There's a huge cultural difference there though -- people don't trust stocks, bonds, or bank accounts. Housing is the only investment most people will consider.
Nor should they, cultural or not. Look how the government destroyed the Ant group recently. When they can unilaterally do that, how can you find a safe stock?
Also those houses are being bought with money being smuggled out of China. For all of the reasons that patio11 gives in https://www.bitsaboutmoney.com/archive/money-laundering-and-..., real estate is an excellent investment for money whose provenance you wish to be hard to discover.
This is a negative way to look at China's history.
As a Chinese-American, whose family and friends all profited greatly from China's rise, I do wonder, how much of that profit was just being lucky enough to support the "winning team," and how much blood was shed on the other side.
We have a model for that in your birth country (American Civil War). But from my fractured knowledge of Chinese history, there's been a lot less backpedaling vis-a-vis the Civil War on ideological differences between the winning and losing side (and we mostly lament those as regression instead of progress).
In China, things have come back. People who escaped were invited back with promises of better treatment, even given platforms (eg, martial arts) but who knows what we Earthlings have lost from people who didn't. Biomechanics, biology, art, technology, philosophy...
The Chinese situation is caused by government rather than by their culture. Chinese corporations are forced into inefficient state-mandated investments and provide meager rates of returns for shareholders. They get tons of shiny public infrastructure while savers are given nothing, and are not allowed to invest internationally. In other words, it is pure financial repression.
When very few can purchase a luxury suit in a ghost city in china, the infra build costs were high, but the available buyer population is way fn low - its inverse to supply&demand when it comes to chinese real estate.
The buyers would have to fund ALL the infra to power, water, feed such ghost city homes, and where will they work?
I used to work with a guy in SF that had a consultancy that would bring chinese 'students' on tours of the US to various universities to have them pick where they wanted to go to school.
These were the children of chinese oligarchs - and they would land in SFO with luggage full of cash - and, not knowing how things worked in the US, would jusr bribe their way through every transaction at ~$10,000 a time...
The chinese oligarchs own more of america than you may know.
Yes. It is your property, build it out as dense as you wish. There is not the demand in rural Montana to build out a 160 acre ranch with apartments. Just remove density restrictions and let people build to meet demand.
Basically the same thing in this case. You can't have no zoning, but having a baseline bare minimum set at the federal level without carveouts for specific neighborhoods or districts is mostly just about superseding the authority of councils to mess around.
We need to use a state or federal authority to take the power of municipalities in the same way the builders remedy works.
What is substantively different about any of these places that require different zoning laws? Do you think someone is just going to build a mega skyscraper in rural Montana because they can?
I don't presume to know the needs of Montanans. My state is diverse enough that statewide zoning laws are obviously specifically crafted with a certain subset of the state in mind and are unworkable for different communities.
For instance, there are laws that prevent certain stores (alcohol sales, for example) from being within X miles of a school. There are cities where the central location where the central location of the town where all commerce happens and where the school is is less than a square mile.
Unless you're proposing legislating the removal or limiting of zoning on the federal level, it seems like an incredibly bad idea.
Every time I see this I have to laugh. If you live in Tokyo, I'd love to hear your anecdotal experience.
I have stayed and visited japan for the last 35 years, and find all of the "Tokyo is so affordable and buildable" is hilarious. The breathless articles I read about it leave out fundamental aspects (the incredible density, the absolute destruction 70 years ago, the corruption [especially in Shinjuku], the size of the "livable apartments", the need to rebuild anything from before 1980 for earthquake safety, that youth population falling by half, the stagnation of wages), and the fact that most people who can leave Tokyo to raise children do (even if it means commuting 2hrs each way every day on a train).
This just doesn't match anywhere in the US or frankly almost anywhere else in the world. I know 2 people who actually still live in Tokyo. One is a 28 year old single foreigner, and the other is stuck in a 100 year mortgage with their extended family. All the rest moved.
> and the fact that most people who can leave Tokyo to raise children do (even if it means commuting 2hrs each way every day on a train).
Is that why the population is 14M - 34M in the metro? Bigger than every American city and about the size of all of Canada combined? They just can't get out to where it should by all accounts be cheaper? Is there a fence or something?
It takes too long to get there by train. Shinkansen is too expensive for daily commuting (for normal people). Two hours each way sleeping on a commuter train is about the limit of what people can tolerate. I love Tokyo and the rest of Japan. It's amazing, but if you put any other culture in Tokyo, it would be unlivable.
So why is the population of Tokyo steadily increasing while the population of Japan overall is decreasing? Is it all just foreigners explaining 2+% growth rate in recent years despite them making up less than 3% of the cities total population? Or are the people stuck in 100 year mortgages just having lots more kids than everybody else?
The pricing is set by the marginal housing. Marginal housing is older tiny apartments that would be considered deathtraps in the US or Europe. Those older 7 story buildings are torn down and replaced with 30+ story apartments (in less corrupt ways than in the past at densities that most other countries would consider too high) which are unaffordable to the people who are forced to leave and commute long distances to newer/safer, but similarly high density housing.
Because ALL of the jobs are in Tokyo (or Osaka, or Fukuoka). Note that Chiba city is growing faster than Tokyo and it's a suburb (same with Tsukuba)! Shin-Yokohama is getting too expensive.
Meanwhile in western countries the prices go up for no reason! That 30 year old house? It's worth double what it was 10 years ago! And now it's a 30 year old house instead of a 20 year old house. This is reality where I grew up. Most of my peers are priced out too. And I grew up out of the city centre...
And interest rates went from 20% in 1980 to 2% in 2021. Like fashion bags and NFTs they were financialized. The market can remain irrational longer than you can remain solvent. Seen China and the massive building there, but it didn't lower prices... they're higher than SF or NY!
It's not just housing. Look at bare land or abandoned buildings in CA. Those also grew by similar amounts or even more! Why develop it when it goes up in value? Why not own multiple empty homes when they "only" go up in price. Well, welcome to higher interest rates and likely a less deflationary world (deglobalization) with non-wage inflation that prevents the Fed put.
Interest rates don’t really matter to housing prices when supply and demand are at equilibrium. It may shift that equilibrium point but Japan has had the same exact interest rate policy as the US over the same time period but the price of a house in Japan hasn’t increased in nominal terms since 1990.
Everything you point out isn’t driven by interest rates but instead by artificial supply constraints on housing.
Well, actually Japan's interest rates haven't been falling they have been below the inflation rate (eg mostly below 1) for the last 30 years. That is literally the lost 3 decades since 89, when they had a huge housing crash.
However, China where they have built massive quantities of housing, it is an exceptionally expensive financialized asset, because that is where lending went.
Housing isn’t a financial asset in Japan because you can build as much as you need so it doesn’t appreciate. Once supply caught up and overshot in china prices plummeted. It really is that simple.
I don't want to be too combative here, but Kurthr's comments are completely unrelated to the sentiment of most people in Japan. I don't know where they came from. I lived in Tokyo for years and still have an apartment there. You can work part time for minimum wage and still afford an apartment you can live in comfortably.
It's not going to be a US-style giant house with a green lawn, but it isn't some dystopian hole in the wall or giant share-house like non-wealthy San Francisco residents are stuck in.
You can fire up Netflix and watch some of "The Full-Time Wife Escapist" on there to see a normal small apartment in action. It's tiny by US standards, but people can live there comfortably.
Agreed. Don't forget the massive implosion of the real estate market 30 years ago that turned a whole generation off of buying property and bankrupted vast swathes of the population.
Said "breathless articles" usually just grab some "rate of price increase" chart benchmarked to the most severe recession in recent decades and start celebrating just because Tokyo also has good housing policy. But in trying to advocate for good policy elsewhere, they just end up championing national recession, international stagnation, depressed wage growth, and more.
So Tokyo isn't affordable and livable because it's dense?
I lived in Japan so I understand where you're coming from...but the fact that "fleeters" are even a thing should tell you they are doing something right with housing prices. Can you imagine an American person in Seattle deciding to just work 30 hours at a conbini and being able to rent a studio?
A couple things:
1. Sure, Tokyo is dense and can be kinda soul crushing...but the option of having a roof even at incredibly low income is better than none.
2. Zoning to allow residential to be on top of business, and allowing smaller apartments and 2 very obvious things that make it literally "easier to build" in Japan than the US.
This isn't even just a Tokyo thing. When I lived in a pretty nice suburb in Okinawa a lot of my friends were paying like 300-400$ usd for rent, and I rarely ever saw homeless people. I live in Honolulu now and there's homeless everywhere and good luck finding any studio under $1300. There's a pretty obvious difference.
I agree that there's gotta be a place to live (that doesn't require a 1hr car drive or a multi-hour commute) to support city living at reasonable working wage and that is not possible in most rapidly urbanizing/gentrifying areas of the US (it is possible in Detroit or even NY to some extent).
That probably means something of a couple hundred ft2, not 1000. However, the reasons for homelessness in Hawaii vs Tokyo (I've actually seen some in the last 5 years!) has a lot to do with weather, social acceptance, and income from panhandling (which doesn't happen in Tokyo).
Also, a lot of the homeless I see outside (not the hidden homeless who have one or more jobs) in the US have problems that would lead to incarceration in Japan (drug use, untreated mental illness). At the same time I've known older people in Japan who would be in memory care in the US who were helped by the community to remain living in their houses in Japan. It is much safer in Japan, but at the same time any activity that makes it feel less safe is much more likely to be "policed".
A high Land Value Tax accomplishes this. It negates the appreciation generated merely by land scarcity and value of surrounding land, which means the only way to get gains from your real estate holdings is indeed to put labor and capital into improving it.
I think annual land value taxes are efficient at resource allocation but unacceptably punitive on owners. You should not be penalized or motivated to sell simply because a 3rd party can get a higher return.
Similarly, value gains from land appreciation are taxed at the time of sale. IF I pay annual taxes on land appreciation, I should be exempt from taxes at the point of sale, otherwise I am paying for that appreciation twice.
Land belongs to society, not whoever has a house on it. If you are using it ineffectively you deserve to be punished by society via taxes because you are directly making the community worse off.
I absolutely believe in property ownership. And that land is such a unique and important asset that it is utterly immoral for anyone except society as a whole to own it and tax those on it at close to its full value.
In this we have similarly strong feelings but opposite conclusion. I also think that land is a fundamental and important asset, but conclude from that it is immoral for an individual possession to be reliant and dependent on society.
I feel it in the same way that I would not want my ability to beath air to depend on some social utilitarian function that could decide it is better used elsewhere.
> it is immoral for an individual possession to be reliant and dependent on society.
Society is what defines the concept of land ownership and actively protects the ownership of land, so it's not possible to remove a dependency of the latter on the former.
Society accepts and protects property ownership of land but is not the only method possible.
Legal rights and social processes are just the most agreeable way to manage it amongst several people.
For example, You can own land if there is no society or other people to contest it. If you are alone on a island, there is no one to say you don't own it
Similarly, you can own land without social dependence if you have the power take or defend it.
If you've ever been mugged or read of nations conquered, it is clear that social consensus and the rule of law is but one mode of arbitrating property ownership. That said, it is one that works out quite well
> If you are alone on a island, there is no one to say you don't own it
Ownership has no meaning unless you can identify who does not have it, which requires at least one other person nearby. If you are alone on an island, you are just occupying it.
> Similarly, you can own land without social dependence if you have the power take or defend it.
This requires an army or militia, or an overwhelming technological advantage over those you are dispossessing. Those imply operating in a societ. Otherwise where does your militia and technology come from?
I agree that the sort of investment you are describing makes sense - but in practice those kinds of investments are out-competed by ones with better yields. If you are a developer, there is simply no financial incentives to choosing a lower yield financial vehicle. You'll just have more trouble finding funding and have less of a cushion for cost overruns.
I also think there's a strong economies of scale argument that "we" (society) would prefer most people rent (and use some sort of fixed or low-profit system that does maintenance at scale) as it'll result in lower overall costs. However it's absolutely true that home ownership is the best vehicle we've found for building inter-generational wealth so I'm not against it. Also one can simply prefer a society with more individual owners and slightly higher overall costs - reasonable people can disagree.
>I agree that the sort of investment you are describing makes sense - but in practice those kinds of investments are out-competed by ones with better yields.
I think that is a an advantage, not a disadvantage. There is no need for housing investments to have competitive yields. If you can make a profit building houses which have more value to buyers than your cost of inputs, someone will make them. It just won't be a speculative investment good.
I don't worry that people will stop making socks, shoes, or food because the profit margin in that business is lower than the market yield. If there is on opportunity for profit, someone will want do it. They just might not be funded by some massive financial hedge fund, which again, I think is an advantage.
Historically, home ownership has been a vehicle for intergeneration wealth building because it means taking on more responsibility, work, and risk instead of paying a 3rd party to do so.
I would argue that most people renting would not result in the lowest cost, because it turns responsibilities that a homeowner can do for free into 3rd party services which must be paid for. It is like saying that city run food kitchens would be more efficient than people cooking at home. Maybe it is "more efficient" if you count the homeowners implicit labor, but the dollar cost to the cooker is still going up.
I think most people would agree the goal is higher ownership and lower costs than now. I think this is actually reasonable if we fix some of the conditions that lead to house exorbitant growth in house value
> There is no need for housing investments to have competitive yields
I personally agree but you are not describing the economic system we live in.
> I don't worry that people will stop making socks, shoes, or food because the profit margin in that business is lower than the market yield.
This happens all of the time - but the market finds another equilibrium and continues to provide the good.
> It is like saying that city run food kitchens would be more efficient than people cooking at home.
Generally agreed - this would be more efficient. I also do not want it. It's more efficient in every way. There are significant economies of scale. There is a reason armies do not have each individual soldier cook their meals.
> I think most people would agree the goal is higher ownership and lower costs than now.
100% agree - but my point is that this is a local maxima. If we wish to globally minimize "total resource expenditure" then the Platonic best system is some perfectly managed hyper-apartment arrangement with the "optimal" allocation of affordances. Though, as I said, reasonable people can value things other than costs. We are generally always in a local maxima - but it's good to remember it.
>I personally agree but you are not describing the economic system we live in...
This happens all of the time - but the market finds another equilibrium and continues to provide the good
I just dont think we are on the same page here or think this is accurate for our system. The 1% profitable sock factory doesn't shut down because some investor somewhere starts making 100% ROI on bitcoins or tech stock. A carpenter doesn't lay down his tools because fund manager somewhere is making big bucks. I agree the prevailing rates on capital can have impacts on new growth in capital intensive industries, but that doesn't mean you wont be able to find a homebuilder if you have cash in your pocket.
>Generally agreed - this would be more efficient. I also do not want it. It's more efficient in every way. There are significant economies of scale. There is a reason armies do not have each individual soldier cook their meals.
I don't think resources like labor and time are truly fungible and can be treated as interchangeable. Efficiency is relative to the measure of value and the person making the valuation.
If I don't value my time or even enjoy cooking, paying someone to do it is not efficient for me, even if there are huge economies of scale. It might be efficient in terms of total hours to some central planner, but their valuation of my time and labor is not the same as mine. I am still paying money for labor that would otherwise be free. It may be horribly inefficient.
There is no maximally efficient platonic system without a universally imposed definition of the measures being optimized.
> There is no maximally efficient platonic system without a universally imposed definition of the measures being optimized.
Totally agree! All my global statements are gesturing towards the idea of such an idea - which is of course impossible but can be helpful to weigh alternatives.
> I just dont think we are on the same page here or think this is accurate for our system. [...]
I agree with everything you say here so I apologize for talking past you. What I was saying is that, within an investment category, higher yields chase out lower ones. It's not that the sock maker gets out-competed by bitcoin - it's that the person trying to sell "barely good enough" socks in the developed world gets zero shelf space compared to other options. Their product is profitable at the unit level, but can't find buyers efficiently enough to support the costs of doing so.
If you are searching for investment at a "below-market" rate, you are going to be at the back of the queue. Also, because you are definitionally working on low margins, your ability to adapt for unforeseen circumstances is h̶i̶g̶h̶ low, increasing your risk. That puts those kinds of financial approaches in a "high risk, low yield" quadrant as far as I can see it.
We could, of course, simply choose to build housing at close-to-cost and then package & sell that as bonds (basically). You could probably find takers, even if it's riskier than many bonds, but you need to have the funding assembled beforehand. I just mean that it's a hard problem and I see why these systems have not risen up naturally in our building ecosystem.
> valuation of my time and labor is not the same as mine
You are absolutely correct that this is an impossible problem to solve practically, but in a thought experiment it's simple to say that the central planner perfectly discovers & enumerates every individuals' value on time and labor and creates the optimal system with that in mind.
Returning your money (at 0% ROI) is not what people want in an investment. What you're describing is a savings account, or even a bit less. Historically you might make a percent or two after inflation, but not the last couple of decades.
I disagree. I think a lot of people would be fine with a 0% ROI investment if it comes coupled with a free house to live in for the rest of their lives.
A house is not a stock, bond, or number in a savings account. You get utility from living in it as well.
A 0% ROI would however make that investment unattractive for 3rd parties who don't live in the house.
There are lots of different types of investments.
Housing is historically considered an excellent hedge against inflation ("Land, they aren't making it anymore")
However, purchasing a house it is not just an inflation hedge. It comes with a house you can live in! This is an attractive quality for many of us humans who like living in homes.
Taking the modern definition of inflation as measured from the purchasing power of currency within the economy, you'll find house price increases are actually a major driver of inflation. If you allowed construction and more supply, house prices would stabilize and inflation would go down. If you want to hedge inflation just buy Series I bonds instead. There's other ways.
Really though, I would argue that housing in aggregate is not a good hedge against inflation because while it is true that the price of an average square foot of housing in the United States has gone up almost zero percent adjusted for inflation over the last 50 years, you have had to do 50 years of maintenance on it, 50 years of insurance premiums, 50 years of paint, siding, roofing, etc. And a 5% realtor commission. By definition, it has therefore, on average, trailed inflation.
If you are looking at specific houses, in specific areas, that's not "housing is a good hedge against inflation" it's "if we look at the winners in a speculative market, we find that they have won" which isn't so much an investment philosophy as a tautology.
That said a mortgage may be a good hedge against inflation but only by virtue of it being a long-duration fixed-interest debt facility with preferential interest treatment at income tax time. And 5X leverage.
At the national scale, people can build. Despite this, a house can be a good investment if a certain area becomes sought-after, and there are reasonable limits to how much can be built there.
Absolutely. IMO one of the biggest failures of public policy in the 20th and 21st century is the failure to recognize the basic mathematical fact that home values and home prices are the same thing.
You, mathematically, cannot have home values continue to go up over time without prices going up by the exact same amount.
The biggest real world advantage for the average person for buying a house is forced savings.
If a mortgage is $3K and rent is $2K per month, Joe Sixpack is not going to save $1K in a sinking fund. He’s going to spend some extra non-zero portion of that money. So in the long run, for average real consumers, not a theoretical economically minded consumer, a mortgage forces frugality.
In many countries, mortages cannot be over a certain fixed percentage of your income. In my case, in France, it is 33%. I currently pay over 40% of my income as rent. This has a double effect:
* I'm paying for a landlord's mortgage, for a good that should be easily accessible, at insane prices.
* I cannot save up that money, while my landlord does, allowing them to purchase more houses.
It amuses me this recent panic in the US. The UK has had this housing problem for over 20 years.
Reality in the UK is that if you can find the downpayment on a mortgage, the monthly outgoings in that mortgage (both the interest and the capital) are less than the rent. Sure you might have to replace a roof every 50-100 years (I had a quote in 2021 for my 60 year old roof for 4% of the value of the house), or a new heating system every 30 years (just replaced mine from the 80s, 3% of the cost of the house), but on the whole the vast majority of the cost is in that mortgage payment
Rental payments are higher than mortgages in most large cities. And those renters usually can't even qualify for a mortgage, despite paying more in rent.
* any and every landlord immediately pays taxes based on the asking rent, no matter what rent it is.
If a landlord is asking $2500/mo for something, the government immediately values the property based on whatever the formula is based off the asking rent, even if the landlord cannot fill the space.
> any and every landlord immediately pays taxes based on the asking rent, no matter what rent it is.
To work to decrease or cap rents this would have to be a dramatically increasing progressive tax. It would have to be a complicated progressive tax to work with both small, less desirable residences and mansions.
No, because if they happened to own a small place they won't be able to rent it for a wishing price as there's a price pressure from above thus anyone with a smaller place will pay smaller taxes.
Close to my numbers. My old rent plus monthly savings are close to monthly bank payment for my home. My real consumption is dropping to zero since I want to get rid of mortgage as quick as I can.
That's definitely the case for my family. Every time we gain some extra money, it disappears. 5 years later however, our house has gained a ton of value, and we can upgrade to a better house with the same mortgage. And in my experience, the better house rises in value faster than our previous houses. My homes have gained far, far more value than I've ever added thru my own equity payments.
Not that I'm promoting this system. The cost of housing and rent is so insane at the moment, I don't know what to do about my kids who are growing up fast...
Well we still have 60 and 90 year mortgages as tricks to use. Plus paying for mortgages on places that don’t yet (never will) exist. So government can probably increase house prices several times over before whole thing collapses.
I'm not sure if you're being glib or not, but if something "happens to" the Fed, we have much bigger problems than anything as boring as investing risks. It probably means WW3 or California is seceding or something.
I think atm the Fed is the main force holing the USA together, considering all the bi-partisan polarization
all ways to divert the "voltage" across elite and commoner classes which are the real source of this tension.
I'm saying that wealth inequality creates something quite comparable to 'voltage', this creates a tension which WILL get released (because physics). But due to active (social-)technological management this tension is getting re-focused into blue Vs red bi-partisan politics, as well as other expressions of winners fighting losers (including gender 'equality' tensions, trans and transphobics, etc..)
If something happens to it it'd be alongside some sort of low-probability event that will leave you with more pressing things to worry about than the value of your investments
"Risk-free" is a common term you'll hear in finances that basically means, no risk aside from a governmental collapse. That's still a risk but falls outside their scope.
Not sure if it counts as privatized when the vast majority of Americans are homeowners.
The gov had a ton of programs to increase the home ownership rate over the last 50 years, they were somewhat successful. Now you have a situation where the networth of 65-70% of the population is tightly coupled to their home price.
And we wonder why it's so hard to get them to vote for new housing.
As Munger says, Show me the incentives and I'll show you the outcome.
The majority of homes in America are occupied by their owners (this is what home-ownership rates measure). It is not true to to say the majority of American adults are homeowners - that ratio is a lot lower.
Looking at the flip statistic, 36% of households rent so the numbers do seem to add up.
For many households, some of the residents may not technically share ownership of the house (not on the deed) such as kids or extended family living together, but still have a vested interest in the value going up.
There's enough government involvement to insure the paper-printing game everyone is playing, and that's all that counts. They guarantee the low end with the FHA, and that props up everything else.
Right, a better solution would be to package demand-stimulating legislation like FHA with supply-stimulating legislation like reductions in zoning restrictions.
The results of stimulating demand (FHA and similar) without changing supply is econ 101.
Housing in America was basically a backdoor pension system for the working/middle class. Without the dramatic rise in housing prices, the boomer generation would be struggling to retire.
> Meanwhile, renters are desperate. They’re begging for housing prices not just to slow, but to fall.
I have a friend who is a head chef at a decently popular bar and restaurant on Broadway in Capitol Hill, Seattle (very trendy part of town if you aren't familiar, steep commercial rent). He lives in a 400 sq ft studio and is barely, barely making it from one paycheck to the next. I am sitting on a 2.6% interest rate mortgage and my prices are set for the next 30 years. I probably work half as hard as he does, if not even less than half. I have a lot of cognitive dissonance associated with that.
Cognitive dissonance means harboring contradicting thoughts. The difference in you and your friend’s situation is caused by the fact that they are selling labor which has a much lower price than the labor you are selling. This is not contradictory, just a consequence of supply and demand.
Yes, there is an inconsistency in the amount of effort expended to survive versus the outcomes of that effort. I can't reconcile them in my head. I'm watching my friend trying not to physically deteriorate and have some modicum of comfort while I sit here on my couch living off savings from the job I recently quit. Nothing I do can be so much more valuable than what he does.
I mean... that's life. What schools should teach is not just "here is a career that matches you're skills" - but more so, "if you choose this career, these are the most probable outcomes and life paths you'll end up in"
If AI takes engineering, medical, and law work away from those professionals - they too could have spent many hours to learn, to then earn little.
Every human has worth, but we all value the type of work differently.
"that's life" like this is an inevitable fact of the universe we must live with? No, this is the world we have made. To some extent you have to come to terms with it and find a place to live within it, yes. But those terms can be "this sucks, this is wrong, it should change" which it seems that's where the other commenter is headed.
I don't disagree with your sentiment and the need for that effort, but the probability path is that since the medieval times or longer this has been attempted with no long term success. Make bets on the most probable until real change has occurred.
Medical and Legal are 2 of the last professions that are likely to get automated.
Lawyers are entirely composed of people who can legislate away the threat of AI practicing law (taking their jobs)
And robots aren't known for their bedside manner yet. Also, there's a lot of liability in practicing medicine, which companies would probably be unwise to take on
Law AI will be used for case defense prep, argument creation, research, analysis (essentially what law graduates and non-partner style attorneys do) as cost savings / ROI enhancement. Attorneys will have to specialize in mostly customer facing / court facing roles. This will cut the staff needed to perform those duties.
Real Law AI change will have to be consumer driven.
Medical AI.... with so much malpractice & liability, AI will reduce those risks for practicioners, increase ROI to practiciioners (less payments to insurance), and also require back office practicioners to become more customer facing. Maybe instead of 10 radiologists, you can use 1.
Medical AI will be used on low tier ailments (eg: urgent care headaches, etc) to help nurses see more cases, etc - initially replacing the low end work. Doctors can then have a more normal schedule, but feed a collective AI model to where 1 doctor can then oversee 50...200 cases. Those models will first be rolled out to developing countries until a generation of doctors in the US are dwindled except in emergency care situations.
That is how it is already going with physician assistants and nurse practitioners, as I understand. Instead of 1 doctor seeing 20 patients in a day, 1 doctor “oversees” a bunch of PA/NP each seeing 20 patients in a day.
We do still have massive doctor shortages though (at least here in Canada) so I wouldn't worry about doctors not having jobs any time soon
It's gotten pretty ugly with provinces trying to poach doctors from other provinces, competing with each other to offer incentives to entice doctors from other provinces
One can define effort in that way, and arrive at the conclusion you did, but it is not what cognitive dissonance is typically used to mean.
But that definition of effort as it relates to the ability to “survive” does not seem useful to me. It takes a lot of effort to manually dig a ditch compared to using an excavator, but you would not pay the person that shows up with a shovel more than the person that shows up with an excavator.
Edit: this is not intended to say your friend does not deserve a better pay to quality of life (QoL) ratio. However, the fact that you have a comparably favorable pay to QoL and they have an undesirable pay to QoL ratio means society does not want more people to be selling that labor, but rather more people to be selling your labor.
I used to dig ditches in places where excavators couldn't go for a living, and I'm familiar with the contract rate differences for that type of labor and equipment.
My point is that the disparity is such a chasm that my brain can't reconcile it. We aren't talking about ditch digging, we are talking about serving food to the people of Seattle. All the software engineers in Seattle, in my experience, love to frequent dining establishments. Their quality of life is dependent on the labor of people serving them. There's no way I can accept the disparity as "just the way it is." My gut can't take it.
Seattle real estate is some of the most desirable in the world. It very well could be that owning (and renting) land there could be so expensive, that food service workers having a higher pay to QoL ratio means eating out is “unaffordable” for most people in the Seattle area (under current quantities of housing).
I put “unaffordable” in quotes because eating out is easily replaced by eating at home, or eating frozen dinners, etc, so restaurants do not have the pricing power they might need to allow the food service workers to have decent pay to QoL ratio in a place like Seattle.
The other commenter is not confused about why things are the way they are. They understand these things already, obviously they think about it a lot. You explain it, they agree that things are that way due to the reasons you describe, but that does not explain why the disparity ought to exist.
Not really in response to your comment, but there is an assumption from those commenting on your post. In that the labour market is a perfect market. When in truth it is far from it. There's systemic issues such as imperfect information, misallocated risk (they don't know what the market rate is for their work/they're too scared to look for another job) , and friction such as monopoly, oligopoly and legislation. And then after all to consider labour isnt your typical resource, people do not simply disapear when they become obsolete, they need to eat.
Everyone trying to convince you to be ok with this but no, you have seen it correctly and it is wrong. People can work themselves to death doing jobs that benefit us, and what they receive for it is misery and precarity. Trust your own judgement and don't accept this as a natural, inevitable, or just state.
Would it even be highly desirable without any of the restaurants, retail and other services that don't provide a high enough wage to live there? My guess is that for a lot of the people living there now the answer is no.
We require these services but don't don't provide an acceptable living to those offering them, expecting them to sacrifice their health and comfort for our benefit.
I don't have a solution to how to "allocate" who "gets to" live in a certain city, and it's not in my role or expertise to. But the problem exists currently regardless of that, and what we do have is not a solution.
> Would it even be highly desirable without any of the restaurants, retail and other services that don't provide a high enough wage to live there?
My guess is yes. Temperate weather, world class scenery, cheap electricity, clean water, a convenient deep and protected harbor, and a productive workforce.
All are subject to change of course, but that combination precludes the existence of businesses with low elasticity of demand (and hence higher value). The luxuries like restaurants and retail follow after those other businesses.
Of course, they do enhance the desirability, and it very well could be that rents are too high in the short term, and that landlords are making Seattle less desirable in the near future, but that is always a dynamic relationship.
This perspective is key, in my view. In short, we have a supremely myopic and isolated view on what "accounting" is.
Value is defined based on counterfactuals, similar to opportunity cost -- if that thing didn't exist, what would be the effect on the local economy? My suspicion is that if you price all the chefs out of a downtown, no one will like spending their time (and therefore money) there, and it will die. So if the singular act of removing chefs collapses an entire economic engine, then their value is defined as the economic activity before their removal minus the economic activity after their removal.
The answer is very simple. They just need to tear down a small fraction of those endless twisting mazes full of tiny single-family homes and replace them with large apartment buildings like you see in Asia. Right now there's no free market at work, since there are too many artificial restrictions on building.
In Tokyo, you can work part time as a janitor and still live within a 10 minute train ride to work.
Any job where the amount of labor has a fixed proportion to the possible economic output will at best track inflation.
Software can pay well because the code you write can service 100, 1K, 1M, or 1B customers.. with some time spent on scaling.
There's not much a single chef can do such that their labor which serves 100 tables/night can suddenly scale to serve 1000 tables/night.
The only way the replicate that kind of outcome in restaurant trade is to for example, open multiple restaurants with investor capital, hire cheaper chefs as your understudy to run each location, while you set menus, standards, and find efficiency on things like procurement, accounting, lease deals, etc.
Other options are to move more aggressively into some sort of profitable takeaway menu, selling food kids, branded merchandise, etc.
Yes, this. Doctors and Lawyers do pretty well, but they delegate a lot of stuff to paralegals, associates, PAs and nurses, so that they can focus on the high-value work. The work itself in those fields also generates a lot of value either in a legal decision that can scale with the business, or a life saved, so they can capture a lot of that value. It doesn't matter how good a meal you can make, it's not going to give someone 5 more years of life or keep them out of jail for 5 years.
The contradictory part is likely that they were raised, like most, on the idea of this being a meritocracy. The harder you work and the better you are at something the more you should get paid. But of course that's not how the world works.
Supply and demand is created by the rulers when they create the money supply. Their decision for the past decades has been that money should be created by real estate mortgages and thus there has been an immense shift of wealth to the elderly and real estate owners. Being head chef in a successful restaurant is an incredibly hard skill, but with financial consequences such as the poster you're replying to. Borrowing money at the right time and doing absolutely nothing or the bare minimum has had a much better return than working hard and becoming the best of your trade. That's why so many are dropping out of the regular work force and entire industries are collapsing right now. Is that sustainable in the long run? Are we all to sit on our asses, borrow more money and wait for inflation of real estate value to pay for us? Because, that has clearly been the most successful career as long as I remember.
>> The difference in you and your friend’s situation is caused by the fact that they are selling labor which has a much lower price than the labor you are selling. This is not contradictory, just a consequence of supply and demand.
I think the difference between labor and engineering is that most engineering (and software development) is a precursor to charging rent. Lets look a bit closer:
The marginal cost of software is zero. Therefore, every commercial software package is collecting rent for its use - SaaS being the most blatant (but honest) form. They will ostensibly be using the money to fund future versions of the software, but the efficiency of that effort is not terribly relevant - profits can be had, and high pay to developers.
In product design and manufacturing, the engineering effort goes into designing a product and plant to produce it. The key thing the business looks at is something like ROI (return on investment). Since the lifetime of a product isn't certain, anything that goes beyond the planned lifespan is pure profit. One could view the business as collecting rent on the equipment/process that makes the product.
At the highest level, investors are looking for a return on their investment. The investors don't actually have any part in the transaction between the company and its customers. Only when raising funds do investors bring anything to the table. After that, people trading stocks bring nothing and are looking for ROI. It's probably not correct to call ROI rent, but it's got some similarities.
So the low-end labor guy is getting paid to do work. All our fancy office jobs are building systems to generate revenue for someone. That may be the primary reason those jobs pay so much better. One is labor to an end customer, the other is labor to the money-making machine that is a large company ;-)
On a related tangent, perhaps engineering should not be considered a cost center but an investment.
> The difference in you and your friend’s situation is caused by the fact that they are selling labor which has a much lower price than the labor you are selling.
and multiplied by fiscal and other policies: those who couldn't afford buying now need to pay 5-10 times more compared to wealthy who could afford buying house 10 years ago and another 5 years ago and lock loan interest.
My rent for my cockroach invested, 150 sq ft apartment is larger than my parent's mortgage for their suburban McMansion about 45m-1h away, and my rent is absolutely on the cheap side for a 1bd room in the area.
In Seattle, 45 minutes away is still within the city limits, unless you're right on the edge of the city limits to start with. And if it's toward Everett even that doesn't save you.
In traffic I often thought about how when I was a kid we got uprooted to a new school at a bad time to save my dad 45 minutes of commute each way, and how 2 hours a day doesn't sound that awful.
Yeah, its 45 without traffic, 1h-1:10 on a normal day, 1.5h during the morning and evening commutes. So they're solidly outside the city radius.
The thing is, before I moved in, I did research on 1bdroom apartments within a large radius of the city.
And basically, unless I was willing to move to a very unsafe area or very unsafe or clearly problematic apartment, rents simply do not go beneath my current rent price.
There seems to be an agreed upon price floor from all landlords, and the only thing that changes as you get further from the city center is the size and quality of the apartment.
But that means literally every apartment in about an hour circle of my location is more than my parent's mortgage. At least the roaches and I don't have major commuting costs as well.
> Specifically, every morning, RealPage provides participating Lessors with recommended price levels. ... If Lessors wish to diverge from the “approved pricing” they must submit reasoning for doing so and await approval. ... But RealPage emphasizes the need for discipline among participating Lessors and urges them that for its coordinated algorithmic pricing to be the most successful in increasing rents, participating Lessors must adopt RealPage’s pricing at least 80% of the time.
> In one neighborhood in Seattle, ProPublica found, 70% of apartments were overseen by just 10 property managers, every single one of which used pricing software sold by RealPage.
I would politely recommend reading the article, if you would like to comment on it.
> As former FTC chairwoman Maureen K. Ohlhausen put it, as quoted in ProPublica:
"Is it OK for a guy named Bob to collect confidential price strategy information from all the participants in a market and then tell everybody how they should price?' [Ohlhausen] said. 'If it isn’t OK for a guy named Bob to do it, then it probably isn’t OK for an algorithm to do it either."
As best I understand, for some charges you only have to think out loud about something hard enough to get charged for a lesser charge of Conspiracy.
If you do a thing and I planned it, we could get charged with a whole host of things. If I send you to buy a gun to commit the crime and oops that was an undercover cop, then a few warrants later we could be in a lot of trouble just for intent and opportunity.
A quick sanity check of that statement using Google pulls this from the FTC's website:
> Price fixing is an agreement (written, verbal, or inferred from conduct) among competitors to raise, lower, maintain, or stabilize prices or price levels.
Collusion doesn't stop being collusion just because one introduces a middleman.
I majored in economics and it still boggles my mind what we make as software engineers versus the guy who unclogged my sewer drain allowing me to use the toilet.
You will be surprised how much good plumbers make in the USA. You probably used a bad example.
Source: I know my trusted plumber makes well over six figures a year and he cannot take all calls. I asked him once if he has problems generating leads and he smiled saying "I have too much business that I turn people away". He is a "master plumber" which these days is not easy to get certified for in many states. He told me he cannot find enough skilled master plumbers to help him (state of NJ).
You will be surprised how much good software engineers make in the USA -- still many multiples of most successful plumbers, and without the long-term physical consequences of that type of labor. Yes, there's still going to be better examples to highlight the disparity.
Maybe? Anecdotal I guess, but I've met more plumbers with chronic knee and back problems than software engineers. But being a plumber in the US isn't too physically demanding, and makes OK money, so it's probably the example of disparity the GP was trying to highlight.
A software programmer will be front of a computer screen, 8 hours, 5 days a week in a sedentary position - they are at risk for problems of eyes, back & neck problems, carpal tunnel, weight gain, anxiety, heart disease, insomnia, deep vein thrombosis just top of my head.
They technically have the option of a chording keyboard/mouse and a wearable computer. Or at the very least a standing desk (or even a treadmill desk). Along with special glasses or monitor filters.
Yes in the way that someone with a multi-million dollar trust fund who wants to buy a nicer car or bigger house and someone working for minimum wage both have money problems.
Especially when working from home any health-related dangers around software development can be all but completely eliminated. This isn't even remotely comparable to any of the health or occupational risks in the trades.
As a software engineer myself, I am not disputing that. All I am saying is that GP to whom I initially replied was using the comparison with plumbers that they make shit money and that is not the case necessarily in the United States. I am not delusional to think that plumbers can beat FAANG income unless they are running an entire business/company with employees.
Master plumbers are still plumbers, they still get down and get their hands dirty. My guy is also a master plumber, and often works alone. When he does have help, he's often doing the hardest work, the other guy is just handing him pipes and tools.
This is always the same logic, where a plumber makes a ton of money. The reality is that your trusted plumber is actually a business owner. If you start out as a plumber, you need a ton of work to get to this spot by working for someone else for a bad wage. Meanwhile as a dev, I can comfortably work for someone else and don't have all the risk.
You might need to define a “bad” wage. According to BLS, the median wage for a plumber is slightly above the median wage in the US as a whole.
I do think some of the inflated values of some jobs is they are somewhat opaque, while the stuff of jobs like plumbing is easier to at least conceptualize, even if the work itself still requires skill and care. It’s easier for a BS job to inflate its importance if people don’t know exactly how it works.
The thing is that top-end software engineers in a FAANG company (the equivalent of a master-plumber / master-electriction / etc.) are either pushing towards 7 figures or have already got there - in total comp, not in wages, but still.
I'm an ICT5 at Apple (not the best-paying, but hey, less layoffs) and I reported ~$750k last year. There are ICT levels going up to 9...
Wow, I feel like you must have a pretty unique specialization because you are doing incredibly well for ICT5 (Congrats!) There are ICT levels above 6 but I feel like in practice those are very rare and you could easily spend decades working and not make it above ICT6 in many divisions.
If plumbers can figure out how to sell flushing as a service, this whole disparity can be resolved. They might need to hire a software engineer though.
A point that used to be made a lot in copyright wars discussions a decade ago was that most "old fashioned" professions (like plumber, carpenter, architect, etc.) only get paid once, not every time someone uses their product, whereas creators of digital goods somehow are entitled to get money every time someone uses their creation. Super star musicians and software engineers making obscene amounts of money is a direct result of this.
The ignored corollary is that the market for these products will get saturated much more quickly, and thus the product needs to change to stay relevant. Plus there's a low(ish) bar to entry.
How long has a quality carpentry been sold now? Cost of entry is also relatively stable.
Music styles change every decade now and it is speeding up as marginal costs of entry fall. Likely similar with other entertainment, which is why every entertainment corporation is now looking for lock-in.
Your job is incredibly tedious and boring dealing as it does with human-constructed Kafka-esque instructional systems. You're effectively psychiatrists for machines. Having taken a couple of introductory programming courses, and thrown together some VBScript and some R markdown, I'm fine with you making the big bucks.
Gotcha. I thought maybe they were planning to skip GPT-5 or something.
That's actually a pretty low bar, FWIW. (rimshot) Law students spend a few months in bar prep to memorize a bunch of crap that doesn't even apply to their real jobs. Maybe the AI will encourage bar associations to finally ditch it, a development that gained some steam during the pandemic.[1]
This seems like a pretty limited viewpoint. We could all be coding in assembler still but generally we find value in using something higher level. Does that make us all dumb?
as a programmer, i would be happy to automate myself out of a job. Because it means that the work i do is infinitely valuable, and i would have been rewarded correctly for it, in a functioning employment market.
People raise arguments like this frequently, but in every other case throughout history people were made obsolete by tools that intelligences use. Never before has the intelligence part been made obsolete though.
Well you've changed the assertion a little bit there. I shared that one particular technical innovation shifted the mix of jobs towards more skilled jobs. That doesn't say anything about any individual person of course.
Your statement says that "people were made obsolete", which I take to mean that some people are individually unable to switch to the more skilled jobs.
I think the effect on current employees due to technical innovation is a reasonable issue to be concerned about but it's not the same phenomenon as the job "mix" changing towards more skilled jobs, even some that didn't exist before. The two phenomena aren't mutually exclusive either.
We don't have too many stagecoach drivers these days but we do have a lot more "drivers".
It's only "$100K worth" because some other rich bums have collectively occupied and bought multiple houses that they don't live in and increased the price of land, AND lobbied for no more housing to be built to artifically keep the market price high. They treat housing as an investment, rather than a dwelling, which is exactly what's being discussed here.
It's ridiculous that 99%+ of people are not able to buy a reasonable place to live in by 30.
We should be subsidizing it for those who cannot afford housing, not charging them $216 more just to line the pockets of the already rich.
If you look at places in America where land is effectively free, a quality house will still cost you $100K minimum. It's not just land rent-seeking, housing structures cost money.
It sounds like your main objection is to the price of the house. That might indeed be pretty terrible. The answer is to build more houses in places that we need them, or extend the alternatives. (And we would, as a society, save for the barriers that are put up.)
But opportunity costs are real. The time value of money is a thing. If you distort the price of capital, then capital is misallocated, and society ends up with overbuilt nonsense like McMansions in Stockton that it didn’t ever need, as in 2007, and other damaging bubbles.
2.6% is dirt cheap for money. If anything it’s way too cheap, and encourages excess demand, raising prices all around.
For something that isn't a basic necessity, yes, money isn't free and that's a good rate.
