This isn’t the future for my family or for any family with children. I grew up in a communal apartment in Russia, and let me tell you how suffocating it was to exist day in and day out in the company of strangers and their quirks.
And what of those who have no friends? I struggle to name one person in this world who would qualify as a friend, let alone someone with whom I’d like to enter in a long term financial commitment.
I agree mostly with your former statement, though keep in mind these people would be friends, not strangers. Even with friends it's all fun and games in the planning stages until you're locked into a mortgage with someone who clips their nails all over the house, leaves dirty dishes everywhere, and lets their kids spit on the floor. I love my friends, but seeing them 24/7 would drive me nuts.
> I struggle to name one person in this world who would qualify as a friend
I find that hard to believe, even if you have to lower your friendship bar to "guy who says 'hi' and asks how you're doing at the hardware store". Barring that, I'll be your friend old bean.
~Great! Now go buy a house with... green account... from peri-soviet Russia... named "triplewipeass"!~
~No? Some friend you are.~
Stable, low-movement societies are more amenable to deep friendships, as one of the primate-brain requirements is mere proximity. We have to see, speak with, and touch the people who become our friends. Long-distance relationships are weaker and require far more effort--generally only worth it for courting and upkeep of pre-existing friendships.
Military brats whose parents are frequently relocated often have trouble forming lifelong friendships, for instance. College might be their one opportunity to get to know someone well enough to stay friends after graduation, if they can afford to go. And that's just within a handful of closely-related cultures in the same country. Is it so hard to believe for someone with multiple xeno factors? Not speaking mother tongue, possibly with an accent. Not in the culture in which they were raised. Possibly different religion. No mutual acquaintances.
I doubt it's the future, at least not for the long-term. Co-buying really only works well for younger professionals - not enough cash to buy solo, but still enough cash to get out and move on (hopefully).
A better solution would be cutting the larger homes into condos (owner-occupied flats). Or, if the house isn't conducive to that, tear-down and rebuild as condos.
It doesn't really work for them either; a mortgage is a 30 year commitment. Do you really want to have such a commitment for 30 years with the people you now consider to be your friends? This seems to heavily bet on both people's incomes increasing and the housing prices to increase, which seems to work out alright in the current economic climate (just not in the UK, ironically enough), but it's not a guarantee and not something you want to bet your future on.
A mortgage doesn't need to be a 30 year commitment. When I run rent vs buy calculators, it usually becomes a good decision around 10 years -- of course this varies dramatically from city to city.
Note: This is for comparing rent vs buy of properties of equal value. But I'm just trying to make a point about the commitment of a mortgage.
The important thing is that the rent-vs-buy inflection point is N years in the future. If N is 10, you have to believe that your current situation will be stable for the next 10 years, which is at least partially independent of the number of years it has already been stable.
I have lived in the same place for about 10 years, so had I bought when I first moved, it would have been a good decision (only in retrospect). But 10 years ago, I had no idea how long I was going to be here. The job that got me to move only lasted 2 years. At no point during that 10 years did I ever believe I would still be here--and, more importantly, earning equal or greater income--10 years later. I still don't. The risk I face in loss of all mortgage-paying income is greater when I can't consider quick relocation to a hotter city for jobs, which is what happens when you buy an immobile, illiquid asset.
It has never been a good decision for me to buy a home. Both times I actually did buy, I had to move earlier than the inflection point, for job-seeking reasons, and take a big loss compared to renting for that same period.
The job market and housing market are inextricably intertwined. People need to live near the place that they work. If they don't have firm, stable career prospects for the next five years, at minimum, and they buy on a mortgage anyway, they will on average lose more of their money to bankers and real estate agents than they would have to rental landlords. Home-ownership is a trailing indicator for the health of local careers, not the other way around. If you don't have good job security, reasonable expectation of finding new mortgage-paying jobs quickly, or enough saved to buy your home in cash and still have some left over for expenses, you should never buy.
The middlemen all earn the most when the churn rate falls into the realm of bad financial planning. If you have to sell your house and plow the proceeds into a new one frequently, the transfer middlemen earn more. If you refinance a new 30-year mortgage every 0 to 5 years, the bankers earn more. But fewer people can really expect to have same-job-same-house for the next 10 years, and they are still buying, on bad advice issued by those who will benefit most, not realizing that they are choosing poorly.
Sure, but I also didn't know I would live in my city as long as I did. So I should have bought earlier. Bad predictions can work both ways, you do the best you can.
My friends and I have all thought about doing this. We still think about doing this a lot but we're afraid of a dispute coming up and ruining our friendship. We want to do it but we don't want to risk our group friendship.
Yeah, I wouldn’t ever do it. Living with friends was fun for a while, but at the end of the day I was very happy to be able to just move out after about two and a half years and just sign my spot on the lease off to somebody else.
I lived with my best friend whom I’ve known forever and it drove us apart. Weirdly, we still kee in touch and are on friendlier terms now than we were when living together.
Doing it for 30 years sounds like my personal nightmare.
I have done this twice, once ages 24-31 and once 31-34. Both ended up being financially advantageous, especially the first time around when few of my peers were buying houses. Both times it ended up being complicated. It didn't ruin friendships or result in bad feelings between us, but it wasn't easy.
The first time though I wanted to move out before the other owner wanted to sell, so he stayed another 2 or 3 years and I was just a silent landlord, which was okay but made it impossible for me to get another mortgage or even a new credit card. In the end he got married and wanted to sell. This was in the DC area where the market was pretty much always hot, so selling the property was easy. Anywhere else it could have been more complicated.
The second time my friendship deteriorated over the course of the time I lived there because of external circumstances, in the end the other owner agreed to refinance and buy me out, and there was a little tension during the process but I think we both walked away satisfied with the outcome. One of the reasons our friendship deteriorated was because as we grew into adulthood, my friend chose a career in the service industry, and I chose a career as a teacher, and it sucked living with someone who had the opposite schedule. Over time as we settled into our lives, our social schedules diverged as well, which was definitely detrimental to our relationship.
I would actually recommend it either to people who are young and early in their adulthood, so that they have lots of flexibility and don't mind the challenges and inconveniences that it entails, or to people who are well settled in adulthood who already have similar lifestyles, employment situations, work schedules, etc. to minimize friction.
I’m part of a group trying to do something similar (buying an apartment building and then all living together there). From our early research, I think the biggest thing I can say is that you need systems in place at the beginning for resolving conflicts and ending things. (Don’t wait until you have an issue). Also, if people decide to go their own way, that’s okay as long as you had a good experience while living together.
I looked into this a few years ago (in Australia) and the issue was that we were all individually liable. If all the 'friends' turn into deadbeats, become long-term unemployed, or die - you pay 100% yourself or lapse on the mortgage and get the blame.
I could be remembering incorrectly here, but from memory this meant that in effect a mortgage would not be approved if each individual could not pay 100% alone. This limits the benefit of such an arrangement from "can't afford" to "prefer not to pay it all by myself".
This does seem very financially risky to me. Yes, they did draw up a deed of trust and they mention that is okay if one of them wants to back out later. But that doesn't solve the monthly mortgage cost. Is that person who is "out" still obligated to pay that cost according to their arrangement? Because I can imagine finding another person to sign up to this arrangement could be difficult.
I'm leaning more towards stacked micro-houses, aka micro condos, as the "future of housing" in urban centers.
What I'm trying to say is: No, you should not lean towards this. You should lean towards jobs and opportunities spreading out over the country. To appeal to the HN population, instead of thinking in the binary thought of "SF (or some other tech hub) or fully remote!", consider another option: opening up smaller offices. Bring work where housing is affordable.
Why not? I don't see any reason why young individuals looking to experience inner city life wouldn't be happy to exchange loving space for easy commuting and urban culture (which is what they already do).
I think we're talking about two different things. The parent comment was referring to micro apartments, which are generally rented to tenants.
Considering that many college students have two to four dormatory roommates, I don't see what's wrong with renting a small living as a young adult - provided that the living space itself is up to code.
Shared housing is one thing. Shared housing with which you share major financial responsibility with someone else is another matter. Houses also require maintenance, are often upgraded over time, etc. and reasonable people can disagree about what needs to be done when and how—especially if people have significantly different financial situations.
I feel like we're going in circles. I said the same thing and was corrected (these are rentals.) I then agree, and you come in saying they're not rentals. Which is it?
I was agreeing that shared rentals are fine. Well, they can have problems too but people mostly manage. As you say shared mortgages seem very risky in general.
The price of housing is only one factor. You can probably buy a nice, cheap house and open some office in the arse end of nowhere. And then you can spend your day driving around to get basic shopping done.
Some cities are certainly more affordable than others, but in my experience they are also much less desirable.
I've lived most of my life in places ranging from a monastery to a town with around 20k people. I never needed to spend a day driving around to get basic shopping done.
I now live in a place an order of magnitude larger, but that really does not cut down on the time spent on basic shopping.
The issue is that once a job can be done remotely or moved to a cheaper city, it can usually just be moved to a different country where the labor is much cheaper.
We will likely not see jobs move to less expensive areas in the US(or any other high wage country), in any meaningfully significant number, because those cheaper areas can never compete with cheaper countries overseas on cost.
The big issue with moving jobs to other countries more than anything else is timezones and language.
Distributed teams across the US isnt much of a problem, but try working with people that have an 8 hour timezones difference and it's much more difficult.
Have you done the math for your company? No one I know wants to do that because the talent wants to be where the other talent is. Perhaps you’re targeting the niche who wants to live somewhere as your hiring pool? How has that worked out so far?
Are these not just "a block of flats" in British parlance? Buildings with 5+ floors containing a variety of single-floor homes between 300 and 1000sqft are the way most people live in British cities.
'Stacked micro-houses' are probably related to 'blocks of flats' as 'tiny houses' are to 'mobile homes' - a way of selling traditionally lower class housing to middle-class hipsters.
Micro-houses are the future of housing for everyone.
The massive living spaces we have now are not sustainable. By 2050 if we are to avoid 2 degrees of warming we need to be emitting 2 tons of carbon per year per person: http://insight.gbig.org/targeting-2-tons-closer-than-we-thin.... The average American today emits 11 tons, whereas 2 tons per person is closer to that of someone living in Brazil or Egypt.
In climates where you need to heat and cool a home, carbon taxes will make heating and cooling the living spaces we have now financially impossible. People will drive demand for these smaller living options out of necessity. Additionally, as we make consumption less and less economically attractive people will have fewer things to want to store anyway, and personal vehicles will likely no longer be something the average person will be able to afford or want so there will be less need for parking and garages.
If we implemented a carbon pricing scheme and these panels allowed you to heat and cool your home with no or minimal draw off the grid, this would be an affordable option.
Your 11 tons is total US emissions (including industrial), spread out across the entire population. Of course the US emits 5x that of Brazil or Egypt, the US produces 5x the output.
Moving into micro houses isn’t going to cut it, you’d need to slash US economic activity to reduce those numbers (an entire new technology).
Microhousing would be just one development carbon taxing would bring about- if we began to price our food appropriately for example animal agriculture would largely come to an end except for luxuries, and that would do a great deal to cut emissions. Personal vehicles and flying would also become cost prohibitive. These are only a few of the ways taxing carbon could make our lifestyles more sustainable and shrink highly polluting sectors of our economy such that we reach a more sustainable amount of emissions per capita.
Which is why we won't ever have those carbon taxes. As soon as politicians implement (or probably even seriously suggest) carbon taxes with enough pain to legitimately incentivize people to give up their homes (and all their stuff) to live in "microhousing", some other politician will come along and tell your constituents that you're crazy and they have a better way. And poof, just like that you're out of a job.
We're not going to solve climate change by democracies adopting high carbon taxes.
I worry that without the voting public waking up to the reality of how deep in the hole we already are we won't solve climate change at all. No near-future technology has the ability to reduce emissions by the amount we need to, besides widespread deployment of nuclear power which is also not politically viable. At some point people will, either willingly or by force (such as widespread natural disaster and famine), realize that things have to change.
