"Of course, if the program were subsidized from general revenue (in order to increase the discounts for buyers), it would represent a transfer from high-earners’ labor income to middle-class housing wealth. "
Sounds like a bit of equalizing of the upper/lower middle class divide you mentioned in a previous post?
Why should housing be a way to build wealth? I mean, people use it but it seems like a terrible idea. Housing needs constant investment to maintain and build its value. Increases in value are taxed immediately without liquidation through property taxes in most states. Tax perks for owning it decrease over time and are generally setup so that the wealthiest benefit the most.
It also made a lot more sense in a society where people started working at a company shortly after graduating school (high school or college) and worked there their whole careers. In an environment where you might change jobs regularly, then being bound to location decreases economic potential.
If you are wanting to build wealth, why not simply do a baby bond? Give every child 5k to 10k in treasury bonds (or even better a total market index fund). They can take out half the money when they turn 25 and the rest sometime later.
Most legal residents of the USA (and perhaps some others) already have a hefty chunk of wealth that they can't sell. The Feds will dole it out to them as income once they reach the age of 68 (or whatever it is these days). This does not seem to bother anybody to the left of Paul Ryan.
What the writer fails to address is the fact that there are those groups of people who would be unable to maintain a mortgage. Americans as a whole always want more than they need. They depend on credit more than they should and they have a misconception of what wealth is. Than there is the issue with the ability to budget and manage expenses. If you spend more than you make and never save you will never succeed. If the goverment were to subsidize and help lower the cost of, yes it would help many families but in the long run how many people would default on thier mortgage. People need to look at the historical data of low income housing and the negative and positive outcomes. When promoting these programs. Anything given freely has no value. If they create this program there needs to be an HOA to protect those home owners who really want a home verse thos who will abuse the system and have negative affect to thier neighborhood. Just look at what happened in some lowincome housing in the past. Facts don't care about feelings
«As people and companies keep piling into cities, the value of land goes up. That has been a pretty damn good deal for middle-class wealth!»
But rising land prices do not build *any* wealth, because land tract/housing unit rises in price from $300,000 to $500,000 the difference, $200,000, is not extra wealth, it is simply redistribution from the next owner to the current owner: the next owner is $200,000 worse off, and the current owner is $200,000 better off. An exactly identical way of "building wealth" would be for the government to declare that every existing banknote should now be "worth" twice its face value.
Increasing the prices of land is not just a pure transfer of wealth, but also a highly regressive one, because it redistributes from usually poorer people, those who own no real estate, to usually richer people, those who already own real estate.
What do you make of policies to distribute portions of company equity to workers, as another way to increase middle class wealth with a diversifed asset class?
Is there any evidence that, per this column, government-funded housing construction is counter-cyclical? Since it's primarily done at the state and local levels, I assume it would be the first on the chopping block during a recession.
This may be a dumb question but since it costs like eleventy billion dollars to build a bike lane in the US will it still be a good wealth creator if the government is selling the house way below even their insanely inflated building costs? Like spending a million to build a house that’s worth 500K and actually selling it for 300K seems like an inefficient way to generate wealth?
Noah are you familiar with the Miethauser Syndikat model in Europe? It's a decentralized network of cooperatively purchased/built/owned houses and apartment buildings. Small groups self-organize into an LLC to purchase or build a property to be collectively held and used. They are advised, assisted with financing and co-partnered with the "Syndikat" network who also is on the title to the property. The Syndikat thus can kill any move to sell the property back into the private market keeping the homes in a de facto social housing network in perpetuity. In all other aspects the LLC has autonomy over how the project is operated. Sure this has parallels to land trusts and non-profit housing in the US but isn't quite like any of them. Obviously not a government-driven large-scale housing scheme of the type you're envisioning...but interesting food for thought for hybridized private pursuits with a "social" purpose.
An important factor in international comparisons of measured median wealth is the retirement system. All else being equal, median wealth will be substantially higher in countries with savings-based retirement systems than in countries with with PAYGO systems. Singapore and Hong Kong in particular, IIRC, have forced-savings systems not only for retirement, but also for health care.
This isn't purely a measurement artifact (you can bequeath your retirement savings to your children, but you can't do that with Social Security), but it would probably be better to include NPV of PAYGO benefits in international comparisons of median wealth.
This should also be accounted for in measures of wealth inequality. Note the irony in the fact that the people raising a hue and cry over wealth inequality are largely the same people who blocked attempts to incorporate private accounts into Social Security.