But for basic things like a house, transportation, food, and clothing, I am of the view that we shouldn't be charging interest from those who cannot afford these things, particularly housing, since it's the most expensive of the four. Society should perhaps even be subsidizing it with negative interest rates while taxing the hell out of people who own more than one house.
Mortgages are part of the entire housing-as-an-investment scheme that's the very subject of this article and thread. It's capitalism at an extreme being used to extract an extra 2.6% from lower- and middle-class people who cannot afford it, instead of extracting that 2.6% from the billionaires who can afford it.
McMansions in Stockton is perfectly fine. We need more housing bubbles. We need the housing market to collapse. We need housing to become available for people to live in, not as an investment.
(Oh, and more direct, fast 300 km/h service between Stockton and SJ/SF with local light rail that reaches all the houses would make all that housing much more usable. The ACE train is an abomination.)
This simply doesn’t make sense without $0 materials and $0 labor (ideally robotic). Like it’s so far outside the realm of possible why even bother writing it?
You are of course completely right, even if people are downvoting you.
Remember that one of the strongest instincts that have been instilled into the modern population is the concept of ownership of land and of real estate, where the people who actually built the real estate are long dead. That's why you will find the fucking insane belief among your fellow man that a person who labours has a duty to pay taxes on his wages. His life is not sacred, while the ownership of property is sacred.
What sucks is a lot of young renters with steady jobs can afford to pay off a mortgage month to month, but they just can't afford that down payment (especially the 20% needed so as to not need to get mortgage insurance)! I was in that position for a while. Every time it seemed like I could afford to put that money down, the housing prices went up! It took a handful of years of renting cheap places (with roommates), living with my parents when I could and getting a few raises at work that I could finally save up enough for a down payment.
That’s normal. I bought my first house in the early 1990s. Saving the down payment was tough. I lived in a real shithole apartment, anything nice and the rent ate up too much of my cash flow. And I I had to pay PMI, but the monthly payment was still cheaper than rent.
Downpayments need to be substantial because the owner needs to have skin in the game. Otherwise the borrower could walk away from the house and the mortgage with very little downside.
Someone walking away from a house doesn’t destroy the house.
The lender’s risk is therefore limited to the difference between purchase price and actual value of the property. Which is something they can hedge or simply not make a loan if they think the property is wildly overvalued.
A down payment of 20% provides some of that exact cushion (and makes it less likely for a borrower to casually walk away from a house that fell in value or was otherwise a poor purchase).
Any regard is a really low standard, minimal is more accurate. You don’t end up with nice round numbers like 20% which never changes due to economic conditions etc from calculating some formula.
The global range is wider than that and reflects the reasonable range of this kind of regulation. If it’s say 75% then what’s the point of a loan? On the other hand if it’s 1% what’s the point of the regulation?
Regulators are basically picking a number between 3.5% to 35% and 20% is a nice round number in the middle of that range.
>Someone walking away from a house doesn’t destroy the house.
The experience of the foreclosure crisis seems to differ. I know people who moved into houses where holes were punched into walls and everything was removed that could be, from door knobs to outdoor deck planks.
You describe damage to a property that a bank owns. Therefore the costs fall on the bank. This is part of the definition of the concept of "taking on risk" and if banks are not accounting for these outcomes in their business model, they're simply bad at business.
Yes (except in the cases of short sales, where I’ve seen the same). My point was not about who assumes that risk, just pushing back on the idea that people wouldn’t damage a house they were going to be forced out of.
This is only true for a federally backed mortgage. Yes, down payment levels, in the context of whether someone needs mortgage insurance, is set by regulation. But down payments can be much less significant if you’re ok with mortgage insurance. Down payments required by banks were typically higher before regulation.
Before regulation it really depended on the buyer. Some people where putting down 5% without insurance, others had much stricter requirements.
We’ve settled on a really arbitrary system where for example the Federal Housing Administration requires huge upfront FHA insurance payments without regard for down payment size if it’s less than 20%. If you’ve saved up say a 8% down payment you really should be a significantly lower risk than someone putting down 3.5%.
The buyer wasnt the decider. The bank was because they were the one taking the risk. The down payment required by banks before regulation was often 30% or more. That’s partly why home ownership was much lower prior to WW2.
I suspect we’re looking at this through different temporal lenses. When I talk about regulation, I mean the last 100 years in its entirety, not just since the financial crisis of 2008. I agree with some of your point regarding how thresholds are set arbitrarily, though.
> The down payment required by banks before regulation was often 30% or more.
I am talking about lending before regulation. High down payments were not universally applied, so yes sometimes a loan might require 40% but other borrowers might offer nothing. My point is you can’t simply say the required amounts were excessively high some of the time because they weren’t universal and selected based on a perception of risk.
The whole point of interest is supposed to account for that risk.
People buy cars all the time that cost a decent fraction of what a house does, and nobody bats an eye when they finance 100% (or more) of the value. And a car depreciates and moves. The bank knows where to find the collateral for a mortgage, and the value generally appreciates.
We had a whole, massive global financial crisis that was essentially caused by the fact that this does not work for housing because the risks are so heavily correlated: a large chunk of society finds that they cannot afford the downpayments and defaults all at once, which causes house prices to decrease and the economy to collapse, which in turn means that more people default on their mortgages. It's a systemic risk that affects everyone and that the markets alone do not protect against, which is why regulators have cracked down on mortgage lending so strongly.
the problem isn't not requiring 20% down. the problem is not setting interest rates appropriately. the banks did a calculation of interest based on housing prices growth, but if you just do the calculation with stagnation/minor depreciation you get an appropriate interest rate for the lower collateral
No, we didn't have a global financial crash because a few poor people couldn't pay their mortgage. We had that crash because some people gambled huge amounts of other people's money on whether these mortgages would be paid.
I used to write some lengthy posts about this and then a few months ago The Big Short was on TV, I watched it for the first time, and realised it was saying exactly what I'd been trying to explain for years. So just watch that.
Plus it has Margot Robbie explaining the technical terms in a bubble bath, so if you don't get it the first time, you can rewind and watch again.
That's a much better reason, or, at least, something to respond to. Thank you.
Accountability on the part of the prospective owner can be achieved in multiple ways, but using down payments probably minimizes the amount of bureaucracy and following-up in how authorities manage this kind of thing.
Of course, implementing it this way creates "structural inequity", i.e., a process that inherently separates one group into two groups along lines that members of that group have little to no control over. Obviously the property not-having-money is correlated with other factors such as skin color and whether your parents went to college, which creates divisions along lines that are not just economic but socio-economic, and influence the development of not just that person but also everyone who depends on that person, including future generations.
I would be very interested to hear more from systems theorists on other kinds of methods that don't reproduce these kinds of correlated outcomes.
Hierarchies need hierarchy. Economic apartheid is one of the most common - and least questioned - ways to enforce hierarchy.
It's the usual problem of defining the difference between a progressive and a regressive economy. Regressive economies claim to be about "freedom" but in practice it's a very selective freedom that benefits a few small sectors and acts as a brake on innovation, development, and entrepreneurship for everyone else.
Consider all the businesses that could have been started by talented people currently spending all of their income on rent. It's a brittle, oppressive outcome.
Progressive economies rely on wealth redistribution to create something closer to a genuine meritocracy.
There's a whole PR industry devoted to denying this, but it's not a coincidence that the US was a powerhouse of innovation when redistributive taxes were at their highest. And has stagnated as economic apartheid has become more entrenched.
That's the crux of the political debates going on today. What kinds of values are represented by the status quo, and what kinds of values may replace a (retrospectively) naive approach to meritocracy.
... meaning that they did not have a substantial downpayment. Assuming they bought in Washington state, they probably also had a non-recourse mortgage.
The owner does have skin in the game. It's their home. If the down payment is too high, many people are prevented from owning a home. This causes these people to be stuck in the rental trap, paying >2x what a mortgage payment would cost. Good for landlords & those in the rental industry, bad for everyone else.
They don't have skin in the game if they borrow 100% of the value of a house - house drops 20% in value, they just return the keys and walk away - heads I win, tails you lose. Banks don't want to play that game and I can't blame them.
You're describing a "heads I win, tails you win" situation with no down payment. If the house drops in value, the borrower walks away and "wins". If the house appreciates in value, the borrower stays and the bank receives X% interest, on time, in full, for 30 years and "wins."
Who would want to walk away from their home? The people living on the streets perhaps?
Credit inflates the housing markets. Houses used to be bought outright without credit. Credit is top heavy, where a small number of parties can obtain enough credit to buy many houses while an increasing amount of people cannot obtain credit to buy a house to live in. The people who already own property benefit from increasing valuations, while people entering into the housing market bear the costs. It's gotten to the point to where people with 6 figure incomes cannot afford a house.
It seems like the instability of the housing prices is largely due to the volatility of credit markets. If housing was not emphasized as an appreciating asset class to be hoarded by speculators who want to grow rich from housing, then more people, who are now stuck in the rental trap, can live in their own home. The situation we have now is that non-speculators who want to own a home have to bear the risk of a credit inflated & volatile asset when all they want to do is own a house & not pay > 2x rental costs. Those who do successfully play the game now live with neighbors who also play the game, instead of a more diverse crowd of people they would rather be neighbors with. The banks created & profit from this mess & are bailed out. The non-speculating aspiring home owner pays the costs.
There is no rental trap. The problem is runaway inflation that destroys savings and taxes investment gains. The only reason housing is such a good deal is that the first 500k is tax free.
Your decree does not invalidate the lived experiences of the people who want to own a home but can't afford the > $80k down payment, so they are stuck paying rent. The problem is credit inflates housing prices. Some parties, such as speculators, have plenty of credit, so they can buy multiple houses & inflate the markets using credit. Those who cannot obtain credit or are not willing to play the game are stuck trying to save up > $80k for the down payment on top of their regular living expenses that are under rapid inflation.
The middle class used to be able to buy a home or large acreage outright without credit.
I too went for a down payment below 20% (somewhere closer to 5%) because saving up a full 20% would've been daunting to say the least, and as such pay PMI. Still a better deal than renting by a large margin, and the feeling that the cash being put into payments is going towards owning something rather than being set aflame is nice.
That said I agree with the sibling comments that 20% down payments shouldn't be as out of reach to as many people as they are. Housing prices are ridiculous.
We can take a look at the St. Louis Fed "Fred" database take a look at historical affordability of 20 % down payment.
Let's divide two numbers, a and b to get a ratio of yearly median wage divided by median house price, from 1980 to 2023. [1]
a) Employed full time: Median usual weekly real earnings: Wage and salary workers: 16 years and over
b) Median Sales Price of Houses Sold for the United States
We see that the a/b ratio was 0.25 in 1980, and has declined to 0.05 today.
Therefore, a 20 % down payment in 1980 would equal to a 4 % down payment today.
Conversely, a 20 % down payment on a house in 2023 (median wage, median house) is equal to a (25/5)*20 % = 100 % down payment in 1980!
> I bought my first house in the early 1990s. Saving the down payment was tough.
Compare housing prices since 1990 vs. wage growth over the same period. For the overwhelming majority of people entering the workforce today, there is no way to realistically save for a down payment unless you forego saving for anything else - no 401k, no IRA, no emergency fund, no car, no family.
Affordable for people planning on paying down the mortgage, but horrible for investors expecting to just refi and refi while maintaining a constant high double-digit LTV. Think about them! /s
I think a more apt comparison would be monthly mortgage + interest payment divided by price per square ft over time. I suspect it just barely tracks inflation.
Houses have gotten bigger and interest rates have fallen since then.
I understand the bit about interest rates. But the disappearance of starter homes from the market is part of the problem, not a cool accounting trick to hide it.
With a Roth IRA, you can withdraw the principle penalty free, while the earnings stay in the account. Also, you can withdraw 10k for buying a house from either IRA type, penalty free. You lose out on the future earnings from that withdrawal, but you can use it.
And here at the bottom of the see, there is no down payment (financing up to 100%), but young renters still can't get the a mortage of the same monthly amount as they pay rent, because of regulatory reasons -- mortage ceiling is defined as something like 5x gross yearly salary.
Somehow it's fine to pay half the salary in rent, but not fine if it's financing the mortage.
That sort of makes sense. When you own a property, you have to maintain it and pay property taxes. When you add all that up, you either need a lot more than rent, or you need the mortgage to be lower than rent so you can afford those other expenses.
100%. If it's an older house, the mortgage might not even be half your costs for the first few years, while you get everything that breaks back in good condition.
It makes absolute sense, because maintenance costs are non-negligible. I just paid a fifteen thousand dollar plumbing bill. Since rent would include the ability to call the landlord to make him fix that, I sure would expect rent to be higher for the same place than my mortgage is.
Last year I spent twenty grand on a new roof. What's next? Idk, but that's why my mortgage isn't half of my salary. If it was rent, these things wouldn't be my problem.
Depending on what you include I figure property taxes, insurance, ongoing maintenance of my house and property are a good $1K/month (obviously with a fair bit of lumpiness for large projects). Some things you can postpone and some things you can trade money for your time & effort but it's still a non-trivial amount.
I'd love if all that was $1K/mo total. My property taxes alone are $1001/mo (for 2021; they went up a little bit last year, but I could quickly look up 2021 online).
Property taxes vary a lot. Mine are about $350/month.
$1K/month is probably low for me though if I added up all the expenses a renter wouldn't generally have although a renter also probably wouldn't be renting a house like mine for an extended period so it's a bit hard to do apples to apples.
In any case, living in a house is very much not free even once you're paid off the mortgage--especially if you make an effort to prevent a lot of maintenance debt from accumulating.
> I just paid a fifteen thousand dollar plumbing bill.
That has to be for commercial real estate, or you've been ripped off. There is no possibility of a single family dwelling ever having plumbing problems of that scale.
But maintenance costs are in general a landlord lie. They wouldn't rent out their properties if costs where anywhere near income. As for my own anecdote, my landlord has spent at most 0,5% of what he's gotten in rent from me on maintenance over the years. A normal tenant won't break anything or induce any maintenance costs.
That is a very believable number. I had a leak in my concrete slab last year. The plumbing bill was $20k, which didn't include fixing all the holes in the drywall nor the bathroom remodel after they went through the shower to jackhammer a hole in the foundation.
But it's not as though property taxes and ongoing maintenance costs don't exist for apartments. The income the owner receives from the rents has to cover all of that.
Well, yes and no. If you own and the roof needs replacing, you need to have that money on hand (or be able to take out another loan to cover it, which isn't always possible). If you rent, you don't.
I don't see how that's important to the discussion at all. Sure, if you live somewhere, a problem with the roof is "your problem". But if you own, it's also "your responsibility" vs renting where it's "their responsibility". And the person whose responsibility it is is the one that is saddled with the need to acquire that lump sum of money to deal with it.
How much does being able to call an expense an expense figure into things? Like, why wouldn't I set up a company owns my house and rents it back to me?
Also, it's a little easier to just scrape by for 12 months of a rental contract than for a couple of decades of a mortgage, and a lot more difficult to repossess a house.
And I think we all saw why banks should be expected to be a lot more cautious in rating homebuyers' ability to pay than some individual landlords might be about their tenants in 2008
Our home was $200K. If we own it for 30 years, the property taxes will average to about $180K over that time. If we have $70K expenses (roof, HVAC, etc.) then the total would be 250K.
If we sell our home at the end of 30 years for exactly what we bought it for, no raise in value at all, 200K, then 250K of maintenance works out to around $700 per month for each month of those 30 years.
Any amount we can sell the house for over the original $200K price, reduces the taxes and maintenance down from $700 potentially to zero.
If we sell at the end of 30 years for $450K, even accounting for taxes and maintenance, we lived rent free for 30 years.
Yes, after 30 years, you came out ahead. But also, you can't sell your house when the drain breaks and you need $10,000 today to pay for fixing it. Especially if you just bought the house.
Also, you forgot to account for the $180K in mortgage interest.
Don’t forgot that rent goes up. Renters pay taxes too.
My apartment that was $900/month in 2001 is $2200 today. Outside of some of the really stupid markets, it’s almost always better to own. You’ll be fixing that drain every year.
I'll throw in the 180K mortgage interest and the mortgage insurance which I also forgot and wager I still come out ahead. Rent would be somewhere between $750K to $1M over that time and none of it is returned.
Since we control our mortgage, we paid it off early, at around 15-16 year mark (due to my wife making me realize the importance of it). We live rent and mortgage free the rest of our lives thank God. I only wish I'd kept either of our 2 former houses instead of taking better job offers requiring moving ultimately to the bay area where we couldn't afford to buy a home. Texas is nice though!
My Dad always said, buy a house as soon as you can.
In most Bay Area markets, it makes more sense to rent than buy from a purely financial perspective. It's only if you value the ability to modify the home or have a sense of permanence that it starts to flip.
Don't forget the opportunity cost of that $200K of equity. If that money invested earned 5%/yr on average that is another $10K/yr bringing your $700/mo to $1,533/mo. If you sell at $450K after 30 years, that mostly just makes up for that opportunity cost (30yrs at 5% would be 432K).
Bought a house in 2019. Downpayment and Credit Score will make a huge difference. This seems accurate to my experience though. At 5% down, $170k household income. 740 credit score. (Credit Score bumped us from a 2.5% interest rate to 3) The bank said we could afford $680k max.
> Somehow it's fine to pay half the salary in rent, but not fine if it's financing the mortage.
Because eviction is easier than foreclosure (and, actually, a lot of big property management companies look at similar affordability criteria as lending banks, but you can find mom & pop landlords; mom & pop mortgage lenders, unless they are literally rich family members making an informal loan, probably not.)
> Somehow it's fine to pay half the salary in rent, but not fine if it's financing the mortage.
50% of income as mortgage payments are extremely risky mortgages. We've just had the entire financial system collapse not so long ago because of such shenanigans.
Don't people remember the 2008 mortgage crisis?
If you can't pay the rent, you rent something cheaper. It is not nearly that easy when you have a mortgage.
>Somehow it's fine to pay half the salary in rent, but not fine if it's financing the mortage.
Where is it fine to rent for half of the salary? Last time I rented a couple years ago, the corporate landlord wanted to see either a paystub exceeding 4x rent for the same period or a bank statement for the funds exceeding 3x total rent. This varies, of course, but the standard used to be the 40x rule (rent not exceeding 30% of income before tax).
I don't think that necessarily is a a bad thing. Just because someone can theoretically afford a mortgage payment now its pretty difficult to predict say 5+ years out whether or not that steady job will hold, especially if they're young and have a short credit history. The down payment adds a cushion for that risk. There's less inherent risk to renting, you're looking at a commitment of 6 months to a max of maybe 2 years for most least terms.
Being too risky with handing out mortgages is partly what lead to the housing bubble in 2008 afterall.
If they're really certain their job will be stable long term PMIs shouldn't really be a deterrent, most PMI can be terminated after meeting 20% in equity.
You don't need 20% down. This is a lie that keeps getting perpetuated.
I put 3.5% down on my first house and even with PMI the mortgage payment is less than rent.
To add insult to injury, the massive housing inflation of the past 2 years got the LTV well above 20% which then allowed me to remove PMI lowering my payments even further.
My rent for a 1 bed, 1 bath apartment is higher than the mortgage on a family member's 4 bed, 3 bath. _That's_ the issue: homeowners are putting less money into an investment vehicle while renters are burning even more money.
If rent actually reflected the value received versus owning a home I'd be less opposed to it.
> Being too risky with handing out mortgages is partly what lead to the housing bubble in 2008 afterall.
Being aggressively risky with little downside was a bigger root.
I worked in a mortgage comp for a bit before the big crash. "You want a 150% loan-to-value loan, no money down, no intention of proving income or ability to repay... sure, that'll be 7% instead of 5%. Sign on the dotted line..."
I was blown away when I learned about 'no down, no doc' loans, which... yes, it's another variation, but... the interest rate was all of ~2% higher, which seemed in no way to cover the risk. But no one cared, because everything was just sold to someone else, and packaged up in to CDOs, and resold again.
Someone who has 'only' 18% of a purchase price down, good credit, and steady income... to be charged extra PMI - possibly for years, because "we need to re-valuate the property 3 more times".... seems to be just more price gouging, not actually addressing real risk.
The real risk with renting to a person is if they refuse to pay and refuse to leave. Most places you still have to let them live there for several months while you go through the eviction process. And in retaliation they can destroy your house.
Wasn't that a part of the problem with the real estate meltdown back in 2008? We had people getting into loans with either zero down or far less than 20% paying only the interest and not the principal for the first 5 years. They were told that real estate value only ever increases and they'll be able to refinance the loan and put the new equity into a standard loan. That worked fine until it didn't and the whole thing came crashing down. I thought I saw that 10% down mortgages are more common now, except you will have to pay for PMI until you have enough equity to cover a certain amount of the loan.
It was even worse than that at the bottom of the market. There were people getting 'nodoc' loans where they did not prove their income. People were inclined to mark their income down as the presumed appreciation of the home value, like some sort of financial Ouroboros.
Those loans had variable interest rates and balloon payments.
They were told they could refinance before the balloon payments came due into conventional loans but when housing prices drop, you can't refinance because you owe more than it's worth. Combined with "no document" loans (aka, people lying about their income), people were buying houses that they very literally couldn't afford, not just in the "that's too much of your income" way, actually in the, "that's more than your income" way. Those were the subprime loans you hear about.
2008 would have been very different if everyone was on a conventional 30yr fixed loan.
I did an FHA loan on my first house 15 years ago, and the down payment was peanuts. Unless you have a poor FICO or your debt ratio is high, you probably qualify. https://www.fha.com/fha_loan_requirements
How much was your total mortgage? Because housing prices have gone up dramatically in the last 15 years, and the math that worked back then (in terms of total mortgage amount, monthly payments, etc) doesn't work anymore today for a lot of people.
We bought a fixer upper (borderline tear-down) for roughly 2x my income at the time (and then sold it for 2x after 5 years after fixing it up). But just for argument's sake, let's say you buy a house (or apartment) for $400k, which you can absolutely do in DC (for example):
Buy a "starter house" and begin to build equity. It's how people have always done it. You buy a really small house that isn't in the most desirable location and start making payments into it. Down the road you have built equity and you can sell your starter home and buy a nicer, larger house. You maybe have some family to support then and need more room.
But you see young people renting for 15 years in expensive places of cities because they want to be close to nightlife/etc. and then trying to figure out how to come up with a 15%-20% down payment on a dream house when they're nearing 40 and wondering how anyone does it and complain the system is broken.
They do it by buying a small house in an expensive location and building equity and then upgrading.
It's the same people who voluntarily choose to pay top dollar to go to an out of state university when their local university is just as good and then find themselves 100k in debt and with an unemployable degree and complain the system is broken.
"Buying small" is often no longer possible due to the insane increase in housing cost relative to wages, making that advice out of touch. Going on to blame this on the youth and their nightlives doesn't exactly reverse this impression.
Because this assumes that the value of the property increases more than inflation. And this assumption means that you see and treat the place where you live as an investment.
It doesn't have to increase faster than inflation for it to be a good investment for a leveraged buyer.
Imagine inflation and property appreciation at exactly 5% and an interest-only mortgage (principal paydown is just forced savings, hitting cashflow, but not expenses).
Buyer buys a $500K house, puts $100K down. Next year, the house is worth $525K, meaning that $100K in equity they put down is now $125K, for a 25% increase, even though the value of the property exactly tracked inflation.
These are costs associated with owning a property (taxes, insurance) that come out of the portfolio + others that do not appear in the excel file, such as the risk associated with owning a property that is not covered by insurance, opportunity costs (less flexibility in terms of relocation if better professional opportunities arise elsewhere), and the occasional real estate crisis that can blow away all the gains on paper in a couple of months.
If real estate values do not rise faster than inflation (I would say substantially faster), it would be a very poor investment or not an investment at all.
Yesterday I was reading in the subreddit of the town where I live about people's complaints regarding the absurd cost of living here. It was funny and puzzling that people were saying, "Yes, it's so hard to live here, housing is so expensive. We were lucky to buy 10 years ago for $500,000, now our house is valued at $1.4 million." Not recognizing that they are the problem.
How are they the problem? They bought one house and occupy it as a family. That's fair play by anyone's measure, I'd think.
If more other people want to move into the town than there are units of housing for them and, as a result, bid up the housing that's available, it's not the fault of the people in the town who bought one house 10 years ago and have lived in it for those 10 years.
We bought our place in 2007 (and lived in it continuously). It's worth roughly 2x what we paid for it. That's a CAGR of just under 5% per year. Was that a good investment? Hard to say, but let's look: The S&P total return was a CAGR of 8.5% over that time, but would have been 8.5% CAGR on X (downpayment amount) or about +2.4X. The house was 4.8% CAGR on 5X or about +5.4X.
Along the way, we've spent around 0.8X on repairs, improvements, and maintenance that I can think of and around 1.1X on taxes and insurance. Mortgage interest (after taxes) was another several X. Our house is vastly more pleasing to live in than our old apartment was and we've had two kids and a dog here comfortably for 15 years. The non-financial aspects dominate the financial aspects, but for a property that's appreciated about inline with inflation, it's been OK financially and great psychologically.
They are not the problem directly. There's however just no intrinsic reason for the valuation to go up unless:
* investors bought out most of the housing and made it "scarce" or otherwise inflated prices - tacit cartel is common
* the area has been restructured to make it impossible for non-rich people to live there even if they get the housing for free (gentrification)
* people cannot inherit property as they cannot pay the inheritance tax on the inflated valuation
* there is an external scarcity factor like well paid jobs or at least opportunity for them
Note that lack of space to live or overloaded services actually tends to depress prices.
The statement already implies the people live there for a long time and have focused on the valuation for some reason. They will give their inheritors a problem they cannot pay off and have to try to sell. The ones being able to buy such property are likely to be investors. Now multiply that times a lot and you have the shape of the problem.
> people cannot inherit property as they cannot pay the inheritance tax on the inflated valuation
I don't understand the mechanism by which this would represent a driver for the valuation to go up. This effect would seem to be small in any case, but also tend to reduce (not increase) prices in its small effect, all else being equal. Unless I'm misunderstanding your point somehow.
It is quite easy to understand why they are the problem. Of course, they are part of the problem, but this is the comment section of a forum and not an official statement from a public figure.
The reason for the absurd rise in housing prices is that not enough housing is being built to meet demand, and the main reason is that homeowners (obviously not all, bear with me if I generalize) and their cartels oppose any new development. It is a problem with a very simple solution, made complicated by people who make money by throwing smoke. A good place to start is to look at how other countries or regions have solved the problem. It is somewhat parallel to homelessness; there is no will on the part of politicians and institutions to solve a problem that is easily solved (from a system perspective).
The housing stock is fixed because certain interests (i.e., homeowners and real estate investors) want their capital to increase in value and/or their neighborhoods to remain sculpted over time. The calculations in the comment are, outside the specific case, largely irrelevant: dilapidated houses infested with rats and mold in desirable locations have increased in value 10-fold over 20-30 years because the housing stock has not increased over time.
> This is completely ignoring the increase in house prices
Guess what, the small and lower cost place you bought 10 years ago went up in price too. So you have equity and you've been in the rising market.
> The fact is, in many areas, buying any house at all is not feasible for the vast majority of young adults.
100% untrue. Buying a house in the place they feel they deserve to live is. You can buy a home that is a 30m commute by train or bus to NYC for <= $400k.
While I agree with the sentiment of your comment, I would need proof of this:
> You can buy a home that is a 30m commute by train or bus to NYC for <= $400k.
Even a door to door commute from Secaucus, NJ station, one stop from Midtown is 20min+. I would say 60min is at least the commute you would need for housing at $400k.
Clifton, NJ is 30m by bus. You can get a Cape Cod there for 400k. Harrison,NJ and other places around Newark are cheap and close. Maybe not door to door but you’re at Penn or WTC by then. Most people that live in NYC aren’t 30m door to door to work.
Currently on Zillow, there are no homes listed for sale in Harrison, NJ for < $400k. The cheapest option is a condo listed for $419k. And it has a $440/month HOA fee.
> the small and lower cost place you bought 10 years ago went up in price too.
Exactly, that's the problem. There exist people who did not buy houses 10 years ago, due to personal failings such as being teenagers at the time. Yet the houses continued to appreciate much faster than inflation and are now out of reach.
> Buying a house in the place they feel they deserve to live is. You can buy a home that is a 30m commute by train or bus to NYC for <= $400k.
A: You absolutely cannot.
B: Why don't they deserve it? Why should would-be buyers be forced out of every major city and even the surrounding areas, due to artificial price increases, when that was never the case for previous generations?
It's not about deserving it... it's basic supply and demand. If the house is desirable, people will bid up the price. People with more money than young adults (older adults with more career experience) can afford to pay more and so will bid up the price on the most attractive housing until they get it.
I gave up air conditioning (among other things) for a few years to help save money for a down payment on my first house. What makes a person who didn't sacrifice/safe more deserving of the house than I (who can afford to pay more)?
A famous person once said "there are a million things in this universe you can have and there are a million things you can't have".
We all can't live in high rise penthouses and lakefront mansions. The whole point of markets and pricing/discovery is to decide who gets what. There's not enough for everyone.
The rise in home prices isn't due to unrestricted market action, though. It's happening because of a patchwork of local regulations making it difficult to build new housing, and other worse concepts like California's neo-feudal Prop 13, on the one hand, and federal government money flowing into the system on the other. It's not supply and demand, it's very artificial and the market is blocked from reacting to it.
This is also, IMO, part of the problem. As you “move up” more and more undiversified wealth is tied up in your illiquid “investment” leading to overly protectionist policies.
Imagine if 70% of Americans invested their wealth in, I dunno, IBM. Don’t you think that’s going to incentivize some crony policies?
A house/property isn't as illiquid as you think. You can take out loans against it and invest those, often at below or near inflation rates and very often below average market returns. The equity in a home is collateral for more property, investments, etc. I can't sell it on the stock market in an instant, but I can use the equity in my properties for a ton of things.
Right, that’s part of the same problem. Let’s go revisit the IBM stock example and say 70% of Americans wealth is tied up in it.
Now imagine we make a rule that you can’t exit that position. But you can borrow against your unrealized gains. That obliviously incentivizes even more protectionist policy.
Just like with housing, you can rarely fully exit the market because you’ve got to live somewhere. But when people have most of their wealth tied up in a single asset that also acts as a revolving line of credit, it tends to overly inflate the value of that asset. It just makes people protect those unrealized gains that much more or risk being upside down on an asset you can’t sell.
Have you tried buying a "starter house" around Western MA recently? Builder specials start around 200 kUSD, something that is actually move-in ready is at least 50 kUSD more. (Yes, you can try gentrifying McKnight or Upper Hill in Springfield, MA if you want to pay less, lovely Victorians, free bullet holes from the regular shootings included. You go first!)
The advice is completely out of touch because there is a generic undersupply of housing in the US, especially of entry-level housing in areas where the jobs are. What starter houses exist have reached the end of their serviceable lifespan. My starter house in the Midwest (affordable because construction is happening around town, would have preferred staying in MA) has a roof issue and in the medium term 80 feet of sewage pipe will have to be replaced. I was discussing these issues with a builder, and at some point it stops being economical. But meanwhile you need a roof over the head, especially when you own a large dog.
I'm actually angry at the unserviceable advice from people. Please field-test first before opening mouth.
It's fucking great. The occasional late night poppity pop, the nip bottles in the street, the un-mowed lawns gaurded by un-trained dogs, they all serve as amazingly effective repellent for the types of people who think they know how I or anybody else ought to live.
Not Springfield but basically the same thing. I don't feel like sharing that kind of info here. Go down the list of former industrial cities that make white collar Boston types squeamish and it'll probably be on the list. They're all pretty close to the same in my experience.
A lot of this work you can diy it just seems intimidating. You can absolutely rent a digger and do your own pipe. You can also to your own roof. It’s not really worth it if you make 200k a year but if you make 50 it is.
In a reasonable market where house values just track inflation, you don’t build much equity though.
e.g. If you buy a $200k house with 20% down at 2% on a 25-year amort, over five years you accumulate about $26k in equity not counting your down-payment. In my jurisdiction, standard realtor fees on that would be about $10k, going with the 1% rule of thumb for maintenance would run you another $10k, and property taxes would be another $6k. You’re already at zero net profit before you even have to pay insurance or utilities. (All that isn’t to say that you wouldn’t have lost more money renting.)
This implies that you can buy a starter house. The problem is that they stopped building them, so it’s a decreasing proportion of the houses built. And that’s largely because of increased regulation making it unprofitable to build small instead of large.
> It took a handful of years of renting cheap places (with roommates)
Is this now considered unusual? I didn't purchase my own home for almost 12 years after graduation from college. I lived at home, then with roommates, which was a completely normal thing to do at the time (1987 college graduation).
Mortgage rates were around 8% in 1999. They're about 6% now. But it's also a moot point because it doesn't make housing any more affordable when the offset is higher house prices.
When my wife and I bought our first house we made significantly less money but were in this situation. We worked with a local bank that would do downpayment assistance where you'd have 2 mortgages, but your primary mortgage would get a 20% downpayment that would prevent having to carry mortgage insurance for the life of the loan. It worked our pretty well for us. I dunno how common this is or available it is to people.
> especially the 20% needed so as to not need to get mortgage insurance
PMI affects the affordability but not by much - maybe $300-400/mo or so, and if you can get a conventional loan with a 3-4% down payment (which do exist) then it'll drop off once you've paid off 20% of the principal.
For conventional mortgages, the max DTI most lenders will be fine with is 45%, but let's be safe and go 40%. Let's take a household income of 150k, that's $12,500 a month, so you can have up to $5000 in monthly debts (DTI is based on GROSS income). If you have, say $1000 in monthly debts (eg. minimum student loan payments, minimum CC payments, and cars), you'd likely be approved for up to $4000 in housing expenses, which with 3.5% down and a worst case scenario interest rate of 7.3%, means a maximum home price of about $500,000. But when you factor in PMI, you'd only qualify for $450,000 since PMI is about $358 a month.
That's not all that much of an affordability drop - the difference is that you're basically forced to fall in line with urban sprawl by buying a smaller house further out, maybe even to the point where you're driving 40+ miles to work.
If you're paying this in PMI; while your monthly principle payment is also less than $300-$400; you're renting from the bank -- ignoring outlier home price increases.
The mortage payment isn't less than rent, at least for me. IF I got a "3.5% FHA loan" it'd be.. more. I don't know how to check how much mortage insurance would add at the moment.
I'm glad everyone was able to make it work 15 years ago though!
> especially the 20% needed so as to not need to get mortgage insurance
The mortgage insurance isn't nothing, but it's not a big enough cost to warrant waiting until you have 20% down if that's still a long way off. You can also very easily remove the mortgage insurance once you get to 20% equity, so it's not like it sticks around throughout the entire mortgage if you can't scrape enough together at the beginning.
You can just refinance out of it (when the numbers are right), and it’s often easy since you now have equity, a proven payment history, and are presumably looking at even lower payments on the new loan.
The problem appears when you try to buy a home from a seller entertaining 10 other offers, most of which are cash offers for 10-20% over listing price with escalation clauses. It can be really hard to buy a home, especially in markets like Seattle, because the seller chooses which offer to accept and, all else being equal, will accept the offer with the fewest conditions (no financing required, inspection waived, etc).
Yep. This. I'm living in a much lower COL area, but it's still crazy. I've been hunting for a house for the past ~6 months. And have been outbid in every offer by someone else waiving inspection, waiving appraisal, and/or paying all-cash. It's wild how many people are apparently able to / willing to behave that way.
The mortgage company that we chose had a program where they did all of the underwriting before we even started making offers, and part of our offer was a certificate entitling the seller to $5000 at the mortgage company's expense if we couldn't get financing. Kind of like extra earnest money from the mortgage company offered as a guarantee that there wouldn't be any problems in closing.
We ended up getting the first house we made an offer on in spite of an insane market, so I guess it worked!
It's not the money that's the point, it's that the mortgage company is putting skin in the game. The value of a cash offer, aside from going above the appraisal value, is that there is no risk of it falling through due to financing problems. The $5k is nothing except that it shows that our offer may as well have been cash as far as that concern goes.
This! I strongly advise anyone stuck thinking they can't do a thing till they hit 20% to talk to a professional, there are options, especially if you have a reasonable tech income and good credit scores.
Granted, this advice was a lot easier to consume when interest rates were at record lows...
If all you care about is the monthly payment then sure but got damn it adds up now that money isn't free anymore. Even with the the projected rent increases it's significantly cheaper over my lifetime to just rent until I can basically buy a house in cash.
I scraped together 10% and various fees brought it down to 8%. Still closed on a house(2019) and now dog-friendly rentals in my area have passed my monthly mortgage. Math changes away from my favor if I didn't choose to have dogs.
In NYC, a lot of the affordable housing stock are part of co-ops, where the board has to approve your finances before you can move forward with a purchase. If your monthly income is less than a certain multiple (you would think 3x, but it's usually 5x - 10x depending on the co-op) of your monthly payments ie maintenance + mortgage + insurance, they can reject your application.
And even if you found a condo (usually 2x as expensive as a co-op for same QoL) without a board to reject you or just lived in a city without co-ops holding a lot of housing stock, banks have similar requirements in co-op applications as well. So you really need to have a massive income to go in without a >20% down.
Among the young people who may like to buy a house, this probably applies to a few rare folks working for a bay area tech company salary but are allowed to live in any other city where the home prices are more affordable.
Anecdotal, but:
Head over to https://streeteasy.com/ & do some searches with whatever you deem to be "affordable," then compare between the various "building types" in their filtering.
It's been a little while since I've done this–I, at least temporarily, gave up the idea of buying something in the city–but I noticed similar trends to keerthiko. Similar to when I was actually looking at places with a broker.
I used streeteasy[0] almost exclusively during my home search. They label every listing by home type (co-op, condo, townhouse, etc)
I don't think I found a condo under 800k, while there are plenty of co-ops across the boroughs, including Manhattan, in the 300-800k range.
EDIT: just noted you said "in another place". In my experience it's very hard to find this information in America outside NYC without investigating individual buildings.
I bought a house in 2021 and not only was the mortgage rate 2.75, they also waived PMI for 10% down. I don't think we would've gotten this same house without that combination. Feels like it will be a while before it's that low again
The mortage payment isn't less than rent, at least for me. IF I got a "3.5% FHA loan" it'd be.. more. I don't know how to check how much mortage insurance would add at the moment.
OK I found a calculator and it'd be 5k instead of 3k per month.
Mortgage insurance isn’t much. It’s really just the difference in extra interest on the larger balance that gets you. You also get worse rates in general for under 20%.
Even if they can FHA with much less down, they're stuck with PMI which is the biggest bank grift in the history of America. I'm extremely fortunate to have a VA loan. We need more loan programs that are like the VA but don't require people to give up 5 years of their life or being forced to fight in wars.
The bottomline is being less fortunate shouldn't cost you more.
Depending on the jurisdiction, the taxes are what get you. The mortgage looks cheap but pile on another 3.5% of the assessed house value per year and it’s not fun.
That being said - I think it’s good to get a property of your own as soon as possible. The rent situation is only getting worse.
> I am sitting on a 2.6% interest rate mortgage and my prices are set for the next 30 years. I probably work half as hard as he does, if not even less than half.
If i follow this correctly. you will work half as hard because your housing costs are set while his will keep increasing ?
In general, chefs, and anyone who works in the kitchen, are severally underpaid for the skill and amount of work the job takes. It's long hours in a hot, cramped, very high stress environment for peanuts. Not to mention the terrible hours. I have a very brief stint in the food industry when I was a kid and it was enough for me to say I would never do it as a career.
Is them being underpaid not a function of buyers not willing to pay more for the goods?
I'm not under the impression that most restaurateurs are "raking it in" staff be damned. Sure, at the ultra high end, yes, but for most restaurants a chef pay is function of the market, right?
The restaurateurs might be raking it if they own the real estate. If you pay rent for your location you are probably scraping by, and whipping your staff to bring in the money for your landlord.
A chef's pay is a function of the market, and that's why everybody is exiting the industry right now. Head chefs and restaurant owners are used to decades of low wages and think it's quite insulting that anybody would dare ask for a better wage. Then they wonder why "nobody wants to work anymore". At the same time, chances of advancing your career are very limited. If you manage to stick around for a few years as a chef, you will already be able to manage your own restaurant, but the salary for that will be just marginally higher. Unless you want to strike it out on your own, and take on massive debt for a business with low margins.
Working in a kitchen is the worst career choice a young person can make. If you have that skill, ambition, passion and drive, you will be much better rewarded in any other sector.
I thought a new means of breaking out on your own are food trucks. A quick search shows that they often net 6 figures, though I don't know if that includes the salaries of the help.
To me that's a whole different game, since the fact of being in a truck greatly limits the quality and variety of food and service you can offer. But I think it can be a good business, with less costs. The main problem with food trucks is that you can't sell alcoholic beverages, so you'll lose the most important part of your income.
Edit: To add to my previous point: A person who can be a successful food truck entrepreneur would probably make a much better return investing his skill and money into a non-food venture. Food trucks are expensive, for the price you need to pay to get that business going, you could buy the equipment needed to start a more lucrative business.
> Food trucks are expensive, for the price you need to pay to get that business going, you could buy the equipment needed to start a more lucrative business
not really, if the skills of the owner is essential to the business (which is true for a foodtruck). You won't be hiring a chef, you will be doing the work yourself.
I would argue food truck business is less capital intensive than opening the equivalent restaurant.
Yes, I also meant for the food truck owner to do the work himself. Still, it's a lot of money to invest, even if it's much less than opening a restaurant. The owner could invest that money and his skills into another type of business and be better off.
You said: "The restaurateurs might be raking it if they own the real estate. If you pay rent for your location you are probably scraping by..."
He may refer to himself as a "restaurateur" or a "restaurateur who is his own landlord" for social status or tax reasons but I am suggesting that this framing is misleading: if his income is primarily as a result of the real estate he owns then his actual occupation is "landlord".
Non-remunerative avocations like, I don't know, building wooden sailboats, painting, community theater, photography, gardening, raising cattle, or managing a restaurant may be intense and rewarding, but if the expectation is that they will have no marginal impact on income one way or the other then they are more like hobbies.
I agree. It's already $60 minimum for two people to eat out in the US. What's it going to be in order for everyone to have "fair" wages? $50 a plate for hamburgers?
To be fair, being a chef has never been a well paying role.
Read Bourdain's writing on the NYC restaurant scene in the 90s.
Hard work, hard drugs and hard life.
Not having read the book I must admit my kneejerk response is to wonder if the latter part could have been avoided by not indulging in the middle part? Not to say that hard work always pays off or anything but drugs are expensive are they not?
Median rent in Seattle for a 1 bedroom is $2k. Using the 40x rule someone who makes $80k could easily afford this, which is a low bar for someone with a moderately decent job.
Locking in a low rate alone has nothing to do with whether owning is more affordable than renting. The rate could be 0% but with a sales price high ala 2021-2022 buying mania and then adding property taxes, insurance, maintenance, and HOA the vast majority of "high" cost metros have and will continue to be much more expensive to buy in than rent in whether rates go up or down.
so rent is now considered a massive burden on everyone because someone making the minimum wage cannot easily afford the median rent in the city they live in?
