Agree with the premise but is it a given that ownership of one's home is supposed to be a route to wealth building? Pretty illiquid path for such. Maybe if we don't see it as an investment we would all be better off.
Agreed in practice. But it is generally accepted that "It’s the one way we know to build wealth in the U.S. . . ." when all of us probably need to shift away from that mindset.
Funnily enough, an ever greater share of rents being captured by landlords was the same thing the OG political economists like Smith and Ricardo were concerned about. Plus ça change…
Are there any more detailed number around for your favorite chart which answer this question: what percent of bottom-50% wealthholders own their homes?
It has been precisely the policy, the government interventions at all levels, which have created this situation.
Every government program to "help the first time buyers" has driven prices upwards. Every single building code regulation, every zoning law, every urban and suburban plan, has added to the problem.
The manipulation of the gold and silver markets, so that those commodities can not honestly reflect the real inflation rate has added to the problem. Every manipulation and game by wall street bankers and C suites has added to the problem. There is no longer any other reasonable way to invest. If a guy is going to survive in this economic environment, the only road open is residential real estate. So the smart people buy, buy, buy and never sell.
This was the paragraph which set me going. After that I skimmed.
"A few months ago, I spoke with Deputy Secretary of the Treasury Wally Adeyemo about it (video version here and podcast version here). Because unfortunately (or fortunately), this is a problem that has to be solved by policy¹. This has to be something that happens at the city or state or federal level. And luckily, many policies are being put into place to fix this."
You also say that housing is a wealth tool. Well, its not, fundamentally, its rather a hedge against inflation, but BECAUSE |OF POLICY growth in the past 50m years its been more than that...because of fanny mae and freddy mack, because of increasing building code regulations andn increasing zoning regulations and increasing HOA regulations and all the increasing closing costs, as well as inflation, its been the lbleeding edge of the inflation rate. The wealth tools in a capitalist society are the improvements in commodities andn services to people. Buying houses is hoarding, you do that in an economy where life is really not getting better and the money is deteriorating.
Who am ? Well I sorta backed into becoming a landlord because its one of the best ways to protect ones assets these days against politicians who constantly run up more and more debts, beating down the currency lower and lower.
But I am also an expat. I left the madness to live in a region where zoning does not exist, where building codes do not exist, where mortgages are extremely rare, and where although many people are desperately poor, homelessness does not exist either.
Because government, federal,state and local, is the entire source of the problem.
Most off this comment seems a bit off the rails, but policies like help to buy and the freeing up of mortgage markets have surely pumped up housing demand. „Why you can’t afford a house“ buy Josh Ryan-Collins is an interesting read on the subject, although I got he overemphasizes the role of financialization vs the real lack of houses for people to live in.
Great newsletter and topic! Have you ever considered getting involved in YIMBY Denver? I think you would make a great speaker at one of our monthly events.
Wealth building through real estate investment is even more common in other parts of the world. It's quite common in parts of Asia for people to buy condos, flip and/or rent them out. I suspect there's a strong relationship between real estate costs and countries where there's a strong culture for funneling excess capital into real estate instead of equity markets. And I think that's the crux: everyday people have a deep desire preserve their capital, and will flock to the most lucrative and accessible market that allows them to do so. The financialization of housing in America in bad, but it would be much worse if everyday investors didn't have a strong alternative via equity markets*.
Instead of housing as a means for monetary investment, it should be a means for community investment. It's sad we've made a core utility a vehicle for the former.
*(There was a series of Bloomberg charts a while ago charting income to rent across several countries but I can't find it)
So what’s the most fruitful way to make 10000 to 100000 (enough to put a down payment on a major purchase) for a low income person? Venture capital? Month to month index fund contributions? Sports betting?
In a perfect world, more government programs may, in fact, be able to address these issues, but we don't live anywhere near a perfect world. and, the reality is that all of the issues are a direct result of government regulations to begin with. what are zoning regulations but the government's effort to dictate who can live where? as such, it is always disconcerting to suggest that government is going to be the solution to this very real problem.
I fear that a key issue here has been left unsaid, and that is the true cause of inflation, the extraordinary increase in the amount of money that has been created since 2020 has found itself into two main areas, equities and housing, and unless that money is removed (which will never happen willingly) an increase in housing supply will only help at the very margins. Consider, money supply grew 40% in that time frame.
One other thing that you indicated, although did not highlight, was that Treasury was spending $12.8 billion on education to help people acquire the skills necessary to help in the creation of new housing. Might I ask what has been happening with the $100's of billion spent on education already and why students aren't able to be taught these skills by companies as has been done historically? Perhaps one of the key issues is that the dramatic deterioration in the education system in this country has many unexpected negative consequences, this being merely one of them.
thank you for highlighting a number of issues in a thoughtful manner
It is not just the American dream. A house is a bad investment, but life isn't only about money.