I think the problem here is that you still have some hope that climate change can be reversed or at least mitigated. It can't.
There is simply no way developed nations are going to curb their emissions enough in time, and that developing nations will refrain from increasing their emissions, for us to avoid this disaster.
We might as well get used to the idea that our civilization is going to collapse before too long, and there's really nothing we can do about it. Other civilizations in the past collapsed and disappeared because of environmental change, and ours will be no different.
Well, a little different. We have globe-spanning transportation and communications. Actual technology to bring to bear. The best chance of mitigating the disaster that has ever existed in history.
Yes, but before that actual technology, there wasn't a problem because we weren't pumping so much carbon into the atmosphere. And even with technology, there's too many political problems to actually use that technology to solve the problem before it's too late, which climate scientists are telling us it already is.
Our globe-spanning communications seems like it should help us solve these problems together, but instead look what it's brought us: anti-vaxers convincing a lot of people not to vaccinate, which has now brought back diseases we thought were almost extinct. Instead of using these communications to convince people about real problems and solve them, these communications have instead enabled the stupidest people to have a much larger voice and influence, which has led us to disaster politically in the US for one (just look at who we elected in 2016).
Sorry, but I don't see how there's any way out of this mess. We can't just figure things out in 50 years and then start fixing the problem; by then it'll be far too late.
Is the BBC writing more clickbait headlines than ever? continue reading to find out more!
Ignoring the headline. This seems to be mostly beneficial to the lenders more than anyone else. The risk of a non-payments and financial issues is much higher and repossessions will be higher.
> Even if four people's names are on a mortgage, if one or more stop paying, the mortgage lender has the right to demand full repayments from whoever they can reach, he explains.
You only have to consider divorce rates to see the maligned incentives. Can someone more knowledgeable than me on the subject of mortgages explain if repossession is more valuable to the lender than someone paying off their debt? Intuitively it feels like repossession is worth more on a long enough time scale but would be interested in insights from someone else.
I feel like the time scales don't matter as much as the aggregate repossessions. If the aggregate is high, it's worse for lenders. Reposessing a home is not good for the lender if they can't sell it on the open market for a price close to the previous price. If repossessions go up, demand drops, and the market collapses.
Good point. Is this percentage a known number or is there a name for the threshold in the lingo? Like a number they would actually want repossessions to be maintained at as it maintains gaining property while the market is effected as little as possible?
Plus the costs of selling it (typically reposessed houses have all sorts of issues, from damage to eviction costs to disgruntled ex-tennents)
They'll likely sell at an auction for cash too. With two houses otherwise identical, one being sold normally, one as a reposession, you'd go for the normal one. How much less would you pay for a repossession which runs a risk of the previous owners coming back to haunt you?
"explain if repossession is more valuable to the lender than someone paying off their debt?"
No, it's not more valuable.
When a property is repossessed by a lender, it is sold (often at auction) by the lender. The proceeds (minus costs for admin, auction fees, legal costs) will be put towards the debt. If there is money left over, then it goes to the borrower.
So, in the best case, the lender gets their money back (and loses the chance to earn interest for the remainder of the mortgage term). In the worst case, they get back less than they were owed.
> When a property is repossessed by a lender, it is sold (often at auction) by the lender
Is this just what they do as it makes financial sense to them, or is there some law or similar prompting them to do it? I was wondering if holding on to strategic property would be beneficial. But if they are immediately selling all property that is repossessed then it doesn't sound as ominous as I imagined and actually sounds like the most beneficial thing that could be done, for the market and potential buyers.
The whole point of fractional reserve banking is a $100K house being held represents a modest return during a housing bubble, but they could turn that $100K property into $1M of mortgages with a likely higher total return. During a bubble people want to transact like crazy so tying up working capital in dirt would have some substantial opportunity costs. So in a financial model of banking that doesn't actually exist, it still would not be a good idea.
There are practical problems relating to specialization in the industry; there are no participants at this time who could play the proposed game. There are salespeople-transactors companies who need to turn their working capital over every month or so; the people who sell you a loan for a commission and then sell the loan to a national servicing company next month, they need to turn that working capital over every month or two or they go out of the business of selling loans because they run out of cash to turn over in new loans. Meanwhile the national servicers specialize in logistics, sort of, by trying to optimize cheap and poor customer service to turn (junk) bonds and such into the largest income stream they have; they optimize all internal processes on being identical and simple and fast and dumb. They're in the business of raising money, buying lots of small income streams, then milking it for all its worth via monthly payment transactions and trying to branch out into long term real estate investing is problematic for that business model level. Why don't restaurants own farmland, because skilled farmers and skilled restaurant operators usually aren't the same people so two people trying to do that would overall make far more money if one tried to be the farmer and one tried to be the restaurant chain owner.
There are real estate investment trusts but they tend not to be a tiny department of a sales org or a servicing org. REITs tend to be stereotypical investment organizations that happen to buy real estate and derivatives and holding companies rather than Apple or Google stock; not a desk at your local bank branch or a dude in the mail room at a national service center.
The closest analogy is probably pawn shops. Those guys will sometimes do weird things to optimize return on their collateral. Its probably a good thing they tend to be smaller and less centralized than the world wide megacorporate financial system.
> The whole point of fractional reserve banking is a $100K house being held represents a modest return during a housing bubble, but they could turn that $100K property into $1M of mortgages with a likely higher total return.
That is a significant misunderstanding of fractional reserve banking. Banks can only lend money they have, i.e. that customers have deposited. They can't just invent money to lend. So, a bank with $100,000 in cash can only make loans totaling $90,000 with it (assuming a 10% reserve requirement).
By financialising the mortgages and other loans, the banks can now treat them as if they were lendable cash. A bit like they can treat gold bullion like cash.
They're not immediately repoing the property much less selling it. It's a point of contention in the US anyway that first mortgagees, who are invariably bondholders rather than banks, are leaving the properties vacant and unmaintained post-default to avoid maintenance and other obligations, often for many years, contributing to neighborhood blight and deteriorating property values.
I've reveiwed California laws, but some time ago, and other jurisdictions vary (sometimes considerably), but my recollection is that after repossession, the lender must pay the excess value to the borrower in a fairly short timeframe. The auction sale to establish value is not required by law, but is allowed by law, and provides an efficient and nearly unchallengeable method to establish the current value.
When banks end up owning properties is usually when there are no bidders; the starting bid is usually either the amount of delinquent debt or the total of the debt and any other costs that can be charged to the borrower. The bank has effectively shown that the house is worth less than what was owed at that point in time, and then it's their job to get rid of it (in some cases a bit of staging will go a long way, in others, they'll have to sell it for much less or hold it for a long time or both)
In the UK the bank can put the property through normal private sales, using agents. In Spain the bank have kept real estate for decades following the last market crash rather than selling it at discound price. So that's a YMMV per country.
Don't forget that you hardly repay any capital at all in the first years of mortgage which is in favour of the lender. Similarly in a lot of countries like Spain, UK, France, ... if you LTV is too low, the bank charge you for a specific insurance that covers loss of value of the property.
The common wisdom was that indeed the bank would rather have people paying their debt, but I'm not so sure it is still necessary the case. One sibling comment to yours provide a different point of view, talking about how bank takes money of transation and more transaction is more money. Following the 2008 crisis that showed that the backend debt component of the mortgage is actually instrumentalised and resold and the element I mention here, I wouldn't be surprised if, for some banks at least, repossession is not part of their revenue stream.
In the UK, if they repossess and the sale doesn't cover the balance owed, the mortgagor (word of the day!) still owes them the rest. Don't know about the US; I know that in some US states, the mortgagor can walk away from the mortgage scot-free if they feel like it (nonrecourse debt, as it's known).
In hindsight (classic) this makes sense. I guess I was imagining a scenario where the house debt is already mostly paid off but not fully, the house is repossessed and the lender has the debt mostly already paid and now owns the property. I don't own any property and so I'm trying to build a mental model of all the moving parts.
If the house is worth a lot more than the debt, you don’t see many foreclosures. An owner could simply sell their house and keep the profit, or take out a HELOC. Foreclosures are much more common when the debt level is high and/or the house is under water.
It's also dependent on the jurisdiction. In some cases the lender doesn't actually have a right to proceeds in excess of their loan amount (plus interest, penalties and fees).
One other thing to consider is brand reputation. Most lenders, big bank lenders at least, don’t want their brand being the one that took a family home away. Often before things get real bad they will offer to break the term and let you refinance somewhere else.
That's a good deal! In Canada pre-payments often result in fees, which isn't ideal. Good(ish?) news is the banks will let you transfer out with no fee (or a reduced fee) if they want to remove your risk from their portfolio.
Historically[0] that was a profit center for contract lenders which people living in redlined neighborhoods (i.e. mostly black Americans) had to resort to if they wanted to buy a house before the reforms of the 1960's. These people would lend money for a house with very predatory terms. It was apparently common for a borrower to have their house foreclosed on for minor missed payments and the contract lender would simply repossess the house so they would have the house and all the payments they collected. The borrowers couldn't easily refinance since the neighborhood was redlined and there were few to no regulations on the contract provisions so a mostly paid off house could still be repossessed with no reimbursement.
This was one of the major ways the black middle class was hollowed out since homeownership was one of the major sources of middle class wealth gain.
Foreclosure doesn't provide the entire value of the property to the lender. But it does allow the home to be sold at auction in order to recover the money owed. Any remainder is given to the home owner. That said it would be an exception to foreclose/auction a home with significant equity.
Major underwriters want regular payments. If they wanted market value property, they would invest in that instead.
If banks wanted to foreclose property, why wasn't 2008 a winning year for banks?
your sentiment is directionally correct but the details are more complicated...
a lender’s job is to price default risk. if they could do this properly (pricing at a premium), they’d prefer higher risk because it would net them more profits (this is supposed to be reigned in by regulations on risk exposure but we saw how effective that was a decade ago). so higher risk does generally benefit the lender.
however, lenders are horrible at being real estate investors and property owners/managers, so they’d rather avoid (most) foreclosures as it’s less profitable to them. they’ve even gotten out of managing the loans in many cases, preferring to sell them off and reinvesting the money in new loans instead. it’s specialization at work.
Does any of this matter? Higher default risk means the rate of defaults is higher, so the costs of foreclosure and repossession will be higher. If the market is competitive, they should be making the same amount of money on average as low risk. Low risk by definition is going to have lower repossession costs.
This changes when banks exploit mispricing or miscalculation of risk by other lenders, to undercut them or to buy low risk debt at high risk prices.
A rate of 2-4% is about average for the US, I'm told most lenders model default rates of up to 8%, though given 2008 I'm guessing 10% will be seen in some forecasts from now on.
As a side note, the above site fred.stlousfed.org has some of the best clean data that you can find for free for modelling purposes
And lenders always want to be repaid as there is no incentive for them to repossess a house as its auctioned off and the owner get any excess return above what they own.
> Even if four people's names are on a mortgage, if one or more stop paying, the mortgage lender has the right to demand full repayments from whoever they can reach, he explains.
This is called "joint and several liability" and is the legal position for many agreements when a party is made of several people (at least in the UK).
For example, people sharing a flat/house as renters will have the same liability unless they have separate tenancies. This is extremely common but surprisingly many people have no clue about it and think that they are fine paying "their share" of the rent.
Part of the reason for this is that the lender really needs everyone whose name is on the title deeds to sign the mortgage deed and also wants to ensure that none of them are able to claim an equitable interest to prevent a foreclosure. A simple joint mortgage is a relatively quick way and reliable way to ensure this.
The risk if they don't look after their security properly is that the lender ends up owning (say) a 1/3rd joint share in a property which they are not permitted to sell without permission from the other 2 owners and on which they are not entitled to any rent and can't evict the defaulting borrower. There are cases where this has been the result of a defective mortgage arrangement. Understandably, that's not something lenders really want to risk.
