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Sep 1, 2022Liked by Noah Smith

This gets weirder in the context of regions with rapid cost increases. Are you five times wealthier than a decade ago, when nothing about your material lifestyle or ability to consume has actually changed? Is renting actually an option when rents are spiraling towards infinity and your wages are not? Is the occupant of a high-rise 2BR on Chicago's Gold Coast really such a pauper relative to the occupant of a studio in San Francisco's Mid-Market?

I think we'd have to say that "choosing not to move away" is a luxury that becomes increasingly lavish each year. You have to admit that is pretty unlike what a normal person is thinking about when they think about being wealthy. Perhaps it is the popular conception of wealth that's wrong, though.

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I think changing the norm to recognize how much of a lavish luxury it is to choose not to move is an important step to solving housing costs. It is very common to blame new residents and the high prices they’ll pay for the high market prices. But if people can understand that buying at a price and not selling at the same price has the same marginal effect on market prices, maybe we can normalize that it’s a giant luxury move to not cash out after a massive regional increase in market prices.

But normal people have a hard time equating buyers with not sellers.

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If you can get a home equity line of credit, or a reverse mortgage or whatever, then absolutely you are a lot wealthier.

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Is debt wealth? You have to pay it back.

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The point of secured debt is that you *don't* have to pay it back. You can just take the money and run, and they get your security. So if your house is something that lets you get that kind of debt, then absolutely your house is convertible into liquid cash.

But a reverse mortgage makes it very clear - you are just gradually liquidating the house.

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Sep 2, 2022·edited Sep 2, 2022

Owning a house makes it possible to borrow at lower interest rates since it can be used as collateral. Sure. We can treat the interest rate savings as a kind of wealth. But if I sell some stocks to fund consumption, that's the end of it. If I take equity out of my house to fund consumption, eventually the HELOC gets to its repayment period and I'd better have the income to pay it back. Okay, you don't "have to" do anything, that's just a colloquialism for "there would be very unpleasant consequences if you didn't" - like not having a place to live anymore.

If you could just carry the debt perpetually (i.e. until sale) then I would agree with you, but given that HELOCs have to be paid back, they really only help you borrow against your future income.

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But presumably "not having a place to live anymore" is precisely the situation of someone who *doesn't* own a house. So if the worst that can happen is you get money and then lose your house - isn't that precisely how wealth works, where the worst that can happen is you exchange it for money?

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In the case where your house is constantly increasing in value, you can roll over HELOC1 into HELOC2 with another bank, where HELOC2 >> HELOC1 and thus pays off HELOC1 and all interest accrued on HELOC1. Repeat until you die of old age.

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Nope, just a liability to subtract from your assets

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A homeowner who has a mortgage for $200,000 on a home that cost $300,000 when they bought it, whose home then increases in value to $1,500,000, can take out a home equity line of credit for $500,000 and never pay it back, instead paying interest on the home equity line of credit by expanding the home equity line of credit slowly. The homeowner would die of old age before their home equity was spent down low enough that the bank would repossess the house.

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There is something profoundly wrong with a culture and a system that considers living in your community a luxury. I agree that this is the case, but a system that routinely atomizes communities and breaks apart families because of economics has something wrong with it.

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It's not that "living in your community" is a luxury - it's that choosing to hold onto something rather than sell it to people for whom it would be extremely helpful is a luxury. If people aren't allowed to build a new unit on top of their existing unit, and sell that one, then that is the problem with our culture and system, that it makes it impossible for people to remain within their community while selling access to the land that would make life better for many other people.

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Having adequate numbers of homes should prevent some of that atomization, provided they aren't a product of targeted social engineering ("slum clearance") as they were in the past. Allowing people to choose their neighbors has been a root of many sins.

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It's the housing supply constriction that atomizes communities. If it's very easy to get legal permission to construct new units of housing, then the cost of a new unit of housing ~= the cost to construct a new unit of housing + a tiny scrap of land, and communities that become more expensive just smoothly become denser.

