[nhebb]

> (1) Americans consider housing to be an investment.

Apparently I'm the lone dissenter on this, but I think for many people this is a side benefit that they may hope for, but the primary objective is simply to own a home that they can live in and raise a family.

[helen___keller]

I don't know your age, but from my experience this is a generational thing. During the great suburban expansion, houses were parroted as your greatest asset and your biggest investment.

In the modern era, if you don't own a home already you probably couldn't care less about the investment quality of a home. You just want a home to live in and call yours without an 80 minute commute.

[mschuster91]

> During the great suburban expansion, houses were parroted as your greatest asset and your biggest investment.

The "investment" should not be "I can sell this in 20 years for a boatload of profit" but rather "I don't have to pay rent when retired, only property taxes + maintenance + energy".

[helen___keller]

Heck, for all I know maybe that was originally the idea. Buying a place that you'll live for 30-50 years is absolutely an investment in your future, regardless of the paper value of your property.

But when property values are wielded as arguments to beat down proposals for growth, for transit, etc, it's clear that this isn't the meaning in use.

[satyrnein]

Exactly, you know your earnings are going to go down dramatically at retirement; slowly paying off a mortgage over 30 years was the accepted way to make your costs go down dramatically as well in the end.

Unless you end up getting a reverse mortgage, in which case I guess you were renting all along.

[arcticbull]

A boatload of tax-free profit, the first $250K is tax exempt for individuals and 500K for couples.

[mywittyname]

You pay taxes on the funds used to maintain the property. So unless you're in a market with obscene growth rates, you still lose money even if you earned capital gains on the transaction.

I just put together a spreadsheet assuming 1% maintenance, 1% tax rate, and 3.5% mortgage rate on a 250k house. You still would need a 5% annual rate of return to make money. After 15 years you would have hit your $250k capital gains limit, but you'd only have $70k in profit after taxes, interest and maintenance. At 3%, you lose money until well after the house is paid off.

[arcticbull]

I believe with proper documentation remediation is tax deductible in that you can raise your cost basis when you sell.

Further, your mortgage interest up to $750K is also tax deductible, and you have to index the whole thing to inflation. Once you do all that the costs are either nominal or negative on a 3.5% 30 year fixed deducted from a Bay Area income. Until Donny took us for a ride property taxes were deductible too.

This is what it looks like when owners vote.

[beamatronic]

That is mouse nuts compared to how much people get paid in stock around here

[lallysingh]

Also "I can recover sooner if my housing costs when I want to move."

[asdff]

In many places of the U.S. house prices don't really jump up that much to call it anything more than a temporary holding vessel for money, much less an investment. The suburbs of Cleveland are an example, where you can still buy houses for 50k within 20mins of downtown. Demand has been low so prices have been constant.

In California, demand is high, and prices have been inflated by constraining supply due to a lack of upzoning. It also doesn't help that CA has proposition 13, which locks you into your purchase price tax rate in perpetuity. You should see wilshire country club's property tax bill, it's like a couple buttons and pocket lint.

But it also decreases turnover. Say its 1970, you buy a house in LA for 50k, have your kids, they move out, you are old and want a smaller place, it's 2019, and your house is worth 1m but your taxed as if it was worth 50k. You can cash out, but if you want to continue to live in LA in another 1m property, you pay taxes on that 1m.

It's like rent control for homeowners only you can also give your house and that sweet sweet 1970 tax burden to your kids, perpetuating the landed aristocracy at the cost of the working class.

[mywittyname]

There are dozens of us!

I think most of this comes down to the fact that Americans generally had little savings outside of their home equity. This only became relevant in the 90-00s when home equity loans/LoCs took off and were widely available to almost anyone. Suddenly, it mattered how much equity you had in your home because you could spend it.

There's another group of people that look at their parents' home and realize that it has doubled in value since the early 90s. But these people usually don't account for interest, tax, and maintenance payments over those 20 years.

[svachalek]

Simple inflation too, the value of a dollar in 1990 was twice as much as now. But for most owners, inflation works in your favor since it negates some of the mortgage interest.

[arcticbull]

Or interest tax deductions, property tax deductions and the fact any renovations you do can be used to raise your cost basis to offset some of those gains. Also your mortgage inflates away over time too.

[jdmichal]

I always like to say that everyone is short a house, and your first property is just covering that short position. It's only properties after that first one that are investments.

[Spellman]

Another way I say it is that buying a house is a hedge against homelessness.

TBH I stole that from an article I read a while ago that I can't seem to Google now...

[mywittyname]

Except you need cash flow or savings to afford a house, even a paid off one. If you don't pay your mortgage or tax bill, then someone is going to evict you.

[jdmichal]

I don't understand the criticism, because the cash-flow aspect certainly doesn't get better with options beyond a wholly owned house...

[mywittyname]

Houses aren't great protection against homelessness because they don't address the root cause of being homeless: having no money or income. They can provide a buffer because it's harder to foreclose on a person than it is to evict them. While this additional time may certainly make a difference, in all likelihood the outcome of losing a job and not being able to find another one is probably the same.

You can't liquidate any built up equity either, since you probably need income or assets to get a rental or equity loan. So it's completely possible that you lose any built up equity in the event of a foreclosure too.

[downerending]

That's quite catchy. But nonetheless, people can "cover" by renting or buying. And in particular, to the degree that mortgage payments are greater than the equivalent rent, one is indeed investing in the real estate market. This is often good, but it can actually turn out much worse than (say) simply parking the money in an index fund.