It is possible for property to be owned with only one name on the deeds and one name signing the mortgage deed by establishing a trust.
If you want the lender to consider multiple incomes on that basis then you'd need guarantors and you then run into the problem that this probably needs specialist human legal input so it is suddenly not a mass market product.
It's also worth noting that under joint and several liability, the tenants would usually have the right to then sue one another for the relevant shares if the lender went after one of them for the whole amount.
I'd imagine "joint and several liability" would be used - I found (to my horror) that this is pretty common in UK rental agreements as I guarantee the tenancies of my son at university.
One scenario like this played out after the mortgage crisis in 2008. Many banks now owned homes where the mortgage amount was greater than the market value, ie underwater. There was a ton of bank owned inventory for a long time because a) They are banks, not real estate companies with all of the expertise in marketing and transacting single family homes in bulk b) the market for homes significantly shrunk in the years after 2008.
In hot markets sure, maybe a bank might see a default and repossession as a good thing, but I doubt they are optimizing for those scenarios.
Everybody would have been better served by allowing the defaulting owners to remain in the homes under some sort of managed process until they could start making mortgage payments. Or restructuring the mortgages. Instead as you point out these banks were suddenly residential real-estate owners with no existing property-management capabilities and many of these already underwater properties lost further value due to neglect.
> Is the BBC writing more clickbait headlines than ever? continue reading to find out more!
I notice this more and more, along with promotion of clearly trivial stories to the front page - is a banal and contrived tweetstorm about Trump/race/trans/gender/tax issues justifiably worth elevating above a story like Venezuela, or rampant knife crime, or any number of other inconvenient yet important stories about which the BBC chooses to avert its eyes?
I believe that much of what is motivating their current direction seems to be desperate fear of becoming irrelevant in a changing media landscape (an existential threat given that with falling engagement the license fee would eventually become untenable), hence their degeneration into a crumby buzzfeed simulacra. Another reliable institution subverted and going down the tubes, hey ho.
IIRC, after the last financial crisis UK banks took possession of a lot of homes but sold these fairly quickly at below market rate in order to get the cash.
As others have said, banks don't want to be holding on to property any longer than they have to.
How is this a clickbait headline? It's not a bait and switch; the article is about the headline's subject. Its just an attractive headline, which is half the point of the headline.
They ask a question that they know has no reasonable chance of being up for debate. It's fine to discuss the phenomenon of people buying houses together, but there's nothing in the article that points to it being on the cards as being the 'future of housing'. It's intellectually dishonest.
Financial industry makes money off transactions and commissions.
The idea of hyper-unstable living seems to be if you live by yourself or with a spouse you'll make a mortgage transaction every 20 years on average, but if you try to live in a giant commune like a 90s era sitcom, it'll financially collapse every 2 years and ya gotta live somewhere so you'll be entering into new transactions the bank can middleman every two years rather than every twenty years. They probably will make less money off each transaction, maybe lose some of the time, but if you increase transaction volume by 10, as long as their profit drops less than 90% its a net gain for them on average.
Also interest is profit to the financial institution, they'll make far more money off ten two year mortgages than one twenty year mortgage. With a side dish of the bank eating all the equity in interest in fees meaning the participants will be much poorer after twenty years meaning the bank can extract ever more middleman profits off the victims.
The nightmare scenario for a financial institution is someone getting a mortgage, paying it off early, and not getting another mortgage.
I’m not sure i can be that cynical, but you’re right that lenders prefer higher monetary velocity (in the form of transaction volume here), all other things being equal.
They don't. I don't know where your getting this idea from. The tiny origination fee that lenders charge is nothing to compared the amount of interest earned over the life of the loan. A lender would much rather have steady income over 30 years than constantly having to seek out new deals.
> The nightmare scenario for a financial institution is someone getting a mortgage, paying it off early, and not getting another mortgage.
It seems really backwards to consider this the nightmare scenario. This is exactly what everybody wants: for people to take a mortgage once and pay it off eventually.
A business that considers healthy finances a nightmare scenario is a predatory business that needs to die.
I mean, plenty of businesses have incentives maligned with society. Gas stations want you to burn more gasoline, not less. Hospitals want you to visit more often, and spend more each visit. Liquor stores want you to drink more alcohol. Etc etc.
Hospitals don't want you to visit more often. At least not in any healthy society. Hospitals that do prefer ill people over healthy people are indeed predatory and dangerous for a society to have, because it operates on very harmful incentives.
I guess this is the clearest case ever of why regulation is important. Good regulation provides businesses with incentives that help rather than harm society.
>"Healthy" society is a weasel word here though: a qualifier that turns this into a "no true scotsman".
>In this one, and most real societies, hospitals do want people to visit more often. Their incentives are geared towards that.
This might be true, but I would expect citations. I might be biased, is only anecdote, but my experience around the world would single out USA as a place where this is predominant.
Besides, not all the hospital visits are equal, a clear example of how we can align the incentives are vaccination campaigns.
>This might be true, but I would expect citations. I might be biased, is only anecdote, but my experience around the world would single out USA as a place where this is predominant.
Sure, but most of the discussion on HN focuses on a USA context.
In my country for example, such incentives might not be predominant re: public healthcare (since the staff gets paid whether they have more patients or not), but they are with private practices.
Do doctors set up people who suffer from chronic circulatory inflammation due to their diet / exercise regime with dieticians and psychiatrists that attempt to treat the root causes of their issues, or with a regimen of pills that make them feel like shit?
Maybe this is true in the US but not sure it's valid point in Europe where, given how the health system works, most of the time patients are actually a cost for the business hence less patients the better really.
The way this sometimes works is that people want to do higher quality work than might be strictly necessary, and charge appropriately. That way you can feel proud of what you do (a quality job) and make money doing it.
It is not predatory to profit when both parties come out ahead, and we should not confuse organizational or financial structure of a company with the actual behavior of the company or its members.
The Surgery Center of Oklahoma[0][1], for instance, makes a profit while providing better, lower-cost treatments than traditional hospitals. And they actually have transparent pricing.
Hospitals are extremely predatory. They're the number 1 cause of bankruptcy in the US, and that's not even including the extreme financial drain they cause through all those insane insurance premiums. The banks, facebook, apple, not even at&t can compete with hospitals in terms of the financial damage they've caused. It's funny how the media never seems to mention them?
The problem is that natural investment opportunities with a given risk profile are a limited resource.
A healthy economy would make investors compete over those investment opportunities. If a lot of investors want to put their money into residential single-family mortgage loans, and only N families seek to borrow with that type of loan per year, the investors would have to offer lower interest rates for every level of default risk. This limits the amount of money the investors can make by lending, so some go off to look at different types of investment. The rate of return naturally sorts itself out such that it increases with increasing risk.
When rates of return are low, entrepreneurs generate more investment opportunities at all levels of risk. But housing starts and transfers are more closely associated with employment opportunities, which tend to trail new business starts. People don't buy houses unless they have jobs that pay enough to buy houses, and they don't have better jobs unless businesses are expanding and labor is getting more scarce.
What seems to be happening is that middlemen are assembling artificial investment opportunities with a falsified risk profile, in order to capture investment dollars that would otherwise leave to find other opportunities with a better return/risk ratio. Some of those investments would have eventually sloshed back into mortgages, filtered through new employees or promoted employees, to replenish the pool of available investment opportunities. So the risk fraud is self reinforcing; the more it happens, the more it has to happen in order to maintain the status quo.
If the financial institutions are completely serving the mortgage market, that excess money has to go into other investments, or it loses its value. They won't be mortgage investments, but there are only so many of those around to pick up. The "nightmare scenario" is "OMG! We need to find another parking spot for our colossal pile of money! And the available ones are SOOOO FAR--like 50m away!"
> The nightmare scenario for a financial institution is someone getting a mortgage, paying it off early, and not getting another mortgage.
This is very interesting and produces an odd incentive structure. The only upside I can think of is mortgage terms might be favourable to the buyer as the lenders just want a higher mortgage turnover which can't happen if people are stuck in mortgages for too long.
Maybe. You owe the 4% no matter what. There’s some risk associated with putting money in the market instead, even over a long period. Historically youd be ok but you are taking on some risk for the potential gains.
I really like that advice that you save those extra payments in a high yield savings account at around 2-2.5% instead.
You're still losing a little but you will be ready for emergency home fixes & getting sacked with random specials from your city which are usually at a higher interest rate.
Of course if you have tons of cash, then for sure throw it in some ETFs in the market.
> Ask them if you already owned the house, would they be advising you to take out a mortgage in order to invest elsewhere. If not, ask them to explain the difference between taking out a mortgage on the day you buy the house and taking the same mortgage out the day afterwards.
If I owned a house (with no mortgage), I wouldn’t take out a mortgage on it just to invest those funds in the market. Some people might, but that’s too much risk for me.
If your mortgage is big enough (over 750k as of the last tax bill, which is not that uncommon in some real estate markets) or small enough (so you don't itemize your tax deductions; that roughly corresponds to mortgages under $300k for married couples, I would think), then putting money into paying off the mortgage has a guaranteed 4% _after-tax_ return for some number of years that depends on where you are in your mortgage payoff cycle.
Would you buy a government bond on those terms in the market?
There are obviously liquidity issues with home equity that are much less of a problem with bonds, but I am also not seeing any 4.5% (generously assuming a 12.5% marginal rate on your bond interest) US treasuries bonds in the market right now, at any maturity.
> The idea of hyper-unstable living seems to be if you live by yourself or with a spouse you'll make a mortgage transaction every 20 years on average,...
People take out long term mortgages but it is quite common to re-mortgage on the same property to get a better deal...and usually people go with a different lender in those cases
> it is quite common to re-mortgage on the same property to get a better deal
Or to "extract" equity as money to spend. There's a huge amount of advertising out there trying to convince people they should take out a home equity loan and spend the resulting money.
> The nightmare scenario for a financial institution is someone getting a mortgage, paying it off early, and not getting another mortgage.
This is only true provided that the mortgage rate for this person is below or at the federal funds rate, right? Given how low it is, even in the nightmare scenario they're making good money.
Depends on the institution and their relationship to the borrower. For instance, if you are a servicer who bought the MSRs to a loan portfolio and a large cut of those borrowers pay off early, you may not make back your investment on the MSR purchase (this is unlikely though as rarely will that many people pay off early as to not payback the investment if you've conducted appropriate due diligence of the portfolio).
Though for the originating institution you're generally correct.
> The nightmare scenario for a financial institution is someone getting a mortgage, paying it off early, and not getting another mortgage.
I think the nightmare scenario for financial institutions is people buying houses for cash. No mortgage, no down-payments, no middlemen. The west coast right now is seeing an increase of such transactions. Add to that the slew of services trying to get around realtors, and the future may be bleak for such financial institutions.
Let's set a more ambitious goal. The real nightmare scenario for these institutions should be: people buy houses like refrigerators, as durable goods, with financing being only for the very worst-off.
That is interesting, I wonder how many people do buy appliances on credit.
I recently replaced a refrigerator, which was over 40 years old and which I'd done multiple overhauls myself on over the years.
Appliance store had lots of refrigerators in the $3,000-$16,000 range. With lots of features and compartments, multiple icemakers, LED zoned glow lighting, exotic hinges, internet connectivity, etc.
I got a good fridge for $500 for cash. No icemaker and a single fridge and freezer door so it had the highest energy efficiency rating, higher than all the high tech fridges there with exotic energy saving features. And plenty of room inside because it wasn't taken up by compartments and drawers and icemakers.
So... if most people are financing as you speculate, maybe it is because they are going for these $5000 refrigerators that don't work as well as the $500 refrigerators.
Also I just know that all the internet, digital stuff, and touchscreens on the $5000+ fridges is going to break down in a few years and cost a fortune to repair. No thanks!
Majority of Americans have less than $1000 in savings, I don't think "paying for the entire house in cash" is what's going to disrupt the housing market.
Have you looked at the price of a house lately? Maybe the 1% can manage to buy houses for cash, but that's not something most of us can realistically aspire to.