Homeowners can keep living in the community, and if they want to they can sell off their backyard and/or frontyard to developers to built new houses.

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The right to live in an ultra desirable place that confers superior advantages to lifestyle and labor market outcomes seems quite clearly like a form of wealth. I think most people intuitively understand that their house has gone up because the land is valuable and scarce and they happen to own a lot of it. People might be shy because they don’t want to admit they are rich land investors but if you parse what they say, it’s clear they understand housing is wealth

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Your classic home equity multimillionaire NIMBY thinks their lifestyle has degraded and their city has gotten less desirable as things have gotten more crowded, etc.

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but many of these people do have a luxury they didn't have 5 years ago; they're within commuting distance of more good tech jobs. just because they haven't used the full value of their asset doesn't mean the value isn't there, or is unusable.

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Sep 1, 2022·edited Sep 1, 2022

The tech jobs are valuable insofar as they make it possible to afford the housing prices that are caused by... the tech jobs.

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The tech jobs are valuable because they create goods and services that billions of people around the world buy. That's real value, not housing market regulation value.

Then, those tech jobs make certain places extremely expensive because tech jobs generate more real value faster when they tightly cluster together, and no-one's figured out how to forcibly move those tight clusters of value to parts of America with sane housing policies.

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Yet, tech causes this hypertrophic growth in prices everywhere it goes.

In the Bay Area, tech is but a small portion of the overall job market. Yet the existence of tech -- owing to its market capitalization -- overheats the Northern California market as a whole. The plurality of working-age adults in the Bay Area is in the public sector -- like 1 in 5 FTE paychecks comes from federal, state or local governments. You then have a large low-wage retail and services sector. There's also an industrial working-class sector mostly clustered around the East Bay. There's a travel and tourism sector. There's a relatively high-value agricultural sector around the Wine Country.

No other sector outside of tech -- except for government, which usually gives its workers cost-of-living adjustments, and even then at great pain to the community -- is able to match tech's compensation because as industries cannot offer the growth or high profit margins of tech. The tech employees probably go to a Peet's and Walgreens right outside of their offices, but Peet's and Walgreens would go out of business if they compensated their workers enough to live in the same region as the techies.

We saw this play out during the pandemic with the rise of remote work. Any place receiving a tech worker saw its cost structure rise to the tech worker's ability to pay. It's even happening in emerging non-coastal tech hubs like Austin, Nashville and the North Carolina Research Triangle.

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The common factor is that left-leaning highly-educated cities in 2022 America all have heavy restrictions on building new units of housing. You only need small shifts in demand to produce huge shifts in price if supply is very inelastic, just like you only need small shifts in supply to produce huge shifts in price if demand is very inelastic (natural gas & Europe right now).

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It's not weird at all. It's just the difference between exchange-values and use-values. If the exchange-value of your assets goes up but no new use-values are produced to compensate, you're collecting economic rents.

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The dollar value of your house in the market is going up every year. That means every year, if you chose to sell your house, the actual dollar pile you receive would get larger.

Then, you could either:

(1) Move to a lower housing cost area and have a massively higher consumption of everything for the rest of your life

or

(2) Rent in the area that you used to own in, and still have a giant dollar pile from the sale (that would slowly be paid down for rent)

Option (2) is only worth doing if you use it as a bridge period to then do option (1)

Just because people *choose* not to move away from high cost areas doesn't mean their wealth isn't real. It just means that to convert their wealth into consumption they have to move.

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Also having the ability to keep people from moving in seems like a reflection of wealth (implied by the desirability of the area).

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You hit the nail on the head, the bit that even economists who think about this stuff for a living don't seem to get. Wealth is a relative concept and has no meaning unless you compare it with something. Once you understand that the world actually starts to make sense

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Not true. A society with two houses is wealthier than a society with one house. Similarly, a society that can produce 10 bushels of corn per acre is wealthier than a society that can produce 5 bushels of corn per acre.

