per truck load. And I think that is a rip-off. I've seen college towns that'll charge $50 for frat bros to move you about town all said and done (but then again a frat bro is moving your TV, so beware).
For me, moving about the same amount is going to cost $1000 including storage for a month. I guess if you are also having the movers pack everything, it might cost that much, but I've heard of people moving across the country for less money.
I bet moving costs at least $400 out of pocket plus you have to value you time. 2 people packing and moving is 20+ hours each. 40 hours * $20/hr = $800 so you are breaking even at best.
Also, paying myself is a strange concept. Yeah, it's 'lost time' but only to me and my family. It's not like other forms of employment. Besides, it keeps us a bit lighter on the clutter, though we would like some more things in life. $800 payed to myself is a lot different than $800 paid to some movers.
When I rented the company sent a letter every year asking us to agree to a 8-12% hike. Every year we ignored the letter until they called and we talked them down to either keeping the rent the same or raising it only a couple of percent. It's one of the headaches of renting, but it makes a huge difference over time.
I'm in total agreement, but the housing prices around here aren't very good (obviously expensive). Besides, we don't have stable work yet, so locking into a mortgage that will go underwater isn't wise.
> That means they paid 1000 in 2009 and now pay ~3500 in 2019.
Which means they're almost certainly exaggerating, unless they're in a condo in downtown Chicago, but they did say "bumblefudge-nowhere" so I'd say just straight BS.
Honestly? It was a good place and a good price. We've no intention of dealing with that issue either. We tend to move every year as the jobs change. Would we like to stay in this place for longer? Sure! But it's unlikely to occur.
Were you a month to month tenant? If not, why would you sign a lease that lets the landlord break it with 60 days notice? Doesn't that kind of defeat the purpose of having a lease in the first place?
Every lease I've seen has a provision that allows the Landlord to kick you out if you are deemed to be a nuisance.
IIRC there are renters rights in many areas that make this more difficult, requiring a court order typically, but not all areas have this and Landlords will put those clauses in the lease regardless just in case the tenants aren't familiar with the law.
HOAs don't have the power to evict you from your own house. They might act like they do, but they don't. Their power basically ends at sending sternly worded letters and in exceptional cases putting a lien on the property. If the homeowner just ignores their letters they can't do much.
Yes, they can? An HOA is added to the deed agreement. A typical HOA will be allowed to put a lien on the house if you do not pay them the agreed upon fee, and -- crucially -- whatever other fees they determine. Thus, if an HOA wants to kick you out for any reason, they mostly just have to continue to fine you until you can no longer pay, at which point they ask a judge, and take the house.
In california for example, an HOA just has to get you to have $1800 in unpaid fines before they can simply evict you and sell the house to recuperate the costs.
> we've had 12% yearly rental increases for a decade straight now
That was part of the motivation for buying my first house. The rent was going up $50/month every 6 months, and the mortgage was going to cost only $100/month more than the rent. I figured in a year I'd break even, and in 2 years I'd be ahead.
More like lol at assuming your rent doesn't cover the other expenses of owning a house. You think your landlord is just taking the loss? When you rent, you are paying, if not directly, for every expense associated with the house, plus extra for the landlords profit margin.
The rental market and the home buying market as separate and not perfectly correlated. In SF right now, it's cheaper to rent than to buy, so yes, if a landlord bought today and rented it out they'd be taking a loss.
The thing is that landlords may have purchased the place a long time ago. They can still make a profit with rent being less than what a mortgage+ would be today.
Price controls do not work. High home prices are a symptom of a lack of available housing and the only way to fix the lack of housing is by building more housing.
High home prices are often a symptom of easy money and inflation localized to that sector. (Specifically, the houses described in the article seem to be poster children of this type.) That was the whole 2008 thing, right?
I know landlord-tenant laws vary a lot, but how could you be subject to random evictions with only 60-day notice? Most places I've lived, you sign a one year lease. The landlord can't evict you while the lease is in effect as long as you are abiding by the terms of the lease.
"If a landlord does not have cause to terminate a tenancy early and evict a tenant, then the landlord must wait until the lease term has ended before expecting the tenant to move. In some cases, the landlord may still need to give the tenant written notice to move.
"Month-to-Month Tenancy
"If a tenant is in a month-to-month tenancy and the landlord wishes to end the tenancy, the landlord needs to give the tenant a written 60-day notice. This notice will inform the tenant that the landlord is terminating the tenancy and the tenant must move out of the rental unit by the end of 60 days. If the tenant does not move out of the rental unit by that time, then the landlord can file an eviction lawsuit with the court (see Ga. Code Ann. § 44-7-7). For more information on this topic, check out Georgia Notice Requirements to Terminate a Month-to-Month Tenancy.
"Fixed-Term Tenancy
"If a landlord does not have cause to evict a tenant who is in a fixed-term tenancy (such as for six months or one year), then the landlord must wait until the end of the term before expecting the tenant to move. The landlord does not need to give the tenant written notice to move unless the terms of the lease or rental agreement specifically require the landlord to do so. The landlord can expect the tenant to move by the end of the term."
> When we rented, we were subjected to eviction at any time, for nearly any reason, for basically no notice (60 days, which in the US is effectively zero notice). Your subjected to every whim the crazy wildly-irrational housing market throws at you (we've had 12% yearly rental increases for a decade straight now, despite living in bumblefudge-nowhere Midwest).
Not saying you're wrong but at least where I've lived, I could very easily find a new place to live in 60 days. I think usually landlords give the terms of a new lease much less than 60 days away from the end of the current lease, and most people usually don't decide to move or stay before they know how much their current place is going to cost.
For a family, 60 days to pack everythig you own, and move, while supporting everyone is not easy at best, and untenable at worst. When I was single this was not the case.
This doesn't pass the BS test, especially if you are local. I have moved across town; with a family and a day job, in around 15 days, with most of the move taking place the first 7. Out of town, I can see 30 - 45. It would require planning and a UHaul (if within 250 miles) and a semi-truck moving company if further out than that. It literally just takes a bit of planning and follow through.
> If you have a mortgage and are hit by a catastrophic life event that leaves you without a job and depleted of your emergency fund, your home is gone.
That risk exists regardless of whether you rent or own.
The risks he mentioned are unique to rentals. It's very common for leases to essentially say "We can kick you out if we feel like it," no justification necessary. Even if the lease stipulates some justification, they'll find a way around it ("Our maintenance crew noted your excessive noise on 37 separate occasions. You also have a wreath hanging on your door, which is another violation of the lease.").
It's extremely rare for a mortgage to contain any sort of terms that allow you to be arbitrarily kicked out of your home.
The mortgage might be more secure, but an HOA can turn your life upside down if it's run by power-hungry busybodies and they can destroy the property values of the whole neighborhood while they're at it.
I've lived in several HOAs in the past, and yeah, they can be a pain. But in my experience, they are mostly concerned with not destroying the property values. In practice, they're only interested in stuff that's egregiously stupid. (Say that crazy old lady with the weird, creepy Halloween decorations including the beheaded baby that stay out from Labor Day to New Years.)
When I call the super they drag their feet, do a half-assed job, take a dump in my bathroom, and then I get a rent increase for "improvements" they've made to the property.
I used to own a 1000 sq ft cape cod that was built in 1942. I fixed everything myself and since it was small, nothing could really get out of hand. I believe most of the pain involved in home owning lately has come from bigger houses with more complex systems/appliances.
Ditto, but that's the experience when calling most tradespeople. In many cases what looks like the super dragging their feet is actually the super calling their a series of tradespeople and having them all flake out. One window repair at my apartment took over a year to complete and I had 4 different contractors all come to the apartment, forget a part, say that they'd be back in a week, and never show up again.
The way to do it is really to find a small set of good, reliable tradespeople, give them your business for all your repairs and improvements, and pay them well. There aren't many of them, though, and they'll cost you. Finding that small set of reliable contractors is part of what your rent goes to.
My dad used to do a lot of the home maintenance himself. Sometimes it worked fine, and sometimes (like the time he tried to replace the roof himself right before a thunderstorm, without having a giant tarp) it was pretty disastrous. In any case, it's not really realistic in today's world (where you usually need two incomes to survive) with today's homes (which are giant, complex, and built to a labyrinth of building codes that you are probably violating when you do improvements yourself).
Did you enjoy making repairs though? In my experience that’s what makes people either love or hate owning their place.
Personally I loathe doing any kind of maintenance work. I hate dealing with drywall, paint, wiring, pipes, and whatever else you have to deal with when maintaining a home.
As an engineer (software) who owns his own SFH, I absolutely love doing repairs to my house.
I preemptively replaced my water system this spring (electric to gas heater, added water softener). Took me a whole week (5-10pm work) and lots of pre-planning, but every time I walk downstairs I can't help but admire all the coppers lines I piped in. I dunno it was kinda like Hello World of the building trades, hearing the heater kick in after all was done was awesome.
Now, I've worked with my hands my whole life and have done tons of smallerish projects around this house, but this was the biggest one I tackled. Saved me 3-5k I'm sure and it really gave me a sense of accomplishment.
As an engineer (software) who owns his own SFH and also did a gut rehab. I hate doing repairs on my house. Between not having the correct tooling, the time premium I pay beyond what a reputable tradesman will take and how much I prefer working on software for dealing with home repair, it makes _zero_ sense for me to do this work. Every time I do repairs I think of my run rate vs the professional I could be paying to do the work and get disgusted. The only reason I ever do it is that finding said professional is a gig unto itself.
I like the _control_ I have in owning my place, but I abhor the responsibility of fixing systems.
Same. I just wrote in another comment in this thread that I hate spending hours at Home Depot searching for tools and parts. I find the whole world of home repairs hard to navigate. I watch a video on YouTube on how to repair X, and they talk as if things are standardized, but then I try it at my place and everything looks completely different and I don’t even know what those things are called.
And walls. "Open concept" might look great in photos and provide good "wow" factor, and it's definitely cheaper to build, but it's also a great way to make a lot of square footage feel small when you live in it. Contrast smaller, older houses with lots of smaller rooms, which can often feel as big as much larger, newer houses.
Unfortunately, at least in our market, there's not much built in the last 20 years where the builders favored actual rooms instead of just one giant open public space. If you're lucky the basement's finished so maybe you get two of those.
What would you use all of the extra rooms for? One room for each person to sleep, a laundry room, a couple bathrooms, and a great room with living, dining, and kitchen is all you ever really need right?
Having different rooms really helps keep the kids’ shit from permeating everywhere. We’ve got a big living room mostly open to the kitchen and dining room and I’m very lukewarm on it. I’d love to be able to serve guests without everyone being able to see the kitchen mess, or being able to watch TV without seeing the kids’ toys and kitchen mess and dining table mess. (We have maids come twice a week and it’s still impossible to get that under control.)
A lot of the open concept houses around here use enough space for four rooms for one big one. Usually kitchen + dining area + a single living room easily large enough to be two. If you're lucky you have one other room in the public area, designated by design as a dining room (distinct from the merely-yards-away dining area!), and if you're super lucky it's at least got three walls rather than just being designated by flooring and maybe like one pillar.
More rooms is nice if you don't like being on top of every single other person in the house all the time, without having to go to your bedroom (aren't we supposed to only go there for sleep, for sleep-hygiene reasons?) to escape. In recent houses this means using ~3x the space you actually need to accomplish that, mostly by adding a room or two in a finished basement, because the main public area's gigantic, yes, but also entirely open.
It's also very nice to be able to contain messes. So nice. One large shared living space plus kids means no part of your house ever doesn't look like shit without heroic efforts or paid help.
The same logic applies to a living room that doesn't need to be as big as a football stadium: sofa,TV, a few chairs,table and sobe cabinets..what else is there?
I've gone the full cycle from renting -> own -> renting, and I can tell you that you're forgetting about a lot of the limitations that come with renting. There are a huge number of things that are out of your control and hobbies you simply can't have. Especially if you want to compare apartment to SFH. You can't paint the walls, keep a bicycle outside, grow plants you want, have any loud hobbies, BBQ, even keep your muddy boots outside your door!
Also the quality of repairs completely depends on your land lord. I've had some great ones, but on average I much prefer having the ability to repair what I want when I want.
You can do a ton of home improvements yourself and save a ton of money, or work to build relationships with reliable trades people (they exist) and pay someone else to take care of all of that. If you rent your entirely at the mercy of your land lord.
The trend should not be to "give up on the dream of home ownership" but make it easier and more reasonable for most people to achieve.
I can paint the walls in my apartment and we have several free BBQs as well as ample event and leisure space. I also live within walking distance of all the shops and restaurants I could want. And I have easy access to public transportation.
Leaving my boots out isn’t worth half a million dollars and my spare time. I’m not muddy often enough to even consider where I leave my footwear. I worked in agriculture during college. It was literally never an issue.
My bicycle is in a secure storage room near my car and motorcycle. A security guard checks on them regularly, even when I am out of the country.
I have hobbies that I pursue outside my apartment. I even rent a garage with a friend for one of those hobbies.
Why does home ownership have to be made easy for most people? From where I’m sitting home ownership and “the American Dream” appear to be incredibly wasteful and not particularly appealing.
There’s a long list of things I would rather do than home improvements, regardless of how easy those improvements are.
Can’t we all just make the decisions that are best for ourselves?
I came here to make this same comment - renting forever is probably fine for people who are willing to accept a certain kind of lifestyle, but for most people it's too limiting. Got kids and want a playset in the backyard? Not in an apartment. Want a wall where there isn't one, or remove a wall that you'd rather not have? Again, nope. Want a home theatre with a big subwoofer so you can watch movies at home (one of my favorites). Nope, not unless you want some angry neighbors.
I don't think for a minute that owning a home costs less month-to-month over renting - with maintenance and upkeep, repairs and new appliances periodically, it's probably a break-even at best. But, at the end of it in 20 or 30 years I can sell the house and have that money (to buy a smaller house, or move into something senior-citizen appropriate, or a condo or whatever). With renting, that's not the case.
