Author Topic: Homeownership - the "engine" of inequality in America?  (Read 9135 times)

jeromedawg

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Homeownership - the "engine" of inequality in America?
« on: May 09, 2017, 08:19:23 PM »
Just stumbled across this article (reading through it now still) but wanted your guys' thoughts:

https://mobile.nytimes.com/2017/05/09/magazine/how-homeownership-became-the-engine-of-american-inequality.html
« Last Edit: May 09, 2017, 08:33:36 PM by jeromedawg »

obstinate

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Re: Homeownership - the "engine" of inequality in America?
« Reply #1 on: May 09, 2017, 09:28:52 PM »
A couple of thoughts.

1. I feel for people who make little and live in HCOL areas. We need to build more housing so that homes can be cheaper.

2. The MID is not as big of a deal as people make it out to be. For most Americans it offers a modest tax savings versus the standard deduction. When I owned a home, I had $30k in interest, and a marginal tax rate of 50%. So it offered me meaningful savings. But most Americans pay more like a $5,000-$10,000 in interest, and have a marginal tax rate below 35%. If it even makes sense for them to itemize, they're only saving a small amount versus their non-itemized return.

3. This article conflates correlation with causation r.e. housing and wealth. Of course people who own houses have more wealth! They were able to get together a downpayment and have managed to continue making payments. I'd like to see a study that controls for initial net worth and examines outcome differences between renters and borrowers a few years down the line. I highly doubt that the difference would as stark as what this article paints.

Duke03

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Re: Homeownership - the "engine" of inequality in America?
« Reply #2 on: May 09, 2017, 09:35:19 PM »
Cry me a river.  Everyone feels slighted for some reason.  This cry baby mentality has got to stop.  I grew up poor white trash, but nothing stopped me from figuring math out at an early age. 2+2 will always equal 4 and you will always have money if you spend less than you make.

SwordGuy

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Re: Homeownership - the "engine" of inequality in America?
« Reply #3 on: May 09, 2017, 09:46:22 PM »
So, the first person profiled in the story grew up poor and is now wealthy.

And the second person profiled has a lower middle class income and the attitude that "it's not possible to get ahead".

Anyone notice the irony in that?

The second person has two basic problems:

1) She is a single parent of two kids. 

That's a simple statement of fact, it's not "slut shaming" or anything like that.  I have no idea how she got into that situation.    Having two kids (and wanting to raise them right) takes a significant amount of parental time and energy.   That makes it triply hard to get ahead financially because of the time commitments and the extra expenses, especially daycare.

To turn this observation into actionable advice, (a) don't get pregnant or get someone pregnant unless it's the right time to have children for both of you, (b) have enough life insurance on each parent so the surviving parent and kids have enough, (c) only have children with people who are competent at daily living, kind, responsible, fair, honest, prudent, loving and reasonable.   Even then things can go wrong, but there's no reason to stack the deck against yourself.

2) She doesn't think she can get ahead. 

So she has not plan to do so.  No plan to cut expenses.  Get a roommate, move back in with parents, get work closer to parents so they can babysit and cut daycare costs.  No plan to grow her skills.  An hour a week spent reading about new skills and practicing them - which is totally do-able in an office environment at lunchtime - can pay real dividends over the course of a year.    Finding MMM and reading the info here could change her perspective on life.   Learning new, marketable skills could get her a promotion or raise, leading to even better positions in the future.  Whether it takes 6 months or 36, it's progress.  And as we all know, constant growth leads to compounding results. 


Then there's the 3rd couple with 4 children.  Had they stopped at 2 children (ages 10 and 8) the mother could be working at least part time.   Depending on the kids, in a year or two the kids could be latch-key kids who come home from school while mom is at work.   Daycare costs would then be zero.  Instead, they had 2 more kids, thus starting the expensive day care or lost 2nd income problem all over again.  And the expenses given don't add up.  $1500 for rent and $1000 other expenses = $30,000 expenses on a $50,000 income.   



m8547

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Re: Homeownership - the "engine" of inequality in America?
« Reply #4 on: May 09, 2017, 10:56:45 PM »
A couple of thoughts.

1. I feel for people who make little and live in HCOL areas. We need to build more housing so that homes can be cheaper.

2. The MID is not as big of a deal as people make it out to be. For most Americans it offers a modest tax savings versus the standard deduction. When I owned a home, I had $30k in interest, and a marginal tax rate of 50%. So it offered me meaningful savings. But most Americans pay more like a $5,000-$10,000 in interest, and have a marginal tax rate below 35%. If it even makes sense for them to itemize, they're only saving a small amount versus their non-itemized return.

3. This article conflates correlation with causation r.e. housing and wealth. Of course people who own houses have more wealth! They were able to get together a downpayment and have managed to continue making payments. I'd like to see a study that controls for initial net worth and examines outcome differences between renters and borrowers a few years down the line. I highly doubt that the difference would as stark as what this article paints.

1. Is there any evidence that building more housing in HCOL places lowers the prices? I guess it must eventually if you build way too much, but I haven't seen it. Most new houses in HCOL areas are more expensive than what's there because they are newer and nicer, and builders want to make a profit. And higher density just seems to lead to higher prices. Subsidized affordable houses only help people that can qualify for them, but they don't have much effect on the rest of the market.

2. That's the whole point of this article. It mostly helps people that don't need it. If you had a marginal rate of 50% you must have had plenty of income. Rather than subsidizing your house that money should go towards affordable housing.


Jaayse

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Re: Homeownership - the "engine" of inequality in America?
« Reply #5 on: May 09, 2017, 11:00:37 PM »
I think it is an interesting article, although I agree with some other sentiments that the example families are mostly living non-mustachian. 

I really enjoyed the portion of the article about Seattle and how the city voted to increase taxes for a good reason.  I feel like many Americans would be willing to pay a bit more in taxes with the money destination clearly delineated.  Much of government tax usage is hidden from the average person and so it is easy to be self motivated when not confronted with where your taxes are going, or if you don't agree with where your taxes are going. 

I've always wished I could put in some extra tax money and earmark it for something I wanted to see done... of course I also work for the government and have seen how poorly written their contracts are, so the efficiency could be worked on there too.

minimalistgamer

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Re: Homeownership - the "engine" of inequality in America?
« Reply #6 on: May 10, 2017, 05:04:58 AM »
Cry me a river.  Everyone feels slighted for some reason.  This cry baby mentality has got to stop.  I grew up poor white trash, but nothing stopped me from figuring math out at an early age. 2+2 will always equal 4 and you will always have money if you spend less than you make.

