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Home ownership is the West’s biggest economic-policy mistake. It is an obsession that undermines growth, fairness and public faith in capitalism leaders
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- Title
- Home ownership is the West's biggest economic-policy mistake
- Published
- Jan 16 2020
- Word count
- 1071 words
Home ownership comes down to this for me:
A) I know where i'll be sleeping next month. If I rent, even if I'm never delinquent on rent, that could change.
B) I have privacy. I have lived in apartment buildings. I can tell when the downstairs neighbor is walking around.
C) I can paint the walls, install new fixtures, and such without facing eviction.
D) I can have pets without worrying if it's going to jack up my monthly or even get me evicted.
If renting alleviated those concerns, I might go back to housing rental or even apartments, but landlords will never give up that kind of power.
I'm in the same boat. I want to own a house, but it's less of a financial "investment" for me, and more about escaping the rule of landlords who seek to restrict my freedom of choice when it comes to what I can hang, plant, grow, paint, or otherwise alter. I'm renting a house so privacy is already resolved.
The article basically explains why the situation is skewed to this extent in favour of ownership versus renting in (at least) English-speaking first-world countries.
Both owning and renting have their advantages and disadvantages. The cult of home ownership that arose in those countries after World War II resulted in (1) ownership being subsidised without regard to long-term public costs and (2) renting being viewed as the option for losers.
As a well-predictable side effect, an obsession with property values emerged, which resulted in NIMBYism and the ensuing housing shortage.
The housing market is, first of all, a market, which has the supply side and the demand side. The current situation in the most productive areas in the countries affected is extremely skewed towards the supply side. Is it really surprising that the supply side can dictate the conditions? Since renters are viewed as losers, why would anyone bother using better building materials (modern materials can be really impressive in their ability to isolate from sound and vibration while being cheap, but why spend 5% more on the losers) for units intended for renting?
However, the article states that this is not a pre-determined outcome, see the examples of Germany and Japan.
For me, the issue with renting is that homeownership is the primary means by which middle class Americans have to build wealth. I do not enjoy the stress of home-ownership (house maintenance, etc.), but buying my house felt like a necessary investment in my future. When I pay my mortgage every month, that money doesn't just vanish into thin air.
Unless your basement floods, a tree falls on your house, or you just plain get foreclosed on.
My upstairs neighbor has a toddler and a 70 pound dog and the only one who hears anything is my own dog, because he has ears like a bat. Most of the time, the only thing he hears is the upstairs dog getting excited to go on a walk and it gets my dog excited to go out too.
Moreover, you can own an apartment or a condo and you an rent a detached house. So this doesn't really have much to do with ownership.
Most apartments let you paint the walls as long as you repaint them to a neutral color when you move out. Nobody evicts over that unless you're living in a slum. At worst you lose your security deposit.
I pay $25 a month in pet rent, which seems about in line with how much wear and tear a pet puts on a property.
The first two are equally applicable to a rental. The second has an analog that will also see you out on the street in a rental. Ownership reduces the number of potential points of failure.
You are incredibly lucky. It's very rare to find such a well insulated building in the US.
You didn't even address the entire statement in the OP. There are a huge range of things that you can't do to a rental. I'm looking to move out of the bay area to semi-rural Oregon soon. The rentals available in Oregon just plain aren't that nice. If I wanted to rent a place and remodel the kitchen, it's not particularly likely my landlord would let me, and anyway, why would I bother when I don't have any idea how long I'm going to live there?
Again, you're lucky. I've seen anything from $0-100/month and anything from $0-1000 additional deposit. There are also a whole lot of properties that just won't accept pets.
No you literally have all the same ones, except you're financially liable for the exogenous issues if you own. The only difference is that the owner in a rental can have you leave with some amount of notice, which is offset by the fact that you can also leave with some amount of notice without being tied down to having to sell a property. This means, for example, that you can live in a studio apartment when you live alone, get a one bedroom apartment when you need more space, and get a two bedroom apartment when you need even more space all within the space of 5 years, which is about how long it takes before you get enough equity on an owned home to offset things like closing costs. Insisting on an ownership model would require you to commit to the largest of those options and functionally be overpaying for more space than you need for all that time.
I live in the US. It's not that rare, basically anything build before the 80s tends to be pretty sturdy.
And the vast majority of them are things that most renters don't care about or are more issues of being in a property with shared plumbing or electrical rather than because it's a rental. Like why on Earth would you want to remodel someone else's kitchen? Why wouldn't you just go find a rental unit with a kitchen that is to your liking?
