The Siren's Call of Homeownership in America

Minarchist wrote:
Jonman wrote:
Minarchist wrote:
Seth wrote:

I still feel like buying a house strictly as an investment is a huge mistake...

Oh, absolutely. Rental properties can be good investments, but buying a primary residence as an "investment" has no historical basis.

Aren't you missing the point about it being an investment though? It's not necessarily about the growth in value so much as it is being left with a valuable asset after 30 years of rent payments to the bank.

In that light, primary residences have very much been about investment, historically.

That math often doesn't work out, though. Unless you have very specific rental needs (detached house, large yard, etc.), it's typically quite easy to rent a comparable property in an apartment-style setting for a fair amount less than you pay for a mortgage + property taxes + insurance + repairs. If you bank or invest that extra money, you generally come out ahead over using the house itself as an investment.

Of course, that assumes you're a disciplined investor, which we've alluded to some earlier. But in general there's no "big win" financially in home purchasing that people think there is — especially when you remember you'll probably get dinged for almost 10% of the final value of the home should you actually try to access that money.

OK, I see what you're saying. Fair point.

To pick up on one point though - sure you'll get dinged on 10% of the value of the house should you tap it, but by that point, you've been getting hefty tax deductions on your mortgage interest for the last 30 years, which makes that mostly a wash.

We've sort of tiptoed around the "equity is a way to force a financially irresponsible person to save for the future" without pointing out that a financially irresponsible person is probably also going to have increased DANGERS from home ownership far out of whack with the benefit of equity. It'd be better to convince this person to put 10% of his paycheck into his 401k rather than convince him to buy a home.

Heh. For now, at least.

(There have been a lot of rumblings about killing that deduction, though ultimately I think it will survive. Too many constituents count on it in pretty much every congresscritter's territory.)

Jonman wrote:

by that point, you've been getting hefty tax deductions on your mortgage interest for the last 30 years, which makes that mostly a wash.

Tax deductions on mortgage interest are an easy thing to forget when trying to decide whether to buy or rent, and they go a long way to making purchasing the better financial decision. What seems like "the same or slightly more" than a rent payment turns out to be a lot less than your rent payment after you file your taxes and get a bunch of it back.

I'm not sure what would happen if we ended the mortgage interest deduction.

Minarchist wrote:

Heh. For now, at least.

(There have been a lot of rumblings about killing that deduction, though ultimately I think it will survive. Too many constituents count on it in pretty much every congresscritter's territory.)

I would like to see it go. I'd like to see it go and see what the market did in its place. I thinking renting is still the "right" thing for many people and that's in spite of huge forces (the deduction and government backing of loans) that incentive one over the other.

Yonder wrote:
Jonman wrote:

by that point, you've been getting hefty tax deductions on your mortgage interest for the last 30 years, which makes that mostly a wash.

Tax deductions on mortgage interest are an easy thing to forget when trying to decide whether to buy or rent, and they go a long way to making purchasing the better financial decision. What seems like "the same or slightly more" than a rent payment turns out to be a lot less than your rent payment after you file your taxes and get a bunch of it back.

True, and I think that's part of the perverse incentivization that caused the prior mess and looks primed to cause it again.

EDIT: DShauser'd

DSGamer wrote:
Minarchist wrote:

Heh. For now, at least.

(There have been a lot of rumblings about killing that deduction, though ultimately I think it will survive. Too many constituents count on it in pretty much every congresscritter's territory.)

I would like to see it go. I'd like to see it go and see what the market did in its place. I thinking renting is still the "right" thing for many people and that's in spite of huge forces (the deduction and government backing of loans) that incentive one over the other.

Yeah, I'd like to see it go as well. It's basically just a $100 billion government benefit for the middle class that the middle class doesn't even recognize as a government benefit.

That's a bit much to pay for the dubious idea that home ownership is the best thing for communities and the country.

The condo market here in Ottawa has been expanding at a steady clip for the last decade. New buildings going up every year it seems. There have been grumblings that it's been saturated and will stall out any time now, but it's been said before.