Money is relative, wealth is real. Money-denominated wealth is semi-real, since you could in fact sell your house and get a giant pile of other real stuff (machines, housing in places we are still building housing, human labour)

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Thanks for taking the time to reply. I think the concept of wealth is a pretty important topic don't you?

1. So following on from this logic, a society with 2000 houses is wealthier than one with 1000 houses yes?

2. Not if the people don't like eating corn

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1. Yes. This applies ad infinitum. Humans might place a declining value on each additional house out to infinity, but each time you add a finished good to the set of goods a civilization possesses that civilization becomes wealthier (unless the finished good produces negative side-effects). Wealth is *stuff* and *methods to produce stuff*, and we use money to compare the value of different kinds of stuff.

2. Wrong. Even if people don't like eating corn, if they were producing a non-zero amount of corn (to feed to pigs, say), being able to produce that corn on less land frees up land to be used for other purposes and makes them wealthier.

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Apologies for the slow reply, crazy Christmas and January.

So I think you begin to see the problem: humans DO place a declining value on excessive production of anything including houses. I'm pretty sure housebuilders know this and carefully manage how much housing they supply (except perhaps in China!)

I think what you are talking about is a different, but perfectly valid concept of wealth: the amount of useful stuff a person or society has. I would include knowledge, experience and technical knowhow in this concept of what wealth is.....

...but this is very different from the financial concept of wealth. If you produce more houses or corn than the market demand for it (or ability to pay for it), then the price will fall and those things are worth less. Ultimately, if you flood the market, even for something that is extremely useful like houses, things can have little or no financial value at all.

Whenever we invest time and resources into producing something there is a negative side effect: we could have done something else with that time and those resources. The only question is: do the positive effects outweigh the negatives. I could build you a house, but believe you me, the time and resources would be completely wasted and the resulting house pretty much worthless!😂

If more people understood the difference between these two concepts that both get called wealth then it would be a lot easier to have constructive conversations

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Your original claim was "Wealth is a relative concept and has no meaning unless you compare it with something."

This is just wrong. Financial wealth and actual-stuff-wealth are linked, and often quite tightly linked once financial wealth has been adjusted for inflation.

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The choice of whether to move is complex. Sometimes, it's not motivated in luxury.

Consider the standpoint of someone who lived in the Rust Belt in the late 20th century and saw their communities enter secular decline (depopulation, loss of jobs, young adults moving away) when deindustrialization began. Why would they stay under those conditions? What motivates them to leave?

Age can play a big role. The older you are, the more painful it is to uproot yourself and your family to begin anew. If you lived in Illinois and saw your unionized factory job transplanted to the non-union South, it's a tough call. If you had a house you'd sell it in a "catch a falling knife" economy, or might abandon the property altogether. You'd then have to compete for your job in a very tight labor market -- the factory was chosen primarily to be in a place where people are grateful to have basic employment in the first place. You'd then have to rebuild your lives and new social circles.

If you're in lower socioeconomic strata, the primary motivation to relocate is the search for cheaper rent first and foremost. When you hear of the working class who are leaving New York or California for Texas or Florida, generally they're leaving a high-cost region like NYC, the Bay Area or L.A. not for the comparable analogues in those states (Dallas, Houston, Miami) but for lower tier cities with low-wage economies (think Lubbock, Corpus Christi, or the Florida Panhandle). Big cities, like those that can sustain an international airport and a major league sports team, tend to recirculate their higher-educated, higher-earning white-collar workers.

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This is a good article, but it's missing a second part of "What do we do about this to ensure that housing becomes (somewhat) more affordable". Anyone who's bought a house should know that it's 100% an asset (a form of wealth). My question is: how can we build more housing without having people believe that their biggest asset is going to crash in value? Because ultimately YIMBYism will have to win in the political arena and that means winning arguments.