This is because US' housing policy is dramatically tilted towards home-ownership, meaning the rental market is starved for supply and lower quality. Large, older cities have much better units available because much of the construction pre-dates this turn in housing policy and the rates are lower because many of the buildings have paid off their initial construction costs and no longer need to recoup them.
I knew I wanted a dog, so I found a dog friendly building to move into. What's luck got to do with it?
It's amazing how two people can live in such completely different realities. I don't doubt that what you say is true for you, but it sounds like you're describing a different planet when compared against my own experiences.
Agreed. Lived in 2 different cities, 4 apartments and a duplex. 2 apartments from the 1940s, a historical building, and the duplex was built in the 1960's. Still can't find a place where I can't hear everything happening in the surrounding units. I'd love to have been able to renovate the kitchens in some of my old places because while the kitchens were terrible, they were the least-terrible of all the options in my price point. And I looked at 200(!!) apartments before landing on the one before where I live now. And to get a semi-decent apartment I didn't want to renovate I had to settle on paying more money for a worse commute and accept I can't get a dog for the duration of the time I'm living here.
Pretty lucky to have a rate that low for a dog. I think I was paying $50/mo for 1 cat (I had 2 cats but property management didn't need to know that), which is pretty nuts because the cats definitely didn't put much (any?) extra wear and tear on the property (all LVP floors).
Now I own and no longer pay pet rent, but I wish I could go back to renting because my new place has been a disaster.
This is a neutral point. A rented home can flood, a tree can fall on a rented home, and you can't foreclose on a property that is owned free and clear, nor can you foreclose on a property that isn't in arrears. None of that ameliorates that a landlord can just decide they don't want to rent to you anymore, and at the end of your lease (often renting is month to month, so at the end of a month), you find someplace new if you can.
Yes. As were most of the ones you raised. The whole point of renting is limiting your liability. All those things happens and you just go find a new place to live. You aren't tied to a property, it's the property owner's obligation to maintain and upkeep it. AC fails and needs $8,000 to retrofit? Not my problem. Ground shifted and now every time it rains the floorboards start warping? Not my problem. They shut down the homeless shelter and threw all the people out on the street so now you have aggressive people with untreated mental disorders sleeping on the streets and harassing everyone in the neighborhood? Also not my problem. All of these things have happened to me in rentals and I decided "Oh this sucks, guess I'll go find somewhere else to live. Sure am glad I'm not on the hook to fix it!"
This is like a "Have you tried not being poor?" approach to saving money. Owning property is out of reach for many people unless they're inheriting it or have settled down and established themselves in a secure enough financial position that they won't need to move anywhere any time soon.
I really don't see the need to be fixated on that. Landlords aren't just randomly going to decide they don't want to rent to you anymore. This is just another minor risk on the list of risks for why where you live might become unlivable, and it's not even in the top-5 reasons why you might want or need to move out of a place quickly.
The only reason it would ever be hard to "find someplace new" is if the rental market is supply constrained. And the reason rental markets are supply constrained is because of all the economic incentives to push people towards home ownership even if it's not right for them.
Obviously rental protections vary from region to region, but my experience of renting (in a very supply constrained market) was that one year contracts were the norm, and that the landlord would ask for a significant rent increase at the end of each year. Since rent was already such a huge part of the monthly budget, that almost invariably meant moving somewhere moderately worse in order to keep paying a similar amount.
It's not that the landlord randomly decided to stop renting to me per se, it's just the the conditions changed such that they (quite rationally, if we're totally dispassionate about it) didn't want to offer terms I was able to meet.
The stability and peace of mind I get from knowing that my home is my home, that I can stay as long as I like regardless of what the market does, and that I can invest time and money customising it to my taste, is enormously valuable to me.
I get the impression that we probably agree on a lot of the underlying problems with the property market. All I'm really saying is that there are some good reasons, both tangible and intangible, that a person would want to make the trade-off between owning and renting.
Bought a house with my mother at 18, for the princely sum of $25,000. I'm 46, and it doesn't have a mortgage. I'm not financially secure, I didn't inherit it (she was on the lease because I was 18). I'm not lucky or blessed, I just outlived the mortgage.
How common is this though? Every time I've been up for a lease renewal or signing a new one, the month to month option is often more than double the monthly rent of a 12 month lease. I just have to wonder how many people take that option outside of a known temporary situation (waiting for a new build house to be finished or something). At the prices my prior landlords want to charge, it's literally cheaper to get a room at an extended stay until you cross the 4-6month lease length threshold.
Whereas I have never lived in a place that even offers more than monthly leasing. While it's true I only lived in five apartments, every single one of them was "pay on the 1st" its only option.