80K is a lot for restaurant work. While $40 an hour is not unheard of in the seattle restaurant area, I would not consider this a low bar to reach in that industry (or many others outside of tech tbh).
This take is an example of a phenomenon I've come to describe as "stat-rot".
Completely missing the point about how people live because of a hyper-focus on median statistics. By definition, the median describes exactly one person to perfect resolution, and the rest of the population only in a binary higher/lower relation. The explanatory power of median statistics is marginally better than mean statistics, but it is not a substitute for and cannot serve to explain outcomes that do not fit the restrictive mold of the "median" person.
I know people who made good investments in the stock market/crypto that sold at the right time. They are set for life. I also know people who are founders of startups and they grind day in day out but haven't gotten traction (yet?).
Luck. Choices. Right time, right place. Such is life.
I feel similar cognitive dissonance every time I compare myself to people I know outside of tech. Pretty much without exception, they work harder jobs than me or my colleagues with worse hours and for a fraction of the income. I don't think my observation is tied to the housing market, other than it being a vehicle to expedite the wealth gap.
Sometimes people worry that they are a little broken for not feeling compassion or empathy for others, and one way to feel better is to decide that anyone who does feel empathy is a liar engaged in virtue signaling. "It's not that I am wrong for not caring for the downtrodden, it's that neither of us cares, but I am honest about it and you are a liar."
I'm with them. "Earned" is really the big question. If I feel I earned my pay, and then I see someone else who's working harder and getting paid much less, it follows that I must also feel that they are receiving less than they have earned.
well, this is sort of the point of the cognitive dissonance isn't it?
clearly my labor is valued at the value it produces, and i will continue to maximize the income and comfort of my family. is it virtue signaling to notice that my siblings literally work more hours than me and tolerate conditions i would not tolerate?
i don't know. i continue to push them towards tech jobs. they continue to think they are "not smart enough for it", which is an insane position.
I am completely with you on this. We were able to buy a house years ago at %3.75 rate and our mortgage is less than most people's rent now. I hear a lot of laments from other parent friends about how they are 'wasting' their money on rent. And these people aren't usually in tech.
The self comparison is supposed to make me feel grateful and happy about my situation, and yet I feel guilty for having the freedom and flexibility of my tech job with it's pay and all other benefits. Doubly so when I look at my son's kindergarten teacher and everything she deals with. I volunteer at the classroom to help as much as I can, which helps both me feel better about what I have, and helps the teacher and the kids.
But that cognitive dissonance / guilt is always there in the back.
What makes it harder? Could they do your job? Or do they miss the bar for doing the level of knowledge work that you do?
This "they work harder" cliche is really tired. They might work hard but they're easily replaced. You are likely not, and even more likely, they wouldn't be able to do your job. If you really feel so bad, donate some of your money to them, otherwise it's just empty virtue signaling.
yes i think most of the population can sub into most tech work. honestly a bootcamp will make most people ready to perform at an acceptable level for your average FAANG swe role. admittedly the interview process is a tougher experience and keeps many people out but does not reflect the actual work.
your being tired of this "cliche" does not make it untrue and this response is as lazy as "if you have any criticism of the current climate why don't you just leave". wah.
there are other ways to help people than just giving them money, like by getting them into tech. i have done this for a number of friends and they're thriving, despite initial reservations.
I don't know if I would call it offensive, maybe misguided? Naive?
Most of the population could not sub into most tech work. I know this because a large portion of the population can hardly even use tech, beyond the lowest hanging fruit like social media and other ultra-refined experiences. You have a high opinion of the average person and that's fine but it will stick out in conversations like this.
Your attempts to get them into tech are great! That'll test whether they're capable of doing the work, get them out of the "harder" work if they are, and is an actionable effort rather than signaling your distaste for some alleged injustice.
i did not allude to some great injustice, i shared an observation that gives me pause when i interact with people outside of this bubble.
i don't have a particularly high opinion of the average person, i think this community has particularly high opinions of themselves, and does not like the idea that we are not differentiated other than having interests that pay well.
First let me say that rent and real estate should go way down and Seattle should make it easier for people like your friend to live there.
Second, there is no direct connection between work done, value added + money earned. The connection is a loose correlation at best.
As an example, you can do back-breaking labour painstakingly paving roads with one cobblestone at a time, 16 hours a day, for decades. Or you can write a dozen lines of code that speeds up a critical business process. One is super hard and makes little difference in the world, and thus pays almost nothing. The other is easy if you know how and adds enough value that there's scope for lots of money to be involved.
I can't think of another country that has anything like it, and it's largely because of the government market interference (via Fannie/Freddy especially)
It's going to continue to have some weird knock on effects.
Too lazy to do the legwork for the actual information, but Japan has, or had, similar mortgages to the US -- even 100-year intergenerational mortgages. An anecdote related to this: when I worked at a Japanese company, one of my coworkers' parents had gone underwater on some commercial real estate in Tokyo after the bubble burst there in the 90s. They had taken out such a mortgage and now the adult children were all working day and night jobs to pay it off.
The Us has bankruptcy laws so that the children don't have to work to pay it off. Though depending on your situation and belief in the future maybe you would want to - if things turn around you have that building, while if you go bankrupt it is sold. (of course we are talking above Japan of 30 years ago so you can now check how things have gone, but that doesn't mean they will go the same next time)
I'm an economist, yet I only recently realized that adjustable-rate mortgages are economists' consensus best choice for consumers. Based on the expectation that personal economics are well-correlated with broad market economics, and that interest rates will decline when the economy struggles.
I have a hard time squaring that with 15 year fixed rate mortgages being under 3% for several years in the very recent past and 30 year fixed mortgages being at/under 3% for part of that time.
How would an adjustable rate mortgage be the best choice for consumers in that situation?
I got an initial mortgage at 5.625%, refi’d to 3.875%, then again to some ~3% 15-year. I never seriously considered an ARM (and now wish I'd refi'd a third time back to a fresh 30-year fixed just to keep using that cheap money for longer).
Most homebuyers don't hold their mortgage to term, whether due to selling or refinancing (like you). All things equal, an ARM will be priced lower than a longer-term FRM, so taking out the ARM with the intention to sell or refinance will mean lower guaranteed costs on the initial mortgage. They're basically a call option on rates during/after the initial fixed term. Even if rates go up a lot (like now), the pre-defined ratchet probably keeps them competitive relative to FRMs. Eventually, a weaker economy probably brings lower rates, especially combined with more equity and a shorter term.
When 30-year FRM rates are 3%, though, take the fixed.
It used to be the case that the adjustable rates were lower than the fixed rate. When a 30-year fixed was 8%, a 5/1 (5-year fixed, then adjusting every year) mortgage may have been 5% and a 10/1 may have been 6% for the fixed period.
Once fixed rates got down to the 3-4% range, that seemed to no longer hold and I was frequently offered fixed-rate jumbo mortgages at rates slightly lower than adjustables (I have no idea why they even bothered to quote an adjustable at that point).
If you could get a 10/1 cheaper than a fixed-30 and were pretty sure you'd be moving in 7 years, that's why someone would take out an ARM. (Or, if they could qualify for the ARM but not the fixed-rate payment.)
When have adjustable rates for the same property and money down been higher than fixed? They'd sell approximately zero adjusted rates if that ever happened.
Dec 2008-May 2009 and July 2020-Feb 2021 (for much of early pandemic, I was looking to refinance to lock in an even lower rate that I already had; I didn't manage to lock in the absolute low, but ended with ~3%)
Huh? First, the bank can’t possibly price future interest rates into the price of a fixed loan as they’re by definition unknown. Second, we’re talking about the economic model of which is better for consumers. It assumes no refinancing to lower your interest rate down the road, which is a pretty big caveat.
Known in the sense that they know it’s possible, sure. Known in the sense that they know what the likelihood of any given rate increase is over 15-30 years (and are therefore capable of pricing it in)? No.
“Priced in” has a very specific meaning, it’s not a generic term for being aware that something might happen.
The derivatives market for hedging interest rate risk is fairly liquid. They can add the cost of an appropriate hedge (according to their risk appetite) into the price of the loan.
Yep, just need work history and you're set. Lot of people don't want to own because it's a maintenance nightmare and they're not work. I'm out about 60k not including refinancing due to maintenance and I'm handy.
What are the mortgage terms where you're from? In always curious to understand how other countries and systems deal with this but I'm largely ignorant to it outside of anecdotes like this.
(in some countries) the technical term is “fixed-rate (as opposed to variable-rate) mortgage” - but the mortgage term can be much lower than the amortization period.
If it's the same as in the UK, Australia and NZ, then the rates are "fixed" for sub-durations within the overall length of the mortgage/home loan, and at the end of the sub-duration, you negotiate what the "fixed" rate is for the next sub-duration with the bank / mortgage lender.
So for a twenty year "fixed" mortgage, you could end up splitting that into "fixed" rate chunks of 3 years, 3 years, 5 years, 3 years, 1 year, 3 years, years, 2 years.
So the rate is "fixed" for what's often called the "fixed period" (sub-duration), giving you a bit of stability, but over the longer term of the overall mortgage, things can track interest rates more generally as you renew the rate.
So variable, not fixed. Fixed means fixed over the term of the loan. As soon as you recalculate interest rates, it is not longer fixed by any definition.
Nothing wrong with variable rates in certain circumstances but you can't call a 5/5 ARM fixed.
“More than 1.4 million households in the UK are facing the prospect of interest rate rises when they renew their fixed rate mortgages in 2023.
“The majority of fixed rate mortgages in the UK (57%) coming up for renewal in 2023 were fixed at interest rates below 2%. Those deals that are due to mature through the course of 2024 will be from two-year fixed rate deals made in 2022 and five-year fixed rate deals made in 2019, when mortgage rates were generally higher than 2%.”
To be clear, the rate is fixed during the term of the mortgage (say 5 years) but the amortization period is different (say 25 years).
Yet another reminder how challenging cross-cultural communication can be. There is no right or wrong here, just different. They key is recognizing the differences as early as possible to avoid confusion.
The terminology, unfortunately, varies with country. Your terminology is correct for America but in most of the world, "fixed" has a different meaning, because American-style fixed products are nonexistent.
Yes. In countries like Canada, the term "fixed rate mortgage" maps to what Americans would call an ARM. 25-year fixed-rate mortgages are simply not available to individual homebuyers. 5 years is generally the highest rate at which you don't have to pay a steep (ie, 1000 bps) premium for, essentially, adding a call option on your loan.
Maybe we should split the difference! The best 25-year fixed-rate mortgage currently appears to be 9.75%, which is about 500 bps higher than the best 5-year fixed-rate mortgage [1]. But in 2021 with 5-year fixed mortgage rates near 2%, the 25-year fixed-rate was still around this level. So it looks like the premium has gone down a bit since the last time I checked. Perhaps that's partly a result of the yield curve inversion we have these days, since the Canada 30-year bond yield is presently just 3.2%. [2]
When you wrote “5 years is generally the highest [term] at which you don’t etc.” it sounded as if you meant that for a term of say 10 years you did etc. [The spread between the 5y and the 10y rates is around 100bps.] There is quite a range of terms higher than 5 and lower than 25.
In Germany, standard terms are to have the interest rate fixed for 10, 15 or 20 years, independant of how long it takes to pay off. Additionally, the customer has the right to refinance at current rates after 10 years. So a longer fixed rate is always an advantage to the customer, and thus more expensive.
It’s because our federal government purchases the majority of residential mortgages, and therefore indirectly sets the standard for the entire market. It’s a major reason why real estate is such an attractive investment.
Yes. The problem with the article is that it focuses on the value of the asset but forgets the costs. The entire system is stacked in favor of home-ownership by means of tax and bank subsidies.
"A lot of Americans are bragging that in their country they can get a fixed mortgage for 30 years. But it's worth remembering that for cultural and historic reasons, a lot of Europeans choose to reject socialism."
Note that the mortgages aren't even fixed rate, since you can replace them with a lower rate mortgage if rates drop, with insignificant penalty. Nobody will sell a mortgage like that if their goal is profit (other than to hand off to the US government).
Insignificant penalty?! Maybe if all you think about is your monthly payment and not the total payment amount over time.
You should check the amortization schedule of a typical 30 year fixed rate loan. You are paying nearly nothing but interest for about 10 years, THEN you start paying down the principal balance significantly more. The first ten years you are basically renting your property from the bank. When you refinance the property the amortization schedule starts all over again where you are barely paying down your principal balance. The banks always need their cut before you are allowed to build equity.
Prepayment penalties are illegal after three years so there's no reason you would pay only interest for 10 years. If you can get a better loan, you can pay all the principal instantly and no more interest.
I think the point was that people with mortgages will opt into lower interest rates but will clearly not opt into higher rates. (Assuming the interest savings is greater than the refinance cost.)
I'm not sure why you bring up the amortization schedule since since you definitely save on the overall interest side of the mortgage. Put another way, if you get the lower interest rate and keep paying the same monthly payment you were paying before, you'll pay everything off faster.
One of the biggest benefits to refinancing is being able to lower your payment and put that money to work elsewhere. Yes you can just keep making the same payment and save some money (less and less the farther along in the loan you are) but most people have debt that is at a higher interest rate than their mortgage so they're better off putting the money there.
I've seen people decry the amortization schedule before as if it's because there's some cabal of evil bankers in monocles twisting their mustaches and cackling about how they're screwing everyone over. It's just how the math works out when you have a 360-payment loan for half a million dollars - there's nothing remotely sinister about it.
Just like renting vs. buying there are times where refinancing to a lower rate will save you money in terms of total paid, and times where you may a similar or higher amount but will save in monthly payments. Like everything else you just need to do the math and see if it's worth the fees to get the new loan or not.
Yeah, man. My friend lived in Capital Hill back in the early 2000s and was able to keep ahead of the rent on his comically small apartment just working part time
Nowadays, though, Seattle residents not making obscene tech money have to either live in a submarine-esque cramped environment or spend 2-4 hours commuting every day
The change in city living is also a big difference. Cities used to have parts of the city with the lowest cost of living in the metro area. Things like boarding houses and single room apartments w/ shared bathrooms & kitchens. That's no longer the case in a lot of cities. Places like Seattle and SF are comprised of pretty much all expensive places to live. That squeezes poor people more since they often have to rely on public transportation and can't take advantage of cheaper suburban living.
It is not strange: moving is more expensive than it used to be, and the odds of being able to move somewhere that's cheaper to live without taking a proportional or greater hit to your income are low. Staying connected with other people is hardly the only determining factor. Lots of people traditionally moved because they didn't want to stay connected with a place, and figured thre would be better opportunities elsewhere.
It’s worth noting that these stats don’t show a difference in moving between cities, but between residences. And if you do look at stats showing moves between counties, those have been fairly flat going back to at least 2005 (I couldn’t find data going back farther).
Which is to say that it seems people find less reason to move from one house to another where they already live than they used to. I expect this is because the difference between your current house and a better house has become substantially more expensive than it used to be, making it harder for people to improve their standard of living over time.
I haven't been able to find great statistics, but you can look at state populations to get an idea. California, as an example, went from ~5 million to ~30 million in a few decades post WWII.
California is a pretty substantial outlier there, not exactly representative of the country as a whole, and even then doesn’t actually need a super high inter-state immigration rate to get those numbers. It’s worth noting that the entire country grew 2X larger during those 5 decades. So we’re looking at a 3X increase compared to the average. Which is a lot! But even ignoring the effect of people moving there in the early decades themselves having children that speed up the process…to get a 3X growth over 50 years requires an annual immigration rate of 2.2%. Which would be in 1980, .29% of the US’s population moving to California.
(And as a side note, the above numbers are ignoring immigration. In 1980 California was 15% foreign born people, about 2.5X times the national average. And people who immigrated in 1940s-1960s would themselves have children that lowered the needed inter-state moves even more)
Point is, 5 decades is a long time, only takes a small percent a year to compound. California, by far the most popular state to move to in the country historically, still doesn’t need that high a percent change to get from 5 to 30 million.
Sure, but the point of the rest of those words was to show that to get a 20 million surplus over 5 decades requires, at absolute maximum, .3% of the US to move to California per year in that time frame. (Or more accurately .3% more of the population moving to than moving away from California)
SF dropped from ~75K SROs 50 years ago to maybe 20K now. Even if you were an addict or going to jail occasionally, there was enough turnover to get back in.
My cousin owns a mansion in Capitol Hill. Because she was a broke-ass student at UW and couldn't afford rent. Back in the 1980s, buying a house there was seen as a crazy, insanely risky thing to do and likely to end up in death.
The modern equivalent is the area around 105th and Euclid in Cleveland, near Case Western and the Cleveland Clinic. 150 years ago, that was the wealthiest neighborhood in the entire United States, now you are though to be insane to want to buy a house there. But if you did, would you end up with Capitol-Hill like appreciation in 40 years???
> But if you did, would you end up with Capitol-Hill like appreciation in 40 years???
My friend recently applied this same concept in a very rough area of South Bend, Indiana buying a house with bullet holes in the side using the same general logic ("it'll get gentrified someday").
The issue he's running into is that it turns out a city doesn't have to charge you property taxes on the actual sale price (which was only $3k) but can charge you property taxes on a higher amount of their choosing ($40k I think he said) in order to encourage revitalization and not just hoarding of slum houses, probably.
He's trying to fight that property tax assessment, but I'm not a lawyer and neither is he and he'll probably lose. In which case the holding costs defeat his whole plan.
Meanwhile some mainland Chinese 18yo drops in with a bag full of cash to buy a place outright. Something is very wrong with that picture for Americans.
People aren't paid by how hard they work, they're paid by how much money they generate and how hard they are to replace. A head chef might be hard to replace but popular bars and restaurants are not, as we saw during Covid. They have often been replaced by people deciding to save money and eat at home.
Your cognitive dissonance isn't unusual but I think it does a disservice to our ability to have productive discussions on any number of issues. Whenever issues come up of who deserves to make more or less, they get bogged down with who works harder and who's work is more meaningful.
It's economics and it starts and ends with raw numbers. Acknowledge that first, then move on to how to make it better.
We as a society can define how our economy looks like, it is not some hard defined concept like the speed of light or the very basic principles of mathematics.
Economics is a soft science, and we should treat it is suchs.
The raw numbers don't say much, expect the result of how we have shaped our economy.
There is very little preventing us from changing the way the housing market is structured in a real, hard fact kind of sense.
They’re talking about how it is ridiculous that nothing but pure luck and circumstance of a screwed up housing market/system means they ended up with a sweet deal with affordable quality housing while their friend is forced to deal with living in a closet for much higher prices despite working hard.
that's a non-sequitur. Migrant laborers on farms work absurdly hard. "Work hard and get more" is practically a boomerism at this point. There are many reasons to work hard, but none of them have to do with guaranteed home ownership
While you’re right that how hard someone works doesn’t determine their pay, how much money someone brings in at best loosely correlates to their pay as well. I think a lot of people have dissonance there as well, thinking “well surely if it’s not how hard the work is, it’s how much value they bring in!” But no, all that matters from a business perspective is that the sum of all paychecks is less than is needed to make a profit. It’s all about the cost of replacement, or how much money it would take to hire the next best chef you can find. It’s the supply demand curve of “how many chefs are looking for work” vs “how many people want to hire them”. If there are many more people who want to be chefs than there are slots for chefs, they can easily end up working for many times less than they bring in to the business.
In theory sure, but in practice the internal complexity of organizations leave plenty of room for obfuscating that ideal. Throw in nepotism, favoritism, corruption, and an inflated valuation of upper management roles and you've got plenty of jobs that pay well past what they "bring in", which is itself nebulously defined at best, especially in white collar industries. Hell I know some companies that would've been better off just axing some of their c-level suite.
I totally agree but do think it's true in terms of averages and probably true more often than not that a given individual falls within the range. After all, you can't have an industry-wide average for most roles that's higher than the value they bring in. There's also a myriad of roles that don't produce directly and are either supportive, compliance, or simply unnecessary.
You ignored the information about the restaurant's popularity, which indicates that the gp took demand for teh chef's services into account.
it starts and ends with raw numbers
No it doesn't. If that were true markets would be reliably self-correcting and market failures would never occur, rent seeking wouldn't be profitable and so on. In reality there are variations in elasticity of demand and supply, regulatory issues, and economic network phenomena like preferential attachment, all of which substantially complicate the picture.
> People aren't paid by how hard they work, they're paid by how much money they generate and how hard they are to replace.
On average, this may be true, although "how hard they are to replace" is difficult to quantify and most of the scarcity is artificial. But there is enormous variability in the relationship between pay and revenue/profits provided and opportunities for replacement.
I am certainly paid much more than I should be, since I work in a cost center and in that group I am definitely not the one bringing in work or revenue, and I suspect I would be very easy to replace. But at the time the contract was signed, I had the right certifications (e.g., PhD) and the right resume. Like many others, though.
Firstly, cognitive dissonance is not really being used well here and I don't like it being so trivialized. What OP feels is more guilt and confusion that his friend is worse paid than him and yet has to work harder. Cognitive dissonance is holding two conflicting beliefs at the same time in a way that creates a mental toll. What happens in abusive relationships or example when a person is told "i love you" while being hurt. Or when your gut feeling tells you something wrong is happening, but you're told everything is right. Cognitive dissonance feels almost like physical pain.
And about your comment:
SW aren't well paid because of how much money they generate or how hard they are to replace.
1- I'm not sure why you say this but SW are not that difficult to replace. There's plenty of SW around for everyone.
2- What actually determines the fact that SW are so well paid is just luck and time. What do I mean by this?
2.1 The profit margins in software services are the biggest. An easy example is Amazon. Initially a simple bookstore. Then a e-commerce shop. This is what Amazon is. And yet their margins for this is about 1% and for their cloud services is about 40%. Amazon CAN afford to pay SW well not because it generates more money, but because it has huge profit margins. And why is that?
2.2 Because it just so happens tech is VERY NEW and has changed everything far too fast for the market to adapt. Consumer physical products have been manufactured and sold for decades. Agriculture is a much more essential service than SW and it's some of the worst paid industry. Their profit margins are close to zero. All the money that could be extract has been, capitalism has done a good job of making it cheap for consumers. But tech? The world of mega corporations, monopolies and duopolies, there is often no such thing.
It's not about value to the world SW provide, money SW generate or hard to replace. If you really want to talk about value to the world there are many other careers that do. SW isn't one of them. SW are just well paid, due to luck, timing of being born right now, and the fact market is very new and hasn't adapted yet, that's it. Enjoy.
Yeah, my mortgage is $800 for a 2,000 sq ft house and my son's rent for 1/2 of a 1 bdrm apt is $1700. The situation is completely out of control. (We're both in CA.)
I'm not saying there isn't a disparity but a comparison like this would need to include taxes, maintenance, and utilities on top of the mortgage to be comparable to a rent (well utilities may or may not be included).
For comparison, in northern Germany one can rent a 1000 sq ft house + 1000 sq ft garden in walking distance from offices, supermarkets, restaurants, etc. for about $1000 cold per month.
Sounds like CA is 5x more expensive for young people. But salaries are "only" 2x to 3x those of Germany.
But the problem of your friend is not that you treat your house as an investment.
By definition, if people "invest" in goods that can be produced at a certain price, then production should kick in and restore balance. In a functional housing market you shouldn't be able to get a better appreciation of housing than the inflation rate, except for perhaps some very limited and irreplaceble houses in the Hamptons or designed by famous architects.
Housing should behave much like the painting market: a few are worth millions, but everybody can get a cheap painting for their living room because more painters are born every day.
So the actual problem that enables this housing pyramid scheme is the lack of production and the entrenched policies of class and race discrimination in real estate development. Existing homeowners rationally want to exclude builders away from their neighborhoods to keep supply limited, so they are politically fighting for restrictive legislation. This problem can only be solved politically, with the state taking a major role in the supply of housing.
The upper levels of government can and should correct the failures of the lower levels which are captive to local homeowner interests.
The ideea that you can eject the state from regulating the use of a resource with so many externalities is a pipe dream, you either get some sort of favela or the residents re-invent a much more exclusionary and bigoted version of the state, for example the HOA.
> The upper levels of government can and should correct the failures of the lower levels which are captive to local homeowner interests.
They have been, for decades. That's where things like the Community Reinvestment Act, which played a significant role in causing the crash of 2008, came from. Not to mention the decades-old policy of encouraging mortgages by funding them with money printed by the Fed's printing press.
> The ideea that you can eject the state from regulating the use of a resource with so many externalities is a pipe dream
No, what is a pipe dream is the idea that governments can somehow fix problems with externalities or market failures. They can't; they make them worse. That's because governments are not magical entities that somehow always do what is best. They are organizations run by human beings, and their incentive structure is even worse than that of free markets.
> the residents re-invent a much more exclusionary and bigoted version of the state, for example the HOA
While I'm no fan of HOAs, at least the people in them have skin in the game, being members of the community themselves. However flawed this model is, it's still preferable to having unelected bureaucrats in a city a thousand miles away micromanaging people's lives.
Governments fix market failures all the time. For example, there is not a single country on earth with unregulated environment policies, a high standard of living, and where the air is still breathable and water potable. Or one with no food safety regulations where street-food is somehow magically 100% safe to eat by virtue of the invisible hand. Or where banking is reliable despite no financial regulation. Or where justice is equitably delivered by for-hire private judges.
Those things take coordination and effort to achieve, and some governments do achieve them, some to such a large extent that we come to take them for granted.
> there is not a single country on earth with unregulated environment policies, a high standard of living, and where the air is still breathable and water potable. Or one with no food safety regulations where street-food is somehow magically 100% safe to eat by virtue of the invisible hand. Or where banking is reliable despite no financial regulation. Or where justice is equitably delivered by for-hire private judges.
This is historically false. There have been many human societies in history that have done at least as well, if not better, than societies with governments at providing these things, taking into account the available technology of the time.
Also, you are assuming that societies with governments have all of these wonderful blessings. That is, to say the least, not obvious.
Supply and demand is a big issue too. Take Bay Area as an example. The number of newly minted millionaire families every year on average exceeds the number of newly added houses around those job centers. In the meantime, we've been having an asset inflation in the past 10+ years. As a result, the housing cost in the bay area just keeps climbing up. This has serious consequences too, as such ridiculous housing cost drives away excellent teachers, cops, and etc.
I know this is anecdotal, but whenever I hear these stories, I'm curious about the details. A quick search leads me to believe that head chef pay in Seattle typically ranges from about 90k-110k per year. Finding apartments off Broadway in Cap Hill, I can see that studios, though relatively expensive, range around $1.5-2k a month.
An income tax calculator estimates about a 22% total tax bracket and a monthly adjusted income of just over 6k. To me, that means that this person is falling right around 33% of their income devoted towards housing, which seems typical. What am I missing?
Sure but obviously that number needs some common sense, right. To make a clearly ridiculous example - if you were making 100k a month and paying 25k for rent you wouldn't be poor in any possible meaning of that word.
If you bring home 6k a month after taxes, and after rent you're left with 4.5k, I'd also argue that's not "barely making ends meet". That leaves a very comfortable breathing room that is unimaginable luxury for most of the world.
>If you bring home 6k a month after taxes, and after rent you're left with 4.5k, I'd also argue that's not "barely making ends meet". That leaves a very comfortable breathing room that is unimaginable luxury for most of the world.
Another aspect of this issue is that, when you take out a typical mortgage, you take a 4-5x leveraged long position on real estate. Rent for a nice 1br in Seattle area is $2K, but the hidden aspect is the landlord is holding the RE risk on your behalf.
Even if mortgage was $1K/mo, I would rather rent (which I do) to avoid this risk in volatile, tech-dependent area like Seattle.
In nominal dollars yes... but the downside risk was the true cost.
Get in at a low rate and comfortably afford it, then you're doing great despite maybe being underwater for now. But default while underwater and lose whatever you put down plus the difference in price.
TINFA but, exposure to real estate is generally/historically a good hedge to keep pace with wage inflation. I disagree with OP; getting in before rate hikes wasn't necessarily a mistake. But mortgages work the same way that ESPPs and RSU grants work, banks/companies/governments hedge downside risk by convincing a whole bunch of people to be long on a stock (or real estate).
- All forms of insurance
- saving for retirement
- Rising food costs
- Any Healthcare expenses
- Car costs
- Child care
- Subscriptions (phone, internet)
- Utilities
If you can't fit all of that in four and a half thousand dollars then I don't know what to tell you. I'll repeat myself - someone who has 4.5k left after paying rent is not struggling to make ends meet by any definition of the word, in Seattle or elsewhere.
That's assuming you do not want to save anything, or a medical emergency does not wipe you out.
Or a car crash. Or any other utterly forseeable common event.
Again, nothing to do with struggling to make ends meet. By going further with your argument you aren't fully comfortable until you can cover any possible event that might happen, since a dire enough event will exhaust any possible amount of savings you could have unless you're a billionaire. Medical emergencies and car crashes are covered by insurance for nearly everyone, if you make that much money I would think you have appropriate policies in place.
I don't think you have kids (especially infants/young ones) because in a high cost of living area, 2.5k a month is HARD. You can do that in Europe, not in the US.
Those situations also happen, they're not black swan events. My current medical plan for my family has a deductible of $3k. Every year we end up hitting that number. That's excluding the actual premiums which are deducted from your pay. Do you have ANY idea what you're talking about?
Ah I just realized you're in the UK. I'm also from the UK but live in California.
Now it all makes sense! I agree that 4.5k after tax is fine to live on in the UK. Here in the US where a carton of basic eggs cost $6+, a box of standard brand milk costs $4/5, that $2.5k is going to disappear pretty fucking quickly.
I was astounded at how expensive it was here. Even in London, you could buy Warburtons for £1.30 or so back when I moved a few years ago. 1L of Cravendale (I liked the good stuff) was still £1 IIRC. Now it's like £1.30? Still, way cheaper.
I was trying to average it out across the low COL areas :).
But here in the Bay Area, for 2Y+ you can find daycares for that amount. Also home day cares are also an option and they tend to be between 1.5-2k a month.
When you're looking for <2Y care though? That fucking sucks, because of the (understandable) ratio laws, prices are high 2ks to 3k here.
$4500/mo for everything after the roof over your head is not enough.
Living alone? Probably, assuming you have no major debt and are in great health/have no emergencies.
2 of you? Maybe. Definitely not putting anything away for later that’s for sure. Better not have any emergencies.
Kids? No way.
$4500/mo after paying for your home basically leaves little room for error or, frankly, joy in your life. Can't take trips, can't have pets, can't donate to causes, can't go out to eat much or anywhere nice, etc. We aren't supposed to just work/eat/sleep, we need something to look forward to, we need to be able to weather financial emergencies, and we need to be able to save for later.
>>$4500/mo after paying for your home basically leaves little room for error or, frankly, joy in your life. Can't take trips, can't have pets, can't donate to causes, can't go out to eat much or anywhere nice, etc
None of this is "struggling to make ends meet". I've seen this before though - people make good money, have a place to live, make payments for a nice car, have enough to put food on the table, to pay for their energy bills, to send their kids to school/childcare, and yet they will say they are barely hanging on because they can't save a lot every year or go on holidays.
Like, I really sympathise, but that's not barely making ends meet. 4.5k after rent is enough to live on almost anywhere in the world.
We are talking about the United States. Not “anywhere in the world.” I find those arguments very frustrating because I don’t really feel like I should have to say that. We are not talking about somewhere where $10 can last you a week.
Most of these costs (saving for retirement, insurance, subscriptions, car) would be consistent across the US and is not unique to Seattle. $100k in a very expensive city is not much by any means, however what's more concerning is the costs you outlined are consistent and rising for even those living in LCOL or making even less than $100k.
$90k salary and $2k rent was my situation when I moved to Seattle many years ago. It definitely was comfortable.
My wife was able to also get comparable work and that money wasn't at all needed to help make ends meet, so it went right into student loans and those got paid right quick.
I moved from the Midwest and people warned me about the CoL etc. But you just gross more even if the apartment etc is a bigger percent. And cash is king especially if you have debt or just like buying nice things or both.
Federal DTI maximum for mortgages is 45% with a good credit score and/or cash reserves. For apartment complexes, they typically won't lease, or will require a bigger deposit, if your gross monthly income isn't 3x the rent (which typically means it's 40%+ of your net income).
If 25% 'was' house poor, then at least 90% of today's mortgage-holding and rent-paying Americans are house poor.
It also matters where and how far you are from things. Walkability is a big draw, so if you're within a mile of a major district with tons of food, entertainment, and culture, chances are any well-kept apartment building will raise their prices to account for that (and account for you not having a monthly car payment or auto insurance payment), and if this chef is within a few blocks of their work, it's not hard to believe their rent could be over 3,000 a month or 50%+ of their income (although, typically, management companies want to see your gross income be 3x or more of the rent).
> if you're within a mile of a major district with tons of food, entertainment, and culture
If you're within a mile of _that_, it seems reasonable to define the housing in that area as "prime" and expect it to cost a lot more than further away. The fact that rents for that housing has a cost that is prohibitive for the vast majority of people doesn't seem odd to me.
This is why I'm replying to a comment stating "I'm curious about the details". Without someone explaining their debts or where they live, we're guessing and arguing about what could drive someone to live in a 400 sqft studio where they make 3x the rent but still live paycheck to paycheck. You pay to live in that area. Even if we vastly increase the supply, these areas will always have an order of magnitude more demand than some apartment complex outside the city's beltway because living in these complexes allows you to drop your car dependency.
* They're a head-chef, that seems like a high-ranking position.
* That used to feed and house a whole family, easily.
* They can now **only afford a studio**
I used to know a chef who worked at michelin star restaurant and he had to move to a flat share because he found himself not being able to afford much after paying rent in London.
That sent him to a severe depression and later on an unsuccessful suicide attempt that rendered him unable to work and he became homeless.
I have absolutely no knowledge of how well chefs in Seattle are paid, but I've heard from elsewhere that operating a high-end restaurant is far from a money machine.
Head chef, unlike senior software developer or something, is a job that doesn't scale much. A rock star chef in a posh neighbourhood is only so much more productive than a mediocre chef in cheaper neighbourhood so, economically speaking, the salaries are not expected to scale all that much.
In a well-functioning city, a head chef should be able to comfortably afford to rent a 2-3 bedroom apartment within walking distance of their restaurant. They should not be spending 1/3rd of their income and only getting a studio out of it.
You can, just move out of Capitol Hill in Seattle which is one of the most desirable areas in one of the most desirable cities located in one of the most desirable geographies in the wealthiest country on earth.
You're essentially saying Seattle is too expensive for chefs to live in, which means it's too expensive for nice restaurants, which means it's too expensive to function.
Now extend your own logic to teachers, service workers, etc.
Market will move instead to where it is reasonably cheap and labor is available, leaving a ghost town behind. Ultimately this results in high concentration.
There's literally no force compelling it to invest in a failing area, or one perceived to be failing.
If it was a true free market, housing wouldn't be an issue because developers wouldn't be forbidden from building density.
Capitol hill is a disaster for city living as most of it are single family homes, whereas they should be 5 story condo buildings.
Capitalism and free markets are not synonymous, and you can have the latter without the former (indeed, that was the case for most our history as economic species).
Capitalism is detrimental to free markets because it has inherent positive feedback loops that concentrate capital. Concentration of capital inhibits competition, and a market without competition is by definition not free, regardless of the amount of government regulation in it.
It could be, in principle. The problem with monopolization of capital is fundamentally caused by our overall conceptual take on private property as an abstract concept. Within that framework, you need regulation to keep the market free. But it's not the only framework that is possible; e.g. consider the situation where all capital is commonly owned and held in usufruct by its actual users ("everything is a co-op").
That's because it is. Free-market socialism is a thing, with a spectrum from centralized demsoc to left libertarians to anarchists. "Freed markets" is the term usually used specifically in the latter context:
Usually this dialog line goes the ancap route, I'm pleasantly surprised
I do think you need some mechanism of enforcement though, history has shown that violent people will easily come along to dominate in the way that they see fit
Ironically, I'm former ancap, although that was 20 years ago now. But I don't think that any ancap would be willing to assert that "capitalism is detrimental to free markets", not even the ones who argue that monopolies are actually good by definition because they're market-efficient. That unregulated capitalism and free markets are synonymous is practically dogma in those circles, or at least it was in my time there.
History did indeed show that violent people will try to take over - it is how we have the system of governance that we do today, after all. But individual violent people are not really dangerous to the community as a whole; it's only when they organize in sufficient numbers and possess sufficient resources that it is a threat. I believe that the best way to secure society against such threats is a broadly decentralized organization, such that any attempt to organize to concentrate power is clearly visible in its early stages and can be nipped in the bud by those immediately adjacent to it, without escalating it to higher levels of governance. The latter should be mostly about coordination of efforts and plans, not coercion.
The actual amount of policing power and the exact level of governance on which it should be the strongest is something that, I think, would need to be figured out by experiment. Maybe Murray Bookchin is right and it is, indeed, municipalities. I would hope that it can be more fine-grained than that. But I'd be immensely happy with any working proof of concept, so long as it does not preclude further tweaks and experimentation. If Rojava lasts, it might provide some more useful data.
Well it functions up until people such as this head chef say "screw these housing prices" and relocate somewhere else and open their restaurant and have a better life and then whoever is living in Seattle gets crappy or extremely expensive restaurants to account for the high housing prices.
Indeed. So, speaking as someone who lives in the Greater Seattle area, enjoys the local restaurants, and would like their head chefs to remain here - it is a problem, and I would like to solve it. Even if it means that my home equity might not be as valuable on paper as it would otherwise be in 10 years.
Sure… but Seattle is valuable and desirable because it is Seattle. The only thing you could do to make it like you wish is to make Seattle undesirable.
Think about it like this. What do you think of when you think about Indianapolis, or Kansas City, or Charlotte, etc.? Do those cities seem very desirable to you? Places you want to go and uproot your life to move to?
Probably not. Flat. Boring. Dog shit weather. Car-only infrastructure. (I know I live in a similar city for family/friends reasons)
You can’t solve this problem with less home equity - that’s a contradiction. The great things you enjoy are tied 1-1 inseparably from your home equity. The only way for your home equity to not be as valuable in ten years as it otherwise would be is to get rid of the very things that you enjoy!
The only reason why none of these sound particularly desirable is the overall politics of their respective states. Otherwise, I wouldn't have a problem living in any of them now that remote work is reasonably well established. It wasn't back when I bought a house here - then it was all about the jobs.
I also have to note that "dog shit weather" is literally one of the things that define the Seattle experience. I don't actually mind personally, but a lot of people do.
> The only reason why none of these sound particularly desirable is the overall politics of their respective states.
That’s not the only reason and you know it. And even if it were the only reason for you it’s not the only reason broadly speaking. But the desirable political climate adds to the desirability of Seattle.
> I also have to note that "dog shit weather" is literally one of the things that define the Seattle experience. I don't actually mind personally, but a lot of people do.
Seattle has fewer homes with air conditioning than even San Francisco [1] at 33% (as of 2018). Kansas City is at 99%. It’s very moderate throughout the year. You don’t get crazy temperature variance. Seattle isn’t San Diego but it’s not Buffalo, Kansas City, or Mobile either.
It’s too expensive for chefs to live in Seattle it really is. People here don’t spend enough money eating out to justify the number on chefs so they can’t afford to live in decent housing
Specific to Seattle, once you see what the teachers are teaching kids there you'll see that they soon won't actually need teachers. Nobody that has both a functioning brain and children would put their kids in Seattle schools.
The people who build, own, and operate the very luxury services (such as culinary destinations) that contribute to an area's reputation as "one of the most desirable areas in one of the most desirable cities located in one of the most desirable geographies in the wealthiest country on earth" should be able to afford living there.
Yes, to an extent. Commuting adds friction to working there, and if it becomes too much of a burden then people are likely to relocate.
And in this specific case (head chef at a popular bar) living in the neighborhood allows him to keep abreast of other bars, local trends, etc which benefits his work.
Most people are not willing to move away from all of their family, friends, and career. Software engineers are uniquely privileged in that we can work remotely, many, many other careers cannot do that
Remote isn't available for all tech employees (software or otherwise) and historically we have advocated that people move to places like the Bay Area to obtain corresponding higher wages (I have to move to California and uproot all of my friends, family, and career ??). YCombinator itself famously required(s) entrepreneurs to uproot their friends, family, and career to move to the Bay Area.
At the end of the day people can make the right mix of economic and sociological choices that they want. But what's not going to happen is everyone in Seattle gets a 2-3 bedroom house and you can make peace with that fact of life or continue to be frustrated.
The studio is worth it if you're walking to your restaurant 6 or 7 days a week and checking out other neighborhood hot spots. If you're commuting to an office tower a few days and on Zoom or hiking the rest, it's not. And of course if you make it easier or harder to drive to the office (and consequently worse or better to get around on foot) the prices would shift to reflect that, a good example of how the crisis Andre Cooper is writing about hamstrings unrelated things like transportation policy.
There are many cities in the world where a head chef can live in the desirable neighborhood within a desirable city while working at their desirable restaurant. For example, the owners of a local wine bar where I live in Bogota are able to operate a wine bar below their apartment with relaxed zoning laws. Just not possible in the U.S.
Not just high-end restaurant jobs. The local owner of the ferreteria (home repair goods) lives above his store as does a window/glass store owner. And this is in a relatively pricey, high end neighborhood. In other neighborhoods is even more common. My family recently sold a restaurant in Bogota and the new owners are converting the top floor into a home for themselves.
I'm not sure if you meant to, since you seemed to be talking framing it around individual choice, but you've just made the case that something is fundamentally damning the economy in cities like Seattle. That's exactly why issues like housing affordability need to be identified and treated at the systemic level.
If people can't satisfyingly live near their work, then they can't work there, and then the work can't be done. If workers has to move to another state to practice their craft, a city needs to proactively recognize and address the problem if they want to avoid a coming blight.
Well because individual choice and governance choices both exist simultaneously and dynamically.
In this particular case, though, I think the thing that is daming Seattle (and similar locations: Santa Barbara, San Francisco, Denver, Aspen, anywhere remotely desirable) is geography and climate and there isn't much you can do to fix that because you can't create new geography out of thin air. "Ohio is so boring", "I need to be near mountains and fresh air", "I like to surf", "I love to hike" are all things that can't be effectively replicated and so wherever those things exist prices will skyrocket relative to other locations.
Can Seattle literally build more? Yes. Will that solve Seattle's housing affordability problems? No it won't. In the short term interest rates and cost to build mean that most units will be higher end. Certainly won't mean a 2-3br house anyway. In the long-term unless something drastically changes Seattle is just desirable and there will be many more people who want to live there than there will be homes unless we could just snap our fingers and create new housing, nevermind governance issues, it just isn't happening folks.
I do empathize though. Please don't mistake my comments for callousness. But sometimes the truth (as I see it) just needs to be state. If you want to work as a chef and afford a 2br house it just is not happening in Seattle and you should make peace with that.
