The “wealth” is the physical building and the land. That exist regardless of ownership.
The older generation built the house. So charging the younger generation for it when the younger starts using it doesn’t seem unreasonable.
Maybe you mean that in some places the market price of houses has gone up sharply, and that’s unsustainable. I’d say that if there is a desirable piece of land, and population in that area is going up, we can imagine the price of the land going up faster than inflation. Since we’ve had a general population growth, and movement of population from rural to urban, the price of urban land has reflected two demand side increases. But, there is a natural limit on what people will pay. Eventually they say “I don’t need to live here”. Maybe you’re waiting for that inevitable change of attitude.
Maybe you mean it’s not a sure thing. I agree with that. I grew up in an urban area, the house I lived in is now worthless. Instead of population growth, we had population decline. (Detroit)
I’ve seen claims that the price growth is almost all the market price of the land. Buildings deteriorate with time and need more and more annual maintenance.
We could theorize on whether it makes sense to have private parties “own” land that they didn’t create. And, whether the best tax is a big tax on the increased price of land.
My current property value isn’t keeping up with current inflation, but looking at things since I first purchased (~10 years ago), I’m still above inflation.
No one has even questioned if this is a great way to deploy a lot of capital.
As Indy pointed out, the homes were there already. No construction to speak of. So rather than anything productive, we create assets that are really just bonds. I can assure that these corporate owners use plenty of leverage. They aren’t managed by idiots.
I cannot see how this moves the ball down the field in any manner. And Twigs anecdote should remind that renters are not the same as owners wrt taking care of the property.
Why? If the population keeps increasing, which seems like a safe bet, then the demand for housing should increase along with it, even keeping the dollars on an inflation-adjusted basis.
It’s unsustainable because eventually you can’t extract any more money out of the next generation. You can only screw over the financial future of young people by so much.
It is unsustainable and feels like a bad way to organize capital for upcoming generations.
Does a shift from owning to renting make things more sustainable in any way? Is this any different from any of the other issues caused by fitting a growing population into a non-growing planet?
Last time I checked, the owner of the property either passes it on to another through inheritance (not sure how the beneficiary is screwed here) or it’s sold.
In the the latter case, a lot depends on creditors as to how much the real estate might be sold for along with the values of the buyer. So again, not sure how the buyer would be screwed by the general system.
Yes, there are situations of supply & demand (c.f., Detroit) and market corrections (2008 bursting bubble); but a well informed consumer will also look into those things (or seek advice from others who are more knowledgeable) and make the decision to accept that risk.
The value of my home (bought in 2004) has increased roughly 20% over each of the last 2 year periods. But if I look at the CAGR since 2004, I get 3.0%. I don’t think prices are terribly over-inflated right now. I expect increases will slow down, but I don’t see another 2008 happening.
The was a huge deficit in new housing starts between 2008 and 2021. Pre-2008, the US was adding over 1.0M new units every year. 2008 shut everything down and it’s only in the last year that the US crossed the 1.0M mark again. That deficit is just beginning to get back-filled. Institutional investors are just taking advantage of that shortage.
I remember in the early 2000s when homeownership was pushed as a way for everyone, and they meant everyone to create wealth. We all know how well that turned out. I’m not blaming the Great Recession on just unqualified homeowners, but it was certainly a piece of the puzzle.
65% seems to be the “natural” rate of long term US home ownership? When it rises above that level it seems fairly quickly to revert to the 65% level. Presumably this reflects affordability so there would be a strong correlation to US income distribution. Canada traditionally has home ownership rates about 3% higher than US as Canadian income distribution is less extreme than US.
It is difficult to see how corporations buying up large blocks of single family housing can in any way improve the affordability of home ownership. Inevitably this adds to the cost.
Not a fan of governments offering subsidies or inducements to home ownership in an effort to increase home ownership rates. Such programs tend to inflate house prices and are thus counterproductive. Maybe it is just a fact of life that x% of the population can afford to own homes and that (100-x)% can’t. More important is that everyone can have a roof over their head so my preference is to help low income renters.
What I have seen happening in my own peer group is that we are distributing, to the extent possible, our estates to our children NOW rather than waiting until death. There is no way any of my children could have bought a home without a generous contribution from mom and dad.
This gives back some money to the younger generation but, of course, does not broaden the group of people able to afford a home. The wealth that was created by home ownership stays within the same family.
This. And it was certainly unscrupulous lenders who were convincing people they could afford stuff they clearly couldn’t. And naive wpuld-be homeowners believed them and got themselves into situations they couldn’t maintain.
One of the (many) problems was teaser rates. Get a $200,000 mortgage for 0.9%… your monthly payment is only $634.13 a month!!! in big splashy letters. Never mind the fact that there’s mortgage insurance and escrow for property taxes and homeowner’s insurance. And let’s completely pretend that it isn’t happening that in 9 months the rate is going to 6% and the payment will be $1,199.10 a month.
When I was looking to buy a home (in fact, the current one I own now), I worked out how much of my income I could effectively devote to a mortgage and still have fund to address maintenance and “other stuff” of life.
Lender kept coming back to me saying that I could afford 2x what I arrived at.
Yep. When I was finishing grad school I was working 24 hours a week, just for like 2 more months then I was going to be full time.
Figuring that my salary would be going up rapidly, I deliberately tried to buy the most expensive house I could possibly afford on my full salary. I figured I could be house poor until a couple exam raises kicked in. Better than moving repeatedly.
I was worried that qualifying for the mortgage on 60% pay was going to be a problem. But no, they loaned me the money, no problem. Where I thought it was a stretch to afford it on 100% of my pay and they only had income verification for 60% of my full salary. This is another reason there was a problem.
This is drivel. Home ownership is good for any individual or married couple. To tell individuals and married couples they should make decisions that impact them negatively is beyond ridiculous.