> “It's hard to build true wealth for yourself if you don't have some type of ownership in something, and it's hard for most people to get ownership in something,” Ruger says.
I think this is a really good insight.
But it also touches on something that many of the HN crowd, especially in the Bay Area find uncomfortable: home ownership.
One of the ownership assets that is most attainable by many Americans is a little plot of real estate, so it's rational that it's a goal of many. But at the same time, once that piece of ownership has been attained it's also rational to want to preserve and maximize the value of that investment. But that can often (but not always) lead to the kind of selfish NIMBY behavior that is criticized everytime anything related to urban development comes up.
Is there a middle ground balance where we respect that ownership of property is an important, attainable kind of wealth building for middle-class people while also accepting that a city must also develop in ways that benefit people that aren't homeowners, or aren't homeowners yet?
Homes shouldn't be an investment. They've accidentally become that in the past few decades, and as a result, affordability is getting worse.
The better it does as an investment class, the worse it will become. It's a self perpetuating spiral.
I don't see the market solving this. I only see some regulation helping here - ie any tax filer can at most own 1 SFH (this includes married couples). So no second, third, tenth homes. Corporations and foreign entities also cannot own SFH - bye bye black rock & China.
Obviously some edge cases don't work (ie people who want to put their home in a trust), but generally speaking, people should not be able to own homes as investments.
Having homes be investments is a good thing, in the original sense of "investment": something that you own which you put effort into in the hopes of making it better later. Incentives change dramatically as a homeowner in ways that are generally beneficial to the community: you are incentivized to improve the property, to maintain the property, to put effort into the local community in ways that make the land and location more valuable, and so on.
I think that what you're complaining about is the financialization of investments, where every investment has an associated dollar value and that dollar value must always go up. This affects more than just homes. The need for monotonically-rising corporate earnings makes corporations pull all sorts of accounting shenanigans, it makes them cut costs and push sales until the product quality is the bare minimum people will buy, and it results in all sorts of pain for workers in the resulting reorgs and layoffs. The usage of Bitcoin as a token whose value just goes up has negatively hurt the development of the crypto economy, because people aren't actually using crypto, they're just hodling and hoping $$$ go up.
The elephant in the room here is fiat currency, positive inflation targeting, and negative real interest rates. If you know that the dollar's value is eventually going to zero (which follows mathematically from inflation being an exponential curve), then the sum of the cash flows from any productive asset becomes infinite, and the only check on its value is that investors can't really reason about infinite time horizons. If inflation were targeted at zero (or at least some value that gave positive real interest rates), then that sum converges and you can speak about properly valuing assets and allocating capital efficiently.
> because people aren't actually using crypto, they're just hodling and hoping $$$ go up.
This is such a common mistake. By HODLing, you are using it - to store your wealth. This is what the bitcoin network is optimised for - storing large amounts of value for large periods of time. Nothing else has fundamental properties that come close for this use case.
Restricting ownership may help but there are aren’t enough houses or apartments in the places people want to live.
Building more housing is the best answer. It lowers the price because there is more supply. There simply aren’t enough homes in the Bay Area, NYC and many other major cities.
If you could build many large apartments in the Bay Area you could fill it with people who’d rather live there compared to a tiny old overpriced house. Zoning and existing residents stop that from being built though.
> Building more housing is the best answer. It lowers the price because there is more supply. There simply aren’t enough homes in the Bay Area, NYC and many other major cities.
One problem is building more luxury housing leads to more rent-seekers / investment homes / transplants, which doesn't solve the problems the area faces (e.g. lower income families can't make it work, and in addition to it sucking for them, they staff lots of critical functions so it ends up sucking for everyone since the price of everything increases and you get a whole class of supercommuting low-income folks -- ask bay area folks about their daycare teachers).
We need more _affordable_ housing, likely gated on AGI.
This is justifying tyranny using pie-in-the-sky thinking. God forbid someone have a little lake house their parents and grandparents built that they want to retire to while working elsewhere. Nope, The Party says you can't have that dacha, Comrade.
The proper answer is to accommodate the free choices made by others and regulate where they intersect with others, not paternalistically tell grown adults what they can and can't do.
There is no accident at all. The bankers decided that real estate should be the primary vehicle for new money to be created and released into circulation.