I can afford to live in Seattle because I make more than a head chef. I would like my city to be affordable to head chefs, since I have friends who are. Seattle is a very nice place and I would like it to be easier for my friends to live here and not be forced to move away, since it makes the city worse and I'd rather the city become an even more desirable place in years to come.
> I'd rather the city become an even more desirable place in years to come.
This is the problem and partially (mostly maybe) why Seattle and other “cool” cities are in the position they are in now. If Seattle was undesirable like, idk, Gary, Indiana then you’d be able to get your friends there and a head chef can buy a house and such. But then it’s Gary. That’s the dichotomy that Seattle and other cities face. Can’t escape it. What you are asking for and wanting just isn’t realistic.
Imagine if I came up to you tomorrow and said I’d like to live with an ocean view in Santa Barbara in a walkable neighborhood with street cars and all my friends and family could afford to live there with a 3br house and the chef makes a lot of money and has this killer restaurant… you know that’s not going to happen. Seattle isn’t any different.
I don't agree. We basically ban people from living in the city with zoning, and even to the extent that the problem isn't zoning we could treat housing more like we treat other public services (electricity) and just make sure that it's available. There's no natural law that things have to be this way, it's a choice that we make and I think it is reasonable to ask it to change.
Nobody bats an eye when we build substations to support the lights in the restaurant, but building homes for the workers is "not realistic."
I know you don’t agree, but the results speak for themselves. I do agree that things don’t “have to be this way” but where I’d differ is that to solve the problem the vast majority of Americans or Seattle residents would disagree with how to solve that problem. You’d have to do something like tax people at 50-60% or their income to pay for the new housing and it just won’t work. Zoning slows down development sure but so do environmental review processes and such. Also even if new development was instantly approved it takes time to build and developers have to spend so much money on the land that they just build very expensive apartments or condos. But this doesn’t alleviate price pressure because the demand to live in Seattle is too high. The evidence is that like in the OP a chef at a top restaurant is living miserably in a 400sqft apartment just to be in Seattle instead of leaving to alleviate their own dissatisfaction.
I’d also personally avoid framing things as such “build homes for the workers” because it implies a very top-down industrial capitalist or communist viewpoint that I think many are resistant to.
Like water flows through the path of least resistance the easy solution here is people are just going to put up with it or move. If it’s a burden I recommend moving.
If you think there is hope with price pressure relief you only have to look to Manhattan, because that’s the future you are facing in my opinion.
-edit-
For the example I can’t think of any tier-1 city that has gotten less expensive over time (please do not cite Tokyo or Japan) except maybe Chicago and even then I doubt that it has really gotten cheaper versus just not as expensive as fast as peer cities.
Chicago is a good example. I don't know if Seattle can actually get better, but it doesn't have to get worse as fast as it has been. And we should at least seriously look at options to try and make it better. (Not just throw up our hands and say that it's unrealistic to expect the city to ever get more affordable for lower income folks.)
But even Chicago is only bad because they let crime seemingly get out of control and the weather sucks and it is still expensive in the areas you’d want to live in.
I definitely think people should try I just think that the expectations need to be set better. Making $100,000/year and living on Capitol Hill in a 2+ bedroom home is just not going to be realistic without giving up something.
One thing Seattle and similar cities can do to help alleviate this though is to continue to or start to dramatically end the usage of personal auto travel and transit. For example I-90, I-5, and I-405 should all be shut down as they traverse through the area. Probably also tearing down and revitalizing areas where there are more than a couple of lanes in each direction. That’ll give more space throughout the greater Seattle area for people to live and fewer cars means more local shops and more money to spend on them too.
I just pulled up plenty of 2bd rentals on zillow for under $2,500 with a short commute. Am I missing something here? Or does being a head chef mean you should be able to afford rent on top of the restaurant you serve?
When, and in what city, has that ever been the case?
I haven't been to Seattle, but in major cities space is at a major premium and many dwellings are tiny. This is offset by the amenities living in a prominent city have to offer.
Why does it matter if it’s ever been the case? Is that adequate justification why things shouldn’t be some way?
You're basically saying "it's fine because that's the way it has always been," which I don't think I need to explain is not a particularly compelling argument.
That sounds more of a problem of low wages than housing affordability. Also, in these times of title inflation, "head chef" could apply to many positions depending on the size of the restaurant.
> A quick search leads me to believe that head chef pay in Seattle typically ranges from about 90k-110k per year.
This doesn't sound right to me. Maybe it's true for the very fancy quasi-Michelin places like Canlis or Shiro's, but for a nice-but-average gastropub in Cap Hill it's probably much less.
> I can see that studios, though relatively expensive, range around $1.5-2k a month.
Is that all? That's crazy cheap by the standards of my area. Where I live (a smallish city in western US), the cheapest housing you can find, in the least desirable part of town, starts at $1200/mo.
I think 33% is very high. Also converting the value to % erases the fact that this is still a very high price for what you get in return. Perhaps it’s time to reevaluate the economics around housing - maybe betting against human lives doesn’t feel right. Also, with overpopulation and climate changes, access to housing and the need for relocation will drastically change the landscape of what one needs to do to put a proper roof over their head.
Warning, uncomfortable honesty ahead. I'd be betting against labor. With all the automation going on, and the "Huge" technological advancements I foresee probably < 20 years away, I don't see why I should do otherwise. I also don't see violent revolutions being a possibility with all the societal level monitoring and controls all countries are putting in place, so I'm betting on pure "capital" and "the means of production". The more I have of it, the more likely I'll be part of the upper strata of society when whatever dystopian tech hell hole we end up getting.
Of course, I won't step on others, and I'll help where my conscience requires me. But at the end of the day (or the end of the world) I am here to provide a safe future for my children, and perhaps secondary, my culture's children... but definitely not to save the world. The world is beyond saving at this point.
>The more I have of it [capital], the more likely I'll be part of the upper strata of society when whatever dystopian tech hell hole we end up getting.
Why do you conclude that money will keep you safe? Easy to hyperinflate currency, freeze bank accounts, seize gold, etc. Typically in a "violent revolution" you mentioned, power lies in the military.
Capital comes in many form, and money is just one. Probably most problematic in times of strife.
Assets, in particular high value, portable or hard to destroy ones, that are easy to defend, or skills that are very hard to replace without destroying you or their value.
Military is strong mostly due to the assets it has - obedient manpower and destructive hardware.
The problem is, however, that using these assets destroys value in the medium term, not creates.
A factory making guns is worth much more than guns themselves. People who know how to operate it, as well.
A working mine is worth more than a mountain.
Every conqueror wants submission and instead reaps destruction.
You only own said factory because government says you do and will enforce your ownership. A junta or communist party might not agree you own it anymore.
My point is, more things than not have dependency on government or legal system. In case of widespread automation via AGI, the rich are not safe. Probably drone swarms and wilderness survival are your best bet. Who would want to survive like a rat in such a world, though.
To quote the mars man: "all things considered with regard to AGI existential angst, I would prefer to be alive now to witness AGI than be alive in the past and not".
> I also don't see violent revolutions being a possibility with all the societal level monitoring and controls all countries are putting in place
In the world you're describing, they're not just possible, they're inevitable.
Consider the implications of automation taken to the extreme. Today, we have capitalists who own the means of production, and workers who use them to produce value. Workers don't get a fair slice of the pie that they make, but they get some of it at least because labor is needed for capital to be useful. The system is unfair overall and popularly perceived as such, but most people aren't pushed far enough that violent revolt would be rational and feasible.
But if means of production that don't require workers to operate them become dominant, and lots of workers become outright economically redundant, it will literally be a question of what do their children eat tomorrow. And, well, there's a lot more labor; whatever societal monitoring and control tech you devise, it won't help you if 90% of the population realize that the only way they won't starve is if they forcibly take what the other 10% has hoarded.
Not only that, but should that happen, the torches-and-pitchforks mob will target the people on the bottom of the upper class first, simply because they are more prominent in day-to-day interactions, live closer, can afford less security, and don't have ready access to escape routes (like a private plane or yacht). For some vivid descriptions of how this works out for the people who can't escape, read about the 1917 Russian revolution.
So unless you're already comfortably upper class - enough so to afford a bunker in New Zealand or similar arrangements - this doesn't sound like a good long-term survival strategy to me. Indeed, I would argue that, among white collar workers, it's precisely the high middle class people that have the most vested interest in "saving the world", in a sense of coming up with a new economic consensus that would prevent the above scenario - we have to, if we want a safe future for our families. And I don't think it is at all impossible for a political alliance of all labor across the board to push this change. Our societies are bad at democracy, generally speaking, but supermajorities still matter.
> But if means of production that don't require workers to operate them become dominant
if this happens, then production of the goods become even cheaper than before. Therefore, the availability becomes higher, and therefore, those who are not redundant would become richer, as they can now afford more, or pay less for what they consume, leaving extra for luxuries.
This would generate demand for new goods/services, which become new opportunities for those who have become redundant. And the cycle continues, until one day, every possible piece of work to be done is automated (ala, star trek).
Why would it become an opportunity, if you can take care of that new demand with more automation (produced using existing automation)? The "redundant" people become permanently redundant in this arrangement.
>>I think 33% is very high. Also converting the value to % erases the fact that this is still a very high price for what you get in return.
Guess it depends on how each person defines 'what you get in return'. It seems this chef values living in a particular expensive neighborhood in Seattle, presumably close to where s/he works - and s/he values that. The smallish apartment size is the tradeoff they make.
I would argue that the salary of 110k/yr isn't accurate. That is still entry - mid level tech in Seattle. Granted it has changed recently to be 125-135k, but I do find it hard that a head chef in Seattle would make 110k. 65-85K I can.
Capitol Hill (no one calls it Cap Hill.) is pricy, though $2,000 should find a studio easily, and no car is needed, it's a close knit enough neighborhood.
I had a coworker whose previous career had been as a pastry chef. She worked at a hotel and told me that she'd topped out for income and it was somewhere around $50k/year. After learning to program (and I think she did a boot camp in the earlier days) she started programming. She now programs (not, I think in the finance part of the company though) for an investment firm you've heard of. She is easily past 6 figures.
> I have a lot of cognitive dissonance associated with that.
Play the cards you're dealt.
Rate of capital is intended to exceed rate of labor. If you're from a working class background, its common to think more labor = more rate of labor .... and that's it. Not how the higher rate transitions into more capital earning more than the labor.
I'm a new immigrant to the US, and housing is my single biggest worry together with my work visa.
Our household income is north of 300k, but housing still seems unaffordable. It might sound like whining, but we only achieve this level of income recently, so our lifelong savings are in the low 6 figures. We got no assets or property abroad, and no family that can help us to get in the property ladder.
Even old, basic houses in our suburbs outside town go for ~$1M. I spend an inordinate amount of mental energy calculating how we can jump into the property ladder as quickly and safely as possible. My current plan involves saving for a few years and dump a good chunk of cash into a down payment; it doesn't seem we could ever afford a property otherwise.
I wonder how property prices affect "the american dream". It's baffling to me that I'm so worried about housing while making a top ~5% income.
Are you in the Bay Area? If so I saw an ad in SF for condos/1 bed flats starting at high $300k on the weekend. With recent zoning changes it might get easier for you soon.
Those condos are likely to be reserved as Below Market Rate housing stock for households making somewhere around the area median income (who, honestly, still can't afford them). You get the same incentive structure that the medicaid gap created.
It's very frustrating to be /in/ the gap. Bay Area homeowners act like the apocalypse is coming if increased supply means poors who /only/ make 100k are allowed to buy next to them. The horror. The humanity.
Still, we are a couple nearing our 40s, it seems insane to me that we need to "settle down" for a 1 bedroom flat while making ~3x the median local income.
Before Covid, there's sections of my city where you could either A) put 500K down + have 1M in outstanding mortgage (whatever that payment was) + 1600/month taxes + 1600/month condo fees or B) Rent a place in the same building for $4K/Month for similar sized apartment
It might be good investment when you sell it in a few years. But lets leave the specifics...
To live (with long term attachment and commitment) at a place, people want something that is decent and new-ish and much bigger than a 1B condo. Especially given how laborious and costly the buying and selling process.
> My current plan involves saving for a few years and dump a good chunk of cash into a down payment
That's exactly the on-paper ideal for how one comes to buy a home here. With rents soaking available income, and a high average debt load because of education costs, most young American's now struggle to see any non-negligible growth in their savings until later in life (if then). If you have substantial savings and anticipate growing it further in the near future, you're already winning the game. You're fine.
Most working class people die with savings below five figures. You should re-evaluate how good you're doing.
Of course, if you live in California or New York, you're basically broke, since the cost of living in those states is designed to keep people poor. But that's why people left those two states in droves over the last few years.
I don't think the parent post was punching down on working class people, but rather making the point that if housing is unaffordable for even someone with a 300k household income, it is truly catastrophic for people on the average wage.
Thank you for this comment, in case someone misunderstood my original post.
I'm from a working class family myself. My parents were factory workers, and they managed to buy a new 4 bed apartment in a new part of town and raise 3 children.
And yet I don't feel I'm doing materially better than my parents at my age. I definitely don't feel upper middle class even if my income suggest so. As you point out I can't imagine how people with more average incomes get by.
New York City. New York State, once you get outside the city, is a fairly average state with a lot of rural area that has moderate-to-low cost of living.
I would venture to say that more land area of California is in the "unaffordable to average people" range than that in New York, either as an absolute or as a percentage of the state.
I don't mean to be blunt, but if modest homes in your area are $1m, then you are in a VERY high-cost-of-living area and what you see here is not at all typical of the rest of the country. Where I live, a charming 1200sqft starter home in a blue collar neighborhood goes for $150-$200k.
Indeed. If your complaint is that you need to be a millionaire to get basic housing, it's because you live with other rich people. Since the overwhelming majority of humanity lives in houses with value far below 1M$, we can conclude that no-one really has to live in a place with only 1M$ houses, but you, for some reason, want to do so.
Living in a posh neighbourhood is a luxury, like Ferrari (which, by the way, costs much less) or a golden watch. If you want rich people lifestyle, then you should be prepared to pay rich people money for it.
> If your complaint is that you need to be a millionaire to get basic housing, it's because you live with other rich people.
Hawaii would like to have a word with you, unless you suggest every single non-rich local would just have to move to the mainland. I believe the cheapest home I've seen available, where the neighbors aren't cooking meth, is probably in the $500-600k range and going up.
The sad reality of it is such expensive neighborhoods as we see on east and west coasts, don't actually _feel_ luxurious - there's barely enough infrastructure and convenience associated with them, compared to living far away. The standard of living just isn't as high as the price.
Dude, this guy isn't talking about some posh high end part of Seattle. I just sold my "quaint 1200sqft starter house" in a remote South Seattle neighborhood for $675,000. It's 45+ minutes by transit to downtown. You know what I paid for that just 5 years earlier? $350,000.
This is the part of town where the grocery store has security guards all over the place, and the bank has thick bulletproof glass between you and the teller, and the transit options such big time. If you want to live anywhere remotely near where the jobs are, every house is near $1m+ now.
Conclude what you want, you're completely wrong and out of touch with current housing prices in a lot cities.
Going to the Safeway on Rainer is really on you. It does get dicey at night, but the day is okay.
One reason I would never live in "South Seattle" it's a literal food desert. The WinCo being in Kent is it's only saving grace, but even the QFC a bit north of the Safeway on Rainer - yeah.
The fun part is, all the good brands are routinely on sale/discounted heavily because the local population either does not like or can't afford it - e.g. cheeses. Always 20-40% discount on cheese.
Not so common in north outside Seattle limits, or even along the border - but yeah to go back to point -
"This is the part of town where the grocery store has security guards all over the place, and the bank has thick bulletproof glass between you and the teller, and the transit options such big time. If you want to live anywhere remotely near where the jobs are, every house is near $1m+ now."
Is why the good houses cost 1,000,000+. Community and neighborhood alongside school district.
Funny reading some comments. I currently live in the northern part of Kirkland, in a very average suburb.
This isn't rich people houses folks, these are middle (possibly lower middle) class houses. Most people here didn't pay 1M for their homes, they most likely paid a very affordable price many years ago. It's worth repeating that house prices increased an average of ~40% since the beginning of Covid. That should help to put prices on perspective.
There is some irony, though, in being in one of the most portable sectors of the economy but complaining about having to live “where the jobs are.” I think a lot more of it has to do with FOMO and wanting to live a particular tech lifestyle rather than needing to live in Washington or California to work in tech.
Other jobs literally have to move to continue their work in a particular industry. When a factory relocates, line workers need to move too. Nurses often have to move, or learn a new job. Sure, you may not have a high status FAANG job, but there’s way more remote work in tech than probably any other industry. I think it’s more an issue of managing expectations and wanting it all, than lack of opportunity to find a job in an area with a decent quality of life
“Rich” is highly relative. If someone lives in an area where everything costs on average twice as much as somewhere else, their money is effectively equivalent to half of what it would be somewhere else. The reality is they’re probably looking to afford a upper middle class lifestyle and make an upper middle class household income. They don’t sound “rich”.
On the other hand, wealthy is not quite as relative.
A person having a jet that costs $100 can do about as much with it as a person with one costing $100 billion.
Same goes with housing, mostly, with some obvious wealth breakpoints.
The confounder is location, as defined by time to travel and job availability.
Quantization artifacts dominate. Having access to basics vs not has a much bigger effect than either quality or quantity.
This is why having just one house is not an investment - you cannot afford to not have one unless you're so rich you could outright get multiples of them in some places, get there and live comfortably.
But why does everything cost twice as much as somewhere else? Perhaps living there itself is the wealth. Access to high paying jobs, rubbing shoulders with other high achievers, the weather, the beach, the mountains, year round fruits and vegetables, better labor laws etc.
As the saying goes “I would rather be dead in <X> than live in <Y>”.
Not really true. Urban areas suffer from this everywhere due to chronic lack of building (due to government policies mostly driven by nimbyism and similar factors). As a result absolute dumps on the bad side of town go for ridiculous sums.
I don't think you are in touch with the reality of the housing market right now. That "posh" neighbourhood that you're referring to is most likely where people were born and raised and the first place you want to buy a home. I live in Etobicoke, Canada. My neighbour across the street growing up recalled a time they built the houses in the neighbourhood and it was previously farm fields. My parents bought their house, a cottage, and paid both off quickly. Property is now selling for almost $2 million. In 2 generations it went from field to affordable to completely unaffordable, and Etobicoke is far from any kind of "rich people lifestyle".
I live in rural BFE utah, (Cedar City, 45 minutes east of St George). Average home prices here have gone from 200k to 400k in 3 years. I'm a freelance dev, earn maybe 80k, but that fluctuates a lot, and 400k is a tough number to swallow when it was 200k a few years back, I keep hoping it'll go back to those days, but I doubt it will.
Well, the jobs that pay the high incomes are in the very high-cost-of-living areas.
This is a huge problem for economic growth. If housing costs in the Bay Area were at US average, easily 10M more people could live here and get high paying jobs. But that path to a better life is very constrained.
Alternatively, those jobs are only high paying because the red are very people who can fill them solely because of housing and far less so about skill. If 10M people could move to the Bay Area tomorrow, those jobs would pay a lot less.
Also why people insisting on teleworking as a permanent option haven't really thought it through.
Back in the day, many of my friends and I lived a cool city life before we had kids. After kids we couldn't afford the city any more, and moved out to the boondocks with daily 3-4 hour round trip commutes that included cars, trains and subways. I know the problem is worse now, but city life being more expensive has always been a thing.
i'd say you're describing something that's pretty obvious on its face.
what's not obvious is this dynamic has been going on for over a century and a half in california and the greater american west in general. the white native reaction was at first the chinese exclusion act, then japanese internment / asset seizure.
the difference is this time the legacy white property owners are cashing out (cashing in?) in a huge way in both sales and rent as asians move in, so you can expect it to continue.
it's white flight, but financially inverted. in other words.... asian gentrification.
> The reason that I think the Bay Area and other tech hubs are so expensive is that asians with PHDs who fly in for their $500k/year machine learning tech job want to live around other asians. They do not want to live in rural Utah where you can get a nice house for $200k and remote work, but there are no asians around and there's probably more discrimination.
You can probably safely extrapolate that to all races who move to a foreign country. They tend to want to live amongst themselves. Not necessarily for racist reasons, but because it's a bit more familiar and you have an easier time communicating with others speaking your dialect, as well as having similar customs and social norms.
It really depends. In some countries, a desire to escape the "customs and social norms", or sometimes the current political trends, is one of the popular motivations to immigrate. I know quite a few Russian immigrants in US who consciously avoid areas with large proportion of compatriots and community events etc for this exact reason. More so since the war, of course, but it was already a thing when I moved here 12 years ago.
Another reason is the belief that there is a level of safety that comes with living with others in the same culture/religion/etc. not saying that it works out in practice, but it is something that holds some sway.
No we don't want to live with other asians. We want to live near our family (brothers / sisters / cousins) who are also in Tech. We will have no family in rural Utah.
same issue with my chinese wife alltough she doesnt has a PHD… We could work in lovely amazing places in france but we have to stay in the capital. yet with time it changes…
actually they (the asian you say) would face less discrimination but they just dont know it so they could be also racist by themselve (english is not my best, just trying to explain, of course they are not racist)
I see this in my street, 2 kebabs, one filled with black arabs with hallal meat, the other one being « american organic kebbab » and filled only by 35+ white people. it saddens me because ignorant me was thinking people will mix together at lunch…
> actually they (the asian you say) would face less discrimination but they just dont know it so they could be also racist by themselve (english is not my best, just trying to explain, of course they are not racist)
Thank you for speaking on our behalf and enlightening us on where we would/would not experience more/less racism.
Great, if only there were adequate jobs in those places, so we could all own homes without needing $300K annual family income.
The dissonance comes from the fact that a lot of hackernews readers make apparently high incomes, but the cost of living in their areas keeps them squarely working class.
The best example I can give is in the Bay Area. I lucked out with $2850/month to rent a 1400 square foot house in San Leandro. Except that I worked in South San Francisco, and my commute was 45 minutes to 90 minutes each way, every day. I looked into it, even did the math with average commute times and Health and Human Services housing cost data, and found that if I wanted to cut 15 minutes off of that commute would cost me an extra $1000 a month, or I'd lose the yard and the other bedroom. With a kid, a stay-at-home spouse (a lot cheaper than child care given wages for my wife's field in the bay area) and a dog, that was just a non-starter. I knew people who drove in from Vacaville or Tracey, every day, just to keep the housing prices within their means.
Prior to that experience, I honestly thought $140K a year was the best I could ever hope for. I was top 15% of individual wage earners in the country but I was considerably more stressed out than when I was making minimum wage at an office supply store in suburban Oregon.
The problem is, for an intellectual, it's important to live in an environment rich with mental talent. Bay Area is the intellectual capital of the world, and while Einstein could maintain his patent clerkship and have famous physicists visit him in Bern (http://norvig.com/performance-review.html) for the lesser minds in another era settling on another place is a loss.
So your argument is the only place to find intellectual people to hang out with is the Bay Area?
I grew up surrounded by literally rocket scientists and some of the top minds in biochemistry and mechanical engineering as neighbors. Incredibly intellectual people. I did not grow up in California.
Its not like the Bay Area is the only place with smart people.
I agree about as much with the idea that the Bay Area is the intellectual capital of the world as I do with the idea that "STEM PhDs per capita" is somehow a measure of intellect.
Hell, pockets of New Mexico have a higher number of PhDs per capita. The idea that SV is the intellectual center of the universe makes it sound like someone has been inside the bubble too long.
(And that’s not a knock on NM. I being it up as an example of an area that isn’t rarely bright up in these conversational circles)
That assumption shows a very SV-centric mindset. Intellectual property is largely an legal economic construct. The PhDs in places like Los Alamos generally work more on classified projects. Your point is like saying the NSA must not have many smart people working there because they have no patents. Intellectual capital can create societal value being just dollars and cents.
For any city making the claim, there would be someone claiming it ridiculous.
There aren't many places where very smart people from all over the world move. New York is one, London used to be one, Bay Area is one. There are a lot of smart people in the bay area.
You're surrounded by the intellectuals who aren't clever enough to figure out how to surround themselves with brilliant people without paying the SF premium.
>The problem is, for an intellectual, it's important to live in an environment rich with mental talent.
My eyes rolled straight into the back of my head.
I agree that an 'intellectual' (as a social class construct) might require similar socially oriented individuals to feel like they're among equals. I have no respect for such 'intellectuals'. I have a great deal of respect for people who are curious about the world around them and love to make new and wonderful things and think novel ideas.
Yeah, mine too. It's hard for me to take these kinds of arguments seriously in 2023. I'm willing to concede that geographic proximity was necessary for collaborative intellectual work, but the internet has changed that milieu. I also don't think it was true pre-internet, as Einstein himself showed.
Linus Torvalds didn't need to be in the Bay Area of California when he created the Linux kernel, yet it didn't happen without a massive amount of collaboration enabled by the internet. Solzhenitsyn, after he emigrated to the USA after getting deported by the Soviet Union, continued his intellectual work and writing in Cavendish, Vermont which was and is extremely isolated. And that was pre-internet!
No, it's the - the - intellectual capital of the world. I have reasons to think that, but you see here is not a good place for that discussion at the moment, too heated.
Maybe :) but to show compelling reasons would still take time and space, and also, I suspect, an effort to unlatch from a formed opinion. We're all just humans.
In a more lightweight form - what would you, as somebody interested in the matter, consider good criteria for "being the intellectual capital of the world" and what place would fit them?
> what would you, as somebody interested in the matter, consider good criteria for "being the intellectual capital of the world" and what place would fit them?
I'd say such a place would need to be geared toward minimizing anything that could hinder intellectual capacity. The SF Bay Area (as I learned firsthand) is not such a place; the constant stress of financial insecurity does not bode well for intellectual pursuits. I don't know if any such place really exists, for pretty much the same reason - certainly not here in the US.
In short, it'd need to be someplace where people could engage in intellectual pursuits for their own sake, and where the results of those pursuits are freely available to everyone - no censorship, no profit motives, no IP restrictions, nothing except the free creation and exchange of knowledge.
I firmly believe that any city which institutes a land value tax and uses it to fund a citizens' dividend / universal basic income is much more likely to become an intellectual capital than a city which does not. Land speculation is the major contributor to socioeconomic inequality and consequently the major obstacle preventing cities from being truly amenable to intellectual pursuits (rather than the current status quo of financial pursuits). Directly addressing it - by requiring landowners to internalize the opportunity costs they otherwise externalize onto the rest of society - is IMO the most crucial step toward allowing people to engage in intellectual pursuits without fear of failure and without being bound by concerns like profitability.
Culturally, San Francisco, Seattle, and Boston strike me as good candidates once they address the above; the first of those three to implement LVT+UBI is the one I'd bet on becoming the "intellectual capital of the world". I'm personally hoping Reno evolves into such a candidate, but that's one hell of a long shot :)
I live in Reno. A past employer insisted that I relocate from Reno to SF for a new position, so I did.
What I learned very quickly is that it's rather difficult to stay intellectually engaged when even a six-figure salary is paycheck-to-paycheck living in a studio apartment.
I moved back to Reno shortly before COVID, and since doing so I've found myself to be much more productive. The "intellectual capital of the world" can shove it.
I was living happily in Wyoming when my employer said "move to California, or find another job" which, if you don't know the Wyoming economy, translated to "leave Wyoming for us, leave Wyoming for somebody else, or go work in a coal mine".
The wages in SV price in the cost of living to a certain extent. I’m assuming if the remote work pattern continues, we can’t be expected to make coastal salaries while living in rural Wyoming any more that we would expect a FAANG company to pay an overseas employee SV salaries.
I work in embedded systems, firmware and hardware. Unfortunately, I've got a solid decade of professional development before I can justify going freelance competitively. The thousands of dollars in test equipment is quite the barrier.
But even if I wasn't in a field that requires time spent hands-on with the physical hardware, a lot of companies (my former employer in the Bay Area amongst them) insist on in-person work for most positions, even if the position doesn't really require it. And so it goes, people making $60K in Wichita or wherever glibly say "I can get a house for $180K, you make 5 times what I make, complaining about million dollar homes is just a rich person lacking perspective". Even if you do the math and show that holy cow, homes are expensive in tech hubs, even considering the median income, all people see is how high the median income, and assume that there's no real problem.
I get that. Wyoming sure can be beautiful and full of certain opportunities but embedded software isn't often one of those.
There are markets other than California and Wyoming though. I'm sure you're aware, but its always good to compare compensation versus living expenses. Almost every time I've been given a chance to move it meant I'd be trading my lifestyle in a negative direction (from my perspective) and smaller savings in the end even if the salary was over 2x my current. Everyone has their own priorities in life though, I hope you find a way to achieve yours.
I ended up in the Seattle area, and I'm pretty happy with it.
I'm still frustrated by the high price of housing, because I fundamentally agree with the thesis of the article: housing, especially single-family housing, should not be expected to appreciate faster than inflation. To that end, so long as my house's worth when the mortgage is paid off (on a 30-year mortgage) is about double when I first bought it, I'll be happy.
I don't share the article's glum outlook. I think if enough people can be convinced that houses aren't, and shouldn't be, viewed as money-makers but just, you know, houses, this problem can be solved. I understand that's a pretty radical and utopia position to take though.
In effect, your example demonstrates that a key effect of USA tech industry is taking vast amounts of customers' and tech investors' money and handing it over to California landlords / real estate investors.
Don’t you think the amount of remote work has changed that?
I think part of the problem is the presumed loss aversion of moving from a $300k salary to, say, a $175k one that is remote but allows for a better standard of living (particularly for families).
You say this as if getting a fully remote job that pays $175k is easy to come by… I’d guess that most people making $300k in high-priced areas would take this paycut to $175k every day of the week and twice on sunday if they were offered
This just doesn't make sense to me. The employer can hire two instead of one while getting the same performance. Supposing we're not talking about 8+ hours timezone difference, it's much more valuable than just having someone physically in the office!
I keep wanting to think this way as well, but then I am reminded that there are more costs for a position than just the salary most of the time. Lots of administrative overhead. I don't know actual numbers, but it's probably more of a conversion of one position into two for 30-40% of the salary at best.
If any industry is poised well to make relatively high pay anywhere, it’s tech. It’s speculation on my part, but I assume tech has one of the highest remote work percentages.
This is a phenomenon that is prevalent in other industries, without that remote work luxury. Oil and gas workers get paid handsomely but often have to live near the worksite. Even then, rent is astronomical without all the luxuries that SV offers.
A lot of jobs are in high cost of living areas. The reason they're high cost of living is because there are jobs there, the demand to live there is high, and they haven't built nearly enough housing. Some bay area municipalities have essentially not added any housing in the last 50 years. They made it illegal, because incumbent property owners don't want more people to be allowed to live there.
And it's not just the bay area. The populations of Cambridge and Boston have gone down since 1950, because a series of laws were passed that put tight restrictions on residential construction that reduced the allowed density and effectively made almost all of the existing housing stock illegal (but it was grandfathered in) and anything more dense than that, like even building a 5 story residential building in a lot zoned for 4 stories, when that lot is surrounded by 4 and 5 story buildings, is an expensive, long process of arguing with the zoning board and going through arbitrarily subjective design review processes.
I would rather Google and Facebook and the other mega-hire companies would build up outside the bay area, rather than continuing to pack more people in.
The Bay Area isn’t remotely “packed in.” It’s good that the state of California is starting to take steps to prevent its current inhabitants from pulling the ladder up behind them.
There’s not an acre of open land between San Jose and SF that doesn’t have a building structure on it. Compare with most other US states where land is plentiful and they could use the economic boost of additional residents.
I believe GP was describing the [Land Value Tax](https://en.wikipedia.org/wiki/Land_value_tax). The idea being that a government invests in the infrastructure that improves the value of the land and because it's _public_ money funding those improvements, the property taxes should reflect the value provided.
No one would be forcing people to live a certain way, just forcing them to either pay for the privilege of living in an area that was granted public funding for improved infrastructure, or live somewhere else that received less public investment.
As a thought experiment, I find it easiest to understand the arguments for the Land Value Tax if you imagine a local government building a new subway line. Obviously, the existing homes around the new stops would have their property values increased. After all, many commute times were just cut in half! The local government is interested in more people living near those lines, more people == more tax revenue after all. If the local government had a Land Value Tax implemented, the infrastructure improvements they made to the area would automatically be included in the calculation for the taxes owed by the existing homeowners near the new subway stops. $1M/yr may sound insane, and it would be for a single-family home, but because of the new subway line, local developers are lining up to purchase the homes around that line in order to build new higher-density homes. The existing homeowners can either choose to pay the high tax and enjoy their short commute paid for by other taxpayers, or sell at a nice profit to developers. New higher-density homes get built, more taxpayers move in, the city can now build more infrastructure to improve the city!
But now where did the idea that the land that is privately owned being subsidized by the public? That’s an arbitrary add on that doesn’t reflect any reality in the US. So again, it’s changing the system to match another’s ideals on how people should live.
Rural areas where neighbors are miles apart tend not to be luxurious and in fact are very cheap. You can get 100s if acres of undeveloped land for next to nothing. It’s a very “city” idea that large quantities of land should be expensive. If it’s valuable to you then why not buy now while it’s cheap?
You are correct that all the easily buildable land is filled in, however it is mostly with suburb. San Jose is like 94% single family homes although that likely has decreased slightly since that statistic came out.
I have a question that is tangentially related to the OP, but not based on the irrationality of the housing market. What I want to know is: given the way things are today, how do you identify and locate neighbourhoods, towns, and cities where housing will appreciate in value the most? IOW, what is the data you need to make a good "buy low, sell high" decision?
Demand:
Interest rates(good luck predicting that)
Median income(predictable)
School districts (good schools attract people who care about that... as you can imagine that's a spiral one way or the other)
Supply:
Current inventory
Potential inventory
There's also a lot of open area in the yards and air 10-30ft above single-family homes. There are lot of property owners who'd be willing to demolish the SFH on their lot and build a lowrise multi-unit building with 2-6 units, and the only thing stopping them is that it is illegal to do this.
Sf is dense but SF is and has been for 70 years about 800k people. The bay area overall is around 7.7 million and the greater bay area is 10 million. Places like San Jose which take up a lot of the bay area are almost all suburb. That means even with long commutes to those high paying jobs houses are still 2+ million.
Not quite that many or long, though reasonably close.
SF hit 5000k in the 1920 census (506,676), 634k in 1930 and 1940, 775k in 1950k, which was its peak until the 2000 census, at 776k.
The first census besting 800k was 2010, and as of 2020, 873k.
Wikipedia shows the 2021 population as 815,201, a loss of 58,764 (6.72%). I'd heard the population had dropped, but that's a pretty significant town's worth of exits. The city of San Rafael in Marin Country, for example had 61,271 residents --- SF lost very nearly that.
You are correct but the NIMBYs will stop at nothing to prevent new housing because they think it will make their homes go down in value. The market for SFHs is completely different from the market for MFHs / apartments.
They are. Durham, NC; Pittsburgh, PH; Atlanta. They already have facilities or will grow. Remote will also have an impact. Housing prices will still grow with more tech jobs, though certain areas can absorb that impact better than others. The remote push from COVID also drew a lot of housing increases across the country.
They said sf which is strictly different than the bay area as it only has about 1/10th the total population and a significantly smaller fraction of the land. If you want to go from the silicon valley to sf its 45-50 miles.
Not correct, that post was about San Francisco only. The Bay Area is much, much larger, and has a density of ~1000 per sq mi. If the entire Bay Area were as dense as SF (not even close), that would be a megacity dwarfing NYC and Tokyo several times over.
The population keeps growing, everywhere needs to take their fair share of that increase. People who want to live in a more spread-out area have the whole country to choose from; there are only a handful of big cities, we should be letting those who want to build more homes in them.
$300k is a very very good family income and is in the top 90% if not more. Even if you just got the job you should be able to afford a house. $1m for an old suburban house is very high for most places in the US.
The worry is understandable. As someone who's been in a similar situation before, the worry with a work visa and housing tends to go away one way or another. Either you get out of a work visa at some point, or you accept that you will never receive a green card in your productive years and you jump into the property market with that risk anyway.
I'm not sure if I believe this. The places you "want" to live may cost 1M+, but I refuse to believe that if you just go another 15 minutes out (or add 15 mins to your commute), you can't get something for 2/3 of the price.
In the greater Seattle area you need to travel quite far out to cut the price by any significant amount. There are some very basic suburban houses in Bellevue, Kirkland and Issaquah selling for upwards of $2 million, and those are a good 15-20 miles away from the city itself.
If you don’t believe it, pull up Zillow or Redfin and set a price threshold under $1M and see how many listings instantly disappear. If you want a good laugh, take a look at what’s left.
So don't buy. $300K is enough to easily afford rent. And if you compare what you pay to rent vs cost to own equivalent in the Bay Area, in most places renting is actually cheaper.
With 300k income you should be able to save a 200k/20% down payment in a year, especially if you have 6 figures already. With todays rates you looking at 70k/year mortgage and <25% of your income.
If you take your numbers at face value and don't try to cut costs, that is still 60k savings per year and would take 2 years instead of 1 to hit a down payment.
If you take the mortgage interest tax deduction, you will be spending about 35k/yr less on taxes and have more disposable income relative than renting at 60k/yr rent VS (70k mortgage - 35k less taxes).
If two years is too long for the road map, you can rent a room in Palo Alto for 15k/yr or a 1Br apartment for 30k/yr.
If you are paying a 50% tax rate, I would also look at tax avoidance strategies. Maxing out the 401k and HSAs to get that down. Each person can always borrow 50k back from the 401 account to put toward the down payment.
Cost of living is definitely much bigger than you make it to be. Just paying rent, car, bills, etc. easily cost 5k a month. A good chunk of my comp is stocks, which could go up or down with time, so a bit of a wildcard there. My wife is a freelancer, and she can bring home anywhere from 1k-10k each month depending on the market (and market is REALLY bad now), so can't count on that.
I might be able to save all my stocks, pray that they don't go down any further, and cash all of them for a down payment. Then I have to pray to not have any unexpected emergency or lose my job, since I dumped most of my life savings in a down payment.
I can certainly empathize, living in the Bay Area on ~half the family income and having bought at the peak last year.
All I can say is that no option will be risk free and all involve uncomfortable tradeoffs. Every choice has an opportunity cost, but they are mostly financial.
5k/mo including rent actually sounds reasonably frugal in a HCOL city, about as low as my partner and I wanted to go in SF. My only recommendation would be to pick a number for your emergency fund and pick a goal for your down payment. If you have a concrete goal, you can see yourself getting closer, unlike some nebulous idea. I considered my 401k part of my emergency fund and wanted a year of mortgage because I would spend that before selling the house if was laid off. The banks will tell you how much they are willing to loan based on stock comp and variable freelance work so you my not even have the choice to worry about that.
The worst that can happen is you lose your house and all your money, haha.
It can start to push up that way if you count 20-ish% in Federal income taxes, 10-13% in state income taxes, 6.25% (on the first $150k for social security). 4.5% for Medicare, a 3.8% surcharge on any capital gains or non-qualified dividends. Add in a 10% sales tax and plenty of misc fees (another name for a tax) and while you might not get to 50% exactly, it's a pretty good approximation.
California marginal income tax rates for a single person on $300k are less than 10%. On the other hand, federal rates are higher than 20%. You don't pay 10% sales tax unless you're using your entire income (uh, including the stuff that was taxed away?) on items that the sales tax applies to (and you certainly aren't).
If you're a single person in California, at $300k, if you have no special tax situation, you'll pay a bit less than 40% tax. If you're married, significantly less than that.
No, it is basically 215K post taxes. Taxes are marginal. 300K couple faces ~28% _effective_ tax rate in California. Even marginal tax rate is far from the 50% you claim - it is ~36%. They will have to be making 2M or higher in order to be paying 50% effective rate.
300k isn't 300k, as we all know. Probably want to drop 40k in 401k, maybe some in an HSA, probably paying for health insurance. Then the Fed and potentially state/city want their share, which is about a third if you're lucky, closer to half if you're not. Then you're paying outrageous rents, transportation/parking costs, etc.
It's easy for me to believe that a family making 300k in Seattle could be living paycheck to paycheck without being extravagant. Definitely not frugal, though, either.
>It's easy for me to believe that a family making 300k in Seattle could be living paycheck to paycheck without being extravagant
This is incredibly out of touch with what it means to actually live paycheck to paycheck. 300k is at a minimum 160k post tax which is a little over 13k a month
I believe that anyone at any income can be living paycheck to paycheck or even growing their debt.
However, having lived through it, I think more of the challenge is prioritization and sticker shock for high earners, opposed to financial impossibility. For example, you are allowed to take a year off contributing to your 401k to buy a house if it is a higher priority to you, or simply borrow the down payment from the 401k. Smart people often get bogged down in opportunity costs and wanting it all.
> With 300k income you should be able to save a 200k/20% down payment in a year
A 300K income is well below 200K net, so even if they could live with zero expenses, they can't save 200k in a year. But of course they do have expenses, so it'd be a lot less than that.
The irony is that the influx of millions of foreigners to urban areas increases the demand for existing housing stock whilst the same people who are for millions of immigrants are against new housing built. The price pressure will only be upwards and benefits the existing landlords (and the big funds who own property like Carlyle and BlackRock and are big political donors).
> I spend an inordinate amount of mental energy calculating how we can jump into the property ladder as quickly and safely as possible
You buy a cheap house far away from where you work, and rent it to someone. Let them pay your mortgage and before you know it, you've got enough equity to put towards another house. Rinse and repeat.
Is this path still actually viable for HCOL areas?
I remember having a conversation with a real estate developer in SF in 2021. They said that this used to be the path to owning in places like SF, but that it’s no longer a viable option.
If you're renting out the house, does it need to be in a HCOL area and does it need to be just one house? It goes against the idea of 'housing as investment being a negative thing' though.
I'd say not right this instant, given interest rates. But if you really want to, look for condos out by, like, American Canyon or Vallejo or similarly far out locations. 20% down for a $300k place is $60k. Which, while being a good chunk of change, isn't as far out of reach as the $200k down payment for a million dollar condo in SF.
Before you do the investment property thing though, make sure being a property manager is truely how you want to spend your life. Investing money into financial instruments is a lot less work these days, what with robo advisors platforms (eg wealthfront, betterment) providing easy places to invest from.
I doubt it. I said "far away" meaning buy in a low cost of living area. Especially one that is popular and growing. Although it's convenient to live in your first property investment, it's not a requirement. Rent near work as cheaply as possible but very likely in a neighborhood where you can't afford to buy. And buy somewhere else.
This sounds like the kind of high risk gamble that relies on prices continuously going up to work out. It might work out for some and hit it big, or the market can go belly up and leave you in ruin.
I'm also a bit weary of having to manage properties in far flung locations. I rather use a property manager, who would eat into the profits.
It's not high risk. It does not depend on prices going up. It depends on renters paying most or all of your mortgage.
