Housing is a universal cost. When prices come down human flourishing goes up. How did we get to a place where governments across the west desperately manipulate markets to increase the cost of a basic necessity? How perverse!
The sick dynamic of governments trying to increase the cost of housing is largely because ownership is so widespread. As much as we like to talk about the political power of deep pocketed corporations, that pales in comparison to the political power of homeowners when they are more than 65% of the population. Bring that number down significantly and we might see a much more reasonable policy environment.
On the other hand, "human flourishing" is unlikely tied to real estate. Real estate is an investment vehicle, and one that is pretty broadly indexed to inflation on average in the US. It's often the case that renting somewhere cheaper will leave you economically advantaged as compared to ownership. I'd suggest playing with the variables on the New York Times rent vs. buy calculator from a few years back [1]. Owning is by no means a "clear win" but rather part of the American wealth-building narrative.
[1] https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...
The only satisfying thing about the pandemic is before the it hit our companies new landlord told us he was raising the rent to $4/sqft. We've just scored a better for us place a block away for $1.5/sqft. We're taking one of his other tenants with us too.
I hear you but owning isn't a solution to that for most people. When you take into account the interest on a 30-year fixed-rate mortgage, HOAs, property taxes, homeowners insurance and 1% per year in repairs/upgrades, and periodic remodels. As a renter you're on the hook for none of that.
A 1-bedroom 700sqft apartment in downtown SF rents for ~$3750 in my building.
It's worth about $840K. You're out:
- The opportunity cost on a $168,000 investment.
- $2080/month in interest.
- $870.00/month in HOA fees.
- $83.33/month in homeowners insurance.
- $1260/month in property taxes.
- $700/month saved up towards your 1%/year repair bill.
That means you're paying $4700 per month in what amounts to rent, and you're setting aside $1000 per month in principal saved in the first year. Once you deduct those from the salary you need to afford it in the first place, we're talking right around what rent would be.
In general, especially in these areas, not only are your PITI payments really, really high -- rent tracks all-in expenses. Basically the cost of renting an apartment is approximately what the non-recoupables would be owning, for much of the first decade of ownership.
(1) renting doesn't necessarily automatically have to put you at a disadvantage to owning (so long as you're investing what would have gone to principal) as there's a lot people forget to factor in.
(2) house prices per square foot on average are the same now factoring in inflation as they were in 1970 and
(3) house prices in major metros are governed not by anything other than artificial supply constraints imposed by city councils acting on behalf of landowners to the detriment of renters. They are unlikely to change substantially as a result of this financial ... hiccup.
As the return on investing that $12k will be so low (in dollar terms), it is perfectly rational to own if you believe the condo will increase in value by even a little more than 1.4% per year. And as our government goes out of its way to prop prices up, that seems like a safe assumption over the long term.
That’s the major difference between stocks and homes. In the first case the government sharply limits private lending, in the second it has nationalized the industry and subsidizes it significantly.
That's the problem. Real estate can't perpetually be both affordable and a good investment.