Here is a simple way to think about housing returns: Start with a baseline that assumes both rent and price will rise at the rate of inflation over the long run. In this case, the real return from buying home is the rent to price ratio, minus maintenance costs. People often say maintenance is 1% per year, but I think this varies. So, if a $500,000 home rents for $1667 per month (4%) it has an approximate long-run real return of 3%. Compare this to the return on long-run TIPS, and you have an approximate risk premium for the investment. I think that ratio is typical for many places, some higher, some lower. With negative real rates, a long-run real return of 3% is excellent.
This assumes the real cost of housing does not rise over the long run -- what Robert Shiller often suggests -- but it is conservative for most places, especially cities, where scarcity and productivity generally increase over time (agglomeration externalities). It also assumes purchasing and holding with cash. If you can borrow for less than the expected real return, then leverage can increase returns substantially. You can do that today, and typically, almost everywhere. Then, of course, is the (likely unfair) ways the tax code favors homeownership.
So, while mileage will vary, I think Noah is correct that housing has a high expected return, even today. A lot of that comes from low real interest rates. It's hard to see that changing dramatically in the near future. And I think he's right on all other counts, too: this seems the most likely way for the broader population to enjoy growth in wealth.
Now step back and look at the broader housing picture. Building has not kept up with household formation. Inventories are dreadfully low and there is a lot of pent up cash. This is not 2009/2010. Home prices grew rapidly through COVID. While similar increases probably ought to be expected in 2021, accompanied by a boom in new home building, employment, and growth, I do fear it will further exacerbate inequality.
A national housing program akin to Singapore is a good idea. I doubt we'll do that. Maybe we begin by trashing homeownership a little less, loosening lending standards a bit, and finding reasonable ways to help people buy first homes. We don't want to repeat the same mistakes of the 2000s. At the same time, we ought to recognize that the collapse was probably more irrational than the bubble. I don't think the Fed will let a collapse like that happen again.
I’m skeptical that we can ask the housing asset class to be a “good investment” in the sense of having returns significantly better than inflation, and simultaneously keep it affordable for the working class to rent when young and buy when they want to. It just seems like this runs into a Piketty-Saez r>g sort of problem. Either the growth in the asset takes the median housing unit beyond the realm of being affordable to the median income, or the rent chargeable on the median housing unit precludes any saving on the median income; or you just stop deriving so much growth and income from housing. The latter seems healthier, and we have plenty of ways to encourage or even compel alternative forms of saving. You could institute postal banking to make sure every citizen has a place to save, and then effectively switch from an income tax to a progressive consumption tax by excluding from taxable income any money that is still sitting in a savings account at the end of the year. Add a few negative income brackets at the bottom, maybe add on a new layer of FICA tax that’s funneled into some kind of investment account, aggregated in a sovereign wealth fund.
"I think that over a decade later, the American commentariat has still failed to process what a tremendous blow the American Dream took in 2007-8."
You don't say. Couldn't possibly be because the American elite is just one large toxic group of sociopath's determined to prove to themselves that this is a meritocracy and they deserve their ill gotten gains despite how many times in recent history we've seen over and over just how impossible it is for elites to fail in any direction but up.
Seriously, in Obama's mind handing his campaign donors trillions of dollars as a reward for pressuring poor people with no income into mortgages they can't afford and selling them off as risk free assets to unwitting investors and blowing up the worlds economy in the process isn't anyone's fault. Just markets. In fact, the problem would have been doing anything besides intentionally maximizing the number of foreclosures on poor people. Holding the criminals responsible would "have required a violence to the social order."
'The American commentariat' is oblivious because they idolize the villain. If they didn't they never would have made it to their position of prominence. That and they knew that any and all criticism of Obama would be called racist by his cult of supporters, even describing his entirely voluntary decision to destroy the most black wealth in history. The public doesn't know who to blame, which is why we get Trump.
Have we been living in the same country? Absolutely no one in this country wants young people to do well. I honestly can't think of another country that wants to harm their young people more than the US. We just elected President the guy responsible for putting millions of young POC in jail for decades, mostly for the crime of being poor. The same guy who made bankruptcy impossible for people with student debt. The only person in the world who has experience getting elected at a time of immense hardship, especially for young people, and then immediately using that power to reward the criminals/campaign donors responsible and implying that anyone suggesting we use the IMF's (Of ALL PLACES) recommendations for fixing the damage was a wild eyed radical.
"Of course, if the program were subsidized from general revenue (in order to increase the discounts for buyers), it would represent a transfer from high-earners’ labor income to middle-class housing wealth. "
Sounds like a bit of equalizing of the upper/lower middle class divide you mentioned in a previous post?
