[kenberg]

I am not all together clear on just what social housing is in the UK. Actually I am a little vague on just how government supported housing works (if works is the right word) here. But my understanding is that proper maintenance is a real problem here, and I gather the same is true there. It's a problem worthy of serious thought.

People treat their own property with more care than they treat government owned property. Not necessarily true for everyone, of course, but I think it is the general rule. I very much favor home ownership. I am speaking here for people of modest means. Those with plenty of money can rent a palace or two, here or there, it's not my business. But for those coming from modest means, a neighborhood of family owned houses seems to me to be the right way to go. Some of my views come from philosophy, some from data and analysis, some from personal eccentricity, this one comes from direct personal experience and I won't be changing my mind.

[y66]

kenberg, on 2012-November-27, 08:29, said:

I am not all together clear on just what social housing is in the UK. Actually I am a little vague on just how government supported housing works (if works is the right word) here. But my understanding is that proper maintenance is a real problem here, and I gather the same is true there. It's a problem worthy of serious thought.

People treat their own property with more care than they treat government owned property. Not necessarily true for everyone, of course, but I think it is the general rule. I very much favor home ownership. I am speaking here for people of modest means. Those with plenty of money can rent a palace or two, here or there, it's not my business. But for those coming from modest means, a neighborhood of family owned houses seems to me to be the right way to go. Some of my views come from philosophy, some from data and analysis, some from personal eccentricity, this one comes from direct personal experience and I won't be changing my mind.

One of DC's most successful non-profits thinks this way too. At least they used to. My wife lived in a group house with some of the people who worked for this outfit 2+ decades ago. Super smart, super hard working and super likable ex-peace corps types on a mission to change DC one house and one block at a time.

[Cthulhu D]

kenberg, on 2012-November-27, 08:29, said:

I am not all together clear on just what social housing is in the UK. Actually I am a little vague on just how government supported housing works (if works is the right word) here. But my understanding is that proper maintenance is a real problem here, and I gather the same is true there. It's a problem worthy of serious thought.

People treat their own property with more care than they treat government owned property. Not necessarily true for everyone, of course, but I think it is the general rule. I very much favor home ownership. I am speaking here for people of modest means. Those with plenty of money can rent a palace or two, here or there, it's not my business. But for those coming from modest means, a neighborhood of family owned houses seems to me to be the right way to go. Some of my views come from philosophy, some from data and analysis, some from personal eccentricity, this one comes from direct personal experience and I won't be changing my mind.

It's been shown that you are right - people do better when you actually give them the apartment or whatever, or have some scheme where they can buy the place off you after renting for a while, and these schemes are cost effective for the government because they flip a homeless guy incurring medical bills into a low skill worker who pays a small amount of net taxes.

Unfortunately, they tend to be opposed by segements of the electorate despite the fact they are profitable for the government to operate.

[kenberg]

"give them the apartment or whatever' sounds like quite a bit more than I have in mind.. That's not to say that I have a thought out plan, it's more that I think it good for people to be able to buy houses to live in. For example, some speak as if we have to get housing prices back up again. That's a little weird. No one thinks it is good to get car prices up, or food prices up. We have a housing mess, caused at least in part by people (egged on by mortgage bankers who should have known better) buying houses that they could not afford and/or treating the house as a cash cow as the value went up. A stable reasonably priced housing market would appeal to me. And then some help for young families trying to buy. If they can get on board somehow, and then if they can keep their life together, this will work out well for them. Hardly a radical view.

The MANNA program Y66 cites sounds fascinating, and I would happily defer to them on practical matters of implementation.

[Bbradley62]

kenberg, on 2012-November-27, 08:29, said:

I very much favor home ownership. I am speaking here for people of modest means. Those with plenty of money can rent a palace or two, here or there, it's not my business. But for those coming from modest means, a neighborhood of family owned houses seems to me to be the right way to go.

This is a very suburban point of view. My grandparents, Irish immigrants, rented the same apartment in Washington Heights for 40 years, raising 3 children while he rose from fireman to Battalion Chief of the New York City Fire Dept. Home ownership is simply not something that urban dwellers of "modest means" even aspire to.

[awm]

I'm not really sure I understand the importance of home ownership.

Owning a house potentially ties you down, making it much harder to move for work. Job security is very low in today's economy... say you work at a local factory which shuts down; typically when this happens a lot of people lose their jobs and housing prices become depressed and if you're locked into a long-term home mortgage (likely now for more than your house is worth) it becomes much harder to relocate to another area where work is more easily available.

Owning a house means the vast majority of your "investments" are in a single asset. If housing prices go up and you can sell the place when your kids grow up and/or you retire for a significant gain that's great... but if the housing market collapses (as happened recently!) you are basically screwed. There's a reason investment advisors say to diversify.

Owning a house can also be a source of stress... what if there's a hurricane or earthquake and your property is seriously damaged or destroyed? Sure, you might have insurance (but those kinds of insurance are hard to get) or maybe the government bails you out eventually (but that's a political football) but do you want to take the chance? Even something minor like a termite infestation can cost you thousands of dollars that you may be unable to afford.

