For what it’s worth, I fully agree with the author that the trends we see in housing availability and affordability are driven largely by perverse economic factors, and that the result is destructive.
However, “creating new wealth” is kind of a weird way to judge the validity of investments - many companies we invest in are not profitable due to wealth creation, they’re vehicles for growing wealth because of speculation, and for a lack of better options.
A lot of this boils down to inflation and the need to keep debt prices low to fuel growth. Countries can’t really unwind the ball of noodles that neoliberalism has cooked up, the transition from a moderate growth economy to a high growth, low risk environment necessitated low interest rates and low inflation, and the rest of the market has followed suit.
In light of all of that, it’s still true that unless the world’s government change course to disincentivize real estate speculation, owning your own house will create wealth by the basic fact that they allow you to lock in a fixed cost essentially forever while everything else gets more expensive. I will pay the same amount on my mortgage for many years while salaries gradually increase, to the point where 40 years from now my $2000/mo payment will look to us like the $200/month payment of 1980. In the past few years, I’ve seen several friends go from paying $700/month for rent to well over $1000, with some renting smaller places for prices that massively exceed my mortgage. At some point, something will have to change - whether that means new development in smaller communities, rent regulation, negative speculation incentives, or something else. As a homeowner, I personally don’t care, because I bought my house to live in, and trust that whatever happens, it will first need to affect flippers and speculators over people who actually utilize their real estate.
I don't think owning things in general creates wealth. Making smart financial decisions does.
It's difficult to defend that kind of position when the only viable choices available range from bad to worse. By any rational standard, as someone a little older than the Millenials described in this article, I should be well off -- degree from a good university, work in tech industry, run my own small business these days, etc. -- and yet I have essentially no chance of buying a viable long-term family home in the city where I live.
It doesn't make a lot of difference how carefully I save or how hard I work to grow the company revenues, because we simply don't have enough houses to go around. That means the property bubble just keeps on growing, and those of my parents' generation who bought their first home multiple decades ago are now buying up the new ones as well, to use as investments and let out as rentals. They can make more money doing that than all but the most successful and fast-growing business can generate or the very highest paid jobs will pay, and it's effectively passive income most of the time, so the cycle continues with the gap widening by the day.
The next generation are even worse off, with pressure to have a degree to get just about any kind of job these days leaving them with tens of thousands in student debts before they even start their first job and in most cases doomed to spend much of their 20s just trying to keep up.
The author is right that treating housing as an investment is a mistake, but doesn't take their analysis far enough. In the case where no new houses are built and their house appreciates significantly, after they sell their house _they still need a place to live._ Their next house will cost just as much, regardless of if they rent or buy, effectively eliminating all the gains they made selling the first house. The only real ways out of this are to move somewhere else with lower housing costs, or die. And really, it's worse than this, because their children will need housing too unless they're ok with them living at home forever.
The mentality that housing is an investment good has created a lot of perverse incentives (buy as much house as you can, you'll make more money!), that we really need to curb so that we can lower the cost of housing for everyone. Housing needs to be a consumptive good, where much like cars there's incentives to drive prices down and keep overall spending on the sector low.
Except due to globalization this process has moved out to cheaper countries. Where the wealth is created and then parked in more politically stable West. And we keep wondering why our Average Joe can't afford a house anymore.
Somewhere along the line house-owners became endless cash-cows for bankers and got political support. I guess an asset-owning class is deemed a more stable reliable voter in this scenario. Renters are just so many fish in the sea.
Moreover, politicians advocated house ownership as a solution to an economy's woes. The mortgage-holders are tied in to life-long jobs (when jobs were for life) and continue plowing money into their asset endlessly. Kinda like buying the latest fashion of car year-after-year in a consumer driven economy, where just getting from A-to-B is no longer the real objective.
Now we are seeing a younger (wiser) generation who saw their parent's treadmill for what it truly was and are rejecting that path by opting for tiny homes or mobility etc.
I disagree somewhat. I think the 30 year mortgage has pushed prices up much higher than they would have been, because of the leverage, and people only look at the monthly repayment. The fact that it has led to intergenerational wealth (among the rich who can afford houses) is a direct side effect of the fact that houses are so expensive. It seems like saying it has generated wealth is begging the question.
The entire point of the article is that this way of thinking is outdated. Yes, we have long considered homes as primary investments and as the best way to grow wealth, and yes, we have had falling home prices bite us in the ass before. But these things are not set in stone, and a world where houses are just one of many goods we own and consume would work out just fine too, and perhaps it would work even better.
We can change the tax code, and home prices don't have to drop suddenly like they did in 2008 and put people underwater. They could simply plateau.
> Home equity is the main financial element that middle class families use to build wealth, and black rock, a federal reserve funded financial institution is buying up all the houses to make sure that young families can’t build wealth.
Faulty logic. First, though historically people have used home equity to build wealth, that hasn't been the best method of building wealth. Most of those people would have been better off continuing to rent and investing in the stock market instead.
Second, building wealth through alternatives to home ownership may be better for a large portion of the population that finds the very fact of their residence decreases the value of a home relative to other homes.