It just runs itself if you get good renters. That's where you put all the time and effort upfront.
Yes it has some risk. All investments do. I answered the question about how you get on the property ladder if you can't afford local prices. There might be other ways too.
> It might work out for some and hit it big, or the market can go belly up and leave you in ruin
No different from living in a house you buy. Except what I recommended is a little safer. If you lose your local job because the local economy collapses, you're now stuck with a house you cannot sell, cannot rent, and that ties you to the area. Ouch!
With a rental far away, if that economy collapses it's already a small mortgage so no big deal. If your local economy collapses, you can move out of your local expensive rental and look for work elsewhere. Or even move into the cheap rental investment you just bought if that economy is doing well. Buying far away spreads your risk and is safer than buying to live in near your work.
You can get cheaper housing further east from Seattle, past Issaquah (Preston, Snoqualmie, North Bend, Fall City, Carnation etc) if 40-50 minute commute is acceptable. Snoqualmie in particular is seeing a lot of new development in the past few years because of this.
Agree, but with the caveat that the prices might not come down at all. But still I think that's ok. What will come down are the interest rates, and right now you can make 5+% risk-free on savings, so it makes sense to keep renting and saving.
it's interesting that so many here are quick to jump to the generalization that there's some sort of national problem here, when it's really just the big urban centers (and some other outliers) that have the problem. I just bought a three-bedroom house for $300k here in the Black Hills of South Dakota, where housing prices are (relatively) skyrocketing due to the local Air Force base expanding, yet this was entirely achievable with my modest <$70k salary working as a programmer for the local public school district. the United States is a huge country with tons of options for places to live, and I've never understood the apparent need to live in big population centers, even after trying it out myself for some years.
if the big cities are making it miserable to live there if your income isn't ridiculously massive, then why stay? why not give one of the other bazillion places to live in the US a try? sure, you may have to deal with less-than-optimally-temperate weather. sure, you may not have access to a rich variety of ethnic dining options. sure, you may not have access to all sorts of trendy places to shop/dine/be entertained.
but why is trading all of that away to have a decent place to live so unthinkable for so many? I've rented for the past 13 years, and now I finally have a home to call my own, and I wouldn't trade that for anything.
People don't seem to understand supply vs. demand. More people are moving to cities. Cities have onerous zoning laws. The construction industry is still skittish after 2008's meltdown. Enormous demand && limited supply in cities == high prices. My hometown in the midwest is selling homes for $100/sqft. Dallas suburbs are $150/sqft. Manhattan is over $2000/sqft.
My daughter recently moved from Vancouver BC (which sucks for housing) to Seattle, which sucks for housing.
Despite having a good university degree and a decent-paying white-collar job, she gets by in Seattle thanks to couch surfing and pet-sitting. It beats the alternative -- sharing with numerous flaky/crazy roommates.
My dad worked 33 years as a bridge builder. I would meet random people who would tell me they were in awe of his skill. It took me 3 years or so out of a community college with an IT degree to match his pay.
It sounds like you are experiencing some guilt about the differences in your financial stability compared to your friend who is working hard as a head chef. It's important to recognize that the way our society values certain jobs and industries is not always fair or reflective of the hard work and dedication that individuals put into their work. One way to alleviate some of that guilt might be to give back to your community in ways that help support those who are not as fortunate.
> While the rich are more likely to own homes, tons of middle class and poor people also bought homes and planned their lives under the assumption that housing prices would go up. Tanking housing prices would destroy their trust in the system that they bet everything on.
This is pretty much the crux of it. High housing prices could be "fixed" almost overnight, but for almost every citizen of the first world, their house is the single biggest investment they will ever make in their life. You'd be destroying everyone's retirement plans and there'd be major economic repercussions.
But there's also the second-order problem which is the people who realize that governments will never let the value of housing decrease because of the above, so you have upper middle class people owning "investment homes", or foreign investors buying homes they never intend to live in (or, in many cities, never even bother renting out), or even corporations like BlackRock buying up houses because they know it's such a safe investment.
My property taxes are about a third of my total payment every month, where the other two thirds are the actual mortgage. The property taxes are over 50% of what my total rent was before I got a house, which was not low. I'm happy with my town's management, who seems to use their budget quite well, but property taxes can really get you.
I think taxes should be increased on those with investment homes, second homes, mansions, and the income and wealth of the wealthy rather than just nickel and diming the middle class.
Does your local government provide a breakdown of property taxes? If they do, it's well worth checking, because it can become one of those things where you don't like the total amount, but you find each element of it to be reasonable.
Just looking at my latest report on my property tax bill (which was about $3k USD for 2022):
- about 45% of the amount went to local city administration, which includes civic services like police, fire, etc.; the city had a nearly balanced budget for the year (<$1k US away from balanced)
- about 55% of the amount went to the local school board (who are directly voted on by the city's populace and can directly levy property taxes) for teachers, administrators, building maintenance, etc.; the school board did not have a balanced budget on account of bond issues for new construction in anticipation of ongoing new housing construction
- 3% went to the local library (whose board is partially appointed by the mayor and partially self-selected), which had a small budget surplus
I'll take a look into that. Thanks for the suggestion! As I said, I'm pretty happy with my town's management so far. The town I rented in had far worse management, but it is a town of landlords and not really homeowners.
yes I agree. I was always told, and believed "a house is for living in, not an investment". It figures in my retirement plans in the sense of not having to pay rent on my house as I will own it. That is really positive because it also means not having to pay tax on the money that I would have to have to pay rent.
But I bought it because I wanted to own it and live in it, not to sell and make money off.
Having said that it's obvious that the availability of cheap money has jacked up housing costs to a stupid level, and it's obvious that when it unwinds there is going to be a big mess. What stops it from unwinding - immigration... because as soon as immigration stops the pressure will go out of the housing market and a-la Japan houses will get cheap.
Don't underestimate the inflationary potential of fiat currency. Maybe it'll just stay the same price, but everything else still gets relatively more expensive.
I assume it’s more people who’ve bought a house, sell it to downsize once the kids have moved out and use the excess towards their retirement (to make up the difference between the low amount they’ve been able to scrape together over the years)
What I think would help at least is if prices stopped increasing. That way, people who buy now at least won't lose money, but the expectation that valuations will continue to go up will have to taper off.
Also, in the case of high-cost coastal cities, I don't think the issue is trust in government propping up prices, as much as it's trust that demand will continue to outpace supply for the next several years at least.
That isn't an equilibrium. If the market formed the expectations that property values were going to stop increasing, then property values would drop - because the current price bakes in the assumption that they're going to keep increasing.
In the short term, sure. I'm being a little idealistic, but I don't think it's impossible for housing markets to find a new stable-ish level without lots of people losing their shirts in the process.
Where I lived in Italy, people certainly purchase houses, but they don't expect them to have crazy returns like in the US. It's just a way to not pay rent and have something that you can hang on to even if there's inflation or other funny business (something that Italy has seen a lot of).
People even invest in, say, apartments, but it's a similar story: they expect them to hold their value and pay themselves off over a number of years. There are certainly returns on it, but they are seen as steady, long term investments.
Where I live in Oregon, during the most recent boom, there were houses "earning" more than 100,000 a year, just sitting there. That's more than the median household.
Yeah, it's a bit apples to oranges, but still, it's really out of kilter.
Long term, it'd be healthiest if housing were 'boring', neither gaining or losing much. That'd also facilitate people swapping out different housing at different stages of their lives without worrying about timing the market.
For instance, there are a lot of people getting older in the town I live in. Are they always going to want to or be able to shovel snow? Mow their lawns? Maybe a townhouse or a condo would be a better alternative that lets them stay in their general neighborhood.
There is lots of boring housing in the US. It is not going to be in the Willamette Valley in Oregon. Just like houses in the Alps in Italy versus less desirable places in Italy.
Hopefully this year, Washington will follow in Oregon's footsteps and re-legalize things like 4-plexes, or maybe go even further in big cities like Seattle.
Basically, "(re)legalize housing", along with things like corner stores and neighborhood commercial like corner stores and barber shops.
Check out upstate NY. I found a <20 year old 4000sqft home, >40 acres, gigabit fiber internet, in ground pool, outbuildings, and a backup generator for well under $500k. Even with the higher taxes here vs the west coast, I'm ahead.
Only caveats are you need to enjoy seclusion (check) and be good at remote employment (this year will be my 10 year anniversary of being 100% remote). Energy costs are a bit high, so I installed 20 kW of solar and will be switching to an air-sourced heat pump for heating & cooling. Even adding these costs to the purchase price results in paying less.
That's nice if you can make it work, it's a quick solution to the housing problem. But for a lot of people being close to the economic powerhouse areas of the country is a win, and we should figure out how to make that work for them. And, long term, migrating further and further out is just going to delay the problem, because it'll arrive eventually unless they're in complete economic free fall.
Another aspect is that being near family while raising your children is immensely helpful. Housing prices have gone 30-40x since my parents bought, for example. Salaries have definitely not increased at a similar pace!
> Where I lived in Italy, people certainly purchase houses, but they don't expect them to have crazy returns like in the US. It's just a way to not pay rent and have something that you can hang on to even if there's inflation or other funny business (something that Italy has seen a lot of).
Agreed, we didn't buy house as an investment vehicle, we bought it for living expenses consistency over time. It's the speculators that ruin any market.
> You'd be destroying everyone's retirement plans and there'd be major economic repercussions
I think that exaggerates it. Most retirees aren't profiting from the home they own if they live in it. The "income" from it is just imputed rent. So if the housing supply increases dramatically, that imputed rent drops, but it doesn't matter since the cost of housing drops as well.
What would change for them? They still need to pay that down in either case, don't they?
Granted, they can sell at some point and make a 3x their investment. But by then, buying another house will also be 3x, and rent will be 5x, so they're kind of back where they started.
The point is that if housing prices tank, they won't have made 3x on their investment. They are talking about the case where you sell below what you paid.
But they'd also pay much less for their next house, making up for it. If we all take a 90% pay cut but all products now cost 90% less, nothing really changes, does it?
I guess the exception would be if they sold and then moved to a different area with a very different housing market (or left the country), but at least for domestic migration, I suppose the more rural and the cheaper the houses are, the worse the necessities for the elderly will be, e.g. doctors will be far away, no home nursing services, no local shopping.
First, The idea behind housing as a retirement plan is that eventually you cash out that retirement plan, not take it to the Grave. If you never sell, or buy only equivalently priced houses, it's not really helping with your retirement.
Second, if you buy a house for a million dollars and sell it for 500K, it doesn't matter if you can buy an equivalent house for 500K, you are still 500k in the hole on the balance sheet.
What do you do when you cash out though, live in a van? Any house you'll then buy will be at the same price level.
And yeah, sure, you'll be down 500k in nominal value, but you'll exchange one house for the value of another. If that's 500k or 1m doesn't really matter, if you've lived in that house, you'll need another place to live at. Of course this changes drastically if it was a house you bought only for investment purposes, with no intention of living in it. But at that point, it's pure speculation, and I don't see why we should protected that asset class more than stocks or baseball trading cards.
>What do you do when you cash out though, live in a van? Any house you'll then buy will be at the same price level.
You rent or move somewhere with lower COL.
If selling your house is how you plan to pay for costs in retirement like food, healthcare, or leisure, you must must cash out at some point. If you have 500k less to spend on food, healthcare, or leisure, it will suck.
If you dont plan to sell your house for the rest of your life, the market value isn't relevant to your retirement. In that case you are right that it doesn't really matter.
Many (most?) retirement plans involve downsizing from the large home in a (sub)urban area where they raised children and worked for most of their life to a lower-cost area in a lower-cost house. If my SFH is worth $1,000,000 and my retirement plan involves selling and moving to a $500,000 condo, that's $500,000 of money in my retirement account. If politicians implemented a policy that slashed housing prices in half, suddenly I'm going from $500k->$250k, which means I only have $250k from the downsizing. This is a significant impact to my retirement plan.
On the other hand, we’ve made it so new condos are so hard to get built that a 2 bedroom condo in a walkable neighborhood (which you likely need when you retire) is the same or more expensive than a 4 bedroom suburban home. In order to be able to downsize, you need the smaller unit to be less expensive than your current home, and in many markets right now that’s barely, if at all, the case.
> a walkable neighborhood (which you likely need when you retire)
Really don't agree with this -- retiree doesn't mean "decrepit". You're still very capable of driving. My own parents recently retired to a rural area in the US, in a neighborhood with other retirees, where they're a 5 minute drive from the nearest grocery store and a 30 minute drive from the nearest "city" of ~20k people.
It's very walkable in the sense that there are sidewalks and parks, but not in the sense of living in a downtown core with public transit access to essential services.
I don't think it's safe to bank entirely on driving-as-transportation in old age. My grandparents and my partner's grandparents all live(d) in unwalkable places in the US, and it was hell on their families when they slowly lost the ability to drive. You somehow have to either drive them around yourself (expensive and a massive time commitment), move them in with you, or move them into a retirement community when they eventually lose the ability to drive safely around others. It's inevitable!
Most people are not downsizing by such massive amounts though. The median home price is only $470kish and people aren’t going to accept massive quality of life drop..I.e. very few people are selling $470k homes to buy $150k homes. Thus the gains will be much smaller..
and with a $1M house should have a sizeable 401k specifically so they’re not relying literally on the housing market to retire. Any number of events could cause the same scenario you mentioned.. so I’m pretty much any realistic scenario for most people, tax deferred investments dwarf the small boost you get from buying a slightly cheaper house.
And having more $250k houses now means it’s easier for everyone else to build up a retirement plan.
> This is pretty much the crux of it. High housing prices could be "fixed" almost overnight, but for almost every citizen of the first world, their house is the single biggest investment they will ever make in their life. You'd be destroying everyone's retirement plans and there'd be major economic repercussions.
I wonder if one way out would be to 1) build government rental-housing projects again, to fill the immediate housing need, and 2) implement other policies to increase home-building (but only enough to keep price increases below inflation).
One serious problem would be the association of housing projects with crime and poverty, but maybe that could be addressed by putting police stations on the first floor (or something) and eminent-domaining them into upscale areas over luxury housing.
Yes but 1 is a huge, massive, often insurmountable political battle because there are enough single-issue voters who will turn on any politician who threatens to enable “undesirable” types to share their neighborhood. And 2 is blocked by people who think their aesthetic preferences are more important than others ability to survive (often the same people as blocking 1).
It’s not really the crime that matters, at the core, but rather the perception of “other”. The single-issue anti-housing people don’t want police in their neighborhoods, they want police in other people’s neighborhoods keeping those people out of the “nice” neighborhoods.
Sadly, most people do in fact want more housing for people who are less well off than them, even if it means they have to run shoulders with strangers. But these are the people who work and don’t have time to show up to community meetings about a new apartment going up, and don’t usually decide who to vote for based on neighborhood aesthetics.
Because the problem is mostly political, most of the solution is political as well: identify, train and support local politicians who will vote to build more housing, and help them write new laws that do so. And convince them (by consistently winning at the ballot box) that the anti-housing crowd is loud but not actually large, so there’s little danger in losing their votes.
It's a cultural thing too. We're brainwashed to look down on government housing simply because of the racist practices of the past. It wouldn't even have to be government funded necessarily. The problem could be fixed with non-market housing similar to Europe, where the building costs are fulfilled by a loan, and the HOA or housing entity is setup without the goal of making a profit off the rent, setting rental rates at a margin to cover only the loan and necessary expenses.
Seems like it would be simpler to fix this with regulation on housing "investment". Don't allow large corporations to buy up giant counts of single family homes (taking them off the market and jacking up real estate bubbles). Basically we need to stop the predatory act of spending billions to buy many thousands of houses out of the market just to turn around and rent them to those who can no longer afford to buy in the market they're effectively cornering. Some builders are now building whole neighborhoods full of single-family homes that are being sold directly to rental investment companies from the outset.
My off the cuff (and thus probably naive) thought would be to charge progressive federal taxes on home ownership which progresses based on the unit count owned by an entity. Whether you're an individual or a corporation: your first house is free (0% federal tax). If you own two houses, you pay 3% on the value (of both houses) every year for the right to own them. Maybe at three houses it's already at 10%, and by the time you get to ~10 houses owned, it caps out at 100% tax on the value every year, making large-scale home investing completely unprofitable. The funds from this new tax could be set aside specifically to fund affordable housing programs of some kind.
Under such a scheme, we'd still have rising prices from true single-owner-occupiers under the existing system, but it would slow down and be less-bubbly, at least in the national average, and builders will eventually build new homes to equilibrium, where regulations allow them to. Some moderately-wealthy people could probably still own a second vacation home, or 2-3 rental properties. Some extremely wealthy people might still own 10+ different homes for personal/family use at exorbitant tax cost, but at least the taxes from such scenarios go towards fixing things.
Not where I live. Housing prices have exploded, like everywhere else, but it's not people's retirement plan. We've got state and employer pensions (from a fund not owned by the employer).
So it's not that. Look elsewhere. E.g. at AirBnB, and at ridiculous (both low and high) salaries.
> This is pretty much the crux of it. High housing prices could be "fixed" almost overnight
This is a crazy thing to state with almost no justification. How could housing prices be fixed overnight? Please don't say "zoning changes." Plenty of places without zoning issues have really expensive real estate.
it will make houses less attractive investment vehicle: people will start selling rental houses and downsize to smaller units, which will create additional supply on the market.
Also, in case of California for example, if prop13 got eliminated, it will hit mostly existing house owners, and not new ones.
How is it exactly a retirement plan if your house goes up 200% over N years, but so do all of your neighbor's homes? You aren't changing your relative position to them.
If all homes increase in value by the same percentage, you generate a lot of cash by owning for a long time and then downsizing, or moving to a location which started out with cheaper property (historically, this is the "retire to Florida" strategy).
Or, you're going to pass on your home to your children, so it becomes part of the value of your estate. Or if you don't have any children, you can just reverse mortgage and get cash out that way. It's just like any other illiquid asset.
Tax on non-primary properties solves this if you can get it past vested interests.
Reasonable tax breaks for your primary or only home, and none for second homes / investments you let out.
That gives a valve to perform qualitative easing on the housing market whenever you need to, and is not uncommon in other parts of the world.
EDIT: Having read the responses below I’ve realised I didn’t clearly word what I meant here, that’s my bad. I mean a holding taxation rather than CGT. Essentially, an elevated annual property tax on non-primary properties that would have the effect of penalising investors relative to those seeking a home to live in.
However, you don't have to if you die and pass the property down to your spouse and/or children. This is the step-up in basis and is key to building generational wealth in the US.
> This is the step-up in basis and is key to building generational wealth in the US.
Yes, but for most people, that's not really a benefit. It's possible to exclude the first few hundred thousand of capital gains taxes on a primary residence anyway. So even without the step-up basis, the tax burden on these properties would be tiny.
Property taxes are a much more significant form of taxation than capital gains. And would be even without any preferential treatment.
The problem with this approach is the impact it has on areas that have availability problems, and where there is more demand than supply for housing (think big cities that are experiencing condo booms).
In those high-demand areas, owners will simply pass those tax costs down to their tenants, and the rents prices will go up, leading to even less affordability.
In my mind, I was separating out homes for rent from investment and second/third/so-on homes. Although, it seems tough to separate those out since investment homes and non-primary homes are often rented out, although sometimes not permanently or continuously as homes specifically treated as rental properties. It needs some more thought, but I don't like the no holds barred approach that takes place right now. I in general don't like homes being treated as a business and investments, and I think it should be discouraged. Apartment complexes are a little different. Even there though, renters need better protection. One of my friend's rent just increased by 25%. It's ridiculous.
They might not be able to find someone to pay that rent. In which case they might be forced to sell. Ideally someone who doesn't own a home will purchase it and won't have to pay the tax that caused the original owner to sell.
If you make the costs of real estate investment so onerous that it’s only attractive to owner-occupants then it becomes far harder for your landlord to exploit you as a tenant, as the option for you to buy much more cheaply will be there even if you choose never to do so.
Is it really anyone's fault but their own? I don't recall housing being offered as a low/no-risk investment with guaranteed profits. Financial blogs, podcasts, and Reddit commenters might have shared that view.
Are there any examples of mortgage issuers or home builders advertising housing as an investment?
If most people in the system are making similar mistakes, then the system is directing them there. Saying it's their fault does nothing but ensure it keeps happening.
Whether or not they make the mistake isn't the point. If they were encouraged by a specific entity to treat it as an investment, then the blame should be placed on that entity. Regulations should be put in place to prevent that (I suspect they already are). Otherwise, they have to take the L.
I expect banks and home builders are careful with how they communicate with customers.
It's less about placing fault on the purchaser. It's more that there is no one else to blame. Never-ending bail-outs only hurt future generations. I wish I went into deep debt to buy a house a lot sooner. I didn't because I knew I couldn't afford it.
That depends significantly on state law w.r.t anti-deficiency rules and so on. California is a non-recourse state where a mortgage lender can only repossess the home, but there are other states where the lender can foreclose and then come after you for the difference in case of a short sale.
I don’t understand this. There are a lot of places in the US, and certainly globally, where housing prices decrease. There are also plenty of folks who got soaked in 2008 and lost everything, and no one helped them. How precisely does “the government” do this house price propping up? Via loan guarantees to ensure liquidity in the mortgage market? These make houses affordable and accessible to most people. Without loan guarantees people would still be buying houses all cash, and through loans for high credit quality, but primarily by high value entities who can afford to buy and rent many properties. In this world housing would largely be corporate owned rental units. Prices alone wouldn’t be keeping people out, but rather lack of loan liquidity would ensure a lack of lending. What keeps housing values high isn’t loan liquidity, it’s the ability to convert property into cash flow via rentals. Ultimately to stay risk neutral in pricing the cash flow option for renting is what supports home values.
But I’ve seen nothing that guarantees anyone pricing continues to rise or that their home investment will make them rich. What it does do is force savings by allocating a portion of their loan to principal growth. Even if it doesn’t grow at all or even declines, it’ll be worth a lot more later than the latte they forwent 20 years ago.
All the economic research I’ve read says repealing zoning laws induced no meaningful decrease in home price. That makes sense - home builders build to maximize profit and aren’t in the business of devaluing property they buy to develop. They develop it in a way that appreciates prices to improve their margins. But like this piece there seems to be some view that market forces are shaped by immoral behavior on someone’s part, rather than simply that’s how things work in a world of scarcity.
We will see how things go in California! Maybe the anti NIMBY dream of style sky high SRO arcologies will come true and everyone will be living in communal peace in their bleak windowless cement efficiency. My bet is prices continue to rise for as long as people move into the region and developers don’t buy into the egalitarian view of affordable housing any more than they ever have.
In virtually the whole of Canada and the United States, dense, walkable neighborhoods are illegal. Even if you get rid of one type of zoning, other types remain. For example, one of the Texas cities has no zoning laws, but it does have mandatory parking minimums, mandatory street setbacks, etc. Basically the city must be car oriented and low density, even if you can add commercial stuff in residential zones.
Japan is the one place in the world that freely allows density, and Tokyo has not seen rising prices. Note that though Japan's population is shrinking, Tokyo's is rising. Unlike North America, new housing production has kept up with population growth.
Thanks for pointing out that prices are rising, I may have misspoke. But the key point is that relative to other major cities Tokyo's prices are not rising anywhere near as fast. The chart from 2000 to 2019 was basically flat, and even from the lowest point maybe a ~15% rise
I expect even the current rise is dwarfed by rises in comparable cities
I think you make a good point about places in the US seeing falling prices.
It is obviously incorrect to say that prices are guaranteed to rise but I don’t think that’s what anyone claims.
I think the general claim is that policies around housing tend to prop prices up by restricting supply (zoning, permitting, higher building costs due to various regulations like stricter codes or safety standards as well as stuff like parking requirements, giving old properties lower taxes) or subsidising demand (loan guarantees, buyer assistance, etc). That is, governments choose housing policies that keep prices high at cost to taxpayers instead of policies that reduce house prices, which is what is meant about governments not wanting them to fall. Also, if house prices fall and the people think the government is responsible, the government probably gets voted out.
The reason that loan assistance for people (ie not including companies) causes house prices to go up is that it means for a given house price, mortgage payments will be lower so more people will be able to afford that price. Instead people tend to pay for the most they can afford and (for a non-silly definition of afford) and so they end up paying more because they are competing for the same houses.
On the loans, if you make loans less liquid and less accessible then fewer people will own homes because they can’t leverage into a house the can afford over 30 years but not this year. It likely won’t decrease the cost of housing because people still need housing, and will instead have to rent. There is enough capital on earth that those with capital will want that cash flow. See my point on rent : mortgage cash flow arbitrage. This would not lead to cheaper housing, just less people owning housing vs renting and more housing owned by fewer people - mostly corporations that have vast access to leverage at rates considerably more favorable. That seems like lose lose to me.
Zoning IMO is a red herring. Developers have no interest in driving property prices down with their marginal developments. They will develop in a way that sees prices stable or rise, which is favorable to them as property investors. People betting zoning law repeals will magically result in vast Soviet style SRO arcologies housing everyone affordably will be disappointed that the Victorian single family home torn down and redeveloped as a duplex is developed as a four story duplex with twice as much space, with each duplex roughly the same price as the original single family home. There also won’t be a massive selling of existing property because, well, NIMBYs like where they live. Ultimately we will just have less Victorians that will never be rebuilt and a handful more luxury duplexes.
This misses the two biggest problems with prices going down:
1) if losses are small, people will refuse to move / sell, reducing housing stock.
2) the really, really big problem is if prices go down enough that people have to start taking big losses when selling, or if it stops making sense to pay the mortgage. People would instead default on the mortgages, sending our economy into a 2008-like crash. This would lead to less construction (again) and more housing capture by the wealthiest people and corporations.
The biggest problem we have right now is insufficient supply. Builders won't build if they can't profit; if they can't sell at relatively high prices, they can't profit.
That's the problem isn't it? In most countries in the world (including many in the "first world") a house is something that solidifies your place in the community and is handed down from one generation to the next. What dollar value it can command isn't even a concern for people living in them.
And it's not just the home you own. For decades now, the tax and financial system, at least in the US, has incentivized being a landlord even if you are below middle class. Everything you put into a rental is deductible, low down payments, rising rents made it very, very easy to at least break even against a mortgage payment.
Make a multiplier on property tax based on number of properties owned. Make it robust against corporations spinning off one-shell-per-properly. Make it revenue neutral so the increased tax revenue from landlord-companies and airbnb superhosts subsidizes tax rates for homes that are full time primary residence.
> You'd be destroying everyone's retirement plans and there'd be major economic repercussions.
Investments have risks. If you invested most of your net worth into something that's a necessity for decent life without any thought into how shifting societal priorities may impact that investment, then you made a poor investment choice.
The solution there seems to be you only get to profit from your primary house that you can prove you have lived in for x years. Otherwise, all profit goes to the government. That would stop investments and such in a hurry.
This fact cannot be ignored, but we must also grapple with the question of whether betting your retirement on rising home prices is a decision that should be underwritten by the public at large.
My answer is no. I want to live in a world where goods and services are abundant and cheap, including housing. I own a house and benefit from the rise in prices but I'm under no illusion that this is beneficial to society. On the contrary, the rising prices are a calamity.
If we care about the wellbeing of our fellow people, we should desire that homes become cheap.
This doesn't even touch on the fact that you will always require housing, so you can never truly liquidate your primary residence. At best, you can borrow against it. At worst, you sell it once and rejoin the rental market.
This is actually why as a homeowner, I'm not particularly bothered by the value of my house dropping.
Don't get me wrong, it's not exactly fun to watch its price tag drop, but the supposed dollar value of the house isn't "real" unless I'm looking to sell, which I'm not going to be doing unless I'm changing living arrangements, whether that be buying a different house or renting. Its value to me is that it's 1) a home and 2) a semi-fixed cost that won't ever be dramatically changing rather than increasing several percent each year.
One problem with the value dropping (assuming you're still paying off the mortgage): lenders can freak out and call the entire mortgage due and foreclose on your home. They did this extensively after the subprime mortgage issue.
Borrowing against it is a fantastic idea, what's wrong with that? People really need to learn that their assets can be used to generate additional returns. Otherwise you just have money sitting there, not doing anything. Where is the fun in that?
Nothing's wrong with it, but it's a bit orthogonal as viewing the property itself as an investment. Instead it's acting as guarantee against other investments.
I think one problem with this is that you paying banks twice (mortgage, home equity loans) for that money from your own property. And at almost 10% APR each.
It's really hard to reliably make over 10% on an investment.
Buying a house is an investment. You're making a bet that worker productivity will improve near you. After all, what is the value of land? Some land can be farmed or house a factory. But usually, when we talk about residential real estate, we're talking about land that houses workers. So, the value of that land is directly proportional to the economic value those workers can provide. We refer to "economic value provided by workers" as "economic productivity." As the economic productivity of each worker rises, so does the value of the land. Of course, market conditions and government incentives can distort the market is weird ways. But ultimately, the price of real estate is going up because its underlying value is going up. You can't change that.
That won't help things, ultimately. Wages have been essentially flat since the 70s. Productivity has increased massively. Real estate was always going to become more unaffordable without real wages increasing.
> bet that worker productivity will improve near you
There's also a huge positive externality of people actually having skin in the game in that regard - all the sudden you have an incentive to making sure that productivity improvement actually happens.
This is one of the key points the article didn't make; the structures depreciate and the land (for the most part) appreciates because we have positive population and economic growth.
Urban areas experience an increase in population density with population and economic growth and this drives the higher demand for land.
Most likely the way to control individual housing costs is systematically lowering the cost of building vertically including regulatory and zoning changes as well as new construction methods.
There is a bit of a land-value cliff that needs to be smoothed over by socializing the costs as well; as single-family homes are replaced by highrises the immediate property value of SFH drops, and I think this is because housing is priced over ~10 year periods by residents and more instantaneously by the real estate market, so there's a dip in unrealized value for residents who can't sell their home for what it would be worth in their neighborhood until its value as raw land has reached the same level by being squeezed between overly-dense highrises and suburbia, effectively forming a very slow-moving barrier to densification. SFH owners want suburbia, they paid for it, and can only sell at the price they want to folks who can get the same. They're incentivized to wait it out because they already have a home which is also a huge investment. A financial instrument to buy out entire neighborhoods on the expectation of profits from higher-density housing sounds like the solution, and the risk probably needs to be borne partially by the government, and maybe a real-estate tax credit for SFH neighborhoods experiencing lower prices from new nearby dense construction which incentives them to vote for the zoning changes.
This would makes sense if everyone was self-employed. But the demand side of housing is decided by salaries which do not necessarily follow productivity.
> But now, if she buys a home, she needs housing prices to keep going up to make her decision financially sound.
The analysis from 1, 2, and 3 seem obviously financially bad. Because they stop at a particular point in time. The point of buying over renting, when using a fixed-APR mortgage, is to lock in a monthly rate (that will eventually sunset to only the cost of maintenance and taxes). And peace of mind that only an act of god or being fired will force you to move. This is never guaranteed with rent, unless you have one of those multi-decade leases. And good luck finding a house with a multi-decade lease.
For an investing analogy, buying a house is like buying an annuity. Not buying the market. When a person buys an annuity they are still considered to be "investing".
I honestly don't understand why this wasn't always obvious. A good investment is one that increases in value (aka cost) dramatically. Dramatic increases in the cost of housing might have negative consequences. What part of this requires deep insight to see?
Housing should be a _National_ investment - meaning the nations GDP should be invested into the wellbeing, housing and quality of life of the populous.
Not an investment avenue for the corporate/hedge/elite money holders.
Housing as an "investment" is a tool for extracting crippling debt from the populous as a means of behavioral control through financial stress.
I haven't played with the NY times calc, but is the following correct:
Housing prices only keep pace with inflation. America realizes it totally forgot about a few million homes it built, greatly expanding supply. Housing prices rise only 2%. Alice is much, much worse off for buying. In total, buying costs ~$1.75M, where renting would have cost her ~$1.3M. Because her finances were tied up in the house while the home value has gone up so little, Alice has minimal savings. Her daughter receives some financial aid, but takes on hundreds of thousands of student loan debt to go to college.
Yes, in 18 years Alice will spend $1.75M, but she'll also own a big share or all of the house. On the other side when renting she ends owning nothing after 18 years. Or is the calculator taking in consideration the selling price of the house?
Principal is only part of the cash flow. You're also paying for interest, insurance, taxes, and maintenance, which the renter does not, and these are also money down the drain. In my experience, owning a house in many (most?) areas is a losing proposition unless you assume that housing prices rise at an unreasonable rate for a long period of time. However, that's exactly what's happened.
Despite the interest, insurance, taxes, and maintenance when paying a mortgage the majority or at least a big part of your payment goes to pay off the house - so after 15 or 20 or 30 years you own a very expensive house. When renting all the money you pay goes down the drain and in 30 years you own nothing.
My mortgage (including property tax and insurance) is 1300 of which 700 goes to principal. So the money going down the drain is around 600. A comparable rental would be at least 1500. So basically I can save 800 per month for maintenance. Even if prices don’t go up or even go down this is still a good deal. Especially since rents will probably keep rising while my mortgage will be flat for the next 14 years and then go to 0.
This equation doesn’t work in California where buying makes financial sense only if house prices keep going up. But in a lot of other areas buying a house is a very good deal.
Nice thing about housing is you can continually lock in the lowest interest rate and keep it locked for 30 years. So the example in the article of 7% interest may drop to 3.5% if the fed needs to get the economy going again, allowing you to refinance.
It's practically impossible for US society to get out of treating housing as an investment. Americans believe in home ownership as evidence of prudence (hard work + savings), acumen (housing always goes up so it's smart to buy a house!), and sense of security and achievement. These ideas aren't going to change any time soon. That's the ideological component. Home-owners also protect their investments because they're a very large group (including practically every politician) and constitute the donor class.
It's currently hard to take small steps toward stabilizing housing prices and reducing homelessness. Housing is easy to talk about, just like inequality. But it's hard to see evidence of much political will to solve these problems.
It will take a lot more housing inaccessibility, especially if it hits the currently affluent class.
> But it's hard to see evidence of much political will to solve these problems.
Disagree. The YIMBY movement is picking up steam in a big way. Here in Oregon, we re-legalized 4-plexes in our cities and the woman responsible, Tina Kotek, is now our governor. She's pushing another big housing bill. Our mayor in the city I live in regularly attends our YIMBY group meetups.
It's gotten bad enough in enough places that there's a lot of interest in reform.
I mean good luck but the YIMBY movement is a very pro investor movement.
Decrepit old SFH selling for $1.6 million turned into a 4 plex here in Vancouver would see each unit in the 4 plex selling for $1.4+ million (maybe $1.1 for the basement suite). Friend bought in a converted old place 780 sqft attic suite $940k. It doesn't really make stuff affordable.
It was sold here as "the missing middle" and they basically dragged a mouse over huge washes of neighbourhoods like SimCity and said you could do 5 unit conversions. Fixer-upper SFH become gut out conversion SFH and are priced based on the investment of the 5plex conversion and what those can be sold for.
Just because someplace is so deep in the housing debt hole doesn't mean the approach isn't a good one.
Making more of something when you have a shortage is the way to fix it.
4 nice, brand new 1.4 million dollar homes is 1) more housing and 2) cheaper than a decrepit 1.6 million dollar home. It sounds like progress even if it hasn't fixed all the problems.
Sounds like they need to just keep going down that path of legalizing housing. Where I lived in Italy, it was pretty normal to have 6/8/10 home buildings, and that was in a town of maybe 200K without any serious geographic constraints.
BTW, nothing saying you can't also do some things to directly help people who can't afford a million dollar home. Subsidized housing is good too - just that it's tough to create enough of it, so we need to fix the broken market too.
New homes are going to be built at market prices. The market prices are high, but the new homes will push them down.
A few years ago, $800k homes were consistently opposed on the basis that they aren't affordable to anyone, so not many were built. Now because so few were built, houses cost $1.6M.
Will we repeat the same mistake, and oppose $1.4M homes on the basis that they aren't affordable?
In 10 years we might be having the same discussion about $3M homes.
That's great to see! I haven't been aware of this news.
I do hope it doesn't become one more of those red state vs blue state ideological lines. "Come to Texas, we won't build a condo complex next to your American Dreams-style picket fence."
Before you go smashing things, you could do some of the basics like electing pro-housing people, show up at public hearings to say 'yes!' to housing, write letters to the editor and all that kind of thing.
That sounds extreme. Rates go up, go down, but it does not seem quite as dire as online rhetoric would have you believe [0]. Certainly we can try to encourage the trends to head back up, but violence won't accomplish that.
Calls to violence are unacceptable. This is irresponsible and dangerous rhetoric. Society is not so broken as to justify violent revolution. This will not make any living person's life better. Participate in your local government. If you must, move somewhere with laws that better align with your values, or where you have a better chance of driving the change you want to see. Violence is not the answer.
Technically he's right. Land conflicts between large groups of people have typically been solved by violence throughout history. But good luck getting a population with strong passports and $50k GDP per capita to revolt. If this was any time before WW2 the drums of war would definitely have been beating though
The comment is rightfully flagged now but there was nothing correct about it. It was a clear call to violence, not a warning. That’s unacceptable.
Your interpretation is a distortion of history. Nations go to war for land, not the populace of functional societies. The danger in this rhetoric is that it assumes our system of government has failed, which it hasn’t. The only threat is exactly this type of apathy.
I am optimistic that if we can at least stop prices from increasing faster than growth in real wages, at least the rest of the economy can eventually catch up.
> It will take a lot more housing inaccessibility, especially if it hits the currently affluent class.
This is already happening. The millennial children of the youngest upper-middle-class Baby Boomers are bordering on being unable to afford the kinds of houses that they grew up in, at the same ages as their parents, without significant intergenerational financial assistance that their parents did not need or have access to.
I'd agree, it's a structural problem. The mortgage interest deduction is my favorite example. It is a hugely regressive tax break which has been targeted across the political spectrum. Seriously, when was the last time you can remember the Cato Institute agreeing with Barack Obama on tax policy?
But I can't see how it ever goes away: it would definitely increase taxes on voters, so what politician signs up for it? It'll probably turn into a culture war third rail like SALT deductions first.
The SALT tax cap in the Trump-era tax reform was both progressive (less state subsidies for property taxes on high-value homes), and hit Democratic-leaning states harder (since they tend to have higher home prices). So movement toward a less regressive taxing regime. But I don't expect an across-the-board reduction in the mortgage interest deduction. The same ideological components to home ownership are at play. And construction is a very large employer as well.
> It's practically impossible for US society to get out of treating housing as an investment
All the reasons you listed are valid and true, but I don't think that changes anything.
Yes, individuals see housing as a sign of success, and security and happiness. That's great. Companies should not be allowed to invest in housing, only individuals. Everything after the 1st home should be heavily, heavily taxed to seriously impact owning multiple homes to the point it makes no sense.
If a person wants to invest in real estate, there is plenty of commercial real estate for that purpose. Leave houses for people that need a place to live.
School districts are connected to housing. As long as schools are “locally funded”, you will always have a rush for houses in the better schools.
The problem with housing is lack of public transport as well. You could get houses farther away from the city. But the lack it public transport makes commutes terrible.
If you want a great school district things get really pricey. But if you’re single or don’t have kids I’m not sure if you want to pay the taxes.
More than anything if we need to improve housing I would focus on public transport more than anything else.
School districts being connected to housing, and therefore to class, is one of the other features of America that seem permanent. Schools have become more segregated since an integration peak in the 70s. This issue too, has deep ideological roots: the right of parents to provide for their children, to raise them the way they wish. We're the only major country that does this.
Also, aesthetically, you have to admit, most YIMBY cities are ugly AF compared to NIMBY cities. Aesthetics are very important to human beings; people love pretty things.
Maybe some look good in high density cities in select areas of Europe which are helped by well preserved ancient architecture, but that's not replicable elsewhere. Go to more modern, large, genuine YIMBY cities where anything goes like Tokyo and Lagos and they are quite an eyesore
I don't think anybody has ever described Lagos as a "YIMBY city" with a straight face.
the imposition of an American context doesn't even make any sense in the first place, considering how differently land and land ownership works in Nigeria.
It really depends on urban density. I'm only familiar with big cities in the USA.
There's few new buildings in the West Village in Manhattan, with beautiful red-brick townhomes that fetch multi-millions. And new ones tend to adhere to some of the features of existing buildings. On the other hand, Seattle has some exquisite old homes with stunning curb appeal - and a whole lot of plain old looking buildings that were probably the cheaply made ones in the 1950s. So age is only one factor.
The new construction in SLU or the UDistrict in Seattle or Williamsburg in NYC is all cookie-cutter boxy panels - not particularly pleasing to most I think. I can't think of new parts of any town I've been to in the US I've loved. Happy to hear if anyone has any though!
Most would agree Berlin isn't as pretty as Cologne.
I couldn't possibly disagree more. _Nothing_ is less attractive than sprawl. Rural areas are beautiful. Dense cities are beautiful. The inbetweens are ugly.
The city where I live is full of buildings which are all like "this was built by a %landlord name% as a means to support his retirement". This was ~150 years ago.
Didn't money printing of 2019-2022 show that UBI will cause price inflation, lower velocity of money, and thus cause all prices to inflate across the board?
UBI sounds great, but once fully in play across a population - market forces cause base prices to increase to meet UBI for a near net zero benefit.
Losing your house and being forced to move because of a mistake in assessed value or someone else's specualtive bid is as much of feature as losing all your money when you mistype a bitcoin address.
Tesla moving to Texas? It would take me about 3 days to syndicate enough money to displace half of downtown Austin.
Explain to me how SALSA doesn't immediately result in really wealthy people bidding up the value of all of the real property in an area simply to turn around and rent it to the people they force-bought it from.
RE was always a "meh" investment (nominal with inflation) - with growth due to prior demographic waves; The past 2008+, bubble interest rates and money printing have have created a difference in real returns and nominal ones. Which have subsided.
Realize the investment underpinning before taking on the investment. RE of a personal residence is rarely a good idea... buy cheap personal homes (small liabilities), and then use the excess to buy rental homes (income asset + depreciation).
Watching boomers pop champagne corks as their homes went astronomically high and their children were priced out of ever living in the middle class neighborhoods they grew up in in CA, and now watching them eat that equity down with reverse mortgages, has made me permanently disgusted with the US housing market.
The only solution I can see is absolute carnage in the housing market, and probably the entire financial system failing. And I'm kind of rooting for that, even though I own a home and financial assets: I have children, and I'd like for them to not be in perpetual two-earners + debt slavery in order to afford what their grand parents were able to afford on one salary.
> The only solution I can see is absolute carnage in the housing market, and probably the entire financial system failing. And I'm kind of rooting for that, even though I own a home and financial assets: I have children, and I'd like for them to not be in perpetual two-earners + debt slavery in order to afford what their grand parents were able to afford on one salary.
Exactly my thoughts as well and I am in the same situation too (homeowner + kids). I don't want it to happen given the probable turmoil and violence that will come along with it, but at this point I feel like it's the only thing that will bring change.