It also helps that I live in the Midwest, where property prices are not insane. I just sold my first house (made almost $30k over what I paid 18 years ago), and now I'm buying a 5-bedroom, 3k sq ft house in a nice neighborhood... for $230k.
Is it for everyone? No. But there's no way I'd rent, at least not at this stage of life.
The way I see it renting will always be more expensive because you have all of the same costs but you add in one other person to pay: the landlord.
Maybe the landlord can hire less expensive maintenance staff than you can, but maybe they can't. Is it really that different to have the house plumber come down and fix something vs. hiring a plumber from the yellow pages?
The landlord has to pay the mortgage same as you would. Maybe he gets a better rate because he can get some 1%er special equity deal, but fixed loans are like 3.5% so his margin can't be huge. He doesn't get a break on the taxes for the primary residence (although this went away I think?).
Ultimately it's difficult for a landlord to be so much more efficient that he can offer the rents at a lower rate and still make money.
Right, this is another downside to renting - landlords will tend to optimize for cost. So when a refrigerator or dishwasher breaks, it will be replaced with something reasonably priced. In my house, when the dishwasher breaks I can choose to replace it with something inexpensive, or I can spend a little more and replace it with a really quiet one that I can’t even tell is running (BOSCH are whisper-quiet, and totally worth the extra $$).
The rental market isn't based on what it costs to own a home plus a profit. It's a separate market and can often result in rents that are lower than the monthly cost of ownership.
"Research has consistently shown the importance of the housing sector on the economy and the long-term social and financial benefits to individual homeowners. The economic benefits of the housing market and homeownership are immense and well-documented. [...] In addition to tangible financial benefits, homeownership brings substantial social benefits for families, communities, and the country as a whole."
"Turning to the policy implications, federal homeownership promotion effects have been at least partially justified by claims that homeownership creates better citizens, results in healthier neighborhoods, and provides a range of other social benefits. Thus, it is important to assess the validity of those claims. This is not to say that other good reasons for supporting homeownership do not exist, only that if homeownership is not generating the claimed social benefits, we should stop using them as a justification.
"The updated literature review presented above does provide support for several social benefits of homeownership. Even after taking self-selection and other confounding factors into account there is considerable evidence that positive homeownership experiences result in greater participation in social and political activities, improved psychological health, positive assessments of neighborhood, and high school and post-secondary school completion. The jury is still out, however, on several other claims including improved physical health, and both the cognitive abilities and positive behaviors of children."
On the one hand, yes, you're right that the repair expenses can be a big deal. If you don't want anything but the basics for the technology in your home, sometimes a home warranty can be a good option too but experiences vary significantly.
On the flip side though, after my 15 year mortgage is up I'm not going to pay another dime outside of maintenance on this thing. On a 30 year, you'll still pay a fortune over the life of the loan which makes the renting argument a lot closer.
It also depends on the phase of your life. Personally, I can't imagine having kids and dogs without a yard. If I didn't have kids or hadn't found an area where I really wanted to settle down, renting would make perfect sense.
At the point that you find somewhere to spend the rest of your life, become a part of the community, get involved, make local friends, raise a family...home ownership makes a lot more sense.
I'm a firm believer in outsourcing repetitive work. I've had a yard company since the first 2 months in my first house because the time trade off for me was more than worth it. You also will eventually learn your way around finding good and reliable contractors for the important things (plumbing, electrical, general repairs). Word of mouth is hugely important there.
A lot of this stuff is pretty easy to learn too. I was pretty proud of myself the first time I disassembled a toilet to fix it. The more you learn, the less you need to call for help for small stuff.
> On the flip side though, after my 15 year mortgage is up I'm not going to pay another dime outside of maintenance on this thing. On a 30 year, you'll still pay a fortune over the life of the loan which makes the renting argument a lot closer.
If you can assume historical returns, renting is a financially superior choice. Well, assuming my math was correct. Both are big assumptions admittedly.
The reason is that when you buy, while you are effectively saving by having your money go towards your home, over the long term on average home prices don't increase.
On the other hand if you invest that down payment, it will compound.
Note that the result is not the same if you buy a place with cash and rent it out to others, because in this case you can reinvest your returns. However if you buy a place to live in, for most people they need a mortgage and their theoretical savings can not be reinvested.
Or in other words, O(c^n) is a superset of O(n) for c > 1.
> over the long term on average home prices don't increase.
I assume you mean adjusted for inflation here? Even then that hasn't been true.
The problem with renting is that you're still paying the mortgage, only in the renting case you're also paying the middleman who then pays the mortgage. This is why rent per month is higher than mortgage per month for the same house. So the returns from that downpayment you instead invested need to make up for the monthly loss in rent, plus the lack of an asset at the end of the process.
It's not a small difference either. My current mortgage is $1250/month for a single family home. 13 years ago when I was renting the rates started at $1600/month for a tiny studio apartment unless you were willing to commute an hour each way. Rents have gone up in the meantime. You need to be making some baller returns on your downpayment if you're going to beat that.
This comparison isn't entirely fair because the rental unit also included maintenance and groundskeeping. In my house I have to do all that work myself or hire someone. However, in the rental unit I had to pay for the utilities. This is a problem because the landlord will never replace something like an AC unit or a refrigerator with anything but the absolute cheapest and most expensive to run model. In my house when I replace it I have the option of buying the high efficiency model and enjoying the cost savings over the life of the unit. Plus when something breaks in my home I just fix it or go out immediately and hire someone to fix it. In the apartment you have to contact the landlord who then sits on it for two weeks before contacting his maintenance guy who only comes by once every couple of weeks to look at it and then order the part so maybe he can fix it on his next visit. In the meantime I'm freezing my ass off with no heat for all of January. I don't miss renting at all.
The problem with renting is that you're still paying the mortgage, only in the renting case you're also paying the middleman who then pays the mortgage. This is why rent per month is higher than mortgage per month for the same house.
That statement is very location specific.[1] In SF, it's cheaper to rent than to buy (on a monthly basis) and because of rent control, it's often cheaper to rent versus buy over your lifetime.
In SF, it costs ~$1,000 to rent what would cost $600,000 to buy. In Cleveland, it cost ~$1,000 to rent what would cost $100,000 to buy.
Obviously very different outcomes if you rent versus buy in each city.
That analysis is overly simplified for a number of reasons, two of the big ones are 1) You often aren't comparing the same properties and 2) while it's true that you are potentially indirectly paying a mortgage, it doesn't have the same terms as what you could negotiate yourself for buying the same property today.
These and other reasons contribute to why rental costs and TCO for residential properties are not in lock-step.
So the real answer is (unsurprisingly) "it depends". Sometimes you are better off financially to rent, sometimes to buy - very dependent on location, dwelling needs, frequency of moving, etc. In the USA the balance is often tipped towards buying by tax incentives, which are politically if not economically popular.
"The stylized fact from the studies on long-run housing capital appreciation is that over long
horizons, house prices only grow a little faster than the consumer price index"
> The problem with renting is that you're still paying the mortgage, only in the renting case you're also paying the middleman who then pays the mortgage. This is why rent per month is higher than mortgage per month for the same house. So the returns from that downpayment you instead invested need to make up for the monthly loss in rent, plus the lack of an asset at the end of the process.
Right, but the down payment ends up compounding to greater than the value of the entire home at the end of the 30 years and the difference is significant enough to cover (rent - mortgage)
> This comparison isn't entirely fair because the rental unit also included maintenance and groundskeeping. In my house I have to do all that work myself or hire someone. However, in the rental unit I had to pay for the utilities. This is a problem because the landlord will never replace something like an AC unit or a refrigerator with anything but the absolute cheapest and most expensive to run model. In my house when I replace it I have the option of buying the high efficiency model and enjoying the cost savings over the life of the unit. Plus when something breaks in my home I just fix it or go out immediately and hire someone to fix it. In the apartment you have to contact the landlord who then sits on it for two weeks before contacting his maintenance guy who only comes by once every couple of weeks to look at it and then order the part so maybe he can fix it on his next visit. In the meantime I'm freezing my ass off with no heat for all of January. I don't miss renting at all.
I completely agree. The thing I actually really wanted to buy a house because I want a grand piano and to not have to worry about moving it. Sadly at least from my own calculations I just can't justify it.
The thing that pushed me over the top on renting was purchasing a house with an accessory dwelling that we could rent. Houses with rentable space often don't sell for that much more than those that don't have said space, but they come with an income stream.
That's an excellent point. Like I said in my original comment, it is comparable if you buy a place outright. I suspect if you are able to both extract rent while also save on your own rent, that may be the best of both worlds.
Perhaps I should take your idea and use it myself =D
From what I've seen, the assumptions tend to dominate this discussion. I'm absolutely cherry-picking to make a point, but if you took your down payment in 1965, thinking the market looks pretty darn good, and put it into a DJIA index fund while you rented, about 30 years later, your investment would finally be worth again what you put in [1], while the person who bought the house would have some sort of equity in it.
To cherry-pick in the other direction, if you could either buy or rent starting in 1980 or so, in 30 years you'd see ~7x return (no inflation adjustment). There are homes you could buy in 1980 that would exceed that, but not very many places, and it's tricky to know what those are without hindsight. (Investing is pretty easy in hindsight, in general.)
To the extent that the stock market is modeled by an exponential curve, it has deviations from that curve on the order of your entire working lifespan.
Discussions about the utility of the stock market for retirement revolve around you investing in it continuously. In that chart, even though a point investment in 1960 may not turn out well, the money someone is putting in every year will start to do pretty well in the 1980s. The analysis around buying in a bit every year is different, but in the previous paragraphs, I'm talking about a point-in-time investment of a particular sum, so we can just follow the chart across. If you can finagle a rent that is significant lower than a mortgage, then you can also include in your model putting that difference into the market. (Though, for that to be "valid", note you actually have to, you know, do that.) But while rents and mortgages tend to be close to each other for various reasons, at different times and places they trade off which is more expensive, so that's not an assumption you're justified with in the general case.
So if you've got a mortgage cheaper than rent in 1960, you're going to pretty handily beat the guy investing in 1960 for quite a span of time. If you can get rent cheaper than a mortgage in 1980, and invest the difference over time as well, you're going to handily beat the guy buying the house.
What about if you buy a house, say, right now? Well... that's the million dollar question, isn't it?
Well that is simple, minimize your down payment even if it means taking on PMI as long as your mortgage payment is less than rent then you are better off with the house.
It's not that simple of course, because there are many other concerns like property taxes, insurance, maintenance, renovations/upgrades, furnishings, etc... But the idea that you have to lock away a massive down payment into a non compounding asset isn't necessarily true.
In my calculations I found a home to be slightly more expensive than renting when taking everything into account. But it's a huge lifestyle upgrade for some people, myself included.
Are you accounting for the fact that if you pay off the house you are now living rent free with only maintenance + property taxes + insurance?
Would the difference between rent vs buy be enough to draw down at what is considered a safe rate of 4% to pay for some place to stay - ie if you could save $1000/month by renting instead of having a paid off house would you be able to have an extra $300,000 (12000/.04)?
If you run the numbers and assume that whatever you’re putting into the mortgage will be invested instead once it’s paid off, the house catches up over time.
Of course, this is varies a bit depending on the numbers involved.
>On the flip side though, after my 15 year mortgage is up I'm not going to pay another dime outside of maintenance on this thing.
You'll have property taxes as well, which could be meaningful depending where you live. I was talking to one of my neighbors the other day who has lived in his home here in Seattle for over 40 years and he told me he is taking out a equity line of credit against his fully owned home to pay the property taxes as they've increased beyond what his retirement income can cover.
Once the home gets older you get into more than just maintenance as well; you get into replacement. Replacing the appliances, roof, windows, mechanicals, etc can be lead to some very serious expenses. The same neighbor needs to replace his roof, which he also can't afford until he gets the credit line.
You are absolutely correct. However, there are better ways to handle a roof replacement than incurring the $10k+ cost in one year. It's a foregone conclusion that you will need a new roof, just a matter of when. Best to start saving right away every month and include that in your overall cost calculation. It's much easier to pay for a roof over 25 years instead of all at once. Plus then you can use interest to your advantage.
I'm right there beside you - I'm coming on two years of home ownership, and I'm not terribly enjoying it. I love the neighbourhood, but I just don't think I'm cut out for home ownership. I've had more problems in 2 years of home ownership than I had in a decade of renting. It's cost a ton more money. Is it an investment? Possibly, but I've sunk a fair bit into it as well. I now wake up on Saturday mornings with a list of things that I "really need to get to". It's been terrible for my mental health, and I don't know if my bank account will ever reflect the extra mental strain.
I had the same home ownership experience...I kept waiting for it to get better but it just got worse. Really took a toll on my partner and I's mental health. Owned for just shy of 10 years. Been renting for a little over 2 years now after finally getting out of it. Renting has its own pains, but that stuck feeling of home ownership + all the maintenance it entails far eclipses rental annoyances in my opinion.
I never hear anyone discuss that - everyone I ever talk to seem to experience nothing but joy - I'm glad that I'm not crazy for having a less than stellar outlook on the whole endeavour.
Definitely not crazy. I think some people feel pressured to make their life look like it's going well at all times so the ones that are having a hard time just don't talk about it.
Due diligence will only go so far, though. Last time we bought, our surveyor was clear that there were parts of the property they would not be able to inspect, and obviously they could not give any assessment of the state of those parts. For example, they weren't allowed to move the seller's furniture to check underneath or behind it, and naturally there would be structures and services that couldn't be inspected without taking floors up or the like. We have since identified several significant defects that were missed as a result of those limitations, but there is nothing either we or our surveyor could realistically have done to anticipate them given there were no visible warning signs in accessible areas.
Some were - we knew we needed a new furnace, and needed to get our fascia repainted, but others, like having our waterline freeze, weren't things I don't think the inspector can look for. Ultimately the inspector can only see what they see, and you're taking on responsibility for the rest.