To give an example, in one 20 story building built in the 80s on the edge of downtown, a ~800 sq.ft. two bedroom is $1000-$1250 ($1300-1500 CAD) a month to rent. The asking price to buy the same unit is ~$236K ($280K CAD), and there's $330 ($390 CAD) in condo fees per month, and $2100 ($2500 CAD) in taxes per year.
That's nearly half the rental value in fees and taxes alone.

Yonder wrote:

I also think that the homeowner's deductible should probably go. Environmentally denser apartment style living is superior, and meshes with a lot of other things nicely. Clump properties up and stack them up and it's cheaper to heat them, cheaper to cool them. In a more dense environment like that it's easier to walk around to get things done, which is better for the poor and the elderly/disabled which are unable to drive. Public transportation becomes more economical so getting farther away is cheaper as well. Distribution costs for internet, cable, cellphones are easier.

The benefits just keep on coming. I would love to see a "mortgage" based deduction replaced with a deduction based on having a relatively small amount of square footage for your family, with an additional bonus for how many walls/ceilings you share with your neighboring dwellings.

All of this.

Seth wrote:

I'm not sure what would happen if we ended the mortgage interest deduction.

Riots! Or maybe nothing.

I'm at the point now (11 years into a 30-year mortgage) where the MI benefit only barely pushes my 1040 deduction above the standard amount. I figure I'll be claiming the standard deduction in a year or two thanks to amoritization (sp?)

IMO, the MI deduction is a tiny part of the problem. You have to buy the house before you can claim the deduction, and too many homebuyers and too many banks were on crack during the 2000s.

Yonder wrote:

The benefits just keep on coming. I would love to see a "mortgage" based deduction replaced with a deduction based on having a relatively small amount of square footage for your family, with an additional bonus for how many walls/ceilings you share with your neighboring dwellings.

I don't think replacing one market-perverting incentive with a different market-perverting incentive is really going to accomplish anything worthwhile. Do this and in 15 years we have an urban apartment boom/bust.

Definitely better to step back and let the invisible hand be the footprints on the beach.

I also think that the homeowner's deductible should probably go. Environmentally denser apartment style living is superior, and meshes with a lot of other things nicely. Clump properties up and stack them up and it's cheaper to heat them, cheaper to cool them. In a more dense environment like that it's easier to walk around to get things done, which is better for the poor and the elderly/disabled which are unable to drive. Public transportation becomes more economical so getting farther away is cheaper as well. Distribution costs for internet, cable, cellphones are easier.

The benefits just keep on coming. I would love to see a "mortgage" based deduction replaced with a deduction based on having a relatively small amount of square footage for your family, with an additional bonus for how many walls/ceilings you share with your neighboring dwellings.

Edit: Forgot to clarify that this would be for your private residence regardless of whether you owned or rented it.

ClockworkHouse wrote:

Definitely better to step back and let the invisible hand be the footprints on the beach.

I don't know what this means.

Minarchist wrote:
Yonder wrote:

The benefits just keep on coming. I would love to see a "mortgage" based deduction replaced with a deduction based on having a relatively small amount of square footage for your family, with an additional bonus for how many walls/ceilings you share with your neighboring dwellings.

I don't think replacing one market-perverting incentive with a different market-perverting incentive is really going to accomplish anything worthwhile. Do this and in 15 years we have an urban apartment boom/bust.

Market-perverting is an overly negative term. There is nothing inherently wrong with market manipulation, and in fact some amount of market manipulation is required if you want to avoid the pure market inevitable endgame of enormous monopolies and collusion among a polluted hellscape filled with poor downtrodden masses.

Market manipulation isn't something to be done lightly however, first off it should always be done kinda sorta slowly, to let the market react to the new force (for example when large minimum wage increases are gradually implemented over a couple years) and it should be done for good reason.

The mortgage deductible is an incentive with a fairly small amount of objective utility. Is having larger numbers of citizens owning homes as opposed to renting homes objectively better for the nation? It doesn't really seem like it is. I mean, it might be. Some arguments include that home owners are more attached to and feel closer to their community, that they have more civic pride and responsibility. Some of that may be true, but they are pretty nebulous, impossible to prove benefits, that honestly sound more likely to be a dog-whistle for anti-poor classist rhetoric. (The idea that mortgage deductions help lower rental rates is partially true, but it's stupid to rely on trickle down economic benefits like that, if you want to help renters, help renters, don't help owners and then clap yourself on the back for trickle down help).

