I feel Matt missed the primary reason folks like to own their home, which is freedom from a landlord who can evict you, mess you around and generally control your actions. A home is not the same as a stock because you don't live in your stock portfolio, and to be honest Matt came across as really out of touch with the experience of families who rent. If you're young man who doesn't much care about their environment and can easily move, renting is not so bad. If you're a family for whom being forced to move is a big problem, it is. Even if you are in love with home renovation and design, which I am not but many people seem to be, then again renting has major impacts on your ability to live your life as you wish.
The UK is currently legislating an overhaul of rental regulations and security of tenure was the top priority the renters pursued.
I'm all in favour of America (and other countries) getting rid of policies that favor homeowners.
But I'm dubious that it has as much of an effect as Matt seems to be implying.
We can look at home ownership rates around the world and see that America isn't even in the Top 50 globally.
Many countries that rank much higher have closer to zero policies favouring home owners. Not because they've made a policy decision but because they are too poor or have too weak state capacity to do anything like that.
I live in Vietnam and there is very little in the way of policy supporting home ownership. There's certainly nothing like Fannie Mae. Yet home ownership rates are much higher than in the US.
There are so so so many countries with very high home ownership rates that it begins to be implausible that policies are really the driving force.
One piece of personal, practical advice: downsize when you retire. Don't delay it, as soon as you have stopped working, move to somewhere smaller, somewhere that is all on one level and has an elevator, and preferably somewhere that has good public transit. Probably a two bedroom so your kids can stay in the spare room when they visit. Turn a big chunk of that real estate asset into some sort of investment.
Whether you sell the house and buy the apartment (or smaller one-level house), or you rent out the house and rent or buy the apartment is a financial decision, there is no generic one-size-fits-all advice on this.
You do not want to have to do this when you are older, when your mental faculties have declined, and when you are no longer able to manage the stairs in the house you raised your kids in, and you can no longer drive so you're trapped in a house that doesn't have any transit access.
My parents really regretted not having moved in their sixties when they got to their seventies and my mother had a stroke and could no longer drive. They were too old and too fragile to move (other than into somewhere with 24/7 carers) which meant that their horizons dropped quickly to just their physical house.
Take a look at your house. Now imagine being eighty and a wheelchair user and ask if you still could live in it. If you can't, then get out and into somewhere that you can, and do it when you're still sixtysomething and moving is physically possible.
Regarding NIBMYs I just don't think the story where this is all about them maximizing their real estate value the way an ibanker would is correct. That story should predict the opposite behavior from what we see: people would welcome building near them (property values increase as cities become denser) but oppose building on a national level. Besides, people aren't that directly selfish.
Rather, people invest alot monetarily and emotionally in a house and when they bought the house they choose the type of neighborhood they wanted to live in and new construction threatens that. Sure, it also brings benefits but people are risk adverse and it's easy to see the harms and hard to imagine the benefits.
This suggests that if we want to solve this problem we might want to consider making moving easier. Make it easier to move a mortgage to a new property and eliminate percentage based real estate agents!
I never realized that homeowners keeping their empty bedrooms is so close to the wild conspiracy theories about investors keeping whole units vacant to somehow drive up housing costs.
This is one of the best posts you've ever written. One additional point for the discussion at the end about policy encouraging older couples to continue living in large houses: basis step-up at death. If the older couple sells their larger home to move to a smaller dwelling, then they (may) pay capital gains taxes on the difference between the purchase price and the sale price (it's not that simple, of course, but generally that's how it's done). If they die before selling the home and bequeath it to their heirs, the purchase price vanishes and any subsequent sale by the heirs results in a capital gains tax only on the difference between the estimated market value of the home at the time of death and at the time of the subsequent sale. Where property values are rising, this creates an ENORMOUS financial incentive to own the home until death. Think about someone who bought a basic home in Silicon Valley in 1970 and still owns it. The tax difference between selling now vs bequeathing to heirs could be millions. And the effect is necessarily larger in geographic areas where property values are rising the most--precisely the type of areas where ownership churn generates the most value. It's preposterous policy--much more significant than any issues with the estate tax.
While I'd also like to see more rental housing for adults (and if we want that we might want to make it legal to advertise apartments catering to families with children or w/o children) I think you're missing a huge economic incentive for home ownership.
Being a home owner internalizes the costs the occupants put on the property owner. Sure, you can have security deposits but there are a 100 ways that you can affect how much wear you impose on a dwelling. I know that since I became a home owner I've started being alot more careful to make sure grease doesn't go down the drain and shoes aren't worn on the carpets. Also there are a bunch of choices you can make as a homeowner to save money (ohh the detergent dispenser on my dishwasher stopped working...but it's not a big deal just to use packets).
As a renter you're always paying more to defray that higher cost which renters impose on the housing not to mention the higher cost of turnover (we usually are ok with a degree of wear we won't put up with in a new place). Because of limited trust between landlords and tenants plus the difficulty detecting how much wear a tenant imposes there are real savings created by home ownership quite apart from tax incentives.
Having said this 100% kill the mortgage deduction.