Thank you for saying this. It needed to be said.

chasesfish

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Re: Homeownership - the "engine" of inequality in America?
« Reply #7 on: May 10, 2017, 05:37:24 AM »
There are a lot of valid points on both sides, housing is such a complex issue in the US.  Some of the comments below may be politically offensive because both sides have responsibility and this is both a national and local political issue.  There's also a measure of personal responsibility, but there's the reality that a percentage of the population will be knuckleheads with their money.

Nationally, we have overbuilt single family housing instead of multi-family housing.  This is a more expensive and less efficient than multifamily housing.   This is a function of the federal government subsidizing single family housing through the mortgage interest deduction, home tax deduction, and the 30-year fixed rate mortgage.   We then got 40 years of 4+ bedroom single family housing from the 70's to 2000's.   FDR and Johnson are responsible for the mortgage products, then the mortgage interest deduction is a third rail of "middle class" politics. 

Here's a local perspective:

In Dallas-Fort Worth, the market creates 200,000 jobs, but the same area only creates 50,000 housing units per year.  This is causing rapidly increasing rent/housing costs and there are/will be social issues that come from it and the city's homeless problems keep increasing.  Some of the issues are:

- Not enough labor available to build housing quickly (thanks anti-immigration crowd)
- Municipalities taking a NIMBY approach whenever a re-zoning request comes up for apartment housing.  "It'll make my schools bad"
- Millennials/Minimalists moving back "in-town", driving demand for developers to buy a low income apartment complex, gut it, renovate it, and raise rents to pay for the renovations.  This does not add net new units
- Raise/Rebuild Construction - The highest end residential construction projects are raise and re-builds, this doesn't add any net housing units.
- Speed of municipalities to build infrastructure for new lot development (and lack of construction labor to do it)


There are many parts of the country where the states/municipalities (unintentionally or intentionally) hurt the poor through development policies, like  union labor requirements, "green" building requirements", and restrictive zoning laws.  They may have good intentions, but result in less development and more expensive units.  San Francisco has some of the toughest development rules in the country and its housing prices reflect it. 

GrumpyPenguin

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Re: Homeownership - the "engine" of inequality in America?
« Reply #8 on: May 10, 2017, 05:57:45 AM »
Cry me a river.  Everyone feels slighted for some reason.  This cry baby mentality has got to stop.  I grew up poor white trash, but nothing stopped me from figuring math out at an early age. 2+2 will always equal 4 and you will always have money if you spend less than you make.

Thank you for saying this. It needed to be said.

Huh, my take away from the article was different.  My take away was the absurdity of the MID.  Sure, there was other noise in there, but I thought the absurdity of the MID came out pretty clear.  The MID is an unnecessary market distortion that also helps the rich more than the poor.  People who are pro-free market and people who are for progressive taxes should be against the MID.

nobody123

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Re: Homeownership - the "engine" of inequality in America?
« Reply #9 on: May 10, 2017, 09:32:51 AM »
I thought the article missed its mark.  As others have pointed out, they picked some examples of rich vs. poor that cannot be tied to the MID.  The ex-con example didn't fit at all.  You were convicted of armed robbery -- I don't really give a crap that you have a long commute now after society had to pay for your "accommodations" for a decade.

This is just another example of the keeping up with the Joneses mentality that plagues this country.  Where in the Constitution does it say that everyone is entitled to their McMansion in the city of their choosing?  I just searched Zillow, and there are 5,561 houses in Cleveland that are selling for under $50K.  4,538 are selling for $25K or less.  Nothing is stopping these poor Bostonians from saving the $5K for a down payment and moving here if home ownership is the end-all, be-all, especially not the MID.

dcozad999

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Re: Homeownership - the "engine" of inequality in America?
« Reply #10 on: May 10, 2017, 09:40:02 AM »
I think a lot of middle class people think they are getting the mortgage interest deduction but they are really taking the standard deduction. I know it took me years to realize it wasn't benefitting me.  With everyone doing their taxes with Turbotax and other software packages, they don't actually see how their refund is calculated.

Yankuba

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Re: Homeownership - the "engine" of inequality in America?
« Reply #11 on: May 10, 2017, 09:41:37 AM »
Cry me a river.  Everyone feels slighted for some reason.  This cry baby mentality has got to stop.  I grew up poor white trash, but nothing stopped me from figuring math out at an early age. 2+2 will always equal 4 and you will always have money if you spend less than you make.

Thank you for saying this. It needed to be said.

Huh, my take away from the article was different.  My take away was the absurdity of the MID.  Sure, there was other noise in there, but I thought the absurdity of the MID came out pretty clear.  The MID is an unnecessary market distortion that also helps the rich more than the poor.  People who are pro-free market and people who are for progressive taxes should be against the MID.

Agree with Grumpy Penguin. The MID is irrelevant for lower income home owners who don't itemize. But it's a nice giveaway to professionals with $200k+ household incomes and $500k mortgages. Why are we giving wealthy homeowners a benefit that they do not need? Why are we giving wealthy homeowners a benefit that renters do not receive? The MID encourages homeownership but people would still own homes without the MID because owning is generally cheaper than renting over medium and long time periods.

Another note - the MID is costing the government much less today than in the past because interest rates are at historical lows. Now may be a good time to tinker with the MID because it's far more advantageous to people in a higher rate environment.

nobody123

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Re: Homeownership - the "engine" of inequality in America?
« Reply #12 on: May 10, 2017, 09:50:30 AM »
Cry me a river.  Everyone feels slighted for some reason.  This cry baby mentality has got to stop.  I grew up poor white trash, but nothing stopped me from figuring math out at an early age. 2+2 will always equal 4 and you will always have money if you spend less than you make.

Thank you for saying this. It needed to be said.

Huh, my take away from the article was different.  My take away was the absurdity of the MID.  Sure, there was other noise in there, but I thought the absurdity of the MID came out pretty clear.  The MID is an unnecessary market distortion that also helps the rich more than the poor.  People who are pro-free market and people who are for progressive taxes should be against the MID.

