No-one can kick you out of your own home because they want to rent to someone they can charge more. No-one can tell you you can’t change the wallpaper in your own home, or remodel the bathroom, or get a dog.
Not everything is a purely financial decision. A home is primarily a place to live, not an investment opportunity.
> Not everything is a purely financial decision. A home is primarily a place to live, not an investment opportunity.
I am always shocked at how many people simply don't understand this.
For example: no matter how many index funds I buy, I will still have to find a landlord who allows pets in their home if the current landlord decides to kick me out for a better tenant (whatever that means for them).
I don't have to deal with that in my own home. My home, my rules. And this is worth more to me than knowing I optimized my investment portfolio.
Human dignity has value. Shelter security has value. Knowing that you won't be moving in the next few months has value. But the value of these things cannot be measured in dollars.
A very US-centered view for sure, I see just tons of insecurity and other negative emotions. Europeans don't have this with such ferocious intensity.
One of happiest countries in the world - Switzerland, has minimal home ownership, people simply focus on more important matters in life (and rules and their actual enforcement are on next 10 levels compared to general US, yet nobody does biggest financial move in their lives based on those).
In this thread, I mostly see young folks frustrated that their easy investment chance evaporated, although it was never actually easy but people owned and desired to own radically less in the past. A bit of greed, a bit of FOMO, a bit of emotions described above. And an intense sense that a big, well-located house (not an apartment, hell no) is not everybody's right, but their basic human right enforced by some Geneva convention and UN forces. They will happily accept brutal communism with whatever else it brings just that they can get it too.
Or its one of those few topics where HN really isn't the best place to look for balanced opinions. I get it, I would maybe feel the same if I was in such situation bound with such mindset.
No, it's the other way round. Wanting a place you can call your own is a basic fundamental human desire. It's the insanity of the world today that such a basic thing is viewed as a luxury and people engage in semantic gymnastics to justify permanent renting.
Sure desire but not right, and then almost everybody engages in exactly same desire, in exactly same self-centered perspective (I want best possible location, biggest house, ideally biggish land around, convenient to work and fun and schools etc.).
Its physically impossible to satisfy everybody who wants that, we don't (yet) build cities in 3D with this in mind. Such demand will literally every single time outstrip supply unless given society is in deep demographic spiral.
There used to be times when people thought about buying houses when they reached cca 40. Worked their way to it, patiently. These days, 30 year old will complain to you how world is unfair since he already doesn't have it all since he wants to retire at 50. Or how they are priced out of some great place since almost everybody wants to live there too, including boss of his boss of his boss. Working class was priced out places like Manhattan maybe 50 years ago in much higher numbers, and nobody bat an eye.
> Such demand will literally every single time outstrip supply unless given society is in deep demographic spiral.
I am not sure that is the case. Or at least there is no natural law that would mandate this. And why is it less of a problem in say, India? In India, big cities see massive growth in terms of number of livable units built. They don't have the NIMBY culture of the US or the oppressive zoning restrictions, and many more people can aspire to own a flat by the time they are in the late 30s or 40s.
I think most people people would be fine if they knew they would be afford to buy in their 40s. But I don't see that happening for a lot more of the Zoomer generation.
> No-one can kick you out of your own home because they want to rent to someone they can charge more
Property tax isn’t voluntary and as exogenous as a landlord. (Also eminent domain, to say nothing of most peoples’ mortgages.)
> Not everything is a purely financial decision
Making the largest leveraged purchase of your life for an emotional comfort object is irrational. That doesn’t make it wrong. But it ceases to be a policy concern. (I might feel secure having a Fabergé egg in my possession, that doesn’t mean the public needs to give a shit about it.)
The reason home ownership is a public priority is various and I agree with it as a goal. But it’s a bad financial decision for many people, and there is legitimacy to questioning if we can duplicate the forced-saving and civic engagement benefits more simply.
You pay property tax either way, it just might be rolled into your rent. You probably have years to pay missing property taxes, while landlords will wait nowhere near that long. Eminent domain is only exercised rarely, and doesn’t even compare to how often rents are increased, or how often people are evicted.
That’s misleading and mostly irrelevant. My sampling of states so far yields an answer in years, looks like around 2-5 years depending on state. Rental evictions are measured in months, typically perhaps 1-3.
This entire discussion is as it's ignoring mortgages, where the entire security argument for homeownership breaks down beyond being an emotional comfort object.
Homeownership is statistically more secure because home owners are richer. The home doesn't make a homeowner more secure, their wealth does. Remove the wealth effect and homeowners are about as precariously perched as renters. In the past decades, home-price appreciation contributed significantly to that wealth. Someone making the smae purchase today is less likely to similarly benefit. Particularly if they're conceding they're making a bad financial decision for emotional reasons.
> Remove the wealth effect and homeowners are about as precariously perched as renters.
How so? I just showed that’s not true for evictions due to non-payment, at least for the property taxes issue you raised. When it comes to mortgages vs rent, maybe they’re similar risk, but in that case, the mortgage is not riskier, so the benefits of a house seem worth it, especially considering that as long as you keep up the payments, you are highly likely to eventually get your money back with a house, and 100% guaranteed to lose all your rent.
