How an obsession with home ownership can ruin the economy
Video Statistics and Information
Channel: The Economist
Views: 1,907,510
Rating: undefined out of 5
Keywords: The Economist, Economist, Economist Films, Economist Videos, Politics, News, short-documentary, home ownership, housing bubble, real estate, real estate investing, investing in real estate, housing market, buying a home, economy
Id: kkVEt5tC2xU
Channel Id: undefined
Length: 12min 50sec (770 seconds)
Published: Wed Jan 22 2020
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The video hits the nail on the head by saying that obsession with house prices leads to huge problems with lack of supply to artificially drive up prices.
When prices go up without anything about the properties becoming more attractive then it's a really bad system, it's all just manufactured scarcity.
For me the home ownership โobsessionโ is merited and absolutely normal. A healthy human right for a developed nation.
The issue is the wealthy, the lucky and the government have made it lucrative to the point no longer is housing obtainable.
A) the wealthy can afford housing regardless, and sell the stock they have when they want
B) the lucky bought in 20+ years ago and now sit on a plasterboard goldmine they will never relinquish
C) the government created this whole mess in the first place - providing high demand and low supply solutions, favourable tax incentives and the all important negative gearing atrocity.
A, B and C are all united now, best of friends. irrespective of their politics and beliefs, they will never end this friendship.
A massive problem in aus is the terrible rental laws. Renting would be much more attractive if they didnโt treat you basically like a criminal for renting.
You can buy better apartments for cheaper in central Tokyo than you can in Melbourne.
What this all boils down to... Is property ownership shouldn't be considered a business / income
Getting people into their own homes is good for the economy... Not billing them every week for 4 walls and a roof
How impressive that in less than 200 years, home ownership turned from a basic right with easy access to a privilege or a "problem"..
Just to add a little fuel to the renting vs buying fire;
So if the costs of the 2 are around the same, isn't buying still way better (at least financially) because you will only be making these payments for 20-30 years while if you decide to never buy and just rent, you will be making these payments indefinitely? Not to mention the asset that the homeowner now has that (typically) increases in value.
E.g. I buy a house and it costs me $25,000 per year for everything; mortgage, interest, maintenance, insurance, fees, rates, etc. I pay this for 20 years (a total of $500,000) and then after that I own it outright and all I have to pay is the insurance, rates and maintenance, lets say $5,000 per year. I do this for the next 40 years and then die. So that's another $200,000 for a total of $700,000 spent on shelter for ones life.
My mate rents a place for $25,000 and manages to stay in it his entire life, 60 years, until he dies. All he pays is rent, no other items. So his total comes to $1,500,000 spent on shelter.
This example is obviously super simplified and doesn't account for many variables, but when comparing apples to apples - am I missing something here? How can people say renting even equal let alone better?
This is the way I've always looked at it anyway...
What scares me the most is that I can't afford to either rent or buy. If it wasn't for cheap board at my parents I would be really struggling & if I was to lose my job, I would be done for.
Very worried for my friends who are the same age and have considerably less assets than that me or have been jobless for months (in my early-mid 20's).
FHLDS does nothing for people like me. It simply increases property prices by a proportionate amount to the increase in available credit; quite dangerous. Most 'modest' houses are above the price thresholds set by the FHLDS (in my area of NSW) anyway. Seems the path to home ownership is to have such a considerable deposit that repayments are easily serviceable on your current income (which for most people, doesn't seem to be rising) with enough buffer for increases to interest rates. This in itself is quite hard to do given that rent is still very expensive; even harder to commit to when the intrinsic value of what you're buying is significantly less than the purchase price.
I can only hope we have a housing correction like the US did starting in 2006.
Land Tax