Home is not a place, but a feeling. At home you are safe enough to live authentic. At home you are accepted. Home is the environment that greets you when you come in through the door. You understand your place in the world and the universe at home. Home is the expression of belonging and trust in the future.
Paying for shelter with possibly being kicked out any time is just not the same, and over many years you paid for a house that's still not yours.
So, where's the compromise? See it as a sweet liability, because it isn't an investment. Buy the cheapest house that offers to be a happy home. There would be more trust in the world.
at the very least, new adds to the housing supply need to come with the community amenities and services needed to support it! heavy emphasis on the community part
Appreciate the commentary on zoning, permitting and related challenges to creating housing. Even when reforms are made (state or local) it still takes months and years to be felt on the inventory side.
This is a well-written article, Kyla. A little perspective from my end: I remember getting mortgages in the 80s that were 16%, thank you President Reagan & co. But we did have inflation and the command from on high was “get this house in order!” So we did. (I worked for the Feds, 30 yrs.) But we wanted a house & paid the piper. There were things like ARMs (adj rate mortgages) & other incentives/enticements, and if you qualified, you could get those helpful things to get an expensive mortgage to get a house. Yes, at first all you’re paying is interest (but that’s true generally.) As young people, we expected to “move up” so that didn’t worry us too much. You remarked that today’s housing issues will require government policy to address. This is one point I don’t want to agree with, Kyla, and neither should you unless you’re a Keynesian economist. All the government can do (or ever does) is redistribute wealth; it can’t build more housing. It can and does change the price of money vis a vis interest rates. With tremendous ripple effects throughout the economy, as you know. Incongruously, that would suggest that to make housing more affordable, the price of money should come down, so more people could afford mortgages, yes? In my world, every time the govt says they’ll fix one problem, they distort some other issue. And then there’s THEIR overhead that has to be paid to “run” or administer the “solution” they proposed. Eventually, supply and demand (market forces) do correct the imbalances; it may take time and patience and no one likes those vibes rubbing up against their expectations, reality, and desires. Generational living is one temporary solution that is increasing until more housing is affordable built and market forces correct the imbalances — not ideal, but not unheard of either, and it would allow more time for more saving. As boomers age, many are considering renting or sharing homes both to earn $$ and for social reasons (loneliness issues) because they don’t want to move or can’t. There are plenty of articles about these types of arrangements, the latter being especially attractive to students (freeing up rental space). Cheer up, Kyla…house IS still the American Dream, and there’s a lot more to it than a financial investment, as you’ve noted. Nay to the commenters who scoff at the idea (I wonder what they’re living in for safe shelter where they can rest with abandon)….have a good day.
Government policy devalues the dollar, the us dollar has lost 99% of its buying power since the FED took over policy. The Fed is not federal and has no reserves. The Fed is currently pumping money into the economy to keet it propped up while the Biden regime is ensuring the Federal Reserve notes will no longer be the reserve currency in the world.
"It’s the one way we know to build wealth in the U.S. despite it not really… working. ($10,000 invested in equities in June 1974 would today be worth $2.4 million. If invested in housing, it would be worth $139,000 today.)
Despite that, the American Dream is predicated on the idea of owning a home."
I applaud your mention of the Fed but would love for you to pursue that more completely. This nation has $35T worth of debt and there doesn't seem to be any chance of ever paying it off. In order to keep interest payments manageable, interest rates have to be kept low which is done by expanding the monetary base which results over varying timescales in inflation.
This affects the housing market by delivering benefits to property owners regardless of whether they have tenants or not. Who wants to deal with tenants if the equity gains come for free? Plus vacant properties might lead to increased rent in the units you do actually put on the market.
The solution is to raise interest rates to suck all that equity money out of the market and make landlords once again work for a living. Austerity will go along with, as will cash grabs by tax authorities, and probably some violence. Eventually though we'll learn our lesson and put debt back in it's place as a lubricant, not the basis for the entire machine.
Agree with the premise but is it a given that ownership of one's home is supposed to be a route to wealth building? Pretty illiquid path for such. Maybe if we don't see it as an investment we would all be better off.
Its not a given :( its only the past few decades that its been like this. From 1860-1960 homes returned like 0.06%
Agreed in practice. But it is generally accepted that "It’s the one way we know to build wealth in the U.S. . . ." when all of us probably need to shift away from that mindset.
Innovation comes out of garages (Ford, Wright, Jobs and Woz). More garages = more innovation.
Thats some collider bias but the idea is sound!