Agree with Grumpy Penguin. The MID is irrelevant for lower income home owners who don't itemize. But it's a nice giveaway to professionals with $200k+ household incomes and $500k mortgages. Why are we giving wealthy homeowners a benefit that they do not need? Why are we giving wealthy homeowners a benefit that renters do not receive? The MID encourages homeownership but people would still own homes without the MID because owning is generally cheaper than renting over medium and long time periods.

Another note - the MID is costing the government much less today than in the past because interest rates are at historical lows. Now may be a good time to tinker with the MID because it's far more advantageous to people in a higher rate environment.

Taxes are all intertwined.  Trying to pick on the MID is pointless.  A professional with $200K in income, no kids, and a $500K house might get the benefit of the MID for 15 years or so.  But the property taxes they pay on that house subsizes the schools for the renter sending 4 kids.  Their income tax is spend on the EIC and Child Tax credit they cannot take advantage of because they don't have any kids.  The Real ProblemTM is that the tax structure is so convoluted that nobody understands how the money collected is actually spent or bothers to educate themselves on how it works.

Prairie Stash

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Re: Homeownership - the "engine" of inequality in America?
« Reply #13 on: May 10, 2017, 01:42:02 PM »
Cry me a river.  Everyone feels slighted for some reason.  This cry baby mentality has got to stop.  I grew up poor white trash, but nothing stopped me from figuring math out at an early age. 2+2 will always equal 4 and you will always have money if you spend less than you make.

Thank you for saying this. It needed to be said.

Huh, my take away from the article was different.  My take away was the absurdity of the MID.  Sure, there was other noise in there, but I thought the absurdity of the MID came out pretty clear.  The MID is an unnecessary market distortion that also helps the rich more than the poor.  People who are pro-free market and people who are for progressive taxes should be against the MID.

Agree with Grumpy Penguin. The MID is irrelevant for lower income home owners who don't itemize. But it's a nice giveaway to professionals with $200k+ household incomes and $500k mortgages. Why are we giving wealthy homeowners a benefit that they do not need? Why are we giving wealthy homeowners a benefit that renters do not receive? The MID encourages homeownership but people would still own homes without the MID because owning is generally cheaper than renting over medium and long time periods.

Another note - the MID is costing the government much less today than in the past because interest rates are at historical lows. Now may be a good time to tinker with the MID because it's far more advantageous to people in a higher rate environment.

Taxes are all intertwined.  Trying to pick on the MID is pointless.  A professional with $200K in income, no kids, and a $500K house might get the benefit of the MID for 15 years or so.  But the property taxes they pay on that house subsizes the schools for the renter sending 4 kids.  Their income tax is spend on the EIC and Child Tax credit they cannot take advantage of because they don't have any kids.  The Real ProblemTM is that the tax structure is so convoluted that nobody understands how the money collected is actually spent or bothers to educate themselves on how it works.
Are you saying someone without kids, earning $200k needs a tax break? If "the tax structure is so convoluted" then the obvious fix is to simplify it. One simplification at a time is all it takes, in the article the study was on MID, can you propose a better way to simplify?


englishteacheralex

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Re: Homeownership - the "engine" of inequality in America?
« Reply #14 on: May 10, 2017, 02:09:57 PM »
I found it to be a fascinating article, and wondered if anyone would bring it up here.

I'm reading Evicted right now, and my husband is a social worker for HUD-VASH, so I'm pretty biased in favor of the eliminate or reduce the MID in order to subsidize affordable housing camp. I do not find good old fashioned "just bootstrap already" arguments about poor people to be very compelling, especially when we're talking about public policy. It's a little too easy to look at a handful of anecdotes in an article and throw stones.

The fact is, despite the myriad lamentable poor decisions made by (some) poor people, it is not pleasant to live in a society with enormous disparities in wealth. And our society is becoming more and more disparate. It is in everyone's best interests to make policies that aim to reduce glaring inequality.

Clearly it is political poison to attempt to appeal to the consciences of the upper middle class. No one likes to have something taken away to which they feel entitled. I don't see an easy answer to these problems, and it saddens me.

Schaefer Light

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Re: Homeownership - the "engine" of inequality in America?
« Reply #15 on: May 10, 2017, 02:33:42 PM »
I disagree with the mortgage interest deduction on purely free market / libertarian principles.  The government should not be in the business of encouraging people to buy a house (or anything else, for that matter).

I don't think this particular deduction has too much to do with inequality in America, though.  If you want to blame anything for that, it should probably be the stock market.
« Last Edit: May 10, 2017, 02:37:33 PM by Schaefer Light »

scantee

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Re: Homeownership - the "engine" of inequality in America?
« Reply #16 on: May 10, 2017, 02:33:54 PM »
Cry me a river.  Everyone feels slighted for some reason.  This cry baby mentality has got to stop.  I grew up poor white trash, but nothing stopped me from figuring math out at an early age. 2+2 will always equal 4 and you will always have money if you spend less than you make.

Are the crybabies the people who want the MID done away with (because it's a deduction that contributes to a regressive tax structure) or the people who want to keep the MID (because they think they are "owed" some small benefit for owning a home)?

TimmyTightWad

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Re: Homeownership - the "engine" of inequality in America?
« Reply #17 on: May 10, 2017, 03:41:05 PM »
I had no idea redlining against blacks was that egregious.  I wonder why that never comes up in these discussions about gentrification and boot strapping.


Also, people who think MIDs aren't a big deal are ignoring real estate developers who may have leveraged portifolios worth millions under a single LLC. I'm assuming that entity can pool deductions for a pretty substantial tax break. 

surfhb

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Re: Homeownership - the "engine" of inequality in America?
« Reply #18 on: May 10, 2017, 04:43:43 PM »
I disagree with the mortgage interest deduction on purely free market / libertarian principles.  The government should not be in the business of encouraging people to buy a house (or anything else, for that matter).

I don't think this particular deduction has too much to do with inequality in America, though.  If you want to blame anything for that, it should probably be the stock market.

Please Explain?   The worst 30 year period in the equities market has been 6%....and that was during the depression

Hargrove

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Re: Homeownership - the "engine" of inequality in America?
« Reply #19 on: May 10, 2017, 05:59:36 PM »
I'm reading Evicted right now, and my husband is a social worker for HUD-VASH, so I'm pretty biased in favor of the eliminate or reduce the MID in order to subsidize affordable housing camp. I do not find good old fashioned "just bootstrap already" arguments about poor people to be very compelling, especially when we're talking about public policy. It's a little too easy to look at a handful of anecdotes in an article and throw stones.

