Elias K. Mangosteen (![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png)
mangosteen) wrote2021-09-22 01:04 pm
mangosteen) wrote2021-09-22 01:04 pm
Give me some leverage and a place to stand...
Meta: I haven't posted here in ~2 years, and there are reasons for that, mostly due to using an actual paper journal, and staying away from Facebook because It's Bad For Me(tm). However, there's a gap called "sharing long-form ideas with friends, and actually getting meaningful feedback/discussion."
Context: I'd like to pressure-test an idea. I'm sure that most of you could rattle off ten valid viewpoints on homeownership and the economics thereof... including a values/morals argument on whether a home should be an investment. I'm of many minds on it, although I start from "well, it is right now, at least in the densely-populated parts of the US". So...
Assertion: Purchasing real estate is the only leveraged investment generally available to the middle class in the US.* I mean that both in terms of "opportunity to acquire" and "conceptually comprehensible". I can't think of another type of widely-available investment that allows you 4:1 leverage on your money to buy a class of physical asset that has a history of capital appreciation, and then keep the capital gains for yourself.
I believe that to be true. Sure, the ROI is usually less than investing in (say) an index fund, and yet we're back to leverage. The hardest part of accumulating capital is accumulating enough to have any appreciable return. "The first million is the toughest" is more flip than I'd like, but it's true.
What I'm I getting at? Great question, and I'm glad you asked!
Buying a home is a not-great investment for most people... and thinking of homes as investments leads to a bunch of perverse incentives including NIMBYism and fights over zoning that boil down to "don't touch my property values... this is all I have." Even places where racial discrimination is actually at the root of it, I suspect you'll often find "this is my life savings, and I'm scared" sitting down next to it with a cup of tea.
So... how do we fix that? What does it look like? How do we get there? I don't know, but "making a physical, immobile, illiquid asset be one of the most attractive and legible investment vehicles for the middle class" seems like an aspect of the problem that doesn't get talked about all that much.
* Yes, one can do highly-leveraged investments in the stock market, but the amount of individuals who can do that with any reasonable rate of return is negligible, so I'm putting that to the side for now.
Context: I'd like to pressure-test an idea. I'm sure that most of you could rattle off ten valid viewpoints on homeownership and the economics thereof... including a values/morals argument on whether a home should be an investment. I'm of many minds on it, although I start from "well, it is right now, at least in the densely-populated parts of the US". So...
Assertion: Purchasing real estate is the only leveraged investment generally available to the middle class in the US.* I mean that both in terms of "opportunity to acquire" and "conceptually comprehensible". I can't think of another type of widely-available investment that allows you 4:1 leverage on your money to buy a class of physical asset that has a history of capital appreciation, and then keep the capital gains for yourself.
I believe that to be true. Sure, the ROI is usually less than investing in (say) an index fund, and yet we're back to leverage. The hardest part of accumulating capital is accumulating enough to have any appreciable return. "The first million is the toughest" is more flip than I'd like, but it's true.
What I'm I getting at? Great question, and I'm glad you asked!
Buying a home is a not-great investment for most people... and thinking of homes as investments leads to a bunch of perverse incentives including NIMBYism and fights over zoning that boil down to "don't touch my property values... this is all I have." Even places where racial discrimination is actually at the root of it, I suspect you'll often find "this is my life savings, and I'm scared" sitting down next to it with a cup of tea.
So... how do we fix that? What does it look like? How do we get there? I don't know, but "making a physical, immobile, illiquid asset be one of the most attractive and legible investment vehicles for the middle class" seems like an aspect of the problem that doesn't get talked about all that much.
* Yes, one can do highly-leveraged investments in the stock market, but the amount of individuals who can do that with any reasonable rate of return is negligible, so I'm putting that to the side for now.
no subject
no subject
1) A sales tax that grows every year: Today it's 1%, next year it's 2%, next year it's 3%, and so on forever.
2) A tax on interest at a fixed nonzero rate.
For reasons that might not be entirely obvious, these taxes are equivalent in the sense that they incentivize exactly the same behavior, and (if the tax rate on interest is chosen appropriately) either one leaves each individual taxpayer --- not just taxpayers on average, but each individual taxpayer --- exactly as wealthy as the other does.
So option 2) is a good idea if and only if option 1) is a good idea. Most people have an natural intuition that option 1) is a bad idea; if you trust that intuition, it follows that 2) is a bad idea.
Of course this doesn't prove that 2) is a bad idea, because your intuition about 1) could be wrong. But in fact your intuition about 1) is right, and that's where the long story comes in. That story underlies a major theme in the literature on public finance which starts (but by no means ends) here: https://www.jstor.org/stable/1911310