In some ways I think Matt is underselling how distortionary housing policy is on current discourse. Matt notes that seeing your house as a savings vehicle is problematic. But it's worse than that. In the last 30 years, due to the combo of NIMBY and "superstar" city phenomenon, people living in NYC, SF, Seattle, Boston and a handful of other cities see housing as an investment on par with investing in stocks or a company. I don't think it's really appreciated how many people in a handful of cities saw their houses as no different than investing in Tesla or NVIDIA early. It creates a really warped sense of what housing is supposed to be which is essentially a consumption vehicle.
As oldsters, our reasons for staying in our mortgage-free house have no regard to its value as an investment. It's just that moving would be a pain and as renters we would have higher monthly costs for less living space.
I think Matt has the political economy of the homeowner-NIMBY nexus wrong. A do not think homeowners do or should see the greater supply of housing that land use reform would allow as threatening the value of their asset. The problem is that they see the local externalities (traffic, street parking, aesthetic "look" of the neighborhood) and undervalue the benefits to city revenues and greater commercial development that more local housing beings. And as citizens, they do not value the benefits to the new residents as they should.
This is a great piece, but the next stage is looking at how California's Prop 13 limited property tax increases for existing owners, thereby giving empty nesters (and anyone really) an incentive not to sell but to stay in housing that may no longer be optimal. If there's one reason so much of California's housing stock looks and feels stuck in the 1970s, it's because people have been holding on to property with artificially low assessments (limited by Pro 13) versus their actual property values.
Aren't Germans famously NIMBY even though their home ownership rate is way way lower than in the US? I'm not sure about Matt's general theory of the case here. If you had a broader, German-style culture of renting, people would simply rent the same apartment for much longer periods of time, like years or decades. Then they'd feel the same way about 'neighborhood character' and blocking new development and so on.
Also, with higher rates of renting, you'd have a much broader coalition for really dumb laws like rent control and other anti-landlord policies. Not sure I agree with Matt's overall take here. Also, not to nitpick, but
"the government would re-insure loans made by banks to middle class people who want to make leveraged investments in diversified pools of stock"
.....what? Leveraged investments are Bad, and giving people loans to do so is a genuinely terrible public policy. I think you have to promote broader stock ownership by being paternalistic and forcing people without a 401k to save even if they don't want to. Not, give people loans (!) to buy leveraged stocks (!!)
I feel Matt missed the primary reason folks like to own their home, which is freedom from a landlord who can evict you, mess you around and generally control your actions. A home is not the same as a stock because you don't live in your stock portfolio, and to be honest Matt came across as really out of touch with the experience of families who rent. If you're young man who doesn't much care about their environment and can easily move, renting is not so bad. If you're a family for whom being forced to move is a big problem, it is. Even if you are in love with home renovation and design, which I am not but many people seem to be, then again renting has major impacts on your ability to live your life as you wish.
The UK is currently legislating an overhaul of rental regulations and security of tenure was the top priority the renters pursued.
I'm all in favour of America (and other countries) getting rid of policies that favor homeowners.
But I'm dubious that it has as much of an effect as Matt seems to be implying.
We can look at home ownership rates around the world and see that America isn't even in the Top 50 globally.
Many countries that rank much higher have closer to zero policies favouring home owners. Not because they've made a policy decision but because they are too poor or have too weak state capacity to do anything like that.
I live in Vietnam and there is very little in the way of policy supporting home ownership. There's certainly nothing like Fannie Mae. Yet home ownership rates are much higher than in the US.
There are so so so many countries with very high home ownership rates that it begins to be implausible that policies are really the driving force.
One piece of personal, practical advice: downsize when you retire. Don't delay it, as soon as you have stopped working, move to somewhere smaller, somewhere that is all on one level and has an elevator, and preferably somewhere that has good public transit. Probably a two bedroom so your kids can stay in the spare room when they visit. Turn a big chunk of that real estate asset into some sort of investment.
Whether you sell the house and buy the apartment (or smaller one-level house), or you rent out the house and rent or buy the apartment is a financial decision, there is no generic one-size-fits-all advice on this.
You do not want to have to do this when you are older, when your mental faculties have declined, and when you are no longer able to manage the stairs in the house you raised your kids in, and you can no longer drive so you're trapped in a house that doesn't have any transit access.
My parents really regretted not having moved in their sixties when they got to their seventies and my mother had a stroke and could no longer drive. They were too old and too fragile to move (other than into somewhere with 24/7 carers) which meant that their horizons dropped quickly to just their physical house.
Take a look at your house. Now imagine being eighty and a wheelchair user and ask if you still could live in it. If you can't, then get out and into somewhere that you can, and do it when you're still sixtysomething and moving is physically possible.
Regarding NIBMYs I just don't think the story where this is all about them maximizing their real estate value the way an ibanker would is correct. That story should predict the opposite behavior from what we see: people would welcome building near them (property values increase as cities become denser) but oppose building on a national level. Besides, people aren't that directly selfish.
Rather, people invest alot monetarily and emotionally in a house and when they bought the house they choose the type of neighborhood they wanted to live in and new construction threatens that. Sure, it also brings benefits but people are risk adverse and it's easy to see the harms and hard to imagine the benefits.
