A home is the most substantial purchase the vast majority of Americans will ever make. But in the U.S. a home isn’t just a place to live–it’s also viewed as an investment.
We’ve previously shown the problems with this view, but Joe Cortright of City Observatory argues that the need for affordable housing and the desire for homeownership as an investment vehicle are mutually exclusive:
What if housing were a low-risk, can’t-miss, bet for growing your personal wealth? What would that world look like?
Well, in order for your home to offer you a real profit, its price would need to increase faster than the rate of inflation. Let’s pick something decent, but not too crazy–say, annual [real] increases of 2.5 percent…
Sound good? Well, what if I told you that such a city existed? What if I told you it was in a beautiful natural setting, with hills and views of the ocean? And a booming economy? And lots of organic produce?
The city he is referring to is notoriously expensive San Francisco.
Clearly, restrictive regulations on supply raise prices, guaranteeing homeowners a healthy return on their investment. Restrictive regulations enable a sky-high rate of return, but why does that make affordable housing and housing as an investment vehicle at odds?
But this sort of wealth building is predicated on a never-ending stream of new people who are willing and able to pay current home owners increasingly absurd amounts of money for their homes. It is, in other words, a massive up-front transfer of wealth from younger people to older people, on the implicit promise that when those young people become old, there will be new young people willing to give them even more money. And of course, as prices rise, the only young people able to buy into this ponzi scheme are quite well-to-do themselves.
NIMBY homeowners fight so zealously to preserve their neighborhoods in no small part because they are (understandably) concerned about preserving the value of their largest investment. To break the back of NIMBYism, it’s necessary to rethink of homeownership as durable consumption rather than an investment–a daunting challenge given how deep-seated the current mindset is.