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.
Respectfully, I don't think it's true that I missed people's motives for owning homes.
What I say in the piece is that "There are obviously some offsetting reasons why it’s congenial to own your own home. But precisely because it seems like something a lot of people would want to do anyway, it doesn’t seem like we need to go out of our way to encourage it."
“Congenial” means “pleasant or agreeable because suited to one's taste” A “congenial” benefit of homeownership is that if we want to repaint we can just do it. That’s not what Binya is talking about.
The fact that while renting your living situation is utterly at the mercy of someone else is huge. We have a human instinct to nest and the fact that could be taken away is not a matter of congeniality.
Ironically, this can be partially addressed by corporate landlords who are far better in this regard than mom and pop landlords.
Preach it. I had the best of all worlds, renting from a large estate, with an office nearby. Good personal connections to the renting team, things got fixed quickly. And we were good, reliable tenants, quick to report and look after things, and they saw the financial benefit of that. When the block was closed for redevelopment they offered us an identical place half a block away at a discount.
The other big trouble with non-professional landlords is that they (unsurprisingly given the psychology people discuss below) think it's *their* house. But while I have tenancy, it's MY damn house. Professionals respect that
I disagree. It’s an asset owned by someone else that you’re renting from them. The stuff in it may belong to you, but the house itself does not. Would you say that an Air Bnb is YOUR house while you’re staying in it? If not, what’s the difference?
Property rights are about who can have whom arrested for interfering with those rights. If my landlord breaks into my rented property without going through the correct process, I can ask the police to throw him out
Assuming it actually is a house, the place where I live is "my house" (in reality I live in an apartment, and it's "my apartment"). For an AirBnB or hotel room, it's "my AirBnB" or "my hotel room" as long as I'm staying there. But, when staying in a hotel room, I do occasionally refer to it as "home" even though I don't actually think that's correct.
I would say that it's more that the variance among "mom and pop" landlords is enormous. I had both very good ones, and very bad ones, before I finally bought my own place.
I've never had a good experience with corporate landlords, and I've always had good experiences with individual landlords. Of course, bad experiences with the latter can occur, but at least the fight takes place on more even terms. There's no way to win a battle with a corporate landlord.
"Ironically, this can be partially addressed by corporate landlords who are far better in this regard than mom and pop landlords."
Could you expound on this a bit? When it comes to mom and pop anything I tend to default to higher variance, which could mean far better or far worse, but I'm interested as to how you see this specific sector.
To use my personal experience: When I lived in a unit owned by a “Mom-and-Pop” landlord, they were in our business constantly, coming unannounced, and not consistently fixing issues with the unit. Ultimately, they sold the building to be converted into condos, making us move (Completely within their right, but inconvenient).
Now, in a big corporate building, I send my checks, get my issues fixed, and have otherwise never interacted with my “landlord.”
I think you’re probably right about variance among Mom-and-Pops, but would guess that they trend toward low quality management. Which is fine! Of course a firm that manages hundreds of units would be better at it than a retiree with one 6-unit building.
The one big advantage you might get with a mom-and-pop landlord is that if you’re a good tenant they might never raise your rent, because they don’t want the hassle of figuring out how to maximize profit while minimizing the risk of you moving out. The corporate landlord will have some optimized schedule of rent increases.
I think the person who said this is a matter of broader variance was correct.
A corporate landlord might be more efficient and out of your business.
But a mom and pop landlord also might be quicker to get to something, and more tolerant of things like being late on rent because you lost your job or just in general cut you more slack if they have a good relationship with you.
Institutions with clear policies can be efficient and the rules can protect you from the whims of personal conflict.
But when you live by policy you also die by policy.
There might be much less flexibility for dealing with the unpredictability of life, and you might get the run around when you ask for things to get fixed, because everything is run by faceless "policy" rather than based on the maintenance of a relationship and reputation.
Personal relationships can be less predictable, but when they work well I think they bring a level of flexibility and humanity that many people prefer. Reputation management in the community also often provides a much more effective check often than just following policy. A corporate landlord doesn't care if you go around talking about how your pipes don't get fixed on time as long as they cal fill apartments. Your neighbor who rents you the second floor of a house they own in a community you mutually share is going to be a lot more concerned about their personal reputation as a decent person in the community.
I personally have had much better luck in my life with persons and relationships than I have institutions and policies, which I prefer a society that empowers opportunities to revolve life around the former and limits the powers and reach of the latter.
Now, admittedly I am a small town girl who detests cities and urban life, so that also contributes to the biases that inform my experience.
"But a mom and pop landlord also might be quicker to get to something, and more tolerant of things like being late on rent because you lost your job or just in general cut you more slack if they have a good relationship with you."
None of this matters to an upper middle class renter or higher who has liquid assets. They don't need a rent grace period because they don't live paycheck to paycheck, and small things they can literally fix out of pocket in the rare event that the corporate landlord can't fix it on a reasonable schedule.
It’s because of specialization and learning by doing that larger landlords often provide better services. Often smaller landlords charge lower rents to compensate for their lower quality service.
Of course, "some friggin' stranger comes over INTO YOUR HOME tomorrow to swap out your X, and you might not even need to be there!" is a service to some and a hassling imposition to others.
Pat has a good response on the corporate side (that corporate is primarily just interested in a steady revenue stream - and if you pay your rent on time and don’t cause trouble you’ll generally be fine).
In terms of variance - the variance is a trap. The type of landlord who will not raise rent or raise it below what they can - will often be the ones to not see the relationship as a business one and have poorer boundaries regarding entering the unit or not attending to issues in the property. They also can shift suddenly to wanting to fully monetize the unit. Even if they don’t - when they die their children will see a below-market rent tenant and will swoop in to sell/evict (this has happened to many people I know).
Citing the "human instinct to nest" is rather overwrought don't you think? I guess the vast majority of humans on earth today who do not own their home are just living unfulfilled lives contrary to our nature?
"Citing the "human instinct to nest" is rather overwrought don't you think?"
No I don't. If I did I wouldn't have written it.
"I guess the vast majority of humans on earth today who do not own their home are just living unfulfilled lives contrary to our nature?"
What a weird and uncharitable misread of what I wrote. People have a human instinct to nest and call a place their own - regardless of ownership. One of the downsides of renting is that this can be taken away. I didn't live an "unfulfilled life" when I was renting, but the house that I thought was my home got taken away because the landlady realized she could make more money renting it to someone else.
I think these are more than just offsetting reasons. As others have noted, they are the primary reasons why most people, who already have experience as renters, decide to go the ownership route. There’s just no comparison to the feeling of being in ultimate control of the place where you spend the vast majority of your non-working life, and having the freedom to do what you want with that place. The mortgage interest deduction hardly benefits anyone except the uber-rich since Trump’s tax reforms, and while it was nice not to pay capital gains tax on the house I recently sold that I originally purchased in 2017, I doubt most people are even aware of this benefit when they initially decide to purchase a home. I certainly wasn’t.
“The mortgage interest deduction hardly benefits anyone except the uber-rich since Trump’s tax reforms”
It benefits unmarried people because they have a smaller standard deduction. If you’re unmarried and own a home, the mortgage interest deduction plus SALT deduction is most likely higher than the standard deduction. Given how common cohabitation without marriage is these days, this is a nontrivial population.
I think "congenial" falls well short of the utility many people derive from owning their home. You also described people's opposition to institutional ownership of homes as "really weird" when in fact I think reflects the sentiment I refer to, that homes are very different to other financial assets and there is value in *supporting* widespread home ownership (which I think is a more representative way of framing housing policy - it's mostly helping people achieve goals they already hold, not changing their goals).
I'm somewhat unclear why so many people have these goals and if it's contingent on decades of policy, rhetoric and cultural baggage or if it's innate in most people.
I prefer apartments and wish more of our cities were organized along dense apartments and transit and mixed use zoning situations. But like there's maybe a few blocks in my city that are set up like this and it is as Matt says mostly for the too poor to buy a house and too young to want a house crowd.
I do think that an awful lot of "empty-nester" couples would find that a fully-accessible apartment that they could own (as a condo) in a dense, mixed-use, transit-accessible block would be far more suitable to their needs than a three or four bedroom house in a car-oriented suburb.
And those blocks being mixed between younger people and older empty-nesters and retired people would have all sorts of good effects in terms of community-building.
Of course, that would mean that the buildings would have to be built to a decent set of standards, with good noise proofing. But the sorts of young professionals who like that style of living would almost certainly be happy to have an older neighbour (speaking as someone who has aged in place and is now the older neighbour!).
Certainly in the UK it was awful to see so many family houses stand 80% empty, often a burden to their very elderly owners who could barely pay to heat a few rooms, whilst younger families were basically priced out of having a reasonably sized place. I have no idea how you get to the new world you describe, either physically, culturally or psychological, but it would be massively beneficial if we could.
There are entire regions and cities (or parts of them) that are explicitly designed around this - think the retirement communities in FL and Palm Springs.
Beyond space and such, people like being able to paint and upgrade fixtures.
There are also generally far fewer agency costs involved in homeownership. You want the boiler replaced now, but your landlord’s incentive is to defer thant cost. Whereas if you own the home the costs and benefits are both borne by the same party.
It can be helpful to understand that people have different moral intuitions, that they justify in a post-hoc manner to themselves and others with rhetoric. Jonathan Haight writes well about this.
The short of it is, you probably have very low intuitions around being oppressed and you probably don't worry much about other people encroaching on you. For me, for reasons I can't explain, I just feel stifled and abused having to live in an apartment building, like an animal in a stall. It just feels...wrong. Undignified, in a way that owning does not. Like...I can't fully believe that others perceive me as an adult, because I live in a one bedroom apartment. Now they probably don't think of me at all, the therapist would tell me to work on myself. But I think most people would rather just work towards a house than try to convince themselves that their deep-seated feelings should be ignored.
I imagine for someone like you, though, who has no moral intuitions around this, people like me seem insane! It's because you experience the world differently. It's impossible for one human to understand the experiences of all other humans. You have to accept some of what people say on faith. This is very hard and is why religions came about - to align people with differing moral intuitions by creating rigid rules that respect all of them. We've done away with this, preferring a legal system that ignores most moral intuitions other than harm to others. The reason many are upset is because their moral intuitions are being ignored and dismissed.
And yet in most other countries around the world people don't feel nearly as compelled to own and still manage to live happy lives. Perhaps this utility is... a product of policy?
My take away is that we need more diversity in housing options for people and there are downsides to homeownership (illiquid assets that are difficult to sell in many circumstances if you need to move.)
Not to mention repairs. Homeownership is not what it’s cracked up to be, but it’s usually beneficial *over time*, at least if you’re white and didn’t buy in the Rust Belt back in its glory days
It’s a question of emphasis. The non-monetary reasons for owning homes are sufficiently robust that, at the margins, policy tweaks won’t make a huge difference.
The impression I got reading the article is “Matt really wants to pummel the NIMBY coalition, so he’s stretching and probably overestimated the efficacy of pro ownership policies.”
You certainly left out ways that financially rational people can monetize their houses under existing law. The capital gains treatment of all assets is identical if you hold them until death and, with financial assets, you can sell part of them and still avoid capital gains taxes on the rest. It’s much harder to sell part of a house. A financially rational boomed couple would sell their house, buy securities, and avoid capital gains taxes on whatever they still held at death.
Regarding emphasis I'm not sure that Matt committed any misstep there. Matt's section on "what would happen under a more neutral policy" makes quite clear that he's talking about marginal changes to homeownership composition rather than fundamentally altering the face of the market. Indeed part of his point is that in view of all the non-policy-mediated reasons to buy a home it's not clear that it makes sense to subsidize it.
And wouldn't these marginal changes most effect poorer and more working class people?
Rich people might benefit from policy but they generally don't depend on it. I grew up in a family that is genuinely FU Money wealthy, and while they attend to policy and strategy (you don't get and stay rich if you don't) ultimately they make their personal purchasing decisions based on what they want to do and have and if its not practical in the end, well that's what you have the FU Money for LOL.
Professional class people are probably the most attentive to making purchasing decisions based on policies and incentives, but they will still do what they need to do for a house in the Best School District.
It would be working class and lower income people I think would lose out on homeownership if policies incentivized it less, depending on how those policies were done.
And working class and lower income people are not going to have money to put in "stocks and bonds" in place of a home. That money is just going to go towards rent. When working people buy a home, they are getting housing AND savings at the same monthly price. If they are renting, then all that money goes towards rent and there is none left for stocks and savings. No, a home isn't always the best asset on paper, but one asset that serves a practical purpose *they have to pay for anyway* usually is easier for lower income people than having to pay for the practical thing + savings.
Lower income people also are less likely to have the sophistication to manage "stocks and bonds" or pay someone else to do so.
Maybe a home isn't the *best* investment to put your savings in, but for a lot of people it is the only practical one and one they understand the best.
This piece isn't an argument against the benefits of home ownership. It's simply arguing that having a tax system that incentivizes living in your greatest asset isn't necessarily the best housing policy.
But the tax advantages hardly seem to matter. I think the fraction of taxpayers itemizing is < 15% now. And as I recall, capital gains were always excluded if you rolled it into a new house; it's only recently that they are excluded regardless (up to the $250/500k limit). Anyway, I can't think of a single person I know who was incentivized to buy because of the deal they'd get on taxes. At best, people used to mention it when deciding how much house to buy, but it never swung the decision for buying or not altogether. And now I don't hear anyone talk about it at all.
I don't think it works like that. Maybe they do what you say: they take the 20% down payment they were going to put on a house, and they invest it in a Vanguard index fund. They give their cash to Vanguard, and Vanguard takes a cut to pay their people, and then gives the cash to whomever owned the stocks they were purchasing for the fund. That owner of the stock (who has nothing to do with the management of the company) takes that money and...reinvests it into the stock market. Stock values inflate, nothing changes.
I am really trying to understand, so please explain: does the purchase of any financial product actually give money to a group of people who are doing work? For example, if I buy 100,000,000 units of Coke, do any Coke employees receive this, even as representatives of Coke? Does this drive Coke to innovate in some way, or invest in new facilities, or somehow improve their product or delivery? I don't think it does, and I think because of that, financial products are worthless. They're just betting chips being traded, which is why their value evaporates whenever sentiment changes.
Asking people to buy into THAT is, I think, assuming that most people are very risk-tolerant and I don't think that's true.
Fwiw the strategy to monetize but not sell your house is pretty straightforward…home equity loans. You can even pick up a tax benefit, though of course there are limits.
He says home ownership would be "a little lower". My gut is that it would be a _little_ lower, but very, _very_ little for reasons people have been pointing out. The arguments we are seeing in the comments are a consequence these conversations having little concrete detail. Fewer people would want to read post that were mostly numbers and equations, though, it's the nature of the beast.
Another advantage is predictable and stable costs for owned housing, while rental housing only has sporadic limits on price increases. Of course without Fannie and Freddie we'd probably have something like the Canadian mortgage market, where the loan might be amortized over 25 or 30 years but you're forced to refinance (at whatever the current interest rate is) every five years.