Renting seems a lot safer, makes it much easier to relocate, and leaves you without a massive overhang of debt.

Obviously the cost/benefit analysis here depends a bit on living situation (how much space do you need? what's the relative cost of renting and buying? how high are property taxes and interest rates?) and there's no "one size fits all" solution, but I'm really not convinced that owning a house is somehow better for the vast majority of people. My wife and I watch this "house hunters" show sometimes where the couples move across the country (or the world) to a new city they've never been to before and the first thing they want to do is buy a house, and it just seems crazy to me! Sure, if you're certain of where you're going to live for the next decade or so buying can be economical, but in an awful lot of cases it's not.

[phil_20686]

Renting is usually more expensive than owning, especially once you have equity in your house.

Owning capitalises your income. Money paid in rent is lost, but
Most of the money paid in a mortgage comes back when you sell.

Mortgages are therefore important savings vehicles.

[mike777]

As AWM points out there are a heck of alot of costs to owning a house besides a mortgage.

Keep in mind your house, lawn, etc basically starts falling apart the day you buy it.

Now add in taxes, insurance, interest costs etc.

Also add back in the value of your time all of this house costs you....most people dont add in most of these costs.

[kenberg]

As usual, Adam presents serious concerns. I want to respond in some length.

About house prices going up and down: I long ago paid off a mortgage. Go back a half century plus, and my parents had paid off their mortgage by the time I was old enough to know about such things. Think of the implications. If I were to sell my house now I would get far less than what I paid for it when I moved here six years or so ago. So what? The house I would now move to would also be lower priced than it was six years ago. In fact when I moved, the house I sold was for a highly inflated price, allowing me to pay the highly infled price of my current house. Owning a house is a very strong protectioin against changing markets, Markets go up and down, rental prices go up and down, my house has a market value of one house. I would find it no more difficult to move in today's depressed market than I did in another year's inflated market. Slightly easier, actually, because many charges associated with moving are a set fraction of the sale price, so the mice don't get quite so much cheese in a depressed market.


A home is an investment, sure, but I see it as most unfortunate that homes have come to be thought of as similar to stock purchases.A stock must go up in value, else purchasing the stock was a mistake. If you buy a house to live in, and you pay off the mortgage, then it can go up in price, down in price, it doesn't matter.


Anyway, we have a housing mess. Maybe someone bought a house for 400K, they still owe 350K, and current selling price is 300K. Hold on a moment. If they like their house and can afford to make the payments, they really have no more of a problem than I have. They eventually pay off the mortgage and they will own a house with the market value of one house. But maybe they have to move? That's a problem. I recognize that there are problems, but I think we should try hard to distinguish between real problems and constructed problems. The fact that a guy owes more than he can sell the house for is a real problem only if he needs to sell it. If it's just a matter of him not liking owing more than the current market value, well there are lots of things in this life that we may not like. If he can sit tight for a while, the situation will improve. Meanwhile, the depressed prices allow young families to buy in. That's if they can get financing. The financing is a problem for them, the low prices are not a problem, they are an opportunity.

A personal note, since as I mentioned this really is a personal view. My father had a stroke when I was 13. Over time he recovered and went back to work. We owned our home. No rent payments, no mortgage payments. Of course this did not solve all our problems, but it sure helped. Owning a home, and not being stupid about other debt, is a really good plan for dealing with adversity.

Let me switch from Adam to BBradley for a closing remark. Suburban??? OK, I now live in the suburbs. Or exurbs. Or somewhere far out. A mistake perhaps. I grew up in the center of St. Paul before suburbs much even existed, and my views on this matter were largely set then. I seriously doubt that my father even knew the meaning of the word suburb, at least not in the forties and early fifties when I was young. My cousin lived in an apartment in Chicago. Well, I liked Chicago. Houses are nice, they really are. Especially when you own them.

[mike777]

A home is an investment, sure, but I see it as most unfortunate that homes have come to be thought of as similar to stock purchases.A stock must go up in value, else purchasing the stock was a mistake. If you buy a house to live in, and you pay off the mortgage, then it can go up in price, down in price, it doesn't matter
--


Ken just to be clear:
1) yes you cannot live in a stock like you live in a house.
2) a stock does not have to go up in value....you can live off the dividends.
3) you dont have to pay taxes to hold a stock...you do a house.
3) you dont have to maintain a stock...you have alot of expenses to maintain a house.

so a house can stay even in value and you still have a ton of expenses so many you may not be able to afford to live in it.

but yes you cant live in a stock, but you might be able to live off a stock or it may at least help.

--

In any case having grown up in an apt in Chicago and Urbana I can understand where your cousin and awm come from.

I do seem to recall knowing many people who seem to work or live for their house, between paying for it or working on it in their spare time.

The good thing about owning a house and about an acre of land is there is always something that needs a fixing..