Absolutely, the garage has definitely been a breeding ground for innovation throughout history!
Funnily enough, an ever greater share of rents being captured by landlords was the same thing the OG political economists like Smith and Ricardo were concerned about. Plus ça change…
Are there any more detailed number around for your favorite chart which answer this question: what percent of bottom-50% wealthholders own their homes?
No, no, and no.
It has been precisely the policy, the government interventions at all levels, which have created this situation.
Every government program to "help the first time buyers" has driven prices upwards. Every single building code regulation, every zoning law, every urban and suburban plan, has added to the problem.
The manipulation of the gold and silver markets, so that those commodities can not honestly reflect the real inflation rate has added to the problem. Every manipulation and game by wall street bankers and C suites has added to the problem. There is no longer any other reasonable way to invest. If a guy is going to survive in this economic environment, the only road open is residential real estate. So the smart people buy, buy, buy and never sell.
Tear it all down to rubble and start over.
Did you read the piece?
This was the paragraph which set me going. After that I skimmed.
"A few months ago, I spoke with Deputy Secretary of the Treasury Wally Adeyemo about it (video version here and podcast version here). Because unfortunately (or fortunately), this is a problem that has to be solved by policy¹. This has to be something that happens at the city or state or federal level. And luckily, many policies are being put into place to fix this."
You also say that housing is a wealth tool. Well, its not, fundamentally, its rather a hedge against inflation, but BECAUSE |OF POLICY growth in the past 50m years its been more than that...because of fanny mae and freddy mack, because of increasing building code regulations andn increasing zoning regulations and increasing HOA regulations and all the increasing closing costs, as well as inflation, its been the lbleeding edge of the inflation rate. The wealth tools in a capitalist society are the improvements in commodities andn services to people. Buying houses is hoarding, you do that in an economy where life is really not getting better and the money is deteriorating.
Who am ? Well I sorta backed into becoming a landlord because its one of the best ways to protect ones assets these days against politicians who constantly run up more and more debts, beating down the currency lower and lower.
But I am also an expat. I left the madness to live in a region where zoning does not exist, where building codes do not exist, where mortgages are extremely rare, and where although many people are desperately poor, homelessness does not exist either.
Because government, federal,state and local, is the entire source of the problem.
Yes, I did.
Most off this comment seems a bit off the rails, but policies like help to buy and the freeing up of mortgage markets have surely pumped up housing demand. „Why you can’t afford a house“ buy Josh Ryan-Collins is an interesting read on the subject, although I got he overemphasizes the role of financialization vs the real lack of houses for people to live in.
Government intervention in the free market creates the problems the government wants.
Great newsletter and topic! Have you ever considered getting involved in YIMBY Denver? I think you would make a great speaker at one of our monthly events.
someone emailed me about that! if you emailed me, can you resurface that?
It probably was me - I’ll email it again.
Wealth building through real estate investment is even more common in other parts of the world. It's quite common in parts of Asia for people to buy condos, flip and/or rent them out. I suspect there's a strong relationship between real estate costs and countries where there's a strong culture for funneling excess capital into real estate instead of equity markets. And I think that's the crux: everyday people have a deep desire preserve their capital, and will flock to the most lucrative and accessible market that allows them to do so. The financialization of housing in America in bad, but it would be much worse if everyday investors didn't have a strong alternative via equity markets*.
Instead of housing as a means for monetary investment, it should be a means for community investment. It's sad we've made a core utility a vehicle for the former.
*(There was a series of Bloomberg charts a while ago charting income to rent across several countries but I can't find it)
So what’s the most fruitful way to make 10000 to 100000 (enough to put a down payment on a major purchase) for a low income person? Venture capital? Month to month index fund contributions? Sports betting?
I’m thinking someone who wants to do the research but wants more growth and risk than just a mutual fund
If you're low income, look into FHA or USDA loans
In a perfect world, more government programs may, in fact, be able to address these issues, but we don't live anywhere near a perfect world. and, the reality is that all of the issues are a direct result of government regulations to begin with. what are zoning regulations but the government's effort to dictate who can live where? as such, it is always disconcerting to suggest that government is going to be the solution to this very real problem.
I fear that a key issue here has been left unsaid, and that is the true cause of inflation, the extraordinary increase in the amount of money that has been created since 2020 has found itself into two main areas, equities and housing, and unless that money is removed (which will never happen willingly) an increase in housing supply will only help at the very margins. Consider, money supply grew 40% in that time frame.