I mean, my rent has always been due monthly on the first in these, just that they make it uneconomical to sign anything but longer-term leases. For example, my current lease is for $1425/month on a 13 month lease. If I had gone month-to-month when my last one ended, the monthly rate would have been $2915/month. Maybe this is a thing peculiar to Colorado? Even asking my parents, they said that it was always significantly cheaper to take a year long lease vs month to month, and they haven't rented since the 90s.
Of course, having a year lease does shit if your landlords sell the property out from under you, and the new owners don't want to lease (had friends who this happened to). They'll gladly eat their end of costs for breaking the lease to dump things off their hands.
EDIT: Plus, everywhere I've leased has required a minimum 60 days notice to move out, even on a month to month lease. I guess it's just to try and hold down churn here, seeing as how a lot of people I know who lease move every couple of years as it is.
Is the problem really with home ownership, or is it with the idea of housing as an investment vehicle? I'm not sure policy-wise how the two would be separated, but it seems the latter is the source of most of the issues the article mentioned with the housing market, and it's notable that in Japan, mentioned in the article as not having many of these issues, houses typically depreciate rather than appreciate. Full disclosure that within the current economic paradigm, I'm strongly predisposed to be in favor of home ownership because I'm opposed to rent extraction.
Outside that paradigm, I'm curious what a policy framework would look like that treated housing as a utility. It's not an idea I've heard thrown around much, but housing is something everyone needs that's prone to price gouging, and while it's not a hard natural monopoly, competition is naturally limited where it's most needed by zoning and land scarcity.
This is alleviated in some places via government subsidized or non-profit, affordable housing projects. Another way this is alleviated is via rent-control where rental costs are not subject to market forces and rent-seekers cannot set their own prices. In either case, such things have limited scope, and it can be competitive to get access to such housing options. Some people wait years on waiting lists for these offerings.
The cult of home ownership present in the US and several other rich English-speaking countries has resulted in the idea of housing as an investment vehicle.
Land scarcity is natural. Zoning IS NOT NATURAL.
Land zoning isn't natural but it definitely serves a purpose. If done properly, it helps to make sure houses aren't right next to loud, industrial areas.
Of course, it can be (and is) used to drive up rents and racially segregate towns but it does exist for a reason.
And of course, the zoning that is one of the main reasons of the housing crunch is NOT the original modern zoning* devised to separate residential/commercial areas from heavy industry. It is exactly the zoning used to drive up rents and to perpetuate racial segregation.
* https://en.wikipedia.org/wiki/Zoning#Origins, the last two paragraphs of the section
Also, “not natural” does not imply “inherently bad.” For example, the Internet is not natural either.
Agreed on that last bit. Natural was not exactly the word I was going for. But I don't think there's necessarily any contradiction in wanting most people to own their homes and not wanting them used as investment vehicles.
The full text can be found in this Reddit post.
I wonder if companies allowing remote work would increase GDP in a similar way? Instead of people moving to the city, jobs could move out of the city.
There is some anecdotal evidence from the past that firms that allowed Home Office reverted their decisions after the first significant screw-up. In particular, I think I read something like this about Reddit's decision to require every employee to reside in the San Francisco Bay Area some five years ago.
With 5G, autonomous vehicles and remote work, I wonder if advancements in stable living will appear to make domiciles available that people could own or rent and not have to own land to own a home. Maybe it's impractical, but it has a romantic appeal for me.
As frostycakes already discusses, poor people have been doing this for ages in trailer parks and mobile homes. Tiny homes are basically just mobile homes that people rebranded because mobile homes are associated with the poor and the poor are to be looked down upon and demonized. <- all these points are from the perspective of the US, no first-hand knowledge of how any other country treats their poor people, though I'd guess its better than us.
Edit: Re-reading I want to clarify: I don't have anything against mobile homes or tiny homes. While it isn't my cup of tea, my partners friend is living in a mobile home and traveling the US with his wife. They've been living and traveling in it for 2 years (pre-pandemic, now they are staying in place on a cheap piece of land by their parents until everything improves). It doesn't have to be that impractical and there certainly is a good amount of appeal.
Mobile homes and tiny homes built on trailer bases already exist, and sound just like what you're describing. My grandparents bought a double wide in the early 60s when they first got married and rented a lot in a trailer park, then moved it to their land when they purchased some a few years on and lived in it while they built their house (took the better part of a decade because my grandpa did a lot of the work in his downtime while working full-time).
Some of the tiny home builds on trailer bases sound perfect for a semi-nomadic setup like you're describing-- more home-like than living out of a camper van or RV, not quite as much of a hassle to move as a full blown mobile home is.