I've bought most of my houses for cash. If you start in an up and coming market and upgrade the property after 10 years you can sell at a big profit. So you sell the first one and have a bunch of money that you use to buy the second one outright in a less hot market but one with better lifestyle, and have a bunch of cash left over to buy an investment property. Then you have monthly income, but also a maintenance and tenant headache and you're anchored to that neighborhood.
If I had invested the money in my stock portfolio instead, I would be ahead of the game since in the US (I realize the article is about the UK) mortgage rates are ridiculously low, stock returns are good, and mortgage interest is deductible.
I like to upgrade my houses though including major demolition which the lienholder of record sometimes doesn't want to go for without trouble. I have more freedom with the property with an outright purchase. Despite the fact I'd have more money taking a mortgage and investing my investment gains have been dramatic enough that I'd rather have the freedom.
Anyone working in IT should own at least one house outright by age 30 if they want to and if the can't they need to upgrade their skills, switch jobs, or stop spending irresponsibly. Starting salaries for recent grads from decent colleges are $90k now on average. That's people with no experience. After 10 years everyone should be making a lot more than that and all these rates are vastly more than anyone needs to live on. Save save save in the early years, then invest. Don't spend earned income on anything other than bare essentials. Spend from surplus investment income. Lots of people are in trouble every month spending all their earned income despite making $180-$400k and they never get ahead. There's no excuse for that. Cut expenses to what the poor spend and invest the surplus until you can permanently live well off your investments. But continue working at that point.
> Starting salaries for recent grads from decent colleges are $90k now on average.
I graduated ~7 years ago. Besides this figure being far higher than I experienced as a starting salary,
1) These salaries are for high cost of living areas. Rent can and often is $25,000 or more a year.
2) These high cost of living areas, homes can and readily list for $1,000,000 or more, which is, in your estimate, 11 times the starting yearly salary, ignoring every and all expenses.
3) These 'decent colleges' can put you in several hundred thousand dollars in debt.
4) $180-$400k is not in the salary range for most software developers. This is well above average.
There's no way I'm buying a home when I'm 30. When I do, there is no way I will own it outright. And I feel like I make a good living for myself.
Ok so lets do the math. Age 22, graduated and making 100K USD. After tax this is about 70K. Rent on the low end is 15000 a year, food is about 5000, and a car is about 4000. Assume you spend nothing else, you ae left over with 46000 dollars. You repeat and lets say you salary goes up by 5000 every year and nothing else changes, if you add up you will have 46K+49.5K+53K+56.5k+60k+63.5+67k+70.5k+74+77.5k = 617.5k
So after 8 years of living the bare minimum life style and using up the a good portion of your youth on saving money, you can finally outright buy a 800sq foot house in the poorer communities of silicon valley.
Sounds like a great plan to me. /s
Note you could invest the money while you build it, but get if the market tanks, good buy money
Your math is great and comparable to many people's experience.
You do 10 years. Let's do 8 years instead so we take our next move age even 30. Using your numbers there's 465.5 saved total. But we put that in the market each year in boring run of the mill bread and butter commodity stocks with half decent dividends and reinvest the dividends. Over all we see a modest 7% annual return from the market all together, both gains and dividends. So we're 30 and have $625k in fungible stocks that can be cashed in. Similar to 617.5k but somehow having 0% returns, and we're 2 years ahead.
So the only option is to buy a lousy house in a bad neighborhood with crime in a city where homeless guys are blowing each other on the sidewalks which are strewn with feces and AIDS infected heroin needles?
No of course not. If in such an area the only rational thing is to move to another area.
Now if you bought a house in this hot market that house appreciated more than 7% for these 8 yrs. But you also were paying 4% or so on a mortgage. Still you have a big gain. You paid $480,000 for a condo in 2010 and now it's worth $1.3 million (12.5% APR). BTW, I'm using real numbers for a family member's property in the bay area with these exact years. So that's nice cash infusion as well, rather than losing money on rent. However ignore that, let's just go with rent and stock gains instead, which I recommend anyway. I don't recommend people pay cash for houses like I do unless they have a reasonable justification for doing so. It's better to let the bank front it when mortgage rates are low as they are.
Anyway so you get a transfer to Topeka or Bismarck or Austin or Durham. You buy a mansion with a swimming pool and a horse barn on a 2 acre parcel. Or maybe you decide to commute 10 minutes from outside town where you buy a 4500 sq ft farm house on 75 acres of land. And you pay $250,000 either way. If you had bought your condo in 2012 you have around $1 million to spend, if not you have around $625k to spend. The rest you leave in those stocks.
You took a big salary hit moving. Went from $140k with $300k in bonuses and equity to $110k and $300k in equity/bonuses if managed to move in-company but different office across country, or $110k and no equity if not. Either way your living expenses drop to near zero. Company has full benefits so you're paying utilities, low property tax, and food. Maybe $500 a month total since your mansion is paid off. Now you have $104k a year to stuff into those low yield commodity stocks.
But you get "lucky", like everyone who invests long term. It's not luck, it's just persistence. One of those stocks takes off. Or maybe you have an equity event in a company you're consulting with who couldn't pay market rate. So that's a few million here or there.
I'm not lucky or special. I just do basic common sense stuff and avoid stupid stuff. I know car mechanics who have done better than me by retirement with their investments because they took more risks. But I have done OK and my value is above $30M. I'm old and now have health problems, so it's nice.
Agree here. Most of the money made on a mortgage with the lowest risk are the origination fees (say ~$10k in US) and then the individual mortgages are sold off to sit in tranches where they are risked by credit level and p
Whilst that's true, there are some potentially sketchy practices which it theoretically permits (in reality if the lender is regulated it's unlikely they'd risk them these days but in the small business lending sector you can find examples by googling "RBS GRG West Register").
This classic example is lenders forcing an auction into which they know the only likely bidder is a related company of the lender.
The space can be rented out to tenants to make the payments. Of course, their should be good contracts in place amongst the parties to make sure this can happen smoothly.
I expect that we'll eventually see a resurgence in the attractiveness of suburban and rural housing. There's something about having free space and a general level of independence that you can't really get in an urban area, even if you're weathly enough to own your own property.
Of course, it's going to take an uptick in well-paying suburban jobs, but I see no reason why large companies won't start investing again in cheap office space for satellite offices, in particular as a way to bridge remote and central office working environments.
I don't live in New York or LA, so to some people I might as well be a hill-jack. But I very much appreciate as much space as possible. I've also noticed a huge increase in full or partly remote positions in recent years. It's fun going into the office once in awhile, but once I'm there I'm working from the same machine and chatting online.
Where I'm at the suburbs never stopped being attractive. The city is still growing and attractive. And both fit a certain lifestyle. Apartments in the city are approaching half a million $. Small, older, technically starter houses, near the city are approaching half a million $. Large suburban homes far outside the city, still half a million $.
Realtors were expecting a glut of suburban housing after the financial crisis. And while foreclosures did spike during the crisis it never really turned into an epidemic. The purchase time frame increased as buyers had to meet new qualifications but the demand didn't drop.
But this is the case for the SE United States. Midwest and flyover states in small towns are having a much harder time. But they're impacted more by their location rather than if it is urban or suburban zones.
Only offering jobs in dense urban areas sounds like a great way to get away with age discrimination, assuming that people age out of cities as their day to day experiences contradict "received wisdom" about urbanism
if remote work catches on and is popular this would be great - unfortunately we are seeing all the opportunity and jobs concentrate in the most expensive places in the US right now.
Where I am pretty much all of the IT jobs will be in cities. My GF is a neurologist and for her to stay specialized and involved in research she is going to have to be in a city.
I imagine that a lot of professions are similar.
The future of housing is people paying ever more for ever smaller places to live, because bubbles just keep growing indefinitely and markets don't get disrupted. The tendency of employers to offer 100% home office work is a factor that can easily reverse this trend, for one.
At some point, I really hope the trend of massive centralization reverses. There are hundreds, even thousands, of smaller towns in Europe and America where one can buy a house for a reasonable amount of money.
Remote work might bring relief to the larger cities, but it also opens up smaller, often blue-collar industry towns up for gentrification, out-pricing the existing residents in a place where there wouldn't normally be "office jobs".
Remote workers who previously worked in Seattle have done this to where I live now - which has only displaced their housing affordability crisis to a different location, and on to a different demographic.
Well, why are all of those remote workers moving to your town? If you live anywhere remotely desirable, I think it's only to be expected that housing prices are going to go up over time until we start to see an overall decline in population.
Furthermore, why has the movement of people to your town created an affordability crisis in the first place? If the existing residents are opposing increased building, then it's not really the newcomers fault. If you're building to meet demand, why are prices going up?
This can certainly work out but it's much riskier than a solo or married couple purchase. When it works out it's an amazing arrangement. So high risk high reward, I guess.
Architecture seems important too. Every couple I know who successfully lived with another couple or singleton, each person/couple had their own floor to retreat to.
Is it really riskier than a married couple purchase, assuming the friends have lived together for a reasonable period before? There's 39 divorces for every 100 marriages in the UK, and needless to say it's a lot easier to draw up "what happens if you want to move or can't make mortgage payments" contracts between friends...
It is, because there is an entire legal framework around marriage and asset ownership whereas there's no legal framework around BFFs. A married couple has the "benefit" of going through divorce proceedings where a judge divides up assets equitably and it's legally enforced with a divorce decree. If you're buying a house with a friend you're going to want to draft up an contract to avoid "no man's land."
Then there's the "mixing business and friendship" issue. Civil marriage is already a type of business partnership, whereas friendship is not, so you're adding a new business partnership. If your buying with friends you're risking your friendship.
I know someone who owns a house with her brother and it's a shit show.
You're also tripling your exposure (3 people rather than 1)
The tax system is kinder to married couples who split up than cohabiting people in this scenario. Stamp duty on a transfer to the remaining party can accrue the 3% "second home" charge if you're not careful whereas there's an exemption for married couples transferring properties between themselves. Married couples can also transfer assets between themselves without being liable to capital gains tax. This matters if someone moves out before a sale or buyout of their share.
There was a startup that aimed to "help people buy property together"[0], although it looks like it was dissolved in May 2018[1] (despite the web site still being up). (Side note: I wish companies that were no longer operating would shut down their websites - there used to be a mirror shop near where I live that still has a website listing its address and phone number, and is still near top results for a search for mirrors in my area, despite the shop having been shut and the building demolished nearly a decade ago.)
I lived with room mates for nearly 20 years. I would have made a lot of money if I bought with them instead of renting, so I can see the benefits of this.
Or instead of buying with them, you could have bought yourself and rented to them. This is what I did for the first approx 10 years of property ownership. My first place was even just a 1 bed flat, but had a separate kitchen, so I was able to rent the living room as a second bedroom. At the time, the rental income was enough to pay the mortgage, and tax free under the "Rent A Room" scheme[0]. From some quick calculations, I think this is still a viable approach, although the rental income is unlikely to pay the full mortgage now, and some of the income is likely to be above the tax free threshold.
I grew up in a big suburban house because my parents bought a house with a friend. She and her son took the downstairs bedrooms, we had the upstairs rooms. It was more house and in a nicer area than either could have afforded, and meant all the kids went to nicer schools. Built in shared parenting support, communal (but not hippy-ish) dinners.
We moved in in the mid 80s, and in the early 2000s after all the kids had moved out my parents sold their half to the co-owner. Everyone's still friends.
Interesting: I've heard anecdotes about similar experiences in southern California, where the "good" school districts often don't allow apartments or smaller subdivided buildings (duplexes/triplexes) to be built.
It's not just about having less, it's also about paying more for less.
Constant property ramping by the BBC back in the early 'oughts was the main reason I cut the cord and never looked back. They're about the only big player in UK media with no commercial interest in doing it (no ads from the property sector), but even so, they just couldn't control themselves.