Information asymmetry between buyers and sellers is pretty high. Most home "inspectors" rely upon referrals from agents, so they tend to provide favorable inspections. And their agreements usually indemnify them against recourse. Many buyers don't realize this and think that their stamp of approval is valid.
You can always try to find someone you can relatively trust to do an inspection but a good contractor can be just as hard to find, and finding one willing to take a day out of his busy schedule to checkout the home you're interested in can be difficult.
I don’t consider a home an investment in the traditional sense.
I do consider a paid off house to be worth the amount of money that I would have to save to have a safe rate of return to live somewhere minus maintenance and property taxes.
If a paid off house will save me $12000 a year. The value of that house to me is $12000/.04
Also, a house is a great inflation hedge. Rent goes up with the market. The mortgage stays the same. Property taxes and insurance can go up.
> Also, a house is a great inflation hedge. Rent goes up with the market. The mortgage stays the same. Property taxes and insurance can go up.
It's actually even better than that: if inflation goes up, you pay back the mortgage with cheaper dollars than you bought it with. If you're expecting higher inflation in the future (and it hasn't yet been priced into interest rates) a house is a great purchase.
The flip side is that if you get deflation (say, an economic recession hits and a lot of people in your area lose theirs jobs, possibly including you), a house is a leveraged asset, and you can quickly lose everything. As many homeowners found out in 2009.
But you have to live somewhere. The eviction process is a lot faster than the foreclosure process. A landlord is incentivize to evict you as fast as possible. The bank does not want your house - especially during a recession where the value is dropping and then they become responsible for insurance and upkeep.
Anecdotally when my parents bought their house in 1978, the $600 a month they were paying on their mortgage was a slight stretch. When they were in their last year in 2008, that amount was laughably small.
> Anecdotally when my parents bought their house in 1978, the $600 a month they were paying on their mortgage was a slight stretch. When they were in their last year in 2008, that amount was laughably small.
Hopefully wage growth keeps up with inflation then.
That’s the beauty of a fixed mortgage. Wage growth doesn’t have to keep up with inflation. The mortgage stays the sane - the only thing that goes up is the property taxes and insurance. One of the few benefits of living in one of the most conservative suburbs of one of the more conservative states is their aversion to raising taxes.
But the only way to make it hurt less is if you have more spending power in relation to it - if your wages don't rise much, but the price of living goes up, the mortgage is still going to hurt just as much.
The eviction process varies quite a bit by municipality. Evicting someone in San Francisco is _much_ harder than evicting someone in another city. I would much rather rent in SF than own a home.
I hate mowing. I don't care about lawns. But I like being in control. No more moving every year to keep rent low. Update & customize to meet my desires & save money. Grow a garden & wildflowers. Remember the names of my neighbors (because the neighborhood isn't a revolving door).
But, I've always loved the long game. Plant trees for shade in ten years. Build a pergola (more shade, cooler house). Replace the old crappy X with a higher quality model that will pay for itself in five years. So on & so forth.
You do have to learn to do some of the work yourself, because tradesmen are more trouble than they are worth for small jobs.
Glad to see this near the top and glad to know I’m not the only one who thinks like this.
Like you, I only own a place as a compromise with my wife. And like you, I hate everything that comes with homeownership. People don’t realize there are a lot of hidden costs in owning a home.
When you rent, if you secure a 12 month lease, you know exactly how much you’re spending in housing over the next year.
When you own, all bets are off. This year for example we’ve already spent a couple thousand dollars on appliances that broke. There are things around the place we know are gonna need repairs soon and those are gonna cost us a few hundred more.
Our situation is compounded by being under an HOA, so special assessments are always a possibility.
I know two people who sold their homes and went back to renting specifically because they couldn’t put up with maintaining a home anymore.
I saw renting as paying for a service. I know I wasn’t building equity, but I saw it as paying for not having to worry about all the crap I have to worry about now. Any issue was a phone call and $0 away from getting resolved and the maintenance folks were always awesome at the place where we lived.
> When you rent, if you secure a 12 month lease, you know exactly how much you’re spending in housing over the next year.
Only for exactly 12 months though. After that, your rent could double for all you know, and there’d be nothing you could do. You can move, of course, but now you’ve been forced to upend your life.
I live in a rent stablized apartment, and I feel lucky not just because my current price is lower than market rate overall. But of course, that’s not a scalable economic solution.
True, but from my perspective moving is a small, point in time hassle that you go through every couple years as a renter, as opposed to a lifelong stream of issues that you have to deal with as a homeowner.
And from my perspective moving is an enormous hassle. Multiple vehicles, recreational vehicles, even a project car, and then of course a garage full of tools. Thousands of pounds of weights and gym equipment. King size latex beds that weigh a small ton, 4 beds altogether. Couches, dressers, half a dozen large TV's, file cabinets, a six-monitor desktop setup. Moving once a decade is more than enough, thanks.
When you rent, if you secure a 12 month lease, you know exactly how much you’re spending in housing over the next year.
But you don’t know what you are going to be paying in year 2,3,4,5 etc.
Our rent went up from $1300 in 2012 to $1700 in 2016. It’s now $1900/month.
Besides that, I don’t have people making noise all around me and everyone had the apartment mandated Comcast bundle including the wireless router where we had 10-15 wireless signals interfering with ours.
> Besides that, I don’t have people making noise all around me
I had the opposite problem. When I lived in a condo previously, I had the poor luck to live next to a shitty neighbor who would have parties at 5AM on Monday morning because she didn't work. The fact is anyone can get unlucky and have a shitty neighbor, but at least when you rent if the hassle is bad enough you can much more easily up and move.
> paying for the freedom to easily up and move if something else fits my fancy.
There is something to be said for this.
However, there is also something to be said for the ability to not be kicked out of your living space directly ("we have decided not to renew your lease") or indirectly ("should you renew your lease, we will be increasing rent by $500 and installing smart locks in every apartment").
I totally agree with you. Certainly there are tradeoffs to both owning and renting, and different people will find the tradeoffs stronger in one direction or the other.
However, the reason I made my original comment is I feel that so often, at least in the US, the downsides of home ownership are completely minimized (I think people usually vastly underestimate maintenance costs, both in time and money) while the downsides of renting are blown out of proportion (the "you're just throwing money away" false comparison).
Home and property ownership are deeply tied to some of your fundamental rights given as a citizen in the US. Many freedoms granted to you can be superceded once property is owned by other private entities because they require a spatial context.
Take gun ownership or something less controversial: a grill. If you own the home, you can grill to your heart's content. If you rent, there's likely all sorts of rights you forfeit in a contractual agreement (lease) and using a grill is often explicitly banned (it's a fire hazard and doesn't effect the property owner to disallow it, only helps them).
Thankfully, many states have enacted protections that override what can be contracturally restricted for living dwellings, granting new explicit rights but these are by no means exhaustive and vary from state to state and even by municipality.
In the case described, you're choosing convenience over liberty. "Those who would give up essential Liberty, to purchase a little temporary Safety, deserve neither Liberty nor Safety." In this case I would support home ownership over dealing with mild inconveniences of maintenance (then again, I'm used to performing maintenance).
At the same time, many don't have that same choice and its not about choosing prefered conveniences. Renting is the only option for many because they can't even imagine starting a mortgage or gathering the necessary downpayment. On-top of that, as mentioned by others, property ownership becomes a huge financial liability that in today's economy and job market for many makes juggling finances even harder by reducing socioeconomic mobility. Maybe they wish to own and could currently afford it but the liability is too great to consider due to volatility in the job market.
With ownership, slightly better income opportunities often have to be passed by because once relocation fees, market flux, and logistics of a current mortgage are factored in, many opportunities turn out to be large setbacks. Unfortunately many must choose between renting and flexibility for enough income to live reasonably vs many granted rights they're forced to give up in order to survive--I dont consider this a convenience choice. This should not be the case, but IMHO, it's a result of the ongoing further and rapid concenteation of wealth and power in the United States that lead to these scenarios.
We are losing our country to a very few peoples' gains. Perhaps its always been this way but it feels like a more recent trend from my limited view
> ... and using a grill is often explicitly banned ...
Don't know if it is still the case, but last time I was in an apartment (early 2000s) there were also limitations for Internet and Television. DirecTV was popular at the time, I was the first to put a dish in a bucket on the balcony. The apartment managers said I had to take it down and use Comcast. Fortunately, when presented with a printout of the FCC rules they reneged and dishes started popping up all over the complex... Which didn't do great things for the brochure :)
Having ownership and responsibility is nice imo. Pay off a house, and you have some nice real estate that you can live in, sell off, rent out, transfer to your children/grandchildren later in life. Way more options than having to pay for rent indefinitely. I've lived in way too many apartments in the past decade, purchasing a house and land has been the best decision of my life. There are tradeoffs to both lifestyles - I'd say that apartment / renting is great for 18 - 30 and gets progressively worse the older you get.
I'd rather have a dream where I have more responsibility and ownership as I progress in life rather than the dream of eternally renting and owning nothing. Sure I have to deal with shit I used to just call up my landlord and have them deal with it, but learning new skills and how to fix random things is fun too, at least to me. Not everyone's cup of tea I get it, but neither is renting forever.
Am I the only one who has always seen renting as a temporary arrangement only? If you don't own something, somewhere, doesn't that mean the same as being homeless? Not trying to offend anyone. Genuinely wondering, are there people who really don't want to own real estate ever in their lives?
It's the same bargain as being dependent on anyone else for anything else. Whether it's a problem depends on how abundant that "something else" is, which depends on the larger societal context.
I'll give an analogy: my dad used to hoard toilet paper, preferring to "own" large stockpiles of it rather than just get it as necessary from the store. Why? Because he grew up in WW2, in an occupied country, and had to shit in the river and wipe his butt with stones. This doesn't even compute for my American-born generation: to us, the supermarket is always there, and if you need toilet paper you go buy it.
Similarly, if you can assume that another rental will always be there when you need it, there's no need to own. And in dense urban areas with lots of landlords, that's a pretty valid assumption. Somebody refuses to rent to you (which has happened), just rent from somebody else. I'd rather own financial assets like stock - which I can take with me anywhere, and which usually have a much greater monopoly position than the landlord - and then use the income thrown off by them to rent accommodation.
Would I be fucked if there were a financial crisis or breakdown in social order? Yes. But if I were to own a typical 1/4 acre suburban detached home, I'd still be fucked - because you're still renting water & sewer access from the city, electricity from the utility, Internet from Comcast, food from the grocery store, etc, not to mention that your ownership only extends to your ability to pay the bank monthly. If you want to actually be secure & independent, you not only need your own land with a sturdily-built home, you also need solar panels, well water, a septic system, and obscurity. And you need to own it free & clear with no debts.
A similar logic applies to people who take Uber instead of owning a car, or who pay monthly for a SaaS instead of buying software outright, or who get food delivered rather than owning cookware and cooking themselves. As long as they can count on the service always being available, it works.
I've been renting for a long time and I have never considered myself to be homeless. When it rains I generally stay dry. I'm not sure how renting implies or is in any way similar to homelessness. I still have the means to provide shelter for myself. I could even rent a hotel room for quite a while, long enough to find a new place for sure.
I don't see how the risk of being evicted (is this something people worry about?) is any greater than the numerous possible disasters that could strike a place you own in ways renters don't have to worry about.
How many kids do you have? I have 6 and moving in the elementary school district is a huge pain. There aren't alot of rentals and big surprise, nobody wants to rent to someone with 6 kids.
Not only is 60 days notice not enough time. The landlords require 60 to 90 days notice and of course every rental wants you to move in immediately. In my experience, it's rare to find someone advertising a rental more then 30 days out from availability.
No. People who rent are not homeless. That's ridiculous.
This kind of semantic babble only serves to cloud people's judgment. For some people, owning makes more sense. For others, renting makes more sense. Not sure what is hard to understand about that.
Renting an apartment is actually the opposite of being homeless. Homeless people have no secure housing and need to sleep on the streets, in cars, or in shelters. If you are renting a place, you have 24/7 access to it and can stay there for shelter.
As someone put it: freedom is just another word for "having nothing left to lose". Homeless people are generaly most free of all, they do not have any obligations, bills to pay, work to show up, but I wouldn't consider that something we should aspire to.
One very reasonable 'end game' for those who do not want to own is to invest enough cash in the stock market so that your rate of return supersedes your rent, thus guaranteeing that, if rent increases are within reason, you are able to finance renting interminably. Stock markets typically have a higher rate of return than real estate, so...
Plus, there are all the benefits of renting an apartment:
* If your neighbor decides to throw a party at 2:00 a.m. on a Wednesday, you're automatically invited!
* Getting to meet all your neighbor's pets on the 4'x6' area of lawn designated for walking them!
* No need to worry about interior decorating; your favorite wall color is always white! (And your favorite exterior color is that weird greenish-beige!)
* No need to worry about that hobby that takes up too much space: you don't even need to consider it!
* If you're really lucky, the excitement of drug busts and gunfire in the parking lot. Your own action-adventure show!
One way to think about it is the Spread between the cost of owning vs the cost of renting. For example, in SF, the spread is very small and hence favors the renter.
Here's an example:
In SF, your cost of ownership is roughly 2% per year (1.4% property taxes, 0.5% for Earthquake Insurance, 0.3% for repairs and depreciation and HOA), which comes to a total of 2.2%.
The average Rent for an equivalent house is roughly 3% of the purchase price per year. So the spread is just 0.8%. Which means, if you can take the equity you would have put into the house and put it somewhere else, as long as you get a 0.8% real return (easier said than done with the high PEs we're facing), then you'll be ahead with renting. And of course, if you need to do a mortgage as most do, that adds a additional 1-3% to the cost of ownership making it even more in favor of the renter.
Now keep in mind, here in SF, it's pretty extreme. Most places have a much larger spread between renting and owning.
In a high-demand area like SF you're probably seeing an appreciation in the value of the owned property equal or greater than whatever you would be likely to earn from other investments.