The ability to repaint, change appliances, update light fixtures, add rooms, remove walls or otherwise modify your surroundings is a huge benefit to home ownership.
For all of the bad press the TJCA received, it did reduce the benefit of the mortgage interest deduction quite a bit by increasing the standard deduction and lowering the amount that can be deducted.
When I told my family that I was buying a property that would include a place to rent out, my sister and mom quickly got in an argument as to whether I should allow dogs to live there. My very pro-dog sister quickly won that argument.
This was legitimately one of my biggest personal problems when I was renting. Finding a dog friendly apartment complex was annoying on it's own... then they had an insane nonsense "restricted breeds" list. Our roommate had a lab mix that absolutely might have included some sort of pitbull among like 15 other things, who knows what, so if someone started trouble about it we'd probably be screwed. Then my wife rescued a German Shepherd puppy and we had to spend like a year and a half lying about it being a Belgian Malinois before it made sense for us to move, at which point buying a house was basically the only option.
My sister's first dog was also a lab/pit bull mix. She was always smart enough to lie her ass off about the pit bull part where appropriate--not just to landlords, but also insurance companies.
But I know that we once had a legendary argument here at Slow Boring on the merits of pit bulls, one that I continue to stay far away from opining on.
I wonder how many people even benefit from the mortgage interest deduction any more. I’ve been a homeowner since 2011, and there have been years where it’s a saved me a few hundred dollars on my taxes, but since TJCA I’ve never been close to exceeding the standard deduction. With so many people now holding low-interest loans, it seems like you have to be in the extreme upper echelons of home values for it to make a difference.
Even for the high-income people, the benefit is greatly reduced. Now only $750K of mortgage amount can be deducted at all. At 5% interest, that is $37,500 deduction, so it saves about $15K in taxes. Not that big of an incentive for those making over $300k per year.
For a Republican bill, the TCJA was actually good.
Agreed, would be good for Congress to continue the reduced value of the MID, while increasing the corporate tax rate when the TCJA expires in a few years.
What's the benefit of eliminating the taxation of the income of firms? Doing this might not cause harm, depending on how the revenue is made up. But what's the benefit?
I see the point in that, but then what’s the trade off for limited liability? I thought the bargain was limited liability in exchange for double taxation, which seems fair, though I’d like to see a lot of white collar fraudsters in chains. But I see how it also can be counterproductive to tax major employers that provide income for people that is also taxed
Maybe I've got this wrong, but isn't the savings even less than that for most people. To itemize, you give up the $25k standard deduction. So the net difference in the deduction is only $12.5k and the net reduction in taxes is only $5k.
Yes, but it's even less benefit than that. The standard deduction for a married couple in 2024 is $29k. Many people bought houses or refinanced during COVID at rates well below 5%. If you have 3% at $750k that's $22.5k, plus $10k is $32.5k, giving you only a $3.5k difference in deduction.
yes... the only people who are itemizing are those who paid at least I think it is 17k in interest (almost anyone in this category will max out the SALT deduction).
It felt to me as a trail blazing moment in the latest political realignment, where the fight may not be just about the rich vs. the non-rich, but fights over which types of rich people should get hammered more.
Which is bad relative to higher rates to rasis the same revenue. SALT is not consumption. If you think, as I do, that we should make our progressive income tax into a progressive consumption tax, this was a move in the wrong direction.
There are also downsides--needing to make costly repairs, and paying taxes (even if renters are indirectly paying them too, it's just less visible). Everyone can come to their own fair decision on the tradeoffs, of course.
Can you clarify your point? Yes of course there are great things about owning a home, that’s why, as this states, there’s no need for these subsidies. Are you saying the subsidies have no impact on homeownership rate so they’re not having the effects Matt states? (And somehow Matt claiming that they have effects is “pummel[ing] the NIMBY coalition”?).
I’d like to understand what you’re getting at, I agree with your factual statements about the positive aspects of homeownership but don’t see why you think they undermine Matt’s conclusions.
I don't think my observations undermine Matt's conclusions at all. I agree with him that the mortgage interest deduction should go away. I was merely adding onto the comment by Binya that Matt undersold the non-economic benefits of home ownership. Adding those points strengthens Matt's argument.
The US homeownership rate isn't particularly high compared to other countries. Even if there are subsidies, the economic incidence may already be capitalized into the value that current owners paid.
I do not know exactly how far it goes but my understanding is German landlord/tenant relationships are much closer to American commercial leases where the tenant can sign up to a 3 year lease term and pay a 3 month deposit in exchange for the ability to make fairly significant changes to update the unit. Of course nobody is going to be doing an addition on a rental unit, but changing the paint and more modest fixtures might be part of this.
In the US landlords have no incentive to rent for longer than a year because if the tenant leaves they have to try to re-rent the apartment anyway then can't bill the tenant for any difference they are able to mitigate.
I just read somewhere that in the Netherlands, maybe here, floors of rental units are often shoddy, and tenants routinely put on new floors, that they can either pull up and bring with them or sell them on to the next tenant.
It feels much less bizarre when you realise that the terms are very similar to commercial leases in the Anglo world. Pros and cons but definitely more long-term dwelling oriented and less short term option.
I think in the main, landlords avoid prefer shorter term rents mainly because it protects them against losing out on potential income if rents are rising in the future, and because it's generally easier to non-renew troublesome tenants than evict them.
I think you’re right - but isn’t that Matt’s point? Namely, that because there are already lots of reasons one would want to own rather than rent, there don’t need to be as many government incentives to do so.
“The ability to repaint, change appliances, update light fixtures, add rooms, remove walls or otherwise modify your surroundings is a huge benefit to home ownership.”
It’s becoming more common to do many of these modifications (short of knocking down walls) while renting.
For the reasons you lay out, I'm one of the few progressives you'll find that has good things to say about TJCA. I think overall it was a terrible bill, but for fairness and opportunity cost reasons; the beneficiaries of this law are people who didn't need the money and were clearly GOP donors who wanted to ROI for supporting Trump and there were so many other priorities that were much more worth of attention, especially considering economic growth was pretty decent in 2017.
But yeah, reducing the mortgage interest tax deduction is a very policy done for very bad reasons (punishment for blue states).
They didn't reduce the mortgage interest deduction (unless I'm missing something*). I assume you're thinking of SALT - state and local taxes, including property taxes, which are now capped at $10k deducted. But the mortgage interest deduction also became less salient because the standard deduction went up a lot (I think roughly 2x iirc).
*Indeed, I missed something. As pointed out by John from FL below, only interest on the first $750k can be deducted.
I think a principle benefit to the TJCA is that it increases the required fiscal discipline with which blue states and municipalities have to operate. Much more robust state/local government is a big part of the reason Massachusetts and New Jersey tends to see all manner of better outcomes than Mississippi and Kansas, without a doubt. But it's nonetheless desirable that the former be as prudent as possible, and justify their spending solely on realized outcomes—and not the fact that they get a subsidy from Washington.
In my experience, landlords (other than the corporate owned luxury apartment buildings where rent is determined by a “going rate” algorithm) have no interest in evicting or messing aroumd with you or even raising your rent if you are a good tenant. If you destroy their property, generate complaints from other tenants or neighbors than yes, they will try to get rid of you.
Landlords hold on to good tenants. (This is from someone who has lived in rental apartments since childhood.) and usually good tenant moves because some asshole renters have moved in mex door.
The fact that this is statistically very true (and I do not contest that) only somewhat ameliorates the concern. It is *outside of my control*, and therefore worrying and bad.
That’s not my experience, or the experience of anyone I know or the experience of my city.
All things being equal, landlords prefer good tenants. But good tenants can also make landlords complacent and make them forget that there are bad tenants. Then the greed can kick in.
Especially where I live the difference between market rent and the rent for longstanding tenants had diverged so much that there was a wave of phoney owner-needing possession evictions.
Isn't owner-needing-possession only necessary in rent-regulated or rent-controlled jurisdictions (of which AIUI there are few in the U.S.), why not just bump the rent up to market for an existing tenant on lease renewal?
Because landlords want to keep good tenants. The increase rent reasonably, not according to the market rates that are artificially inflated by corporate run luxury buildings.
I don’t get the point about luxury buildings inflating prices. If a building goes up and charges more than market, isn’t that an opportunity for other buildings to increase demand just by keeping prices the same? The rise of fancier fast-casual restaurants hasn’t made McDonalds raise their prices, right?
I don’t live in the US, so I can’t speak to how common rent control is in your country. Where I live there is limited rent control / protection against evictions, hence a wave of phoney owner-needing-possession. There was also a lot of massive rent increases in non-rent control units, but even in those circumstances if you want to sell the house you may need the possession argument to get the tenant out.
I think it depends which market segment you’re talking about. For dedicated apartment buildings, this is true. If you rent a condo or single-family home, it is likely that the owner views landlording as a temporary measure and plans to move back in or sell to someone who will move in.
For whatever it's worth: I rented for about 15 years of my adult life before moving over to ownership. I didn't have these problems with landlords. One of my landlords, when I moved out, said I was a "walks on water tenant." I think that means, "He paid his rent on time, didn't completely trash the place, and didn't actively pursue criminal enterprises."
I don't doubt that there are people who have really adverse relationships with their landlords, but I think that if there were large numbers of landlords that were renting detached houses to prosperous families who now own their homes, those landlord/renter relationships would be on the whole pretty copacetic.
This is why, while I'm aware to be cautious of market distortion, I'm generally sympathetic to tenant protection policies to smooth out these differences. And I say that as a landlord of one dwelling that tries to be one of the good ones.
This may be so, but this very much reminds me of a million bad arguments across many topics against getting rid of any protectionist or central planning feature. “You want to eliminate policy that subsidizes X or eliminates alternatives to X, but X is really really popular and people will still really really want it!” That’s an argument FOR elimination, not against.
If people are going to super duper want to control their housing through ownership we do not need to subsidize demand for it!
The biggest downside of renting is the uncertainty of your future home. You have a lease for a year or so and don’t know if you’re going to have to move. In most corporate owned apartments you can probably rent as long as you like. But actual homes or privately owned townhouses and condos come with more uncertainty. Moving can suck when you have a bunch of stuff. Your home isn’t just a place for you to exist but it’s also doubles as a storage unit for your stuff. I’m renting now and am a place where buying doesn’t make much sense. The freedom is nice but it is a double edged sword. I like my current place but don’t know if my landlord will extend the lease.
It’s worth noting that the kinds of legislation you’re talking about that makes it impossible to evict bad tenants strongly disincentivizes individuals from renting out their homes the way Matt advocates.
Yes, what is the value of policy change if it won’t impact home ownership? The mortgage interest deduction has never been greater for me than the standard deduction anyway. Anyone who is above the standard deduction is a different level of middle class than most people, or living in a big city with high property values and those people are the constituents of Democrats so it makes sense to keep it. And am I’m missing something about the loan/investment part? If I spend 2000 a month on rent instead of a mortgage, I don’t have an extra 2000 to invest. I either am spending 2000 that is going toward a landlord or 2000 that is going toward decreasing what I owe the bank and therefore possibly increasing my long-term wealth. Even taking into account the down payment and house repairs, it still makes sense in the long term. I don’t think policy changes would decrease home ownership.
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.
There's a tendency on this site to see everything through a policy lens. That's fine -- policy is important -- but it sometimes leads to the impression that policy is the magic hammer where everything is a nail.
When such a large number of nations with highly varying conditions and laws all have very high home ownership rates it tells you that something far more fundamental than skewed policy is at root, as you ably lay out. And so an essay focused overwhelmingly on policy is pretty unsatisfying and leads itself to skewed discussions.
Matt's very smart and a great writer but sometimes his (I won't say monomaniacal) focus leads to something like blind alleys.
Sort of? I mean no country has an equity or bond market as deep as America. But when we look at places like Singapore or Hungary (i.e. in the EU) they also have very high home ownership rates.
There are other investment options, including bank accounts that are currently paying 5.4% a year.
But there is (somewhat justified given the state of law and institutions) distrust of non-tangible things like bank accounts and stocks. Land, gold, things you can hold with your own two hands.....
Sort of yeah, though it manifests in a very different way than in America. I was showing Singapore just as an example of a country that is relatively free & liberal but outside the Anglosphere and has some alternative investment options besides property but people still overwhelming love to own property.
Sure, with countries like Laos or Vietnam we could try to argue that the relative lack of alternative investment options for normal people increases home ownership at the margin. But when we look at countries where people have decent (but not American) levels of access to alternative investments it is hard to feel like that marginal effect is very large.
Absolutely, came here to say much the same. The US home ownership rate is middling. I am not up on enough international housing policies to say with confidence who does what in terms of housing ownership promotion, but the US isn't any obvious outlier.
Singapore, mentioned favorably above, has a home ownership rate nearly 30% above the US.
Tough to answer concisely. My house is worth $1 million USD which would be a lot even in the US. My in-laws live 40km away and rent rooms on their property for $40/month. They live just outside the city limits of a city of 1.2 million people and rent to nearby factory workers.
The poor infrastructure means that 40km feels like a huge distance. But that's something many westerners would commute every morning.
It isn't completely true but to a first approximation there are no zoning laws or council approvals here. I live in what most foreigners would consider a very residential neighbourhood. There's a company of 20+ people across the street. There's a 10 story office building five houses away. A neighbour decided to smash down their house two years and built an office building on the lot. Our next door neighbour started renting out his his ground floor to a sushi restaurant.
As prices have gone up there's been a general trend in our neighbourhood of transitioning from (multi-generational) single family homes to "room for rents". (What you'd call SROs in the US, though they are illegal there.)
In the news there is constant hand wringing that all the new housing construction is "luxury" instead of "affordable". Despite the density (around 23,000/km2, compared to Manhattan's 27,000/km2) everything is low-rise (my house is 4 stories but only 4 metres wide) and feels like a lot of room for more density.
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.
Nah, the proper boomer move is to fill your empty nest with clutter and garbage and then leave that burden to your kids when you either die or can't live independently in that space. My sister-in-law recently bought a house (after a long search and she definitely had to settle for something less than spectacular in a less-than-ideal location, but at least she's not renting!). Her mother (my mother-in-law) who is in her mid 70s, showed up at the new place with a car full of meaningless childhood keepsakes and was deeply offended when sister-in-law refused almost all of it. How could she refuse a container of her baby teeth? Why didn't she want every single ribbon she earned fro being on her pre-k neighborhood swim team? What about all your clothes I've been saving? And she's got the same stuff just waiting for my wife if we ever grow up and buy a house.
And this seems like the norm among my friends who bought homes. Their parents are just hoarding stuff until they have the chance to dump it on them and they refuse to have proactive conversations about whether it's reasonable or necessary. I consider myself lucky that my parents are somehow immune to this mind-virus and both downsized and did a great job of selling or tossing all that crap when they did.