> In the past decades, home-price appreciation contributed significantly to that wealth.
Right, home ownership has historically been a vehicle for wealth building.
> Someone making the smae purchase today is less likely to similarly benefit.
Why’s that? Are you assuming that real estate inflation might slow down, but the market won’t?
A house is a leveraged loan until you pay it off. If the price goes up, you get the leveraged return. People who paid $200k down payment on a $1M house in 2019 can sell today for $1.5M and walk away with more than double their money, or around 4x the profit that someone who invested the $200k in the stock market and got the same (incredibly good) returns.
I don’t agree that buying a house is a bad financial decision, how do you justify that claim? There is certainly a distribution of outcomes, but on average I think most people profit from buying a house… especially when you compare it to paying rent.
We’re at record price to income levels amidst a stable versus growing population. (Note: I own a home.)
> house is a leveraged loan until you pay it off. If the price goes up, you get the leveraged return
Crazy how 2006 this pitch is. (Together with the “you are highly likely to eventually get your money back with a house.” Maybe we need a housing recession, both so people can buy in and others reminded there is no free lunch.)
> Maybe we need a housing recession, both so people can buy in and other reminded there is no free lunch.
Jesus, that’s a bit dark. Getting your money back from the sale of something you owned isn’t a free lunch. It’s just 100% better than dropping most of your money into a hole called rent, and never owning anything, and being beholden to landlords.
If my argument is too old and hasn’t adapted to the 2024 economy, which is entirely possible, then show me what it takes to do better than buying $420k a house on a $75 income with $84k in savings. (I’m just picking the “median” numbers from the article.) A 2-bedroom apartment where I live is anywhere from $2500 to $4k, so let’s say $36k/year in rent. Rent is much higher than this in SF or NYC of course. How long do you have to rent for the interest on $84k in ETFs to cover $36k/year in rent, assuming your rent doesn’t go up?
Edit: I’m not certain that did the calculation correctly, but it looks to me like on a 5% market return it would take 69 years for an $84k investment to break even against $36k in rent.
> It’s just 100% better than dropping most of your money into a hole called rent
You take the difference between rent and ownership costs, not just the down payment, leverage that (2x max), and calculate the difference. The Times has a good tool for this [1]. (It doesn’t lever. Securities-based loans are almost always cheaper than mortgages.)
The sucker in the present math is the individual, aspirational, emotionally-motivated buyer. The winner, the sellers and first-lien lenders.
> assuming your rent doesn’t go up?
I’d actually argue this is what most people pay for with homeownership. You may become a bit poorer, but your future is more certain. If you’re savvy you can use that certainty to take more risk in other parts of your life. Buying a home, for most Americans, is buying insurance. The problem is few see it that way, which is pretty great for the real estate industry.
The times tool says I’m better off buying to the tune of $100k over 10 years given the example I used above. I don’t know if that’s a reasonable assumption, however in order to break even I need to reduce the rent to $2300. In my locale, the difference between $2300 in rent and a $420k house is not emotional, the house is a tangible and significant space and standard of living increase.
I don’t know why it would be any other way; the landlord has to pay a mortgage or purchase price, and the rent must be higher than that. The mortgage and TCO costs of the property plus some profit for the landlord are what renters pay.
> don’t know why it would be any other way; the landlord has to pay a mortgage or purchase price, and the rent must be higher than that
Landlord is locked in. (They also have search, turnover and collection costs.) Tenant has flexibility. Sometimes the landlord makes money, sometimes they don't. Nothing guarantees them a return. (Ask a real-estate agent about buying an investment property. The pitch almost always turns on price appreciation.)
I’m not saying buying never works for the buyer. (It looks like it might work where you are.) Just that most people buying today are transferring wealth away from themselves in exchange for emotional comfort.
The notion that leasing is pissing money away is a deeply-flawed and probably-wrong theory. It’s also somewhat uniquely American (and British) middle class, which makes me suspicious about its origins.
Renting is short-term flexibility and lower barrier to entry. It can have some advantages if used carefully. In the long term, it gets questionable. (The Times calculator says so too).
The thing that would stop me from buying right now isn’t the price, it’s the interest rate. Also one method for dramatically reducing TCO of a house without increasing the monthly payments by that much is to finance with a shorter term loan. It’s harder to get rent to win when financing with a 15 year loan.
And it’s way harder to get rent to win without the opportunity cost, especially when comparing apples to apples on space. I feel like you’re mostly talking about what’s possible but not what’s likely. You might be able to come out ahead renting but I think most people won’t. Most people at the edge of buying a house aren’t going to invest if they decide to rent instead. The choice doesn’t seem to play out as buy vs rent+invest, but more often just buy vs rent. When the choice is buy vs rent, and renting isn’t offset by investing, then it really is pissing money away, transferring wealth away faster than if they bought a house.
