Author Topic: Home ownership is the West’s biggest economic-policy mistake  (Read 580 times)

ergophobe

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Interesting set of articles in The Economist.

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The horrible housing blunder
https://www.economist.com/leaders/2020/01/16/home-ownership-is-the-wests-biggest-economic-policy-mistake
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At the root of that failure is a lack of building, especially near the thriving cities in which jobs are plentiful... If just three big cities—New York, San Francisco and San Jose—relaxed planning rules, America’s gdp could be 4% higher. That is an enormous prize.


Housing is at the root of many of the rich world’s problems
https://www.economist.com/special-report/2020/01/16/housing-is-at-the-root-of-many-of-the-rich-worlds-problems
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This special report will argue that since the second world war, governments across the rich world have made three big mistakes. They have made it too difficult to build the accommodation that their populations require; they have created unwise economic incentives for households to funnel more money into the housing market; and they have failed to design a regulatory infrastructure to constrain housing bubbles.

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A recent paper by Kyle Herkenhoff, Lee Ohanian and Edward Prescott argues that in America this process has “slowed interstate migration, reduced factor reallocation, and depressed output and productivity relative to historical trends”.

rcjordan

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Re: Home ownership is the West’s biggest economic-policy mistake
« Reply #1 on: April 06, 2021, 12:56:17 AM »
The tin shanties in Thailand or VN seem to be the alternative, though.


ergophobe

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Re: Home ownership is the West’s biggest economic-policy mistake
« Reply #2 on: April 06, 2021, 03:02:12 AM »
Maybe.

I live in a community with about 20 owner-occupied houses. The rest are vacation homes, short-term rentals and some employee housing and one long-term rental. What I notice is, with some exceptions, that those who live in a house they own are just more engaged with the community than those who rent or those who own but live elsewhere or those who own but rent to others.

So I don't think the problem is necessarily shanties. One option is shanties, another option is slums and another option is expensive houses rented to other wealthy people. In other words, it could be fancy houses owned by people who are looking to extract value rather than create community, but fancy homes don't make a community (and on this point I speak from experience!).

You cannot build a community out of people who are absent or transient. So when the authors say that it slowed interstate migration, my reaction is that only an economist would see that as a bad thing because it lowers GDP. Maybe for some individuals stuck in the house they own it feels that way too. If I'm honest, there are times I've felt that way. But being stuck in my house makes me double down on my community that I'm stuck with. That's why I get up at 5am in a snowstorm and drive a snowplow. That's why I serve on a maddeningly frustrating committee. That's why we've taken some jobs we otherwise wouldn't have if we could have just pulled up stakes by walking out on a lease. I wouldn't do any of those things if I were a renter and I don't think I'm a particularly bad or selfish person. I think I'm just typical in that.
« Last Edit: April 06, 2021, 03:05:12 AM by ergophobe »

Rupert

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Re: Home ownership is the West’s biggest economic-policy mistake
« Reply #3 on: April 06, 2021, 05:33:01 AM »
I don't think relaxing planning rules is the answer either. It just makes for a free for all mess driven by greed.

I agree with you Ergo, the people who live need"ownership" of where they live, and owning it is the best way of getting that.

On the flip side, the older I get the more left I lean politically (and I am sure it is supposed to be the other way round) but it seems clear that there needs to be a good plan for the society that is going to live there. In the UK we have a real chance to redraw that in our town and city centres, with the collapse of the high street.

The French are not big on home ownership, but they have loads of space and view property differently. I often wonder who owns the property that is rented in France, but know it in my head it will be an elite. But as renters, they do I believe have a generally good society to live in.
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buckworks

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Re: Home ownership is the West’s biggest economic-policy mistake
« Reply #4 on: April 06, 2021, 05:34:02 AM »
Home ownership is good, as long as we avoid the burden of "too much house".

For many families, the house they live in is their largest investment. My son the financial planner says that in too many cases that's because the house is their <only> large investment.

Equity grows as they pay down their mortgage, but their approach to other savings and investments is much less systematic.

He encourages his clients to develop a plan to build other assets besides home equity, and be just as disciplined about it as mortgage payments. Even modest amounts can add up nicely if they are <consistent> over time ... and compound interest is working in your favour.

Rupert

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Re: Home ownership is the West’s biggest economic-policy mistake
« Reply #5 on: April 06, 2021, 09:26:49 PM »
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"too much house".