This means that the increase in total real estate monetary value will always be larger than the monetary value of total labour and trade productivity within a nation. It is a mathematical fact that won't change unless the monetary system changes.
In short: the landed gentry will always become richer while the non-landed will always become poorer, under this banking system. If you are both a real estate owner and a worker, then you should expect your main source of income to be the value increase in your real estate. If not already, then soon.
So no matter how much the people of a nation work and increase their productivity, they will always be short and increasingly indebted, because the monetary system works that way. This is why there has been a frenzied rush into real estate the past decades, because the odds are stacked against you getting ahead by working.
Being from UK: stop multi home ownership for private companies/persons. Move to majority council owned houses, which then feeds money back into the communities. Follow right to buy, where the money goes back to the council.
I think they'd suggest something like: "single family homes cannot be rented, only bought or sold to individuals or families which must live there some minimum percentage of the time."
If zoning codes can make it effectively impossible to build anything but single family homes, we clearly have a legal framework for distinguishing single-family from multi-occupancy apartment buildings. Thus, apply this requirement to single-family homes (or at least homes in single-family zoned areas).
There are a lot of unintended consequences and edge cases to this though, clearly. For example, I live in a building that is "technically" an apartment building right in the middle of nothing but single family homes. You couldn't build an apartment building like this here, now. This is because it was originally a single family home but was converted into a duplex ~100 years ago (2 different electrical services) and has remained a duplex legally ever since. I purchased the land and home jointly with a family member so that each of our families could live in one half of the duplex, which is how we currently live. A home like ours could end up being classified in very different ways depending on the specifics of a law like we're discussing.
Regardless, I still want my home price to crater if it means everyone else I know can buy a home. I hope home prices go down massively and the residential speculative bubble in this country dies a violent death. The only reason we even bought this house was because buying a home cost so much money that we had to buy half a home to make it a possibility. Even if I'm upside down on this house, I'd still rather be stuck paying off the mortgage or going bankrupt than hold everyone else financially hostage. Housing is too important.
The drastic solution is you ban long term rentals - all 'rental agreements' must return shares in the underlying real estate and structure proportional to length of stay. The rent payments would be distributed pro rata to the existing share holders.
Of course you could also allow people to build homes at market clearing prices, so investments would just be undercut.
Home ownership in the immediate post-war era functioned as a form of forced savings. To the extent it was an investment it was more akin to a reverse bond than a stock bought on margin: you pay a fixed payment on a loan for 30 years and at the end you own a substantial asset. The focus on price appreciation is relatively new.
In California specifically this was driven by Prop 13 gutting the property tax system and removing the natural check that higher property taxes impose on homeowners engaging in the sort of anti-development cartelism that has run rampant in California in the last half-century.
Focusing on the possible upsides tends to ignore the possible downsides. Worker ownership is only great when the company does well. If the company does not do well, the workers don't just lose their job but their nest egg at the same time. Let's not pretend that you can always influence whether your company will grow or not, sometimes you just work at Altavista and Google just launched.
The average worker has enough of their income tied up into one employer already, they don't need to have even more economic concentration. It would perhaps be better if every company was owned by everyone other than its employees, with the employees of every company being forcibly made to invest in every other company. That way everybody gets to have an cushion if they ever lose their job or their company goes under. A bit like a DIY UBI if you will.
To eliminate that risk, the worker ownerships shouldn't be in direct stock with the company they work for, but instead be part ownership of a large industry specific fund who in turn takes ownership in the companies. That way, the individual worker will not be punished if the company he or she works for performs bad or has to close down. This large funds could also use their ownership as a tool to steer companies into more climate friendly operations and make sure the companies hire people from groups who need special protection. The boards of these funds should consist of elected politicians, bank executives, union leaders and prominent Arch Linux contributors. Yes, yes! Excellent!
It does, and Silicon Valley is built on that, but for startups it’s more of a lottery ticket, and for a tech giant, what you do as a worker doesn’t make much of a difference for financial results. And even in between, how the investment does is pretty risky and partly determined by unpredictable outside events, so you’ll want to hedge.
And then for shared ownership, governance is often messy.
Individual ownership of a stable asset that you can improve by making your own decisions (deciding what fixes to pay for, at least), is a different thing.