According to Trulia[1] the median sale price for two-bedroom homes increased from $1.010M five years ago to $1.407M today, which corresponds to an annual return of about 6.8%. Assuming that trend continues, the actual spread would be more like -4.3% for ownership (2.5% cost minus 6.8% appreciation) vs. 3% for renting, or 7.3% altogether in favor of ownership. You'd only come out ahead by renting if you can find an investment returning more than 7.3% per year.
You're right, but this also requires the renter to actually make their extra money work for them. Sounds simple, but so many people don't. It's similar to why people like tax refunds; it makes no sense financially, but it acts as a quasi forced savings account.
For CA: "Based on where you live, insuring a single-family house can cost from $2.50 to $5.50 per thousand dollars of coverage"
.25% to .55% That's quite significant.
That’s a percentage of the value of the structure, not the structure+land.
When buying insurance, you answer questions about your property and the insurance company estimates the cost of replacement of the structure. In my case, it’s about 30% of the market value of the home.
Yes, but most earthquake insurance policies have huge deductibles and the house is often worth ~1/3 of the entire property, so your number could still align with what others said.
+1, my annual SF earthquake insurance premium is 0.06% of the appraised value of the house. It's not even worth mentioning in adding up the total cost of ownership.
It's also not clear if any of these numbers are %ages of the total property value, land + house, or just house rebuilding costs (which are often over $400/sqft in California after a disaster).
My worry with CEA is in "the big one", will they have enough money? They have $17 billion in assets, which is theoretically enough. However, the Northridge quake caused over $10 billion in damage, and the 1906 earthquake was over $8 billion in todays dollars. (Although I question that number too. 500 city blocks were destroyed in 1906. Would it only take $8 billion to rebuild 500 SF city blocks?)
If we see a major San Andreas quake that devastates LA, the CEA could run out of money.
I do agree it will be a shit show when the big one hits. Don’t rely on earthquake insurance to fix your problems. Unless you have $$$$, your house is not going to be in the front of the line for rebuilding. Spend a thousand dollars now on braces and bolts.
I imagine everyone in the building trades will be fully employed in the rebuilding effort even if CEA runs out of money. The state would probably bail the CEA out, but either way people are going to be waiting for a long time for someone to come give them a new house.
>This ridiculous idea that renting is "throwing money away" is absurd. I'm paying someone to deal with all the shit I absolutely don't want to deal with, and more importantly I'm paying for the freedom to easily up and move if something else fits my fancy.
Yet you'll almost always come out ahead financially, so not ridiculous at all. Real estate is a great way to build wealth, and owning your home comes with all sorts of financial advantages.
Also, you're paying that super. Nothing is free; it's a part of your rent. You may get lucky and have a responsive management company... or you may not, and that is likely tied pretty closely to how much your rent costs each month. It's not hard to get in tough with service people and, you know... you can always just learn how to fix things yourself.
Get a yard service - I pay $150 a month for them to come twice a month.
Get a home warranty - it’s about $600 a year and they fix everything - appliances, hot water heaters, plumbing, etc. I haven’t purchased one for current home because it’s a new build, but I did for furnished rental property I previously owned. In the grand scheme of things for an owner occupied home it’s probably not a great deal but it’s worth the peace of mind for some.
Do not get a home warranty. It's about $600 a year and they do nothing when you report an issue. When you call to complain, they send a contractor. Who doesn't show up. When the third contractor they promise to send finally shows up, they're the cheapest contractor they could find in 100 miles and they make the problem worse. Finally you threaten to sue and they close the policy and give you cash in lieu of replacement and you take care of it yourself.
It very often costs a lot more than $600 to maintain a home for a year. The warranty service only makes money if they can spend less than that on the home. As a result, the biggest and most profitable warranty companies are the ones that promise the most and spend the least.
Just bought a new house and requested the seller pay for a home warranty for the first year. I may look to keep it after that. It doesn't take much in home repairs to justify $600/year, provided that the work is done well and on time.
I hate having to take care of the yard, to deal with unreliable tradespeople when things break, to deal with the huge expense of minor home repairs
So, how often do things break, then?
I've always thought of home ownership as full control of what gets replaced and when. No unnecessary refurbishments unless you like that sort of work, or opt in for preventative maintenance. Most people I know who live in single family houses haven't had to do much actual or imminent repairs. Wirings last for decades. Ditto for pipes and sewers. Heating too. Some have done minor jobs like repainting a few rooms, or painting the roof every ten years. Others couples do a lot of redesign, refurbishing, and redecorating all the time but they seem to like it.
In my experience, owning your house is a very cheap way to live unless you like to re-do things all the time. There's the risk of disasters like pipes breaking and flooding walls but those are, honestly, dead rare (and you carry insurance, of course).
Ditto for yard. You can make the yard do with minimal maintenance if you choose to do so. Or you can create a varied garden that generates a lot of work throughout the season if you like that sort of thing. But it's quite easy to create a minimal maintenance yard and most home owners I know seem to have opted for just that.
Disclaimer: I don't live in USA and maybe things are different there.
Really comes down to lifestyle - I love having a home. Want to run 220v for a basement milling machine? Easy. Want to knock out a wall to put in a big spa tub? Done. Want to put a spray booth in the garage to paint wooden kayaks? No problem. Much of what I want to do in my spare time wouldn't be feasible in an apartment. Then again, I don't mind doing some minor home repairs so my costs are minimal. You can always get a home warranty plan if repairs bother you that much.
Hmm, that leads to a really interesting business idea (if it doesn't already exist). The reason a building can have a super is because there's scale. You only really need 1 super to deal with multiple units and overall building issues. Why not start a business where people pay a small monthly subscription fee (effectively as some kind of insurance premium), where a service person can come fix their home issues? This wouldn't be much different from renting an apartment but the key is that with renting your rent includes a portion the landlord should be reserving for maintenance and to pay the super/property manager. This would be the same as condo maintenance/strata fees basically. For major repairs, it's the same thing as being a landlord/owning a condo. Most the time major repairs aren't covered in fees, and you should have a reserve fund. Maybe this business can actually manage that for you and leverage scale of having multiple homes.
Transportation time/costs. Supers work because they are in the building (generally), and can respond quickly and be efficient in handling multiple simultaneous issues.
What you describe does exist, it's called property management, and they generally take some %age of your rent.
You are conflating home ownership with house ownership. You can buy a condo and pay someone to maintain it for you, just as your apartment landlord can hire unreliable managers tradesworkers to fail to fix your water heater.
I grew up in a small house with about 700m2(7500sq ft) land around it. I didn't like moving lawn or watering plans and veg in our small garden.I moved out to live on my own when I was about 19 and have been living in flats ever since.I bloody hate flats.. There's always some bastard neighbor who ruins the whole thing, you can't even go outside and have a bbq,not to mention the lack of privacy or space for kids to play...While I'm not an American, I do see the appeal of house ownership and still not losing hope to have one day at some point in my life.
I think the point here is "to each their own", and there shouldn't be such a thing as "the" American dream, or rather that the American dream is for every person to live their life exactly as they want.
My wife and I would not give up owning our house for anything, and would never go back to renting. I pride myself in being able to make minor repairs to all kinds of things around the house, and seeing them as fun engineering challenges rather than burdensome responsibilities. My wife loves gardening and needs plenty of yard space for planting.
Most of all (and I may be in the minority here), I really value peace and quiet, and true peace and quiet can only be achieved in a detached house, and preferably even with some generous distance from the next house.
If I think back to living in an apartment, I was super easily annoyed by any noise made by neighbors, including pounding footsteps, loud music, screaming children, barking dogs, etc.
Of course the house we own isn't exorbitantly large, or not larger than what we need it for, but even if we'll need to "downsize" at some point in the future, it will be to another detached house, and not an apartment.
> I really value peace and quiet, and true peace and quiet can only be achieved in a detached house
Irony: one of the few reasons I continue to put up with the hassle of homeownership is that it affords me the freedom to play music as loud as I like, as late at night as I please, without irritating my neighbors.
Good for you for being mindful of other people's desire to live without noise. There should definitely be more of this mindset in apartment buildings and other communal spaces.
And to clarify, I like to play music too, sometimes very loudly. It's just when I don't have control of the noise that I have a problem.
This seems like a great area for disruption. You can imagine a property manager for a homeowner who you call for anything. They can charge a monthly fee plus a percentage on top of any (vetted) subs they use. A single person can probably juggle dozens to hundreds of homes; then scale that.
It's the services of a rental property manager without the rental part.
With adults these days (me included) being more technically savvy but less... handy, it seems perfect.
Such things exist. I hear ads for them on the radio. They pitch themselves as "maintenance insurance" or some such, but I think it would do what you're asking.
As someone who has been through the pain of using a home warranty I highly recommend against it. When we had one we found one of 2 things always happened:
1. Whatever broke wasn't covered by the warranty. For example on a fridge, the most common component to break is the compressor, and that's not covered by a home warranty because it costs just slightly less than the cost of a refrigerator to repair.
2. The warranty company gets to choose who fixes your problem and they choose the lowest bidder, which is almost always a person who doesn't have better work to do because they aren't very good. Every single time I've used a home warranty, I had to have someone come back and re-do the work because it was so shoddy.
YMMV, but I've heard similar stories from others who have used them. I now consider a home warranty to be a negative rather than a positive because I've had to pay another person to come in and fix something correctly that was done improperly by a home warranty repair person.
I rented for years and it was easier than owning a home. In my case, though, my job moved two years ago and, now, renting would be "throwing money away." An apartment half the size of my house would be twice my mortgage payment.
Luckily, growing up, my father made sure I could do just about every possible home repair. I may not do them all now; but, I can and I know enough to avoid being ripped off.
Actually this is a great way if that works for you. But I love a detached SFA precisely for this reason. I love taking care of my own yard. Doing my own repairs with my own two hands (for me there is a certain satisfaction in it - must be pathological). I want absolutely no restrictions to what I can do with my lawn, my walls, my decorations etc. I want to be able to have my own workship with own tools etc. It may not be an American dream (I am not even one) but it is my dream and is the dream for millions of others (americans or otherwise).
So don’t buy a house with a big yard, etc.? We’ve got a house in a waterfront area that was laid out in the 1920s. Back when Americans were still free and there were no zoning codes. The houses are detached, but the lots are tiny (less than 3,000 square feet). No yard to take care of, close to neighbors, etc. And because people own rather than rent, you’re not getting a new set of neighbors every year.
Around here you sacrifice school quality, hard, for almost anything other than a typical big yard, large house, boring suburb house. The intersection between older neighborhoods or any trendy newer ones built more "urban" style and places with schools you'd be happy to send your kids to is practically nil.
YMMV in other places, but that's why we're in a non-walkable boring suburb with dumb, giant yards making the distance to the nearest pools and parks (and everything else) further than they need to be.
Where we live it’s illegal to make tight neighborhoods where children can walk around. Minimum lot siZe is 1/4 or 1/3 of an acre. We got lucky because we’re grandfathered in.
Yeah, just sold our home this month in the Midwest and moved into a townhouse that we rent for now. We did end up making a little money (bought in 2016) due to the great market we were in but I think that was just luck for the most part.
The issue with fixes gets even worse when you live in an older city and most of the homes are 80+ years old. It was a nightmare when you start to think about all the little things that are eventually going to need repaired/replaced in the not so distant future.
For now I am happy not having to do any yard work and only having to pay and electric and internet bill. The simplicity is great but I do miss having a little more space for storage/hobbies.
I have a love/hate relationship with the responsibilities that come with home ownership. I hate the feeling of having an ever-growing todo list and knowing that I am going to have to spend my free time on the weekends doing chores, most of which have significant costs that go with them.
But on the flip side there is a huge feeling of satisfaction and pride when you accomplish certain tasks or home improvement projects. You've bettered the property you own and often have learned new skills. It also makes the beer taste even better when you're finally ready to relax.
Your paying for the Super as part of your rent/service charge (and get no choice in who fixes your stuff) but you can you know pay some one to do the plumbing if you own your own home.
Flip side, I get most/more of my money back by owning a home so I look at it like free rent for just doing maintenance. Buy a newer home, less problems.
Everyone is different man - I'm tired of dealing with rent that only goes one direction, up - I'm tired of neighbors who do shit like bang on my ceiling or seemingly do some sort of bowling in their living room, I'm tired of repairs that take forever too.
Someone should come up with a model for younger people to sell to medicine/an insurance and lease back their body. It would be taken care of much better, it’s such a hassle after all to own something and be responsible...
When you have kids it’s nice to have some security around the school district of your choice. This is difficult in the Bay Area where in some neighborhoods there’s sometimes just nothing suitable to rent in the district.
This is not only "first world problems", but 1% first world problems. Well, maybe 5%: given
> For their retirement in a suburb of Asheville, N.C., Ben and Valentina Bethell spent about $3.5 million in 2009 to build their dream home: a roughly 7,500-square-foot, European-style house with a commanding view of the Blue Ridge Mountains.
The house is 700 (seven hundred) square meters. By comparison, London is banning the construction of "mega homes" over 150m2 in an attempt to prevent hypergentrification by oligarchs. These people in the article are the wealthy who haven't noticed that the ladder has fallen away behind them leaving nobody to buy their mansion.
I don't get why you'd want to build an enormous house for your retirement? If anything, I long for the day my kids leave and I can move to a "simpler" place where I don't need to worry about, or pay for, maintainnig a detatched house.
What does a rich older couple do in 7500sq ft/700sq m? I'd run out of ideas for rooms after about 200 sq m, and then I'm left to clean the remaining 500 sq m. anyway...
My grandmother is living alone at the moment in a house where she and her husband raised 4 boys, each with their room and a bathroom for the children at the first floor and a bedroom, an office, a kitchen and a living room at floor level. There's also a basement with a parking space for the car and three rooms and a laundry room. And it's surrounded by a 0.35 acres garden.
Yet, it's cheaper to live in the empty house than renting something smaller or getting into a elder facility care house.