Your controversial opinion is not bad as a vision. But I don't think it would work out that way unless aforementioned significant societal changes occur.
As a newcomer, you won't be able to buy a home. Similar to now, there will be many other more wealthy people who want to buy that home "as an investment" so they can keep growing their wealth in relation to their peers.
I already fear we are heading towards economic feudalism. Throw in living forever and I fear something more akin to SLA Industries: https://en.wikipedia.org/wiki/SLA_Industries
As you say though, with people pushing for things, hopefully significant societal change would avoid such a disastrous future.
It does seem strange to relabel the accelerating trend of converting housing into speculative investment vehicle as "wealth creation" and wondering why the poor are "missing out".
Seeing housing as a vehicle for wealth building is what leads to policies that increase or maintain housing prices. People don't need to put their money in to housing to build equity, they can just build equity. You know, save. Put it in diversified assets not chuck it all in to one asset and then leverage debt to chuck even more in to that asset.
Home ownership is how the system keeps the common man down. It should absolutely not be championed in his favour.
I agree with you - the whole idea of people owning houses they didn't build AND don't live in and somehow getting to make a profit off it is absurd. It's just a way of creating a class system and funnelling money from working people to the lazy. Why should someone get to sit back and collect a profit just because they were born into a rich family and had the privilege to bootstrap free income for life thru property ownership?
It has to stop eventually. I say this as a young Melbournian who will probably never own a house unless the bubble bursts in a very, very big way. Median house price is nearing a million dollars (currently $843,674 [1] i.e. twenty years pay without including any mortgage interest), and those responsible tell us it's our fault because we eat too much avocado.
What work are landlords doing exactly? What value are they creating for the world? What is better about it for them being there? Nothing, nothing, and nothing.
I could say the same about banks and mortgage lenders. Creating absolutely nothing for the world, simply holding housing hostage and collecting a big paycheque for it.
The entire way we think about home ownership has to change.
It’s not a lifestyle thing. We need to separate our house from our net worth.
As long as house prices rise faster than inflation, then that’s nice for the people who manage to buy a house, but it’s common-sense unsustainable.
A soldier returning home from WW2 could buy his first house with a few years of savings. No mortgage necessary.
A few decades later, housing prices rising faster than inflation, and a Gen X yuppie needs a 30-year mortgage to afford a house. Not ideal, but still affordable.
A few more decades, and Millenials face a world where you need to be making bank to even think about paying for the mortgage. No wonder we are having kids later, etc., etc., etc.
I don’t know how net worth and housing will be decoupled, but it has to happen. When only the bank can afford your home, that’s an ingredient for social unrest. All I know is that it’s really going to suck for the people who’ve pumped so much money into their house, when it all comes down.
Our economy is designed to extract wealth from the young to the old and the rich. Home ownership has become a primary method of creating generational wealth and that was a huge policy mistake. Even China has made this mistake. Almost all Western countries have too.
So let me explain somethign that is often misconstrued about leftist sentiment, be in socialism or whatever: leftists generally make the distinction between personal property and private property.
Private property is what we have now. We have wealthy landlords buying up houses to drive up prices. We have single homeowners who think their home value is going up so that's good for them so they vote for these policies. A leftist position is that you're entitled to own your personal residence but there's next to no landlording. Housing is a basic human need. The only way to provide it in a sustainable way is with social housing. For example, the majority of housing in Vienna is social housing.
The UK came really close last century to ending landlording [1] (ie councils simply bought houses from landlords who wanted out).
But if you think about it: there's no way your $200k turns into a $600k house without that money coming from somewhere. You're taking it from the next generation.
Capitalism loves this because a) a bunch of capital owners become even wealthier and b) debt-laden workers and workers who will take any jobs they can get (ie it suppresses wages).
In the 1990s, the average house price in London was ~70k pounds. Now it's over 700k.
Pretty much everything bad about modern society can be traced back to private property, be it intellectual property, housing or whatever.
People need to realize that if your house triples in value, you haven't really gained anything. If you sell it, what now? You still have to live somewhere. That means higher rents or buying an equivalently priced home. Or downsizing or moving overseas. This is why housing is unlike other assets.
we, as a society, have decided to prioritize generational wealth from landlording by literally killing people by denying them housing.
They will be great investments for the next few decades.
Their will always be poor/middle class individuals that need a room, especially in the desirable realestate areas.
I'm almost ready to go back to Bush's liberal policy on banks, and mortgages.
Right now, I have the house to my right is empty, supposedly owed by a Chinese guy who supposedly hasn't even been in the home physically. He bought it from China.
The house to the left was just bought by a tech worker. A millionaire dollar house he uses on the weekend. (I'm glad he's not there all week, but it doesn't seem fair. A loud, passive aggressive guy at that. The guy moves in, and knocks on my door. He said, he like to do Google searches on his new neighbors. Yea, I was beyond astonished. A few years ago, I might have turned the fat guy upside down, but age has caught up with me.)
Across the street, an industrious little dude, befriended a very old, lonely lady. She ended up leaving him the house. Her kids got nothing. He's renting out five rooms for over $1700-2200/month--each room.