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Well, just wait til the next article comes out, and I think you'll be pleased! ;-)

I was going to write about YIMBY progress yesterday but decided to read more first. I'll write it for this weekend, I think.

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When we build new housing, the cost per bedroom comes down in the immediate term, but the land value goes *up* because more residents brings more amenities.

And a homeowner owns two things, the land and the structure: the value of the land goes up, but the value of the structure (usually) depreciates. After a while you need a new roof, new windows, kitchens, bathrooms, paintwork, etc. A house is a durable consumer good, like a car. It's the land under it which is an asset.

You can see this most obviously with trailer parks, where residents own the depreciating trailer, and lease the appreciating land, and then get stuck with growing costs.

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Georgists would say that while long-term durables like houses do count as wealth -- stuff you spend money and/or direct labor on, in order to produce future value -- land, and the natural world generally (deposits of oil, fish in the sea, etc) are distinct from wealth created by the investment of effort or financial capital, and should be treated as a separate category.

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Completely agree, being a Georgist!

I'd agree that it counts as wealth, just making the point that it doesn't go up over time (unless you're living in a beautiful old building or something)

If you're around on the discord, it'd be great to have a chat -- I'm bdf

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There's a Georgist Discord? (Of course there is...) I'm not on any discords... I'm on YIMBY Action's Slack, though. And I'm pretty easy to google.

I'm at least _trying_ to make land speculation into a campaign issue.

https://www.auros.org/issues/discouraging-blight-encouraging-investment

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Sent a Linkedin message

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Challenging this is a two front war in the US.

Zoning laws largely came out of the New Deal housing assistance focused on white middle class people (read The Color of Law by Richard Rothstein for a detailed history) which created redlining and ultimately ended up in white flight to the suburbs when the interstates were built.

The second aspect is the concept that an individual can use the courts to control someone else's land use. It is not just housing - in our community some suburban homeowners are suing to prevent the town from building solar panels on the town landfill because the homeowners don't want to look at them.

Hurricane Harvey demonstrated that generally libertarian land uses can be quite disastrous as development in Houston was effectively random with little control of the creating of impermeable areas massively increasing runoff that led to serious flooding. The lack of planning means nobody knows what will flood until it floods. Similarly, federal FEMA flood insurance subsidizes local housing developments sited by local communities in floodplains and ocean fronts to collect property taxes. The moral hazard is the local governments collect taxes while federal taxpayers subsidize the disasters.

On the other hand, intense zoning land use restrictions tilts the playing field towards relatively wealthy urban and suburban landowners.

The US needs a rational philosophical discussion on this with legislation following which, unfortunately, is impossible in the current soical and political climate.

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Sep 1, 2022·edited Sep 1, 2022Liked by Noah Smith

Presumably having walls and a roof anywhere would satisfy the liability. But having control of the specific parcel of land it sits on seems like wealth to me. I think people would be pretty upset if their house got moved fully intact 50 miles away in a less desirable direction without compensation.

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yep

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If we take that argument as he presents it, the guy with the $1 million condo is exactly as wealthy as someone living in a mining cabin in the canadian wilderness.

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Hang on. Isn’t there a simpler response to the ‘count need for housing as a liability so it cancels out the wealth of ownership’ argument?

If we do this, then okay, owner-occupiers of a basic home with no other property or mortgage debt now have a net housing wealth of zero, but renters have a housing wealth of minus one unit of basic home’s worth, so they’re still less wealthy than the owner-occupiers by exactly the same amount as before.

Changing the zero point of the scale doesn’t change anyone’s relative positions. This doesn’t affect the long/short position debate, but that seems secondary to the core wealth-counting question.

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Exactly correct. A person having a home is better off than someone not having a home. I would (and did) call that wealth.