So the mortgage deductible providing objective help to the nation and it's citizens seems pretty suspect at best. What else does it do. Well, people want to own homes. Not everybody, and maybe some of them want it that shouldn't, but people want homes, and this helps them get what they want.

Now, there really isn't anything objectively wrong with a government that helps it's citizens get what it wants. In fact as a first pass that is pretty great! The first step at analyzing that sort of thing is

1. Is this something people want, or need. And owning a home is pretty clearly a "want".
2. What people are being helped by this action, and who isn't being helped (meaning that the resources most be coming from them. In this case the middle class and rich are being helped, not the poor. That's... a little troubling.

So we have a government program that is helping the upper realms of the country with no great benefit to society as a whole. That's doesn't seem like a particularly worthwhile form of market manipulation. In general, in fact, I would say that "helping someone get something they already want, sooner" is unlikely to be a worthwhile market manipulation for society. (Two huge counter examples: healthcare and education. Healthcare "wants" being provided sooner are far, far CHEAPER than healthcare "needs" being provided later. Quicker education provides an individual that is (theoretically/generally) more economically productive/useful to society for a larger section of their life, so that's a net win to the individual and society. Heck, even something like a home insulation credit is a counter example, the sooner you insulate teh homes the sooner the country starts using less energy)

What is a better sort of market manipulation is an incentive that helps change what a lot of members of society want to something that is better for society. For example, it's better for society to not have feral dogs running amuck across the country side, so we fine people that don't get licenses, and have programs that help poor people get their pets spayed or neutered, etc, etc. If the thing you are incentivizing is ACTUALLY better for society, your market manipulation can really pay off.

And putting people into more dense living quarters is objectively better in a lot of the ways I mentioned. Now, if you just randomly do it, no, you're not helping people much, but if the government were to do it as part of a concerted effort to lower the cost of it's health, education, fire and safety services, put in more comprehensive mass transit, lower commute times and congestion, etc, etc, etc the benefits can be really large.

Man, I just want a little more space, a room where I can do my work in (tinkering, metal work, gunsmithing, reloading, etc) and modify the home permanently in ways I can't a rental apartment.

Yonder wrote:
ClockworkHouse wrote:

Definitely better to step back and let the invisible hand be the footprints on the beach.

I don't know what this means.

IMAGE(http://i41.tinypic.com/2s7b193.jpg)

Yonder wrote:

I would love to see a "mortgage" based deduction replaced with a deduction based on having a relatively small amount of square footage for your family, with an additional bonus for how many walls/ceilings you share with your neighboring dwellings.

f*ck the carrot. Use the stick.

Make existing and new developments completely responsible for all the infrastructure improvements required to support them. That alone will make new housing developments out in East Bumf*ck less affordable because those homeowners will have to pay for expanding the highway they're all going to be using to get to work.

There's no reason I should be giving you a tax break to live in a place that's going to require me to pay even more taxes to build new infrastructure that you and your neighbors are going to use the most.

I'm going to have to bow out of that debate, Yonder. It's pretty clear that we're arguing from different premesis and are only going to be wasting our respective time. Your first paragraph alone is something we could spend days unpacking.

Dr.Ghastly wrote:
Yonder wrote:

I also think that the homeowner's deductible should probably go. Environmentally denser apartment style living is superior, and meshes with a lot of other things nicely. Clump properties up and stack them up and it's cheaper to heat them, cheaper to cool them. In a more dense environment like that it's easier to walk around to get things done, which is better for the poor and the elderly/disabled which are unable to drive. Public transportation becomes more economical so getting farther away is cheaper as well. Distribution costs for internet, cable, cellphones are easier.

The benefits just keep on coming. I would love to see a "mortgage" based deduction replaced with a deduction based on having a relatively small amount of square footage for your family, with an additional bonus for how many walls/ceilings you share with your neighboring dwellings.

All of this.

That's all well and good but in practice - from countries where this sort of urbanisation has already occurred - you get skyrocketing rental prices which force people further and further out of the centre while increasing costs to businesses through the associated wage rises to meet the increased cost of living in the area. You need some sort of rent control in place to stop the rampant buy-to-rent speculation.