Housing has most under performed the general market (SP500 for generalities). Thus if your home appreciates at ~3%/yr, market at ~5-9%/yr.... boomers could have increased their wealth 3-5% more yr without homes.
As long as land has different levels of productivity it's impossible to not make housing an investment. The only solution are exponentially increasing taxes on land, in order to ensure that land usage is always used in tandem with the potential productivity (which has its own issues), or make most housing nationalized like Singapore.
In the end, for better or for worse, the issue is a dissonance between the struggle of renters and political activity. Homeowners do not make up the majority of the electorate (though interestingly the majority of households "own" the household in which they reside). You'd think that renters would the laws in their areas reflect their will, but alas, renters have low voter turnout.
Inaccessibility of housing is one of those problems that will inevitably be solved. Societies must choose which solution they prefer and the US is certainly choosing a particularly undesirable solution right now.
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[ 1.1 ms ] story [ 414 ms ] threadBut then the main issue with real estate prices is the limited supply side, which for the most part has no reason to be
In other words, we must learn how to improve the economy without turning the cities into antlers.
Most martial arts schools with ties to China have stories of expatriation or of practicing in the dark in basements.
All those houses bought in Vancouver aren't just about financial investments, they're also a potential bolt-hole if things get ugly again.
As a Chinese-American, whose family and friends all profited greatly from China's rise, I do wonder, how much of that profit was just being lucky enough to support the "winning team," and how much blood was shed on the other side.
I guess the only true mindset is a neutral one.
In China, things have come back. People who escaped were invited back with promises of better treatment, even given platforms (eg, martial arts) but who knows what we Earthlings have lost from people who didn't. Biomechanics, biology, art, technology, philosophy...
The buyers would have to fund ALL the infra to power, water, feed such ghost city homes, and where will they work?
I used to work with a guy in SF that had a consultancy that would bring chinese 'students' on tours of the US to various universities to have them pick where they wanted to go to school.
These were the children of chinese oligarchs - and they would land in SFO with luggage full of cash - and, not knowing how things worked in the US, would jusr bribe their way through every transaction at ~$10,000 a time...
The chinese oligarchs own more of america than you may know.
https://fred.stlouisfed.org/series/JPNCPIHOUAINMEI
We need to use a state or federal authority to take the power of municipalities in the same way the builders remedy works.
For instance, there are laws that prevent certain stores (alcohol sales, for example) from being within X miles of a school. There are cities where the central location where the central location of the town where all commerce happens and where the school is is less than a square mile.
Unless you're proposing legislating the removal or limiting of zoning on the federal level, it seems like an incredibly bad idea.
I have stayed and visited japan for the last 35 years, and find all of the "Tokyo is so affordable and buildable" is hilarious. The breathless articles I read about it leave out fundamental aspects (the incredible density, the absolute destruction 70 years ago, the corruption [especially in Shinjuku], the size of the "livable apartments", the need to rebuild anything from before 1980 for earthquake safety, that youth population falling by half, the stagnation of wages), and the fact that most people who can leave Tokyo to raise children do (even if it means commuting 2hrs each way every day on a train).
This just doesn't match anywhere in the US or frankly almost anywhere else in the world. I know 2 people who actually still live in Tokyo. One is a 28 year old single foreigner, and the other is stuck in a 100 year mortgage with their extended family. All the rest moved.
Is that why the population is 14M - 34M in the metro? Bigger than every American city and about the size of all of Canada combined? They just can't get out to where it should by all accounts be cheaper? Is there a fence or something?
Because ALL of the jobs are in Tokyo (or Osaka, or Fukuoka). Note that Chiba city is growing faster than Tokyo and it's a suburb (same with Tsukuba)! Shin-Yokohama is getting too expensive.
It's not just housing. Look at bare land or abandoned buildings in CA. Those also grew by similar amounts or even more! Why develop it when it goes up in value? Why not own multiple empty homes when they "only" go up in price. Well, welcome to higher interest rates and likely a less deflationary world (deglobalization) with non-wage inflation that prevents the Fed put.
Everything you point out isn’t driven by interest rates but instead by artificial supply constraints on housing.
https://tradingeconomics.com/japan/interest-rate
No housing is not a financial asset in Japan.
However, China where they have built massive quantities of housing, it is an exceptionally expensive financialized asset, because that is where lending went.
It's not going to be a US-style giant house with a green lawn, but it isn't some dystopian hole in the wall or giant share-house like non-wealthy San Francisco residents are stuck in.
You can fire up Netflix and watch some of "The Full-Time Wife Escapist" on there to see a normal small apartment in action. It's tiny by US standards, but people can live there comfortably.
Said "breathless articles" usually just grab some "rate of price increase" chart benchmarked to the most severe recession in recent decades and start celebrating just because Tokyo also has good housing policy. But in trying to advocate for good policy elsewhere, they just end up championing national recession, international stagnation, depressed wage growth, and more.
see charts & data etc here: https://www.conradbastable.com/essays/japans-housing-crisis-...
I lived in Japan so I understand where you're coming from...but the fact that "fleeters" are even a thing should tell you they are doing something right with housing prices. Can you imagine an American person in Seattle deciding to just work 30 hours at a conbini and being able to rent a studio?
A couple things:
1. Sure, Tokyo is dense and can be kinda soul crushing...but the option of having a roof even at incredibly low income is better than none.
2. Zoning to allow residential to be on top of business, and allowing smaller apartments and 2 very obvious things that make it literally "easier to build" in Japan than the US.
This isn't even just a Tokyo thing. When I lived in a pretty nice suburb in Okinawa a lot of my friends were paying like 300-400$ usd for rent, and I rarely ever saw homeless people. I live in Honolulu now and there's homeless everywhere and good luck finding any studio under $1300. There's a pretty obvious difference.
That probably means something of a couple hundred ft2, not 1000. However, the reasons for homelessness in Hawaii vs Tokyo (I've actually seen some in the last 5 years!) has a lot to do with weather, social acceptance, and income from panhandling (which doesn't happen in Tokyo).
Also, a lot of the homeless I see outside (not the hidden homeless who have one or more jobs) in the US have problems that would lead to incarceration in Japan (drug use, untreated mental illness). At the same time I've known older people in Japan who would be in memory care in the US who were helped by the community to remain living in their houses in Japan. It is much safer in Japan, but at the same time any activity that makes it feel less safe is much more likely to be "policed".
Otherwise, simone.brunozzi at gmail if you're willing to :)
Owning should be cheaper than renting in the long run for the same reason it is cheaper to cook at home than eating out.
Savings by owning should be commensurate with the risk taken, cost of upkeep, and time value of money.
Similarly, value gains from land appreciation are taxed at the time of sale. IF I pay annual taxes on land appreciation, I should be exempt from taxes at the point of sale, otherwise I am paying for that appreciation twice.
I feel it in the same way that I would not want my ability to beath air to depend on some social utilitarian function that could decide it is better used elsewhere.
I suppose you might view this as anti-social.
Society is what defines the concept of land ownership and actively protects the ownership of land, so it's not possible to remove a dependency of the latter on the former.
For example, You can own land if there is no society or other people to contest it. If you are alone on a island, there is no one to say you don't own it
Similarly, you can own land without social dependence if you have the power take or defend it.
If you've ever been mugged or read of nations conquered, it is clear that social consensus and the rule of law is but one mode of arbitrating property ownership. That said, it is one that works out quite well
Ownership has no meaning unless you can identify who does not have it, which requires at least one other person nearby. If you are alone on an island, you are just occupying it.
> Similarly, you can own land without social dependence if you have the power take or defend it.
This requires an army or militia, or an overwhelming technological advantage over those you are dispossessing. Those imply operating in a societ. Otherwise where does your militia and technology come from?
I also think there's a strong economies of scale argument that "we" (society) would prefer most people rent (and use some sort of fixed or low-profit system that does maintenance at scale) as it'll result in lower overall costs. However it's absolutely true that home ownership is the best vehicle we've found for building inter-generational wealth so I'm not against it. Also one can simply prefer a society with more individual owners and slightly higher overall costs - reasonable people can disagree.
I think that is a an advantage, not a disadvantage. There is no need for housing investments to have competitive yields. If you can make a profit building houses which have more value to buyers than your cost of inputs, someone will make them. It just won't be a speculative investment good.
I don't worry that people will stop making socks, shoes, or food because the profit margin in that business is lower than the market yield. If there is on opportunity for profit, someone will want do it. They just might not be funded by some massive financial hedge fund, which again, I think is an advantage.
Historically, home ownership has been a vehicle for intergeneration wealth building because it means taking on more responsibility, work, and risk instead of paying a 3rd party to do so.
I would argue that most people renting would not result in the lowest cost, because it turns responsibilities that a homeowner can do for free into 3rd party services which must be paid for. It is like saying that city run food kitchens would be more efficient than people cooking at home. Maybe it is "more efficient" if you count the homeowners implicit labor, but the dollar cost to the cooker is still going up.
I think most people would agree the goal is higher ownership and lower costs than now. I think this is actually reasonable if we fix some of the conditions that lead to house exorbitant growth in house value
I personally agree but you are not describing the economic system we live in.
> I don't worry that people will stop making socks, shoes, or food because the profit margin in that business is lower than the market yield.
This happens all of the time - but the market finds another equilibrium and continues to provide the good.
> It is like saying that city run food kitchens would be more efficient than people cooking at home.
Generally agreed - this would be more efficient. I also do not want it. It's more efficient in every way. There are significant economies of scale. There is a reason armies do not have each individual soldier cook their meals.
> I think most people would agree the goal is higher ownership and lower costs than now.
100% agree - but my point is that this is a local maxima. If we wish to globally minimize "total resource expenditure" then the Platonic best system is some perfectly managed hyper-apartment arrangement with the "optimal" allocation of affordances. Though, as I said, reasonable people can value things other than costs. We are generally always in a local maxima - but it's good to remember it.
I just dont think we are on the same page here or think this is accurate for our system. The 1% profitable sock factory doesn't shut down because some investor somewhere starts making 100% ROI on bitcoins or tech stock. A carpenter doesn't lay down his tools because fund manager somewhere is making big bucks. I agree the prevailing rates on capital can have impacts on new growth in capital intensive industries, but that doesn't mean you wont be able to find a homebuilder if you have cash in your pocket.
>Generally agreed - this would be more efficient. I also do not want it. It's more efficient in every way. There are significant economies of scale. There is a reason armies do not have each individual soldier cook their meals.
I don't think resources like labor and time are truly fungible and can be treated as interchangeable. Efficiency is relative to the measure of value and the person making the valuation.
If I don't value my time or even enjoy cooking, paying someone to do it is not efficient for me, even if there are huge economies of scale. It might be efficient in terms of total hours to some central planner, but their valuation of my time and labor is not the same as mine. I am still paying money for labor that would otherwise be free. It may be horribly inefficient.
There is no maximally efficient platonic system without a universally imposed definition of the measures being optimized.
Totally agree! All my global statements are gesturing towards the idea of such an idea - which is of course impossible but can be helpful to weigh alternatives.
> I just dont think we are on the same page here or think this is accurate for our system. [...]
I agree with everything you say here so I apologize for talking past you. What I was saying is that, within an investment category, higher yields chase out lower ones. It's not that the sock maker gets out-competed by bitcoin - it's that the person trying to sell "barely good enough" socks in the developed world gets zero shelf space compared to other options. Their product is profitable at the unit level, but can't find buyers efficiently enough to support the costs of doing so.
If you are searching for investment at a "below-market" rate, you are going to be at the back of the queue. Also, because you are definitionally working on low margins, your ability to adapt for unforeseen circumstances is h̶i̶g̶h̶ low, increasing your risk. That puts those kinds of financial approaches in a "high risk, low yield" quadrant as far as I can see it.
We could, of course, simply choose to build housing at close-to-cost and then package & sell that as bonds (basically). You could probably find takers, even if it's riskier than many bonds, but you need to have the funding assembled beforehand. I just mean that it's a hard problem and I see why these systems have not risen up naturally in our building ecosystem.
> valuation of my time and labor is not the same as mine
You are absolutely correct that this is an impossible problem to solve practically, but in a thought experiment it's simple to say that the central planner perfectly discovers & enumerates every individuals' value on time and labor and creates the optimal system with that in mind.
Edit: used the wrong word
A house is not a stock, bond, or number in a savings account. You get utility from living in it as well.
A 0% ROI would however make that investment unattractive for 3rd parties who don't live in the house.
https://www.investopedia.com/terms/i/inflation-hedge.asp
However, purchasing a house it is not just an inflation hedge. It comes with a house you can live in! This is an attractive quality for many of us humans who like living in homes.
Really though, I would argue that housing in aggregate is not a good hedge against inflation because while it is true that the price of an average square foot of housing in the United States has gone up almost zero percent adjusted for inflation over the last 50 years, you have had to do 50 years of maintenance on it, 50 years of insurance premiums, 50 years of paint, siding, roofing, etc. And a 5% realtor commission. By definition, it has therefore, on average, trailed inflation.
If you are looking at specific houses, in specific areas, that's not "housing is a good hedge against inflation" it's "if we look at the winners in a speculative market, we find that they have won" which isn't so much an investment philosophy as a tautology.
That said a mortgage may be a good hedge against inflation but only by virtue of it being a long-duration fixed-interest debt facility with preferential interest treatment at income tax time. And 5X leverage.
Like a lot of pyramid schemes, it’s actually quite good if you got in early
You, mathematically, cannot have home values continue to go up over time without prices going up by the exact same amount.
If a mortgage is $3K and rent is $2K per month, Joe Sixpack is not going to save $1K in a sinking fund. He’s going to spend some extra non-zero portion of that money. So in the long run, for average real consumers, not a theoretical economically minded consumer, a mortgage forces frugality.
* I'm paying for a landlord's mortgage, for a good that should be easily accessible, at insane prices.
* I cannot save up that money, while my landlord does, allowing them to purchase more houses.
Rent is theft.
Reality in the UK is that if you can find the downpayment on a mortgage, the monthly outgoings in that mortgage (both the interest and the capital) are less than the rent. Sure you might have to replace a roof every 50-100 years (I had a quote in 2021 for my 60 year old roof for 4% of the value of the house), or a new heating system every 30 years (just replaced mine from the 80s, 3% of the cost of the house), but on the whole the vast majority of the cost is in that mortgage payment
* any and every landlord immediately pays taxes based on the asking rent, no matter what rent it is.
If a landlord is asking $2500/mo for something, the government immediately values the property based on whatever the formula is based off the asking rent, even if the landlord cannot fill the space.
To work to decrease or cap rents this would have to be a dramatically increasing progressive tax. It would have to be a complicated progressive tax to work with both small, less desirable residences and mansions.
Without a mortgage, eventually Joe Sixpack's full paycheck goes to rent
Not that I'm promoting this system. The cost of housing and rent is so insane at the moment, I don't know what to do about my kids who are growing up fast...
We've nationalized housing risk and privatized the gains.
See China for how that’s working out. (Not well)
all ways to divert the "voltage" across elite and commoner classes which are the real source of this tension.
I'm saying that wealth inequality creates something quite comparable to 'voltage', this creates a tension which WILL get released (because physics). But due to active (social-)technological management this tension is getting re-focused into blue Vs red bi-partisan politics, as well as other expressions of winners fighting losers (including gender 'equality' tensions, trans and transphobics, etc..)
The gov had a ton of programs to increase the home ownership rate over the last 50 years, they were somewhat successful. Now you have a situation where the networth of 65-70% of the population is tightly coupled to their home price.
And we wonder why it's so hard to get them to vote for new housing.
As Munger says, Show me the incentives and I'll show you the outcome.
For many households, some of the residents may not technically share ownership of the house (not on the deed) such as kids or extended family living together, but still have a vested interest in the value going up.
The results of stimulating demand (FHA and similar) without changing supply is econ 101.
I have a friend who is a head chef at a decently popular bar and restaurant on Broadway in Capitol Hill, Seattle (very trendy part of town if you aren't familiar, steep commercial rent). He lives in a 400 sq ft studio and is barely, barely making it from one paycheck to the next. I am sitting on a 2.6% interest rate mortgage and my prices are set for the next 30 years. I probably work half as hard as he does, if not even less than half. I have a lot of cognitive dissonance associated with that.
If AI takes engineering, medical, and law work away from those professionals - they too could have spent many hours to learn, to then earn little.
Every human has worth, but we all value the type of work differently.
Lawyers are entirely composed of people who can legislate away the threat of AI practicing law (taking their jobs)
And robots aren't known for their bedside manner yet. Also, there's a lot of liability in practicing medicine, which companies would probably be unwise to take on
Law AI will be used for case defense prep, argument creation, research, analysis (essentially what law graduates and non-partner style attorneys do) as cost savings / ROI enhancement. Attorneys will have to specialize in mostly customer facing / court facing roles. This will cut the staff needed to perform those duties.
Real Law AI change will have to be consumer driven.
Medical AI.... with so much malpractice & liability, AI will reduce those risks for practicioners, increase ROI to practiciioners (less payments to insurance), and also require back office practicioners to become more customer facing. Maybe instead of 10 radiologists, you can use 1.
Medical AI will be used on low tier ailments (eg: urgent care headaches, etc) to help nurses see more cases, etc - initially replacing the low end work. Doctors can then have a more normal schedule, but feed a collective AI model to where 1 doctor can then oversee 50...200 cases. Those models will first be rolled out to developing countries until a generation of doctors in the US are dwindled except in emergency care situations.
It's gotten pretty ugly with provinces trying to poach doctors from other provinces, competing with each other to offer incentives to entice doctors from other provinces
But that definition of effort as it relates to the ability to “survive” does not seem useful to me. It takes a lot of effort to manually dig a ditch compared to using an excavator, but you would not pay the person that shows up with a shovel more than the person that shows up with an excavator.
Edit: this is not intended to say your friend does not deserve a better pay to quality of life (QoL) ratio. However, the fact that you have a comparably favorable pay to QoL and they have an undesirable pay to QoL ratio means society does not want more people to be selling that labor, but rather more people to be selling your labor.
My point is that the disparity is such a chasm that my brain can't reconcile it. We aren't talking about ditch digging, we are talking about serving food to the people of Seattle. All the software engineers in Seattle, in my experience, love to frequent dining establishments. Their quality of life is dependent on the labor of people serving them. There's no way I can accept the disparity as "just the way it is." My gut can't take it.
I put “unaffordable” in quotes because eating out is easily replaced by eating at home, or eating frozen dinners, etc, so restaurants do not have the pricing power they might need to allow the food service workers to have decent pay to QoL ratio in a place like Seattle.
The other commenter is not confused about why things are the way they are. They understand these things already, obviously they think about it a lot. You explain it, they agree that things are that way due to the reasons you describe, but that does not explain why the disparity ought to exist.
https://en.wikipedia.org/wiki/Cognitive_dissonance
If you had to pay more at their restaurant then your quality of life (profit) will go down.
I am glad you are still human and your gut cannot take it. Maybe look at using some of your savings to help the chef start a coop restaurant?
We require these services but don't don't provide an acceptable living to those offering them, expecting them to sacrifice their health and comfort for our benefit.
I don't have a solution to how to "allocate" who "gets to" live in a certain city, and it's not in my role or expertise to. But the problem exists currently regardless of that, and what we do have is not a solution.
My guess is yes. Temperate weather, world class scenery, cheap electricity, clean water, a convenient deep and protected harbor, and a productive workforce.
All are subject to change of course, but that combination precludes the existence of businesses with low elasticity of demand (and hence higher value). The luxuries like restaurants and retail follow after those other businesses.
Of course, they do enhance the desirability, and it very well could be that rents are too high in the short term, and that landlords are making Seattle less desirable in the near future, but that is always a dynamic relationship.
Value is defined based on counterfactuals, similar to opportunity cost -- if that thing didn't exist, what would be the effect on the local economy? My suspicion is that if you price all the chefs out of a downtown, no one will like spending their time (and therefore money) there, and it will die. So if the singular act of removing chefs collapses an entire economic engine, then their value is defined as the economic activity before their removal minus the economic activity after their removal.
The answer is very simple. They just need to tear down a small fraction of those endless twisting mazes full of tiny single-family homes and replace them with large apartment buildings like you see in Asia. Right now there's no free market at work, since there are too many artificial restrictions on building.
In Tokyo, you can work part time as a janitor and still live within a 10 minute train ride to work.
Software can pay well because the code you write can service 100, 1K, 1M, or 1B customers.. with some time spent on scaling.
There's not much a single chef can do such that their labor which serves 100 tables/night can suddenly scale to serve 1000 tables/night.
The only way the replicate that kind of outcome in restaurant trade is to for example, open multiple restaurants with investor capital, hire cheaper chefs as your understudy to run each location, while you set menus, standards, and find efficiency on things like procurement, accounting, lease deals, etc.
Other options are to move more aggressively into some sort of profitable takeaway menu, selling food kids, branded merchandise, etc.
https://en.wikipedia.org/wiki/Cognitive_dissonance
I think the difference between labor and engineering is that most engineering (and software development) is a precursor to charging rent. Lets look a bit closer:
The marginal cost of software is zero. Therefore, every commercial software package is collecting rent for its use - SaaS being the most blatant (but honest) form. They will ostensibly be using the money to fund future versions of the software, but the efficiency of that effort is not terribly relevant - profits can be had, and high pay to developers.
In product design and manufacturing, the engineering effort goes into designing a product and plant to produce it. The key thing the business looks at is something like ROI (return on investment). Since the lifetime of a product isn't certain, anything that goes beyond the planned lifespan is pure profit. One could view the business as collecting rent on the equipment/process that makes the product.
At the highest level, investors are looking for a return on their investment. The investors don't actually have any part in the transaction between the company and its customers. Only when raising funds do investors bring anything to the table. After that, people trading stocks bring nothing and are looking for ROI. It's probably not correct to call ROI rent, but it's got some similarities.
So the low-end labor guy is getting paid to do work. All our fancy office jobs are building systems to generate revenue for someone. That may be the primary reason those jobs pay so much better. One is labor to an end customer, the other is labor to the money-making machine that is a large company ;-)
On a related tangent, perhaps engineering should not be considered a cost center but an investment.
and multiplied by fiscal and other policies: those who couldn't afford buying now need to pay 5-10 times more compared to wealthy who could afford buying house 10 years ago and another 5 years ago and lock loan interest.
In traffic I often thought about how when I was a kid we got uprooted to a new school at a bad time to save my dad 45 minutes of commute each way, and how 2 hours a day doesn't sound that awful.
The thing is, before I moved in, I did research on 1bdroom apartments within a large radius of the city.
And basically, unless I was willing to move to a very unsafe area or very unsafe or clearly problematic apartment, rents simply do not go beneath my current rent price.
There seems to be an agreed upon price floor from all landlords, and the only thing that changes as you get further from the city center is the size and quality of the apartment.
But that means literally every apartment in about an hour circle of my location is more than my parent's mortgage. At least the roaches and I don't have major commuting costs as well.
I doubt there's collusion. Being a landlord is expensive, and they're not going to set rents at loss levels.
> Specifically, every morning, RealPage provides participating Lessors with recommended price levels. ... If Lessors wish to diverge from the “approved pricing” they must submit reasoning for doing so and await approval. ... But RealPage emphasizes the need for discipline among participating Lessors and urges them that for its coordinated algorithmic pricing to be the most successful in increasing rents, participating Lessors must adopt RealPage’s pricing at least 80% of the time.
> In one neighborhood in Seattle, ProPublica found, 70% of apartments were overseen by just 10 property managers, every single one of which used pricing software sold by RealPage.
> As former FTC chairwoman Maureen K. Ohlhausen put it, as quoted in ProPublica:
"Is it OK for a guy named Bob to collect confidential price strategy information from all the participants in a market and then tell everybody how they should price?' [Ohlhausen] said. 'If it isn’t OK for a guy named Bob to do it, then it probably isn’t OK for an algorithm to do it either."
If you do a thing and I planned it, we could get charged with a whole host of things. If I send you to buy a gun to commit the crime and oops that was an undercover cop, then a few warrants later we could be in a lot of trouble just for intent and opportunity.
> Price fixing is an agreement (written, verbal, or inferred from conduct) among competitors to raise, lower, maintain, or stabilize prices or price levels.
Collusion doesn't stop being collusion just because one introduces a middleman.
Appropriate typo.
Source: I know my trusted plumber makes well over six figures a year and he cannot take all calls. I asked him once if he has problems generating leads and he smiled saying "I have too much business that I turn people away". He is a "master plumber" which these days is not easy to get certified for in many states. He told me he cannot find enough skilled master plumbers to help him (state of NJ).
How does a plumber avoid kneeling?
They technically have the option of reducing weight, exercise, proper shoes, knee braces and knee pads, kneeling pads, and such.
What I am suggesting is that both (all?) jobs have their own health related demons.
Especially when working from home any health-related dangers around software development can be all but completely eliminated. This isn't even remotely comparable to any of the health or occupational risks in the trades.
I do think some of the inflated values of some jobs is they are somewhat opaque, while the stuff of jobs like plumbing is easier to at least conceptualize, even if the work itself still requires skill and care. It’s easier for a BS job to inflate its importance if people don’t know exactly how it works.
I'm an ICT5 at Apple (not the best-paying, but hey, less layoffs) and I reported ~$750k last year. There are ICT levels going up to 9...
Your comment got a chuckle out loud. And then I saw your user name and can't stop.
How long has a quality carpentry been sold now? Cost of entry is also relatively stable.
Music styles change every decade now and it is speeding up as marginal costs of entry fall. Likely similar with other entertainment, which is why every entertainment corporation is now looking for lock-in.
Will GPT-6 replace some subset 10..80% of engineering, law, medical hours? absolutely
That's actually a pretty low bar, FWIW. (rimshot) Law students spend a few months in bar prep to memorize a bunch of crap that doesn't even apply to their real jobs. Maybe the AI will encourage bar associations to finally ditch it, a development that gained some steam during the pandemic.[1]
[1]: https://www.reuters.com/legal/legalindustry/bar-exam-who-nee...
I'm not actually surprised that a AI-model could pass it. The corpus is well known and well defined and test directly draws from that.
> Thanks to spreadsheets, there are 400,000 fewer accounting clerks than in 1980, but 600,000 more regular accountants.
Might something like GPT-6 cause employment to shift to higher value job responsibilities?
https://www.npr.org/sections/money/2015/02/25/389027988/epis...
Your statement says that "people were made obsolete", which I take to mean that some people are individually unable to switch to the more skilled jobs.
I think the effect on current employees due to technical innovation is a reasonable issue to be concerned about but it's not the same phenomenon as the job "mix" changing towards more skilled jobs, even some that didn't exist before. The two phenomena aren't mutually exclusive either.
We don't have too many stagecoach drivers these days but we do have a lot more "drivers".
It's only "$100K worth" because some other rich bums have collectively occupied and bought multiple houses that they don't live in and increased the price of land, AND lobbied for no more housing to be built to artifically keep the market price high. They treat housing as an investment, rather than a dwelling, which is exactly what's being discussed here.
It's ridiculous that 99%+ of people are not able to buy a reasonable place to live in by 30.
We should be subsidizing it for those who cannot afford housing, not charging them $216 more just to line the pockets of the already rich.
But opportunity costs are real. The time value of money is a thing. If you distort the price of capital, then capital is misallocated, and society ends up with overbuilt nonsense like McMansions in Stockton that it didn’t ever need, as in 2007, and other damaging bubbles.
2.6% is dirt cheap for money. If anything it’s way too cheap, and encourages excess demand, raising prices all around.
For something that isn't a basic necessity, yes, money isn't free and that's a good rate.
But for basic things like a house, transportation, food, and clothing, I am of the view that we shouldn't be charging interest from those who cannot afford these things, particularly housing, since it's the most expensive of the four. Society should perhaps even be subsidizing it with negative interest rates while taxing the hell out of people who own more than one house.
Mortgages are part of the entire housing-as-an-investment scheme that's the very subject of this article and thread. It's capitalism at an extreme being used to extract an extra 2.6% from lower- and middle-class people who cannot afford it, instead of extracting that 2.6% from the billionaires who can afford it.
McMansions in Stockton is perfectly fine. We need more housing bubbles. We need the housing market to collapse. We need housing to become available for people to live in, not as an investment.
(Oh, and more direct, fast 300 km/h service between Stockton and SJ/SF with local light rail that reaches all the houses would make all that housing much more usable. The ACE train is an abomination.)
Remember that one of the strongest instincts that have been instilled into the modern population is the concept of ownership of land and of real estate, where the people who actually built the real estate are long dead. That's why you will find the fucking insane belief among your fellow man that a person who labours has a duty to pay taxes on his wages. His life is not sacred, while the ownership of property is sacred.
The lender’s risk is therefore limited to the difference between purchase price and actual value of the property. Which is something they can hedge or simply not make a loan if they think the property is wildly overvalued.
Regulators are basically picking a number between 3.5% to 35% and 20% is a nice round number in the middle of that range.
The experience of the foreclosure crisis seems to differ. I know people who moved into houses where holes were punched into walls and everything was removed that could be, from door knobs to outdoor deck planks.
We’ve settled on a really arbitrary system where for example the Federal Housing Administration requires huge upfront FHA insurance payments without regard for down payment size if it’s less than 20%. If you’ve saved up say a 8% down payment you really should be a significantly lower risk than someone putting down 3.5%.
I suspect we’re looking at this through different temporal lenses. When I talk about regulation, I mean the last 100 years in its entirety, not just since the financial crisis of 2008. I agree with some of your point regarding how thresholds are set arbitrarily, though.
I am talking about lending before regulation. High down payments were not universally applied, so yes sometimes a loan might require 40% but other borrowers might offer nothing. My point is you can’t simply say the required amounts were excessively high some of the time because they weren’t universal and selected based on a perception of risk.
It’s not just regulation at play here, the government has decided to reduce bank’s risks while also subsidizing home loans. Net result is more home owners but also much longer mortgages. https://www.thetruthaboutmortgage.com/wp-content/uploads/201...
Which is precisely what PMI is for.
People buy cars all the time that cost a decent fraction of what a house does, and nobody bats an eye when they finance 100% (or more) of the value. And a car depreciates and moves. The bank knows where to find the collateral for a mortgage, and the value generally appreciates.
I used to write some lengthy posts about this and then a few months ago The Big Short was on TV, I watched it for the first time, and realised it was saying exactly what I'd been trying to explain for years. So just watch that.
Plus it has Margot Robbie explaining the technical terms in a bubble bath, so if you don't get it the first time, you can rewind and watch again.
Accountability on the part of the prospective owner can be achieved in multiple ways, but using down payments probably minimizes the amount of bureaucracy and following-up in how authorities manage this kind of thing.
Of course, implementing it this way creates "structural inequity", i.e., a process that inherently separates one group into two groups along lines that members of that group have little to no control over. Obviously the property not-having-money is correlated with other factors such as skin color and whether your parents went to college, which creates divisions along lines that are not just economic but socio-economic, and influence the development of not just that person but also everyone who depends on that person, including future generations.
I would be very interested to hear more from systems theorists on other kinds of methods that don't reproduce these kinds of correlated outcomes.
Hierarchies need hierarchy. Economic apartheid is one of the most common - and least questioned - ways to enforce hierarchy.
It's the usual problem of defining the difference between a progressive and a regressive economy. Regressive economies claim to be about "freedom" but in practice it's a very selective freedom that benefits a few small sectors and acts as a brake on innovation, development, and entrepreneurship for everyone else.
Consider all the businesses that could have been started by talented people currently spending all of their income on rent. It's a brittle, oppressive outcome.
Progressive economies rely on wealth redistribution to create something closer to a genuine meritocracy.
There's a whole PR industry devoted to denying this, but it's not a coincidence that the US was a powerhouse of innovation when redistributive taxes were at their highest. And has stagnated as economic apartheid has become more entrenched.
That's the crux of the political debates going on today. What kinds of values are represented by the status quo, and what kinds of values may replace a (retrospectively) naive approach to meritocracy.
> I had to pay PMI
... meaning that they did not have a substantial downpayment. Assuming they bought in Washington state, they probably also had a non-recourse mortgage.
Credit inflates the housing markets. Houses used to be bought outright without credit. Credit is top heavy, where a small number of parties can obtain enough credit to buy many houses while an increasing amount of people cannot obtain credit to buy a house to live in. The people who already own property benefit from increasing valuations, while people entering into the housing market bear the costs. It's gotten to the point to where people with 6 figure incomes cannot afford a house.
It seems like the instability of the housing prices is largely due to the volatility of credit markets. If housing was not emphasized as an appreciating asset class to be hoarded by speculators who want to grow rich from housing, then more people, who are now stuck in the rental trap, can live in their own home. The situation we have now is that non-speculators who want to own a home have to bear the risk of a credit inflated & volatile asset when all they want to do is own a house & not pay > 2x rental costs. Those who do successfully play the game now live with neighbors who also play the game, instead of a more diverse crowd of people they would rather be neighbors with. The banks created & profit from this mess & are bailed out. The non-speculating aspiring home owner pays the costs.
They are extremely unlikely to be able to save for even a downpayment on a property in two lifetimes combined.
It gets worse when you cannot inherit, which is a situation all too common these days.
Your decree does not invalidate the lived experiences of the people who want to own a home but can't afford the > $80k down payment, so they are stuck paying rent. The problem is credit inflates housing prices. Some parties, such as speculators, have plenty of credit, so they can buy multiple houses & inflate the markets using credit. Those who cannot obtain credit or are not willing to play the game are stuck trying to save up > $80k for the down payment on top of their regular living expenses that are under rapid inflation.
The middle class used to be able to buy a home or large acreage outright without credit.
That said I agree with the sibling comments that 20% down payments shouldn't be as out of reach to as many people as they are. Housing prices are ridiculous.
a) Employed full time: Median usual weekly real earnings: Wage and salary workers: 16 years and over
b) Median Sales Price of Houses Sold for the United States
We see that the a/b ratio was 0.25 in 1980, and has declined to 0.05 today.
Therefore, a 20 % down payment in 1980 would equal to a 4 % down payment today. Conversely, a 20 % down payment on a house in 2023 (median wage, median house) is equal to a (25/5)*20 % = 100 % down payment in 1980!
[1] https://fred.stlouisfed.org/series/LES1252881600Q#0
Compare housing prices since 1990 vs. wage growth over the same period. For the overwhelming majority of people entering the workforce today, there is no way to realistically save for a down payment unless you forego saving for anything else - no 401k, no IRA, no emergency fund, no car, no family.
Houses have gotten bigger and interest rates have fallen since then.
Somehow it's fine to pay half the salary in rent, but not fine if it's financing the mortage.
Last year I spent twenty grand on a new roof. What's next? Idk, but that's why my mortgage isn't half of my salary. If it was rent, these things wouldn't be my problem.
That's the trade-off.
$1K/month is probably low for me though if I added up all the expenses a renter wouldn't generally have although a renter also probably wouldn't be renting a house like mine for an extended period so it's a bit hard to do apples to apples.
In any case, living in a house is very much not free even once you're paid off the mortgage--especially if you make an effort to prevent a lot of maintenance debt from accumulating.
That has to be for commercial real estate, or you've been ripped off. There is no possibility of a single family dwelling ever having plumbing problems of that scale.
But maintenance costs are in general a landlord lie. They wouldn't rent out their properties if costs where anywhere near income. As for my own anecdote, my landlord has spent at most 0,5% of what he's gotten in rent from me on maintenance over the years. A normal tenant won't break anything or induce any maintenance costs.
And I think we all saw why banks should be expected to be a lot more cautious in rating homebuyers' ability to pay than some individual landlords might be about their tenants in 2008
If we sell our home at the end of 30 years for exactly what we bought it for, no raise in value at all, 200K, then 250K of maintenance works out to around $700 per month for each month of those 30 years.
Any amount we can sell the house for over the original $200K price, reduces the taxes and maintenance down from $700 potentially to zero.
If we sell at the end of 30 years for $450K, even accounting for taxes and maintenance, we lived rent free for 30 years.
Yes, after 30 years, you came out ahead. But also, you can't sell your house when the drain breaks and you need $10,000 today to pay for fixing it. Especially if you just bought the house.
Also, you forgot to account for the $180K in mortgage interest.
My apartment that was $900/month in 2001 is $2200 today. Outside of some of the really stupid markets, it’s almost always better to own. You’ll be fixing that drain every year.
Since we control our mortgage, we paid it off early, at around 15-16 year mark (due to my wife making me realize the importance of it). We live rent and mortgage free the rest of our lives thank God. I only wish I'd kept either of our 2 former houses instead of taking better job offers requiring moving ultimately to the bay area where we couldn't afford to buy a home. Texas is nice though!
My Dad always said, buy a house as soon as you can.
https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...
In most Bay Area markets, it makes more sense to rent than buy from a purely financial perspective. It's only if you value the ability to modify the home or have a sense of permanence that it starts to flip.
No -- mortgages are limited to 50% debt-to-income. The exact principal that relates to income depends on prevailing interest rates.
You can see this fairly easily by using any mortgage calculator, e.g., Google's (in the "Purchase budget" tab).
Keeping fixed: $100k household income, 0% down, California, Google's tax and fees estimates, 800+ credit score (just to eliminate that as a factor).
At 2% interest, Google thinks you can get a $512k (~5.1x income) mortgage (at 50% DTI).
At 6% interest, that falls to $368k (~3.7x income).
At 10%, $274k. You get the idea.
(For all of these loans, your annual payments would be about $50k/year.)
Because eviction is easier than foreclosure (and, actually, a lot of big property management companies look at similar affordability criteria as lending banks, but you can find mom & pop landlords; mom & pop mortgage lenders, unless they are literally rich family members making an informal loan, probably not.)
50% of income as mortgage payments are extremely risky mortgages. We've just had the entire financial system collapse not so long ago because of such shenanigans.
Don't people remember the 2008 mortgage crisis?
If you can't pay the rent, you rent something cheaper. It is not nearly that easy when you have a mortgage.
Where is it fine to rent for half of the salary? Last time I rented a couple years ago, the corporate landlord wanted to see either a paystub exceeding 4x rent for the same period or a bank statement for the funds exceeding 3x total rent. This varies, of course, but the standard used to be the 40x rule (rent not exceeding 30% of income before tax).
Being too risky with handing out mortgages is partly what lead to the housing bubble in 2008 afterall.
If they're really certain their job will be stable long term PMIs shouldn't really be a deterrent, most PMI can be terminated after meeting 20% in equity.
I put 3.5% down on my first house and even with PMI the mortgage payment is less than rent.
To add insult to injury, the massive housing inflation of the past 2 years got the LTV well above 20% which then allowed me to remove PMI lowering my payments even further.
If rent actually reflected the value received versus owning a home I'd be less opposed to it.
Being aggressively risky with little downside was a bigger root.
I worked in a mortgage comp for a bit before the big crash. "You want a 150% loan-to-value loan, no money down, no intention of proving income or ability to repay... sure, that'll be 7% instead of 5%. Sign on the dotted line..."
I was blown away when I learned about 'no down, no doc' loans, which... yes, it's another variation, but... the interest rate was all of ~2% higher, which seemed in no way to cover the risk. But no one cared, because everything was just sold to someone else, and packaged up in to CDOs, and resold again.
Someone who has 'only' 18% of a purchase price down, good credit, and steady income... to be charged extra PMI - possibly for years, because "we need to re-valuate the property 3 more times".... seems to be just more price gouging, not actually addressing real risk.
Those loans had variable interest rates and balloon payments.
They were told they could refinance before the balloon payments came due into conventional loans but when housing prices drop, you can't refinance because you owe more than it's worth. Combined with "no document" loans (aka, people lying about their income), people were buying houses that they very literally couldn't afford, not just in the "that's too much of your income" way, actually in the, "that's more than your income" way. Those were the subprime loans you hear about.
2008 would have been very different if everyone was on a conventional 30yr fixed loan.
And as for income: https://www.nerdwallet.com/article/mortgages/fha-loan-requir...
https://www.zillow.com/homes/for_sale/?searchQueryState=%7B%... (hopefully that abysmal URL still works for you).
$400,000 x 3.5% = $14,000. If you can't save a $14k down payment, you probably can't afford the mortgage on that and the associated upkeep anyway.
Don't get me wrong, I'm not defending the housing market. I just wanted to point out the FHA program since it helped me, personally.
But you see young people renting for 15 years in expensive places of cities because they want to be close to nightlife/etc. and then trying to figure out how to come up with a 15%-20% down payment on a dream house when they're nearing 40 and wondering how anyone does it and complain the system is broken.
They do it by buying a small house in an expensive location and building equity and then upgrading.
Imagine inflation and property appreciation at exactly 5% and an interest-only mortgage (principal paydown is just forced savings, hitting cashflow, but not expenses).
Buyer buys a $500K house, puts $100K down. Next year, the house is worth $525K, meaning that $100K in equity they put down is now $125K, for a 25% increase, even though the value of the property exactly tracked inflation.
If real estate values do not rise faster than inflation (I would say substantially faster), it would be a very poor investment or not an investment at all.
Yesterday I was reading in the subreddit of the town where I live about people's complaints regarding the absurd cost of living here. It was funny and puzzling that people were saying, "Yes, it's so hard to live here, housing is so expensive. We were lucky to buy 10 years ago for $500,000, now our house is valued at $1.4 million." Not recognizing that they are the problem.
How are they the problem? They bought one house and occupy it as a family. That's fair play by anyone's measure, I'd think.
If more other people want to move into the town than there are units of housing for them and, as a result, bid up the housing that's available, it's not the fault of the people in the town who bought one house 10 years ago and have lived in it for those 10 years.
We bought our place in 2007 (and lived in it continuously). It's worth roughly 2x what we paid for it. That's a CAGR of just under 5% per year. Was that a good investment? Hard to say, but let's look: The S&P total return was a CAGR of 8.5% over that time, but would have been 8.5% CAGR on X (downpayment amount) or about +2.4X. The house was 4.8% CAGR on 5X or about +5.4X.
Along the way, we've spent around 0.8X on repairs, improvements, and maintenance that I can think of and around 1.1X on taxes and insurance. Mortgage interest (after taxes) was another several X. Our house is vastly more pleasing to live in than our old apartment was and we've had two kids and a dog here comfortably for 15 years. The non-financial aspects dominate the financial aspects, but for a property that's appreciated about inline with inflation, it's been OK financially and great psychologically.
* investors bought out most of the housing and made it "scarce" or otherwise inflated prices - tacit cartel is common
* the area has been restructured to make it impossible for non-rich people to live there even if they get the housing for free (gentrification)
* people cannot inherit property as they cannot pay the inheritance tax on the inflated valuation
* there is an external scarcity factor like well paid jobs or at least opportunity for them
Note that lack of space to live or overloaded services actually tends to depress prices.
The statement already implies the people live there for a long time and have focused on the valuation for some reason. They will give their inheritors a problem they cannot pay off and have to try to sell. The ones being able to buy such property are likely to be investors. Now multiply that times a lot and you have the shape of the problem.