While not several time zones away, we are about 1200 miles away from the in-laws and you would not believe the pressure the entire family is putting on us to move "close to home." It's mentioned in literally every conversation. And they don't mean the same metro. They mean just a few minutes drive away. I am resisting as much as I can!
Am I some kind of anti-social deviant for believing that children should not be responsible for caring for their parents full-time? I dunno. The in-laws are both college educated. They both held professional jobs and have a paid-off home but their retirement income is essentially social security, plus a meager teacher pension (this is the south, none of that $100k pension income New York nonsense) and minimal financial investments. My feeling is that they were smart enough to know better but kept all of their income tied up in the house and never invested properly because they were so risk averse that they refused to do anything but government bonds and some money market fund that they only ever funded to the tune of $10k. But it's the job of their children to fix that? Their three kids have to move their lives around to make sure the parents' mistakes are corrected? Unfortunately, the kids - my wife and her two siblings - are basically in agreement that they have to make sure their parents have a comfortable retirement *in their current home as long as possible.* Why is this our job? Why can't we agree to jointly fund a place in a nice retirement community and keep our lives on track? Anyway, this is getting to far into my personal non-generalizable situation but I can't help but feeling that this is a crisis about to smack a huge number of people in the face as the older generation retires and ends up having no plans in place besides "the kids will take care of us."
While we are having mutual therapy, it drives me bananas that living close to parents is a burden placed on the children. You are retired and we have young children and jobs! Why should I move states for you and not the other way around!
b4 leaving David R would advocate for profesisonal-class people to move to a Chinese norm where in-laws live in the same place (so way more grandparent contribution to childcare, and way more obligation the other way). Both the US and Chinese norms have upsides and downsides, but "all of the elder care, none of the child raising" is rough
Tbh they are right that there are very strong benefits to extended families living close together, especially with kids in the mix and the current cost of private child care
> Nah, the proper boomer move is to fill your empty nest with clutter and garbage and then leave that burden to your kids when you either die or can't live independently in that space.
A friend of mine had her parents downsize a few years ago. They bought a two bedroom apartment just a few kilometers away from the family home they'd lived in for decades.
When they moved they just kind of....left everything in the house. They haven't sold it or anything. The house sits empty, with all their accumulated stuff, and friends and relatives stay their sometimes while visiting. It's been two or three years and they're still "deciding what to do with it".
I thought it was an amusing "put it off for now" solution to how to deal with decades of stuff and downsizing.
I'm not sure how you managed to describe my parents successfully on so many levels, but congrats.
They are late 70s now and fortunately still in good health, but I am dreading how to help them navigate their cluttered tri-story once they start declining.
This happened to my grandparents. They also had a cluttered tri story. Ended up having to sell in 2010 in their 80s - huge financial loss for them relative to what could have been
Better yet, resist the urge to "upsize" so much that you put yourself in a position where downsizing makes sense. We stayed in our 2700 square foot house for 24 years while the kids grew up. Most of our neighbors moved out of the neighborhood as their income increased and ended up with huge houses they didn't really need and a small retirement account because all their money went to mortgages, upkeep of the mini-mansion, and keeping up the lifestyle of their new neighbors. We really need policy to encourage people to save and invest, but instead we get the opposite because of the positive impact to the economy of people constantly moving and paying for stuff they don't really need.
You’re right, it’s plenty big for four people. We had five bedrooms and three bathrooms. It was never an issue. But in a place like The Woodlands, Texas it is pretty small relative to other houses. There is a lot of peer pressure to move up.
Not really. My family of four lives in a 2100 square foot house and it feels claustrophobic. I'd prefer to live in at *least* a 3500 square foot house, but couldn't afford it without a catastrophically long commute.
If you have more than two kids, you likely end up either very crowded when the kids are teens / early twenties or in a house that is way too big for just two adults. Especially if it's more than three: four kids means either sharing rooms (which is fine when they're 8, but not so practical when they're 18 and dating) or having at least five bedrooms.
But even a normal suburban three/four bed two-level house on a quarter-acre lot is much too big for a couple in their mid-seventies.
You might still have to move for stairs reasons. Our house has 4 BR, we have the master, our kids each have a room(all 3 upstairs), and we have one spare bedroom downstairs.
Our house didn't feel way too big before the kids were born (obviously we could have lived smaller, but it really only felt like one room was "wasted" - the kids' bedrooms were our individual offices) once they're done with college (and being at home over breaks) it might make sense to downsize just to something that is more conducive living when we are less able ourselves)
All I'll say is that the space needs of two adults working full-time in their twenties/thirties are much greater than those of two retired adults in their seventies.
Good advice, although sometimes easier said than done, even if the empty nester is willing to accept a quite large reduction in living space. I recall reading a story in my local newspaper a few years back about suburban homeowners who had long planned to downsize as they got older, only to find that their four bedroom home deep in the 'burbs was worth far less than the asking price for a smart two bedroom condo in a desirable in-town location (this was metro Boston).
I have the location down (close to downtown) but not the single stor(e)y part. It'll be a tough pill multiple decades from now but with a generally YIMBY city council in play I feel confident that a reasonable condo downtown(ish) will be available.
I suspect that having stairs while you can manage them fine helps extend your period of mobility, so the ideal seems like keeping the stairs for a while, and only switching when you see the mobility issue coming soon - though you need to forecast well enough that you’re not moving right when you have issues.
I certainly think people need to stay in shape. 2 days of weights and at least 2 days of cardio.
But the risks of falling as you get older are a huge problem. If you fall and break a hip after 65 you've got about a 50/50 chance of being dead within a year.
Our rental house had stairs going up an down the stairs with laundry baskets was a huge chore at 40. I can't imagine doing that at 70
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!
Agreed. I think the sentimentality is not just in the home itself, but is rooted in the neighborhood/town more broadly. People generally are resistant to or fearful of change. I think eliminating market distortions would go a long way to bring us to the more-optimal capital and housing situation we all want here at SB, but even if it changed tomorrow it would take some time to wash out the sentimental factors.
Maybe that's why limiting things like public comment on zoning committee or zoning variance hearings is important - reducing the ability of people to vent their fears in public reduces the chances of their fears infecting others who might rationally support the development(s) being discussed.
One thing that is very possible here is culture follows policy. I.e., a bunch of things are made economically rational and then culture builds up around them.
In an agricultural economy having a lot of kids who stayed close was rational; now having a smaller number of kids who go off to college is. And a whole bunch of seemingly entrenched cultural practices changed as the underlying reality changed.
I oppose affordable housing in Peachtree City Georgia because I don’t want poor kids in the schools. I’m glad our city council refuses to permit any additional apartments, I only wish we could demolish the existing units.
This gets pretty farcical when it’s people who paid perhaps $200k for homes that are now $2m, opposing neighbors who would pay $700k. Can’t have the children of doctors and software engineers polluting our community, generational real estate wealth only!
I pointed out to a NIMBY a couple months ago that I've been living in my neighborhood for 6 years now. I begged them to tell me when I'm going to finally be considered a "vested" citizen of our good city and have my interests be respected as valid.
I don't know that this is the case with Dave and don't want to cast aspersions on him but my experience with this kind of thinking about schools says that the concerned parties don't see it as a matter of discipline policies. Instead, they often attribute it to the kinds of children present in the schools. Too many poor black kids will "make the school bad" regardless of school quality - or so the thinking goes.
Being from Peachtree City, one big memory I have is when some black families were being relocated to PTC after the city of Atlanta decided to build a new stadium for the 1996 Olympics. Apartments were built for them and my understanding was that these were section 8 or public housing or some kind of similar program. (Likely the ones that are hoped to be destroyed.) The concerns, though, were entirely about the impact on the schools. Property values were a much smaller part of the conversation.
And this is typical of suburbs. When enough non-white people move in, white people leave and the schools are perceived as being worse. Sticking with Atlanta, just take a look at DeKalb county, the Southern half of Gwinnett, or Roswell to see this kind of thing in action. Interestingly, a similar problem happens on the "high" end of school achievement. If too many Asian families are in a district, white families will leave the schools because they fear competition and assume their kids can't keep up. John's Creek is a great example. White families incorporated to keep out poor families moving north from Roswell but ended up seeing a large Aisan population move west and northwest from Gwinnett to the extent that white families now complain about how competitive John's Creek High School is. They're moving to the next county, exurban Forsyth. The question of home values is certainly correlated, but schools, and whites' preferred racial admixtures are very important in families decisions about where to live. What will be interesting is to see how the recent expansion of voucher systems changes this calculus. Probably too early to tell!
"Too many poor black kids will 'make the school bad' regardless of school quality - or so the thinking goes."
Yes. It will make the school bad. I learned this in second grade long ago when I was bused to George Washington Carver Elementary. I'm not aware of any counterexamples, except for a few charters with "eyes on me"-style discipline that drive off misbehaving/unmotivated children.
Well thank you. I got over it, as I should have, and attended integrated public schools through graduation, and apart from the ones in Dade County, Florida way back when they were all OK. (We did have to leave Florida because my older siblings were getting the **** kicked out out of them.) But a school with lots of poor black kids is a bad school, full stop, and charter school discipline is not an ideal answer because (i) it relies on running off troublemakers (ii) most of us, including me, would never send our own children to such a school.
Yeah I’m from Memphis. All the white people move out of a neighborhood if the black population reaches a quarter or so. Things are improving though. Desoto County is pretty damn integrated for the Memphis area - it’s called a black flight and a white flight suburb - it is able to keep that quarter without tipping over. There are very few apartments, though, and literally no transit, it’s 25% black but the black PMC and stable middle class.
I’m just as leery of poor white kids as poor black kids. My son spent a year in s montessori school with more black students than white ones. But everyone paid tuition, so it was ok.
I’m also leery of my son competing against too many Asian strivers and having mediocre class rank. McIntosh has higher test scores than Starr’s Mill, but I’m content to stay in our present district because McIntosh has vastly more Asians it will be much easier to be in the top 5% at Starr’s Mill.
Respectfully, the racial dynamics in the South are just different.
And even people who are otherwise fairly dedicated to improving things in this regard...will balk when they perceived their kids as being under threat.
Either directly, via unsafe schools, or indirectly via poor educational environment or bad social influences.
Sure, and when the elementary school has low test scores, home values probably aren't going to be rising as fast (hard to imagine them going down in this environment). Tax revenues don't keep up with costs. Schools continue to suffer. Municipalities have to cut back on spending or pile on debt. Infrastructure and public services suffer. It's a downward spiral. It is easy to see why this kind of racial thinking predominates the discussion.
I don’t think the correlation between me advocating for better discipline and it happening is that strong. Also, I’m not sure I really want “discipline” as much as my child to learn from kids who come from stable families.
I kind of assumed David was trolling a bit with this one with his tone, although I couldn't actually find a reason it was unsound from the perspective of individual rationality. Honestly I respect the willingness to be brazen sometimes because it makes it easier to be clear about values differences.
[ETA:] That said, I think it's usually most valuable in a context where there's a principled commitment to not being a dick and it's more about clarity than about tribal signalling. Like this wouldn't be a helpful statement on Breitbart and if most statements were this blunt I'd probably just read elsewhere. Use sparingly.
Sadly, I think it's somewhat helpful here because I suspect lots of people who would never dream of saying this in fact vote this way -- billions of years of evolution are pretty effective in ensuring parents do what's best for their kids and come up with whatever excuses later.
That's super important from a institional design criteria because it tells us that if you don't want to screw poor people you have to offer strong tracking/magnet schools because you'll either have those or psuedo-versions based on income.
> Why couldn't you like... advocate for better discipline in schools or something
I don't entirely support David's position, but this seems just hopelessly naive to me. The school board and teacher's union do not give a single flying f what I advocate for when my kids are in school, because four years later I'll be gone and they'll still be there.
My sense of what I've seen in the literature is that once the school hits a certain minimum quality peer effects dominate (a child's friends motivate them in ways no teacher can match).
This is exactly why we need to create more magnet schools and introduce more tracking in our schools -- not to mention loosen geographic assignment. I get why people dislike the first two but the truth is that parents do what's best for their kids and even if they don't say it like David your choice is between tracking by income or tracking by demonstrated ability/interest/etc. The later gives the motivated interested kids a chance regardless of income.
Wild take. The information asymmetry between a potential buyer and a seller makes it probably the second most complex negotiation / transaction out there after buying a business.
Really not in line with my experience, even in the era of Zillow and whatnot. I have bought a house twice in my life and hope to do so *maybe* once more ever. I derive value from from professionals who do this every day.
The argument against real estate professionals isn't that they provide zero value, it's that their essentially commoditized services are not worth 3%-6% of the value of a million-plus dollar house. Fortunately the recent litigation victories against the National Association of Realtors may break some of the gridlock here.
Now to go after the title insurers. If only every state could do title insurance like Iowa does.....
Again -- I can't track any of this conversation. You don't need an agent. You can sell your house yourself (I've sold one of mine direct off market) and you can buy without an agent and negotiate the discounted fee into the deal. You can also negotiate the agent's commission before signing your contract. We'll see how the court cases play out but the best agents will still get the best houses and they won't negotiate an inch because they deliver value in excess of their fees.
I think in a couple years after all the dust settles from that court case we are going to get a bunch of sob-stories about home buyers and sellers who got hurt by useless and possibly fraudulent "real estate agents" who advertise their services for like $500.
A couple of years ago I tried to help my kid to find an apartment in the northside of Chicago. It was hard to even get a reply or into a unit without an agent. I know renting isn't what you are referring to, but when a market is tight, agents can be very helpful.
Many landlords flat out won't work directly with tenant apartment seekers. This isn't too common, I think, in many suburban areas or in much of the Sunbelt. But it older, denser urban areas, the market tends to be dominated not by large complexes (who typically employ their own agents), but by thousands of smaller buildings. Ownership in this case simply has no incentive to change their way of doing business. Why should they take the time and trouble to show their units in person when they can simply wait to have applications, checks and credit reports sent to them by brokers?
I think the moving expense aspect is important. You used to be able to write moving expenses off from your taxes if you moved for a job, but that didn't help you if you were moving with the hope of finding work, and even if you had a job waiting, you'd have to get past the standard deduction to actually benefit.
The TCJA got rid of most of those deductions, so unless your employer pays for you to move (which they can write off!), there is no help for you.
Seems like we should do the opposite and offer tax credits for reasonable moving expenses.
Also mortgage portability should absolutely be a thing that might unlock supply in tight markets during higher interest periods
I am a privileged upper-middle PMC sort of person, but are tax incentives a particularly strong factor in long-term mobility? I would have thought big life disruption factors (and the general pain in the butt) would be the main drivers.
Some of the resistance of homeowners to the creation of externalities that is bad for new development is good for other things. My guess is that homeowners are more politically active in improving policing n the face of a crime spike in the neighborhood than renters.
Related to another comment of mine downthread, AIUI this is part of the stigma of renting in Australia — renters are perceived as being less invested in neighborhood quality (presumably becuase financially speaking, they are) and so renter neighborhoods are perceived as less tony by dint of the fact of being renter neighorhoods, even if the houses are pretty nice.