There is a different, subtler, point that I made that got miscommunicated. The person with no home is exposed to changes in housing prices. In contrast, the person who owns one home is hedged -- if housing prices go up or down it doesn't affect their consumption. In this sense. the person with no home is "short the housing market".

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That person renting is short the housing market, but also long the rental market. Housing and rental markets correlate but as shown in the article they do deviate at times by a lot. Similarly, the person that is owning, is long housing and short rentals.

I feel like this balance is missed a bit in the analysis of 'what is housing wealth?' Not only is there the wealth that exists as the balance left over when you subtract your mortgage liability from your home value, but there is the monthly payment difference between renting and buying the same house. Both are forms of wealth and sometimes renting is substantially cheaper than buying on a monthly cost basis, and how that balances from being either in or out of the housing equity market is not always easy to calculate.

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Isn't the renter *short* the rental market? That is, when rental prices go up, their financial situation gets worse, and when rental prices go down, their financial situation gets better, as when you short a stock or a commodity.

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Yes, that would be correct. I clearly flipped the logic on that. I think we should still appreciate the distinction between the rental and purchasing markets however. As you correctly point out, the renter is short both markets, but those markets can deviate in different directions complicating the answers of 'what is housing wealth' or 'how much housing wealth do I have?'

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Agreed! Zooming out, why does it matter whether we count housing as a form of wealth? Everyone seems to agree that owners are better off than renters. I’m curious what hinges on this discussion.

Is it because YIMBYism will raise the price of land, making current owners even wealthier? So we need to convince owners that housing is in fact wealth, to make them more in favor?

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It matters because (some/many?) homeowners want to treat housing as a special case: they want wealth to be taxed, they don't want wealth inequality etc, but they also want to pretend that their house isn't wealth too, so they're exempt from all that.

The reality is that doing anything about those issues means doing something about homeownership too, and they do not want that.

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I'd add that it's fairly easy to access at least part of this wealth via home equity loans.

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Sep 1, 2022·edited Sep 1, 2022

"So if you own the exact amount of housing that you expect to use then your net asset position is neutral."

I think there's something weird about Brynjolfsson's claim here. The conditional might be strictly speaking true but as a home owner I don't own 'the exact amount of housing that I expect to use', I own a lot more. At some point, barring robot bodies or wild medical advances, I'll give up the ghost and have no more need of housing, but I will still own many many decades of housing surplus that will survive me. As a result my estate will contain the value of my house and my inheritors will get that wealth either in the form of decades of housing or cash. My net asset position seems then to have been far from neutral.

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"homeownership is part of the American Dream"

I don't think that's quite right -- and that's part of the challenge. Home ownership is a human dream. I live in Vietnam which is, let's just say, quite different socially, culturally, legally, and historically from America. But home ownership is very much the dream here, too.

And if we look at home ownership rates around the world[1] the US isn't even in the Top 50. Countries as diverse as Romania, Laos, Cuba, Nepal, Singapore, Brazil and Oman all have higher home ownership rates than the US.

If anything, the Anglo-sphere has surprisingly low homeownership rates given their wealth and government policies. Australia, Ireland, Canada, New Zealand, the UK, and the US all cluster within the 63-68% range which is kind of weird, actually.

All of this is just to say: I think solving this problem is going to be much, much harder than you (and other commentators on housing) suggest since it seems to fundamental to humanity. Don't get me wrong, it is a fight worth having and I'm 100% on your side. I've lived in America, Australia, and Vietnam and in all three dysfunctional housing markets seem like both the biggest problem and the least acted on by government.

And if you ask people for countries that don't have dysfunctional housing markets you basically get crickets. (Maaaaybe someone will say hey Japan isn't so bad I hear...people just take out 50-year mortgages there for fun, I guess.....At least the 100-year mortgages of the 1990s are a thing of the past!)

[1]: https://en.wikipedia.org/wiki/List_of_countries_by_home_ownership_rate

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Hey Noah, I didn't say that housing is not wealth.