The player of the game should obviously be concerned with doing his or her best - the game won't beat itself. The designers of the game should obviously make a game where more than one player gets opportunities to advance.

There are two possible discussions: one is whether one camp "deserves" the MID and another "deserves" more affordable housing. This argument is as valuable as two nerds yelling over which superhero would win in a fight. Both sides walk in with their own completely incompatible (and therefore basically irrelevant) valuations.

The other discussion is what would be better for society. That's what public policy should address, and I don't think "homeless mothers and children" is a great plan for society. Sure, you can say "shouldn't have had kids." Great. So what? The person has kids. We're not going to euthanize them. Public policy does not provide time travel. It should address what would work best.

The bidding war over schools is probably worse than the MID, though. It's one of the most inequality-enforcing incentives out there.

nick663

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Re: Homeownership - the "engine" of inequality in America?
« Reply #20 on: May 10, 2017, 06:02:31 PM »
Then there's the 3rd couple with 4 children.  Had they stopped at 2 children (ages 10 and 8) the mother could be working at least part time.   Depending on the kids, in a year or two the kids could be latch-key kids who come home from school while mom is at work.   Daycare costs would then be zero.  Instead, they had 2 more kids, thus starting the expensive day care or lost 2nd income problem all over again.  And the expenses given don't add up.  $1500 for rent and $1000 other expenses = $30,000 expenses on a $50,000 income.
Yep.  The last 2 kids are almost perfectly spaced so mom has a reason she can't work...

I have no patience or sympathy for situations like that.  Those people are where they are because they repeatedly have made bad choices.  Has nothing to do with a tax credit.

madgeylou

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Re: Homeownership - the "engine" of inequality in America?
« Reply #21 on: May 10, 2017, 06:05:40 PM »
I had no idea redlining against blacks was that egregious.  I wonder why that never comes up in these discussions about gentrification and boot strapping.

Right? Ta-Nehisi Coates's "The Case for Reparations" taught me that much of what I thought about fairness in America was completely bullshit.

Cali Nonya

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Re: Homeownership - the "engine" of inequality in America?
« Reply #22 on: May 10, 2017, 07:14:02 PM »
Quote
We need to build more housing so that homes can be cheaper.

No, we don't.  Not everybody gets to eat at the best restaurant in town.  Not everyone gets to wear the nicest clothes in the world.  Not everyone gets to drive the nicest car.  And sure as shit, not everyone gets to live in Nicest Place to Live.   Struggling to pay rent in San Francisco?  Tough cookies.  Move somewhere cheaper.  Move to South Dakota.

This has nothing to do with basic human rights, unless you believe that every single person in the world has the right to live in the nicest place in the world.
+1

madgeylou

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Re: Homeownership - the "engine" of inequality in America?
« Reply #23 on: May 10, 2017, 08:04:10 PM »
Quote
We need to build more housing so that homes can be cheaper.

No, we don't.  Not everybody gets to eat at the best restaurant in town.  Not everyone gets to wear the nicest clothes in the world.  Not everyone gets to drive the nicest car.  And sure as shit, not everyone gets to live in Nicest Place to Live.   Struggling to pay rent in San Francisco?  Tough cookies.  Move somewhere cheaper.  Move to South Dakota.

This has nothing to do with basic human rights, unless you believe that every single person in the world has the right to live in the nicest place in the world.
+1

But do people have the right to stay in a place where they've lived for years, surrounded by family and friends and everything they know? Is it fair for other people to come in, say "yeah, I like the look of this place," and boot everyone else out just because they have the most money?

Maybe we don't all have "the right" to live where've we want, but does everything always have to be about rights? Can't it be about what is right?

This reminds me of my asshole neighbor who makes a shit ton of noise constantly, and when I ask him to consider not doing so, immediately jumps to "it's my right to do what I want!" Well, sure, you have THE RIGHT to act like an asshole, but maybe you could consider not exercising that right, just for a bit.

rebel_quietude

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Re: Homeownership - the "engine" of inequality in America?
« Reply #24 on: May 10, 2017, 08:21:27 PM »
I think we're missing the point, a little?

Bottom Line: Tax structure in the US is designed to be progressive. If you make a lot of money and presumably have more to spare, you are taxed at a higher rate. If you do not make a great deal of money, your tax rate is lower.

The article is pointing out the established mortgage income tax break entitlement is the opposite of progressive. The question is, how progressive do we want our tax code to be?

I totally agree with the notes on the complexity of the tax code, by the way. If I'm a college educated grown adult, I should be able to figure out my taxes without external assistance, software or industry. The fact that I can't reliably means a giant chunk of our country can't, and what's impenetrable to the average citizen is ripe for exploitation.

nick663

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Re: Homeownership - the "engine" of inequality in America?
« Reply #25 on: May 10, 2017, 08:35:08 PM »
Quote
We need to build more housing so that homes can be cheaper.

No, we don't.  Not everybody gets to eat at the best restaurant in town.  Not everyone gets to wear the nicest clothes in the world.  Not everyone gets to drive the nicest car.  And sure as shit, not everyone gets to live in Nicest Place to Live.   Struggling to pay rent in San Francisco?  Tough cookies.  Move somewhere cheaper.  Move to South Dakota.

This has nothing to do with basic human rights, unless you believe that every single person in the world has the right to live in the nicest place in the world.
+1

But do people have the right to stay in a place where they've lived for years, surrounded by family and friends and everything they know? Is it fair for other people to come in, say "yeah, I like the look of this place," and boot everyone else out just because they have the most money?

Maybe we don't all have "the right" to live where've we want, but does everything always have to be about rights? Can't it be about what is right?
Your first mistake is framing this by "fairness."  Life isn't fair and it isn't my problem that some 30 year old basement dweller didn't work hard enough to afford a house in the area they grew up. 

Chances are they had far better opportunities than I had growing up so the fact I worked twice as hard and achieved more means I deserve it more than them anyways. :)

Paul der Krake

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Re: Homeownership - the "engine" of inequality in America?
« Reply #26 on: May 10, 2017, 08:53:48 PM »
But do people have the right to stay in a place where they've lived for years, surrounded by family and friends and everything they know? Is it fair for other people to come in, say "yeah, I like the look of this place," and boot everyone else out just because they have the most money?