Staying in the home you own and have raised your family in makes sense (my own grandmother is in the same situation). The article is not about that, it's about people who decide to move to gigantic "dream homes" as they reach retirement age, and apparently we're supposed to feel bad that they have a hard time selling them for more than they built them.
I'm not saying it's reasonable, but I think these people are designing their house for peak capacity, not average. people with these kinds of houses might fly their entire extended family out for holidays (or several of their friend's families). they don't necessarily care that the place is empty most of the year; it's probably not their only house anyway.
My last kid is leaving for college in less than 2 months, and I'm right there with you. I need a place big enough for me, and for the visit of kids. (And hopefully, grandkids?) But that's nowhere near 700 sq m.
To be honest, I didn't even need 700 sq m to raise kids in. Some people are just so rich that enormous homes like that make sense to them. But then they are so out of touch that they don't realize that very few people even want lives like that.
For the imperial folks, 700 sq m is about 7500 sq ft. That's big.
It's tough for me to imagine using that much space, it's just going to accumulate dust. But then again, the people building houses that big probably just hire someone to dust it for them.
Right there with you. We sold our 1800sqft single-family for a 1500sqft townhome shortly after the kid flew the nest. And we still have two bedrooms that are seldom used (one is a guest room, used 3-4x/year, the other is an office used never, except by the dog).
My wife and I have a 2k square foot, 3 bedroom house, along with a kid (11 years) and a dog. (We recently moved there from the city) We're trying to figure out what we're going to do with all that space when kiddo is gone. Even though that's a way off, the likely plan is to downsize to a 2 bed in the city.
So much making could be done. I'm in a ~4000sqft home right now and all I really want is a workshop with and office. I'd downsize to almost nothing if I could detach from the house and do stuff and thing.
If you can afford to have staff, you get to live in what amounts to be your own private world, completely disconnected. This is the end result of the dream of an individualistic society. Alternately, you can afford to have basically all your personal "village" living in the same spot with you - close friends, family, etc. This usually works out mainly if all your income is passive.
Exactly! The goal would be to find a newish small house that you could buy. I would not want to clean/maintain a house that big when I am retired and should be working on my relaxation techniques.
For the families in the story, the problem is they can't get rid of homes that are uncomfortably big. Definitely a 1%-ish problem (hell, a .1% problem. I would have plenty of use for more space but I simply can't afford it in London).
However, there's another problem here, one for the rest of us — The site used for a single-family 700sqm home could've been used for something denser, that would've lowered housing costs for everybody else.
> However, there's another problem here, one for the rest of us — The site used for a single-family 700sqm home could've been used for something denser, that would've lowered housing costs for everybody else.
That's not really relevant in this case. All of the neighborhoods mentioned are low density distant suburbia. There are few jobs nearby and little incentive for growth there for working people. Housing costs are already pretty low for normal-sized houses in this area.
The US is huge and most of it has very low density. Unfortunately, with the transition to a service economy, automated agriculture, and the outsourcing of most manufacturing, fewer and fewer jobs exist outside of urban centers.
So you get insane housing costs in the increasingly few areas where there are lots of jobs, meanwhile other areas just languish. For the price I paid for my small Cape Cod house here in Seattle, in the small town I grew up in, I could buy a 4,500 square foot 5 bedroom / 5 bathroom mansion on a lake with a pool, two kitchens, study, game room, theater, etc. I just couldn't find a job there that would let me afford it.
Same. I'm looking at buying here in ~2021, and I'm looking at houses that are ~half the size of the one I grew up in on ~half the land for 2x the price. Shortly after I moved here I rented a 450 square foot condo that sold last fall for around the current value of the house I grew up in (2800 square feet, 1 acre, creek out back).
That said, those exurb mcmansions (particularly those featured in the OP) do push the boundaries of the wildland urban interface, and while their lack of density might not have the same impact on housing prices that you see in urban areas, they more or less have the same environmental impact.
While 700 square meters is indeed absurd for any family, 150 square meters seems a bit limiting. There are reasonable use-cases for houses larger than that. A living room, a kitchen, three bedrooms and an office will be hard to eke out of that much space.
50% higher than the average? OK, but what if you have above average needs? (Four kids, live in grandparents, etc.) There are plenty of "real people" who derive legitimate benefit from more than 150 square meters.
Ah well. My city has its share of idiot housing policies, but at least this isn't one of them. We are buying a 300 square meter house in a few days, and it feels like it'll be just about right for our needs.
Yes, but you can deny a loan for not having steady source of income. That's what retirement usually means. It refers to whether you are working, not how old you are.
Last time I bought a house, being an employee was a requirement (in the US, post 2008). I had a good job and plenty of income for the loan, but since my job at the time was as a contractor they wouldn't lend me anything unless I'd been a contractor for at least several (5 IIRC) years.
I mean, not really. I knew plenty of people buying new mcmansions on credit when their household income wasn’t above 80k. Many many Americans over leveraged themselves by buying up huge properties with no down payment.
People use two different definitions of "McMansion", to mean wildly different things.
To some people, a "McMansion" is any single family house they happen to dislike. Those are the kind of things working-class people buy on credit. (Homes in the 1200sqft to 2400sqft range). These are basically cheap disposable housing, they are popular because all people have to have somewhere to live, and this is usually the cheapest possible housing available that's still slightly comfortable to inhabit.
This article is not talking about those. This article is talking about actual McMansions or just real Mansions, homes in the 5000sqft to 8000sqft+ range. They're like 2x to 4x bigger than a typical house (even when using American sizes for 'typical house'). No regular person owns these, you have to be entirely in the "wealthy" category to even begin to look at them.
They're talking about multi-million dollar homes in the article. Even at the absolute height of the housing bubble craziness in 2007-2008 nobody was getting approved for a $3.5M house on an $80k salary.
> McMansion is a pejorative term for a large "mass-produced" dwelling
The subjects of the article:
> Ben and Valentina Bethell spent about $3.5 million in 2009 to build their dream home: a roughly 7,500-square-foot, European-style house with a commanding view of the Blue Ridge Mountains.
> Robin and David Saltman moved from New Jersey to Ponte Vedra Beach, Fla., where they spent more than a year custom-building their dream house with a pool on the ocean.
> George and Diana Hambleton […] selected the materials for the roughly 4,200-square-foot house, including reclaimed barn wood and Wisconsin flagstone.
On one of my harder-hearted days I would've felt schadenfreude (rich assholes waste obscene amounts of money on tacky shit, get burned, film at 11), but today I feel sorry for them. The whole thing is just sad. On the macro level, such a tragic mis-deployment of resources. And on the micro level, misplacing one's priorities on material things and finding out the hard way that it doesn't bring any meaning to your life. I know someone going through this now in a more modest house... slowly but surely, starting to get tired earlier and earlier in the afternoons (granted, she smokes), getting sick of chores like cleaning gutters, mowing, clearing spiderwebs etc.
And all those empty rooms in the photographs! I don't imagine they see many days of being filled with smiling, laughing guests. Which is really the only true use of a house that big... you need to entertain, you need hundreds of friends to share it with, right? Otherwise what's the use? Maybe that's just me. I would probably get supremely depressed otherwise, all that space around me, waiting to be used, reminding me how empty it is.
Everybody gets old. Everybody dies. Everybody follows each other in a grand parade to oblivion. These people won the game the mid-20th century told them was being played, but everybody ultimately loses the Big Game.
With the lack of 'wealth' that many Millenials are experiencing, it's not only real estate that is going to be affected. Stocks and other areas are also going to feel the effects. Strangely, it's not a lack of supply that will be the issue here, it's a lack of buyers. Millenials just don't have the cash to pay the Boomers for the houses and stocks they accumulated and the Banks can only buy and sell the properties to each other for so long, collecting fees each time they hand off. Though we're in a good job market right now, we're still not seeing any real rise in wages.
Concentration of wealth won't cause a lack of buyers for stocks. The wealth is still there, the very wealthy will just buy more stock. The value of a stock stacks in a way that the value of additional giant houses doesn't.
(Being able to buy ownership of a business, via stock or other means, is why wealth is concentrating in the first place.)
But you start getting into monopsony then. The people that you sell to are hyper rich and may pay a fair price, but there are a lot less people overall and their tastes aren't distributed like the general population. It's not the same market at all.
”Hello babies. Welcome to Earth. It's hot in the summer and cold in the winter. It's round and wet and crowded. On the outside, babies, you've got a hundred years here. There's only one rule that I know of, babies-"God damn it, you've got to be kind."” ― Kurt Vonnegut
I mean, that’s a pretty common theme in the Bible:
As one dies, so dies the other—they all have the same breath. Man has no advantage over the animals, since everything is futile. All go to one place: All come from dust, and all return to dust.
> I mean, that’s a pretty common theme in the Bible
Actually, it isn't. The book of Ecclesiastes, which you quoted, goes very much against the grain of the rest of the Bible, which generally tends more towards the idea that man is distinct from the animals, and does have a higher purpose, which is to serve God. Ask any Bible-thumping evangelical and they will be very quick to tell you that all do not go to one place, because their whole raison d'etre is to persuade you that if you don't follow exactly whatever particular flavour of Christianity they are pushing, then you will end up going to a very bad place indeed whereas they, of course are already assured of their entry into a not-so-bad place for all eternity. They will also tell you that the Bible never contradicts itself. I leave you to draw your own conclusions.
In the Qur'an as well! Chapter 102:1-2, very roughly translates as "Surely the accumulation of wealth distracts you, distracts you until you visit the grave"
Hah! Well thanks. I think the idea partly came from Cormac McCarthy - was it No Country for Old Men? The protagonist has a dream where he and his dad are on horses at night, and the dad rides ahead, into the "darkness," and is waiting for him to follow.
The economist just had a really fascinating interview with parents of extremely gifted children. Apparently many of these types of children start obsessing over this grand parade and it can become quite debilitating for them.
Not so much a disruption, but splitting these huge homes into duplexes is an easy ticket. HOAs and neighborhoods will fight it because "there goes the neighborhood"
Zoning laws or local regulations (not just HOA) most likely would prevent it. An example is in Seattle some of the most expensive neighborhoods have strict rules that prevent multi-tenancy housing and the people living there actively fight to preserve that.
This is already being done. I read an article about it a few months ago. It's like living in a dorm. There's a shared kitchen and bathroom, but you have a private bedroom. I don't remember the term for it. ("Shared Living" seems to be about people with disabilities, but it was a name similar to that.)
I do not wish to live in that kind of complete nightmare. And there is no such thing as too big house. How can someone even come up with that. I encourage that person to move into 10m^2 room and live there for like 8 years or so.
10m^2 is probably too small for many people, but that doesn’t mean there isn’t some inflection point where the marginal cost of upkeep outweighs the marginal utility of additional space. As an absurd example, would you want to live in a house the size of Montana, and be responsible for all of the maintenance, or would you prefer something more human-scale, like a 40-bedroom mansion?
I grew up in a 4000sqft + finished basement house. It was a wonderful home and created a ton of memories. But there were rooms that we just never used. I remember going into rooms just because I haven't been in them for 6 months. Reflecting on that contributed to my significant shift in priorities.
I just bought my first house which is about half that size and even then it feels too big at times. But it's a house I can afford. Being mortgage free by 39 means I get the flexibility to decide what the next act of my life will be about (spoiler: my kids). All it cost me was, I guess, a pool, a hot tub, an extra car, etc.
Not going to analyze your apparent state of mind, but: many people find mansions built centuries ago by incredibly wealthy people fascinating, beautiful, desirable. Who cares if they are dead, they left pieces of art. If anything, the lack of taste and craftsmanship is a problem with today’s “McMansions”, not their size or depressed Millennials’ lack of imagination.
This article claims that these homes are going because buyer preferences have shifted towards smaller homes in walkable areas. I don't disagree with this, but I'm surprised the article didn't factor in the cost of these homes.
These homes are priced in the millions and are generally not in areas known for high salaries. Coming up with that much money is out of reach for most members of younger generations. Some people may be interested in buying these gargantuan homes, but they can't afford it.
And as the article states, the generation that can most afford these homes, boomers, is losing interest in these homes because they are coming to terms with how impractical they are as they age.
I hate to sound so cynical and negative, but, God, this article is really just a case study in how stupid, materialistic, and short-sighted many Boomers are.
That generation was raised on the idea that happiness comes from owning as many things as possible. They've had decades to learn — like the generations after them did — that this is nonsense and that happiness comes from connection to family, friends, and community.
But, instead, some segment of them still build giant empty monoliths to consumerism out in the middle of nowhere and then get surprised when they discover that they are still old and approaching death and that they still don't feel good.
The article is generalizing a bit, and focusing on just one aspect of boomer housing matters.
For example, it's also quite common for baby boomers to hold onto their existing 3-bedroom homes, and in the process restrict housing supply of what should be affordable, reasonably-sized homes for millennials seeking to put down roots and start a family. I don't think there's anything wrong with this BTW, as it can be quite prudent to do so.
I think people were gambling on baby-boomers moving back to the cities and "downsizing" to a decent 2 or 3 bedroom condominiums. Instead, those units ended up selling to cosmopolitan millennials and Gen-Xers.
I'm not sure millenials or Gen-Xers are any less materially obsessed, I think we just generally have less money to spend on the things Boomers did. It isn't like we aren't spending thousands on tech, clothing, etc. I hesitate to condemn Boomers too harshly for their lifestyle choices given the benefit of hindsight when I'm sure my generation will also be pilloried for the aspects of lifestyle we are living that will later be seen as moronic.
Yeah I live in a 2 bed room condo because it's cheap. I would prefer to live in a house and could afford it, but the ones in my area are pricey with fairly high property taxes (2-3%). Mortgage rates are 4-5%, so that all adds up with maintenance and insurance. It would just be a really big commitment to take on those costs just to gain a yard and few extra rooms.
What's also interesting is the article claims that the Mediterranean look is out of style -- which I totally agree with -- but that house is decidedly not Mediterranean. It's more of a Tutor style, which is an trendy in high-end homes right now.