In fact I said it WAS wealth: Here's me tweeting to you about your alternative magic asset: "It's wealth that is balanced against your liability". Note the first two words.

I said that the claim that "housing is not wealth" was a garbled point; "a garbled point". However, I added "but it is true that we all have a housing liability — we need to live somewhere."

My goal was to help you see the more sensible point that those folks might be trying to make -- steelmanning their somewhat garbled argument to find the bit of it that was interesting and true Specifically, the more subtle, and correct point, is that if you have an asset (or wealth) exactly offset by a liability, then your net asset position not long or short in that asset class. In other words, you don't benefit from price rises in the asset and your not hurt by price declines.

This is the the case when you own exactly the amount of housing that you use -- you are indifferent to price changes in that asset class -- neither long nor short. In contract, if you own zero housing, then you are MORE exposed to the housing market than if you own the same amount of housing that you use. In fact, you are effectively short housing which is risky: you are hurt by relative price increases in that asset unlike the homeowner who has a neutral position. That's something most people don't realize, in my experience and worth noting. Do you get it?

I'm sorry that it seems I wasn't able to help you see that point on twitter. Maybe we can talk about it over a beer sometime.

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Right. As I noted in the post, your point was a different one. You said homeowners are not long housing. But as I showed, they are!

And yes, let's definitely get that beer. :-)

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True story: I know a couple that moved to the Bay Area 20 years ago. They love the area and plan to stay here forever. However, they didn't want to be exposed to the housing market so they rented instead of buying. Last year, they finally bought, after missing the big price run up. That cost them millions.

Knowing that they didn't want to be homeless but did want to live here, do you think they were neutral in the housing market for the previous 20 years or short? What was their exposure to prices?

If they'd owned a house similar to what they'd just bought, would they be have been closer to neutral or long?

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Am I short every asset I don't own?

I don't own stock in Rosneft. Am I short Rosneft?

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You're not going to face a choice between serious disruption of your life and buying Rosneft at whatever it costs in 10 years. But you will face that choice with respect to rent wherever you live.

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That's not actually an answer to Noah's question!

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Sep 1, 2022·edited Sep 2, 2022

You're short the assets you will have to cough up in the future at a potentially infinite price.

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It depends on what your expected liabilities are. In some cases, yes. In some cases, no.

If you have a big project planned that will require buying lots of oil next year and you have no oil today then you would be short oil.

If you were going to need a lot of sunflowers next year and you had none today, then you'd be short sunflowers.

If you know you will need housing next year and have no housing today, then you're short housing.

In each case, you would be exposed to price swings in that specific asset, for better or worse, not hedged.

It's not a super deep point so I'm not sure why it's getting such resistance.

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I think people are opposed to capitalizing lifetime consumption into a liability for good reason.

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Perhaps it is a super deep point? It seems it might strike at the core of how to define liabilities and short positions, both pretty basic concepts. Until now I would've confidently declared that I'm not "short food" if my fridge happens to be empty, even though I know I'll need food tonight. But now I wonder whether I'm incorrect on this apparently basic notion!

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If we're concerned about the role that home ownership plays in creating wealth inequality, why not simply tax away most or all capital gains that have accrued at the time a homeowner sells? Those gains are almost completely unearned. Why are we so protective of people's unearned windfalls?

Eliminate personal and corporate income taxes, tax the shit out of capital gains on everything. There, I've solved all our problems. You're welcome.

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This would discourage selling houses at all (since you never profit at all), which is a real problem when expanding a city often involves tearing down buildings to build bigger ones.

It would also discourage building new houses, since you won't get any profit from selling the house you built, only the value of the vacant lot.

What you want is a land-value tax - tax away the value of "living in a high-demand neighborhood" which you didn't create, but not the value of the improvements to the property, which you did. This means that if you have a single-family home in a place where people want to build skyscrapers, you'll have very high taxes (since the value is in the lot that could hold a skyscraper, not the house), which will encourage you to sell it to someone who can make a more profitable use of the land.