Also, vertical blocks aren't great socially. You only have to look at the disasters of the sixties and seventies to see what happens in those sorts of situations and add to that the fact that developers always cheap out on construction in terms of sound-proofing and vertical accommodation isn't good for the elderly/disabled and you've got a much weaker proposition. Even if it makes more logical sense cost- and environmentally-wise.

I've said this before in other rent/buy threads we've had here in p&c but what I have paid in rent among the places I've lived has been more expensive than paying the mortgage for the property each month. People mention the costs of repair but they don't come along so often in my experience and so that portion of your rent is just pure profit for the landlord, along with any market-decided rates.

DanyBoy wrote:

The condo market here in Ottawa has been expanding at a steady clip for the last decade. New buildings going up every year it seems. There have been grumblings that it's been saturated and will stall out any time now, but it's been said before.

To give an example, in one 20 story building built in the 80s on the edge of downtown, a ~800 sq.ft. two bedroom is $1000-$1250 ($1300-1500 CAD) a month to rent. The asking price to buy the same unit is ~$236K ($280K CAD), and there's $330 ($390 CAD) in condo fees per month, and $2100 ($2500 CAD) in taxes per year.
That's nearly half the rental value in fees and taxes alone.

Yikes. Using a rough calculation that definitely doesn't make sense to buy. Repayments are probably in the $2000 CAD range and add in the fees and taxes and you're getting close to $1000 a month more than renting. If it's like that everywhere in North America it explains why condos haven't taken off.

Duoae wrote:

I've said this before in other rent/buy threads we've had here in p&c but what I have paid in rent among the places I've lived has been more expensive than paying the mortgage for the property each month. People mention the costs of repair but they don't come along so often in my experience and so that portion of your rent is just pure profit for the landlord, along with any market-decided rates.

It's probably market specific but it's similar here. I'm paying R3925/month rent, with a 10% annual increase, a flat like mine is worth in the region of R350000 so repayments about R3200, plus R500/mo in levies. A property that price can be bought without a deposit, but there are some upfront costs that would be amortised over a few years with the savings. And maintenance in a flat is pretty minimal, most urgent repairs like the water heater is covered by homeowners insurance which is a couple hundred a month.

Essentially it's pretty close to a wash in actual money out of the pocket terms, but one gets you some equity, one doesn't.

*edit*

Sorry if bringing up other countries isn't helpful, I just find the contrasts interesting and assume others would too.

Duoae wrote:

Also, vertical blocks aren't great socially. You only have to look at the disasters of the sixties and seventies to see what happens in those sorts of situations and add to that the fact that developers always cheap out on construction in terms of sound-proofing and vertical accommodation isn't good for the elderly/disabled and you've got a much weaker proposition. Even if it makes more logical sense cost- and environmentally-wise.

Who was talking about recreating housing projects? The discussion was about encouraging a greater density of development than a single-family home on half an acre of property, which is closer to the norm for the suburbs. All that low density development does is encourage urban sprawl.

Issues like sound proofing can be addressed with changes to building codes. Though based on my 20 years experience living in apartments it seems that developers and landlords understand that most people don't want pay money to live in a place where they can hear their neighbors and build accordingly.

And elevators make apartment dwelling safe and easy for the elderly and the disabled.

Heck, they're probably better for the elderly. I'm watching one of my elderly aunts right now and she's basically confined to the first floor of her two-story suburban home because she had her hip replaced a few years back and never recovered. My own parents are just an accident away from never being able to use half their house because they'd never be able to help each other up and down the stairs.

I lived in a house for most of my life and I could still hear my neighbors. I think the basic requirement there is an appreciation for communal living, with a council for the neighborhood and stuff. Not just HOA stuff. An actual council that meets and gets things done apart from lawns and things. Ultimately, we all live communally. It's just a matter of how decent you want to be. People tune down their stereos at 2 am not because of the police, or because it's the rules, but because they know Mr. Santos down the street has an early day tomorrow and it wouldn't be polite to wake him up just to grief him. That kind of sociopathic behavior is the type that leads to feuds and shootings.