The UKs pop should dropping, if not for immigration which the UK can control if they wanted too (being an island surrounded by rough seas and rich neighbors).
Small nitpick, but it's estimated that global population will peak at approx. 8.7 billion before starting to decrease. See: https://www.cnbc.com/id/101018722
People typically have fewer kids as their society develops. Average age in the developed world is almost double of places like Africa. There is some evidence that slowing or decline in population is a reasonable expectation.
Also, from Wikipedia:
Low estimates suggest a decline
Moderate estimates suggest a plateau
High estimates suggest constant increase
Time will tell, and estimates suggest that the earth can comfortably support ~10bn
---
I don't think housing prices have much to do with population increase, but more to do with urbanization (as well as increasing wage gaps).
People are flocking to existing cities, and the more center you are the higher prices are.
This pushes people to the outskirts, which become more urbanized, which spreads urbanization through the same cycle.
>Lastly, the planet has trouble with us now... It's terrorism to suggest that 10 billion is just fine.
Calling it terrorism is a bit absurd.
It's totally possible (and even likely within our lifetimes), but that doesn't mean that there aren't huge logistical issues to overcome for it to be comfortable.
One of the main problems is that the world population is so widely distributed. We can already feed and house everyone, we already have more resources than what would be required... they're just not distributed appropriately (some due to hoarding, some due to supply chain barriers, political borders, etc).
It is because I didn't say it was "just fine" I said "can" as in "is possible" — which is objectively true.
...and even if I did say it was "just fine" it wouldn't be tantamount to terrorism because I was pointing out something that is very likely inevitable.
I'm not invoking 3 billion people by assuming one day they will exist.
I don't know if anyone's ever told you this, but you're being outwardly shitty when you have no reason to be. You're just throwing the word terrorism around disingenuously to get a rise out of people.
Your only point is that the suggestion of the earth supporting 10bn people is akin to terrorism (which you later amended to "intellectual terrorism"), which I'd argue is objectively disingenuous... and completely pointless.
This conversation has reached the point of unproductive a while ago.
I'm sure you'll try to bait me back into it, because you fit that MO, but you're on your own.
In developed countries things haven't changed that much.
If you look at London (since that's essentially the article), population has actually only reached back to its 1950 level.
But attractive cities can now pull people and investment from a global pool of billions of people and thus the market does its thing and prices move accordingly.
I haven’t seen recent details but as of a few years ago, there was an uptick in college educated young people moving to a handful of mostly coastal dense urban cores but the overall urbanization trend in the US was rather limited.
Be careful of that though. Urban is very broadly defined by the census. I live in a 7,000 person town 40 miles outside of a major city. Myself and 2 neighbors are collectively on 75 acres and are adjacent to conservation land. This area is considered urban.
Because every industry needs to consistently grow, forever, under a capitalist system. "The future" will always be increased austerity and sacrifice for the proletariate, never the bourgeoisie.
Because people believe they are nobly resisting capitalism by preventing housing construction in cities, as the population continues to grow and urbanize, capitalism’s most important feedback loop (high demand -> high prices -> more profit —> more supply) is short circuited.
Because the vast majority of new housing projects in cities are luxury housing designed to further enrich property owners and would be unaffordable to most people in need anyway. If you're poor and starving and all I'm offering is $90 filet mignon, I'm not really helping you.
A 600sqft box is a luxury because we have decided it should be rare.
We are massively overbuilding a housing type with offensive levels of resource consumption built in: single family detached.
Cap VW at 100 cars a year. Think they’re going to be Jettas or Porsche? Probably Porsche. Doing that, then getting mad that cars are unaffordable, and saying “clearly if we let the automakers make more cars they will just be more Porsches, that’s not helping” would be silly.
Even if what you're saying were true, it'd still drive housing prices down for the poor. I.e. the rich would slightly shift towards these new luxury units, leaving more supply for those in mediocre housing units.
At the same time, families got smaller, stay-at-home spouses (i.e. "free" upkeep) became less common, etc. Add in population growth in popular areas and the recent trend to smaller housing makes a lot of sense.
It's not addressed in the article, but one of the big factors should be that having the massive living spaces we do now is not sustainable. If we want to curb climate change to 2 degrees, we need to get our emissions down to 2 tons per person per year by 2050, which means heating and cooling a large living space will need to become financially difficult. I predict we will see increasing demand for tiny and micro houses as legislation and economics catches up to the severity of the problem.
If your business relationship requires friendship to begin, that friendship will be exhausted by the time it fails.
If you enter in to such an arrangement, you need to forget that your partners are your friends, and instead imagine that they are all either evil goblins trying to screw you and take your share, or evil faeries that will disappear on a whim to a land that you cannot reach.
A business relationship that still works between mortal enemies can certainly hold up when the partners have a relationship more cordial than constantly trying to kill each other.
I think housing should be a basic human right. Just get Elon Musk to build affordable underground tunnel homes with his Boring company. He wants to build a city on Mars, so why not test the technology (and social aspects) here on Earth where it's much easier.
Housing is a political problem, not a technological one.
I agree that it's a political problem, but your solution is baffling to me. Instead of addressing the inequalities above ground, like millions of homes going unused while millions of people are homeless, you want to let a private company put poor people in mole-man colonies underground??
Well there is some sense to it: with the extreme weather we have to look forward to thanks to climate change, it'll make a lot of sense to burrow underground and live there. Underground colonies would be mostly immune to hurricanes, for instance, and probably a lot easier to keep warm when polar vortexes result in -50C temperatures outside in the winter, and easier to keep cool when it's 60C+ in the summer.
I guess the preferable option would be to create high-speed affordable transport so that location won't be an issue to people. I'm not sure which one is more feasible.
The former (high-speed affordable transport) will certainly be part of the solution in twenty years. If by no other means, then by lvl 5 autonomous cars.
At least in the US, the millions of empty homes are mostly in places people don't want to live, for a variety of reasons (mostly related to limited opportunities).
Note that you will need to do substantial renovation, lead abatement, etc, and when you're done, the house will probably be worth around $50,000 at most, and not be in a safe neighborhood.
The political problem is mostly around providing enough homes in the places people want to live. The technologies to do this (multi-story apartment buildings, electric mass transit) are generally over 100 years old.
There are some hugely perverse incentives in western society where you aren't guaranteed shelter, food, and medicine while the world is overflowing with extravagance and wealth.
This isn't making your poor comfortable, its about human decency. The whole point of society is that the collective be worth the effort for the many, but for many that participation just means exploitation and desolation for the endless profit of capitalists they will never even see in person but whose influence keeps them in endless toil with an empty, unfulfilled life.
I feel like this is the past of housing as well. Most people you see that live in a relatively nice housing unit in a nice neighborhood have a roommate -- the person they married. I remember when I was younger I would always ask myself why it seemed everyone other than me had twice as much money with which to buy a house... then I realized.
No, that's a quite recent development too. Not too long ago it was normal for each household to have one earner. Now, thanks to women joining the workforce, we all work more for the same thing.
It isn't women's fault that the capital-holding class has turned the screws on the rest of us. It is, however, to the capital-holding class's advantage that we blame women for being paid less.
While I love Slate Star Codex, just commenting a link in response to a written comment feels a bit snarky. It'd be a lot nicer if you could provide some preface, maybe a summary given the length of it, and just link to it as a source for your comment. :)
Particularly when the reader view estimates it to be 78-99 minutes. I'm several paragraphs in and not seeing the connection to the comment thread.
Edit: Just as soon as I post about not seeing the connection, I find the bit they were referencing:
"6. The Two-Income Trap, as recently discussed on this blog. It theorized that sufficiently intense competition for suburban houses in good school districts meant that people had to throw away lots of other values – time at home with their children, financial security – to optimize for house-buying-ability or else be consigned to the ghetto.
From a god’s-eye-view, if everyone agrees not to take on a second job to help win their competition for nice houses, then everyone will get exactly as nice a house as they did before, but only have to work one job. From within the system, absent a government literally willing to ban second jobs, everyone who doesn’t get one will be left behind."
No, we work more for more things. If you were to live according to the living standards of the times we associate with stereotypical one income households, say 40 years ago, your house would be 1000 sq feet smaller, your electricity consumption would be much lower because you would have no smartphone, a small TV, your car would not have the features it has today, you would likely have no college education, and your healthcare expenditure would be lower because you would receive significantly less care. You also would sweat a lot in the summer, because back then air conditioning was a luxury rather than the rule.
You would also eat significantly less meat, and you would be much less likely to go on holidays, travel abroad, or eat fresh fruit from the other end of the world at all times during the year.
Your TV & other appliances all used a lot more electricity to get the same job done, even if the screen or icebox was smaller. Your car got worse fuel economy and didn't last to 100k miles. Your house used a lot more wood/gas/oil/electricity to heat.
A big part of why we have more is social & technical progress. We get more for our money.
I do think your parent's question is an interesting one- thorny, but it's not ridiculous to wonder if doubling the work force eventually gnaws away at compensation for the same work. (The natural next question is, well did the demand for labor grow to match, stay constant, or somewhere in between? Did the pie grow and we're all wealthier for it, or are twice as many people now fighting over the same pie?)
There seems to be an error in that argument. If you shrink your workforce holding productivity equal, then labour becomes more expensive and wages and prices are going to be pushed, i.e. you just get inflation.
A larger labour force means more competition in wages, but it also increases supply so this shouldn't have any effect. If this wasn't true, then you could reduce inequality simply by artificially restricting the supply of labour, which I don't think has ever occurred.
You've got to be joking. My grandparents lived in much bigger houses with much more land than I could ever afford despite the fact that they were single earner manual labourers and I'm a highly qualified person with in STEM.
In any case, they were at least as happy with their cars then as we are now, and they didn't want smartphones.
You happen to be an outlier if you're living in a smaller house than your grandparents. Given that you're saying you're a STEM worker and that your grandparents were manual labourers, my guess is that they owned cheaper property and you live in a very urban area. Which has very different perks.
>your electricity consumption would be much lower because you would have no smartphone, a small TV,
Smartphones use a ridiculously small amount of power compared to many of the appliances people had in those days. Modern TVs also use less power than old ones.
No, electricity consumption would be lower because you wouldn't have air conditioning. That's the big power user in most peoples' homes.
Women, including married women and mothers, have been in the (paid) workforce for millennia, doing all sorts of jobs. Common paid jobs outside the home included: housekeeping; laundry (which btw 150+ years ago was heavy manual labor); childcare; factory work; tending shops and market stalls; beauty services; entertainment; and more recently (since it's become more common for women to be educated), clerical work and teaching.
The only people to whom a single-earner household outside the upper and upper middle classes was ever considered a default were the inhabitants of certain developed countries for a few decades in the middle of the 20th century; and even then it was more of a norm than a universal fact.
The only things that changed recently are a) women now can also have "careers" and prestigious occupations instead of just jobs; and b) working outside the home has become normal for upper middle class women as well as working class women (and for some even a status symbol rather than a symbol of poverty).
353 comments
[ 4.8 ms ] story [ 327 ms ] threadAnd what of those who have no friends? I struggle to name one person in this world who would qualify as a friend, let alone someone with whom I’d like to enter in a long term financial commitment.
> I struggle to name one person in this world who would qualify as a friend
I find that hard to believe, even if you have to lower your friendship bar to "guy who says 'hi' and asks how you're doing at the hardware store". Barring that, I'll be your friend old bean.
~No? Some friend you are.~
Stable, low-movement societies are more amenable to deep friendships, as one of the primate-brain requirements is mere proximity. We have to see, speak with, and touch the people who become our friends. Long-distance relationships are weaker and require far more effort--generally only worth it for courting and upkeep of pre-existing friendships.
Military brats whose parents are frequently relocated often have trouble forming lifelong friendships, for instance. College might be their one opportunity to get to know someone well enough to stay friends after graduation, if they can afford to go. And that's just within a handful of closely-related cultures in the same country. Is it so hard to believe for someone with multiple xeno factors? Not speaking mother tongue, possibly with an accent. Not in the culture in which they were raised. Possibly different religion. No mutual acquaintances.