This is my intuition as well, though I'm curious if it's empirically true (e.g. do market-rate renters run for the school board)?
This ties into Matt's articles about gentrification where he argues that anti-gentrification activists essentially want to keep neighborhoods shitty. But if you're a market-rate renter, your financial incentive clearly is to prevent improvement. You might reap the usage benefits of, say, a new park, but financially, you'll face higher rents being in a more in-demand neighborhood, and the land value appreciation all goes to your landlord.
Is this true? People generally like to live in nice neighborhoods, and I know that I personally would trade off higher rent in exchange for having more parks, restaurants, services, transit, etc. (I also don’t think typical landlords are so closely attuned to block-level supply and demand that rents increase the instant an area gets a bit nicer).
A lot of the people who fought rezoning in my neighborhood ended up moving within a couple years anyway. And now the CA Legislature has put their foot down and heavily demoralized the remaining pockets of opposition. Not sure how many of these emigrants took advantage of Prop 19 (which lets seniors move and take their Prop 13-protected tax rate).
Of course, not much has changed here (or will change on a medium-term time scale) because many things don't happen despite being allowed. The main effect so far has been a less-onerous ADU building process. The horror!
Yeah, I think some abstract fear for protection of property value is in the mind of NIMBYs, but usually the driving factor is something more discrete like more traffic/less parking, or other abstract aesthetic objections to a neighborhood not looking and feeling like they want it to.
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.
People would lose their shit if they were confronted with the idea that they're wrongly responsible for vacant dwellings instead of some easy to villainize developer. Which of course is similar to NIMBYism in general trying to shift the blame on developers in general.
Try this on for size: it increases the constituency for a LVT. Once it's been in place for a while, anyone who's paying the vacancy tax -- usually real estate developers -- will feel that it's unfair that all the empty-nesters aren't paying vacancy taxes for basically the same offense.
At which point Matt comes along and explains how LVT would allow them to do exactly what they want!
Dentists and car dealerships are dog whistles we can all hear. The dentist in question definitely owns a boat and aspires to hunt exotic animals for trophies.
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.
That effect is even stronger in the silicon valley example you cited, since California's prop 13 caps the property tax increase at 2% per year and you can pass that down to your kids when you die. There are houses in Palo Alto worth millions on paper still assessed as a few hundred thousand dollars.
Yes, it was like someone had already worked out a deal and put it on the ballot. Way more complicated than the usual prop. But I will give Grandma and Grandpa a tax cut if it permanently eliminated the heritability. When I got mad at Prop 13 I hit the effin roof learning that it's heritable!
End step-up on death. But it must be paired with a capital gains adjusted for inflation. It makes no sense to tax nominal capital gains that are actually real capital losses.
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.
One potential solution to this would be allowing for longer term leases that put some maintenance costs on the renter. It’s not that uncommon for businesses to have 10 or even 20 year leases where they take on financial responsibility for some aspects of the building. I would personally prefer that to ownership.
This seems like the kind of product (appeals to non-poor people in rental markets with stable costs) whose existence is suppressed by current policy favoring homeowning
I think a bigger economic incentive to own is that rental income is taxed. If you and I rent each other’s houses, we’d both pay a lot of extra income tax compared to living in our own homes.
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.
Colin hit the nail on the head. "It creates a really warped sense of what housing is supposed to be which is essentially a consumption vehicle". That is the curse of California. As he put it, we went from thinking of housing as a safe, low return investment like a CD to thinking of it as a tech growth stock. That led directly to Prop 13, which put more fuel on the property appreciation fire. There is no way housing can be "affordable" and have 10% annual returns. It is a monkey's paw. You get lots of paper wealth, but have to get on a plane to see your grandchildren.
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.
Serious advice: what would living in that house be like if you couldn't drive? At some point, age is going to catch up with you and that's one of the first things to go.
If not, sell it, move somewhere that is accessible by public transit and is step-free. Do it now, while you're still mobile and able to move and it's just a pain to move rather than being a disaster. You'll thank me for this advice in your late seventies and eighties when you can still live in your own home rather than having to move into residential care.
I can second this emotion. My wife pushed for this and I resisted but eventually came around to her viewpoint. I’m glad we moved from a big house to a smaller inner-suburb place with the amenities you’ve highlighted.
The problem for society is that boomers with a lot more cash and better credit than younger folks are now competing for the same “starter” homes. I think it still highlights the need for “more” housing.
Which is precisely why I am staying in the home that we have owned for 30 years. Rentals and housing stock in our neighborhood is extremely scarce but it is a walkable neighborhood that is perfect for the elderly.
We confronted our grandfather with this driving/housing issue, and his stubborn solution was to move his office just a few blocks away from his house. Partial victory, and one that's hardly portable for most, but it still make me chuckle as an example of people responding to incentives.
This really is advice for "I just retired, my kids moved out a decade ago and are well set up on their own". You do not want to bet your future on self-driving cars in ten years. That could happen, but there's a big enough risk that it won't that it's worth avoiding.
Also, living somewhere smaller (and therefore cheaper to pay someone else to clean when you no longer can), and accessible (ie no stairs) is always going to work out better than a big former family home.
But would you still have higher monthly costs (on net) after you accounted for the monthly income from the stocks and bonds you could buy after selling your house?
Keeping your home is a security first strategy. You know you’ll have a home. You can’t truly count on financial income, unless you buy gilt edge bonds, in which case the return sucks.
Yes but my proposed alternative wasn't "sell the big house, rent a small house, then put all the money in stocks and bonds". It was "sell the big house, buy a small house, then put the rest of the money in stocks and bonds".
You'd still get the security of homeownership that way. And although the income stream from investments isn't always great, the income stream from empty bedrooms is zero. The only upside from owning an unnecessarily large house is the hope of capital appreciation, which stocks will also give you.
I think part of the problem is housing stock in most communities feels very homogenous. I would love data on this but I can't find it. Our town has an average housing price of $1.2m. There's just no inventory of "small houses".
So I think the missing part of your strategy is "sell the big house, buy a small house *** in a different community ***, then put the rest of the money in stocks and bonds". The friction point there is moving to a new community.
That's true but I think it means YIMBY is the missing piece of the puzzle. There's pent-up demand for large houses to be demolished and turned into small apartment buildings, if zoning rules didn't get in the way.
I'm not sure. I think there's demand for both but many communities are fully developed. It's not just YIMBY. Just my town and surrounding towns -- have literally zero undeveloped land left. The last tracks were developed in the 1950s. When you factor in land and construction costs there's no way a small apartment building would pencil out. It's not YIMBY -- it's a physical constraint problem.
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.
Whenever there is an Nimby backlash in my neighborhood, most of the people talk about the impact of whatever they are fighting on their home value. Ditto for arguments about homeless people. As someone who lives in the home he intends on being in for most of his life, I never get worked up about the value of my home. Unless you’re going to sell who gives a shit?
I agree with Ethics Gradient. This is just people saying what is socially acceptable to say.
When people say "home values" what they really mean is "I don't want to live around aesthetically and socially unpleasing people and stand in long lines at the grocery store."
The reality is that everything in the human brain is wired against seeking "diversity" or appreciating social "equality." People want to live around other people like them and compete for status. But we know we aren't allowed to *say* that out loud in our culture, which is predicated on the tolerance of diversity and social equality, so people pay lip service to those values ("IN THIS HOUSE WE BELIEVE...!" LOL) then talk about their "Property Values" because in our culture stewarding and defending your career or financial assets is also seen as a virtue.
Its like coastal suburban parents who justify turning their children's childhood into a spectacle of "achievement" and highly competitive activities by saying "Well, its for scholarships and admissions to top colleges, which they need for a good life and good job!" The reality is the main motivator is the parents' egos - but no one ever admits they want Olivia to be state champion of everything or get into NYU so they can put a sign on their yard and brag to their friends, so people come up with a practical "justification" that makes them sound responsible and diligent while being self-serving.
You’re wrong about the second part. There’s absolutely a perception that you’re not doing right by the kid if you aren’t setting them up for the meritocratic ladder as well as you can.
I actually find it much easier to feel high status in my mixed, transitional neighborhood with lots of working to middle class Hispanics, being upper middle class myself. If I moved to Westchester I would just be middle of the pack!
I expect part of this may be values-hiding. It's often considered gauche to invoke aesthetics and personal distaste for other people without masking or laundering it in some way. Absent such a consideration I imagine that some people would feel free to say "homeless people make me uncomfortable and I don't particularly want them near me regardless of the degree of personal virtue one may or may not ascribe to them."
But the discourse in the last 24ish months has shifted so much that now people do openly say this in 2024, when it was unsayable in polite company in 2020.
I'm with you--if anything, higher value means higher taxes. But of course people try to have it both ways, and try to push to actions they think will keep land values high in general, while obfuscating the value of their own land for tax purposes.
Hmmm I see I have a limited experience. In DC Ward 3 NIMBY's do not talk about home values and they re right not to do so because the kind of development that is likely to come to our BYs is not unpleasant people
Concern about home values is a real thing, but I'm inclined to think it's true that traffic, noise, crowding and "the wrong people" are bigger and more immediate concerns than a worry that their house might be worth a bit less fifteen years from now.
That was my point, minus "wrong people," which may well be the case in some (many?) contexts. My POV is Ward 3 in DC where the new residents would likely be fairly affluent and real catches for DC if we can attract them. :)
The "wrong people" fear might not be common in your corner of DC. But I perceive NIMBYist opposition to multi-family housing (and, especially, gasp!, rental housing) is often intertwined with fear of racial and ethnic change, more crime, etc—at least in suburban areas dominated by single family homes (especially if the areas in question are strongly white majority).
He's spoiled by all that protective atmosphere privilege he enjoys as a person experiencing near-sea level living as compared to us people of high-altitude living.
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 (!!)
One of my questions is whether having more renters leads to more stupid laws like rent control. Especially if middle class people are renting because laws that benefit middle class people are probably going to be more likely to pass even if, like rent control, they’re counterproductive
Sure they are. You have (among other assets) $250,000 in 10 year treasuries @ 4.315% and 10 years and $250,000 left on your 2.8% mortgage. Should you sell the treasuries to pay off your mortgage?
You’re 70 years old and have $4 million in retirement 70/30 equities and bonds and $250k left @ 2.8% on your condo in Del Boca Vista. Should you sell part of your portfolio to pay off the mortgage?
You could make an argument for “peace of mind” but it doesn’t make sense financially.
Because I’m talking about actual people not what the hypothetical most efficient investing option is. So we aren’t talking about multi million dollar homes here. We are usually talking about Someone either having still having a $300k mortgage or possibly having an extra $400 or $500k in investments.
Except that the vast majority of people actually won’t invest all of that. So the differential is actually much smaller. In fact, often that differential might be zero. Because often what we are talking about is telling someone that’s 50 or 55 not to buy a new home and instead stay in the older smaller home, and pay it off.
Or we are talking about someone doing rent vs buy analysis. Where unless there is just a large differential between renting and buying, then it usually makes sense to buy and pay off that home so you aren’t stuck renting at 65 with little assets. Because again most people are very poor at saving that extra money.
Ah, I thought we were talking about the set of people who subscribe to public policy blogs for fun. You know, the people who are reading and commenting here.
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.
Respectfully, I don't think it's true that I missed people's motives for owning homes.
What I say in the piece is that "There are obviously some offsetting reasons why it’s congenial to own your own home. But precisely because it seems like something a lot of people would want to do anyway, it doesn’t seem like we need to go out of our way to encourage it."
“Congenial” means “pleasant or agreeable because suited to one's taste” A “congenial” benefit of homeownership is that if we want to repaint we can just do it. That’s not what Binya is talking about.
The fact that while renting your living situation is utterly at the mercy of someone else is huge. We have a human instinct to nest and the fact that could be taken away is not a matter of congeniality.
Ironically, this can be partially addressed by corporate landlords who are far better in this regard than mom and pop landlords.
Having dealt with a good dose of both. Faceless corporate landlords >>>> sweet mom and pop landlords.
Preach it. I had the best of all worlds, renting from a large estate, with an office nearby. Good personal connections to the renting team, things got fixed quickly. And we were good, reliable tenants, quick to report and look after things, and they saw the financial benefit of that. When the block was closed for redevelopment they offered us an identical place half a block away at a discount.
The other big trouble with non-professional landlords is that they (unsurprisingly given the psychology people discuss below) think it's *their* house. But while I have tenancy, it's MY damn house. Professionals respect that
I disagree. It’s an asset owned by someone else that you’re renting from them. The stuff in it may belong to you, but the house itself does not. Would you say that an Air Bnb is YOUR house while you’re staying in it? If not, what’s the difference?
I would say that a car I lease is certainly my car while the lease is in my name.
Property rights are about who can have whom arrested for interfering with those rights. If my landlord breaks into my rented property without going through the correct process, I can ask the police to throw him out
Assuming it actually is a house, the place where I live is "my house" (in reality I live in an apartment, and it's "my apartment"). For an AirBnB or hotel room, it's "my AirBnB" or "my hotel room" as long as I'm staying there. But, when staying in a hotel room, I do occasionally refer to it as "home" even though I don't actually think that's correct.
Having also dealt with a good dose of both, strong, strong, strong disagree.
I am learning that this is a complicated question with a lot of differing opinions out there.
I would say that it's more that the variance among "mom and pop" landlords is enormous. I had both very good ones, and very bad ones, before I finally bought my own place.
I've never had a good experience with corporate landlords, and I've always had good experiences with individual landlords. Of course, bad experiences with the latter can occur, but at least the fight takes place on more even terms. There's no way to win a battle with a corporate landlord.
It depends. The hidden fees are way worse, but stuff usually gets fixed promptly
"Ironically, this can be partially addressed by corporate landlords who are far better in this regard than mom and pop landlords."
Could you expound on this a bit? When it comes to mom and pop anything I tend to default to higher variance, which could mean far better or far worse, but I'm interested as to how you see this specific sector.
To use my personal experience: When I lived in a unit owned by a “Mom-and-Pop” landlord, they were in our business constantly, coming unannounced, and not consistently fixing issues with the unit. Ultimately, they sold the building to be converted into condos, making us move (Completely within their right, but inconvenient).
Now, in a big corporate building, I send my checks, get my issues fixed, and have otherwise never interacted with my “landlord.”
I think you’re probably right about variance among Mom-and-Pops, but would guess that they trend toward low quality management. Which is fine! Of course a firm that manages hundreds of units would be better at it than a retiree with one 6-unit building.
The one big advantage you might get with a mom-and-pop landlord is that if you’re a good tenant they might never raise your rent, because they don’t want the hassle of figuring out how to maximize profit while minimizing the risk of you moving out. The corporate landlord will have some optimized schedule of rent increases.
I think the person who said this is a matter of broader variance was correct.
A corporate landlord might be more efficient and out of your business.
But a mom and pop landlord also might be quicker to get to something, and more tolerant of things like being late on rent because you lost your job or just in general cut you more slack if they have a good relationship with you.