> Most people at the edge of buying a house aren’t going to invest if they decide to rent instead
Sure. In the same way self insuring is generally a mistake, even if you're wealthy, because most of us don't have the discipline to hold that liquidity hostage continuously. The forced-saving benefit of homeownership is real. I simply ponder whether it (and the increased civic engagement ownership brings) can be replicated some other way.
That’s an interesting question, it would be great if there were good alternatives.
So FWIW after sleeping and thinking about it, I might be coming around to what you were saying, that buying at high prices and high interest might not be a great financial decision right now. My today thinking is that this whole discussion was perhaps not really about buying vs renting, it was mostly about financing and the often obscured total cost of a loan. I guess if we were talking about paying cash for a house, the calculus vs renting is completely different. I’ve been lucky with my houses and I shouldn’t assume everyone will be as lucky. I did realize a couple of funny ways to frame things. Buying a house might let you leverage your down payment, but a loan is also bank leverage against you, since you will eventually pay back 2x-3x the loan amount. Or another way of putting it is that when I buy a house with a loan, I’m renting the money to buy the house. :P
Right. Property taxes are paid by landlords, who then charge it back to you in rent. Your example article indirectly says the same thing: tax cuts were not passed on, landlords kept them.
Landlords not cutting the rent supports my claim that renters are effectively paying the property tax. You can argue that not all taxes are passed on, but the reality is that landlords have a set of costs, one of which is taxes, and they have a set of incomes from renters, and the income rent will always be higher than the costs, unless we’re talking about rent control or something like that. If the costs exceed the rents, then landlord goes out of business.
I edited before you replied, and just clarified. I didn’t change my point at all.
Rents are certainly not always higher than costs. Plenty of "investor" landlords buying properties that return less in rent than the mortgage expenses of said property (or the cost of capital).
Making 4% in rent isn't great when the mortgage interest is 6%. The difference is made up out of the landlord's pocket, and they gamble on capital gains to make up the shortfall (or rising rents vs a mostly fixed mortgage expenses)
> rents can be temporarily lower than costs in the short term. In the long term if that happens, the landlord ceases to be a landlord
In the very long run, yes. In the medium term, as in decades, home-price appreciation has let landlords in several markets run at a loss and rely entirely on capital gains for profits.
Home ownership is effectively enshrined as a value in most economies. The emotion is part of society’s design. Conforming to this incentive or belief is not unusually irrational,
> Property tax isn’t voluntary and as exogenous as a landlord
I live in the UK. I have to pay the same rate of council tax for the property whether I own it or rent it.
However that’s completely beside the point: my council tax isn’t suddenly going to double overnight because a single person decided they can extract more money.
> Making the largest leveraged purchase of your life for an emotional comfort object is irrational
You are completely missing the point. A place to live that is truly your own is not like buying some luxury good.
I could buy your argument were it about buying a mansion vs a small family home, but the article is about people being unable to buy any home.
> No-one can tell you you can’t change the wallpaper in your own home, or remodel the bathroom, or get a dog.
Yes, the housing association absolutely can tell you not to remodel your bathroom. Unless you literally own a house rather than an appartment, you really don't have a lot more rights than a renter would have.
Firstly I am legitimately surprised that Finland has HOAs. I had always assumed they were a largely American construct (I’m British).
Secondly I was absolutely talking about owning a house rather than an apartment. I feel an apartment is a slightly different situation by virtue of being an inherently shared space.
That said, I still it baffling that someone would try to exert control over what you do with the inside of your own home.
> Firstly I am legitimately surprised that Finland has HOAs. I had always assumed they were a largely American construc
The Finnish HOAs are a uniquely Finnish construct. They are in many ways different from the American HOAs, even though the name is the same.
> That said, I still it baffling that someone would try to exert control over what you do with the inside of your own home.
In the Finnish system, as a "homeowner" in a HOA, you actually don't own things such as... the walls inside your apartment. The HOA owns the walls. You own a piece of the HOA and the right to live inside the walls. But if you want to fix damage inside the walls, for example, you need the HOA to do that, because they own the walls.
Strange they call it an HOA when it sounds like the basic concept of “home ownership” doesn’t actually exist.
First thing I did when I bought a house was smash a nail in the wall and hang a picture. Well I guess the second, I ripped down walls and painted first.
I don't know if I'm translating to English correctly. I mean, technically it does not have an English translation, since the construct does not exist in countries where English is a native language.
The direct translation would be "house company", but that sounds wrong.
Not sure how long the parent has rented for but there is definitely a point, especially if you have children, where you realize having your own home is really important so you can express yourself without fear of eviction.
I always wanted to build a home gym and have a workshop, I have these things now, I never could before, I'm happier now than I was before, it was something I really wanted to do with my life, rent doesn't allow you to do those things, most of the time anyway.
The parent commenter spoke explicitly about it as a financial decision. Your counter comment directly contradicts their assumptions (financial decision), which makes it inappropriate.
Not everything is a purely financial decision. A home is primarily a place to live, not an investment opportunity.