A better solution would be cutting the larger homes into condos (owner-occupied flats). Or, if the house isn't conducive to that, tear-down and rebuild as condos.
Note: This is for comparing rent vs buy of properties of equal value. But I'm just trying to make a point about the commitment of a mortgage.
I have lived in the same place for about 10 years, so had I bought when I first moved, it would have been a good decision (only in retrospect). But 10 years ago, I had no idea how long I was going to be here. The job that got me to move only lasted 2 years. At no point during that 10 years did I ever believe I would still be here--and, more importantly, earning equal or greater income--10 years later. I still don't. The risk I face in loss of all mortgage-paying income is greater when I can't consider quick relocation to a hotter city for jobs, which is what happens when you buy an immobile, illiquid asset.
It has never been a good decision for me to buy a home. Both times I actually did buy, I had to move earlier than the inflection point, for job-seeking reasons, and take a big loss compared to renting for that same period.
The job market and housing market are inextricably intertwined. People need to live near the place that they work. If they don't have firm, stable career prospects for the next five years, at minimum, and they buy on a mortgage anyway, they will on average lose more of their money to bankers and real estate agents than they would have to rental landlords. Home-ownership is a trailing indicator for the health of local careers, not the other way around. If you don't have good job security, reasonable expectation of finding new mortgage-paying jobs quickly, or enough saved to buy your home in cash and still have some left over for expenses, you should never buy.
The middlemen all earn the most when the churn rate falls into the realm of bad financial planning. If you have to sell your house and plow the proceeds into a new one frequently, the transfer middlemen earn more. If you refinance a new 30-year mortgage every 0 to 5 years, the bankers earn more. But fewer people can really expect to have same-job-same-house for the next 10 years, and they are still buying, on bad advice issued by those who will benefit most, not realizing that they are choosing poorly.
Doing it for 30 years sounds like my personal nightmare.
The first time though I wanted to move out before the other owner wanted to sell, so he stayed another 2 or 3 years and I was just a silent landlord, which was okay but made it impossible for me to get another mortgage or even a new credit card. In the end he got married and wanted to sell. This was in the DC area where the market was pretty much always hot, so selling the property was easy. Anywhere else it could have been more complicated.
The second time my friendship deteriorated over the course of the time I lived there because of external circumstances, in the end the other owner agreed to refinance and buy me out, and there was a little tension during the process but I think we both walked away satisfied with the outcome. One of the reasons our friendship deteriorated was because as we grew into adulthood, my friend chose a career in the service industry, and I chose a career as a teacher, and it sucked living with someone who had the opposite schedule. Over time as we settled into our lives, our social schedules diverged as well, which was definitely detrimental to our relationship.
I would actually recommend it either to people who are young and early in their adulthood, so that they have lots of flexibility and don't mind the challenges and inconveniences that it entails, or to people who are well settled in adulthood who already have similar lifestyles, employment situations, work schedules, etc. to minimize friction.
I could be remembering incorrectly here, but from memory this meant that in effect a mortgage would not be approved if each individual could not pay 100% alone. This limits the benefit of such an arrangement from "can't afford" to "prefer not to pay it all by myself".
I'm leaning more towards stacked micro-houses, aka micro condos, as the "future of housing" in urban centers.
This is already a thing, it's called coffin cubicles or cage homes: https://www.theguardian.com/cities/gallery/2017/jun/07/boxed...
What I'm trying to say is: No, you should not lean towards this. You should lean towards jobs and opportunities spreading out over the country. To appeal to the HN population, instead of thinking in the binary thought of "SF (or some other tech hub) or fully remote!", consider another option: opening up smaller offices. Bring work where housing is affordable.
Because your equity is now at the mercy of other people who you cannot control. No one wants to default on a mortgage.
Considering that many college students have two to four dormatory roommates, I don't see what's wrong with renting a small living as a young adult - provided that the living space itself is up to code.
Here's my stance:
Getting into a mortgage with roommates = bad.
Getting into a lease with roommates = no problem.
Some cities are certainly more affordable than others, but in my experience they are also much less desirable.
I now live in a place an order of magnitude larger, but that really does not cut down on the time spent on basic shopping.
We will likely not see jobs move to less expensive areas in the US(or any other high wage country), in any meaningfully significant number, because those cheaper areas can never compete with cheaper countries overseas on cost.
Distributed teams across the US isnt much of a problem, but try working with people that have an 8 hour timezones difference and it's much more difficult.
Can someone say 'urban sprawl'?
The massive living spaces we have now are not sustainable. By 2050 if we are to avoid 2 degrees of warming we need to be emitting 2 tons of carbon per year per person: http://insight.gbig.org/targeting-2-tons-closer-than-we-thin.... The average American today emits 11 tons, whereas 2 tons per person is closer to that of someone living in Brazil or Egypt.
In climates where you need to heat and cool a home, carbon taxes will make heating and cooling the living spaces we have now financially impossible. People will drive demand for these smaller living options out of necessity. Additionally, as we make consumption less and less economically attractive people will have fewer things to want to store anyway, and personal vehicles will likely no longer be something the average person will be able to afford or want so there will be less need for parking and garages.
Moving into micro houses isn’t going to cut it, you’d need to slash US economic activity to reduce those numbers (an entire new technology).
We're not going to solve climate change by democracies adopting high carbon taxes.
There is simply no way developed nations are going to curb their emissions enough in time, and that developing nations will refrain from increasing their emissions, for us to avoid this disaster.
We might as well get used to the idea that our civilization is going to collapse before too long, and there's really nothing we can do about it. Other civilizations in the past collapsed and disappeared because of environmental change, and ours will be no different.
Our globe-spanning communications seems like it should help us solve these problems together, but instead look what it's brought us: anti-vaxers convincing a lot of people not to vaccinate, which has now brought back diseases we thought were almost extinct. Instead of using these communications to convince people about real problems and solve them, these communications have instead enabled the stupidest people to have a much larger voice and influence, which has led us to disaster politically in the US for one (just look at who we elected in 2016).
Sorry, but I don't see how there's any way out of this mess. We can't just figure things out in 50 years and then start fixing the problem; by then it'll be far too late.
The space can be rented out to someone else to cover the cost, possibly at a profit to the remaining owners since the renter isn't taking on any risk.
The bigger risk in this arrangement is to the party that is leaving since a share of a house is illiquid.
Ignoring the headline. This seems to be mostly beneficial to the lenders more than anyone else. The risk of a non-payments and financial issues is much higher and repossessions will be higher.
> Even if four people's names are on a mortgage, if one or more stop paying, the mortgage lender has the right to demand full repayments from whoever they can reach, he explains.
You only have to consider divorce rates to see the maligned incentives. Can someone more knowledgeable than me on the subject of mortgages explain if repossession is more valuable to the lender than someone paying off their debt? Intuitively it feels like repossession is worth more on a long enough time scale but would be interested in insights from someone else.
They'll likely sell at an auction for cash too. With two houses otherwise identical, one being sold normally, one as a reposession, you'd go for the normal one. How much less would you pay for a repossession which runs a risk of the previous owners coming back to haunt you?
No, it's not more valuable.
When a property is repossessed by a lender, it is sold (often at auction) by the lender. The proceeds (minus costs for admin, auction fees, legal costs) will be put towards the debt. If there is money left over, then it goes to the borrower.
So, in the best case, the lender gets their money back (and loses the chance to earn interest for the remainder of the mortgage term). In the worst case, they get back less than they were owed.
Is this just what they do as it makes financial sense to them, or is there some law or similar prompting them to do it? I was wondering if holding on to strategic property would be beneficial. But if they are immediately selling all property that is repossessed then it doesn't sound as ominous as I imagined and actually sounds like the most beneficial thing that could be done, for the market and potential buyers.
As far as I'm aware there's no law demanding they turn around and sell, but it makes a lot of sense to.
There are practical problems relating to specialization in the industry; there are no participants at this time who could play the proposed game. There are salespeople-transactors companies who need to turn their working capital over every month or so; the people who sell you a loan for a commission and then sell the loan to a national servicing company next month, they need to turn that working capital over every month or two or they go out of the business of selling loans because they run out of cash to turn over in new loans. Meanwhile the national servicers specialize in logistics, sort of, by trying to optimize cheap and poor customer service to turn (junk) bonds and such into the largest income stream they have; they optimize all internal processes on being identical and simple and fast and dumb. They're in the business of raising money, buying lots of small income streams, then milking it for all its worth via monthly payment transactions and trying to branch out into long term real estate investing is problematic for that business model level. Why don't restaurants own farmland, because skilled farmers and skilled restaurant operators usually aren't the same people so two people trying to do that would overall make far more money if one tried to be the farmer and one tried to be the restaurant chain owner.
There are real estate investment trusts but they tend not to be a tiny department of a sales org or a servicing org. REITs tend to be stereotypical investment organizations that happen to buy real estate and derivatives and holding companies rather than Apple or Google stock; not a desk at your local bank branch or a dude in the mail room at a national service center.
The closest analogy is probably pawn shops. Those guys will sometimes do weird things to optimize return on their collateral. Its probably a good thing they tend to be smaller and less centralized than the world wide megacorporate financial system.
That is a significant misunderstanding of fractional reserve banking. Banks can only lend money they have, i.e. that customers have deposited. They can't just invent money to lend. So, a bank with $100,000 in cash can only make loans totaling $90,000 with it (assuming a 10% reserve requirement).
By financialising the mortgages and other loans, the banks can now treat them as if they were lendable cash. A bit like they can treat gold bullion like cash.
When banks end up owning properties is usually when there are no bidders; the starting bid is usually either the amount of delinquent debt or the total of the debt and any other costs that can be charged to the borrower. The bank has effectively shown that the house is worth less than what was owed at that point in time, and then it's their job to get rid of it (in some cases a bit of staging will go a long way, in others, they'll have to sell it for much less or hold it for a long time or both)
Don't forget that you hardly repay any capital at all in the first years of mortgage which is in favour of the lender. Similarly in a lot of countries like Spain, UK, France, ... if you LTV is too low, the bank charge you for a specific insurance that covers loss of value of the property.
The common wisdom was that indeed the bank would rather have people paying their debt, but I'm not so sure it is still necessary the case. One sibling comment to yours provide a different point of view, talking about how bank takes money of transation and more transaction is more money. Following the 2008 crisis that showed that the backend debt component of the mortgage is actually instrumentalised and resold and the element I mention here, I wouldn't be surprised if, for some banks at least, repossession is not part of their revenue stream.
Increased risk does not benefit the lender.
Lenders do not want real estate, or the work it takes to get it. They want regular payments.
This was one of the major ways the black middle class was hollowed out since homeownership was one of the major sources of middle class wealth gain.
[0] https://www.chicagoreader.com/chicago/contract-selling-redli...
Major underwriters want regular payments. If they wanted market value property, they would invest in that instead.
If banks wanted to foreclose property, why wasn't 2008 a winning year for banks?
a lender’s job is to price default risk. if they could do this properly (pricing at a premium), they’d prefer higher risk because it would net them more profits (this is supposed to be reigned in by regulations on risk exposure but we saw how effective that was a decade ago). so higher risk does generally benefit the lender.
however, lenders are horrible at being real estate investors and property owners/managers, so they’d rather avoid (most) foreclosures as it’s less profitable to them. they’ve even gotten out of managing the loans in many cases, preferring to sell them off and reinvesting the money in new loans instead. it’s specialization at work.
This changes when banks exploit mispricing or miscalculation of risk by other lenders, to undercut them or to buy low risk debt at high risk prices.
https://fred.stlouisfed.org/series/DRSFRMACBS
A rate of 2-4% is about average for the US, I'm told most lenders model default rates of up to 8%, though given 2008 I'm guessing 10% will be seen in some forecasts from now on.