Why should housing be a way to build wealth? I mean, people use it but it seems like a terrible idea. Housing needs constant investment to maintain and build its value. Increases in value are taxed immediately without liquidation through property taxes in most states. Tax perks for owning it decrease over time and are generally setup so that the wealthiest benefit the most.
It also made a lot more sense in a society where people started working at a company shortly after graduating school (high school or college) and worked there their whole careers. In an environment where you might change jobs regularly, then being bound to location decreases economic potential.
If you are wanting to build wealth, why not simply do a baby bond? Give every child 5k to 10k in treasury bonds (or even better a total market index fund). They can take out half the money when they turn 25 and the rest sometime later.
Most legal residents of the USA (and perhaps some others) already have a hefty chunk of wealth that they can't sell. The Feds will dole it out to them as income once they reach the age of 68 (or whatever it is these days). This does not seem to bother anybody to the left of Paul Ryan.
Why do you think this new housing wealth will not be susceptible to the same kind of recession as the 07-08 recession?
If most of the wealth of the upper class and upper middle class and is in equity, why move money from income, and not from equity?
What the writer fails to address is the fact that there are those groups of people who would be unable to maintain a mortgage. Americans as a whole always want more than they need. They depend on credit more than they should and they have a misconception of what wealth is. Than there is the issue with the ability to budget and manage expenses. If you spend more than you make and never save you will never succeed. If the goverment were to subsidize and help lower the cost of, yes it would help many families but in the long run how many people would default on thier mortgage. People need to look at the historical data of low income housing and the negative and positive outcomes. When promoting these programs. Anything given freely has no value. If they create this program there needs to be an HOA to protect those home owners who really want a home verse thos who will abuse the system and have negative affect to thier neighborhood. Just look at what happened in some lowincome housing in the past. Facts don't care about feelings
«As people and companies keep piling into cities, the value of land goes up. That has been a pretty damn good deal for middle-class wealth!»
But rising land prices do not build *any* wealth, because land tract/housing unit rises in price from $300,000 to $500,000 the difference, $200,000, is not extra wealth, it is simply redistribution from the next owner to the current owner: the next owner is $200,000 worse off, and the current owner is $200,000 better off. An exactly identical way of "building wealth" would be for the government to declare that every existing banknote should now be "worth" twice its face value.
Increasing the prices of land is not just a pure transfer of wealth, but also a highly regressive one, because it redistributes from usually poorer people, those who own no real estate, to usually richer people, those who already own real estate.
What do you make of policies to distribute portions of company equity to workers, as another way to increase middle class wealth with a diversifed asset class?
Is there any evidence that, per this column, government-funded housing construction is counter-cyclical? Since it's primarily done at the state and local levels, I assume it would be the first on the chopping block during a recession.
This may be a dumb question but since it costs like eleventy billion dollars to build a bike lane in the US will it still be a good wealth creator if the government is selling the house way below even their insanely inflated building costs? Like spending a million to build a house that’s worth 500K and actually selling it for 300K seems like an inefficient way to generate wealth?
Noah are you familiar with the Miethauser Syndikat model in Europe? It's a decentralized network of cooperatively purchased/built/owned houses and apartment buildings. Small groups self-organize into an LLC to purchase or build a property to be collectively held and used. They are advised, assisted with financing and co-partnered with the "Syndikat" network who also is on the title to the property. The Syndikat thus can kill any move to sell the property back into the private market keeping the homes in a de facto social housing network in perpetuity. In all other aspects the LLC has autonomy over how the project is operated. Sure this has parallels to land trusts and non-profit housing in the US but isn't quite like any of them. Obviously not a government-driven large-scale housing scheme of the type you're envisioning...but interesting food for thought for hybridized private pursuits with a "social" purpose.
An important factor in international comparisons of measured median wealth is the retirement system. All else being equal, median wealth will be substantially higher in countries with savings-based retirement systems than in countries with with PAYGO systems. Singapore and Hong Kong in particular, IIRC, have forced-savings systems not only for retirement, but also for health care.
This isn't purely a measurement artifact (you can bequeath your retirement savings to your children, but you can't do that with Social Security), but it would probably be better to include NPV of PAYGO benefits in international comparisons of median wealth.
This should also be accounted for in measures of wealth inequality. Note the irony in the fact that the people raising a hue and cry over wealth inequality are largely the same people who blocked attempts to incorporate private accounts into Social Security.
