Theory Time, Housing Market Edition

I’ve been writing slightly more lately. This blog will continue to have small posts, mostly just thinking out loud.

More structured writings may be over at medium. My profile here.

Theory Time, Housing Market Edition?

(this isn’t the first)

Growth in home values is practically the entire source of increased r in Piketty’s r > g.

It is therefore more or less true that “home ownership is the greatest builder of personal wealth”, and if you turn off your brain there it might sound like a good thing. It can be very true and still be at the expense of everybody else in society. Home owners “feel” rich because they are sitting on expensive assets, but they’d have to sell it to buy another one, and look what happens when their assets suddenly turn to worthless (See: Flint Michigan).
These numbers are made up, just to illustrate:

Imagine saving up money to buy a home for 50K and seeing it appreciate to 200K. Yay you’ve made quite the paper profit. Or not, because when you sell it, to buy any comparable house will also cost 200K, so it’s a wash. Unless you live in Flint, then your house went from 50K to 200K and then to 0K, time to start over. And when you start over the next house you buy still costs 200K. Maybe you’re not so happy now that home prices appreciated after all, you’d be better off if the houses still all cost 50K. Saving up this time won’t be as easy!

The people in Flint are actively harmed, because mobility across the US is limited as long as your personal worth is tied to the fate of your house.
The people in Flint also serve as a good proxy for almost all young people. Millenials & younger had no assets to appreciate all the while, so the first house they want to buy costs 200K, instead of 50K, so they never buy one.

In other words, “home ownership is the greatest builder of personal wealth”, of one generation at the expense of the next. Inflating the value of these assets helps the early-comers and people who never have any disaster strike, but its at the expense of late-comers, people who “lose” their house to disaster or circumstance, etc.

Maybe there was a better alternative to subsidizing home ownership.
These are not personal gripes, just observations. The subsidized home ownership rules will probably benefit me a lot, but I’d gladly vote against my own interests here for the interests of my generation. (One of the reasons I hate when people say “why do they vote against their own interests?” aren’t there a million reasons?)