The problem is that it gets harder and harder for normal people to own anything (build up wealth), while building wealth is the best retirement startegy there is.
I myself, for example, live in a city where owning the place I live in is just barely getting in reach for me, although I am in the top 30% income bracket of my country. I therefore have to put my savings into the stock market, which is at an all time high. Maybe even a bubble.
It is frustrating to see any income gain that I make being absorbed by the housing market. I work hard while others get unspeakably rich just by owning stuff.
The problem is that it gets harder and harder for normal people to own anything ( build up wealth), while building wealth is the best retirement startegy there is.
This is the problem in a nutshell! It’s impossible for houses to continue to be great “wealth building” vehicles and for them be affordable. Politicians have prioritized the former and that’s how we got where we are.
If we want affordable housing for people to live in they can’t also be the universal investment vehicle. Those two objectives are in direct contradiction.
I've often wondered, with enough knowledge to actually know, what would happen if renting housing was made illegal. I imagine prices would drop precipitously, maybe to a point where everyone can buy?
Marx's analysis is as relevant today as ever. The expansion of capital seeking ever-increasing sources of surplus value has left most of us as nothing more than serfs subject to the whims of landlords.
Perhaps people’s perception of the risk of living in a smaller town is sufficient to merit the risks of higher land prices in some of the wealthiest and most expensive cities in the worlds. Namely the risk of losing your source of income in a small town and the increased probability of higher income/access to opportunities in major cities.
Of course, it is a pendulum, and it is possible people’s perception swings too far towards the small town and the big city and back and forth.
But the Netherlands is small enough that the unaffordable prices in the big cities has pushed most people to the rest of the country basically increasing prices everywhere.
> The problem is that it gets harder and harder for normal people to own anything (build up wealth),
In the US, it is easier than ever. Open a free account online at a number of brokerages, and buy some broad market low cost equity index ETF.
The problem is government subsidies for real estate. Get rid of federal taxpayer guaranteed mortgages (Fannie Mae, Freddie Mac, ginnie mae). Get rid of 1031 exchanges. Let the markets set the interest rate and do its own risk calculations.
See similar price distortions due to federal taxpayer guaranteed student loans.
All of this is unlikely, however, since the US and many other societies have baked in burgeoning economic growth for decades to come in their previous decades’ spending. Therefore, to avoid defaulting on these assumptions, the societies will keep inflating currency to keep the ruse going as long as possible.
It's just that most people would prefer owning a house over owning stocks.
Because when the economy tanks and you lose your job, you have to sell your stocks at the low point to make rent. When you own your house, losing your job still sucks, but at least you still have a home. Thats also the reason why the low interest rates, although nice for homebuyers, also aren't a great levy of the situation: I have to pay back the credit for my house over 40 years, I have the same risk of losing everything in a downturn. You can't make the credit payment and are forced to sell your home at the market low.
Maybe I'm just traumatized. When I left school, 2008 economy crash was in full swing, two years after leaving Uni and in my first job, Corona happened.
On the topic of price distortions through government influenced loan rates: I think what you say makes sense.
I do not understand your comment, as it started off sounding like there was a downside of renting vs owning, but then later on in the paragraph, you say that the risks of not being able to pay rent and not being able to pay a mortgage result in the same consequences during an economic downturn.
> Because when the economy tanks and you lose your job, you have to sell your stocks at the low point to make rent.
You should have an emergency fund so that you do not have to sell at the low point. I try to keep at least 24 months of expenses.
In the US, the government also offers a federal taxpayer subsidy in the form of lending people money with no money down or 5% down or some ridiculous scheme advertised as helping lower income people. On the contrary, this simply increases home prices and over leverages them since they will barely make monthly payments and any hiccup will derail them.
I do think renting has a downside compared to owning, but that due to the high prices and resulting very long timespans of paying back credits, buying is getting riskier.
Owning has lower risk than renting, but you have to buy to own and when you can't buy outright, then there is a phase where you are still exposed to a risk of losing your home.
And keeping 24 months of expense is a good idea, but if I want to buy a house, I want to put down as much as possible. 24 months of expenses is about 80% of my savings. And the majority of people do not have any kind of savings at all.
A lot of these investors are 50+ year olds who've benefited from tremendous unearned wealth from their primary residence.