Institutions with clear policies can be efficient and the rules can protect you from the whims of personal conflict.
But when you live by policy you also die by policy.
There might be much less flexibility for dealing with the unpredictability of life, and you might get the run around when you ask for things to get fixed, because everything is run by faceless "policy" rather than based on the maintenance of a relationship and reputation.
Personal relationships can be less predictable, but when they work well I think they bring a level of flexibility and humanity that many people prefer. Reputation management in the community also often provides a much more effective check often than just following policy. A corporate landlord doesn't care if you go around talking about how your pipes don't get fixed on time as long as they cal fill apartments. Your neighbor who rents you the second floor of a house they own in a community you mutually share is going to be a lot more concerned about their personal reputation as a decent person in the community.
I personally have had much better luck in my life with persons and relationships than I have institutions and policies, which I prefer a society that empowers opportunities to revolve life around the former and limits the powers and reach of the latter.
Now, admittedly I am a small town girl who detests cities and urban life, so that also contributes to the biases that inform my experience.
This is a great distinction, between persons/relationships and institutions/policies. Thank you for writing - this helps clarify my own thinking.
"But a mom and pop landlord also might be quicker to get to something, and more tolerant of things like being late on rent because you lost your job or just in general cut you more slack if they have a good relationship with you."
None of this matters to an upper middle class renter or higher who has liquid assets. They don't need a rent grace period because they don't live paycheck to paycheck, and small things they can literally fix out of pocket in the rare event that the corporate landlord can't fix it on a reasonable schedule.
It’s because of specialization and learning by doing that larger landlords often provide better services. Often smaller landlords charge lower rents to compensate for their lower quality service.
Of course, "some friggin' stranger comes over INTO YOUR HOME tomorrow to swap out your X, and you might not even need to be there!" is a service to some and a hassling imposition to others.
Get out of my hair and I'll swap the damn X!
Pat has a good response on the corporate side (that corporate is primarily just interested in a steady revenue stream - and if you pay your rent on time and don’t cause trouble you’ll generally be fine).
In terms of variance - the variance is a trap. The type of landlord who will not raise rent or raise it below what they can - will often be the ones to not see the relationship as a business one and have poorer boundaries regarding entering the unit or not attending to issues in the property. They also can shift suddenly to wanting to fully monetize the unit. Even if they don’t - when they die their children will see a below-market rent tenant and will swoop in to sell/evict (this has happened to many people I know).
This seems like an argument for owning a home.
It is. Mom and pop landlord << corporate landlord << homeownership
Thanks.
Citing the "human instinct to nest" is rather overwrought don't you think? I guess the vast majority of humans on earth today who do not own their home are just living unfulfilled lives contrary to our nature?
"Citing the "human instinct to nest" is rather overwrought don't you think?"
No I don't. If I did I wouldn't have written it.
"I guess the vast majority of humans on earth today who do not own their home are just living unfulfilled lives contrary to our nature?"
What a weird and uncharitable misread of what I wrote. People have a human instinct to nest and call a place their own - regardless of ownership. One of the downsides of renting is that this can be taken away. I didn't live an "unfulfilled life" when I was renting, but the house that I thought was my home got taken away because the landlady realized she could make more money renting it to someone else.
I think these are more than just offsetting reasons. As others have noted, they are the primary reasons why most people, who already have experience as renters, decide to go the ownership route. There’s just no comparison to the feeling of being in ultimate control of the place where you spend the vast majority of your non-working life, and having the freedom to do what you want with that place. The mortgage interest deduction hardly benefits anyone except the uber-rich since Trump’s tax reforms, and while it was nice not to pay capital gains tax on the house I recently sold that I originally purchased in 2017, I doubt most people are even aware of this benefit when they initially decide to purchase a home. I certainly wasn’t.
Yes, you are correct. Policy does not drive these things because people aren't rational robots. Matt is fantasizing.
Homes aren't completely exempt from capital gains taxes either. Only the first $500,000 in gains are.
“The mortgage interest deduction hardly benefits anyone except the uber-rich since Trump’s tax reforms”
It benefits unmarried people because they have a smaller standard deduction. If you’re unmarried and own a home, the mortgage interest deduction plus SALT deduction is most likely higher than the standard deduction. Given how common cohabitation without marriage is these days, this is a nontrivial population.
I think "congenial" falls well short of the utility many people derive from owning their home. You also described people's opposition to institutional ownership of homes as "really weird" when in fact I think reflects the sentiment I refer to, that homes are very different to other financial assets and there is value in *supporting* widespread home ownership (which I think is a more representative way of framing housing policy - it's mostly helping people achieve goals they already hold, not changing their goals).
I'm somewhat unclear why so many people have these goals and if it's contingent on decades of policy, rhetoric and cultural baggage or if it's innate in most people.
I prefer apartments and wish more of our cities were organized along dense apartments and transit and mixed use zoning situations. But like there's maybe a few blocks in my city that are set up like this and it is as Matt says mostly for the too poor to buy a house and too young to want a house crowd.
I do think that an awful lot of "empty-nester" couples would find that a fully-accessible apartment that they could own (as a condo) in a dense, mixed-use, transit-accessible block would be far more suitable to their needs than a three or four bedroom house in a car-oriented suburb.
And those blocks being mixed between younger people and older empty-nesters and retired people would have all sorts of good effects in terms of community-building.
Of course, that would mean that the buildings would have to be built to a decent set of standards, with good noise proofing. But the sorts of young professionals who like that style of living would almost certainly be happy to have an older neighbour (speaking as someone who has aged in place and is now the older neighbour!).
Certainly in the UK it was awful to see so many family houses stand 80% empty, often a burden to their very elderly owners who could barely pay to heat a few rooms, whilst younger families were basically priced out of having a reasonably sized place. I have no idea how you get to the new world you describe, either physically, culturally or psychological, but it would be massively beneficial if we could.
There are entire regions and cities (or parts of them) that are explicitly designed around this - think the retirement communities in FL and Palm Springs.
Beyond space and such, people like being able to paint and upgrade fixtures.
There are also generally far fewer agency costs involved in homeownership. You want the boiler replaced now, but your landlord’s incentive is to defer thant cost. Whereas if you own the home the costs and benefits are both borne by the same party.
They are welcome to do so! Crazy for the taxpayer to subsidize their painting preferences though.
It can be helpful to understand that people have different moral intuitions, that they justify in a post-hoc manner to themselves and others with rhetoric. Jonathan Haight writes well about this.
The short of it is, you probably have very low intuitions around being oppressed and you probably don't worry much about other people encroaching on you. For me, for reasons I can't explain, I just feel stifled and abused having to live in an apartment building, like an animal in a stall. It just feels...wrong. Undignified, in a way that owning does not. Like...I can't fully believe that others perceive me as an adult, because I live in a one bedroom apartment. Now they probably don't think of me at all, the therapist would tell me to work on myself. But I think most people would rather just work towards a house than try to convince themselves that their deep-seated feelings should be ignored.
I imagine for someone like you, though, who has no moral intuitions around this, people like me seem insane! It's because you experience the world differently. It's impossible for one human to understand the experiences of all other humans. You have to accept some of what people say on faith. This is very hard and is why religions came about - to align people with differing moral intuitions by creating rigid rules that respect all of them. We've done away with this, preferring a legal system that ignores most moral intuitions other than harm to others. The reason many are upset is because their moral intuitions are being ignored and dismissed.
And yet in most other countries around the world people don't feel nearly as compelled to own and still manage to live happy lives. Perhaps this utility is... a product of policy?
My take away is that we need more diversity in housing options for people and there are downsides to homeownership (illiquid assets that are difficult to sell in many circumstances if you need to move.)
Not to mention repairs. Homeownership is not what it’s cracked up to be, but it’s usually beneficial *over time*, at least if you’re white and didn’t buy in the Rust Belt back in its glory days
It’s a question of emphasis. The non-monetary reasons for owning homes are sufficiently robust that, at the margins, policy tweaks won’t make a huge difference.
The impression I got reading the article is “Matt really wants to pummel the NIMBY coalition, so he’s stretching and probably overestimated the efficacy of pro ownership policies.”
You certainly left out ways that financially rational people can monetize their houses under existing law. The capital gains treatment of all assets is identical if you hold them until death and, with financial assets, you can sell part of them and still avoid capital gains taxes on the rest. It’s much harder to sell part of a house. A financially rational boomed couple would sell their house, buy securities, and avoid capital gains taxes on whatever they still held at death.
Regarding emphasis I'm not sure that Matt committed any misstep there. Matt's section on "what would happen under a more neutral policy" makes quite clear that he's talking about marginal changes to homeownership composition rather than fundamentally altering the face of the market. Indeed part of his point is that in view of all the non-policy-mediated reasons to buy a home it's not clear that it makes sense to subsidize it.
And wouldn't these marginal changes most effect poorer and more working class people?
Rich people might benefit from policy but they generally don't depend on it. I grew up in a family that is genuinely FU Money wealthy, and while they attend to policy and strategy (you don't get and stay rich if you don't) ultimately they make their personal purchasing decisions based on what they want to do and have and if its not practical in the end, well that's what you have the FU Money for LOL.
Professional class people are probably the most attentive to making purchasing decisions based on policies and incentives, but they will still do what they need to do for a house in the Best School District.
It would be working class and lower income people I think would lose out on homeownership if policies incentivized it less, depending on how those policies were done.
And working class and lower income people are not going to have money to put in "stocks and bonds" in place of a home. That money is just going to go towards rent. When working people buy a home, they are getting housing AND savings at the same monthly price. If they are renting, then all that money goes towards rent and there is none left for stocks and savings. No, a home isn't always the best asset on paper, but one asset that serves a practical purpose *they have to pay for anyway* usually is easier for lower income people than having to pay for the practical thing + savings.
Lower income people also are less likely to have the sophistication to manage "stocks and bonds" or pay someone else to do so.
Maybe a home isn't the *best* investment to put your savings in, but for a lot of people it is the only practical one and one they understand the best.
This piece isn't an argument against the benefits of home ownership. It's simply arguing that having a tax system that incentivizes living in your greatest asset isn't necessarily the best housing policy.
But the tax advantages hardly seem to matter. I think the fraction of taxpayers itemizing is < 15% now. And as I recall, capital gains were always excluded if you rolled it into a new house; it's only recently that they are excluded regardless (up to the $250/500k limit). Anyway, I can't think of a single person I know who was incentivized to buy because of the deal they'd get on taxes. At best, people used to mention it when deciding how much house to buy, but it never swung the decision for buying or not altogether. And now I don't hear anyone talk about it at all.
Then he should contend with the fact that property taxes are levied on real estate but not securities.
If they have money for a down payment they could instead direct that money towards financial products, which would
Probably be better for them. That’s literally the whole argument.
Of course, they would have to consciously do so rather than being tricked into saving by a mortgage, but that is a separate issue.
I don't think it works like that. Maybe they do what you say: they take the 20% down payment they were going to put on a house, and they invest it in a Vanguard index fund. They give their cash to Vanguard, and Vanguard takes a cut to pay their people, and then gives the cash to whomever owned the stocks they were purchasing for the fund. That owner of the stock (who has nothing to do with the management of the company) takes that money and...reinvests it into the stock market. Stock values inflate, nothing changes.
I am really trying to understand, so please explain: does the purchase of any financial product actually give money to a group of people who are doing work? For example, if I buy 100,000,000 units of Coke, do any Coke employees receive this, even as representatives of Coke? Does this drive Coke to innovate in some way, or invest in new facilities, or somehow improve their product or delivery? I don't think it does, and I think because of that, financial products are worthless. They're just betting chips being traded, which is why their value evaporates whenever sentiment changes.
Asking people to buy into THAT is, I think, assuming that most people are very risk-tolerant and I don't think that's true.
Fwiw the strategy to monetize but not sell your house is pretty straightforward…home equity loans. You can even pick up a tax benefit, though of course there are limits.
You are stuck with a call option on the value of your house and there’s no easy way to buy a put and turn it into a straddle.
Not really You can sell TBAs and CME has a futures product:
https://www.cmegroup.com/markets/interest-rates/tba.html
And there is a mbs option market though even more obscure to most:
https://marketchameleon.com/Overview/MBB/OptionTrades/
He says home ownership would be "a little lower". My gut is that it would be a _little_ lower, but very, _very_ little for reasons people have been pointing out. The arguments we are seeing in the comments are a consequence these conversations having little concrete detail. Fewer people would want to read post that were mostly numbers and equations, though, it's the nature of the beast.
Another advantage is predictable and stable costs for owned housing, while rental housing only has sporadic limits on price increases. Of course without Fannie and Freddie we'd probably have something like the Canadian mortgage market, where the loan might be amortized over 25 or 30 years but you're forced to refinance (at whatever the current interest rate is) every five years.
That is actually the more common product internationally. UK, Australia etc.
I believe only Denmark has a product comparable to the US and you can actually trade your own mortgage in the secondary market:
https://www.newyorkfed.org/medialibrary/media/research/epr/2018/epr_2018_us-danish-mortgage-finance_berg.pdf
The ability to repaint, change appliances, update light fixtures, add rooms, remove walls or otherwise modify your surroundings is a huge benefit to home ownership.
For all of the bad press the TJCA received, it did reduce the benefit of the mortgage interest deduction quite a bit by increasing the standard deduction and lowering the amount that can be deducted.
Keep pets is another big one
When I told my family that I was buying a property that would include a place to rent out, my sister and mom quickly got in an argument as to whether I should allow dogs to live there. My very pro-dog sister quickly won that argument.
I am pro hypoallergenic fluff nugget, I am anti four ton fur beast. So much shedding…
This was legitimately one of my biggest personal problems when I was renting. Finding a dog friendly apartment complex was annoying on it's own... then they had an insane nonsense "restricted breeds" list. Our roommate had a lab mix that absolutely might have included some sort of pitbull among like 15 other things, who knows what, so if someone started trouble about it we'd probably be screwed. Then my wife rescued a German Shepherd puppy and we had to spend like a year and a half lying about it being a Belgian Malinois before it made sense for us to move, at which point buying a house was basically the only option.
Renting sucks.
The idea that a Malinois would be allowed but a GSD wouldn't honestly sounds like a paperwork oversight by someone enumerating the breeds. Oi vey.
Reading the list was absolutely what convinced me to just lie about it. It wasn't even pretending to be coherent.
My sister's first dog was also a lab/pit bull mix. She was always smart enough to lie her ass off about the pit bull part where appropriate--not just to landlords, but also insurance companies.
But I know that we once had a legendary argument here at Slow Boring on the merits of pit bulls, one that I continue to stay far away from opining on.
Just don't talk out the side of your mouth and call it a "pittie", everybody knows what we're all talking about. Drives me mildly crazy.
I wonder how many people even benefit from the mortgage interest deduction any more. I’ve been a homeowner since 2011, and there have been years where it’s a saved me a few hundred dollars on my taxes, but since TJCA I’ve never been close to exceeding the standard deduction. With so many people now holding low-interest loans, it seems like you have to be in the extreme upper echelons of home values for it to make a difference.