I don't understand the mechanism by which this would represent a driver for the valuation to go up. This effect would seem to be small in any case, but also tend to reduce (not increase) prices in its small effect, all else being equal. Unless I'm misunderstanding your point somehow.
Property should depreciate. If you hear that it doesn't, there's a massive structural problem, likely one of the described above.
And these people using the property thinking they're gaining something are not doing anything about it, dooming their heritors.
Structures get repaired and renovated. My house is over 100 years old but I just pumped 700k into it. Does its value not increase?
Homes are expensive to maintain.
The reason for the absurd rise in housing prices is that not enough housing is being built to meet demand, and the main reason is that homeowners (obviously not all, bear with me if I generalize) and their cartels oppose any new development. It is a problem with a very simple solution, made complicated by people who make money by throwing smoke. A good place to start is to look at how other countries or regions have solved the problem. It is somewhat parallel to homelessness; there is no will on the part of politicians and institutions to solve a problem that is easily solved (from a system perspective).
The housing stock is fixed because certain interests (i.e., homeowners and real estate investors) want their capital to increase in value and/or their neighborhoods to remain sculpted over time. The calculations in the comment are, outside the specific case, largely irrelevant: dilapidated houses infested with rats and mold in desirable locations have increased in value 10-fold over 20-30 years because the housing stock has not increased over time.
The fact is, in many areas, buying any house at all is not feasible for the vast majority of young adults.
Guess what, the small and lower cost place you bought 10 years ago went up in price too. So you have equity and you've been in the rising market.
> The fact is, in many areas, buying any house at all is not feasible for the vast majority of young adults.
100% untrue. Buying a house in the place they feel they deserve to live is. You can buy a home that is a 30m commute by train or bus to NYC for <= $400k.
> You can buy a home that is a 30m commute by train or bus to NYC for <= $400k.
Even a door to door commute from Secaucus, NJ station, one stop from Midtown is 20min+. I would say 60min is at least the commute you would need for housing at $400k.
Exactly, that's the problem. There exist people who did not buy houses 10 years ago, due to personal failings such as being teenagers at the time. Yet the houses continued to appreciate much faster than inflation and are now out of reach.
> Buying a house in the place they feel they deserve to live is. You can buy a home that is a 30m commute by train or bus to NYC for <= $400k.
A: You absolutely cannot.
B: Why don't they deserve it? Why should would-be buyers be forced out of every major city and even the surrounding areas, due to artificial price increases, when that was never the case for previous generations?
It's not about deserving it... it's basic supply and demand. If the house is desirable, people will bid up the price. People with more money than young adults (older adults with more career experience) can afford to pay more and so will bid up the price on the most attractive housing until they get it.
I gave up air conditioning (among other things) for a few years to help save money for a down payment on my first house. What makes a person who didn't sacrifice/safe more deserving of the house than I (who can afford to pay more)?
A famous person once said "there are a million things in this universe you can have and there are a million things you can't have".
We all can't live in high rise penthouses and lakefront mansions. The whole point of markets and pricing/discovery is to decide who gets what. There's not enough for everyone.
https://www.zillow.com/harrison-nj/
PATH train, 22m to WTC.
Not a bad area either, just not where the whiners who think they deserve prime Brooklyn dream apartment want to live.
Imagine if 70% of Americans invested their wealth in, I dunno, IBM. Don’t you think that’s going to incentivize some crony policies?
Now imagine we make a rule that you can’t exit that position. But you can borrow against your unrealized gains. That obliviously incentivizes even more protectionist policy.
Just like with housing, you can rarely fully exit the market because you’ve got to live somewhere. But when people have most of their wealth tied up in a single asset that also acts as a revolving line of credit, it tends to overly inflate the value of that asset. It just makes people protect those unrealized gains that much more or risk being upside down on an asset you can’t sell.
The advice is completely out of touch because there is a generic undersupply of housing in the US, especially of entry-level housing in areas where the jobs are. What starter houses exist have reached the end of their serviceable lifespan. My starter house in the Midwest (affordable because construction is happening around town, would have preferred staying in MA) has a roof issue and in the medium term 80 feet of sewage pipe will have to be replaced. I was discussing these issues with a builder, and at some point it stops being economical. But meanwhile you need a roof over the head, especially when you own a large dog.
I'm actually angry at the unserviceable advice from people. Please field-test first before opening mouth.
It's fucking great. The occasional late night poppity pop, the nip bottles in the street, the un-mowed lawns gaurded by un-trained dogs, they all serve as amazingly effective repellent for the types of people who think they know how I or anybody else ought to live.
e.g. If you buy a $200k house with 20% down at 2% on a 25-year amort, over five years you accumulate about $26k in equity not counting your down-payment. In my jurisdiction, standard realtor fees on that would be about $10k, going with the 1% rule of thumb for maintenance would run you another $10k, and property taxes would be another $6k. You’re already at zero net profit before you even have to pay insurance or utilities. (All that isn’t to say that you wouldn’t have lost more money renting.)
Is this now considered unusual? I didn't purchase my own home for almost 12 years after graduation from college. I lived at home, then with roommates, which was a completely normal thing to do at the time (1987 college graduation).
1999 median home cost: $165,000; 1999 median household annual income: $42,000; 1999 home cost / annual income: 3.9
2022 median home cost: $468,000; 2022 median household annual income: $71,000; 2022 home cost / annual income: 6.6
1999 interest rate: 4.74% 2022 interest rate: 0.08%
Source: https://www.statista.com/statistics/187616/effective-rate-of...
Mortgage insurance is not a bad thing. But the FHA loans in the US solves the 20% issue by only requiring 3.5% down.
https://www.benefits.va.gov/homeloans/
https://finance.yahoo.com/news/momma-cant-protect-dave-ramse...
PMI affects the affordability but not by much - maybe $300-400/mo or so, and if you can get a conventional loan with a 3-4% down payment (which do exist) then it'll drop off once you've paid off 20% of the principal.
For conventional mortgages, the max DTI most lenders will be fine with is 45%, but let's be safe and go 40%. Let's take a household income of 150k, that's $12,500 a month, so you can have up to $5000 in monthly debts (DTI is based on GROSS income). If you have, say $1000 in monthly debts (eg. minimum student loan payments, minimum CC payments, and cars), you'd likely be approved for up to $4000 in housing expenses, which with 3.5% down and a worst case scenario interest rate of 7.3%, means a maximum home price of about $500,000. But when you factor in PMI, you'd only qualify for $450,000 since PMI is about $358 a month.
That's not all that much of an affordability drop - the difference is that you're basically forced to fall in line with urban sprawl by buying a smaller house further out, maybe even to the point where you're driving 40+ miles to work.
If you're paying this in PMI; while your monthly principle payment is also less than $300-$400; you're renting from the bank -- ignoring outlier home price increases.
I'm glad everyone was able to make it work 15 years ago though!
The mortgage insurance isn't nothing, but it's not a big enough cost to warrant waiting until you have 20% down if that's still a long way off. You can also very easily remove the mortgage insurance once you get to 20% equity, so it's not like it sticks around throughout the entire mortgage if you can't scrape enough together at the beginning.
You can just refinance out of it (when the numbers are right), and it’s often easy since you now have equity, a proven payment history, and are presumably looking at even lower payments on the new loan.
The mortgage company that we chose had a program where they did all of the underwriting before we even started making offers, and part of our offer was a certificate entitling the seller to $5000 at the mortgage company's expense if we couldn't get financing. Kind of like extra earnest money from the mortgage company offered as a guarantee that there wouldn't be any problems in closing.
We ended up getting the first house we made an offer on in spite of an insane market, so I guess it worked!
Granted, this advice was a lot easier to consume when interest rates were at record lows...
And even if you found a condo (usually 2x as expensive as a co-op for same QoL) without a board to reject you or just lived in a city without co-ops holding a lot of housing stock, banks have similar requirements in co-op applications as well. So you really need to have a massive income to go in without a >20% down.
Among the young people who may like to buy a house, this probably applies to a few rare folks working for a bay area tech company salary but are allowed to live in any other city where the home prices are more affordable.
It's been a little while since I've done this–I, at least temporarily, gave up the idea of buying something in the city–but I noticed similar trends to keerthiko. Similar to when I was actually looking at places with a broker.
I don't think I found a condo under 800k, while there are plenty of co-ops across the boroughs, including Manhattan, in the 300-800k range.
EDIT: just noted you said "in another place". In my experience it's very hard to find this information in America outside NYC without investigating individual buildings.
[0]: https://streeteasy.com/for-sale/nyc/price:300000-800000
Super interesting: "Today, there are over 1,100 HDFC coops that make up a significant part of the fabric of New York City's affordable housing stock. " https://www.nyc.gov/site/hpd/services-and-information/hdfc.p...
"5,578 NYC Co-ops and Apartments for Sale" https://streeteasy.com/coops/nyc
Though many of these might be from giant projects, it's still interesting. https://en.wikipedia.org/wiki/Mitchell%E2%80%93Lama_Housing_...
This is what you can do if you don't delegate all the management of the housing market to the Fed.
OK I found a calculator and it'd be 5k instead of 3k per month.
The bottomline is being less fortunate shouldn't cost you more.
That being said - I think it’s good to get a property of your own as soon as possible. The rent situation is only getting worse.
IMO, that is the best use of an inheritance: helping kids secure assets earlier rather than later, which sets up the rest of their life.
If i follow this correctly. you will work half as hard because your housing costs are set while his will keep increasing ?
I'm not under the impression that most restaurateurs are "raking it in" staff be damned. Sure, at the ultra high end, yes, but for most restaurants a chef pay is function of the market, right?
A chef's pay is a function of the market, and that's why everybody is exiting the industry right now. Head chefs and restaurant owners are used to decades of low wages and think it's quite insulting that anybody would dare ask for a better wage. Then they wonder why "nobody wants to work anymore". At the same time, chances of advancing your career are very limited. If you manage to stick around for a few years as a chef, you will already be able to manage your own restaurant, but the salary for that will be just marginally higher. Unless you want to strike it out on your own, and take on massive debt for a business with low margins.
Working in a kitchen is the worst career choice a young person can make. If you have that skill, ambition, passion and drive, you will be much better rewarded in any other sector.
Edit: To add to my previous point: A person who can be a successful food truck entrepreneur would probably make a much better return investing his skill and money into a non-food venture. Food trucks are expensive, for the price you need to pay to get that business going, you could buy the equipment needed to start a more lucrative business.
not really, if the skills of the owner is essential to the business (which is true for a foodtruck). You won't be hiring a chef, you will be doing the work yourself.
I would argue food truck business is less capital intensive than opening the equivalent restaurant.
He may refer to himself as a "restaurateur" or a "restaurateur who is his own landlord" for social status or tax reasons but I am suggesting that this framing is misleading: if his income is primarily as a result of the real estate he owns then his actual occupation is "landlord".
Non-remunerative avocations like, I don't know, building wooden sailboats, painting, community theater, photography, gardening, raising cattle, or managing a restaurant may be intense and rewarding, but if the expectation is that they will have no marginal impact on income one way or the other then they are more like hobbies.
With inflation my budget is drastically tighter than just a few years ago.
Not having read the book I must admit my kneejerk response is to wonder if the latter part could have been avoided by not indulging in the middle part? Not to say that hard work always pays off or anything but drugs are expensive are they not?
Median rent in Seattle for a 1 bedroom is $2k. Using the 40x rule someone who makes $80k could easily afford this, which is a low bar for someone with a moderately decent job.
Locking in a low rate alone has nothing to do with whether owning is more affordable than renting. The rate could be 0% but with a sales price high ala 2021-2022 buying mania and then adding property taxes, insurance, maintenance, and HOA the vast majority of "high" cost metros have and will continue to be much more expensive to buy in than rent in whether rates go up or down.
$80k is not a low bar, and this is insulting to really talented people I know stuck in below $40k jobs.
that’s not how it works at all
That means the rent is a massive burden on half of the locals at least, likely many more since the burden does not scale linearly.
Second, check median wage and check the distribution of wages compared to house prices.
We're talking how many millions of people here?
Completely missing the point about how people live because of a hyper-focus on median statistics. By definition, the median describes exactly one person to perfect resolution, and the rest of the population only in a binary higher/lower relation. The explanatory power of median statistics is marginally better than mean statistics, but it is not a substitute for and cannot serve to explain outcomes that do not fit the restrictive mold of the "median" person.
Luck. Choices. Right time, right place. Such is life.
clearly my labor is valued at the value it produces, and i will continue to maximize the income and comfort of my family. is it virtue signaling to notice that my siblings literally work more hours than me and tolerate conditions i would not tolerate?
i don't know. i continue to push them towards tech jobs. they continue to think they are "not smart enough for it", which is an insane position.
The self comparison is supposed to make me feel grateful and happy about my situation, and yet I feel guilty for having the freedom and flexibility of my tech job with it's pay and all other benefits. Doubly so when I look at my son's kindergarten teacher and everything she deals with. I volunteer at the classroom to help as much as I can, which helps both me feel better about what I have, and helps the teacher and the kids.
But that cognitive dissonance / guilt is always there in the back.
What makes it harder? Could they do your job? Or do they miss the bar for doing the level of knowledge work that you do?
This "they work harder" cliche is really tired. They might work hard but they're easily replaced. You are likely not, and even more likely, they wouldn't be able to do your job. If you really feel so bad, donate some of your money to them, otherwise it's just empty virtue signaling.
yes i think most of the population can sub into most tech work. honestly a bootcamp will make most people ready to perform at an acceptable level for your average FAANG swe role. admittedly the interview process is a tougher experience and keeps many people out but does not reflect the actual work.
your being tired of this "cliche" does not make it untrue and this response is as lazy as "if you have any criticism of the current climate why don't you just leave". wah.
there are other ways to help people than just giving them money, like by getting them into tech. i have done this for a number of friends and they're thriving, despite initial reservations.
Most of the population could not sub into most tech work. I know this because a large portion of the population can hardly even use tech, beyond the lowest hanging fruit like social media and other ultra-refined experiences. You have a high opinion of the average person and that's fine but it will stick out in conversations like this.
Your attempts to get them into tech are great! That'll test whether they're capable of doing the work, get them out of the "harder" work if they are, and is an actionable effort rather than signaling your distaste for some alleged injustice.
i don't have a particularly high opinion of the average person, i think this community has particularly high opinions of themselves, and does not like the idea that we are not differentiated other than having interests that pay well.
Second, there is no direct connection between work done, value added + money earned. The connection is a loose correlation at best.
As an example, you can do back-breaking labour painstakingly paving roads with one cobblestone at a time, 16 hours a day, for decades. Or you can write a dozen lines of code that speeds up a critical business process. One is super hard and makes little difference in the world, and thus pays almost nothing. The other is easy if you know how and adds enough value that there's scope for lots of money to be involved.
I had absolutely no idea that 30 year fixed mortgages were not only widely available but the common standard there.
It's going to continue to have some weird knock on effects.
This is legitimately fascinating to me that someone would offer that deal.
How would an adjustable rate mortgage be the best choice for consumers in that situation?
I got an initial mortgage at 5.625%, refi’d to 3.875%, then again to some ~3% 15-year. I never seriously considered an ARM (and now wish I'd refi'd a third time back to a fresh 30-year fixed just to keep using that cheap money for longer).
When 30-year FRM rates are 3%, though, take the fixed.
Once fixed rates got down to the 3-4% range, that seemed to no longer hold and I was frequently offered fixed-rate jumbo mortgages at rates slightly lower than adjustables (I have no idea why they even bothered to quote an adjustable at that point).
If you could get a 10/1 cheaper than a fixed-30 and were pretty sure you'd be moving in 7 years, that's why someone would take out an ARM. (Or, if they could qualify for the ARM but not the fixed-rate payment.)
https://fred.stlouisfed.org/series/MORTGAGE30US
https://fred.stlouisfed.org/series/MORTGAGE5US
You do see a sharp reduction in ARM mortgages as a share of total with the interest rate reductions post 2008: https://i2.wp.com/financialsamurai.com/wp-content/uploads/20...
They're a known-unknown. Well-defined risk can be priced in. Black swans / unknown-unknowns can't.
“Priced in” has a very specific meaning, it’s not a generic term for being aware that something might happen.
So for a twenty year "fixed" mortgage, you could end up splitting that into "fixed" rate chunks of 3 years, 3 years, 5 years, 3 years, 1 year, 3 years, years, 2 years.
So the rate is "fixed" for what's often called the "fixed period" (sub-duration), giving you a bit of stability, but over the longer term of the overall mortgage, things can track interest rates more generally as you renew the rate.
Nothing wrong with variable rates in certain circumstances but you can't call a 5/5 ARM fixed.
https://www.ons.gov.uk/peoplepopulationandcommunity/housing/...
“More than 1.4 million households in the UK are facing the prospect of interest rate rises when they renew their fixed rate mortgages in 2023.
“The majority of fixed rate mortgages in the UK (57%) coming up for renewal in 2023 were fixed at interest rates below 2%. Those deals that are due to mature through the course of 2024 will be from two-year fixed rate deals made in 2022 and five-year fixed rate deals made in 2019, when mortgage rates were generally higher than 2%.”
To be clear, the rate is fixed during the term of the mortgage (say 5 years) but the amortization period is different (say 25 years).
https://www.canada.ca/en/financial-consumer-agency/services/...
I think that you have an extra zero there?
[1]: https://www.ratehub.ca/best-mortgage-rates/25-year/fixed
[2]: https://www.marketwatch.com/investing/bond/tmbmkca-30y?count...
"A lot of Americans are bragging that in their country they can get a fixed mortgage for 30 years. But it's worth remembering that for cultural and historic reasons, a lot of Europeans choose to reject socialism."
https://twitter.com/_SidVerma/status/1575185906218442752?s=2...
Note that the mortgages aren't even fixed rate, since you can replace them with a lower rate mortgage if rates drop, with insignificant penalty. Nobody will sell a mortgage like that if their goal is profit (other than to hand off to the US government).
You should check the amortization schedule of a typical 30 year fixed rate loan. You are paying nearly nothing but interest for about 10 years, THEN you start paying down the principal balance significantly more. The first ten years you are basically renting your property from the bank. When you refinance the property the amortization schedule starts all over again where you are barely paying down your principal balance. The banks always need their cut before you are allowed to build equity.
> The banks always need their cut before you are allowed to build equity.
I've never had a mortgage that had any sort of prepayment penalty. (Always read the mortgage contract front to back to make sure there isn't one.)
I'm not sure why you bring up the amortization schedule since since you definitely save on the overall interest side of the mortgage. Put another way, if you get the lower interest rate and keep paying the same monthly payment you were paying before, you'll pay everything off faster.
Just like renting vs. buying there are times where refinancing to a lower rate will save you money in terms of total paid, and times where you may a similar or higher amount but will save in monthly payments. Like everything else you just need to do the math and see if it's worth the fees to get the new loan or not.
Almost one third of the MBS outstanding are held by the Fed - but that means that more than two thirds are held by someone else.
Nowadays, though, Seattle residents not making obscene tech money have to either live in a submarine-esque cramped environment or spend 2-4 hours commuting every day
https://www.pewresearch.org/fact-tank/2021/12/16/in-2020-few...
The change in city living is also a big difference. Cities used to have parts of the city with the lowest cost of living in the metro area. Things like boarding houses and single room apartments w/ shared bathrooms & kitchens. That's no longer the case in a lot of cities. Places like Seattle and SF are comprised of pretty much all expensive places to live. That squeezes poor people more since they often have to rely on public transportation and can't take advantage of cheaper suburban living.
Which is to say that it seems people find less reason to move from one house to another where they already live than they used to. I expect this is because the difference between your current house and a better house has become substantially more expensive than it used to be, making it harder for people to improve their standard of living over time.
(And as a side note, the above numbers are ignoring immigration. In 1980 California was 15% foreign born people, about 2.5X times the national average. And people who immigrated in 1940s-1960s would themselves have children that lowered the needed inter-state moves even more)
Point is, 5 decades is a long time, only takes a small percent a year to compound. California, by far the most popular state to move to in the country historically, still doesn’t need that high a percent change to get from 5 to 30 million.
If the natural growth was 2x in those 5 decades then 5 to 30 is a surplus of 20 million people. A bit less than 10% of the US population in 1990.
All those big cities are probably similar.
My cousin owns a mansion in Capitol Hill. Because she was a broke-ass student at UW and couldn't afford rent. Back in the 1980s, buying a house there was seen as a crazy, insanely risky thing to do and likely to end up in death.
The modern equivalent is the area around 105th and Euclid in Cleveland, near Case Western and the Cleveland Clinic. 150 years ago, that was the wealthiest neighborhood in the entire United States, now you are though to be insane to want to buy a house there. But if you did, would you end up with Capitol-Hill like appreciation in 40 years???
My friend recently applied this same concept in a very rough area of South Bend, Indiana buying a house with bullet holes in the side using the same general logic ("it'll get gentrified someday").
The issue he's running into is that it turns out a city doesn't have to charge you property taxes on the actual sale price (which was only $3k) but can charge you property taxes on a higher amount of their choosing ($40k I think he said) in order to encourage revitalization and not just hoarding of slum houses, probably.
He's trying to fight that property tax assessment, but I'm not a lawyer and neither is he and he'll probably lose. In which case the holding costs defeat his whole plan.
i think it should be that if they choose the price, then they must also be obliged buy at that price, in lieu of having the tax paid.
Your cognitive dissonance isn't unusual but I think it does a disservice to our ability to have productive discussions on any number of issues. Whenever issues come up of who deserves to make more or less, they get bogged down with who works harder and who's work is more meaningful.
It's economics and it starts and ends with raw numbers. Acknowledge that first, then move on to how to make it better.
No, it starts and ends with peoples' lives and how much of it they must expend to keep it going. There are no such thing as "raw numbers".
We as a society can define how our economy looks like, it is not some hard defined concept like the speed of light or the very basic principles of mathematics.
Economics is a soft science, and we should treat it is suchs.
The raw numbers don't say much, expect the result of how we have shaped our economy. There is very little preventing us from changing the way the housing market is structured in a real, hard fact kind of sense.
And root causes, especially for problems as complex this, is a fallacy.
> despite working hard
that's a non-sequitur. Migrant laborers on farms work absurdly hard. "Work hard and get more" is practically a boomerism at this point. There are many reasons to work hard, but none of them have to do with guaranteed home ownership
it starts and ends with raw numbers
No it doesn't. If that were true markets would be reliably self-correcting and market failures would never occur, rent seeking wouldn't be profitable and so on. In reality there are variations in elasticity of demand and supply, regulatory issues, and economic network phenomena like preferential attachment, all of which substantially complicate the picture.
On average, this may be true, although "how hard they are to replace" is difficult to quantify and most of the scarcity is artificial. But there is enormous variability in the relationship between pay and revenue/profits provided and opportunities for replacement. I am certainly paid much more than I should be, since I work in a cost center and in that group I am definitely not the one bringing in work or revenue, and I suspect I would be very easy to replace. But at the time the contract was signed, I had the right certifications (e.g., PhD) and the right resume. Like many others, though.
And about your comment:
SW aren't well paid because of how much money they generate or how hard they are to replace.
1- I'm not sure why you say this but SW are not that difficult to replace. There's plenty of SW around for everyone.
2- What actually determines the fact that SW are so well paid is just luck and time. What do I mean by this?
2.1 The profit margins in software services are the biggest. An easy example is Amazon. Initially a simple bookstore. Then a e-commerce shop. This is what Amazon is. And yet their margins for this is about 1% and for their cloud services is about 40%. Amazon CAN afford to pay SW well not because it generates more money, but because it has huge profit margins. And why is that?
2.2 Because it just so happens tech is VERY NEW and has changed everything far too fast for the market to adapt. Consumer physical products have been manufactured and sold for decades. Agriculture is a much more essential service than SW and it's some of the worst paid industry. Their profit margins are close to zero. All the money that could be extract has been, capitalism has done a good job of making it cheap for consumers. But tech? The world of mega corporations, monopolies and duopolies, there is often no such thing.
It's not about value to the world SW provide, money SW generate or hard to replace. If you really want to talk about value to the world there are many other careers that do. SW isn't one of them. SW are just well paid, due to luck, timing of being born right now, and the fact market is very new and hasn't adapted yet, that's it. Enjoy.
They're completely different situations.
Sounds like CA is 5x more expensive for young people. But salaries are "only" 2x to 3x those of Germany.
By definition, if people "invest" in goods that can be produced at a certain price, then production should kick in and restore balance. In a functional housing market you shouldn't be able to get a better appreciation of housing than the inflation rate, except for perhaps some very limited and irreplaceble houses in the Hamptons or designed by famous architects.
Housing should behave much like the painting market: a few are worth millions, but everybody can get a cheap painting for their living room because more painters are born every day.
So the actual problem that enables this housing pyramid scheme is the lack of production and the entrenched policies of class and race discrimination in real estate development. Existing homeowners rationally want to exclude builders away from their neighborhoods to keep supply limited, so they are politically fighting for restrictive legislation. This problem can only be solved politically, with the state taking a major role in the supply of housing.
The state already takes a major role in the supply of housing, as you yourself acknowledge. That's the problem, not the solution.
The ideea that you can eject the state from regulating the use of a resource with so many externalities is a pipe dream, you either get some sort of favela or the residents re-invent a much more exclusionary and bigoted version of the state, for example the HOA.
They have been, for decades. That's where things like the Community Reinvestment Act, which played a significant role in causing the crash of 2008, came from. Not to mention the decades-old policy of encouraging mortgages by funding them with money printed by the Fed's printing press.
> The ideea that you can eject the state from regulating the use of a resource with so many externalities is a pipe dream
No, what is a pipe dream is the idea that governments can somehow fix problems with externalities or market failures. They can't; they make them worse. That's because governments are not magical entities that somehow always do what is best. They are organizations run by human beings, and their incentive structure is even worse than that of free markets.
> the residents re-invent a much more exclusionary and bigoted version of the state, for example the HOA
While I'm no fan of HOAs, at least the people in them have skin in the game, being members of the community themselves. However flawed this model is, it's still preferable to having unelected bureaucrats in a city a thousand miles away micromanaging people's lives.
Those things take coordination and effort to achieve, and some governments do achieve them, some to such a large extent that we come to take them for granted.
Governments claim to fix market failures all the time. That doesn't mean they actually do.
> Those things take coordination and effort to achieve
That is true, but governments are not the only way to do coordination. In fact they are usually the worst way.
This is historically false. There have been many human societies in history that have done at least as well, if not better, than societies with governments at providing these things, taking into account the available technology of the time.
Also, you are assuming that societies with governments have all of these wonderful blessings. That is, to say the least, not obvious.
i bet you can find a response to this comment that says, "well your friend should find another job or move to a city with a lower cost of living."
An income tax calculator estimates about a 22% total tax bracket and a monthly adjusted income of just over 6k. To me, that means that this person is falling right around 33% of their income devoted towards housing, which seems typical. What am I missing?
If you bring home 6k a month after taxes, and after rent you're left with 4.5k, I'd also argue that's not "barely making ends meet". That leaves a very comfortable breathing room that is unimaginable luxury for most of the world.
Another aspect of this issue is that, when you take out a typical mortgage, you take a 4-5x leveraged long position on real estate. Rent for a nice 1br in Seattle area is $2K, but the hidden aspect is the landlord is holding the RE risk on your behalf.
Even if mortgage was $1K/mo, I would rather rent (which I do) to avoid this risk in volatile, tech-dependent area like Seattle.
In nominal dollars yes... but the downside risk was the true cost.
Get in at a low rate and comfortably afford it, then you're doing great despite maybe being underwater for now. But default while underwater and lose whatever you put down plus the difference in price.
TINFA but, exposure to real estate is generally/historically a good hedge to keep pace with wage inflation. I disagree with OP; getting in before rate hikes wasn't necessarily a mistake. But mortgages work the same way that ESPPs and RSU grants work, banks/companies/governments hedge downside risk by convincing a whole bunch of people to be long on a stock (or real estate).
- All forms of insurance - saving for retirement - Rising food costs - Any Healthcare expenses - Car costs - Child care - Subscriptions (phone, internet) - Utilities
All in Seattle
This is called precariousness, not comfort.
Those situations also happen, they're not black swan events. My current medical plan for my family has a deductible of $3k. Every year we end up hitting that number. That's excluding the actual premiums which are deducted from your pay. Do you have ANY idea what you're talking about?
Now it all makes sense! I agree that 4.5k after tax is fine to live on in the UK. Here in the US where a carton of basic eggs cost $6+, a box of standard brand milk costs $4/5, that $2.5k is going to disappear pretty fucking quickly.
I was astounded at how expensive it was here. Even in London, you could buy Warburtons for £1.30 or so back when I moved a few years ago. 1L of Cravendale (I liked the good stuff) was still £1 IIRC. Now it's like £1.30? Still, way cheaper.
But here in the Bay Area, for 2Y+ you can find daycares for that amount. Also home day cares are also an option and they tend to be between 1.5-2k a month.
When you're looking for <2Y care though? That fucking sucks, because of the (understandable) ratio laws, prices are high 2ks to 3k here.
Living alone? Probably, assuming you have no major debt and are in great health/have no emergencies.
2 of you? Maybe. Definitely not putting anything away for later that’s for sure. Better not have any emergencies.
Kids? No way.
$4500/mo after paying for your home basically leaves little room for error or, frankly, joy in your life. Can't take trips, can't have pets, can't donate to causes, can't go out to eat much or anywhere nice, etc. We aren't supposed to just work/eat/sleep, we need something to look forward to, we need to be able to weather financial emergencies, and we need to be able to save for later.
None of this is "struggling to make ends meet". I've seen this before though - people make good money, have a place to live, make payments for a nice car, have enough to put food on the table, to pay for their energy bills, to send their kids to school/childcare, and yet they will say they are barely hanging on because they can't save a lot every year or go on holidays.
Like, I really sympathise, but that's not barely making ends meet. 4.5k after rent is enough to live on almost anywhere in the world.
My wife was able to also get comparable work and that money wasn't at all needed to help make ends meet, so it went right into student loans and those got paid right quick.
I moved from the Midwest and people warned me about the CoL etc. But you just gross more even if the apartment etc is a bigger percent. And cash is king especially if you have debt or just like buying nice things or both.
Federal DTI maximum for mortgages is 45% with a good credit score and/or cash reserves. For apartment complexes, they typically won't lease, or will require a bigger deposit, if your gross monthly income isn't 3x the rent (which typically means it's 40%+ of your net income).
If 25% 'was' house poor, then at least 90% of today's mortgage-holding and rent-paying Americans are house poor.
If you're within a mile of _that_, it seems reasonable to define the housing in that area as "prime" and expect it to cost a lot more than further away. The fact that rents for that housing has a cost that is prohibitive for the vast majority of people doesn't seem odd to me.
That sent him to a severe depression and later on an unsuccessful suicide attempt that rendered him unable to work and he became homeless.
Head chef, unlike senior software developer or something, is a job that doesn't scale much. A rock star chef in a posh neighbourhood is only so much more productive than a mediocre chef in cheaper neighbourhood so, economically speaking, the salaries are not expected to scale all that much.
* father worked in a factory, mom stayed at home * owned a house, 4 kids * 2 cars, annual vacation
The family life of a single factory worker after the war.
This place looks nice! https://www.zillow.com/homedetails/2742-Lincoln-St-NE-Minnea...
Should they simply give up on their own ambitions and career goals?
Now extend your own logic to teachers, service workers, etc.
There's literally no force compelling it to invest in a failing area, or one perceived to be failing.
If it was a true free market, housing wouldn't be an issue because developers wouldn't be forbidden from building density. Capitol hill is a disaster for city living as most of it are single family homes, whereas they should be 5 story condo buildings.
Capitalism is detrimental to free markets because it has inherent positive feedback loops that concentrate capital. Concentration of capital inhibits competition, and a market without competition is by definition not free, regardless of the amount of government regulation in it.
That sounds an awful lot like socialism
https://theanarchistlibrary.org/library/sheldon-richman-libe...
I do think you need some mechanism of enforcement though, history has shown that violent people will easily come along to dominate in the way that they see fit
History did indeed show that violent people will try to take over - it is how we have the system of governance that we do today, after all. But individual violent people are not really dangerous to the community as a whole; it's only when they organize in sufficient numbers and possess sufficient resources that it is a threat. I believe that the best way to secure society against such threats is a broadly decentralized organization, such that any attempt to organize to concentrate power is clearly visible in its early stages and can be nipped in the bud by those immediately adjacent to it, without escalating it to higher levels of governance. The latter should be mostly about coordination of efforts and plans, not coercion.
The actual amount of policing power and the exact level of governance on which it should be the strongest is something that, I think, would need to be figured out by experiment. Maybe Murray Bookchin is right and it is, indeed, municipalities. I would hope that it can be more fine-grained than that. But I'd be immensely happy with any working proof of concept, so long as it does not preclude further tweaks and experimentation. If Rojava lasts, it might provide some more useful data.
Well it functions up until people such as this head chef say "screw these housing prices" and relocate somewhere else and open their restaurant and have a better life and then whoever is living in Seattle gets crappy or extremely expensive restaurants to account for the high housing prices.
Think about it like this. What do you think of when you think about Indianapolis, or Kansas City, or Charlotte, etc.? Do those cities seem very desirable to you? Places you want to go and uproot your life to move to?
Probably not. Flat. Boring. Dog shit weather. Car-only infrastructure. (I know I live in a similar city for family/friends reasons)
You can’t solve this problem with less home equity - that’s a contradiction. The great things you enjoy are tied 1-1 inseparably from your home equity. The only way for your home equity to not be as valuable in ten years as it otherwise would be is to get rid of the very things that you enjoy!
I also have to note that "dog shit weather" is literally one of the things that define the Seattle experience. I don't actually mind personally, but a lot of people do.
That’s not the only reason and you know it. And even if it were the only reason for you it’s not the only reason broadly speaking. But the desirable political climate adds to the desirability of Seattle.
> I also have to note that "dog shit weather" is literally one of the things that define the Seattle experience. I don't actually mind personally, but a lot of people do.
Seattle has fewer homes with air conditioning than even San Francisco [1] at 33% (as of 2018). Kansas City is at 99%. It’s very moderate throughout the year. You don’t get crazy temperature variance. Seattle isn’t San Diego but it’s not Buffalo, Kansas City, or Mobile either.
[1] https://www.seattletimes.com/seattle-news/data/seattle-is-le...
The problem kind of solves itself.
Why?
Because if they leave then they will no longer contribute to the area's desirable reputation.
And in this specific case (head chef at a popular bar) living in the neighborhood allows him to keep abreast of other bars, local trends, etc which benefits his work.
At the end of the day people can make the right mix of economic and sociological choices that they want. But what's not going to happen is everyone in Seattle gets a 2-3 bedroom house and you can make peace with that fact of life or continue to be frustrated.
Not just high-end restaurant jobs. The local owner of the ferreteria (home repair goods) lives above his store as does a window/glass store owner. And this is in a relatively pricey, high end neighborhood. In other neighborhoods is even more common. My family recently sold a restaurant in Bogota and the new owners are converting the top floor into a home for themselves.
The weather isn't the best in winter, but if you know how to put on a coat it isn't that bad.
If people can't satisfyingly live near their work, then they can't work there, and then the work can't be done. If workers has to move to another state to practice their craft, a city needs to proactively recognize and address the problem if they want to avoid a coming blight.
In this particular case, though, I think the thing that is daming Seattle (and similar locations: Santa Barbara, San Francisco, Denver, Aspen, anywhere remotely desirable) is geography and climate and there isn't much you can do to fix that because you can't create new geography out of thin air. "Ohio is so boring", "I need to be near mountains and fresh air", "I like to surf", "I love to hike" are all things that can't be effectively replicated and so wherever those things exist prices will skyrocket relative to other locations.
Can Seattle literally build more? Yes. Will that solve Seattle's housing affordability problems? No it won't. In the short term interest rates and cost to build mean that most units will be higher end. Certainly won't mean a 2-3br house anyway. In the long-term unless something drastically changes Seattle is just desirable and there will be many more people who want to live there than there will be homes unless we could just snap our fingers and create new housing, nevermind governance issues, it just isn't happening folks.
I do empathize though. Please don't mistake my comments for callousness. But sometimes the truth (as I see it) just needs to be state. If you want to work as a chef and afford a 2br house it just is not happening in Seattle and you should make peace with that.
This is the problem and partially (mostly maybe) why Seattle and other “cool” cities are in the position they are in now. If Seattle was undesirable like, idk, Gary, Indiana then you’d be able to get your friends there and a head chef can buy a house and such. But then it’s Gary. That’s the dichotomy that Seattle and other cities face. Can’t escape it. What you are asking for and wanting just isn’t realistic.
Imagine if I came up to you tomorrow and said I’d like to live with an ocean view in Santa Barbara in a walkable neighborhood with street cars and all my friends and family could afford to live there with a 3br house and the chef makes a lot of money and has this killer restaurant… you know that’s not going to happen. Seattle isn’t any different.
Nobody bats an eye when we build substations to support the lights in the restaurant, but building homes for the workers is "not realistic."
I’d also personally avoid framing things as such “build homes for the workers” because it implies a very top-down industrial capitalist or communist viewpoint that I think many are resistant to.
Like water flows through the path of least resistance the easy solution here is people are just going to put up with it or move. If it’s a burden I recommend moving.
If you think there is hope with price pressure relief you only have to look to Manhattan, because that’s the future you are facing in my opinion.
-edit-
For the example I can’t think of any tier-1 city that has gotten less expensive over time (please do not cite Tokyo or Japan) except maybe Chicago and even then I doubt that it has really gotten cheaper versus just not as expensive as fast as peer cities.
I definitely think people should try I just think that the expectations need to be set better. Making $100,000/year and living on Capitol Hill in a 2+ bedroom home is just not going to be realistic without giving up something.
One thing Seattle and similar cities can do to help alleviate this though is to continue to or start to dramatically end the usage of personal auto travel and transit. For example I-90, I-5, and I-405 should all be shut down as they traverse through the area. Probably also tearing down and revitalizing areas where there are more than a couple of lanes in each direction. That’ll give more space throughout the greater Seattle area for people to live and fewer cars means more local shops and more money to spend on them too.
https://app.leg.wa.gov/billsummary?BillNumber=1110&Initiativ...
I haven't been to Seattle, but in major cities space is at a major premium and many dwellings are tiny. This is offset by the amenities living in a prominent city have to offer.
You're basically saying "it's fine because that's the way it has always been," which I don't think I need to explain is not a particularly compelling argument.
This doesn't sound right to me. Maybe it's true for the very fancy quasi-Michelin places like Canlis or Shiro's, but for a nice-but-average gastropub in Cap Hill it's probably much less.
Is that all? That's crazy cheap by the standards of my area. Where I live (a smallish city in western US), the cheapest housing you can find, in the least desirable part of town, starts at $1200/mo.
This is an inappropriate emotional appeal. Real estate is dependent upon the price/value of labor. It's betting for/against labor prices.
Labor is not your life. You are more than your job.
Of course, I won't step on others, and I'll help where my conscience requires me. But at the end of the day (or the end of the world) I am here to provide a safe future for my children, and perhaps secondary, my culture's children... but definitely not to save the world. The world is beyond saving at this point.
Why do you conclude that money will keep you safe? Easy to hyperinflate currency, freeze bank accounts, seize gold, etc. Typically in a "violent revolution" you mentioned, power lies in the military.
Assets, in particular high value, portable or hard to destroy ones, that are easy to defend, or skills that are very hard to replace without destroying you or their value.
Military is strong mostly due to the assets it has - obedient manpower and destructive hardware. The problem is, however, that using these assets destroys value in the medium term, not creates.
A factory making guns is worth much more than guns themselves. People who know how to operate it, as well. A working mine is worth more than a mountain.
Every conqueror wants submission and instead reaps destruction.
Yes if they have inherent value.
>factory ownership
You only own said factory because government says you do and will enforce your ownership. A junta or communist party might not agree you own it anymore.
To quote the mars man: "all things considered with regard to AGI existential angst, I would prefer to be alive now to witness AGI than be alive in the past and not".
In the world you're describing, they're not just possible, they're inevitable.
Consider the implications of automation taken to the extreme. Today, we have capitalists who own the means of production, and workers who use them to produce value. Workers don't get a fair slice of the pie that they make, but they get some of it at least because labor is needed for capital to be useful. The system is unfair overall and popularly perceived as such, but most people aren't pushed far enough that violent revolt would be rational and feasible.
But if means of production that don't require workers to operate them become dominant, and lots of workers become outright economically redundant, it will literally be a question of what do their children eat tomorrow. And, well, there's a lot more labor; whatever societal monitoring and control tech you devise, it won't help you if 90% of the population realize that the only way they won't starve is if they forcibly take what the other 10% has hoarded.
Not only that, but should that happen, the torches-and-pitchforks mob will target the people on the bottom of the upper class first, simply because they are more prominent in day-to-day interactions, live closer, can afford less security, and don't have ready access to escape routes (like a private plane or yacht). For some vivid descriptions of how this works out for the people who can't escape, read about the 1917 Russian revolution.
So unless you're already comfortably upper class - enough so to afford a bunker in New Zealand or similar arrangements - this doesn't sound like a good long-term survival strategy to me. Indeed, I would argue that, among white collar workers, it's precisely the high middle class people that have the most vested interest in "saving the world", in a sense of coming up with a new economic consensus that would prevent the above scenario - we have to, if we want a safe future for our families. And I don't think it is at all impossible for a political alliance of all labor across the board to push this change. Our societies are bad at democracy, generally speaking, but supermajorities still matter.
if this happens, then production of the goods become even cheaper than before. Therefore, the availability becomes higher, and therefore, those who are not redundant would become richer, as they can now afford more, or pay less for what they consume, leaving extra for luxuries.
This would generate demand for new goods/services, which become new opportunities for those who have become redundant. And the cycle continues, until one day, every possible piece of work to be done is automated (ala, star trek).
Guess it depends on how each person defines 'what you get in return'. It seems this chef values living in a particular expensive neighborhood in Seattle, presumably close to where s/he works - and s/he values that. The smallish apartment size is the tradeoff they make.
Capitol Hill (no one calls it Cap Hill.) is pricy, though $2,000 should find a studio easily, and no car is needed, it's a close knit enough neighborhood.
Play the cards you're dealt.
Rate of capital is intended to exceed rate of labor. If you're from a working class background, its common to think more labor = more rate of labor .... and that's it. Not how the higher rate transitions into more capital earning more than the labor.
Our household income is north of 300k, but housing still seems unaffordable. It might sound like whining, but we only achieve this level of income recently, so our lifelong savings are in the low 6 figures. We got no assets or property abroad, and no family that can help us to get in the property ladder.
Even old, basic houses in our suburbs outside town go for ~$1M. I spend an inordinate amount of mental energy calculating how we can jump into the property ladder as quickly and safely as possible. My current plan involves saving for a few years and dump a good chunk of cash into a down payment; it doesn't seem we could ever afford a property otherwise.
I wonder how property prices affect "the american dream". It's baffling to me that I'm so worried about housing while making a top ~5% income.