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Most people don't seem to mind what you call "unearned windfalls". Pretty sure winning the lottery would qualify under your definition, but most people seem to believe that the winners get their prizes fair and square. And it IS fair - every ticket has an equal chance of winning - even if the winners didn't "earn" it in the more limited sense of laboring for it.

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Most people don't seem to mind lottery wins being taxed, though?

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Sep 1, 2022·edited Sep 1, 2022

Perhaps, but I think if we were to "tax away most or all capital gains" on lottery tickets they would find that unfair. I'd even be willing to bet people would prefer to pay a regressive tax when they buy their lottery ticket rather than on the winnings.

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I think I would take your side of the bet in your second sentence. But my intuition runs counter to yours in your first sentence. I suspect neither of us has empirical evidence of public attitudes to taxing away most of a lottery win!

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Dear Noah Smith, Absolutely, house is a wealth most people try to leave it as a bequeath to their children instead of cashing it in their life. If housing prices are rising and rents are not as you suggest, then a house owner can simply go to the bank, put his house in future's mortgage whereby, the bank would pay the house owner every month a fixed amount that increases with the increase in prices of housing. That steady income from the bank can continue till the house owner is alive and bank is paying him or her even after retirement. Assume that the house owner lives up till 80 years, he or she will get the fixed amount from the bank. Once the house owner passes away, the bank would own the house and sell it at the market price. In other words, house is a wealth that can be cashed not only at a younger age but is also the source of steady pension after retirement. The only downside is that house would not be left as a bequeath to the children.

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That is a big downside as they buy the house to bequeath it to their children.

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Sep 1, 2022·edited Sep 1, 2022

For average Americans, home equity is a form of retirement savings. "Retirement savings" has nearly opposite connotations from "wealth."

Traditional "wealth" implies the ability to do without earned income in a situation where normal people work. But in our culture, a decent retirement ought to belong to everybody, and retirement savings come precisely because you have been working hard all the years you should.

So your retirement savings don't culturally count as being "a wealthy person." They don't go with having been able to work less than the standard working years, or being able to exceed your own prior standard of living.

To an economist, retirement savings are a perfectly normal kind of wealth, and retirement leisure is nearly the same as any other voluntary time off work. But culturally, smoothing consumption into retirement doesn't feel like "being wealthy." It feels like being safe and stable.

"Retirement savings count as wealth." Honestly, that's a sentence like "unemployment can't go to zero" or "controlling prices is bad." There are ideas that make perfect sense in economics, but no sense in popular culture.

But that's not the real strangeness here. The strange thing is American homeownership!

Why should Americans need homeownership for a secure retirement? It's dumb in theory and causes all kinds of trouble in practice. Unfortunately, it's hard to make that case, if the entry fee is claiming that homeownership is basically the same "wealth" as a Walton family inheritance. That just grinds against everything ordinary people read into "wealthy."

I'd like a good strong argument against America's weird fixation on homeownership. I suspect whether or not home equity is called "wealth" is just an irritating side issue.

I look forward to your real broadside against American homeownership culture!

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This is just a shell game of spot the wealth - you're moving it into retirement instead of housing.

It's true that popular culture has issues with acknowledging some things as wealth and others not, but that's a popular culture problem because it simply does not reflect reality.

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Sep 2, 2022·edited Sep 2, 2022

Popular resentment of and eagerness to tax the wealthy is pinned to that same popular (mis)conception of wealth. "Tax the people with retirement savings" and "tax the families with modest owner-occupied houses in gentrified regions" don't have the same ring.

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Felix Salmon of Axios has a line that "everyone is born with a housing short they have to cover". Makes sense to me. And I have noticed as one becomes more 'adult' more sophisticated views of home ownership start to sink in.