Even for the high-income people, the benefit is greatly reduced. Now only $750K of mortgage amount can be deducted at all. At 5% interest, that is $37,500 deduction, so it saves about $15K in taxes. Not that big of an incentive for those making over $300k per year.
For a Republican bill, the TCJA was actually good.
Agreed, would be good for Congress to continue the reduced value of the MID, while increasing the corporate tax rate when the TCJA expires in a few years.
Do you mean "keep the MID *reduction*"?
Absolutely wrong about business taxes. Ideally they should be zero. Business income is income of the owners; tax that!
What's the benefit of eliminating the taxation of the income of firms? Doing this might not cause harm, depending on how the revenue is made up. But what's the benefit?
I see the point in that, but then what’s the trade off for limited liability? I thought the bargain was limited liability in exchange for double taxation, which seems fair, though I’d like to see a lot of white collar fraudsters in chains. But I see how it also can be counterproductive to tax major employers that provide income for people that is also taxed
Maybe I've got this wrong, but isn't the savings even less than that for most people. To itemize, you give up the $25k standard deduction. So the net difference in the deduction is only $12.5k and the net reduction in taxes is only $5k.
Yes, but it's even less benefit than that. The standard deduction for a married couple in 2024 is $29k. Many people bought houses or refinanced during COVID at rates well below 5%. If you have 3% at $750k that's $22.5k, plus $10k is $32.5k, giving you only a $3.5k difference in deduction.
yes... the only people who are itemizing are those who paid at least I think it is 17k in interest (almost anyone in this category will max out the SALT deduction).
I just reread the synopsis of it on Wikipedia...and I think I agree with this.
Which is a good thing, which is weird to type because it was a GOP action designed to jab blue states.
It felt to me as a trail blazing moment in the latest political realignment, where the fight may not be just about the rich vs. the non-rich, but fights over which types of rich people should get hammered more.
Why is that good? I don’t particularly have a dog in that fight, but the NE has the highest taxes and the best schools, so…
Which is bad relative to higher rates to rasis the same revenue. SALT is not consumption. If you think, as I do, that we should make our progressive income tax into a progressive consumption tax, this was a move in the wrong direction.
There are also downsides--needing to make costly repairs, and paying taxes (even if renters are indirectly paying them too, it's just less visible). Everyone can come to their own fair decision on the tradeoffs, of course.
Can you clarify your point? Yes of course there are great things about owning a home, that’s why, as this states, there’s no need for these subsidies. Are you saying the subsidies have no impact on homeownership rate so they’re not having the effects Matt states? (And somehow Matt claiming that they have effects is “pummel[ing] the NIMBY coalition”?).
I’d like to understand what you’re getting at, I agree with your factual statements about the positive aspects of homeownership but don’t see why you think they undermine Matt’s conclusions.
I don't think my observations undermine Matt's conclusions at all. I agree with him that the mortgage interest deduction should go away. I was merely adding onto the comment by Binya that Matt undersold the non-economic benefits of home ownership. Adding those points strengthens Matt's argument.
The US homeownership rate isn't particularly high compared to other countries. Even if there are subsidies, the economic incidence may already be capitalized into the value that current owners paid.
I do not know exactly how far it goes but my understanding is German landlord/tenant relationships are much closer to American commercial leases where the tenant can sign up to a 3 year lease term and pay a 3 month deposit in exchange for the ability to make fairly significant changes to update the unit. Of course nobody is going to be doing an addition on a rental unit, but changing the paint and more modest fixtures might be part of this.
In the US landlords have no incentive to rent for longer than a year because if the tenant leaves they have to try to re-rent the apartment anyway then can't bill the tenant for any difference they are able to mitigate.
I just read somewhere that in the Netherlands, maybe here, floors of rental units are often shoddy, and tenants routinely put on new floors, that they can either pull up and bring with them or sell them on to the next tenant.
Bizarre.
It feels much less bizarre when you realise that the terms are very similar to commercial leases in the Anglo world. Pros and cons but definitely more long-term dwelling oriented and less short term option.
I think in the main, landlords avoid prefer shorter term rents mainly because it protects them against losing out on potential income if rents are rising in the future, and because it's generally easier to non-renew troublesome tenants than evict them.
I think you’re right - but isn’t that Matt’s point? Namely, that because there are already lots of reasons one would want to own rather than rent, there don’t need to be as many government incentives to do so.
That plus 2.5% interest rates, I have used the standard deduction for the last 4 years.
“The ability to repaint, change appliances, update light fixtures, add rooms, remove walls or otherwise modify your surroundings is a huge benefit to home ownership.”
It’s becoming more common to do many of these modifications (short of knocking down walls) while renting.
https://www.wsj.com/articles/in-tough-housing-market-renters-renovate-like-they-own-the-place-11669848915
https://www.wsj.com/economy/housing/the-rise-of-the-forever-renters-5538c249
With so many good reasons to own a home, why do we need to subsidize the behavior?
For the reasons you lay out, I'm one of the few progressives you'll find that has good things to say about TJCA. I think overall it was a terrible bill, but for fairness and opportunity cost reasons; the beneficiaries of this law are people who didn't need the money and were clearly GOP donors who wanted to ROI for supporting Trump and there were so many other priorities that were much more worth of attention, especially considering economic growth was pretty decent in 2017.
But yeah, reducing the mortgage interest tax deduction is a very policy done for very bad reasons (punishment for blue states).
They didn't reduce the mortgage interest deduction (unless I'm missing something*). I assume you're thinking of SALT - state and local taxes, including property taxes, which are now capped at $10k deducted. But the mortgage interest deduction also became less salient because the standard deduction went up a lot (I think roughly 2x iirc).
*Indeed, I missed something. As pointed out by John from FL below, only interest on the first $750k can be deducted.
I think a principle benefit to the TJCA is that it increases the required fiscal discipline with which blue states and municipalities have to operate. Much more robust state/local government is a big part of the reason Massachusetts and New Jersey tends to see all manner of better outcomes than Mississippi and Kansas, without a doubt. But it's nonetheless desirable that the former be as prudent as possible, and justify their spending solely on realized outcomes—and not the fact that they get a subsidy from Washington.
In my experience, landlords (other than the corporate owned luxury apartment buildings where rent is determined by a “going rate” algorithm) have no interest in evicting or messing aroumd with you or even raising your rent if you are a good tenant. If you destroy their property, generate complaints from other tenants or neighbors than yes, they will try to get rid of you.
Landlords hold on to good tenants. (This is from someone who has lived in rental apartments since childhood.) and usually good tenant moves because some asshole renters have moved in mex door.
The fact that this is statistically very true (and I do not contest that) only somewhat ameliorates the concern. It is *outside of my control*, and therefore worrying and bad.
Sure, everyone has to prioritize for themselves, but this still doesn’t justify a subsidy of this choice.
That’s not my experience, or the experience of anyone I know or the experience of my city.
All things being equal, landlords prefer good tenants. But good tenants can also make landlords complacent and make them forget that there are bad tenants. Then the greed can kick in.
Especially where I live the difference between market rent and the rent for longstanding tenants had diverged so much that there was a wave of phoney owner-needing possession evictions.
Isn't owner-needing-possession only necessary in rent-regulated or rent-controlled jurisdictions (of which AIUI there are few in the U.S.), why not just bump the rent up to market for an existing tenant on lease renewal?
Because landlords want to keep good tenants. The increase rent reasonably, not according to the market rates that are artificially inflated by corporate run luxury buildings.
I don’t get the point about luxury buildings inflating prices. If a building goes up and charges more than market, isn’t that an opportunity for other buildings to increase demand just by keeping prices the same? The rise of fancier fast-casual restaurants hasn’t made McDonalds raise their prices, right?
I don’t live in the US, so I can’t speak to how common rent control is in your country. Where I live there is limited rent control / protection against evictions, hence a wave of phoney owner-needing-possession. There was also a lot of massive rent increases in non-rent control units, but even in those circumstances if you want to sell the house you may need the possession argument to get the tenant out.
I think it depends which market segment you’re talking about. For dedicated apartment buildings, this is true. If you rent a condo or single-family home, it is likely that the owner views landlording as a temporary measure and plans to move back in or sell to someone who will move in.
For whatever it's worth: I rented for about 15 years of my adult life before moving over to ownership. I didn't have these problems with landlords. One of my landlords, when I moved out, said I was a "walks on water tenant." I think that means, "He paid his rent on time, didn't completely trash the place, and didn't actively pursue criminal enterprises."
I don't doubt that there are people who have really adverse relationships with their landlords, but I think that if there were large numbers of landlords that were renting detached houses to prosperous families who now own their homes, those landlord/renter relationships would be on the whole pretty copacetic.
This is why, while I'm aware to be cautious of market distortion, I'm generally sympathetic to tenant protection policies to smooth out these differences. And I say that as a landlord of one dwelling that tries to be one of the good ones.
This may be so, but this very much reminds me of a million bad arguments across many topics against getting rid of any protectionist or central planning feature. “You want to eliminate policy that subsidizes X or eliminates alternatives to X, but X is really really popular and people will still really really want it!” That’s an argument FOR elimination, not against.
If people are going to super duper want to control their housing through ownership we do not need to subsidize demand for it!
The biggest downside of renting is the uncertainty of your future home. You have a lease for a year or so and don’t know if you’re going to have to move. In most corporate owned apartments you can probably rent as long as you like. But actual homes or privately owned townhouses and condos come with more uncertainty. Moving can suck when you have a bunch of stuff. Your home isn’t just a place for you to exist but it’s also doubles as a storage unit for your stuff. I’m renting now and am a place where buying doesn’t make much sense. The freedom is nice but it is a double edged sword. I like my current place but don’t know if my landlord will extend the lease.
It’s worth noting that the kinds of legislation you’re talking about that makes it impossible to evict bad tenants strongly disincentivizes individuals from renting out their homes the way Matt advocates.
Yes, what is the value of policy change if it won’t impact home ownership? The mortgage interest deduction has never been greater for me than the standard deduction anyway. Anyone who is above the standard deduction is a different level of middle class than most people, or living in a big city with high property values and those people are the constituents of Democrats so it makes sense to keep it. And am I’m missing something about the loan/investment part? If I spend 2000 a month on rent instead of a mortgage, I don’t have an extra 2000 to invest. I either am spending 2000 that is going toward a landlord or 2000 that is going toward decreasing what I owe the bank and therefore possibly increasing my long-term wealth. Even taking into account the down payment and house repairs, it still makes sense in the long term. I don’t think policy changes would decrease home ownership.
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.
There's a tendency on this site to see everything through a policy lens. That's fine -- policy is important -- but it sometimes leads to the impression that policy is the magic hammer where everything is a nail.
When such a large number of nations with highly varying conditions and laws all have very high home ownership rates it tells you that something far more fundamental than skewed policy is at root, as you ably lay out. And so an essay focused overwhelmingly on policy is pretty unsatisfying and leads itself to skewed discussions.
Matt's very smart and a great writer but sometimes his (I won't say monomaniacal) focus leads to something like blind alleys.
Is Vietnam like China where non-real estate investment options are extremely limited so a home is a relatively more attractive investment?
Sort of? I mean no country has an equity or bond market as deep as America. But when we look at places like Singapore or Hungary (i.e. in the EU) they also have very high home ownership rates.
There are other investment options, including bank accounts that are currently paying 5.4% a year.
But there is (somewhat justified given the state of law and institutions) distrust of non-tangible things like bank accounts and stocks. Land, gold, things you can hold with your own two hands.....
Yeah you can come up with special case stories for each individual country but we wouldn’t accept this line of reasoning in a different context
Doesn’t Singapore have very strong homeownership promotion policies?
Sort of yeah, though it manifests in a very different way than in America. I was showing Singapore just as an example of a country that is relatively free & liberal but outside the Anglosphere and has some alternative investment options besides property but people still overwhelming love to own property.
Sure, with countries like Laos or Vietnam we could try to argue that the relative lack of alternative investment options for normal people increases home ownership at the margin. But when we look at countries where people have decent (but not American) levels of access to alternative investments it is hard to feel like that marginal effect is very large.
Absolutely, came here to say much the same. The US home ownership rate is middling. I am not up on enough international housing policies to say with confidence who does what in terms of housing ownership promotion, but the US isn't any obvious outlier.
Singapore, mentioned favorably above, has a home ownership rate nearly 30% above the US.
https://en.m.wikipedia.org/wiki/List_of_countries_by_home_ownership_rate
Singapore’s government has a policy to build subsidized housing because there is a huge land scarcity problem.
If only they could decide to not be just an island anymore.
Strong agree. Yet another example of comparative policy being highly informative
What is the cost of housing like in Vietnam, and what is construction activity like? (Ie. Are lots of new homes being built?)
Tough to answer concisely. My house is worth $1 million USD which would be a lot even in the US. My in-laws live 40km away and rent rooms on their property for $40/month. They live just outside the city limits of a city of 1.2 million people and rent to nearby factory workers.
The poor infrastructure means that 40km feels like a huge distance. But that's something many westerners would commute every morning.
It isn't completely true but to a first approximation there are no zoning laws or council approvals here. I live in what most foreigners would consider a very residential neighbourhood. There's a company of 20+ people across the street. There's a 10 story office building five houses away. A neighbour decided to smash down their house two years and built an office building on the lot. Our next door neighbour started renting out his his ground floor to a sushi restaurant.
As prices have gone up there's been a general trend in our neighbourhood of transitioning from (multi-generational) single family homes to "room for rents". (What you'd call SROs in the US, though they are illegal there.)
In the news there is constant hand wringing that all the new housing construction is "luxury" instead of "affordable". Despite the density (around 23,000/km2, compared to Manhattan's 27,000/km2) everything is low-rise (my house is 4 stories but only 4 metres wide) and feels like a lot of room for more density.
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.
Nah, the proper boomer move is to fill your empty nest with clutter and garbage and then leave that burden to your kids when you either die or can't live independently in that space. My sister-in-law recently bought a house (after a long search and she definitely had to settle for something less than spectacular in a less-than-ideal location, but at least she's not renting!). Her mother (my mother-in-law) who is in her mid 70s, showed up at the new place with a car full of meaningless childhood keepsakes and was deeply offended when sister-in-law refused almost all of it. How could she refuse a container of her baby teeth? Why didn't she want every single ribbon she earned fro being on her pre-k neighborhood swim team? What about all your clothes I've been saving? And she's got the same stuff just waiting for my wife if we ever grow up and buy a house.
And this seems like the norm among my friends who bought homes. Their parents are just hoarding stuff until they have the chance to dump it on them and they refuse to have proactive conversations about whether it's reasonable or necessary. I consider myself lucky that my parents are somehow immune to this mind-virus and both downsized and did a great job of selling or tossing all that crap when they did.
This is why you buy several time zones away.
While not several time zones away, we are about 1200 miles away from the in-laws and you would not believe the pressure the entire family is putting on us to move "close to home." It's mentioned in literally every conversation. And they don't mean the same metro. They mean just a few minutes drive away. I am resisting as much as I can!