This is the Bay Area, but it just doesn't feel right.
>>There is another side of this that the article doesn't touch on: home ownership.
Oh boy. There's so much I can say about this topic, and none of it is positive.
Basically, the way our culture mindlessly promotes home ownership is insane. Absolutely insane!
Every time I hear people complaining about "throwing away money" by renting, and how they would rather put that money into a house, I want to hold them by the shoulders and shake them violently. It's like the housing market crash did not teach anyone anything!
It comes down to this: a house is a terrible, terrible means of investment. It's a fixed asset that, contrary to popular belief, is not guaranteed to always go up in value. In addition, people don't really take into account the negatives. Primarily, a house ties you down. You have zero mobility as a labor market participant if you own a house, and this significantly reduces your leveraging power when it comes to negotiating salary. Besides that though, houses have a ton of expenses, and as fixed assets they are subject to a lot of uncontrollable risk (fire, floods, earthquakes, the neighborhood depreciating, etc.).
Instead of having that money tied down on a house, people are much better investing in the stock market, which has, over the past 100 years, gone up by 7% annually.
The only time a house makes sense is when raising kids. The stability of the environment has a lot of positive benefits for their growth. It also makes social integration easier.
Yes the article seems to be written with the undertone that mortgages are somehow exploitative. It even goes all the way back to the GFC to point out the weird edge case where NINJAs were lent out like hotcakes. The reason that become toxic is because brokers were getting insane commissions signing people up for them.
Any mortgage at almost any fixed interest rate, assuming a market amenable to the local prevailing median income, will always beat renting. If the value goes to 0 somehow you still have a roof over your head. That is, assuming that the government doesnt take your property away. Which shockingly they can. Different discussion though.
There is a remark that's important here though. The math both you and I agree on assumes that the property is not an investment. The reality is all property is effectively an investment because even in good times 5-8x your salary was a decent price. Now it's more like 20x in some places. No one would make such a leap without being guaranteed something back. The calculus changes at that point. Even for first time homeowners.
- it's a consumer-driven market, higher prices made a lot of ordinary citizens rich. It's not money that disappeared into a few rich shareholders' pockets like say in the medical industry.
- [0] mortgage rates have gone down from a peak of 18% to below 3%. That's the money that you'll never see again. Suppose you bought a home 3x your income, you used to be paying 54% of your income on interest alone, now it's 9%. Prices went up, but there was also downward pressure on your actual monthly expenses due to interest rates plummeting.
- 'houses' aren't fungible over time. Home sizes are way bigger and household sizes slightly smaller. On average each individual has roughly twice as much home space as before. [1] We choose to live bigger and sharing our space with fewer people. That's at least a sign of shifting preferences, and at best a sign of wealth, not poverty.
Caveats can be made about healthcare, too. We've added 8 years of life to each individual since the 1970s. That's insane.
I'm less excited about education. I see signs of credentialism. Education still has positive returns for individuals, but the story isn't as strong as for societal returns (i.e., at some point the abundance of degrees become a positional good or in other words a zero-sum game).
I tend to agree, but I also feel like houses as a financial growth (vs family housing stability) investment is a new thing over the last 25-30 years, exacerbated no doubt by economic policies.
Before that, the only financial rationale I recall for buying a house was as a forced savings vehicle and as freedom from rent variations.
I think people are overthinking the problem when it is quite simple: Housing prices have put owning your own home out of reach for the vast majority of young people.
I worked hard to pay my mortgage, feeling happy that I was on my way to owning a house. With a house, I started a family and life was good. I didn't mind putting up with corporate nonsense.
Without a house, I most certainly would not done this. I probably would have kicked around doing odd jobs to save for going backpacking in Thailand. Why the hell would I want to be part of a system that doesn't reward me? There's no reason to buy in (or sell out)
However, “creating new wealth” is kind of a weird way to judge the validity of investments - many companies we invest in are not profitable due to wealth creation, they’re vehicles for growing wealth because of speculation, and for a lack of better options.
A lot of this boils down to inflation and the need to keep debt prices low to fuel growth. Countries can’t really unwind the ball of noodles that neoliberalism has cooked up, the transition from a moderate growth economy to a high growth, low risk environment necessitated low interest rates and low inflation, and the rest of the market has followed suit.
In light of all of that, it’s still true that unless the world’s government change course to disincentivize real estate speculation, owning your own house will create wealth by the basic fact that they allow you to lock in a fixed cost essentially forever while everything else gets more expensive. I will pay the same amount on my mortgage for many years while salaries gradually increase, to the point where 40 years from now my $2000/mo payment will look to us like the $200/month payment of 1980. In the past few years, I’ve seen several friends go from paying $700/month for rent to well over $1000, with some renting smaller places for prices that massively exceed my mortgage. At some point, something will have to change - whether that means new development in smaller communities, rent regulation, negative speculation incentives, or something else. As a homeowner, I personally don’t care, because I bought my house to live in, and trust that whatever happens, it will first need to affect flippers and speculators over people who actually utilize their real estate.
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