[helene_t]

I agree with everything you write, Ken, but still I have serious issues with the enormous tax rebates given to home owners in countries like USA and the Netherlands.

If owning a house is great for the owners, there is no reason for subsidizing it. People are smart enough to chose owning over renting if it is really so much better, without artificial incencitives like mortgage interest deduction.

If there is a case for the government to stimulate home owning then it must be for the reason that Cthulhu D mentions - that home ownership gives advantages to society beyond merely giving advantages to the homeowners themselves. Homeowners are likely to stay longer in the same house - as Adam argues this is a bad thing for workforce mobility but it may be a good thing for the neighborhood. And homeowners are probably more likely to feel responsible for the local community and environment, as they have a financial stake in the attractiveness of the neigborhood.

I think those are valid reason for making home ownership financially attractive. But it is rarely those reasons that are used in the debate about mortgage interest deduction. Usually it is about making houses affordable to people with moderate incomes. I find that argument strange. We could reduce taxes and thereby making more things affordable, but somehow those tax reliefs have to be financed. As it is, home owners pay less taxes and find it easy to afford there homes and whatever else they want to spend money on. Renters pay more taxes and find it more difficult to afford the rent and whatever else they would like to spend money on.

Mortgage interest deduction (or other home ownership subsidies, the Germans have a different construction) is an enormous burden on public finances in many countries.

When I raise this point I often hear that it is my own stupid choice to rent, everyone is free to take advantage of the system so I shouldn't complain. Well, I lived most of my life in rented houses in countries with strong ownership incitements, and now that I live in a country with much less ownership incitement I chose to buy a house. Reardless of tax rebates, sometimes you just have no choise but to rent. But in the Netherlands (and I suspect USA), many people are practically forced to own a house because they pay for it anyway through the higher taxes they pay as non-mortgagees. I am not against people owning houses, but it should be ownership by choice.

[mike777]

Yes the USA gives tax breaks for homeownship and marriage because it believes this leads to a better, more stable society.

People may disagree but that is the given reason.

[y66]

Reflections on the curious contrast of public policies between Germany and the US: Real estate versus human capital by Joshua Aizenman, Ilan Noy, 25 August 2012

Quote

In the years leading up to the global crisis, the US focused on subsidising home ownership, whereas Germany placed much more emphasis on education and vocational training. While it is easy to think that this explains the subsequent performance of the two economies, this column provides some much needed economic analysis.

[mike777]

I discussed a paper by Richard Roll who theorized the economic crises was a result of a decline in the expected value of human capital.

http://www.cfapubs.o...69/faj.v67.n2.3

[Winstonm]

I am amazed - an Oklahoma Republican senator is advocating taking Obama's tax deal. Losing an election seems to be a sobering proposition.

[PassedOut]

Winstonm, on 2012-November-28, 09:57, said:

I am amazed - an Oklahoma Republican senator is advocating taking Obama's tax deal. Losing an election seems to be a sobering proposition.

Looks like he might have to do some arm-twisting to get that done. The republicans have submitted their "solution" to the problem:

Quote

After the kumbaya White House meeting Friday with congressional leaders, it took until the following Monday evening for Republicans to return to the White House with an initial offer.

It was, in a word, pathetic.

As described to me by several sources with direct knowledge, the “bargain” was that all the Bush tax cuts would be extended. Revenue would be raised through later tax reform — although no amount was specified and, as important, no trigger mechanism put in place to enforce the deal. In return for the vague promise of future revenue, the defense-spending sequester would be canceled, the age for Medicare eligibility would rise and changes would be made to the formula for calculating increases in Social Security benefits. Cuts now, revenue later. Sound familiar?

Oh, and by the way, that increase in the debt ceiling? Republicans want to address that separately...

Time to check that our parachutes are in good condition.

[Winstonm]

PassedOut, on 2012-November-28, 11:47, said:

Looks like he might have to do some arm-twisting to get that done. The republicans have submitted their "solution" to the problem:


Time to check that our parachutes are in good condition.

It's odd to watch a party bury itself one shovelful at a time, is it not?

[mike777]

Dems won...let them lead the way and have most of what they demand.

[Flem72]

mike777, on 2012-November-28, 08:07, said:

Ken just to be clear:
3) you dont have to pay taxes to hold a stock...you do a house.

Here's a long range prediction for you: When the lefties have run beyond the effective limits of tax increases on income, there will be talk of taxes on assets. Call me crazy....

And I'm becoming one of the psychedelic conservatives: let BHO have anything and everything he wants, and let the voters discover what they have wrought.

[awm]

Flem72, on 2012-November-28, 20:39, said:

Here's a long range prediction for you: When the lefties have run beyond the effective limits of tax increases on income, there will be talk of taxes on assets. Call me crazy....

And I'm becoming one of the psychedelic conservatives: let BHO have anything and everything he wants, and let the voters discover what they have wrought.

Of course, there are already taxes on assets... as anyone who pays property taxes would already know. Whether these taxes should be raised and income taxes lowered (or vice versa) is perhaps an interesting question.