Am I some kind of anti-social deviant for believing that children should not be responsible for caring for their parents full-time? I dunno. The in-laws are both college educated. They both held professional jobs and have a paid-off home but their retirement income is essentially social security, plus a meager teacher pension (this is the south, none of that $100k pension income New York nonsense) and minimal financial investments. My feeling is that they were smart enough to know better but kept all of their income tied up in the house and never invested properly because they were so risk averse that they refused to do anything but government bonds and some money market fund that they only ever funded to the tune of $10k. But it's the job of their children to fix that? Their three kids have to move their lives around to make sure the parents' mistakes are corrected? Unfortunately, the kids - my wife and her two siblings - are basically in agreement that they have to make sure their parents have a comfortable retirement *in their current home as long as possible.* Why is this our job? Why can't we agree to jointly fund a place in a nice retirement community and keep our lives on track? Anyway, this is getting to far into my personal non-generalizable situation but I can't help but feeling that this is a crisis about to smack a huge number of people in the face as the older generation retires and ends up having no plans in place besides "the kids will take care of us."
While we are having mutual therapy, it drives me bananas that living close to parents is a burden placed on the children. You are retired and we have young children and jobs! Why should I move states for you and not the other way around!
b4 leaving David R would advocate for profesisonal-class people to move to a Chinese norm where in-laws live in the same place (so way more grandparent contribution to childcare, and way more obligation the other way). Both the US and Chinese norms have upsides and downsides, but "all of the elder care, none of the child raising" is rough
Wait, I knew Frigid was gone (did he finally get permabanned?) but missed that David R left. Nobody tells me anything!
Tbh they are right that there are very strong benefits to extended families living close together, especially with kids in the mix and the current cost of private child care
I would much prefer my parents are near preferably walking distance.
See the grandkids often and be easy to check on
When my mother in law did this to my husband, he just dropped the box of junk in the garbage (after she left, he’s not a monster)
> Nah, the proper boomer move is to fill your empty nest with clutter and garbage and then leave that burden to your kids when you either die or can't live independently in that space.
A friend of mine had her parents downsize a few years ago. They bought a two bedroom apartment just a few kilometers away from the family home they'd lived in for decades.
When they moved they just kind of....left everything in the house. They haven't sold it or anything. The house sits empty, with all their accumulated stuff, and friends and relatives stay their sometimes while visiting. It's been two or three years and they're still "deciding what to do with it".
I thought it was an amusing "put it off for now" solution to how to deal with decades of stuff and downsizing.
I'm not sure how you managed to describe my parents successfully on so many levels, but congrats.
They are late 70s now and fortunately still in good health, but I am dreading how to help them navigate their cluttered tri-story once they start declining.
This happened to my grandparents. They also had a cluttered tri story. Ended up having to sell in 2010 in their 80s - huge financial loss for them relative to what could have been
Better yet, resist the urge to "upsize" so much that you put yourself in a position where downsizing makes sense. We stayed in our 2700 square foot house for 24 years while the kids grew up. Most of our neighbors moved out of the neighborhood as their income increased and ended up with huge houses they didn't really need and a small retirement account because all their money went to mortgages, upkeep of the mini-mansion, and keeping up the lifestyle of their new neighbors. We really need policy to encourage people to save and invest, but instead we get the opposite because of the positive impact to the economy of people constantly moving and paying for stuff they don't really need.
2700 square feet is an enormous house.
You’re right, it’s plenty big for four people. We had five bedrooms and three bathrooms. It was never an issue. But in a place like The Woodlands, Texas it is pretty small relative to other houses. There is a lot of peer pressure to move up.
Thank you! I felt like I was taking crazy pills, here.
It is, at least, upsized in the past tense. But you can only buy what you build yourself or what somebody else built before you.
Not really. My family of four lives in a 2100 square foot house and it feels claustrophobic. I'd prefer to live in at *least* a 3500 square foot house, but couldn't afford it without a catastrophically long commute.
If you have more than two kids, you likely end up either very crowded when the kids are teens / early twenties or in a house that is way too big for just two adults. Especially if it's more than three: four kids means either sharing rooms (which is fine when they're 8, but not so practical when they're 18 and dating) or having at least five bedrooms.
But even a normal suburban three/four bed two-level house on a quarter-acre lot is much too big for a couple in their mid-seventies.
You might still have to move for stairs reasons. Our house has 4 BR, we have the master, our kids each have a room(all 3 upstairs), and we have one spare bedroom downstairs.
Our house didn't feel way too big before the kids were born (obviously we could have lived smaller, but it really only felt like one room was "wasted" - the kids' bedrooms were our individual offices) once they're done with college (and being at home over breaks) it might make sense to downsize just to something that is more conducive living when we are less able ourselves)
All I'll say is that the space needs of two adults working full-time in their twenties/thirties are much greater than those of two retired adults in their seventies.
Good advice, although sometimes easier said than done, even if the empty nester is willing to accept a quite large reduction in living space. I recall reading a story in my local newspaper a few years back about suburban homeowners who had long planned to downsize as they got older, only to find that their four bedroom home deep in the 'burbs was worth far less than the asking price for a smart two bedroom condo in a desirable in-town location (this was metro Boston).
I have the location down (close to downtown) but not the single stor(e)y part. It'll be a tough pill multiple decades from now but with a generally YIMBY city council in play I feel confident that a reasonable condo downtown(ish) will be available.
I suspect that having stairs while you can manage them fine helps extend your period of mobility, so the ideal seems like keeping the stairs for a while, and only switching when you see the mobility issue coming soon - though you need to forecast well enough that you’re not moving right when you have issues.
It's also not just an issue of mobility, but when the risk of falling goes up.
doubleplus like - we downsized a couple of years ago and are grateful for having done so
now watching our parents struggle along in large houses that they cannot manage (so we have to!)
Even better don't buy a house with stairs
Having stairs in your house probably keeps you in better physical fitness longer.
This assumes you use them. My empty nester parents hardly ever go upstairs for any reason.
I certainly think people need to stay in shape. 2 days of weights and at least 2 days of cardio.
But the risks of falling as you get older are a huge problem. If you fall and break a hip after 65 you've got about a 50/50 chance of being dead within a year.
Our rental house had stairs going up an down the stairs with laundry baskets was a huge chore at 40. I can't imagine doing that at 70
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!
Indeed. NIMBYism is overwhelmingly driven by the consumption good aspect of housing rather than the investment good aspect.
Agreed. I think the sentimentality is not just in the home itself, but is rooted in the neighborhood/town more broadly. People generally are resistant to or fearful of change. I think eliminating market distortions would go a long way to bring us to the more-optimal capital and housing situation we all want here at SB, but even if it changed tomorrow it would take some time to wash out the sentimental factors.
Maybe that's why limiting things like public comment on zoning committee or zoning variance hearings is important - reducing the ability of people to vent their fears in public reduces the chances of their fears infecting others who might rationally support the development(s) being discussed.
One thing that is very possible here is culture follows policy. I.e., a bunch of things are made economically rational and then culture builds up around them.
In an agricultural economy having a lot of kids who stayed close was rational; now having a smaller number of kids who go off to college is. And a whole bunch of seemingly entrenched cultural practices changed as the underlying reality changed.
This is an underappreciate aspect of those hearings. They're basically forums for squeaky wheels to manufacture consent.
I oppose affordable housing in Peachtree City Georgia because I don’t want poor kids in the schools. I’m glad our city council refuses to permit any additional apartments, I only wish we could demolish the existing units.
This gets pretty farcical when it’s people who paid perhaps $200k for homes that are now $2m, opposing neighbors who would pay $700k. Can’t have the children of doctors and software engineers polluting our community, generational real estate wealth only!
It's a fun double-bind though
1. We can't allow Project A because the people who would live there are too poor to accept in our community.
2. We can't allow Project B because the people who would live there are too rich to deserve our concern.
I pointed out to a NIMBY a couple months ago that I've been living in my neighborhood for 6 years now. I begged them to tell me when I'm going to finally be considered a "vested" citizen of our good city and have my interests be respected as valid.
Still waiting on an answer. Fuckheads.
I'm more concerned about the crime you get
I don't know that this is the case with Dave and don't want to cast aspersions on him but my experience with this kind of thinking about schools says that the concerned parties don't see it as a matter of discipline policies. Instead, they often attribute it to the kinds of children present in the schools. Too many poor black kids will "make the school bad" regardless of school quality - or so the thinking goes.
Being from Peachtree City, one big memory I have is when some black families were being relocated to PTC after the city of Atlanta decided to build a new stadium for the 1996 Olympics. Apartments were built for them and my understanding was that these were section 8 or public housing or some kind of similar program. (Likely the ones that are hoped to be destroyed.) The concerns, though, were entirely about the impact on the schools. Property values were a much smaller part of the conversation.
And this is typical of suburbs. When enough non-white people move in, white people leave and the schools are perceived as being worse. Sticking with Atlanta, just take a look at DeKalb county, the Southern half of Gwinnett, or Roswell to see this kind of thing in action. Interestingly, a similar problem happens on the "high" end of school achievement. If too many Asian families are in a district, white families will leave the schools because they fear competition and assume their kids can't keep up. John's Creek is a great example. White families incorporated to keep out poor families moving north from Roswell but ended up seeing a large Aisan population move west and northwest from Gwinnett to the extent that white families now complain about how competitive John's Creek High School is. They're moving to the next county, exurban Forsyth. The question of home values is certainly correlated, but schools, and whites' preferred racial admixtures are very important in families decisions about where to live. What will be interesting is to see how the recent expansion of voucher systems changes this calculus. Probably too early to tell!
"Too many poor black kids will 'make the school bad' regardless of school quality - or so the thinking goes."
Yes. It will make the school bad. I learned this in second grade long ago when I was bused to George Washington Carver Elementary. I'm not aware of any counterexamples, except for a few charters with "eyes on me"-style discipline that drive off misbehaving/unmotivated children.
...well, at least this goes to Ethics Gradient's point downthread about at least respecting the willingness to be brazen.
I think it goes to the point in the sense it demonstrates why that brazenness is bad and not good.
Well thank you. I got over it, as I should have, and attended integrated public schools through graduation, and apart from the ones in Dade County, Florida way back when they were all OK. (We did have to leave Florida because my older siblings were getting the **** kicked out out of them.) But a school with lots of poor black kids is a bad school, full stop, and charter school discipline is not an ideal answer because (i) it relies on running off troublemakers (ii) most of us, including me, would never send our own children to such a school.
Yeah I’m from Memphis. All the white people move out of a neighborhood if the black population reaches a quarter or so. Things are improving though. Desoto County is pretty damn integrated for the Memphis area - it’s called a black flight and a white flight suburb - it is able to keep that quarter without tipping over. There are very few apartments, though, and literally no transit, it’s 25% black but the black PMC and stable middle class.
I’m just as leery of poor white kids as poor black kids. My son spent a year in s montessori school with more black students than white ones. But everyone paid tuition, so it was ok.
I’m also leery of my son competing against too many Asian strivers and having mediocre class rank. McIntosh has higher test scores than Starr’s Mill, but I’m content to stay in our present district because McIntosh has vastly more Asians it will be much easier to be in the top 5% at Starr’s Mill.
Respectfully, the racial dynamics in the South are just different.
And even people who are otherwise fairly dedicated to improving things in this regard...will balk when they perceived their kids as being under threat.
Either directly, via unsafe schools, or indirectly via poor educational environment or bad social influences.
Sure, and when the elementary school has low test scores, home values probably aren't going to be rising as fast (hard to imagine them going down in this environment). Tax revenues don't keep up with costs. Schools continue to suffer. Municipalities have to cut back on spending or pile on debt. Infrastructure and public services suffer. It's a downward spiral. It is easy to see why this kind of racial thinking predominates the discussion.
I don’t think the correlation between me advocating for better discipline and it happening is that strong. Also, I’m not sure I really want “discipline” as much as my child to learn from kids who come from stable families.
I admire your honesty. Your sentiment is widely shared even if people in the suburbs won't say it too loud.
I think honesty about despicable positions is not good! Hypocrisy is the homage vice pays to virtue.
Amazing reverse catch 22 here:
“Racism is bad”: good
“Racism is good”: honest, so also good
The “my impact is marginal” argument can be used to justify any position ever
https://slatestarcodex.com/2014/07/30/meditations-on-moloch/
Dave is just afraid that after going to school with poor people, his kids will grow up Liberal. \S
I kind of assumed David was trolling a bit with this one with his tone, although I couldn't actually find a reason it was unsound from the perspective of individual rationality. Honestly I respect the willingness to be brazen sometimes because it makes it easier to be clear about values differences.
[ETA:] That said, I think it's usually most valuable in a context where there's a principled commitment to not being a dick and it's more about clarity than about tribal signalling. Like this wouldn't be a helpful statement on Breitbart and if most statements were this blunt I'd probably just read elsewhere. Use sparingly.
Sadly, I think it's somewhat helpful here because I suspect lots of people who would never dream of saying this in fact vote this way -- billions of years of evolution are pretty effective in ensuring parents do what's best for their kids and come up with whatever excuses later.
That's super important from a institional design criteria because it tells us that if you don't want to screw poor people you have to offer strong tracking/magnet schools because you'll either have those or psuedo-versions based on income.
I don't think I am here often enough. I assumed David A was being sarcastic.
Yeah, I held fire on replying because I too couldn't quite gauge how serious the comment was, and that it got several upvotes.
> Why couldn't you like... advocate for better discipline in schools or something
I don't entirely support David's position, but this seems just hopelessly naive to me. The school board and teacher's union do not give a single flying f what I advocate for when my kids are in school, because four years later I'll be gone and they'll still be there.
My sense of what I've seen in the literature is that once the school hits a certain minimum quality peer effects dominate (a child's friends motivate them in ways no teacher can match).
This is exactly why we need to create more magnet schools and introduce more tracking in our schools -- not to mention loosen geographic assignment. I get why people dislike the first two but the truth is that parents do what's best for their kids and even if they don't say it like David your choice is between tracking by income or tracking by demonstrated ability/interest/etc. The later gives the motivated interested kids a chance regardless of income.
Realtors were useful at one time, but do almost nothing now but control the lockbox and boost up the price by 5-10 percent.
Wild take. The information asymmetry between a potential buyer and a seller makes it probably the second most complex negotiation / transaction out there after buying a business.
Really not in line with my experience, even in the era of Zillow and whatnot. I have bought a house twice in my life and hope to do so *maybe* once more ever. I derive value from from professionals who do this every day.
The argument against real estate professionals isn't that they provide zero value, it's that their essentially commoditized services are not worth 3%-6% of the value of a million-plus dollar house. Fortunately the recent litigation victories against the National Association of Realtors may break some of the gridlock here.
Now to go after the title insurers. If only every state could do title insurance like Iowa does.....