I actually don't like living in overlarge gated communities. Not hearing any activity at all from the neighbors scares the beejezus out of me. You can get raped, tortured, and killed in a house like that with no one around you being the wiser.

OG_slinger wrote:
Duoae wrote:

Also, vertical blocks aren't great socially. You only have to look at the disasters of the sixties and seventies to see what happens in those sorts of situations and add to that the fact that developers always cheap out on construction in terms of sound-proofing and vertical accommodation isn't good for the elderly/disabled and you've got a much weaker proposition. Even if it makes more logical sense cost- and environmentally-wise.

Who was talking about recreating housing projects? The discussion was about encouraging a greater density of development than a single-family home on half an acre of property, which is closer to the norm for the suburbs. All that low density development does is encourage urban sprawl.

I must have misunderstood - weren't people saying condos were bad but that a levy against people without adjoining vertical properties should exist? If that's not a block of flats/apartments them I don't know what is. Doesn't have to be 10 stories tall to have the similar social mechanics.

Issues like sound proofing can be addressed with changes to building codes. Though based on my 20 years experience living in apartments it seems that developers and landlords understand that most people don't want pay money to live in a place where they can hear their neighbors and build accordingly.

That'd be great but as far as I've encountered they've never been enacted. Maybe due to the strength of the construction lobby?

And elevators make apartment dwelling safe and easy for the elderly and the disabled.

Heck, they're probably better for the elderly. I'm watching one of my elderly aunts right now and she's basically confined to the first floor of her two-story suburban home because she had her hip replaced a few years back and never recovered. My own parents are just an accident away from never being able to use half their house because they'd never be able to help each other up and down the stairs.

Um, what? You're conflating two separate issues here: moving around in you own home and vertically designed buildings. One of the reasons why tall buildings and lifts aren't great for the elderly and disabled is lack of support and being potentially stranded. You stick your grandparents up on the third floor of an apartment block, the lift goes out of service for a week or, even worse, they need to replace it and tgat can take a month... They're stuck.

That's because of an absence of slides being built into stairwells as part of the building code.

IMAGE(http://assets.dornob.com/wp-content/uploads/2010/01/stairs-slide.jpg)

LarryC wrote:

That's because of an absence of slides being built into stairwells as part of the building code.

IMAGE(http://assets.dornob.com/wp-content/uploads/2010/01/stairs-slide.jpg)

Ok, that is awesome, but you know when that kid turns into a teenager, he or she will try to skate/skateboard/something down that slide and probably knock out a few teeth.

Yeah, but I bet he doesn't try that a second time.

Chaz wrote:

Yeah, but I bet he doesn't try that a second time. ;)

Well, third at least. Surely not a fourth. ... No way they try a 12th time...

LarryC wrote:

That's because of an absence of slides being built into stairwells as part of the building code.

IMAGE(http://assets.dornob.com/wp-content/uploads/2010/01/stairs-slide.jpg)

f*ck the teeth, I'm more concerned about those window panes.

On topic: trying to determine the relative value of renting vs. owing will also vary greatly on where you live and how high property taxes are.

In our neighborhood in Brooklyn, STUDIO apartments are starting at $700k. We pay $2000 for our two bedroom apartment, but my sister & brother in law pay $1500 for the mortgage AND taxes for their 3 bedroom house upstate.

Then again, we have more than one theater/museum and decent sushi. So it's a fair trade off in our books.

Depends on how far upstate

If we do end up buying, we're almost certainly going to aim for Westchester, somewhere on the Metro North line. Right now, our commute via the 1 to midtown or downtown is comparably long to a MNR commute to midtown from way the f*ck north.

Tanglebones wrote:

If we do end up buying, we're almost certainly going to aim for Westchester, somewhere on the Metro North line. Right now, our commute via the 1 to midtown or downtown is comparably long to a MNR commute to midtown from way the f*ck north.

Just watch it if you're looking in or near Tarrytown, as it has the highest property tax in the country. There's an additional township property tax payment or something that needs to be paid. All told I think it's like 4% of your property value per year. My brother lives there now in a modest 3/2 and pays something like $25K per year in property taxes. Needless to say, this isn't something he was told about before buying and it never occurred to him to ask.