One other thing that you indicated, although did not highlight, was that Treasury was spending $12.8 billion on education to help people acquire the skills necessary to help in the creation of new housing. Might I ask what has been happening with the $100's of billion spent on education already and why students aren't able to be taught these skills by companies as has been done historically? Perhaps one of the key issues is that the dramatic deterioration in the education system in this country has many unexpected negative consequences, this being merely one of them.
thank you for highlighting a number of issues in a thoughtful manner
It is not just the American dream. A house is a bad investment, but life isn't only about money.
Home is not a place, but a feeling. At home you are safe enough to live authentic. At home you are accepted. Home is the environment that greets you when you come in through the door. You understand your place in the world and the universe at home. Home is the expression of belonging and trust in the future.
Paying for shelter with possibly being kicked out any time is just not the same, and over many years you paid for a house that's still not yours.
So, where's the compromise? See it as a sweet liability, because it isn't an investment. Buy the cheapest house that offers to be a happy home. There would be more trust in the world.
Sadly housing supply is not everything. Chicago has plenty of affordable housing yet people don’t move in. You also need good services.
at the very least, new adds to the housing supply need to come with the community amenities and services needed to support it! heavy emphasis on the community part
Appreciate the commentary on zoning, permitting and related challenges to creating housing. Even when reforms are made (state or local) it still takes months and years to be felt on the inventory side.
You might like this podcast exposing the housing shortage deception:
https://open.substack.com/pub/soberchristiangentlemanpodcast/p/s2-ep-45-the-housing-shortage-deception?r=31s3eo&utm_campaign=post&utm_medium=web&showWelcomeOnShare=true
This is a well-written article, Kyla. A little perspective from my end: I remember getting mortgages in the 80s that were 16%, thank you President Reagan & co. But we did have inflation and the command from on high was “get this house in order!” So we did. (I worked for the Feds, 30 yrs.) But we wanted a house & paid the piper. There were things like ARMs (adj rate mortgages) & other incentives/enticements, and if you qualified, you could get those helpful things to get an expensive mortgage to get a house. Yes, at first all you’re paying is interest (but that’s true generally.) As young people, we expected to “move up” so that didn’t worry us too much. You remarked that today’s housing issues will require government policy to address. This is one point I don’t want to agree with, Kyla, and neither should you unless you’re a Keynesian economist. All the government can do (or ever does) is redistribute wealth; it can’t build more housing. It can and does change the price of money vis a vis interest rates. With tremendous ripple effects throughout the economy, as you know. Incongruously, that would suggest that to make housing more affordable, the price of money should come down, so more people could afford mortgages, yes? In my world, every time the govt says they’ll fix one problem, they distort some other issue. And then there’s THEIR overhead that has to be paid to “run” or administer the “solution” they proposed. Eventually, supply and demand (market forces) do correct the imbalances; it may take time and patience and no one likes those vibes rubbing up against their expectations, reality, and desires. Generational living is one temporary solution that is increasing until more housing is affordable built and market forces correct the imbalances — not ideal, but not unheard of either, and it would allow more time for more saving. As boomers age, many are considering renting or sharing homes both to earn $$ and for social reasons (loneliness issues) because they don’t want to move or can’t. There are plenty of articles about these types of arrangements, the latter being especially attractive to students (freeing up rental space). Cheer up, Kyla…house IS still the American Dream, and there’s a lot more to it than a financial investment, as you’ve noted. Nay to the commenters who scoff at the idea (I wonder what they’re living in for safe shelter where they can rest with abandon)….have a good day.
Government policy devalues the dollar, the us dollar has lost 99% of its buying power since the FED took over policy. The Fed is not federal and has no reserves. The Fed is currently pumping money into the economy to keet it propped up while the Biden regime is ensuring the Federal Reserve notes will no longer be the reserve currency in the world.
Whoa
"It’s the one way we know to build wealth in the U.S. despite it not really… working. ($10,000 invested in equities in June 1974 would today be worth $2.4 million. If invested in housing, it would be worth $139,000 today.)
Despite that, the American Dream is predicated on the idea of owning a home."
I applaud your mention of the Fed but would love for you to pursue that more completely. This nation has $35T worth of debt and there doesn't seem to be any chance of ever paying it off. In order to keep interest payments manageable, interest rates have to be kept low which is done by expanding the monetary base which results over varying timescales in inflation.
This affects the housing market by delivering benefits to property owners regardless of whether they have tenants or not. Who wants to deal with tenants if the equity gains come for free? Plus vacant properties might lead to increased rent in the units you do actually put on the market.
The solution is to raise interest rates to suck all that equity money out of the market and make landlords once again work for a living. Austerity will go along with, as will cash grabs by tax authorities, and probably some violence. Eventually though we'll learn our lesson and put debt back in it's place as a lubricant, not the basis for the entire machine.