This suggests that if we want to solve this problem we might want to consider making moving easier. Make it easier to move a mortgage to a new property and eliminate percentage based real estate agents!
I never realized that homeowners keeping their empty bedrooms is so close to the wild conspiracy theories about investors keeping whole units vacant to somehow drive up housing costs.
Truly it is hiding in plain sight.
I really hope the antidentitism remains a theme here for years.
This is one of the best posts you've ever written. One additional point for the discussion at the end about policy encouraging older couples to continue living in large houses: basis step-up at death. If the older couple sells their larger home to move to a smaller dwelling, then they (may) pay capital gains taxes on the difference between the purchase price and the sale price (it's not that simple, of course, but generally that's how it's done). If they die before selling the home and bequeath it to their heirs, the purchase price vanishes and any subsequent sale by the heirs results in a capital gains tax only on the difference between the estimated market value of the home at the time of death and at the time of the subsequent sale. Where property values are rising, this creates an ENORMOUS financial incentive to own the home until death. Think about someone who bought a basic home in Silicon Valley in 1970 and still owns it. The tax difference between selling now vs bequeathing to heirs could be millions. And the effect is necessarily larger in geographic areas where property values are rising the most--precisely the type of areas where ownership churn generates the most value. It's preposterous policy--much more significant than any issues with the estate tax.
While I'd also like to see more rental housing for adults (and if we want that we might want to make it legal to advertise apartments catering to families with children or w/o children) I think you're missing a huge economic incentive for home ownership.
Being a home owner internalizes the costs the occupants put on the property owner. Sure, you can have security deposits but there are a 100 ways that you can affect how much wear you impose on a dwelling. I know that since I became a home owner I've started being alot more careful to make sure grease doesn't go down the drain and shoes aren't worn on the carpets. Also there are a bunch of choices you can make as a homeowner to save money (ohh the detergent dispenser on my dishwasher stopped working...but it's not a big deal just to use packets).
As a renter you're always paying more to defray that higher cost which renters impose on the housing not to mention the higher cost of turnover (we usually are ok with a degree of wear we won't put up with in a new place). Because of limited trust between landlords and tenants plus the difficulty detecting how much wear a tenant imposes there are real savings created by home ownership quite apart from tax incentives.
Having said this 100% kill the mortgage deduction.
In some ways I think Matt is underselling how distortionary housing policy is on current discourse. Matt notes that seeing your house as a savings vehicle is problematic. But it's worse than that. In the last 30 years, due to the combo of NIMBY and "superstar" city phenomenon, people living in NYC, SF, Seattle, Boston and a handful of other cities see housing as an investment on par with investing in stocks or a company. I don't think it's really appreciated how many people in a handful of cities saw their houses as no different than investing in Tesla or NVIDIA early. It creates a really warped sense of what housing is supposed to be which is essentially a consumption vehicle.
As oldsters, our reasons for staying in our mortgage-free house have no regard to its value as an investment. It's just that moving would be a pain and as renters we would have higher monthly costs for less living space.
I think Matt has the political economy of the homeowner-NIMBY nexus wrong. A do not think homeowners do or should see the greater supply of housing that land use reform would allow as threatening the value of their asset. The problem is that they see the local externalities (traffic, street parking, aesthetic "look" of the neighborhood) and undervalue the benefits to city revenues and greater commercial development that more local housing beings. And as citizens, they do not value the benefits to the new residents as they should.
I am disappointed that there are no Slow Boring hats. I thought MattY would understand the value of head cover as a fellow bald man.
Just to prove Matt's point, Gmail assigned his post the label "Redfin", and banished it to Promotions.
This is a great piece, but the next stage is looking at how California's Prop 13 limited property tax increases for existing owners, thereby giving empty nesters (and anyone really) an incentive not to sell but to stay in housing that may no longer be optimal. If there's one reason so much of California's housing stock looks and feels stuck in the 1970s, it's because people have been holding on to property with artificially low assessments (limited by Pro 13) versus their actual property values.
Aren't Germans famously NIMBY even though their home ownership rate is way way lower than in the US? I'm not sure about Matt's general theory of the case here. If you had a broader, German-style culture of renting, people would simply rent the same apartment for much longer periods of time, like years or decades. Then they'd feel the same way about 'neighborhood character' and blocking new development and so on.
Also, with higher rates of renting, you'd have a much broader coalition for really dumb laws like rent control and other anti-landlord policies. Not sure I agree with Matt's overall take here. Also, not to nitpick, but
"the government would re-insure loans made by banks to middle class people who want to make leveraged investments in diversified pools of stock"
.....what? Leveraged investments are Bad, and giving people loans to do so is a genuinely terrible public policy. I think you have to promote broader stock ownership by being paternalistic and forcing people without a 401k to save even if they don't want to. Not, give people loans (!) to buy leveraged stocks (!!)
Really bad article.
If you retire and don't own a paid off home, you are probably screwed.
As a CPA I had to have some tough conversations with people, that they basically couldn't retire. Or if they did they would be homeless.
People should plan to buy and pay off a home before retirement.
Not primarily as an investment, but as a form of risk management. Think of it as homeless insurance