Maybe we don't all have "the right" to live where've we want, but does everything always have to be about rights? Can't it be about what is right?
Rights or right, think about the alternative. Initiatives like rent control are disasters because it distorts the market, and leads to a two tier system where people lucky to be on one side of the fence never give it up.

Nobody boots out an entire neighborhood all on their own. The idea that you get to live in a highly desirable location just because you were here first, no matter the number of more qualified new market participants, is preposterous.

One of my childhood homes now rents for close to $10,000/month. I am forever priced out of that particular location. And that's fine.

Hargrove

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Re: Homeownership - the "engine" of inequality in America?
« Reply #27 on: May 10, 2017, 09:30:14 PM »
Social policy should be about what works. Life indeed isn't fair, so let's stop talking about how hard anybody worked for what they got. Remember, life's not fair.

Lol. We wouldn't have any social policy at all if policymakers just said "life's not fair."

Rights or right, think about the alternative. Initiatives like rent control are disasters because it distorts the market, and leads to a two tier system where people lucky to be on one side of the fence never give it up.

Sooo... the alternative to a one-tier system may be only a two-tier one. That's not actually a counter-argument, even if the two-tier wouldn't be much of a system either. I'd prefer federalizing education so you couldn't bid-war your way to a rich-kids-only club in a public school system, which would help stabilize housing prices. And a 90% estate tax over 10 million, given that the kids didn't work for anything at all. Or because life's not fair. Whatever.

Quote
One of my childhood homes now rents for close to $10,000/month. I am forever priced out of that particular location. And that's fine.

Priced out of the home you lived in decades ago - materially the same as being priced out of the home you live in right now? This and other ideas tonight on... Completely Unrelated.

obstinate

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Re: Homeownership - the "engine" of inequality in America?
« Reply #28 on: May 10, 2017, 10:03:27 PM »
A couple of thoughts.

1. I feel for people who make little and live in HCOL areas. We need to build more housing so that homes can be cheaper.

2. The MID is not as big of a deal as people make it out to be. For most Americans it offers a modest tax savings versus the standard deduction. When I owned a home, I had $30k in interest, and a marginal tax rate of 50%. So it offered me meaningful savings. But most Americans pay more like a $5,000-$10,000 in interest, and have a marginal tax rate below 35%. If it even makes sense for them to itemize, they're only saving a small amount versus their non-itemized return.

3. This article conflates correlation with causation r.e. housing and wealth. Of course people who own houses have more wealth! They were able to get together a downpayment and have managed to continue making payments. I'd like to see a study that controls for initial net worth and examines outcome differences between renters and borrowers a few years down the line. I highly doubt that the difference would as stark as what this article paints.

1. Is there any evidence that building more housing in HCOL places lowers the prices? I guess it must eventually if you build way too much, but I haven't seen it. Most new houses in HCOL areas are more expensive than what's there because they are newer and nicer, and builders want to make a profit. And higher density just seems to lead to higher prices. Subsidized affordable houses only help people that can qualify for them, but they don't have much effect on the rest of the market.

2. That's the whole point of this article. It mostly helps people that don't need it. If you had a marginal rate of 50% you must have had plenty of income. Rather than subsidizing your house that money should go towards affordable housing.
1. It's basic economics. If you increase supply holding demand constant, prices fall eventually. "Holding demand constant" does not necessarily apply -- it could be that building more houses increases demand, perhaps by exposing latent demand. But if you build enough of them, eventually you're going to outpace migration flows and reduce prices.

2. I understand. I think it should be got rid of. But I want to make it clear that the magnitude of the assistance it offers is not very high. I was taking the full possible advantage of it and it saved me a little less than 2% of my gross income. What's really needed is to raise marginal tax rates. Getting rid of the MID would be nice, but it's not going to solve the problems our nation faces.

Paul der Krake

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Re: Homeownership - the "engine" of inequality in America?
« Reply #29 on: May 10, 2017, 11:20:00 PM »
Rights or right, think about the alternative. Initiatives like rent control are disasters because it distorts the market, and leads to a two tier system where people lucky to be on one side of the fence never give it up.

Sooo... the alternative to a one-tier system may be only a two-tier one. That's not actually a counter-argument, even if the two-tier wouldn't be much of a system either. I'd prefer federalizing education so you couldn't bid-war your way to a rich-kids-only club in a public school system, which would help stabilize housing prices. And a 90% estate tax over 10 million, given that the kids didn't work for anything at all. Or because life's not fair. Whatever.

Quote
One of my childhood homes now rents for close to $10,000/month. I am forever priced out of that particular location. And that's fine.

Priced out of the home you lived in decades ago - materially the same as being priced out of the home you live in right now? This and other ideas tonight on... Completely Unrelated.
School funding and estate taxes are separate issues. I argue that as a renter, you have no legal or moral right to demand better treatment on the basis of how long you've lived there. You seem to disagree. I await the details of your plan to fairly distribute a limited housing stock in a high demand area that doesn't screw up the economics of everyone else by trying to protect the lucky minority who drew the rent-control lottery.

Schaefer Light

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Re: Homeownership - the "engine" of inequality in America?
« Reply #30 on: May 11, 2017, 06:18:56 AM »
I disagree with the mortgage interest deduction on purely free market / libertarian principles.  The government should not be in the business of encouraging people to buy a house (or anything else, for that matter).

I don't think this particular deduction has too much to do with inequality in America, though.  If you want to blame anything for that, it should probably be the stock market.

Please Explain?   The worst 30 year period in the equities market has been 6%....and that was during the depression

My point exactly.  Those who are wealthy enough to invest in stocks are going to get much wealthier (over time) than those who don't have the money to invest, which leads to more inequality.  I'm not saying that's a bad thing.  I'm just saying that the stock market has a hell of a lot more to do with inequality than the housing market.

nick663

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Re: Homeownership - the "engine" of inequality in America?
« Reply #31 on: May 11, 2017, 06:32:55 AM »
I disagree with the mortgage interest deduction on purely free market / libertarian principles.  The government should not be in the business of encouraging people to buy a house (or anything else, for that matter).

I don't think this particular deduction has too much to do with inequality in America, though.  If you want to blame anything for that, it should probably be the stock market.