Again -- I can't track any of this conversation. You don't need an agent. You can sell your house yourself (I've sold one of mine direct off market) and you can buy without an agent and negotiate the discounted fee into the deal. You can also negotiate the agent's commission before signing your contract. We'll see how the court cases play out but the best agents will still get the best houses and they won't negotiate an inch because they deliver value in excess of their fees.
I think in a couple years after all the dust settles from that court case we are going to get a bunch of sob-stories about home buyers and sellers who got hurt by useless and possibly fraudulent "real estate agents" who advertise their services for like $500.
A couple of years ago I tried to help my kid to find an apartment in the northside of Chicago. It was hard to even get a reply or into a unit without an agent. I know renting isn't what you are referring to, but when a market is tight, agents can be very helpful.
Many landlords flat out won't work directly with tenant apartment seekers. This isn't too common, I think, in many suburban areas or in much of the Sunbelt. But it older, denser urban areas, the market tends to be dominated not by large complexes (who typically employ their own agents), but by thousands of smaller buildings. Ownership in this case simply has no incentive to change their way of doing business. Why should they take the time and trouble to show their units in person when they can simply wait to have applications, checks and credit reports sent to them by brokers?
I think the moving expense aspect is important. You used to be able to write moving expenses off from your taxes if you moved for a job, but that didn't help you if you were moving with the hope of finding work, and even if you had a job waiting, you'd have to get past the standard deduction to actually benefit.
The TCJA got rid of most of those deductions, so unless your employer pays for you to move (which they can write off!), there is no help for you.
Seems like we should do the opposite and offer tax credits for reasonable moving expenses.
Also mortgage portability should absolutely be a thing that might unlock supply in tight markets during higher interest periods
I am a privileged upper-middle PMC sort of person, but are tax incentives a particularly strong factor in long-term mobility? I would have thought big life disruption factors (and the general pain in the butt) would be the main drivers.
Some of the resistance of homeowners to the creation of externalities that is bad for new development is good for other things. My guess is that homeowners are more politically active in improving policing n the face of a crime spike in the neighborhood than renters.
Related to another comment of mine downthread, AIUI this is part of the stigma of renting in Australia — renters are perceived as being less invested in neighborhood quality (presumably becuase financially speaking, they are) and so renter neighborhoods are perceived as less tony by dint of the fact of being renter neighorhoods, even if the houses are pretty nice.
This is my intuition as well, though I'm curious if it's empirically true (e.g. do market-rate renters run for the school board)?
This ties into Matt's articles about gentrification where he argues that anti-gentrification activists essentially want to keep neighborhoods shitty. But if you're a market-rate renter, your financial incentive clearly is to prevent improvement. You might reap the usage benefits of, say, a new park, but financially, you'll face higher rents being in a more in-demand neighborhood, and the land value appreciation all goes to your landlord.
Is this true? People generally like to live in nice neighborhoods, and I know that I personally would trade off higher rent in exchange for having more parks, restaurants, services, transit, etc. (I also don’t think typical landlords are so closely attuned to block-level supply and demand that rents increase the instant an area gets a bit nicer).
There is probably something in that.
A lot of the people who fought rezoning in my neighborhood ended up moving within a couple years anyway. And now the CA Legislature has put their foot down and heavily demoralized the remaining pockets of opposition. Not sure how many of these emigrants took advantage of Prop 19 (which lets seniors move and take their Prop 13-protected tax rate).
Of course, not much has changed here (or will change on a medium-term time scale) because many things don't happen despite being allowed. The main effect so far has been a less-onerous ADU building process. The horror!
Yeah, I think some abstract fear for protection of property value is in the mind of NIMBYs, but usually the driving factor is something more discrete like more traffic/less parking, or other abstract aesthetic objections to a neighborhood not looking and feeling like they want it to.
Much of it is parking, traffic, and schools and other public services, though I think home values definitely at play too.
The court system is taking care of your problem with 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.
People would lose their shit if they were confronted with the idea that they're wrongly responsible for vacant dwellings instead of some easy to villainize developer. Which of course is similar to NIMBYism in general trying to shift the blame on developers in general.
Toronto is going to bring C$100M a year with its vacancy tax https://www.cbc.ca/news/canada/toronto/toronto-vacant-home-tax-increase-1.6991918
I love it. Call it a "shit or get off the pot" tax. It's a LVT by other means.
Try this on for size: it increases the constituency for a LVT. Once it's been in place for a while, anyone who's paying the vacancy tax -- usually real estate developers -- will feel that it's unfair that all the empty-nesters aren't paying vacancy taxes for basically the same offense.
At which point Matt comes along and explains how LVT would allow them to do exactly what they want!
I really hope the antidentitism remains a theme here for years.
Dentists and car dealerships are dog whistles we can all hear. The dentist in question definitely owns a boat and aspires to hunt exotic animals for trophies.
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.
That effect is even stronger in the silicon valley example you cited, since California's prop 13 caps the property tax increase at 2% per year and you can pass that down to your kids when you die. There are houses in Palo Alto worth millions on paper still assessed as a few hundred thousand dollars.
I just want someone to finally come up with a way to sunset it. Prop 19 at least put a little wedge between the current beneficiaries and their heirs.
Yes, it was like someone had already worked out a deal and put it on the ballot. Way more complicated than the usual prop. But I will give Grandma and Grandpa a tax cut if it permanently eliminated the heritability. When I got mad at Prop 13 I hit the effin roof learning that it's heritable!
Good, clever username, by the way.
I see only the sign (of the effect, so I can update my priors accordingly)
End step-up on death. But it must be paired with a capital gains adjusted for inflation. It makes no sense to tax nominal capital gains that are actually real capital losses.
This.
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.
One potential solution to this would be allowing for longer term leases that put some maintenance costs on the renter. It’s not that uncommon for businesses to have 10 or even 20 year leases where they take on financial responsibility for some aspects of the building. I would personally prefer that to ownership.
This seems like the kind of product (appeals to non-poor people in rental markets with stable costs) whose existence is suppressed by current policy favoring homeowning
I think a bigger economic incentive to own is that rental income is taxed. If you and I rent each other’s houses, we’d both pay a lot of extra income tax compared to living in our own homes.
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.
Colin hit the nail on the head. "It creates a really warped sense of what housing is supposed to be which is essentially a consumption vehicle". That is the curse of California. As he put it, we went from thinking of housing as a safe, low return investment like a CD to thinking of it as a tech growth stock. That led directly to Prop 13, which put more fuel on the property appreciation fire. There is no way housing can be "affordable" and have 10% annual returns. It is a monkey's paw. You get lots of paper wealth, but have to get on a plane to see your grandchildren.
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.
Serious advice: what would living in that house be like if you couldn't drive? At some point, age is going to catch up with you and that's one of the first things to go.
If not, sell it, move somewhere that is accessible by public transit and is step-free. Do it now, while you're still mobile and able to move and it's just a pain to move rather than being a disaster. You'll thank me for this advice in your late seventies and eighties when you can still live in your own home rather than having to move into residential care.
I can second this emotion. My wife pushed for this and I resisted but eventually came around to her viewpoint. I’m glad we moved from a big house to a smaller inner-suburb place with the amenities you’ve highlighted.
The problem for society is that boomers with a lot more cash and better credit than younger folks are now competing for the same “starter” homes. I think it still highlights the need for “more” housing.
Which is precisely why I am staying in the home that we have owned for 30 years. Rentals and housing stock in our neighborhood is extremely scarce but it is a walkable neighborhood that is perfect for the elderly.
We confronted our grandfather with this driving/housing issue, and his stubborn solution was to move his office just a few blocks away from his house. Partial victory, and one that's hardly portable for most, but it still make me chuckle as an example of people responding to incentives.
Honestly by the time I am that old self driving cars will be a real thing.
This really is advice for "I just retired, my kids moved out a decade ago and are well set up on their own". You do not want to bet your future on self-driving cars in ten years. That could happen, but there's a big enough risk that it won't that it's worth avoiding.
Also, living somewhere smaller (and therefore cheaper to pay someone else to clean when you no longer can), and accessible (ie no stairs) is always going to work out better than a big former family home.
But would you still have higher monthly costs (on net) after you accounted for the monthly income from the stocks and bonds you could buy after selling your house?
Keeping your home is a security first strategy. You know you’ll have a home. You can’t truly count on financial income, unless you buy gilt edge bonds, in which case the return sucks.
Yes but my proposed alternative wasn't "sell the big house, rent a small house, then put all the money in stocks and bonds". It was "sell the big house, buy a small house, then put the rest of the money in stocks and bonds".
You'd still get the security of homeownership that way. And although the income stream from investments isn't always great, the income stream from empty bedrooms is zero. The only upside from owning an unnecessarily large house is the hope of capital appreciation, which stocks will also give you.
I think part of the problem is housing stock in most communities feels very homogenous. I would love data on this but I can't find it. Our town has an average housing price of $1.2m. There's just no inventory of "small houses".
So I think the missing part of your strategy is "sell the big house, buy a small house *** in a different community ***, then put the rest of the money in stocks and bonds". The friction point there is moving to a new community.
That's true but I think it means YIMBY is the missing piece of the puzzle. There's pent-up demand for large houses to be demolished and turned into small apartment buildings, if zoning rules didn't get in the way.
I'm not sure. I think there's demand for both but many communities are fully developed. It's not just YIMBY. Just my town and surrounding towns -- have literally zero undeveloped land left. The last tracks were developed in the 1950s. When you factor in land and construction costs there's no way a small apartment building would pencil out. It's not YIMBY -- it's a physical constraint problem.
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.
Whenever there is an Nimby backlash in my neighborhood, most of the people talk about the impact of whatever they are fighting on their home value. Ditto for arguments about homeless people. As someone who lives in the home he intends on being in for most of his life, I never get worked up about the value of my home. Unless you’re going to sell who gives a shit?
I agree with Ethics Gradient. This is just people saying what is socially acceptable to say.
When people say "home values" what they really mean is "I don't want to live around aesthetically and socially unpleasing people and stand in long lines at the grocery store."
The reality is that everything in the human brain is wired against seeking "diversity" or appreciating social "equality." People want to live around other people like them and compete for status. But we know we aren't allowed to *say* that out loud in our culture, which is predicated on the tolerance of diversity and social equality, so people pay lip service to those values ("IN THIS HOUSE WE BELIEVE...!" LOL) then talk about their "Property Values" because in our culture stewarding and defending your career or financial assets is also seen as a virtue.
Its like coastal suburban parents who justify turning their children's childhood into a spectacle of "achievement" and highly competitive activities by saying "Well, its for scholarships and admissions to top colleges, which they need for a good life and good job!" The reality is the main motivator is the parents' egos - but no one ever admits they want Olivia to be state champion of everything or get into NYU so they can put a sign on their yard and brag to their friends, so people come up with a practical "justification" that makes them sound responsible and diligent while being self-serving.
“everything in the human brain is wired against seeking "diversity"”
Speak for yourself
Thank you. I am tired of parochial thinking being justified by, "Well, everyone thinks this way, I'm just being honest." It's not true.
There's also the assumption that diversity must mean "aesthetically and socially unpleasing people."
You’re wrong about the second part. There’s absolutely a perception that you’re not doing right by the kid if you aren’t setting them up for the meritocratic ladder as well as you can.
I actually find it much easier to feel high status in my mixed, transitional neighborhood with lots of working to middle class Hispanics, being upper middle class myself. If I moved to Westchester I would just be middle of the pack!
I expect part of this may be values-hiding. It's often considered gauche to invoke aesthetics and personal distaste for other people without masking or laundering it in some way. Absent such a consideration I imagine that some people would feel free to say "homeless people make me uncomfortable and I don't particularly want them near me regardless of the degree of personal virtue one may or may not ascribe to them."
But the discourse in the last 24ish months has shifted so much that now people do openly say this in 2024, when it was unsayable in polite company in 2020.
I'm with you--if anything, higher value means higher taxes. But of course people try to have it both ways, and try to push to actions they think will keep land values high in general, while obfuscating the value of their own land for tax purposes.
Yes. This behavior even has a name. California.
Hmmm I see I have a limited experience. In DC Ward 3 NIMBY's do not talk about home values and they re right not to do so because the kind of development that is likely to come to our BYs is not unpleasant people
Concern about home values is a real thing, but I'm inclined to think it's true that traffic, noise, crowding and "the wrong people" are bigger and more immediate concerns than a worry that their house might be worth a bit less fifteen years from now.
That was my point, minus "wrong people," which may well be the case in some (many?) contexts. My POV is Ward 3 in DC where the new residents would likely be fairly affluent and real catches for DC if we can attract them. :)
The "wrong people" fear might not be common in your corner of DC. But I perceive NIMBYist opposition to multi-family housing (and, especially, gasp!, rental housing) is often intertwined with fear of racial and ethnic change, more crime, etc—at least in suburban areas dominated by single family homes (especially if the areas in question are strongly white majority).
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.
Me too
When it comes to baldness, I suspect Matt is much more a flaunter than a hider.
He's spoiled by all that protective atmosphere privilege he enjoys as a person experiencing near-sea level living as compared to us people of high-altitude living.
Hashtag sunburn
I thought that lack of a fleece vest was a huge miss.
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 (!!)
One of my questions is whether having more renters leads to more stupid laws like rent control. Especially if middle class people are renting because laws that benefit middle class people are probably going to be more likely to pass even if, like rent control, they’re counterproductive
"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."
Yep: https://www.ft.com/content/39c443c8-5761-4c3b-9bd7-21842447283a
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
It’s better to have a paid off home and $500k in an IRA than a mortgage and $5 million in an IRA? I’m not sure I follow.
Those aren't the tradeoffs
Sure they are. You have (among other assets) $250,000 in 10 year treasuries @ 4.315% and 10 years and $250,000 left on your 2.8% mortgage. Should you sell the treasuries to pay off your mortgage?
You’re 70 years old and have $4 million in retirement 70/30 equities and bonds and $250k left @ 2.8% on your condo in Del Boca Vista. Should you sell part of your portfolio to pay off the mortgage?
You could make an argument for “peace of mind” but it doesn’t make sense financially.
Because I’m talking about actual people not what the hypothetical most efficient investing option is. So we aren’t talking about multi million dollar homes here. We are usually talking about Someone either having still having a $300k mortgage or possibly having an extra $400 or $500k in investments.
Except that the vast majority of people actually won’t invest all of that. So the differential is actually much smaller. In fact, often that differential might be zero. Because often what we are talking about is telling someone that’s 50 or 55 not to buy a new home and instead stay in the older smaller home, and pay it off.
Or we are talking about someone doing rent vs buy analysis. Where unless there is just a large differential between renting and buying, then it usually makes sense to buy and pay off that home so you aren’t stuck renting at 65 with little assets. Because again most people are very poor at saving that extra money.
Ah, I thought we were talking about the set of people who subscribe to public policy blogs for fun. You know, the people who are reading and commenting here.
Indeed. We did it for peace of mind and as a guaranteed "safe" investment but I'm aware that the expected financial value was lower.
Exactly