So it's absolutely an issue of price and lack of salaries in the middle of nowhere.
Ideally I would say that at a lower price, they would sell just fine, but the reality is that these homes are in a bad position. Appraisals mean that the property taxes will be sizeable in and of themselves -- even if they priced it at $1 there would not be many who could afford it.
What gets me is the absence of ballrooms. Yes, ballrooms.
In former times grand mansions would have a ballroom. There would be hundreds of people or even just modest gatherings of thirty people, which could be just a few families with a huge amount of kids each.
But the McMansions never seem to have a ballroom. There may be vast swimming pools and all kinds of huge extra bedrooms but they lack the fantasy aspect that goes with a grand ball.
The grand ball could be a wedding or a birthday or just a seasonal event. People would have to dress up for it in very impractical clothes. A certain level of class hierarchy goes with it though, not very American doing that.
I can't remember which one, but years ago the English king would not really use the grand palaces but stay in a regular house in the grounds. He just preferred everything on a practical scale. I think I would be the same had I been born with parents with one of these McMansions, for them to pass the behemoth on to me. The place would have to be in some storage mode and I would live in some small one room caravan out the back, to only use the big house when guests arrive.
How does the heating work out for these McMansions? I don't see a lot of doors. Do these people just have huge electricity and other bills to keep the lights and HVAC on the whole time?
Because these are not estates (which might own a lot of land, have vassals, and have economic and social connections to the surrounding area), so there is nobody to use the ballrooms, even if they invited everyone they knew. Its cargoculting for the rich with no sense whatsoever.
I have a group of very close friends that I've lived with off and on for the better part of 15 years - this allows us to sort of "hack" the system, buy up a very extra large house and just have more or less a communal living environment, out in the suburbs. The biggest issue is parking in a cul-de-sac, but currently its a 3600 sq foot house with 7 people living in it - 2 kitchens.
TBH, its great, especially when you compare what you can get for the same mortgage in the city, where even a 2 bedroom is considered too big. Anything over 2.5k sq feet in the city is either a triplex (and thereby 3x as expensive per sq foot), or a mansion that costs >$500/sq foot.
We get to have nice amenities like a hot tub, gym room, etc, and not feel like we have "too much" stuff because almost everything is actually used. It wouldn't work if we wanted to have kids of course, but we're pretty much all lgbt. The social group also has to be not only tight, but also already has good way of dealing with conflict.
Why is this a problem? Some very rich people become a little bit less rich. None of them seem to be in danger of falling into penury over only getting $1M for their house instead of $2M. Sounds like the supply and demand working the way they're supposed to.
At a macro level and over the long term, even if prices fall and this means that slightly less rich people can buy them instead, big houses are more expensive and more work to look after and maintain and there is a limit to the number of people willing and able to do that. The ultimate end result could be that some of these houses become derelict, which isn’t really good for anyone.
This is what happened to a good number of the large country houses in England after food prices fell in the late 19th and early 20th century.
Knock $10-20k off the price and put that towards hiring people to clean it. Bundle the house sale with cleaning services for a few years or something. The amount of people willing to deal with it will grow as the price falls, but that's not newsworthy. That's the uncomfortable truth for people wanting to sell.
Not just energy costs - replacements for kitchen/bathroom fittings as they fail, painting/decorating, cleaning, basic maintenance to ensure the place doesn’t fall down, keeping gardens from becoming overgrown, the list goes on.
Exactly, these are brick and mortar resources and skilled labor being poured into personal assets, not into infrastructure or affordable housing or charitable causes. If all these mega homes or mega expenditures of any kind were instead more usefully applied, capitalism would feel a much friendlier and just system.
Free markets are nearly optimal for commodities, restaurants, and similar sorts of goods, as well as many competing small businesses.
They grind along for IP, utilities, and some sectors of education, as well as large businesses.
They break down almost completely for large-scale finance, real estate, medicine, and other sectors of education.
Curiously, much of this was predicted by Adams in Wealth of Nations (read his sections on real estate; they sound downright dystopian). Even more curiously, China has privatized all the sectors where free markets work, kept public all the ones where they don't, and their economy exploded. The US economy exploded with free markets when it was driven by essentially commodity manufacturing. As IP, finance, and real estate became more important, it began to fall behind.
>They break down almost completely for large-scale finance, real estate, medicine, and other sectors of education.
You just rattled off a list of sectors where the free market is the least free (though in the case of finance I think they more than earned it).
Of the four things you mentioned I would deregulate two, regulate the crap out of one and get the federal government out of the business of backing loans on another.
There's a difference like night-and-day between regulated markets and government-provided services.
If I had my druthers, finance, real estate, and health care would be run by the government. If I couldn't get that, I'd have at least real estate and health care almost completely deregulated -- some transparency and truth-in-advertising laws, but not much more.
It's often painted as a scale from free markets to regulated markets to government-run, but I'm not sure that's a fair model. In many cases, the so-called mid-point of regulated markets works the worst.
>maybe what you consider an ideal world or even positive outcomes or even onerous regulations are not what others have in mind, what with your "dark views of humanity" and all?
Many people (dare I say the overwhelming majority) on HN agrees that real estate needs a heck of a lot less regulation so supply can do better meeting demand and costs can drop.
We may argue about the minutia but pretty much everyone on HN also agrees that medical (in the US) is nowhere near a free market and substantial de-regulation (so the "race to the bottom" can control costs) and/or (but probably "and") a government option (to provide a cost and quality controlled baseline of care) could/would improve the situation.
"Ideal" or not a heck of a lot of people believe that deregulation (within reason) of some/all of the things you listed as free market failures would result in a large improvement from the status quo.
>hmmm you elsewhere, on a topic about the harrowing conditions of FB moderators, claim that "there's a lot of variance between individuals ... I'm not the kind of person that's particularly bothered by graphic violence. My opinion of humanity is dark enough to accommodate it"
How is my opinion of a particular workplace at all relevant to a macroeconomic discussion?
If you think you can "win" an argument by saying "hurr durr, this guy I'm arguing with has opinions other people don't like" then you are sorely wrong. That is how Reddit works but thankfully HN has still not stopped that low and FYI the comment below the one you linked where I expanded on and clarified my point is highly up-voted. ;)
>cause it sounds to me like you deeply believe in naturalistic hierarchies
I'm not sure I'd say that. It greatly depends on the issue but regardless, what is wrong with that?
Real estate is most efficient when it's managed in the public sector. The government owns all or most of the land, and provides everyone with free housing from taxes.
Free markets tend towards a land-owning aristocracy and peasant renters being charged what the market will bear.
I'm not suggesting any particular course of action. I know of no way to move real estate into the public sector without the short-term transient driving the economy into the stone age. But if one were starting form scratch, that's definitely the way to go. It's more economically efficient and more equitable.
It's actually less about the houses on the land as about the land itself, but it's hard to decouple the two. Rent-collecting resources work best as a public good.
Private sector+heavy regulation isn't a mid-point between private and public. In many cases, including real estate and medicine, it's less efficient than either extreme.
Have you ever lived in one? The architecture wasn't pretty, but thy have a lot of upsides too: Everyone has enough space for a family. There's a real sense of community. There's plenty of green space and playgrounds. They're also super-sturdy.
I have to admit that I really prefer soviet apartment blocks to, for example:
* massive cramming of housemates in London, New York, San Francisco, or similar areas with rent going to a landed gentry
* to being saddled with mortgage debt which takes half of my post-tax income, with that going to a financial system
* to living outside of economically-viable areas, where cheap housing might be found, but where I have a lousy job
or many of the other pathologies of the current market. The capitalist model works just fine when land is cheap or free, as it was for most of America's history. Once it's about inherited land ownership and collecting rents, it breaks down.
However, in a democracy with public housing, you'd likely end up with something much nicer than soviet-style apartment blocks. Compare British health care to soviet health care.
True, good regulation is what is necessary. We need to get rid of the notion that the government never does anything right. It's simply not true and it's harmful.
1) Government can't do anything right, and we need no regulation.
2) Capitalism will f-k people over without regulation, and we need maximum regulation.
Neither is true. Markets work pretty well where they work, and regulations work pretty well when they're well-designed. Both work pretty badly when they're corrupted, gamed, or poorly-designed. I see very few discussions of what works well, versus a left-right push-pull.
Loss of wealth is never good for anyone. Start with the waste of resources – money was spent on pointless construction and creation that have much lower value than expected. Empty unsold houses benefit no one. Those resources could have been used productively for long term benefit. It’s in all of our interests to discourage the waste of resources like that and encourage productive uses.
Then there’s the re-allocation of resources to cover the loss. If a couple make a loss of $1m selling a house, then they may need to liquidate $1m of savings to cover the loss, withdrawing that capital from the cycle of investment in productive economic activity. Interest and profits on investment don’t come from nowhere, they’re generated from the productive activities those investments support. Now there is less capital available to do useful economic work.
I see what you're saying. In any healthy economy though, there are going to be some people who make investments that lose money. That money gets redistributed to the workers they employ and circulates out through the rest of the economy. We need people to risk money in order to have the economy function. Necessarily some of those risks won't work out, but this should not be an existential threat to the economy as a whole.
A house, especially a luxury house, should be considered a purchase and not a store of value. The actual physical materials of the house only depreciate over time. Sometimes the underlying land can go up in value if it's in a desirable area, but that's not the case here.
> If a couple make a loss of $1m selling a house, then they may need to liquidate $1m of savings to cover the loss
This doesn't make sense?
Firstly, the point at which the capital was withdrawn from savings was the time the house was built - savings turned into a physical capital asset. That house has lost value, but that doesn't affect liquidity.
Secondly, there's a global capital glut to start with - that's why interest rates are so low and people are building McMansions.
The couple sells the house and then wants to do something else with the money they get back. Maybe they buy another house or give money to their children or both. They still want to do those things, but they have $1m less from selling the property than they expected, so they liquidate $1m in savings which they wouldn't have otherwise needed to do. Alternatively they spend $1m less, or invest $1m less, which is $1m less revenue or capital for people and businesses in the rest of the economy. Either way it's not good.
It's a bit simplistic, but the point is there is a real loss of wealth in society. If the house is sold the new buyer got a bargain, but they probably just got more house for the same money spent on their side. That's good for them, but on that end of the transaction it's likely to be roughly economically neutral, in terms of the whole economy.
You can flip this argument around for the person buying the house, though, so it doesn't really work. What if the house didn't sell for $1m less? Then those new buyers just lost an extra $1m that they otherwise could have invested elsewhere in the economy. Or conversely, when the house sells for $1m less, you're freeing them up from that additional burden and they can put their next $1m into investments besides the house.
That wealth wasn't doing anything useful. It was just a number on a piece of paper. Sure, they had borrowed against it but their cavernous house isn't capital in the same way a hammer is. They can't tear of a piece of house and barter it for food, for example. There's no utility in their house for anyone but them. I hope that extra million at least made it into the pockets of some of the homebuilders.
I am no economist but a 50% decrease in price value is going to leave some scars on the performance of some portfolios. That lack of revenue (or growth) will be passed to the weakest link: the consumer.
That depends on whether they took on a mortgage. If they're indebted and were considered a low-risk borrower, then it matters very much if a lot of them suddenly become a default risk.
Several of my younger friends live in cooperative housing, where they rent a big house, and individually rent out the rooms. Sometimes as many as 8 or 10 people live in a "single family" home. This seems like a great solution for all parties involved (including cities with very high rents), until you learn that the cities they're in often consider this an illegal use of the property and will force their landlord to evict them on short notice if neighbors complain. And, because it's technically an "illegal" living situation, they don't get a lot of the same protections they'd get if they were "legal" tenants. So, leases are kinda meaningless, if the landlord can evict at any time.
It's a sort of housing insecurity that makes their lives a lot more stressful than anyone should have to deal with, and it gives landlords a dangerous amount of leverage over tenants (they charge more, knowing it's being used by multiple tenants, but they'll claim lack of knowledge when the neighbors complain and the city comes knocking). And, of course, they'll ignore the lease if they get a buy offer that they don't want to say no to.
Cities, especially those experiencing dramatic rent increases and that have a history of only allowing single-family homes in much of their livable land (as most US cities do), need to remove zoning impediments to multi-family housing. There was a project published a couple days ago to map the zoning in a bunch of major cities, and it's eye-opening how tiny the available space for multi-family dwellings is in a lot of them, and it makes it make sense that there is a housing crisis in a lot of major cities. Maps are here: https://www.nytimes.com/interactive/2019/06/18/upshot/cities...
Of course, that won't solve the too-big-too-far houses. The other problem with a lot of McMansions is that they were built in the middle of nowhere. Younger people want shorter commutes, the ability to bike or take mass transit, a neighborhood with shopping in walking distance, etc. People have figured out that quality of life in cities is just plain better than suburban life.
There's fun history to that here in California. There was an older woman here in Santa Barbara that ran a house like that. Lots of rented out rooms, they ate communal dinners, but you didn't have to come, etc. The city tried to shut it down, she took it to the state Supreme court, where they ruled in the homeowners' favor, saying essentially "the city doesn't get to decide what a family is. If these people want to call themselves a family, then they are a family, and this is a single-family home."
As such, the restrictions now are on separate dwellings, as defined more by number of kitchens, sub-dividability, etc., not number of people.
It works if you own the house, but yes for over 5 tenants renting becomes a total pain due to "equal" tenant laws. Only in areas which allow "master" tenant does this end up working - you have to have a smaller set that is ultimately responsible for the home, else nobody is.
At least in my area, the cost of permitting and labor is such that it’s simply not worth building a house unless you can sell it for over $500k. Which means they’re only building large, 4 bedroom houses, most in the $750k range. The vast majority of prospective homebuyers cannot qualify for a loan that big.
Meanwhile the rent on a 2 bedroom apartment is more than a mortgage on one of those houses. So guess why so many people are renting?