It's very frustrating to be /in/ the gap. Bay Area homeowners act like the apocalypse is coming if increased supply means poors who /only/ make 100k are allowed to buy next to them. The horror. The humanity.
Still, we are a couple nearing our 40s, it seems insane to me that we need to "settle down" for a 1 bedroom flat while making ~3x the median local income.
Have you looked at how many people need to commute there to work because they can’t afford to live there
https://www.nytimes.com/2022/06/23/realestate/owning-renting...
To live (with long term attachment and commitment) at a place, people want something that is decent and new-ish and much bigger than a 1B condo. Especially given how laborious and costly the buying and selling process.
That's exactly the on-paper ideal for how one comes to buy a home here. With rents soaking available income, and a high average debt load because of education costs, most young American's now struggle to see any non-negligible growth in their savings until later in life (if then). If you have substantial savings and anticipate growing it further in the near future, you're already winning the game. You're fine.
Of course, if you live in California or New York, you're basically broke, since the cost of living in those states is designed to keep people poor. But that's why people left those two states in droves over the last few years.
I'm from a working class family myself. My parents were factory workers, and they managed to buy a new 4 bed apartment in a new part of town and raise 3 children.
And yet I don't feel I'm doing materially better than my parents at my age. I definitely don't feel upper middle class even if my income suggest so. As you point out I can't imagine how people with more average incomes get by.
I would venture to say that more land area of California is in the "unaffordable to average people" range than that in New York, either as an absolute or as a percentage of the state.
Living in a posh neighbourhood is a luxury, like Ferrari (which, by the way, costs much less) or a golden watch. If you want rich people lifestyle, then you should be prepared to pay rich people money for it.
Hawaii would like to have a word with you, unless you suggest every single non-rich local would just have to move to the mainland. I believe the cheapest home I've seen available, where the neighbors aren't cooking meth, is probably in the $500-600k range and going up.
This is the part of town where the grocery store has security guards all over the place, and the bank has thick bulletproof glass between you and the teller, and the transit options such big time. If you want to live anywhere remotely near where the jobs are, every house is near $1m+ now.
Conclude what you want, you're completely wrong and out of touch with current housing prices in a lot cities.
One reason I would never live in "South Seattle" it's a literal food desert. The WinCo being in Kent is it's only saving grace, but even the QFC a bit north of the Safeway on Rainer - yeah.
The fun part is, all the good brands are routinely on sale/discounted heavily because the local population either does not like or can't afford it - e.g. cheeses. Always 20-40% discount on cheese.
Not so common in north outside Seattle limits, or even along the border - but yeah to go back to point -
"This is the part of town where the grocery store has security guards all over the place, and the bank has thick bulletproof glass between you and the teller, and the transit options such big time. If you want to live anywhere remotely near where the jobs are, every house is near $1m+ now."
Is why the good houses cost 1,000,000+. Community and neighborhood alongside school district.
This isn't rich people houses folks, these are middle (possibly lower middle) class houses. Most people here didn't pay 1M for their homes, they most likely paid a very affordable price many years ago. It's worth repeating that house prices increased an average of ~40% since the beginning of Covid. That should help to put prices on perspective.
Other jobs literally have to move to continue their work in a particular industry. When a factory relocates, line workers need to move too. Nurses often have to move, or learn a new job. Sure, you may not have a high status FAANG job, but there’s way more remote work in tech than probably any other industry. I think it’s more an issue of managing expectations and wanting it all, than lack of opportunity to find a job in an area with a decent quality of life
A person having a jet that costs $100 can do about as much with it as a person with one costing $100 billion.
Same goes with housing, mostly, with some obvious wealth breakpoints. The confounder is location, as defined by time to travel and job availability.
Quantization artifacts dominate. Having access to basics vs not has a much bigger effect than either quality or quantity.
This is why having just one house is not an investment - you cannot afford to not have one unless you're so rich you could outright get multiples of them in some places, get there and live comfortably.
As the saying goes “I would rather be dead in <X> than live in <Y>”.
Here's a fun game you can play: https://www.crackshackormansion.com/part2.html
This is a huge problem for economic growth. If housing costs in the Bay Area were at US average, easily 10M more people could live here and get high paying jobs. But that path to a better life is very constrained.
Also why people insisting on teleworking as a permanent option haven't really thought it through.
what's not obvious is this dynamic has been going on for over a century and a half in california and the greater american west in general. the white native reaction was at first the chinese exclusion act, then japanese internment / asset seizure.
the difference is this time the legacy white property owners are cashing out (cashing in?) in a huge way in both sales and rent as asians move in, so you can expect it to continue.
it's white flight, but financially inverted. in other words.... asian gentrification.
You can probably safely extrapolate that to all races who move to a foreign country. They tend to want to live amongst themselves. Not necessarily for racist reasons, but because it's a bit more familiar and you have an easier time communicating with others speaking your dialect, as well as having similar customs and social norms.
So, racist reasons?
actually they (the asian you say) would face less discrimination but they just dont know it so they could be also racist by themselve (english is not my best, just trying to explain, of course they are not racist)
I see this in my street, 2 kebabs, one filled with black arabs with hallal meat, the other one being « american organic kebbab » and filled only by 35+ white people. it saddens me because ignorant me was thinking people will mix together at lunch…
Thank you for speaking on our behalf and enlightening us on where we would/would not experience more/less racism.
The dissonance comes from the fact that a lot of hackernews readers make apparently high incomes, but the cost of living in their areas keeps them squarely working class.
The best example I can give is in the Bay Area. I lucked out with $2850/month to rent a 1400 square foot house in San Leandro. Except that I worked in South San Francisco, and my commute was 45 minutes to 90 minutes each way, every day. I looked into it, even did the math with average commute times and Health and Human Services housing cost data, and found that if I wanted to cut 15 minutes off of that commute would cost me an extra $1000 a month, or I'd lose the yard and the other bedroom. With a kid, a stay-at-home spouse (a lot cheaper than child care given wages for my wife's field in the bay area) and a dog, that was just a non-starter. I knew people who drove in from Vacaville or Tracey, every day, just to keep the housing prices within their means.
Prior to that experience, I honestly thought $140K a year was the best I could ever hope for. I was top 15% of individual wage earners in the country but I was considerably more stressed out than when I was making minimum wage at an office supply store in suburban Oregon.
You don't need to be on the West Coast to have a tech job.
The problem is, for an intellectual, it's important to live in an environment rich with mental talent. Bay Area is the intellectual capital of the world, and while Einstein could maintain his patent clerkship and have famous physicists visit him in Bern (http://norvig.com/performance-review.html) for the lesser minds in another era settling on another place is a loss.
Lol. Damn, the 0 interest rate era/tech bubble really made you guys cocky didnt it
I grew up surrounded by literally rocket scientists and some of the top minds in biochemistry and mechanical engineering as neighbors. Incredibly intellectual people. I did not grow up in California.
Its not like the Bay Area is the only place with smart people.
Say what?
Switzerland (or possibly Slovenia) has the highest STEM PhDs per capita.
There are many counties and cities in the US with higher PhD rates than any of the Bay Area counties. Most have major R1 unis, but not all.
SV is the VC capital of the world. I'll give you that. But, that's not even remotely the same as being the intellectual capital.
(And that’s not a knock on NM. I being it up as an example of an area that isn’t rarely bright up in these conversational circles)
I'd assume the intellectual capital makes the most intellectual property
There aren't many places where very smart people from all over the world move. New York is one, London used to be one, Bay Area is one. There are a lot of smart people in the bay area.
My eyes rolled straight into the back of my head.
I agree that an 'intellectual' (as a social class construct) might require similar socially oriented individuals to feel like they're among equals. I have no respect for such 'intellectuals'. I have a great deal of respect for people who are curious about the world around them and love to make new and wonderful things and think novel ideas.
I find that those two groups rarely overlap.
Yeah, mine too. It's hard for me to take these kinds of arguments seriously in 2023. I'm willing to concede that geographic proximity was necessary for collaborative intellectual work, but the internet has changed that milieu. I also don't think it was true pre-internet, as Einstein himself showed.
Linus Torvalds didn't need to be in the Bay Area of California when he created the Linux kernel, yet it didn't happen without a massive amount of collaboration enabled by the internet. Solzhenitsyn, after he emigrated to the USA after getting deported by the Soviet Union, continued his intellectual work and writing in Cavendish, Vermont which was and is extremely isolated. And that was pre-internet!
In a more lightweight form - what would you, as somebody interested in the matter, consider good criteria for "being the intellectual capital of the world" and what place would fit them?
I'd say such a place would need to be geared toward minimizing anything that could hinder intellectual capacity. The SF Bay Area (as I learned firsthand) is not such a place; the constant stress of financial insecurity does not bode well for intellectual pursuits. I don't know if any such place really exists, for pretty much the same reason - certainly not here in the US.
In short, it'd need to be someplace where people could engage in intellectual pursuits for their own sake, and where the results of those pursuits are freely available to everyone - no censorship, no profit motives, no IP restrictions, nothing except the free creation and exchange of knowledge.
I firmly believe that any city which institutes a land value tax and uses it to fund a citizens' dividend / universal basic income is much more likely to become an intellectual capital than a city which does not. Land speculation is the major contributor to socioeconomic inequality and consequently the major obstacle preventing cities from being truly amenable to intellectual pursuits (rather than the current status quo of financial pursuits). Directly addressing it - by requiring landowners to internalize the opportunity costs they otherwise externalize onto the rest of society - is IMO the most crucial step toward allowing people to engage in intellectual pursuits without fear of failure and without being bound by concerns like profitability.
Culturally, San Francisco, Seattle, and Boston strike me as good candidates once they address the above; the first of those three to implement LVT+UBI is the one I'd bet on becoming the "intellectual capital of the world". I'm personally hoping Reno evolves into such a candidate, but that's one hell of a long shot :)
What I learned very quickly is that it's rather difficult to stay intellectually engaged when even a six-figure salary is paycheck-to-paycheck living in a studio apartment.
I moved back to Reno shortly before COVID, and since doing so I've found myself to be much more productive. The "intellectual capital of the world" can shove it.
The wages in SV price in the cost of living to a certain extent. I’m assuming if the remote work pattern continues, we can’t be expected to make coastal salaries while living in rural Wyoming any more that we would expect a FAANG company to pay an overseas employee SV salaries.
But even if I wasn't in a field that requires time spent hands-on with the physical hardware, a lot of companies (my former employer in the Bay Area amongst them) insist on in-person work for most positions, even if the position doesn't really require it. And so it goes, people making $60K in Wichita or wherever glibly say "I can get a house for $180K, you make 5 times what I make, complaining about million dollar homes is just a rich person lacking perspective". Even if you do the math and show that holy cow, homes are expensive in tech hubs, even considering the median income, all people see is how high the median income, and assume that there's no real problem.
There are markets other than California and Wyoming though. I'm sure you're aware, but its always good to compare compensation versus living expenses. Almost every time I've been given a chance to move it meant I'd be trading my lifestyle in a negative direction (from my perspective) and smaller savings in the end even if the salary was over 2x my current. Everyone has their own priorities in life though, I hope you find a way to achieve yours.
Good luck in life friend.
I'm still frustrated by the high price of housing, because I fundamentally agree with the thesis of the article: housing, especially single-family housing, should not be expected to appreciate faster than inflation. To that end, so long as my house's worth when the mortgage is paid off (on a 30-year mortgage) is about double when I first bought it, I'll be happy.
I don't share the article's glum outlook. I think if enough people can be convinced that houses aren't, and shouldn't be, viewed as money-makers but just, you know, houses, this problem can be solved. I understand that's a pretty radical and utopia position to take though.
I think part of the problem is the presumed loss aversion of moving from a $300k salary to, say, a $175k one that is remote but allows for a better standard of living (particularly for families).
This is a phenomenon that is prevalent in other industries, without that remote work luxury. Oil and gas workers get paid handsomely but often have to live near the worksite. Even then, rent is astronomical without all the luxuries that SV offers.
And it's not just the bay area. The populations of Cambridge and Boston have gone down since 1950, because a series of laws were passed that put tight restrictions on residential construction that reduced the allowed density and effectively made almost all of the existing housing stock illegal (but it was grandfathered in) and anything more dense than that, like even building a 5 story residential building in a lot zoned for 4 stories, when that lot is surrounded by 4 and 5 story buildings, is an expensive, long process of arguing with the zoning board and going through arbitrarily subjective design review processes.
Fortunately we have the technology to tear down crappy post-war single family homes and replace them with multi-unit buildings.
If you're wanting that much space between neighbors in a high populations spot, that should be like $1M/y in property taxes
why? because you want to be a dictator and force people to live how you want / like to live?
No one would be forcing people to live a certain way, just forcing them to either pay for the privilege of living in an area that was granted public funding for improved infrastructure, or live somewhere else that received less public investment.
As a thought experiment, I find it easiest to understand the arguments for the Land Value Tax if you imagine a local government building a new subway line. Obviously, the existing homes around the new stops would have their property values increased. After all, many commute times were just cut in half! The local government is interested in more people living near those lines, more people == more tax revenue after all. If the local government had a Land Value Tax implemented, the infrastructure improvements they made to the area would automatically be included in the calculation for the taxes owed by the existing homeowners near the new subway stops. $1M/yr may sound insane, and it would be for a single-family home, but because of the new subway line, local developers are lining up to purchase the homes around that line in order to build new higher-density homes. The existing homeowners can either choose to pay the high tax and enjoy their short commute paid for by other taxpayers, or sell at a nice profit to developers. New higher-density homes get built, more taxpayers move in, the city can now build more infrastructure to improve the city!
Have at it, if you can afford the luxury; just don't expect the rest of us to subsidize your lifestyle.
SF hit 5000k in the 1920 census (506,676), 634k in 1930 and 1940, 775k in 1950k, which was its peak until the 2000 census, at 776k.
The first census besting 800k was 2010, and as of 2020, 873k.
Wikipedia shows the 2021 population as 815,201, a loss of 58,764 (6.72%). I'd heard the population had dropped, but that's a pretty significant town's worth of exits. The city of San Rafael in Marin Country, for example had 61,271 residents --- SF lost very nearly that.
<https://en.wikipedia.org/wiki/Demographics_of_San_Francisco>
If you don’t believe it, pull up Zillow or Redfin and set a price threshold under $1M and see how many listings instantly disappear. If you want a good laugh, take a look at what’s left.
https://www.nytimes.com/2022/06/23/realestate/owning-renting...
With 300k income you should be able to save a 200k/20% down payment in a year, especially if you have 6 figures already. With todays rates you looking at 70k/year mortgage and <25% of your income.
300K post taxes is basically 150K, the are probably paying 60K+ in rent and another 30+ in other basic cost of living expenses.
If you take the mortgage interest tax deduction, you will be spending about 35k/yr less on taxes and have more disposable income relative than renting at 60k/yr rent VS (70k mortgage - 35k less taxes).
If two years is too long for the road map, you can rent a room in Palo Alto for 15k/yr or a 1Br apartment for 30k/yr.
If you are paying a 50% tax rate, I would also look at tax avoidance strategies. Maxing out the 401k and HSAs to get that down. Each person can always borrow 50k back from the 401 account to put toward the down payment.
I might be able to save all my stocks, pray that they don't go down any further, and cash all of them for a down payment. Then I have to pray to not have any unexpected emergency or lose my job, since I dumped most of my life savings in a down payment.
Hardly what i'd call a middle class lifestyle.
All I can say is that no option will be risk free and all involve uncomfortable tradeoffs. Every choice has an opportunity cost, but they are mostly financial.
5k/mo including rent actually sounds reasonably frugal in a HCOL city, about as low as my partner and I wanted to go in SF. My only recommendation would be to pick a number for your emergency fund and pick a goal for your down payment. If you have a concrete goal, you can see yourself getting closer, unlike some nebulous idea. I considered my 401k part of my emergency fund and wanted a year of mortgage because I would spend that before selling the house if was laid off. The banks will tell you how much they are willing to loan based on stock comp and variable freelance work so you my not even have the choice to worry about that.
The worst that can happen is you lose your house and all your money, haha.
If you're a single person in California, at $300k, if you have no special tax situation, you'll pay a bit less than 40% tax. If you're married, significantly less than that.
It's easy for me to believe that a family making 300k in Seattle could be living paycheck to paycheck without being extravagant. Definitely not frugal, though, either.
This is incredibly out of touch with what it means to actually live paycheck to paycheck. 300k is at a minimum 160k post tax which is a little over 13k a month
However, having lived through it, I think more of the challenge is prioritization and sticker shock for high earners, opposed to financial impossibility. For example, you are allowed to take a year off contributing to your 401k to buy a house if it is a higher priority to you, or simply borrow the down payment from the 401k. Smart people often get bogged down in opportunity costs and wanting it all.
A 300K income is well below 200K net, so even if they could live with zero expenses, they can't save 200k in a year. But of course they do have expenses, so it'd be a lot less than that.
You buy a cheap house far away from where you work, and rent it to someone. Let them pay your mortgage and before you know it, you've got enough equity to put towards another house. Rinse and repeat.
I remember having a conversation with a real estate developer in SF in 2021. They said that this used to be the path to owning in places like SF, but that it’s no longer a viable option.
Before you do the investment property thing though, make sure being a property manager is truely how you want to spend your life. Investing money into financial instruments is a lot less work these days, what with robo advisors platforms (eg wealthfront, betterment) providing easy places to invest from.
I'm also a bit weary of having to manage properties in far flung locations. I rather use a property manager, who would eat into the profits.
It just runs itself if you get good renters. That's where you put all the time and effort upfront.
Yes it has some risk. All investments do. I answered the question about how you get on the property ladder if you can't afford local prices. There might be other ways too.
No different from living in a house you buy. Except what I recommended is a little safer. If you lose your local job because the local economy collapses, you're now stuck with a house you cannot sell, cannot rent, and that ties you to the area. Ouch!
With a rental far away, if that economy collapses it's already a small mortgage so no big deal. If your local economy collapses, you can move out of your local expensive rental and look for work elsewhere. Or even move into the cheap rental investment you just bought if that economy is doing well. Buying far away spreads your risk and is safer than buying to live in near your work.
In your position, I would recommend renting as long as possible until house price correct in maybe 2-5 years.
There is no reason to feed the bubble on already massively inflated properties with your hard earned money.
if the big cities are making it miserable to live there if your income isn't ridiculously massive, then why stay? why not give one of the other bazillion places to live in the US a try? sure, you may have to deal with less-than-optimally-temperate weather. sure, you may not have access to a rich variety of ethnic dining options. sure, you may not have access to all sorts of trendy places to shop/dine/be entertained.
but why is trading all of that away to have a decent place to live so unthinkable for so many? I've rented for the past 13 years, and now I finally have a home to call my own, and I wouldn't trade that for anything.
Despite having a good university degree and a decent-paying white-collar job, she gets by in Seattle thanks to couch surfing and pet-sitting. It beats the alternative -- sharing with numerous flaky/crazy roommates.
Here, the longest easily available fixed term is 5 years, and you usually pay a decent rate premium (maybe ~2% above the current variable rate).
This is pretty much the crux of it. High housing prices could be "fixed" almost overnight, but for almost every citizen of the first world, their house is the single biggest investment they will ever make in their life. You'd be destroying everyone's retirement plans and there'd be major economic repercussions.
But there's also the second-order problem which is the people who realize that governments will never let the value of housing decrease because of the above, so you have upper middle class people owning "investment homes", or foreign investors buying homes they never intend to live in (or, in many cities, never even bother renting out), or even corporations like BlackRock buying up houses because they know it's such a safe investment.
Everyone?
There - fixed it.
I think taxes should be increased on those with investment homes, second homes, mansions, and the income and wealth of the wealthy rather than just nickel and diming the middle class.
Just looking at my latest report on my property tax bill (which was about $3k USD for 2022):
- about 45% of the amount went to local city administration, which includes civic services like police, fire, etc.; the city had a nearly balanced budget for the year (<$1k US away from balanced)
- about 55% of the amount went to the local school board (who are directly voted on by the city's populace and can directly levy property taxes) for teachers, administrators, building maintenance, etc.; the school board did not have a balanced budget on account of bond issues for new construction in anticipation of ongoing new housing construction
- 3% went to the local library (whose board is partially appointed by the mayor and partially self-selected), which had a small budget surplus
But I bought it because I wanted to own it and live in it, not to sell and make money off.
Having said that it's obvious that the availability of cheap money has jacked up housing costs to a stupid level, and it's obvious that when it unwinds there is going to be a big mess. What stops it from unwinding - immigration... because as soon as immigration stops the pressure will go out of the housing market and a-la Japan houses will get cheap.
Don't underestimate the inflationary potential of fiat currency. Maybe it'll just stay the same price, but everything else still gets relatively more expensive.
Also, in the case of high-cost coastal cities, I don't think the issue is trust in government propping up prices, as much as it's trust that demand will continue to outpace supply for the next several years at least.
Where I lived in Italy, people certainly purchase houses, but they don't expect them to have crazy returns like in the US. It's just a way to not pay rent and have something that you can hang on to even if there's inflation or other funny business (something that Italy has seen a lot of).
People even invest in, say, apartments, but it's a similar story: they expect them to hold their value and pay themselves off over a number of years. There are certainly returns on it, but they are seen as steady, long term investments.
Where I live in Oregon, during the most recent boom, there were houses "earning" more than 100,000 a year, just sitting there. That's more than the median household.
Yeah, it's a bit apples to oranges, but still, it's really out of kilter.
Long term, it'd be healthiest if housing were 'boring', neither gaining or losing much. That'd also facilitate people swapping out different housing at different stages of their lives without worrying about timing the market.
For instance, there are a lot of people getting older in the town I live in. Are they always going to want to or be able to shovel snow? Mow their lawns? Maybe a townhouse or a condo would be a better alternative that lets them stay in their general neighborhood.
https://www.nytimes.com/2022/02/20/business/economy/spokane-...
We need some more fundamental reforms.
The merging of Seattle and Tacoma was inevitable. The same thing has happened to a lot of cities that are separate by <1hr commutes via highways.
Basically, "(re)legalize housing", along with things like corner stores and neighborhood commercial like corner stores and barber shops.
Only caveats are you need to enjoy seclusion (check) and be good at remote employment (this year will be my 10 year anniversary of being 100% remote). Energy costs are a bit high, so I installed 20 kW of solar and will be switching to an air-sourced heat pump for heating & cooling. Even adding these costs to the purchase price results in paying less.
Agreed, we didn't buy house as an investment vehicle, we bought it for living expenses consistency over time. It's the speculators that ruin any market.
It's going to collapse one way or another.
I think that exaggerates it. Most retirees aren't profiting from the home they own if they live in it. The "income" from it is just imputed rent. So if the housing supply increases dramatically, that imputed rent drops, but it doesn't matter since the cost of housing drops as well.
Granted, they can sell at some point and make a 3x their investment. But by then, buying another house will also be 3x, and rent will be 5x, so they're kind of back where they started.
I guess the exception would be if they sold and then moved to a different area with a very different housing market (or left the country), but at least for domestic migration, I suppose the more rural and the cheaper the houses are, the worse the necessities for the elderly will be, e.g. doctors will be far away, no home nursing services, no local shopping.
Second, if you buy a house for a million dollars and sell it for 500K, it doesn't matter if you can buy an equivalent house for 500K, you are still 500k in the hole on the balance sheet.
And yeah, sure, you'll be down 500k in nominal value, but you'll exchange one house for the value of another. If that's 500k or 1m doesn't really matter, if you've lived in that house, you'll need another place to live at. Of course this changes drastically if it was a house you bought only for investment purposes, with no intention of living in it. But at that point, it's pure speculation, and I don't see why we should protected that asset class more than stocks or baseball trading cards.
You rent or move somewhere with lower COL.
If selling your house is how you plan to pay for costs in retirement like food, healthcare, or leisure, you must must cash out at some point. If you have 500k less to spend on food, healthcare, or leisure, it will suck.
If you dont plan to sell your house for the rest of your life, the market value isn't relevant to your retirement. In that case you are right that it doesn't really matter.
Really don't agree with this -- retiree doesn't mean "decrepit". You're still very capable of driving. My own parents recently retired to a rural area in the US, in a neighborhood with other retirees, where they're a 5 minute drive from the nearest grocery store and a 30 minute drive from the nearest "city" of ~20k people.
It's very walkable in the sense that there are sidewalks and parks, but not in the sense of living in a downtown core with public transit access to essential services.
and with a $1M house should have a sizeable 401k specifically so they’re not relying literally on the housing market to retire. Any number of events could cause the same scenario you mentioned.. so I’m pretty much any realistic scenario for most people, tax deferred investments dwarf the small boost you get from buying a slightly cheaper house.
And having more $250k houses now means it’s easier for everyone else to build up a retirement plan.
rip the bandaid and cut the losses. The house as investment is the blight on modern society
I wonder if one way out would be to 1) build government rental-housing projects again, to fill the immediate housing need, and 2) implement other policies to increase home-building (but only enough to keep price increases below inflation).
One serious problem would be the association of housing projects with crime and poverty, but maybe that could be addressed by putting police stations on the first floor (or something) and eminent-domaining them into upscale areas over luxury housing.
It’s not really the crime that matters, at the core, but rather the perception of “other”. The single-issue anti-housing people don’t want police in their neighborhoods, they want police in other people’s neighborhoods keeping those people out of the “nice” neighborhoods.
Sadly, most people do in fact want more housing for people who are less well off than them, even if it means they have to run shoulders with strangers. But these are the people who work and don’t have time to show up to community meetings about a new apartment going up, and don’t usually decide who to vote for based on neighborhood aesthetics.
Because the problem is mostly political, most of the solution is political as well: identify, train and support local politicians who will vote to build more housing, and help them write new laws that do so. And convince them (by consistently winning at the ballot box) that the anti-housing crowd is loud but not actually large, so there’s little danger in losing their votes.
It's a cultural thing too. We're brainwashed to look down on government housing simply because of the racist practices of the past. It wouldn't even have to be government funded necessarily. The problem could be fixed with non-market housing similar to Europe, where the building costs are fulfilled by a loan, and the HOA or housing entity is setup without the goal of making a profit off the rent, setting rental rates at a margin to cover only the loan and necessary expenses.
My off the cuff (and thus probably naive) thought would be to charge progressive federal taxes on home ownership which progresses based on the unit count owned by an entity. Whether you're an individual or a corporation: your first house is free (0% federal tax). If you own two houses, you pay 3% on the value (of both houses) every year for the right to own them. Maybe at three houses it's already at 10%, and by the time you get to ~10 houses owned, it caps out at 100% tax on the value every year, making large-scale home investing completely unprofitable. The funds from this new tax could be set aside specifically to fund affordable housing programs of some kind.
Under such a scheme, we'd still have rising prices from true single-owner-occupiers under the existing system, but it would slow down and be less-bubbly, at least in the national average, and builders will eventually build new homes to equilibrium, where regulations allow them to. Some moderately-wealthy people could probably still own a second vacation home, or 2-3 rental properties. Some extremely wealthy people might still own 10+ different homes for personal/family use at exorbitant tax cost, but at least the taxes from such scenarios go towards fixing things.
Not where I live. Housing prices have exploded, like everywhere else, but it's not people's retirement plan. We've got state and employer pensions (from a fund not owned by the employer).
So it's not that. Look elsewhere. E.g. at AirBnB, and at ridiculous (both low and high) salaries.
This is a crazy thing to state with almost no justification. How could housing prices be fixed overnight? Please don't say "zoning changes." Plenty of places without zoning issues have really expensive real estate.
Also, in case of California for example, if prop13 got eliminated, it will hit mostly existing house owners, and not new ones.
Or, you're going to pass on your home to your children, so it becomes part of the value of your estate. Or if you don't have any children, you can just reverse mortgage and get cash out that way. It's just like any other illiquid asset.
Reasonable tax breaks for your primary or only home, and none for second homes / investments you let out.
That gives a valve to perform qualitative easing on the housing market whenever you need to, and is not uncommon in other parts of the world.
EDIT: Having read the responses below I’ve realised I didn’t clearly word what I meant here, that’s my bad. I mean a holding taxation rather than CGT. Essentially, an elevated annual property tax on non-primary properties that would have the effect of penalising investors relative to those seeking a home to live in.
However, you don't have to if you die and pass the property down to your spouse and/or children. This is the step-up in basis and is key to building generational wealth in the US.
Yes, but for most people, that's not really a benefit. It's possible to exclude the first few hundred thousand of capital gains taxes on a primary residence anyway. So even without the step-up basis, the tax burden on these properties would be tiny.
Property taxes are a much more significant form of taxation than capital gains. And would be even without any preferential treatment.
In those high-demand areas, owners will simply pass those tax costs down to their tenants, and the rents prices will go up, leading to even less affordability.
Not everyone wants to buy.
Renting doesn't need to be handled solely or even at all by the private market.
If you make the costs of real estate investment so onerous that it’s only attractive to owner-occupants then it becomes far harder for your landlord to exploit you as a tenant, as the option for you to buy much more cheaply will be there even if you choose never to do so.
Is it really anyone's fault but their own? I don't recall housing being offered as a low/no-risk investment with guaranteed profits. Financial blogs, podcasts, and Reddit commenters might have shared that view.
Are there any examples of mortgage issuers or home builders advertising housing as an investment?
I expect banks and home builders are careful with how they communicate with customers.
It's less about placing fault on the purchaser. It's more that there is no one else to blame. Never-ending bail-outs only hurt future generations. I wish I went into deep debt to buy a house a lot sooner. I didn't because I knew I couldn't afford it.
foreclosure makes it no-risk leveraged investment modulo downpayment.
But I’ve seen nothing that guarantees anyone pricing continues to rise or that their home investment will make them rich. What it does do is force savings by allocating a portion of their loan to principal growth. Even if it doesn’t grow at all or even declines, it’ll be worth a lot more later than the latte they forwent 20 years ago.
If you want guaranteed returns, buy treasuries.
Primarily by not allowing construction of new housing supply.
We will see how things go in California! Maybe the anti NIMBY dream of style sky high SRO arcologies will come true and everyone will be living in communal peace in their bleak windowless cement efficiency. My bet is prices continue to rise for as long as people move into the region and developers don’t buy into the egalitarian view of affordable housing any more than they ever have.
Japan is the one place in the world that freely allows density, and Tokyo has not seen rising prices. Note that though Japan's population is shrinking, Tokyo's is rising. Unlike North America, new housing production has kept up with population growth.
https://www.wsj.com/articles/what-housing-crisis-in-japan-ho...
https://resources.realestate.co.jp/buy/how-much-does-an-apar...
Utopia!
Thanks for pointing out that prices are rising, I may have misspoke. But the key point is that relative to other major cities Tokyo's prices are not rising anywhere near as fast. The chart from 2000 to 2019 was basically flat, and even from the lowest point maybe a ~15% rise
I expect even the current rise is dwarfed by rises in comparable cities
What way would that be?
All producers of goods and services maximize profit. That doesn't explain the unique housing sector price developments.
It is obviously incorrect to say that prices are guaranteed to rise but I don’t think that’s what anyone claims.
I think the general claim is that policies around housing tend to prop prices up by restricting supply (zoning, permitting, higher building costs due to various regulations like stricter codes or safety standards as well as stuff like parking requirements, giving old properties lower taxes) or subsidising demand (loan guarantees, buyer assistance, etc). That is, governments choose housing policies that keep prices high at cost to taxpayers instead of policies that reduce house prices, which is what is meant about governments not wanting them to fall. Also, if house prices fall and the people think the government is responsible, the government probably gets voted out.
The reason that loan assistance for people (ie not including companies) causes house prices to go up is that it means for a given house price, mortgage payments will be lower so more people will be able to afford that price. Instead people tend to pay for the most they can afford and (for a non-silly definition of afford) and so they end up paying more because they are competing for the same houses.
Zoning IMO is a red herring. Developers have no interest in driving property prices down with their marginal developments. They will develop in a way that sees prices stable or rise, which is favorable to them as property investors. People betting zoning law repeals will magically result in vast Soviet style SRO arcologies housing everyone affordably will be disappointed that the Victorian single family home torn down and redeveloped as a duplex is developed as a four story duplex with twice as much space, with each duplex roughly the same price as the original single family home. There also won’t be a massive selling of existing property because, well, NIMBYs like where they live. Ultimately we will just have less Victorians that will never be rebuilt and a handful more luxury duplexes.
1) if losses are small, people will refuse to move / sell, reducing housing stock.
2) the really, really big problem is if prices go down enough that people have to start taking big losses when selling, or if it stops making sense to pay the mortgage. People would instead default on the mortgages, sending our economy into a 2008-like crash. This would lead to less construction (again) and more housing capture by the wealthiest people and corporations.
The biggest problem we have right now is insufficient supply. Builders won't build if they can't profit; if they can't sell at relatively high prices, they can't profit.
Investments have risks. If you invested most of your net worth into something that's a necessity for decent life without any thought into how shifting societal priorities may impact that investment, then you made a poor investment choice.
My answer is no. I want to live in a world where goods and services are abundant and cheap, including housing. I own a house and benefit from the rise in prices but I'm under no illusion that this is beneficial to society. On the contrary, the rising prices are a calamity.
If we care about the wellbeing of our fellow people, we should desire that homes become cheap.
Don't get me wrong, it's not exactly fun to watch its price tag drop, but the supposed dollar value of the house isn't "real" unless I'm looking to sell, which I'm not going to be doing unless I'm changing living arrangements, whether that be buying a different house or renting. Its value to me is that it's 1) a home and 2) a semi-fixed cost that won't ever be dramatically changing rather than increasing several percent each year.
Borrowing against it is a fantastic idea, what's wrong with that? People really need to learn that their assets can be used to generate additional returns. Otherwise you just have money sitting there, not doing anything. Where is the fun in that?
It's really hard to reliably make over 10% on an investment.
You don’t have to change that.
You can just make policies which make speculative investment less profitable while still allowing homeowners to buy houses.
There's also a huge positive externality of people actually having skin in the game in that regard - all the sudden you have an incentive to making sure that productivity improvement actually happens.
https://data.oecd.org/lprdty/labour-productivity-and-utilisa...
Urban areas experience an increase in population density with population and economic growth and this drives the higher demand for land.
Most likely the way to control individual housing costs is systematically lowering the cost of building vertically including regulatory and zoning changes as well as new construction methods.
There is a bit of a land-value cliff that needs to be smoothed over by socializing the costs as well; as single-family homes are replaced by highrises the immediate property value of SFH drops, and I think this is because housing is priced over ~10 year periods by residents and more instantaneously by the real estate market, so there's a dip in unrealized value for residents who can't sell their home for what it would be worth in their neighborhood until its value as raw land has reached the same level by being squeezed between overly-dense highrises and suburbia, effectively forming a very slow-moving barrier to densification. SFH owners want suburbia, they paid for it, and can only sell at the price they want to folks who can get the same. They're incentivized to wait it out because they already have a home which is also a huge investment. A financial instrument to buy out entire neighborhoods on the expectation of profits from higher-density housing sounds like the solution, and the risk probably needs to be borne partially by the government, and maybe a real-estate tax credit for SFH neighborhoods experiencing lower prices from new nearby dense construction which incentives them to vote for the zoning changes.
The analysis from 1, 2, and 3 seem obviously financially bad. Because they stop at a particular point in time. The point of buying over renting, when using a fixed-APR mortgage, is to lock in a monthly rate (that will eventually sunset to only the cost of maintenance and taxes). And peace of mind that only an act of god or being fired will force you to move. This is never guaranteed with rent, unless you have one of those multi-decade leases. And good luck finding a house with a multi-decade lease.
For an investing analogy, buying a house is like buying an annuity. Not buying the market. When a person buys an annuity they are still considered to be "investing".
Not an investment avenue for the corporate/hedge/elite money holders.
Housing as an "investment" is a tool for extracting crippling debt from the populous as a means of behavioral control through financial stress.
Housing prices only keep pace with inflation. America realizes it totally forgot about a few million homes it built, greatly expanding supply. Housing prices rise only 2%. Alice is much, much worse off for buying. In total, buying costs ~$1.75M, where renting would have cost her ~$1.3M. Because her finances were tied up in the house while the home value has gone up so little, Alice has minimal savings. Her daughter receives some financial aid, but takes on hundreds of thousands of student loan debt to go to college.
Yes, in 18 years Alice will spend $1.75M, but she'll also own a big share or all of the house. On the other side when renting she ends owning nothing after 18 years. Or is the calculator taking in consideration the selling price of the house?
This equation doesn’t work in California where buying makes financial sense only if house prices keep going up. But in a lot of other areas buying a house is a very good deal.
It's currently hard to take small steps toward stabilizing housing prices and reducing homelessness. Housing is easy to talk about, just like inequality. But it's hard to see evidence of much political will to solve these problems.
It will take a lot more housing inaccessibility, especially if it hits the currently affluent class.
Disagree. The YIMBY movement is picking up steam in a big way. Here in Oregon, we re-legalized 4-plexes in our cities and the woman responsible, Tina Kotek, is now our governor. She's pushing another big housing bill. Our mayor in the city I live in regularly attends our YIMBY group meetups.
It's gotten bad enough in enough places that there's a lot of interest in reform.
Some good groups to check out:
* https://yimbyaction.org/
* https://welcomingneighbors.us/
Decrepit old SFH selling for $1.6 million turned into a 4 plex here in Vancouver would see each unit in the 4 plex selling for $1.4+ million (maybe $1.1 for the basement suite). Friend bought in a converted old place 780 sqft attic suite $940k. It doesn't really make stuff affordable.
It was sold here as "the missing middle" and they basically dragged a mouse over huge washes of neighbourhoods like SimCity and said you could do 5 unit conversions. Fixer-upper SFH become gut out conversion SFH and are priced based on the investment of the 5plex conversion and what those can be sold for.
Making more of something when you have a shortage is the way to fix it.
4 nice, brand new 1.4 million dollar homes is 1) more housing and 2) cheaper than a decrepit 1.6 million dollar home. It sounds like progress even if it hasn't fixed all the problems.
Sounds like they need to just keep going down that path of legalizing housing. Where I lived in Italy, it was pretty normal to have 6/8/10 home buildings, and that was in a town of maybe 200K without any serious geographic constraints.
BTW, nothing saying you can't also do some things to directly help people who can't afford a million dollar home. Subsidized housing is good too - just that it's tough to create enough of it, so we need to fix the broken market too.
The balance between those "evil investors" and affordable housing needs is not zero sum, no matter what people on twitter tell you.
A few years ago, $800k homes were consistently opposed on the basis that they aren't affordable to anyone, so not many were built. Now because so few were built, houses cost $1.6M.
Will we repeat the same mistake, and oppose $1.4M homes on the basis that they aren't affordable?
In 10 years we might be having the same discussion about $3M homes.
I do hope it doesn't become one more of those red state vs blue state ideological lines. "Come to Texas, we won't build a condo complex next to your American Dreams-style picket fence."
It's pretty effective.
[0] https://www.census.gov/housing/hvs/data/charts/fig07.pdf
Your interpretation is a distortion of history. Nations go to war for land, not the populace of functional societies. The danger in this rhetoric is that it assumes our system of government has failed, which it hasn’t. The only threat is exactly this type of apathy.
> It will take a lot more housing inaccessibility, especially if it hits the currently affluent class.
This is already happening. The millennial children of the youngest upper-middle-class Baby Boomers are bordering on being unable to afford the kinds of houses that they grew up in, at the same ages as their parents, without significant intergenerational financial assistance that their parents did not need or have access to.
But I can't see how it ever goes away: it would definitely increase taxes on voters, so what politician signs up for it? It'll probably turn into a culture war third rail like SALT deductions first.
All the reasons you listed are valid and true, but I don't think that changes anything.
Yes, individuals see housing as a sign of success, and security and happiness. That's great. Companies should not be allowed to invest in housing, only individuals. Everything after the 1st home should be heavily, heavily taxed to seriously impact owning multiple homes to the point it makes no sense.
If a person wants to invest in real estate, there is plenty of commercial real estate for that purpose. Leave houses for people that need a place to live.
The problem with housing is lack of public transport as well. You could get houses farther away from the city. But the lack it public transport makes commutes terrible.
If you want a great school district things get really pricey. But if you’re single or don’t have kids I’m not sure if you want to pay the taxes.
More than anything if we need to improve housing I would focus on public transport more than anything else.
the imposition of an American context doesn't even make any sense in the first place, considering how differently land and land ownership works in Nigeria.
There's few new buildings in the West Village in Manhattan, with beautiful red-brick townhomes that fetch multi-millions. And new ones tend to adhere to some of the features of existing buildings. On the other hand, Seattle has some exquisite old homes with stunning curb appeal - and a whole lot of plain old looking buildings that were probably the cheaply made ones in the 1950s. So age is only one factor.
The new construction in SLU or the UDistrict in Seattle or Williamsburg in NYC is all cookie-cutter boxy panels - not particularly pleasing to most I think. I can't think of new parts of any town I've been to in the US I've loved. Happy to hear if anyone has any though!
Most would agree Berlin isn't as pretty as Cologne.
The city where I live is full of buildings which are all like "this was built by a %landlord name% as a means to support his retirement". This was ~150 years ago.
Fund UBI with 2.5% SALSA, problem solved.
https://www.radicalxchange.org/concepts/plural-property/
Yes, new problems appear. Maybe new problems are less vexing.
https://press.princeton.edu/books/hardcover/9780691177502/ra...
UBI sounds great, but once fully in play across a population - market forces cause base prices to increase to meet UBI for a near net zero benefit.
Losing your house and being forced to move because of a mistake in assessed value or someone else's specualtive bid is as much of feature as losing all your money when you mistype a bitcoin address.
Tesla moving to Texas? It would take me about 3 days to syndicate enough money to displace half of downtown Austin.
Realize the investment underpinning before taking on the investment. RE of a personal residence is rarely a good idea... buy cheap personal homes (small liabilities), and then use the excess to buy rental homes (income asset + depreciation).
Watching boomers pop champagne corks as their homes went astronomically high and their children were priced out of ever living in the middle class neighborhoods they grew up in in CA, and now watching them eat that equity down with reverse mortgages, has made me permanently disgusted with the US housing market.
The only solution I can see is absolute carnage in the housing market, and probably the entire financial system failing. And I'm kind of rooting for that, even though I own a home and financial assets: I have children, and I'd like for them to not be in perpetual two-earners + debt slavery in order to afford what their grand parents were able to afford on one salary.
Exactly my thoughts as well and I am in the same situation too (homeowner + kids). I don't want it to happen given the probable turmoil and violence that will come along with it, but at this point I feel like it's the only thing that will bring change.
Housing has most under performed the general market (SP500 for generalities). Thus if your home appreciates at ~3%/yr, market at ~5-9%/yr.... boomers could have increased their wealth 3-5% more yr without homes.
https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...
In the end, for better or for worse, the issue is a dissonance between the struggle of renters and political activity. Homeowners do not make up the majority of the electorate (though interestingly the majority of households "own" the household in which they reside). You'd think that renters would the laws in their areas reflect their will, but alas, renters have low voter turnout.