But there is another aspect, if the gov't imposed a tax on Bitcoin and you had a lot of it but little real cash, you'd sell some of it to pay the tax. Grumbling, I'm sure, but it is what it is. Your home, however, you are emotionally attached too and there is a perspective if you spent decades in a community and paid off your mortgage, you not only own the home as an asset but you have an emotional asset in the connections to the community as well as that connection you may pass onto your kids.

Here the reality of change starts running into emotional economy. Imagine the older person who has paid off their home who sees real estate prices soar due to gentrification. On one hand this is a boon, they are 'sitting on a gold mine' if they ever want to cash out. On the other hand it starts creating some nasty emotional dynamics. If real estate taxes start going up, the pressure feels worse. They may be forced to sell and move despite the fact that long ago they 'paid for' the connections and home. Likewise kids may start seeing the house as less than a legacy of the family and more as a massive asset that the moment grandma drops dead will get sold and split.

These things are all real sources of concern for people and they tend to hit at the end of their economic lives when things like 'being dynamic' are the most hard.

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There's also the question of *why* middle income people hold so much of their wealth in housing--why not rent and buy stocks instead? Part of the explanation would be that the returns to housing have been pretty good: firstly because the land use policies you mention restrict supply amid growing demand (raising prices) and secondly because the federal government subsidizes leverage by insuring mortgages and providing the mortgage interest rate deduction. Housing may be wealth, but we don't want voters to have an incentive to make it a lucrative investment.

As you say, having so much wealth (middle income wealth especially) in housing leads to bad land use (and tax) policy, but those bad policies lead to more wealth in housing. The question becomes: how do we break the cycle?

[Arguably we should be *dis*-incentivizing homeownership because it reduces mobility and leads to highly un-diversified portfolios for middle income people. I know that there are claims that homeowners are more invested in their communities, though I haven't seen much empirical evidence of that.]

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Sep 2, 2022·edited Sep 2, 2022

I don't think this is mysterious or subtle. When you spend more money on a home, you get a nicer home to live in. People want very badly to live in nicer homes, and when they get more money they will do it, even as pure consumption. Middle class people in particular walk a line between their propensity to consume and and the morality/longtermism of moderation and savings. Middle class renters might rent less than the nicest apartments they can afford. But since a house holds its value, it is the one kind of consumption they will happily go all-out on.

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Housing in the only leveraged position available for passive investment, to non-sophisticated investors. You can't get a 30-year to buy stocks. You can take out margin-loans but those are subject to market volatility in a way that home-mortgages are not. You can be underwater as long as you have the cashflow to pay the monthly mortgage.

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Also, housing in advanced economies is apparently a hedge against inflation: https://policytensor.substack.com/p/housing-protects-investors-against

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This brings up an interesting side question. Why is it that (upper middle class) Americans are much more likely to invest in financial markets than their European equivalents? Do Europeans, except for the very wealthy, just put *all* of their money into the housing market? It might help explain their generally higher real estate costs compared to income.

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I'm shocked that there are people who don't recognise housing is a form of wealth.

Is this a thing that people who don't own a house forget and people who rent are super aware of?

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Good article but I think it could be expanded in two sorts of avenues, which is that the way the median American thinks about housing is weird.

First, since housing is both a consumption good and an asset, people don't always try to maximize asset returns and instead for things that might make their consumption experience better (less traffic on the street, remodeling their bathroom). Second, Americans have a hard time separating the value of *Real Property* from the market price of a house, essentially not understanding fully that the land underneath the house has a separate value from the improvement sitting atop it. This, combined with the first idea, means that homeowners get weird ideas about "making sure the whole neighborhood is mowing their grass" or "remodeling the bathroom" being some of the best ways to get ROI on their home, instead of "add some businesses down the road and grow the town so my land gets more valuable".

Maybe this is just my axe to grind but I think this contributes to some of our collective bad ideas about housing.

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