Pondering that.  Is that a 5 bed for 2 people?
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Brad

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Re: Home ownership is the West’s biggest economic-policy mistake
« Reply #6 on: April 06, 2021, 10:53:43 PM »
Maybe today.

But home ownership evolved partly out of our agrarian roots with ownership of land (the means of production) and partly politics and class which are all intertwined. Being a freeholder put you in a different class from a leaseholder and of course you also have "A man's home is his castle." which is a huge check on abuse of governmental power. 


ergophobe

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Re: Home ownership is the West’s biggest economic-policy mistake
« Reply #7 on: April 07, 2021, 01:19:01 AM »
Interestingly, I'm reading about how the tribes in what is now Oklahoma were forced into private property ownership, which mostly worked out quite poorly for them. But before they had individual ownership, they had tribal ownership and that seems to be at least as viable a model for keeping people emotionally attached to their land and community and its future.

So I would not say there are not other models of legal ownership, but the emotional "ownership" is important.

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I don't think relaxing planning rules is the answer either.

I think it depends on the rules and how and why they are applied. In the US they have often been applied in order to enforce race and class divides (though in almost all cases they are presented as high-minded).

Rules have sometimes been put in place to protect the investment of people who are there, but it has follow-on effects for the community. For a long time a nexus of entrenched property owners and environmental groups in the Bay Area were always pushing "low-density development" and blocking multi-family units at every turn. As someone who considers myself somewhat environmentally conscious (and who ran and built the Sierra Club Bookstore website while living there), I kept arguing that environmentalists should be in favor of high-density development, because it reduces the human footprint in multiple ways. It also makes housing more affordable generally speaking. In recent years the Sierra Club and others have come around to this, but for years it was anathema in environmentalist circles and it is still anathema in neighborhood advocacy groups.

What are the effects of this? On the plus side, it maintains those nice Berkeley neighborhoods. But it has other effects that make it super hard to live in Berkeley now. There was a story a while back (I think I posted it here), of a developer who wanted to build a five-story apartment complex of relatively affordable housing in Berkeley. It was stopped because local residents got their neighborhood declared a food desert which is an absurdity - I have never lived in a place with food, both fresh and prepared, so available within walking distance of almost everywhere as in Berkeley. Then, because one neighbor grew tomatoes that he shared with other neighbors, they succeeded in stopping the apartment building, because it would have shaded out the tomato garden.

The net effect of that action multiplied over and over and over is that it is great for those who already own houses and yard in Berkeley, but of course their kids can't dream of living on the same street. A lot of time these arguments about "preserving the character" of a neighborhood have deep class issues.

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Is that a 5 bed for 2 people?

To me "too much house" means that you get an ARM with a low payment at the beginning assuming that somehow you'll figure out how to pay for it when the bigger payment comes due. Or it means, as Buckworks said, you are paying so much for your house you have no other savings. So a couple with a $100K income in rural Indiana might be just fine with five bedrooms for two people (bedroom, guest room, his office, her office, art studio - why not?) whereas a couple with that income in a tiny bungalo in Palo Alto, CA, likely has way too much house for their means.

Brad

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Re: Home ownership is the West’s biggest economic-policy mistake
« Reply #8 on: April 07, 2021, 11:19:16 AM »
> planning

> density

I love touring through the pre-automobile, pre-planning, residential areas of Hammond, Indiana.  I suppose these were street car suburbs back in the day.  A typical block would have a corner store at the intersection, then a 6 - 10 flat apartment building, then 25 foot lots for homes on down until you approached another intersection where there might be another apartment building and another corner store or bar.

In poorer neighborhoods there might be little narrow shotgun homes on those 25' lots.  In richer neighborhoods people bought 2 - 3 lots together and built larger homes.  But even in the wealthier neighborhoods you had larger and smaller homes mixed together.  Point is they had no minimum square footage requirements or single family residential zoning.  Single family, multi-family, and small businesses that served the neighborhood were all mixed together and lots were narrow because in 1905 everyone had to walk from the nearest streetcar line. 

> emotional ownership

I remember reading that the native americans that sold Manhattan to the Dutch for wampum thought they were pulling a fast one on the Europeans, since the Native Americans had no concept of owning real estate.  So they were selling something they did not nor could not ever "own". The concept was alien to them.  Little did they know that the Europeans were deadly serious about owning the land, the territory, and were willing to enforce their ownership and control with cannon, firearms, swords and forts.