As a side note, the above site fred.stlousfed.org has some of the best clean data that you can find for free for modelling purposes
And lenders always want to be repaid as there is no incentive for them to repossess a house as its auctioned off and the owner get any excess return above what they own.
Google "jointly and severally liable".
This is called "joint and several liability" and is the legal position for many agreements when a party is made of several people (at least in the UK).
For example, people sharing a flat/house as renters will have the same liability unless they have separate tenancies. This is extremely common but surprisingly many people have no clue about it and think that they are fine paying "their share" of the rent.
The risk if they don't look after their security properly is that the lender ends up owning (say) a 1/3rd joint share in a property which they are not permitted to sell without permission from the other 2 owners and on which they are not entitled to any rent and can't evict the defaulting borrower. There are cases where this has been the result of a defective mortgage arrangement. Understandably, that's not something lenders really want to risk.
It is possible for property to be owned with only one name on the deeds and one name signing the mortgage deed by establishing a trust.
If you want the lender to consider multiple incomes on that basis then you'd need guarantors and you then run into the problem that this probably needs specialist human legal input so it is suddenly not a mass market product.
It's also worth noting that under joint and several liability, the tenants would usually have the right to then sue one another for the relevant shares if the lender went after one of them for the whole amount.
In hot markets sure, maybe a bank might see a default and repossession as a good thing, but I doubt they are optimizing for those scenarios.
I notice this more and more, along with promotion of clearly trivial stories to the front page - is a banal and contrived tweetstorm about Trump/race/trans/gender/tax issues justifiably worth elevating above a story like Venezuela, or rampant knife crime, or any number of other inconvenient yet important stories about which the BBC chooses to avert its eyes?
I believe that much of what is motivating their current direction seems to be desperate fear of becoming irrelevant in a changing media landscape (an existential threat given that with falling engagement the license fee would eventually become untenable), hence their degeneration into a crumby buzzfeed simulacra. Another reliable institution subverted and going down the tubes, hey ho.
As others have said, banks don't want to be holding on to property any longer than they have to.
The idea of hyper-unstable living seems to be if you live by yourself or with a spouse you'll make a mortgage transaction every 20 years on average, but if you try to live in a giant commune like a 90s era sitcom, it'll financially collapse every 2 years and ya gotta live somewhere so you'll be entering into new transactions the bank can middleman every two years rather than every twenty years. They probably will make less money off each transaction, maybe lose some of the time, but if you increase transaction volume by 10, as long as their profit drops less than 90% its a net gain for them on average.
Also interest is profit to the financial institution, they'll make far more money off ten two year mortgages than one twenty year mortgage. With a side dish of the bank eating all the equity in interest in fees meaning the participants will be much poorer after twenty years meaning the bank can extract ever more middleman profits off the victims.
The nightmare scenario for a financial institution is someone getting a mortgage, paying it off early, and not getting another mortgage.
https://eliresidential.com/blog/2018/6/12/what-is-the-averag... http://nahbclassic.org/generic.aspx?genericContentID=194717
It seems really backwards to consider this the nightmare scenario. This is exactly what everybody wants: for people to take a mortgage once and pay it off eventually.
A business that considers healthy finances a nightmare scenario is a predatory business that needs to die.
Are hospitals predatory?
I guess this is the clearest case ever of why regulation is important. Good regulation provides businesses with incentives that help rather than harm society.
"Healthy" society is a weasel word here though: a qualifier that turns this into a "no true scotsman".
In this one, and most real societies, hospitals do want people to visit more often. Their incentives are geared towards that.
And not just "visit more often" -- hospitals (well, hospital execs, doctors, etc) want (and do) all kinds of things detrimental to society:
- to charge more for healthcare
- to add hidden charges
- to perform unneeded operations and treatments to make profit (even if the patient not only doesn't need them, but can be in danger from them)
- to prescribe drugs that the drug companies wine and dine them to promote, whether they're needed or not
And whole more besides.
E.g. https://www.scientificamerican.com/article/unnecessary-tests...
https://eu.usatoday.com/story/news/nation/2013/06/18/unneces...
http://discovermagazine.com/2018/apr/doctors-wined-and-dined
https://theconversation.com/whos-paying-for-lunch-heres-exac...
This might be true, but I would expect citations. I might be biased, is only anecdote, but my experience around the world would single out USA as a place where this is predominant.
Besides, not all the hospital visits are equal, a clear example of how we can align the incentives are vaccination campaigns.
Sure, but most of the discussion on HN focuses on a USA context.
In my country for example, such incentives might not be predominant re: public healthcare (since the staff gets paid whether they have more patients or not), but they are with private practices.
Maybe this is true in the US but not sure it's valid point in Europe where, given how the health system works, most of the time patients are actually a cost for the business hence less patients the better really.
Hence the other arguments he made, about gas stations want you to burn more fuel, etc.
It's about how for-profit incentives of companies can be detrimental to society.
Price-sensitive customers may feel differently.
The Surgery Center of Oklahoma[0][1], for instance, makes a profit while providing better, lower-cost treatments than traditional hospitals. And they actually have transparent pricing.
[0] https://surgerycenterok.com/ [1] https://reason.com/reasontv/2012/11/15/the-obamacare-revolt-...
A healthy economy would make investors compete over those investment opportunities. If a lot of investors want to put their money into residential single-family mortgage loans, and only N families seek to borrow with that type of loan per year, the investors would have to offer lower interest rates for every level of default risk. This limits the amount of money the investors can make by lending, so some go off to look at different types of investment. The rate of return naturally sorts itself out such that it increases with increasing risk.
When rates of return are low, entrepreneurs generate more investment opportunities at all levels of risk. But housing starts and transfers are more closely associated with employment opportunities, which tend to trail new business starts. People don't buy houses unless they have jobs that pay enough to buy houses, and they don't have better jobs unless businesses are expanding and labor is getting more scarce.
What seems to be happening is that middlemen are assembling artificial investment opportunities with a falsified risk profile, in order to capture investment dollars that would otherwise leave to find other opportunities with a better return/risk ratio. Some of those investments would have eventually sloshed back into mortgages, filtered through new employees or promoted employees, to replenish the pool of available investment opportunities. So the risk fraud is self reinforcing; the more it happens, the more it has to happen in order to maintain the status quo.
If the financial institutions are completely serving the mortgage market, that excess money has to go into other investments, or it loses its value. They won't be mortgage investments, but there are only so many of those around to pick up. The "nightmare scenario" is "OMG! We need to find another parking spot for our colossal pile of money! And the available ones are SOOOO FAR--like 50m away!"
This is very interesting and produces an odd incentive structure. The only upside I can think of is mortgage terms might be favourable to the buyer as the lenders just want a higher mortgage turnover which can't happen if people are stuck in mortgages for too long.
Why would I dump $x00,000 into home equity when I could leverage that money for decades are earn more in the market?
It seems like a win win, at least for people who have access to 4% interest.
You're still losing a little but you will be ready for emergency home fixes & getting sacked with random specials from your city which are usually at a higher interest rate.
Of course if you have tons of cash, then for sure throw it in some ETFs in the market.
My favorite rebuttal to that argument is this Q&A: https://money.stackexchange.com/questions/89245/should-i-buy...
To quote the top answer:
> Ask them if you already owned the house, would they be advising you to take out a mortgage in order to invest elsewhere. If not, ask them to explain the difference between taking out a mortgage on the day you buy the house and taking the same mortgage out the day afterwards.
If I owned a house (with no mortgage), I wouldn’t take out a mortgage on it just to invest those funds in the market. Some people might, but that’s too much risk for me.
If your mortgage is big enough (over 750k as of the last tax bill, which is not that uncommon in some real estate markets) or small enough (so you don't itemize your tax deductions; that roughly corresponds to mortgages under $300k for married couples, I would think), then putting money into paying off the mortgage has a guaranteed 4% _after-tax_ return for some number of years that depends on where you are in your mortgage payoff cycle.
Would you buy a government bond on those terms in the market?
There are obviously liquidity issues with home equity that are much less of a problem with bonds, but I am also not seeing any 4.5% (generously assuming a 12.5% marginal rate on your bond interest) US treasuries bonds in the market right now, at any maturity.
People take out long term mortgages but it is quite common to re-mortgage on the same property to get a better deal...and usually people go with a different lender in those cases
Or to "extract" equity as money to spend. There's a huge amount of advertising out there trying to convince people they should take out a home equity loan and spend the resulting money.
This is only true provided that the mortgage rate for this person is below or at the federal funds rate, right? Given how low it is, even in the nightmare scenario they're making good money.
Though for the originating institution you're generally correct.
I think the nightmare scenario for financial institutions is people buying houses for cash. No mortgage, no down-payments, no middlemen. The west coast right now is seeing an increase of such transactions. Add to that the slew of services trying to get around realtors, and the future may be bleak for such financial institutions.
One can only hope...
I don’t, but all the appliances sellers here advertise it so people must do it.
I recently replaced a refrigerator, which was over 40 years old and which I'd done multiple overhauls myself on over the years.
Appliance store had lots of refrigerators in the $3,000-$16,000 range. With lots of features and compartments, multiple icemakers, LED zoned glow lighting, exotic hinges, internet connectivity, etc.
I got a good fridge for $500 for cash. No icemaker and a single fridge and freezer door so it had the highest energy efficiency rating, higher than all the high tech fridges there with exotic energy saving features. And plenty of room inside because it wasn't taken up by compartments and drawers and icemakers.
So... if most people are financing as you speculate, maybe it is because they are going for these $5000 refrigerators that don't work as well as the $500 refrigerators.
Also I just know that all the internet, digital stuff, and touchscreens on the $5000+ fridges is going to break down in a few years and cost a fortune to repair. No thanks!
If I had invested the money in my stock portfolio instead, I would be ahead of the game since in the US (I realize the article is about the UK) mortgage rates are ridiculously low, stock returns are good, and mortgage interest is deductible.
I like to upgrade my houses though including major demolition which the lienholder of record sometimes doesn't want to go for without trouble. I have more freedom with the property with an outright purchase. Despite the fact I'd have more money taking a mortgage and investing my investment gains have been dramatic enough that I'd rather have the freedom.
Anyone working in IT should own at least one house outright by age 30 if they want to and if the can't they need to upgrade their skills, switch jobs, or stop spending irresponsibly. Starting salaries for recent grads from decent colleges are $90k now on average. That's people with no experience. After 10 years everyone should be making a lot more than that and all these rates are vastly more than anyone needs to live on. Save save save in the early years, then invest. Don't spend earned income on anything other than bare essentials. Spend from surplus investment income. Lots of people are in trouble every month spending all their earned income despite making $180-$400k and they never get ahead. There's no excuse for that. Cut expenses to what the poor spend and invest the surplus until you can permanently live well off your investments. But continue working at that point.
I graduated ~7 years ago. Besides this figure being far higher than I experienced as a starting salary,
1) These salaries are for high cost of living areas. Rent can and often is $25,000 or more a year.
2) These high cost of living areas, homes can and readily list for $1,000,000 or more, which is, in your estimate, 11 times the starting yearly salary, ignoring every and all expenses.
3) These 'decent colleges' can put you in several hundred thousand dollars in debt.
4) $180-$400k is not in the salary range for most software developers. This is well above average.
There's no way I'm buying a home when I'm 30. When I do, there is no way I will own it outright. And I feel like I make a good living for myself.
So after 8 years of living the bare minimum life style and using up the a good portion of your youth on saving money, you can finally outright buy a 800sq foot house in the poorer communities of silicon valley.
Sounds like a great plan to me. /s
Note you could invest the money while you build it, but get if the market tanks, good buy money
You do 10 years. Let's do 8 years instead so we take our next move age even 30. Using your numbers there's 465.5 saved total. But we put that in the market each year in boring run of the mill bread and butter commodity stocks with half decent dividends and reinvest the dividends. Over all we see a modest 7% annual return from the market all together, both gains and dividends. So we're 30 and have $625k in fungible stocks that can be cashed in. Similar to 617.5k but somehow having 0% returns, and we're 2 years ahead.