Are we supposed to be sympathetic to the “problems” these people are facing selling their overpriced real estate? My only regret is that they’re not getting screwed over harder.
Because in real terms it may not be real hardship so much as inconvenience - unless they're hugely indebted, which then makes it a much bigger problem for everyone.
But also because done the right way, it could help alleviate real hardship elsewhere.
Not sure how them having to sell their house for $1m less would somehow alleviate hardship elsewhere. It's not like it would go into taxes or something.
We have a similar issue in the UK since there are large houses being occupied by older couples whose children have left. Since annual property taxes are low (~4k - we call it council tax) and tax on buying property (stamp duty) is high, there is no incentive to move to a smaller place.
Equating council tax with property tax is extremely misleading imo.
For the benefit of people not from the UK: Council tax is effectively a bill for services & utilities paid by the occupier. Cost differs slightly based on overall property value but that's not super helpful for renters.
Property taxes would be levied on the owner, and be directly tied to house value.
For what it's worth I believe we desperately need property taxes to put and end to the situation you describe, amongst others.
But the UK has a fetish for homeownership, culturally people are convinced they _must_ own a house or multiple, and so many homes were practically given away for free by past governments.
Any Government trying to implement policies that try to fix our housing crisis will be voted out almost instantly by a class of people who do not care what is for the public good, only that things benefit them.
It's true that council tax is paid directly by renters, whereas in the US renters only pay property tax indirectly via rental cost.
However, from the point of view of the housing market they are comparable. They're both an annual cost to holding real estate... and in the UK it is very low.
In all countries there are plenty of older homeowners with a surplus of space. Most people don't want to move out of their home if they don't have to, even if it is now larger than they need. However it's even more so in the UK because the system incentivises people to stay put.
I feel that it was not "extremely misleading" within the given context which referenced older couples in larger properties. In this case, they are the ones typically paying the council tax.
I agree with you that the UK needs property taxes to be paid for by the owners. This would help reduce speculation and encourage utilisation of the existing housing stock. But as another post has mentioned, objections include "think of the old people who are worth $1m+ in property but would have to move out because they have low income"....boohoo...
You need to be careful when dismissing caution about the elderly who have - through whatever means - found themselves living in a valuable property. The following are just as likely:
- a wealthy individual with many properties who can easily afford a few extra hundred quid a month
- someone living just above poverty level in a property in a previously modest area that, thanks to a gentrification, has exploded in value - and would to move out if their tax band was bumped up a bit
We cannot just dismiss the plight of the latter simply because we want to disincentivise the former.
I'd like to add that the vulnerable (including but not limited to - elderly, long-term unemployed, immigrants, disabled) in the UK have already had to deal with cuts in local services as well as periodically being labelled by the government and the press as lazy or pathetic or scroungers. I'd encourage anyone to resist anything that could be used to further victimize or immiserate them - even if it is just in the form of a casual tweet or comment.
Edit: My last paragraph really sounds a little harsh on re-reading. This is because it was meant to be an "as an aside" comment and not accusing Blackstone4 of anything sinister! I'm generally in favour of taxing the rich and powerful.
I think if someone is in a huge house they're barely using and possibly not even maintaining, there isn't a massive issue with gently incentivising them to move somewhere smaller.
There especially isn't an issue with a redistributive land tax rather than a property tax. That would take money from corporate landlords and move it back into the rest of the economy.
You have to balance your caution with the reality at the other end - which is people living in slum conditions and/or sheds, or being homeless.
If it’s a case of seizing unused or poorly maintained mansions from the super-rich and turning them into Council houses then I am on board. But to me it sounded like we were talking about old people living alone in 3-bedroom houses they used to stay with their families
And you have to balance your optimism with the fact that your solution will cause lots of old people (who maybe should have downsized 10-15 years ago) to be forced to downsize now and who would then lose the ability to live independently.
> There especially isn't an issue with a redistributive land tax rather than a property tax. That would take money from corporate landlords and move it back into the rest of the economy.
I commend you for being honest about such a tax: it is indeed someone (perhaps those who call themselves "the authorities") taking what is not theirs. Taking it, without permission.
I disagree that noble ends can justify such means.
> But as another post has mentioned, objections include "think of the old people who are worth $1m+ in property but would have to move out because they have low income"....boohoo...
Cruel. There are plenty of old people that are able to keep living in their existing home because it is familiar but would be unable to live independently in another home.
I guess it depends on your perspective. It may mean pain for some and relief for others with a view to moving towards a more optimal solution for society as a whole. How can we use our housing stock more effectively?
As things stand, people defend the status quo when young people and those on lower incomes are struggling with high rents and property prices. Some have kids and have to share rooms and live in small properties. Others may end up debt slaves for the rest of their lives.
>There are plenty of old people that are able to keep living in their existing home because it is familiar but would be unable to live independently in another home.
If they have a net worth of $1m+, I'm sure they can afford to pay for care. I am not talking destitue, improvished individuals.
> If they have a net worth of $1m+, I'm sure they can afford to pay for care. I am not talking destitue, improvished individuals.
Except that you are. There are plenty of old people in London and the South East with very modest pensions that live in homes that have exploded in value through no fault of their own. They are not wealthy they just happen to live in a home that has become expensive.
I don't know if you have seen how confused a someone with dementia becomes when you move them to a new environment but it can be pretty horrible. And cheerfully saying that now this formerly independent person has to now pay for care because you took a policy decision is cruel.
The solution to a problem with society is not to hurt other people. This isn't a zero sum game where pain should be apportioned. We could actually come up with solutions that help everyone. Like simply building more homes...
> Property taxes would be levied on the owner, and be directly tied to house value.
Property taxes don't necessarily fix the issue though, because the property value is usually re-evaluated on sale, so the property tax increases drastically at that point.
That's an implementation concern which can be addressed through data/analystics. i.e. a record can be kept of the size of your house in sq ft and property taxes adjusted for recent sales in the area.
It’s not so much a fetish for home ownership as a reflection of bad incentives. Renters have few rights and embarrassingly owning a home is often actually cheaper even in ridiculously valuable areas.
True, in Indiana; renters only recourse when the landlord refuses to maintain a property, is to move out.
They also have to justify it to the judge or live with a black mark on their credit. This, like an eviction, will make renting almost impossible in the future.
>Property taxes would be levied on the owner, and be directly tied to house value.
That is awful, why would you ever want to introduce such a regressive policy? Higher density construction generally costs more than low density construction. Each floor adds more cost because you need proper ventilation, elevators, stairs, etc. Therefore an apartment will be taxed more despite having the same number of square feet/meter. Despite this, apartments still make sense economically if the land value is high but if you're burdening them with yet another heavy tax then people will shift to single family homes instead.
Then there is the fact that you should never tax someone for improving their house. Oh you installed solar panels on the roof for $30,000? Lets tax that! The solar panels are no longer a net gain. Homeowners no longer have a reason to improve their homes. Imagine someone working on his house in his free time. At that point you're taxing someone's free time. How backwards is that?
Stop taxing property value. It's regressive. It's a moral hazard. It doesn't work.
If you want to tax something, then tax the land those buildings are sitting on.
Bonus content:
And since for some reason grandmas are the most important members of a gentrifying city we can even take a look at what happens when they get priced out from a property tax vs a land tax.
Grandma sells her overpriced home because she can't afford the property tax: She can't move into an apartment because the apartment is taxed even more than the home she left.
Grandma sells her overpriced home because she can't afford the land tax: She can move into an apartment because the apartment is taxed less than the home she left.
What about the headache of maintaining a big home? I've seen what it is like to care for a large home. It's a nightmare, whether you have money or not. Every pool, every gymnasium, every commercial-grade appliance, etc. They all require maintenance, repair, and eventual replacement. To do that, it costs a lot more and the available labor is much more limited. You have to wait weeks for some guy who lives two states away to come in and work on your elevator and when he gets there he charges you an unbelievable amount of money to do basic things. And when things aren't broken, you have to always be renovating or updating something. Things that look like they are aging or out of style don't signal your status because they tell your guests and visitors that you have a big home, but maybe can't afford it. So you're always updating. Always renovating. It's all a show.
The idea of dealing with all of these "luxuries" is awful to me and I've seen wealthy people who didn't have to work basically turn home maintenance into their job because it required just as much time and stress as anything else. What is the point of wealth if things you use it for give you just as much headache as a middle class person's job?
The UK also has Stoke-on-Trent giving away houses for £1 in a desperate attempt to unblight the place.
The UK's problem is not so much lack of houses (although the planning system really doesn't help) as a combination of over-financialisation and over-centralisation. People believe that all the high-paying employment, entertainment, and oligarch money is in London. It's also the default destination for immigrants. As a result you've got people trying to live in sheds there. Meanwhile everywhere from seaside towns to Birmingham gets treated as second-class citizens, with inadequate public transport and little inward investment.
It’s largely internal migration driving that effect in the UK, not external migration or financialisation. Children go to university and never come back. The good jobs ARE largely in London and the South East, and people follow their friends creating a network effect too.
It’s also not new - it’s been going on since the end of the Second World War pretty much.
Well, yes. Each individual is only doing what's best for their circumstances. What I'm questioning is whether this is how it has to be, this centralisation, and whether good jobs could be distributed round the country a bit more by some policy choices.
Yes, London’s population shrunk into the late 80s as people moved out of city centres but the South East grew very quickly in the postwar era - more than offsetting this effect. Since the 90s, both have been growing.
Housing costs aren’t insane in the commuter belt if you have a decent job in London. Most people working in London don’t live in London. Good job in London, house in the South East, commute by train, still looks better to a lot of people than poor job in a rural area of the North or Wales and getting a less good house.
Of course there are some professions where the equation works the other way - medicine being one obvious example.
> The UK also has Stoke-on-Trent giving away houses for £1 in a desperate attempt to unblight the place.
I'm kinda curious what you mean by this?
I just did a brief (didn't look at all areas) google maps tour of the area, and while I know that isn't in any way the best to assess an area, I was struck by a few things:
1) Things seem pretty quiet - little vehicle traffic, but also few people walking about, even in the "city proper".
2) Buildings seem fairly diverse; some newer, some older. Most in seemingly decent shape; a few in need of repair.
3) Some interesting shops and restaurants (saw one small restaurant called "Planet Bollywood" - heh).
4) Housing neighborhoods and such seemed and looked nice.
I guess what I'm trying to get at is that I didn't see anything that looked like "blight"; maybe I didn't look in the right areas, or maybe my concept of blight is different?
When I think of blight, I think of empty lots with weeds chest high, trash dumped, broken down and/or burned out buildings, etc - stuff in extreme states of disrepair or needing condemning and removal/cleanup.
I didn't see anything like this; but again, I didn't look everywhere. Where I did look, the worst I saw was perhaps some buildings that needed some basic upkeep and maintenance (at least, from the outside).
The UK's problem is not so much lack of houses (although the planning system really doesn't help)
It really is a lack of houses. It's true that some residential buildings are not being used to full capacity. It's true that we are far too centralised around London in some respects. However, those are still relatively small effects compared to building ~100,000 too few new homes every year for decades as demographic and lifestyle changes are rapidly increasing demand.
You're right that the planning system really doesn't help, nor does the ease with which the big housebuilders routinely manage to bypass it so they can build and sell the high-end, high-profit properties without providing the balancing low-end, lower-profit ones and supporting infrastructure at the same time.
It also doesn't help that our education system has pushed people away from practical trades. There are nowhere near enough good independent tradespeople for individuals to conveniently build, adapt or extend their own homes instead of buying the over-priced, mass-produced junk that big housebuilding firms typically offer these days. In some places elsewhere in Europe, people designing and building unique properties for their own needs happens all the time. In the UK, it's still rare enough to be a conversation starter if you meet someone who's actually done it.
Of course the problem now is that a significant number of people have treated property as an investment vehicle, intentionally or otherwise, and stand to be financially ruined if there is a big crash. Meanwhile, prices have literally become prohibitive in many cities and other relatively popular locations for the younger generations who are flying the nest and looking for their first home or wanting somewhere a step up the ladder to settle down with a partner and perhaps start a family.
The only way I can see to cool the market without causing economic disaster is a slow erosion based on building a more realistic amount of housing stock so market rates naturally fall over time. But of course the big builders and mortgage lenders really don't want that, and the system is stacked against the little guy who wants to go independent for the reasons above, so without disrupting at least one of those groups, nothing changes and the problems just get worse.
That was one of the advertising, rather than real justifications for getting rid of the rates - which was on ownership rather than occupation, and replacing it with first the poll tax - and we know how popular that was. Then council tax.
It was nothing other than a massive subsidy for the most wealthy as the top band is reached so early - it's only slightly less regressive than the poll tax was. The Tory campaigns were built around how "unfair" it was for the old widow or couple, who'd worked all their lives, to pay the same as a family of 5. No mention that no one in their right mind thinks a widow still needs a 4 or 5 bed house.
Double bonus: In bringing in council tax local finance could be massively further centralised, weakening the regions even more.
It's really surprising how little push there is to get shot of council tax, bring back rates or some properly progressive tax.
Part of the idea of the ‘poll tax’ was also to increase accountability of local government by making it more transparent - ‘why do you charge twice what the neighbouring council does?’
Council tax actually is relatively progressive when you consider that council tax benefit is also part of the system. Very few areas have a large number of band H homes - parts of central London do, but even there you might be surprised how small a number you’re talking about - there are only c15k in the City of Westminster for example, the borough which includes the whole of Mayfair and Belgravia.
The difference between a multi-million pound mansion owned by an offshore holding company on behalf of a billionaire and sort-of-okay almost affordable housing is usually only a few hundred pounds a year.
And accountability has clearly not been improved in any way.
In fact billionaires rarely pay council tax at all because councils rarely chase them. There's no point sending bailiffs to an empty property protected by professional security owned by a company with an offshore address that's effectively immune to any form of legal action.
How many multi-million pound mansions owned by billionaires who never visit do you think there are in the UK? It’s a tiny tiny number in the context of the country as a whole.