Here is a simple way to think about housing returns: Start with a baseline that assumes both rent and price will rise at the rate of inflation over the long run. In this case, the real return from buying home is the rent to price ratio, minus maintenance costs. People often say maintenance is 1% per year, but I think this varies. So, if a $500,000 home rents for $1667 per month (4%) it has an approximate long-run real return of 3%. Compare this to the return on long-run TIPS, and you have an approximate risk premium for the investment. I think that ratio is typical for many places, some higher, some lower. With negative real rates, a long-run real return of 3% is excellent.
This assumes the real cost of housing does not rise over the long run -- what Robert Shiller often suggests -- but it is conservative for most places, especially cities, where scarcity and productivity generally increase over time (agglomeration externalities). It also assumes purchasing and holding with cash. If you can borrow for less than the expected real return, then leverage can increase returns substantially. You can do that today, and typically, almost everywhere. Then, of course, is the (likely unfair) ways the tax code favors homeownership.
So, while mileage will vary, I think Noah is correct that housing has a high expected return, even today. A lot of that comes from low real interest rates. It's hard to see that changing dramatically in the near future. And I think he's right on all other counts, too: this seems the most likely way for the broader population to enjoy growth in wealth.
Now step back and look at the broader housing picture. Building has not kept up with household formation. Inventories are dreadfully low and there is a lot of pent up cash. This is not 2009/2010. Home prices grew rapidly through COVID. While similar increases probably ought to be expected in 2021, accompanied by a boom in new home building, employment, and growth, I do fear it will further exacerbate inequality.
A national housing program akin to Singapore is a good idea. I doubt we'll do that. Maybe we begin by trashing homeownership a little less, loosening lending standards a bit, and finding reasonable ways to help people buy first homes. We don't want to repeat the same mistakes of the 2000s. At the same time, we ought to recognize that the collapse was probably more irrational than the bubble. I don't think the Fed will let a collapse like that happen again.
I’m skeptical that we can ask the housing asset class to be a “good investment” in the sense of having returns significantly better than inflation, and simultaneously keep it affordable for the working class to rent when young and buy when they want to. It just seems like this runs into a Piketty-Saez r>g sort of problem. Either the growth in the asset takes the median housing unit beyond the realm of being affordable to the median income, or the rent chargeable on the median housing unit precludes any saving on the median income; or you just stop deriving so much growth and income from housing. The latter seems healthier, and we have plenty of ways to encourage or even compel alternative forms of saving. You could institute postal banking to make sure every citizen has a place to save, and then effectively switch from an income tax to a progressive consumption tax by excluding from taxable income any money that is still sitting in a savings account at the end of the year. Add a few negative income brackets at the bottom, maybe add on a new layer of FICA tax that’s funneled into some kind of investment account, aggregated in a sovereign wealth fund.
"I think that over a decade later, the American commentariat has still failed to process what a tremendous blow the American Dream took in 2007-8."
You don't say. Couldn't possibly be because the American elite is just one large toxic group of sociopath's determined to prove to themselves that this is a meritocracy and they deserve their ill gotten gains despite how many times in recent history we've seen over and over just how impossible it is for elites to fail in any direction but up.
Seriously, in Obama's mind handing his campaign donors trillions of dollars as a reward for pressuring poor people with no income into mortgages they can't afford and selling them off as risk free assets to unwitting investors and blowing up the worlds economy in the process isn't anyone's fault. Just markets. In fact, the problem would have been doing anything besides intentionally maximizing the number of foreclosures on poor people. Holding the criminals responsible would "have required a violence to the social order."
http://www.billmoyers.com/2015/02/14/needless-default/
'The American commentariat' is oblivious because they idolize the villain. If they didn't they never would have made it to their position of prominence. That and they knew that any and all criticism of Obama would be called racist by his cult of supporters, even describing his entirely voluntary decision to destroy the most black wealth in history. The public doesn't know who to blame, which is why we get Trump.
Have we been living in the same country? Absolutely no one in this country wants young people to do well. I honestly can't think of another country that wants to harm their young people more than the US. We just elected President the guy responsible for putting millions of young POC in jail for decades, mostly for the crime of being poor. The same guy who made bankruptcy impossible for people with student debt. The only person in the world who has experience getting elected at a time of immense hardship, especially for young people, and then immediately using that power to reward the criminals/campaign donors responsible and implying that anyone suggesting we use the IMF's (Of ALL PLACES) recommendations for fixing the damage was a wild eyed radical.
https://www.nakedcapitalism.com/2010/03/the-empire-continues-to-strike-back-team-obama-propaganda-campaign-reaches-fever-pitch.html
https://www.theatlantic.com/magazine/archive/2009/05/the-quiet-coup/307364/
This country ONLY exists to keep billionaires rich and to murder as many poor people as possible in the process.