[jdmichal]

This is more meant to attack the idea of a primary residence being an "investment". If people insist on calling it an investment, then it's fair for me to insist that it's only covering a short position, because you need somewhere to live.

I think, if anything, this position is actually supportive of making an educated rent vs buy comparison, by discarding any kind of "investment" potential on the buy side.

[saiya-jin]

This doesn't cover many many people for various reasons. Ie I own 2 properties and I live in neither (house that I bought for my parents 1500km away, investment apartment in the mountains). I rent, because a) it doesn't make much sense to buy a property in traditional sense here where I live, too costly; b) we're not yet stabilized on location with first kid coming, and pinning us down to specific place before this is clear might be a huge mistake on many levels and massive stressor for our lives and relationship. We might end up not buying anything else till rest of our lives, dunno now.

Others might have other reasons for similar state.

[jcheng]

I think jdmichal’s point was that if you don’t own a property, you’ll lose money (in the form of increased rent) if the real estate market goes up. In effect, you are born with a short position on the market just by needing a place to live, and owning your primary residence gets you to neutral.

[jdmichal]

I mean, I guess I could refine it to say "primary residence" instead of "first property"? Otherwise, yea it's an analogy and it will break down at some point.

This is more meant to attack the idea of a primary residence being an "investment". If people insist on calling it an investment, then it's fair for me to insist that it's only covering a short position, because you need somewhere to live.

[0x0aff374668]

Right there with you. I'm guessing we're both over 40. Thinking your home is an investment is some "flip that house" 1990's reality TV show bullshit.

[asdff]

There is no home in LA county that didn't see price rise in an arbitrary 10 year period. Flip that house is a real thing in the rat race real estate markets in the U.S.

[mrep]

I'm with you. Granted, I do consider it an investment in the sense that every month I pay off part of the principal and thus I can get some money back when I sell it whereas I'd get nothing if I was renting but I don't expect greater than inflation appreciation on the house.

However, this could just be because I grew up in Chicago where there is endless farmland that can be developed and thus expecting greater than inflation appreciation on your house is foolish as someone else can just develop some farmland and sell it for the cost of building the house thus forever increasing the supply at the marginal cost of building a house.

[jlmorton]

> but I don't expect greater than inflation appreciation on the house.

Even expecting the house to hold its value is rather strange. You would naturally expect the value of a home to decrease by some amount each year. Most of us would prefer a modern home to an older home. The only reason it does not is because supply of new homes is restricted.

In well functioning markets like Tokyo, that's exactly what we see: homes tend to lose value each year until around 25-30 years most are simply torn down and re-built.

So in Tokyo, not only is the average rent sharply lower than a city like San Francisco, the housing is also more modern. The average age of a home in Tokyo is 20 years. More than half of Tokyo's housing stock has been built since the year 2000.

In San Francisco, more than half of the housing stock was built before 1940.

[jerf]

"You would naturally expect the value of a home to decrease by some amount each year."

If you deduct maintenance from your home value, it more-or-less does. I don't see why a maintained home "should" decrease in value, though. A lot of the value of a home is in the structure, which tends to wear much more gracefully than, say, a car's body.

[asdff]

There is little that maintenance can do to prevent a 100 year old foundation from 'settling' in a pretty precarious way. Or finding out one day that the water pipe is a 100 year old wooden pipe that is now rotted through. As a house gets older, maintenance ($) turns into renovation ($$) then critical overhaul ($$$), even in the houses with good bones.

[PeterisP]

I'd expect the value of a properly built and maintained house to decrease very slowly (e.g. the building I live in is ~110 years old and not that much worse than when it was built), and while that's still a negative, on the other hand the value of the land would appreciate even (and especially if) there's active building of new homes, so the total value of house+land can be quite stable even if supply is not restricted. It won't skyrocket, though.

[mc32]

Housing in Tokyo is also built to have a useful lifespan of 30 years, so framing it as them being “new” lacks background information.

[asdff]

A 40 year old house in tokyo is probably half mold by weight at that point. No wonder.

[jelliclesfarm]

10 years is the norm. They build it..raze it down and rebuild it.

[fred_is_fred]

I assume that people are willing to pay more to have a better commute or live in a better town? I know that I am.

[mrep]

> better commute

Wasn't a big issue for us at least as we have double decker commutator trains. The one that ran through my town has 3 tracks even so the train only has to stop at a few stations and then it hops onto the middle track and drives the rest of the way downtown. Only took 30 minutes to go 20 miles downtown and going out further doesn't add much time as your just adding distance traveled at top speed.

> better town

Not sure what metric you are interested in that regard but if it is school wise, I went to one of the highest rated public schools and you could still find smaller more affordable homes in the school district. While there were plenty of wealthy people, I had some friends whose parents were firefighters and USPS delivery men.

[ryandrake]

No, OP is painting with an extremely broad brush. There are a lot of reasons to own a home that have nothing to do with its investment potential. I don’t care how much my home is worth because I don’t plan to sell it until I retire.

[bobthepanda]

The problem is that even if it is a minority contingent, it is a loud, high-turnout contingent, and local politicians generally do not want to get turfed out.

It results in farcical scenarios, like homeowners opposing workforce housing for the local school district because the people teaching their kids are too low-income to fit in. https://www.citylab.com/equity/2018/10/san-jose-trying-build...

[pdonis]

> the primary objective is simply to own a home that they can live in and raise a family.

And owning that home, as opposed to renting it, is an investment.

[exabrial]

At worst, you'll break even, at best, you'll make a profit, and if you don't, it's an automatic loss.