And councils can and do apply to the court for charging orders against the property itself, then force a sale. Offshore companies as owners are not immune in any way.
So it was alleged. The exact same transparency was there in the domestic rates, as the levy was on property value. Rates had one big advantage - houses don't move around much. The overheads of collection are minimal.
The truth, of course was removing a tax on the wealthier, and drastically cutting the amount of revenue councils were able to raise locally. A good part of how we ended up with one of the most centrally controlled systems there is. Westminster decides how much funding councils get, council tax tops up a little of it. A "blessed" council can charge lower taxes through receiving higher central funding.
A welfare benefit that only some are eligible for and requires retrospective claim does not make a tax progressive. Especially with how broken the welfare system has become for those needing to claim whilst working. The absolute numbers matter little.
> ‘why do you charge twice what the neighboring council does?’
It turns out that most council costs are things they are statutorily obliged to do, and rate rises are capped by the government, so council tax rates are largely an indicator of the ratio of taxpayers (including businesses) to service users.
Well, yes. A lot of things are done at local authority level for no good reason - although it’s also true that relatively little of that is services where they have zero influence over the cost - they can spend efficiently or inefficiently and offer gold plated services or bare bones. The system was more transparent than comparing band D tax which is what happens now because some local authorities are mostly low band stock and some mostly high band, and that in turn is more transparent than the old rates system.
The UK has a different issue.
The size of the homes is just absolutely tiny even for the same number of bedrooms it has been shrinking and it shrinking still.
The houses in the article aren’t Victorian era detached houses that are being hogged they are fairly new built homes just big ones.
Also council tax even for a large house is often quite lower than 4K, stamp duty starts at 125K and between that and 250K it’s just 2%. So with the exception of London and a few other cities in not sure it’s what is preventing retired people form buying newer builds, the fact that the new build is likely considerably worse than the 80 year old house they live in just might be however.
The article is about single-child couples who built 400~700m² houses as their children were already adults.
Checking the numbers, Bethell is 78 so bought / built a 700m² house at 69. Their monstrosity of a house has 4m ceilings from the pictures. The Hambleton built their house at 82 and 68.
I built a house last year, and had to work with a few different banks to finally get a construction loan. One of the fist ones said to me "1900 sq-ft? You shouldn't be building a house that small".
We made it work, but would have gone with a manufactured home before we would have built something with 3k+ square feet just to make the bank happy.
I would assume the first bank advised against it, and the other banks passed on it, is because they need to think not only about whether you can be expected to repay the loan, but also about how easy it is going to be to offload the property if you can't afford the loan and they need to foreclose.
Yes, YOU might be perfectly happy in a 1,900 square foot home, but if the market demand is for houses significantly larger, then you, or the bank, might find it (relatively) hard to find a buyer if you ever need to sell.
I was about to say the same. I know someone in the Salt Lake City area who built his own home. His realtor told him "You can build what you want, but a house with 4 bedrooms will not sell well".
Well the solution is communal living in these large homes. I'm doing just such a thing with extended family and children and its quite nice.
I get not everyone loves being around their family, so its not for everyone, but it makes things far more affordable, and the house you can get by pooling money together can be quite amazing compared to what you can get by splitting the pot. There are fewer people wanting to buy these homes which means the deals you can get are quite good.
this is actually the classic use case of a real mansion.
Almost all old mansions, especially in Europe used to be owned by the aristocracy, and they lived their with the entire (extended) family and servants.
A 700m2 house is terrible to live in the place is inhabited by 2 people. 10 or 15 on the other hand, make living in such a home a completely different experience.
Thats what I and my friends do do - however, in the areas of these homes the cost can be absolutely gargantuan to buy - like completely out of range. A $3mil house is $15,200 per month just for the mortgage, round up other expenses to around $18,000. Its very hard to get 10 people together that can afford $1800/mo that wouldn't prefer their own place, and as the amount of people go up the risk of people moving in and out constantly goes higher.
We live in a $600k large house and pay a lot less. We may upgrade eventually, but keeping a group of people together for that long can be difficult - even if socially there's a lot of cohesion, most often its a job opportunity that requires someone to move.
The property taxes are horrible too. They are the equivalent of a mortgage! Older folks have the money, young people don't, most are struggling to afford a mortgage, let alone taxes that is the equivalent for a mortgage. Not to talk about the cost of heating/cooling such houses.
I hate the idea of owning property. I don't want to be stuck to a city or a location. The world, and the universe have so much to offer. To me, buying a house is cementing your location and stunting the amount of knowledge you can acquire by handcuffing you to a location and limiting your exposure to the world.
That is the philosophical side, then there's the debt and the overall asset appreciation game that everyone else plays.
I have no interest in owning a home to settle down. If I do it, it would be to exploit financial interests with the right opportunity. I think we can use a radically different model for housing and what we consider livable spaces for our species.
I'd love to see cities built around the Dunbar number and with transportation making travel times easier, we can see some interesting designs. Foster community and allow communication and personal reach across distances. This is probably going to be forced by warehouse space in relation to live space. We're going to need more and more land for manufacturing and storage of goods compared to retail and shopping experiences. We'll have living communities without much need to venture into markets. Markets will be VR, and many jobs will be remote. Foster community with "villages" within a city that is related to the Dunbar number.
Before I had kids I didn’t want to own a home or a car. Now I want to own it because I just don’t want the hassle of moving with schools and friends and whatnot. It’s a 10-15 year period of my life that I want this. Afterwards, who knows. But there will always be a market for people who want to just settle in one place for 15 years. I don’t think this is generational, I think it’s mostly just age.
Most people have the same thoughts (at least in the income class that can afford to move around), until they have children and need a good school district.
This has an interesting inheritance of why properties go up in value in relation to supply and demand and an economy. If the needs of society are pushed to an average of not needing to venture out anymore due to automation and manufacturing + remote work then we start to focus internally on community. If that's the case, how much does the location matter outside maybe the view you're able to afford?
I'd argue that it matters _more_ in that case, because the returns to clustering will be higher, and the non-work features (access to outdoors, climate) will matter more.
I think in a world where you don't worry about jobs, and worry less about living expenses, Boulder and San Diego and Manhattan get _more_ desirable.
(I hope i'm reading your hypothetical right) in a world where I don't have to venture out to go to work, and don't have to live in a set place to chase an industry, I'd put more value on being in a nice climate, close to fun things to do, and near other people that have 'interesting' established communities (walkable culture, food, know your neighbors, all the standard millennial trend stuff).
I'm assuming a situation where I have more leisure time and less income scarcity here.
There are some people who take the "given no constraints I'd move to flyover country" but even then many of them are doing that because it's cheap, not because it's the absolute most desirable right?
Strictly speaking you _could_ just plop a new city down from scratch in Nebraska, but why would i live there when i could live somewhere where I go to the beach or the mountains every weekend, and walk to a hopping established strip of restaurants and coffee shops in 10 minutes?
Moving to flyover country is more than affordability. It's also a matter of culture. Some people want stand-your-ground, constitutional carry, and lethal defense of property. Some people want to be surrounded by a particular religious group.
Affordability is also more than just being able to buy a place to live. People want land. This can mean being able to hunt in the yard, own a private pond, or walk around without seeing any sign of the existence of other humans on Earth. Technically, there is some amount of money that would let you do that kind of thing in San Francisco. It would start with funding political campaigns, leading to a massive eminent domain wipe-out of the existing city... but this is not realistic. In a practical sense, getting the space is not a matter of affordability. You can't have that space for any realistic cost.
Bingo. I live in a “constitution carry” state in flyover country. Currently on travel in a heavy gun-control state that looks like a documentary on the opioid epidemic. Can’t wait to get back.
I wasn't really thinking in terms of politics -- There's still a few hub cities in conservative land that are the main places people live, right? More people live in just the Houston metro area than in all of Missouri, despite rural MO being cheaper and just as conservative.
I guess the point i'm trying to make is in regards to the original poster -- They posited that if people don't have to care about job locations and as much about cost, real estate values in concentrated places would drop.
I'm arguing that if people could move anywhere they preferred, concentrated places would get _more_ popular, because the gains you get living in currently desirable places get more valuable the more time and money you have. Obviously you have some people who's preference is to live somewhere isolated, but most of those people don't currently live in expensive places. There are some people who are holed up in San Diego and waiting until the day they can leave, but that number is probably swamped by the people who'd move there in a heartbeat if they could find a job that payed well enough.
Maybe my sample is skewed, but I'm from a small city in MO, most of my friends are early 30s and starting to settle down and start families, and I know a lot more people who would rather live in NYC/Boulder/Nashville/Dallas than either where they live now, or somewhere more rural.
I have a lot of friends who have moved to rural areas. A few of them went stir-crazy and moved back.
I called one friend who had moved away, pining after a property and he said moaned "nobody to talk to about anything more complicated than a hammer and nail".
School today is an archaic design. Education has no bounds with the internet and the spread of information where it is no longer asymmetric. School and universities are falling out of favor. What matters is what skills you have over what degree. The internet and the corpus of knowledge equalizes this. This assumes connectivity is a given – I believe connectivity will be tablestakes in a variety of situations and incentives by those that can provide it.
Additionally again, education outside of pure learning like we're limited today on the internet will be more immersive with VR/AR and your need to go to a physical location will differ.
I believe sooner than 20 years, it's not the norm yet but we're closer than most would admit I'd say. This is based on my personal experience and business endeavors.
>To me, buying a house is cementing your location and stunting the amount of knowledge you can acquire by handcuffing you to a location and limiting your exposure to the world.
Too many people have a narrow view of home ownership and end up believing in things like this.
Whether it is true or not depends entirely on the location and the market. In the right places, you can buy a house that is near all the amenities (walking distance, even). The only real risk is the RE market, and how much loss you're willing to take to sell the house quickly (i.e. 6% RE fees when selling). In my case, the value rose enough in one year that I could have sold and still made a gain.
If you can't sell because the loss will be too high, there are other alternatives (e.g. renting your house), but as I said, it all depends on the market.
>If I do it, it would be to exploit financial interests with the right opportunity.
Umm - isn't that why many do it? I mean yes, people do buy houses for other reasons, but if they don't perform due diligence in the math, it could end up hurting.
At the moment my house is limiting my opportunities - I'm turning down any offer to move to SV, for example. But it has nothing to do with being shackled financially. I'm making the choice because of all the fringe benefits my house provides, which I would instantly lose were I to move to SV. Am I missing out on broadening my world view by not moving? Sure. Are others missing out on experiences by not owning? In some cases, yes.
They're too expensive for buyers which means they're not being sold for the going rate. If you divide the price by 5 then I'm sure people will come. Maybe the people are underwater for their mortgage.
Luxury items of any type are usually poor investments, for several reasons:
1. Price range. By definition, you're above the normal price range. This means fewer potential buyers, thus less liquidity.
2. Over-specialized. The upgrades or enhancements that made it into a luxury item, which were valuable to you, may not be valuable to someone else. You will take a loss on features that are included but others don't care about.
3. Experimental. People who make luxury items tend to include novel things that sound nice but don't pan out and turn out to be useless or even undesirable.
4. Status. Luxury and status are often linked. Luxury buyers aren't too excited about secondhand. A used sports car doesn't impress your friends like a new one.
If you buy a luxury item (like a giant house), the most rational thing to do is just accept that you are buying it because you want that luxury for yourself, and don't expect to get the money out of it later.
I generally wonder what is going to happen to the real estate market once retirees are forced to sell their homes to stay in nursing homes, or just pass away, etc. The kids could inherit the homes, but that will still leave a flood of houses on the market. It will be interesting to see play out.
>The kids could inherit the homes, but that will still leave a flood of houses on the market. It will be interesting to see play out.
Investors will buy them, and get the city/county to rezone those properties for multiple houses. They will tear the house down, and build N houses on it and sell it.
In the short term, there might be a local HOA that will fight it. But when the oversupply gets large enough to really impact everyone's prices, the existing owners will favor this solution, as it will raise the value of their own mansion.
Or it could be like Japan, and the real estate market is flat for decades. In fact, Japanese median home prices are lower than they were in 1992. The stock market had flat phases for decades in US history...I don't see why housing as an asset class is immune to it.
A huge demographic is aging out of real estate ownership. There are far fewer Gen Xers than Boomers. Even if Millennials had the same economy the Boomers had, they're a full generation behind the Boomer's retirement curve.
So, yeah, there aren't as many people producing demand for these houses even before considering different tastes in living style. It's a bad investment to put your life's savings in something with a plan to resell it to a less interested market. Either retire into it and get the use out of it or don't put your money there.
The market is just correcting in a quite foreseeable way.
I moved from a 3500 square foot house to a 1400 square foot house with 3 kids and my quality of life has not gone down at all. Threw out most of my stuff out of necessity, haven’t needed it.
I'm not the least bit surprised that no one is buying it. It sounds like they got hugely ripped off "spent about $3.5 million in 2009 to build their dream home: a roughly 7,500-square-foot, European-style house with a commanding view of the Blue Ridge Mountains" That's ridiculous: almost 500$/sq foot. That's almost bay area east bay pricing!
Why do that when you can go to Houston and get the same thing at 100$/sq foot?
We built a 4200 sq/ft home 8 years ago, now trying to sell it in a gated community. The more expensive homes around ours are selling, ours has sat for over 3 months. We have alot of traffic seeing the house but because it doesn't have all the extras (pool, outdoor kitchen, etc) people are not buying. Sad.
I live in and own a detached single family home (was a compromise with my spouse) and to be honest, I hate it. I hate having to take care of the yard, to deal with unreliable tradespeople when things break, to deal with the huge expense of minor home repairs - and this is even after outsourcing as much of that work as possible.
Compare that to renting an apartment, which I loved. If something broke, I just called the super, and that was that. This ridiculous idea that renting is "throwing money away" is absurd. I'm paying someone to deal with all the shit I absolutely don't want to deal with, and more importantly I'm paying for the freedom to easily up and move if something else fits my fancy.