Please Explain?   The worst 30 year period in the equities market has been 6%....and that was during the depression

My point exactly.  Those who are wealthy enough to invest in stocks are going to get much wealthier (over time) than those who don't have the money to invest, which leads to more inequality.  I'm not saying that's a bad thing.  I'm just saying that the stock market has a hell of a lot more to do with inequality than the housing market.
...especially when you consider that capital gains are taxed lower than income.

Hargrove

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Re: Homeownership - the "engine" of inequality in America?
« Reply #32 on: May 11, 2017, 07:56:28 AM »
School funding and estate taxes are separate issues. I argue that as a renter, you have no legal or moral right to demand better treatment on the basis of how long you've lived there. You seem to disagree. I await the details of your plan to fairly distribute a limited housing stock in a high demand area that doesn't screw up the economics of everyone else by trying to protect the lucky minority who drew the rent-control lottery.

I don't know, I think school funding via property taxes and the opportunity to have a 120-year-old-stock portfolio inheritance both pull up the same ladders, and I think dynastic sequestering is bad for society in the long run.

As for my plan to fairly distribute... why does my plan have to fairly distribute? We're not doing fair distribution now. Except, comically enough, with the rent lottery... it's random. Fair and right are different things, but the rent lottery seems to be fair. I don't care about either, again, when it comes to social policy. I don't think you could easily pass a seatbelt law today, and I don't always wear my seatbelt, and I support there being a seatbelt law, and I would pay a ticket for not wearing mine. Too many people conflate "what I want" voting and politics with "what's best for society" voting and politics. It's perhaps democracy's biggest challenge.

Quote
I'm just saying that the stock market has a hell of a lot more to do with inequality than the housing market.

Not sure about that... I guess I agree somewhat but I'd argue they're different in kind. Access to a house for Lycee de Prestige is either yes or no - at least you can invest 5k in the stock market. It's not like "Oh, don't have a million? Can't play, sorry." I think the first time I looked at Vanguard it was 100k to open, so I'd say the stock market came a long way for access in the last 10-15 years. It's a little harder to measure the impact of education and prosperous neighborhoods than it is to read a stock investment total, but that's also real.

nobody123

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Re: Homeownership - the "engine" of inequality in America?
« Reply #33 on: May 11, 2017, 08:12:36 AM »
Cry me a river.  Everyone feels slighted for some reason.  This cry baby mentality has got to stop.  I grew up poor white trash, but nothing stopped me from figuring math out at an early age. 2+2 will always equal 4 and you will always have money if you spend less than you make.

Thank you for saying this. It needed to be said.

Huh, my take away from the article was different.  My take away was the absurdity of the MID.  Sure, there was other noise in there, but I thought the absurdity of the MID came out pretty clear.  The MID is an unnecessary market distortion that also helps the rich more than the poor.  People who are pro-free market and people who are for progressive taxes should be against the MID.

Agree with Grumpy Penguin. The MID is irrelevant for lower income home owners who don't itemize. But it's a nice giveaway to professionals with $200k+ household incomes and $500k mortgages. Why are we giving wealthy homeowners a benefit that they do not need? Why are we giving wealthy homeowners a benefit that renters do not receive? The MID encourages homeownership but people would still own homes without the MID because owning is generally cheaper than renting over medium and long time periods.

Another note - the MID is costing the government much less today than in the past because interest rates are at historical lows. Now may be a good time to tinker with the MID because it's far more advantageous to people in a higher rate environment.

Taxes are all intertwined.  Trying to pick on the MID is pointless.  A professional with $200K in income, no kids, and a $500K house might get the benefit of the MID for 15 years or so.  But the property taxes they pay on that house subsizes the schools for the renter sending 4 kids.  Their income tax is spend on the EIC and Child Tax credit they cannot take advantage of because they don't have any kids.  The Real ProblemTM is that the tax structure is so convoluted that nobody understands how the money collected is actually spent or bothers to educate themselves on how it works.
Are you saying someone without kids, earning $200k needs a tax break? If "the tax structure is so convoluted" then the obvious fix is to simplify it. One simplification at a time is all it takes, in the article the study was on MID, can you propose a better way to simplify?

"Need" financially, probably not.  But do the politicians "need" them to have it so they feel like they are not getting completely screwed over and keep happily paying their taxes?  Perhaps.

Tax reform is immensely complex.  Let's assume we eliminate the MID starting next year.  What does that solve?  Rich people still have money to spend on housing, so no developer is going to buy up lots in HCOL areas and build low-income housing.  So now you need to say that you will be using the tax money generated by the elimination of the MID to subsidize low income housing.  Than you have NIMBY to deal with everywhere, and tax money from homeowners in the midwest goes to build low income housing for Google employees in San Francisco who make $100K+ but have been priced out of the real estate market there.  Good luck selling that.


scantee

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Re: Homeownership - the "engine" of inequality in America?
« Reply #34 on: May 11, 2017, 10:36:18 AM »
The reason we need affordable housing everywhere, not just in already LCOL areas, is because all communities need lower paid workers to keep the general ecosystem in balance. It doesn't work to say "just move to South Dakota if you don't like it." Take San Francisco: without public policy to support affordable housing, the absolutely necessary people who make that city run can no longer afford to live there, which results in a deficit of people willing to do their jobs. In this scenario, who are the administrative assistants to high paid brogrammers? Who picks up the garbage? Who teaches the children of the wealthy? Who washes their dishes at the expensive restaurants?

San Francisco can't be a playground to the wealthy without people doing these jobs. And these people need somewhere to live that it at least somewhat decent, somewhat close, and somewhat affordable. Now, the extent to which the MID plays into jacked up housing prices in wealthy areas isn't well understood, but I think it is generally agreed upon that it doesn't contribute to inflating prices such that middle class people no longer can afford to live in those areas (owing or renting).  The only way to address that is through public policy, either federal policy like getting rid of the MID to deflate prices, or state/local, to subsidize middle-class housing.

mm1970

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Re: Homeownership - the "engine" of inequality in America?
« Reply #35 on: May 11, 2017, 10:55:39 AM »
There are a lot of valid points on both sides, housing is such a complex issue in the US.  Some of the comments below may be politically offensive because both sides have responsibility and this is both a national and local political issue.  There's also a measure of personal responsibility, but there's the reality that a percentage of the population will be knuckleheads with their money.