So the only option is to buy a lousy house in a bad neighborhood with crime in a city where homeless guys are blowing each other on the sidewalks which are strewn with feces and AIDS infected heroin needles?
No of course not. If in such an area the only rational thing is to move to another area.
Now if you bought a house in this hot market that house appreciated more than 7% for these 8 yrs. But you also were paying 4% or so on a mortgage. Still you have a big gain. You paid $480,000 for a condo in 2010 and now it's worth $1.3 million (12.5% APR). BTW, I'm using real numbers for a family member's property in the bay area with these exact years. So that's nice cash infusion as well, rather than losing money on rent. However ignore that, let's just go with rent and stock gains instead, which I recommend anyway. I don't recommend people pay cash for houses like I do unless they have a reasonable justification for doing so. It's better to let the bank front it when mortgage rates are low as they are.
Anyway so you get a transfer to Topeka or Bismarck or Austin or Durham. You buy a mansion with a swimming pool and a horse barn on a 2 acre parcel. Or maybe you decide to commute 10 minutes from outside town where you buy a 4500 sq ft farm house on 75 acres of land. And you pay $250,000 either way. If you had bought your condo in 2012 you have around $1 million to spend, if not you have around $625k to spend. The rest you leave in those stocks.
You took a big salary hit moving. Went from $140k with $300k in bonuses and equity to $110k and $300k in equity/bonuses if managed to move in-company but different office across country, or $110k and no equity if not. Either way your living expenses drop to near zero. Company has full benefits so you're paying utilities, low property tax, and food. Maybe $500 a month total since your mansion is paid off. Now you have $104k a year to stuff into those low yield commodity stocks.
But you get "lucky", like everyone who invests long term. It's not luck, it's just persistence. One of those stocks takes off. Or maybe you have an equity event in a company you're consulting with who couldn't pay market rate. So that's a few million here or there.
I'm not lucky or special. I just do basic common sense stuff and avoid stupid stuff. I know car mechanics who have done better than me by retirement with their investments because they took more risks. But I have done OK and my value is above $30M. I'm old and now have health problems, so it's nice.
Well, that's a bit of encouragement to overpay my upcoming mortgage.
While that may include plenty of fees etc, theres limited upside.
This classic example is lenders forcing an auction into which they know the only likely bidder is a related company of the lender.
I expect that we'll eventually see a resurgence in the attractiveness of suburban and rural housing. There's something about having free space and a general level of independence that you can't really get in an urban area, even if you're weathly enough to own your own property.
Of course, it's going to take an uptick in well-paying suburban jobs, but I see no reason why large companies won't start investing again in cheap office space for satellite offices, in particular as a way to bridge remote and central office working environments.
Realtors were expecting a glut of suburban housing after the financial crisis. And while foreclosures did spike during the crisis it never really turned into an epidemic. The purchase time frame increased as buyers had to meet new qualifications but the demand didn't drop.
But this is the case for the SE United States. Midwest and flyover states in small towns are having a much harder time. But they're impacted more by their location rather than if it is urban or suburban zones.
But in Germany for example, Landesbanks and Sparkasses offer friendly terms to people.
https://www.syndikat.org/en/
In the end you only own half of it for as long as you live in it, but anyone can walk away and be replaced without problems.
Remote work might be the panacea...hopefully.
Remote workers who previously worked in Seattle have done this to where I live now - which has only displaced their housing affordability crisis to a different location, and on to a different demographic.
Furthermore, why has the movement of people to your town created an affordability crisis in the first place? If the existing residents are opposing increased building, then it's not really the newcomers fault. If you're building to meet demand, why are prices going up?
Architecture seems important too. Every couple I know who successfully lived with another couple or singleton, each person/couple had their own floor to retreat to.
Then there's the "mixing business and friendship" issue. Civil marriage is already a type of business partnership, whereas friendship is not, so you're adding a new business partnership. If your buying with friends you're risking your friendship.
I know someone who owns a house with her brother and it's a shit show.
You're also tripling your exposure (3 people rather than 1)
[0] http://neatsplit.com/
[1] https://beta.companieshouse.gov.uk/company/09581451
[0] https://www.gov.uk/government/publications/income-tax-rent-a...
We moved in in the mid 80s, and in the early 2000s after all the kids had moved out my parents sold their half to the co-owner. Everyone's still friends.
Constant property ramping by the BBC back in the early 'oughts was the main reason I cut the cord and never looked back. They're about the only big player in UK media with no commercial interest in doing it (no ads from the property sector), but even so, they just couldn't control themselves.
The UKs pop should dropping, if not for immigration which the UK can control if they wanted too (being an island surrounded by rough seas and rich neighbors).
"The median estimate for future growth sees the world population reaching 8.6 billion in 2030, 9.8 billion in 2050 and 11.2 billion by 2100" (2017)
Source: https://en.wikipedia.org/wiki/Projections_of_population_grow...
Also, from Wikipedia:
Low estimates suggest a decline
Moderate estimates suggest a plateau
High estimates suggest constant increase
Time will tell, and estimates suggest that the earth can comfortably support ~10bn
---
I don't think housing prices have much to do with population increase, but more to do with urbanization (as well as increasing wage gaps).
People are flocking to existing cities, and the more center you are the higher prices are.
This pushes people to the outskirts, which become more urbanized, which spreads urbanization through the same cycle.
But top places like London now attract from a global pool of billions.
People need to realise that a world with 10 billion does not look like a world with 2 billion.
Lastly, the planet has trouble with us now... It's terrorism to suggest that 10 billion is just fine.
Calling it terrorism is a bit absurd.
It's totally possible (and even likely within our lifetimes), but that doesn't mean that there aren't huge logistical issues to overcome for it to be comfortable.
One of the main problems is that the world population is so widely distributed. We can already feed and house everyone, we already have more resources than what would be required... they're just not distributed appropriately (some due to hoarding, some due to supply chain barriers, political borders, etc).
...and even if I did say it was "just fine" it wouldn't be tantamount to terrorism because I was pointing out something that is very likely inevitable.
I'm not invoking 3 billion people by assuming one day they will exist.
It is only 'inevitable' because no-one has cared about it and, worse because some try to downplay the issue.
I did not accuse you personally, but you also did not say that it was inevitable, you spread the opinion that it was fine.
Those who claim that it is all good are pushing us to the abyss.
Edit: Downvoting the inconvenient truth won't make it go away.
This conversation has reached the point of unproductive a while ago.
I'm sure you'll try to bait me back into it, because you fit that MO, but you're on your own.
You don't need to weaponize "sorry" — just don't say it.
It doesn't make sense to jump to ad hominem attacks because someone's calling you out on a statement that seems completely irrelevant.
If you look at London (since that's essentially the article), population has actually only reached back to its 1950 level.
But attractive cities can now pull people and investment from a global pool of billions of people and thus the market does its thing and prices move accordingly.
https://en.wikipedia.org/wiki/Urbanization_in_the_United_Sta...
The massive change in urbanisation is happening in developing countries. In developed countries it happened earlier and is not really a thing anymore.
We are massively overbuilding a housing type with offensive levels of resource consumption built in: single family detached.
Cap VW at 100 cars a year. Think they’re going to be Jettas or Porsche? Probably Porsche. Doing that, then getting mad that cars are unaffordable, and saying “clearly if we let the automakers make more cars they will just be more Porsches, that’s not helping” would be silly.
Bigger houses, bigger plots, bigger garages.
At the same time, families got smaller, stay-at-home spouses (i.e. "free" upkeep) became less common, etc. Add in population growth in popular areas and the recent trend to smaller housing makes a lot of sense.
Especially so when you consider incumbent NIMBYs.
The very notion is for slackers.
If your business relationship requires friendship to begin, that friendship will be exhausted by the time it fails.
If you enter in to such an arrangement, you need to forget that your partners are your friends, and instead imagine that they are all either evil goblins trying to screw you and take your share, or evil faeries that will disappear on a whim to a land that you cannot reach.
A business relationship that still works between mortal enemies can certainly hold up when the partners have a relationship more cordial than constantly trying to kill each other.
Housing is a political problem, not a technological one.
If you wish, you can buy a lovely, well-located mansion for $800,000 in Milwaukee right now: https://www.zillow.com/homes/for_sale/40453573_zpid/globalre...
Or one of the many empty houses for around $20,000: https://www.zillow.com/homes/for_sale/40456506_zpid/globalre...
Note that you will need to do substantial renovation, lead abatement, etc, and when you're done, the house will probably be worth around $50,000 at most, and not be in a safe neighborhood.
The political problem is mostly around providing enough homes in the places people want to live. The technologies to do this (multi-story apartment buildings, electric mass transit) are generally over 100 years old.
This isn't making your poor comfortable, its about human decency. The whole point of society is that the collective be worth the effort for the many, but for many that participation just means exploitation and desolation for the endless profit of capitalists they will never even see in person but whose influence keeps them in endless toil with an empty, unfulfilled life.
CAGR from 1971 to 2018 - 5.5%
Edit: Just as soon as I post about not seeing the connection, I find the bit they were referencing:
"6. The Two-Income Trap, as recently discussed on this blog. It theorized that sufficiently intense competition for suburban houses in good school districts meant that people had to throw away lots of other values – time at home with their children, financial security – to optimize for house-buying-ability or else be consigned to the ghetto.
From a god’s-eye-view, if everyone agrees not to take on a second job to help win their competition for nice houses, then everyone will get exactly as nice a house as they did before, but only have to work one job. From within the system, absent a government literally willing to ban second jobs, everyone who doesn’t get one will be left behind."
No, we work more for more things. If you were to live according to the living standards of the times we associate with stereotypical one income households, say 40 years ago, your house would be 1000 sq feet smaller, your electricity consumption would be much lower because you would have no smartphone, a small TV, your car would not have the features it has today, you would likely have no college education, and your healthcare expenditure would be lower because you would receive significantly less care. You also would sweat a lot in the summer, because back then air conditioning was a luxury rather than the rule.
You would also eat significantly less meat, and you would be much less likely to go on holidays, travel abroad, or eat fresh fruit from the other end of the world at all times during the year.
A big part of why we have more is social & technical progress. We get more for our money.
I do think your parent's question is an interesting one- thorny, but it's not ridiculous to wonder if doubling the work force eventually gnaws away at compensation for the same work. (The natural next question is, well did the demand for labor grow to match, stay constant, or somewhere in between? Did the pie grow and we're all wealthier for it, or are twice as many people now fighting over the same pie?)
A larger labour force means more competition in wages, but it also increases supply so this shouldn't have any effect. If this wasn't true, then you could reduce inequality simply by artificially restricting the supply of labour, which I don't think has ever occurred.
You've got to be joking. My grandparents lived in much bigger houses with much more land than I could ever afford despite the fact that they were single earner manual labourers and I'm a highly qualified person with in STEM.
In any case, they were at least as happy with their cars then as we are now, and they didn't want smartphones.
http://www.aei.org/publication/new-us-homes-today-are-1000-s...
You happen to be an outlier if you're living in a smaller house than your grandparents. Given that you're saying you're a STEM worker and that your grandparents were manual labourers, my guess is that they owned cheaper property and you live in a very urban area. Which has very different perks.
Smartphones use a ridiculously small amount of power compared to many of the appliances people had in those days. Modern TVs also use less power than old ones.
No, electricity consumption would be lower because you wouldn't have air conditioning. That's the big power user in most peoples' homes.
The only people to whom a single-earner household outside the upper and upper middle classes was ever considered a default were the inhabitants of certain developed countries for a few decades in the middle of the 20th century; and even then it was more of a norm than a universal fact.
The only things that changed recently are a) women now can also have "careers" and prestigious occupations instead of just jobs; and b) working outside the home has become normal for upper middle class women as well as working class women (and for some even a status symbol rather than a symbol of poverty).
Feels dystopian to see the future as having less.
Vice media covered their story: https://free.vice.com/en_ca/article/59xp9z/how-six-friends-p...