When you own outright your main house and have paid effectively no rent or mortgage payments for decades, that surplus income makes buying a second investment property, even at today's prices, relatively easy. The extra money and demand entering the market pushes prices up.
Then the renting tenants have to pay an ever increasing share of their income in rent. They never build up capital, and so can never afford to buy anywhere.
This is a societal problem - home ownership means stability (to have children), commitment to an area, a willingness to invest time into improving it. When you can be cast on to the streets with a few months notice at your landlords whim, you have none of that.
It affects the housing market very negatively. These are houses that could've been bought by families and couples and so on. Instead of being available for purchase, the same people have now have to rent instead of buy.
House prices rise, rent increases, common folk are struggling, investors are getting rich without doing anything.
The fact that those cities are so expensive is exactly the problem. Those cities are healthier if they have a healthy mix of different population groups. I live in Amsterdam and would hate to see it become a rich people's ghetto, though it's definitely at risk of that happening. Maybe it already is.
Where are the people who work in those cities supposed to live? Are they expected to commute an hour a day, diminishing their earning potential and increasing their expenses? People in the wealthiest cities also tend to have access to more resources, due to the concentration and diversity of the population. Denying low and middle income families access also diminishes their potential, while diminishing the potential of cities through the reduction of diversity.
At best, this sounds an argument to hold people back. At worse, it sound like an argument to push people down.
The problem is that in a globalized world, dutch homes are more attractive than, say, homes in Cairo or Sao Paulo. Investors moving money in means that home prices are no longer correlated with the local economy. A salary is no longer what determine the rent or the mortgage but rather "global" appeal to that place.
The problem is that these investors have raised rents nationally to a point where there is no affordable housing outside of social housing (8-15+ year wait lists). And this happened in a very short time period. If I'd want a 60-80m2 apartment in the city I currently live, I'd have to pay 1000-1200+ Euro for that; three to four years ago, that would have been half. Just over the border in Germany the same apartment goes for 350-500 Euros (NRW to be specific). The housing market here feels beyond crazy. Real estate prices themselves are also exploding +10%~ month over month
Germany has much better tenant and rental market protection. Real estate prices are rising rapidly, but supply does seem to keep up with demand when it comes down to renting. Population density in Germany also is only half that of the Netherlands (240 vs 508 per km2), so that also helps. If you're priced out somewhere, you always have the option to move somewhere else. In the Netherlands you don't have much of a option right now when it comes down to renting (and mostly buying as well).
It sold social housing and stopped building more of it. If you had asked about real estate 10 years ago you'd hear about how Germany solved the housing problem.
From my experience, the size and type of investor seem to be a factor. I have rented my entire adult life since it has some advantages (notably mobility), yet have always rented from homeowners or small-time investors. They tend to place more emphasis upon keeping their units rented and keeping good renters. Except for moving, I have only seen my rent increase once. It was a small increase and I lived in that place for many years.
Contrast that to people who have lived in places with large property managers. The rent increase is automatic, even with better renters than I. I have heard substantiated stories of rent doubling. Now those renters may have been bad apples and the property manager may have been using it as a tool for eviction, but that is still a problem. It is a problem since it is used a means to bypass tenant protections. Those protections are necessary to provide housing stability.
My apologies for the rant. In principle, I have nothing against investment. That said: the excessive greed of some investors, the ones that effectively push people down or out to achieve ... well, I don't know what some people are trying to achieve beyond a certain point ... is turning me away from that principle.
Market investment, ie. where little new value is added, is gambling dressed up to look respectable. It's all about getting something for nothing which is the root cause of all our economic ills.
I try to be careful with how I think about these things, so I don't go off the deep end. In my mind, investment is the adding of value while trading does not add value. Both are gambling on the outcome, but investment tries to direct the outcome while trading tries to predict the outcome.
In the context of housing, investment may look like a renovation to improve desirability or replacing a small number of units with a larger number of units. In contrast, trading would involve maintaining the status quo in hopes that the desirability of a neighbourhood or relative scarcity would increase the value of a property.
That being said, I don't know how you would create a system of investment that doesn't create an environment for speculative trading. In would be difficult to encourage the former without a means of selling off the investment at a later date. Reducing the frequency of trading wouldn't help in the case of housing since those are long term investments to start with.
In some asian markets investors buy homes then sit on them unused for years. That’s a problem.