Nationally, we have overbuilt single family housing instead of multi-family housing.  This is a more expensive and less efficient than multifamily housing.   This is a function of the federal government subsidizing single family housing through the mortgage interest deduction, home tax deduction, and the 30-year fixed rate mortgage.   We then got 40 years of 4+ bedroom single family housing from the 70's to 2000's.   FDR and Johnson are responsible for the mortgage products, then the mortgage interest deduction is a third rail of "middle class" politics. 

Here's a local perspective:

In Dallas-Fort Worth, the market creates 200,000 jobs, but the same area only creates 50,000 housing units per year.  This is causing rapidly increasing rent/housing costs and there are/will be social issues that come from it and the city's homeless problems keep increasing.  Some of the issues are:

- Not enough labor available to build housing quickly (thanks anti-immigration crowd)
- Municipalities taking a NIMBY approach whenever a re-zoning request comes up for apartment housing.  "It'll make my schools bad"
- Millennials/Minimalists moving back "in-town", driving demand for developers to buy a low income apartment complex, gut it, renovate it, and raise rents to pay for the renovations.  This does not add net new units
- Raise/Rebuild Construction - The highest end residential construction projects are raise and re-builds, this doesn't add any net housing units.
- Speed of municipalities to build infrastructure for new lot development (and lack of construction labor to do it)


There are many parts of the country where the states/municipalities (unintentionally or intentionally) hurt the poor through development policies, like  union labor requirements, "green" building requirements", and restrictive zoning laws.  They may have good intentions, but result in less development and more expensive units.  San Francisco has some of the toughest development rules in the country and its housing prices reflect it.
Some of the development rules are intentional, though.  I can't speak for San Fran, but I live in Santa Barbara.

It is nice here.  People want to live here.  Retired people with enough cash to buy a $1.4M house outright want to live here.

We will never ever build ourselves out of high housing prices.  We've increased our housing stock a LOT in the last 20 years.  And housing is not getting cheaper.  Traffic is getting worse though.  Homelessness is getting worse.

Not everyone can afford to live here.  What is the answer?  Make it a shitty place for everyone else?  Thanks to the state of CA, who recently said "granny units are legal everywhere!"  I didn't fucking pay almost $800k for a shitty little 1100 sf house with no garage, in the worst school district in a 30 mile radius, only to have every fucking neighbor add a granny unit, effectively doubling the density and reducing the available parking to zero.

There are certain areas of the country (Manhattan, SF Bay, DC area) that are ALWAYS going to be prohibitively expensive for most people.

mm1970

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Re: Homeownership - the "engine" of inequality in America?
« Reply #36 on: May 11, 2017, 10:58:34 AM »
Quote
We need to build more housing so that homes can be cheaper.

No, we don't.  Not everybody gets to eat at the best restaurant in town.  Not everyone gets to wear the nicest clothes in the world.  Not everyone gets to drive the nicest car.  And sure as shit, not everyone gets to live in Nicest Place to Live.   Struggling to pay rent in San Francisco?  Tough cookies.  Move somewhere cheaper.  Move to South Dakota.

This has nothing to do with basic human rights, unless you believe that every single person in the world has the right to live in the nicest place in the world.
+1

But do people have the right to stay in a place where they've lived for years, surrounded by family and friends and everything they know? Is it fair for other people to come in, say "yeah, I like the look of this place," and boot everyone else out just because they have the most money?

Maybe we don't all have "the right" to live where've we want, but does everything always have to be about rights? Can't it be about what is right?

This reminds me of my asshole neighbor who makes a shit ton of noise constantly, and when I ask him to consider not doing so, immediately jumps to "it's my right to do what I want!" Well, sure, you have THE RIGHT to act like an asshole, but maybe you could consider not exercising that right, just for a bit.

You know, I do have sympathy for locals who are priced out.  I do.  If your parents had 3 kids and one house, two of you are out of luck.

But basically, yes.  My opinion is shaped by the fact that I left my home town at 18, as did my spouse.  We live on the opposite coast from our families, and moved around even before then.  So I'm not personally attached to the idea of "deserving" to live where I grew up.

FLBiker

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Re: Homeownership - the "engine" of inequality in America?
« Reply #37 on: May 11, 2017, 11:01:24 AM »
Re: the MID -- it came a kind of a shock to me how "assumed" that was.  When DW and I bought our house ($143K in 2010) everyone we talked to said how "we'd get to deduct the interest."  Not even close!

Cowardly Toaster

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Re: Homeownership - the "engine" of inequality in America?
« Reply #38 on: May 11, 2017, 12:19:23 PM »
I've never bought a house but I've learned some things that really frustrate me.

For instance, many banks won't finance new houses that are 2br/1 bath which is exactly what a young couple needs. So said young couple ends up buying a too big house and has all the attendant costs that go with it.

nick663

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Re: Homeownership - the "engine" of inequality in America?
« Reply #39 on: May 11, 2017, 02:47:46 PM »
The reason we need affordable housing everywhere, not just in already LCOL areas, is because all communities need lower paid workers to keep the general ecosystem in balance. It doesn't work to say "just move to South Dakota if you don't like it." Take San Francisco: without public policy to support affordable housing, the absolutely necessary people who make that city run can no longer afford to live there, which results in a deficit of people willing to do their jobs. In this scenario, who are the administrative assistants to high paid brogrammers? Who picks up the garbage? Who teaches the children of the wealthy? Who washes their dishes at the expensive restaurants?
Wages generally go up to match cost of living and vice versa.  This isn't complicated:
https://www.indeed.com/salaries/Secretary-Salaries,-San-Francisco-CA
http://www1.salary.com/CA/San-Francisco/Executive-Assistant-salary.html

dcheesi

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Re: Homeownership - the "engine" of inequality in America?
« Reply #40 on: May 11, 2017, 02:53:30 PM »
I've never bought a house but I've learned some things that really frustrate me.

For instance, many banks won't finance new houses that are 2br/1 bath which is exactly what a young couple needs. So said young couple ends up buying a too big house and has all the attendant costs that go with it.
I think part of the problem may be that young couples aren't actually looking for 2br houses these days. I sold one recently, and I was told that having "only" 2 bedrooms was a major disadvantage; it seems that 3br is now the least that many buyers will consider, even for a "starter" home.