As someone who had their first stock based savings account gutted by the 2008 economy we really shouldn't rely on stocks. I was in college and my college fund vanished very quickly. It was a fund set up for me as a kid, managed by my petrodollar worshipping uncle. We're all just a collapse away from nothing while being desperate for line goes up behavior to save us. But this is just my point of view from someone on the poorer side of things.
Your scenario is an example of mismanagement; you were already in college, so those funds should have been moved to less-risky investments (bonds, money-market, or even a savings account).
For retirement, Fidelity and Vanguard offer "Target-date retirement" funds, which automatically rebalance to reduce risk as you age. This is a misnomer, though, as you could easily select one of those funds for college savings or whatnot.
And Homes are also generally a bad investment even though there is a whole lobby of people that try to convince you that you need to buy at any price.
The only reason why homes have been a good "investment" for most people is that it is a forced saving through your mortgage, which most people would have spent stupidly otherwise.
But we should normalize renting and investing in actual investments like the SP500. Everyone would be better off and you would end up with more assets.
It's been a good investment for many people for obvious macro reasons but also because:
1. You can live in it (thus realizing value directly).
2. Since you live there you can't easily panic and sell in a downturn.
3. Leverage (U.S. gov't FHA provides almost 30:1 leverage)
4. Lenders can't liquidate you simply on account of decline in value (no margin calls)
Even with all those points, you would in most cases end up with more assets renting something equivalent and dumping your down payment and mortgage in the SP500.
Again, the main advantage of a mortgage is that it forces you to save. If you are disciplined enough to save and invest in the SP500, you are way better off doing that.
Isn’t it investors who would normally own rented homes, and own them specifically as an investment, whether each investor only owns one home or several/many?
I’m guessing you meant that an owner-occupied primary residence shouldn’t be an investment, which is usually good advice.
Houses go up in price exactly in keeping with inflation. I buy a house with 10% down[1] as a way of locking in the current price, to avoid my rent going up every six months, even if the initial payment is more than my rent[2].
Time passes. The price of everything doubles. If I had kept my down payment instead of buying the house, it would have grown into twice as many dollars, and still be worth the original amount in actual value. My house has also doubled in value. But I only paid for 10% of it with pre-inflation dollars (and since then I have paid the mortgage with dollars of decreasing value). I come out ahead in that scenario - my net worth has grown, even adjusting for inflation.
[1] Yes, I am ignoring the difficulty of scraping together the down payment.
[2] Yes, I am also ignoring the difficulty of having enough spare cash to make the payments the first year or two.
Part of the problem with upzoning is that for people who are not going to redevelop because they like their house or they do not have the financial means to do so, and are also unwilling to sell, they get no monetary benefit from the upzone.
It costs about $400k to own a home but I can buy a share of VOO for less than $500 and own a piece of the top 500 companies in the US. Ownership of pieces of companies (stocks) is far easier and more affordable than home ownership.
Additionally, your return over the long term on personal real estate is only 4% per year while the S&P 500 average returns per year are 10%.
Home ownership is not always desirable or the best financial decision for many people.
Anyone can invest in public companies, how is it unattainable? I genuinely do not know what you or the article writer are referring to when you make this point.
> Is there a middle ground balance where we respect that ownership of property is an important, attainable kind of wealth building for middle-class people while also accepting that a city must also develop in ways that benefit people that aren't homeowners, or aren't homeowners yet?
No. I like finding middle grounds where possible, but you're asking for something which is inherently contradictory: for something to be a good source of "wealth-building", it to increase in value (i.e. price to the next buyer) forever, or at least most of the time. When that happens to housing, it fucks over the next generation.
There is no fix here that doesn't involve terminating housing as an investment opportunity. It will be a painful transition, but the end state is actually fine. Plenty of countries (e.g. Japan) don't treat housing as a middle-class investment and they function fine.
I think this is a really good insight.
But it also touches on something that many of the HN crowd, especially in the Bay Area find uncomfortable: home ownership.
One of the ownership assets that is most attainable by many Americans is a little plot of real estate, so it's rational that it's a goal of many. But at the same time, once that piece of ownership has been attained it's also rational to want to preserve and maximize the value of that investment. But that can often (but not always) lead to the kind of selfish NIMBY behavior that is criticized everytime anything related to urban development comes up.
Is there a middle ground balance where we respect that ownership of property is an important, attainable kind of wealth building for middle-class people while also accepting that a city must also develop in ways that benefit people that aren't homeowners, or aren't homeowners yet?