Sure enough, I had trouble generating any interest initially. And when the place did sell, it was to a young bachelor, who probably just wanted his own four walls so he could crank up the stereo with impunity (same as me back in the day :)

Hargrove

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Re: Homeownership - the "engine" of inequality in America?
« Reply #41 on: May 11, 2017, 03:13:50 PM »
You know, it occurs to me that people stopped talking about starter homes, for the most part.

The cost of buying a house, then selling the house, then buying the "family" house, is actually too high for that to make sense anymore at the median national house price. Which kind of pushes you to buy 3BR for your first house if you think you'll have kids.

chasesfish

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Re: Homeownership - the "engine" of inequality in America?
« Reply #42 on: May 11, 2017, 04:14:44 PM »

Some of the development rules are intentional, though.  I can't speak for San Fran, but I live in Santa Barbara.

It is nice here.  People want to live here.  Retired people with enough cash to buy a $1.4M house outright want to live here.

We will never ever build ourselves out of high housing prices.  We've increased our housing stock a LOT in the last 20 years.  And housing is not getting cheaper.  Traffic is getting worse though.  Homelessness is getting worse.

Not everyone can afford to live here.  What is the answer?  Make it a shitty place for everyone else?  Thanks to the state of CA, who recently said "granny units are legal everywhere!"  I didn't fucking pay almost $800k for a shitty little 1100 sf house with no garage, in the worst school district in a 30 mile radius, only to have every fucking neighbor add a granny unit, effectively doubling the density and reducing the available parking to zero.

There are certain areas of the country (Manhattan, SF Bay, DC area) that are ALWAYS going to be prohibitively expensive for most people.

Are the "granny" units the secondary house everyone builds on their lot in the older and more expensive areas?

All that terrible traffic and high housing prices keep driving SoCal residents to DFW...

There are no easy answers and in some fully built communities, there's no answer at all.  Its a difficult issue! 

nick663

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Re: Homeownership - the "engine" of inequality in America?
« Reply #43 on: May 11, 2017, 04:34:34 PM »
You know, it occurs to me that people stopped talking about starter homes, for the most part.

The cost of buying a house, then selling the house, then buying the "family" house, is actually too high for that to make sense anymore at the median national house price. Which kind of pushes you to buy 3BR for your first house if you think you'll have kids.
I think a lot of people learned their lesson from what happened in 2008 as well.  A ton of people got stuck in "starter" homes with underwater loans.

Scortius

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Re: Homeownership - the "engine" of inequality in America?
« Reply #44 on: May 11, 2017, 04:40:33 PM »
You know, it occurs to me that people stopped talking about starter homes, for the most part.

The cost of buying a house, then selling the house, then buying the "family" house, is actually too high for that to make sense anymore at the median national house price. Which kind of pushes you to buy 3BR for your first house if you think you'll have kids.

For better or worse, we followed this model.  My wife and I skipped buying a smaller place and just rented until I landed a job I know I'll be at for a while.  Since the job pays well and we have young kids, we're buying a house we don't ever intend to sell.  It may be a little bit big for us now, but it willl save us a lot of money compared to buying a house we know we'll grow out of in a few years.

jeromedawg

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Re: Homeownership - the "engine" of inequality in America?
« Reply #45 on: May 11, 2017, 11:50:49 PM »

Some of the development rules are intentional, though.  I can't speak for San Fran, but I live in Santa Barbara.

It is nice here.  People want to live here.  Retired people with enough cash to buy a $1.4M house outright want to live here.

We will never ever build ourselves out of high housing prices.  We've increased our housing stock a LOT in the last 20 years.  And housing is not getting cheaper.  Traffic is getting worse though.  Homelessness is getting worse.

Not everyone can afford to live here.  What is the answer?  Make it a shitty place for everyone else?  Thanks to the state of CA, who recently said "granny units are legal everywhere!"  I didn't fucking pay almost $800k for a shitty little 1100 sf house with no garage, in the worst school district in a 30 mile radius, only to have every fucking neighbor add a granny unit, effectively doubling the density and reducing the available parking to zero.

There are certain areas of the country (Manhattan, SF Bay, DC area) that are ALWAYS going to be prohibitively expensive for most people.

Are the "granny" units the secondary house everyone builds on their lot in the older and more expensive areas?

All that terrible traffic and high housing prices keep driving SoCal residents to DFW...

There are no easy answers and in some fully built communities, there's no answer at all.  Its a difficult issue!

My cousin grew up in Plano and lived in Santa Monica for 6-7 years while doing his residency (and then taking a job in anesthesiology) at Cedars Sinai. So he could certainly 'afford' the expenses, but he decided to move back to the Dallas area a year ago. Part of this was to be closer to his then-girlfriend/now-wife. And also just because it's his hometown and he has a community back there. But a large part of it was the living expenses too - I don't blame him. He can certainly afford to live extravagantly anywhere, it's just that now he can afford to live *more* extravagantly. Actually, his wife just got accepted to Tulane for med school so they'll be down there for a while. No worries at all though.

chasesfish

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Re: Homeownership - the "engine" of inequality in America?
« Reply #46 on: May 12, 2017, 08:29:36 AM »
Unfortunately I was at Cedars Siani a month ago for five days and poked around on Zillow at prices.  You actually can't afford to live close, even on an anesthesiologist salary.   House prices are nuts in Beverly Hills

jeromedawg

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Re: Homeownership - the "engine" of inequality in America?
« Reply #47 on: May 12, 2017, 09:49:42 AM »
Unfortunately I was at Cedars Siani a month ago for five days and poked around on Zillow at prices.  You actually can't afford to live close, even on an anesthesiologist salary.   House prices are nuts in Beverly Hills

Ah I see... I guess it's 'affordable' if you're renting, which is what he was doing LOL. I think he actually liked it down here but probably a huge factor then was traffic - if he were to stay and work at Cedars, he'd probably have to deal with living further away and therefore commuting. Probably not worth it to him given that he was on-call often. I'm guessing he A) didn't want to keep renting and B) didn't want to move and settle-down somewhere further that required a commute, especially because C) it seems he was on-call often and needed to be quickly available most of the time. So the 30%~ or so pay-cut he took moving back to Dallas (and now Tulane) was probably well-worth it.  Also, I'm sure his newly-wedded wife will appreciate that he'll be with her throughout med school :)