Submitted by smurfyjenkins t3_y9veul in science
Thanks, everyone! I am a homeowner because of an FHA loan which let me be qualified with a lower down payment. Because of this, I've been able to spend less than I would on rent so that I could afford a reliable car, stay employed, build equity, and pay employment and property taxes to help the community. I see it as a net positive and I hope others do, too.
It’s just a problem from a societal standpoint that people with less money than you, have to pay more for housing because they can’t afford to own. So that benchmark of wealth needed to be a homeowners becomes a class divide. And the stronger those programs are the worse the divide becomes.
I bought my house in 2013 because I had enough in my starbucks 401k to make a down payment on an FHA loan. I only even considered this because I couldn't afford to rent a 1br apartment in my area, but I could afford a $700/mo mortgage.
Could you explain how poor people are paying more for housing compared to someone who buys a house?
When a person buys a house, and pays money into that loan, they are essentially paying themselves, as they accrue net value on an asset they can sell later. When a person rents a house, that money is just gone. There is no value return, you have essentially just bought the opportunity to live in a house for a period of time. Therefore, over time, the person that owns the house will have more assets than the person renting, even if they make the same.
[removed]
Renters are paying all the expenses for the property they live on, including the cost of maintenance that they could possibly be doing themselves, PLUS a nice amount of profit for the person that they rent from. Rent prices also don’t scale well in the lower range, so people are paying more for less.
[removed]
Aside from the loss of paying rent, we also lose in higher interest and insurance rates over those who can make larger down payments or buy outright and then rent back to us for the mortgage plus cost plus expenses and most importantly profit.
> buy outright and then rent back to us for the mortgage plus cost plus expenses and most importantly profit.
Saying that you pay more because someone else makes a business out of it is like saying that walmart makes more money cause it buys stuff in bulk then sells it to you at an increased price. Thats not really an argument but more like a method of making money.
>Aside from the loss of paying rent
But when you pay rent, you don't have to pay for repairs and maintenance. Heck, sometimes the utilities are included into that rent. Much cheaper than spending $20,000 on a new roof. Or paying $9,000 in taxes per year.
>we also lose in higher interest and insurance rates over those who can make larger down payment
The interest rates are based upon a system which is doing a person a favor. By loaning them money. It's not "Poor people pay more for a house", its more like "The more money you borrow, the more interest you'll have to pay". It doesn't matter whether they're poor or rich, the more money they borrow the more interest and higher rates they'll have to deal with.
Btw, a poor person can still get great rates if they have good credit.
And the solution: make it available to all income groups, eventually ending rental as a major component of housing.
It’s a net positive for you, but for renters who get left behind
I should clarify that this was in 2010 and I also lived in a mobile home because the lot rent was cheaper than an apartment. I owned the home outright due to it being super crappy and super cheap and the fact that my parents let me live with them for 2 years before that.
But I think for those who don't have any support at all or even the meager ones that I did should still be supplemented by society because having basic needs met is good for everyone.
For them there should be incentives to build more affordable housing for local workers to purchase, they are priced out because of supply and demand issues, which then led to housing becomming an asset bubble which attracted investors, many overseas, to purchase up due to its scarcity. Then you have the effect of that becomes self-fulfilling, the property value or rent increases faster than other investments, and on it goes on. Something needs to be done but I don't think the issue is that home owners arent taxed enough or 'enjoy' being free of tax, its more what's not being done for renters.
Its not a closed system between renters and non-renters, the first place I would look for increasing tax revenues would be the tax avoiders with their off-shore tax loopholes. However I could be confused about what they are talking about as imputed rent.
Higher property taxes do lower demand for housing and help depress the cost of housing, though. Prices increase more slowly in places with high property taxes vs lower property taxes.
Yes this is true in that people have to modify what size of mortgage they can take on in light of disposable income, but I think a better solution is to restrict mortgage lenders from lending excessive multiples of an average wage whilst restricting planning permission except for affordable housing (as calculated by an affordable mulltiple of average earnings in the local area). So in this way land costs are restricted. See, a developer knows that affordable housing is defined as a certain level, purchases land, the council or planning department says 'affordable only', this causes the value of the land to be more rational, which is a major component of the final cost. Governments should in my view actively contract home construction companies to meet demand for affordable housing where they know there is jobs.
By relaxing lending in a situation of scarcity and at the same time allowing overseas investors and other investors to accumulate excess property, then the mortgages will go into bubble territory which also is mirrored in rental prices. Its a self-fulfilling loop.
The problem is you can’t really force housing to be affordable. At some point the cost of actually building the house dictates how cheap it can actually be.
You can make buying up existing housing to make money less profitable by charging a higher rate for properties that are not lived in by the owners, or have a graduated tax rate where it becomes cheaper the longer you live in your home.
Businesses bought up over 20% of the housing since the pandemic started. That's a huge upward pressure on price.
Oh it does, the cost of the house can't go to zero, thats true.
But in industrialised, technologically progressing societies, the ammout of stuff each of us produces increases and can in turn, even with a fat cat in the middle, get more in exchange for what we trade. So housing should get technically more affordable, although never free.
In my country by way of background, in my area many people are priced out. But not far from here getting a new, town centre flat can be very affordable, in areas that are reasonably desirable. Because of national minimum wage most everyone can earn £1500 a month and the flats are £100,000, with rent of about £400 a month. These are new builds not being sold at a loss, that's just a reflection of what they cost. Anyone can get a deposit and buy one there.
But go where the housing is in higher demand and prices go, as we say 'mental'. In the capital, for example, a major driver of this is that property is bought for money laundering and oversees investment funds.
So managing demand so that new builds (a fraction of which) can only by bought by local workers and not more than a reasonable multiple of wage is quite doable.
Now, the cost of housing is about 30% from the underlying cost of the land. But, if you were a house builder in this country and wanted to increase the odds of getting your planning application on a plot of cheap farmland you have bought, from nearly zero to decent, you would have to put a fraction of it as 'affordable'. Now if you put it to 100% affordable then developers know that the development has higher odds of getting planning but is less profitable. Councils can thereby keep housing costs down because granting planning for affordable housing means the land is worth less, and thereby costs less, than for say a millionaires row. And this does lower the cost of the development. So yes it is happening, but the rate at which new housing is coming onto the market lags years behind because planning permissions take ages, and really should be strategically pre-approved where it is logical to build them (for affordable housing). The ongoing bubble prices are due to supply vs demand imbalance.
Edit typo
For sure. I just think making housing cost less then it should in a given market is the wrong way to make affordable housing I guess. I think more should be able to afford homes but I don’t think everyone should be able to afford a home everywhere. Like it doesn’t make sense to require affordable housing in the most desirable areas. Then we get situations where a poor person can live there and a rich person can live there but no one in between. I think getting rid of homes as rentals would greatly increase supply and help alleviate the issue. As well as all other types of investment groups buying single family homes at all.
Yeah I agree, micromanagement like that is undesirable for many reasons.
I think where the solution lies is in separating out lending and finance for new builds / restoration vs existing housing. Where a market is plainly overheated encouragement of planning applications for affordable housing to stimulate new supply is different than, say encouraging higher lending for mortgages on existing already built housing stock, that just keeps its price going up, edit or as you point out, financing existing property accumulation by land lords.
The way we do it, which is potentially effective if it was done faster, is that councils are told how many houses they need to bring online to meet population demands, and a fraction of that needs to be affordable. If it falls below its target for long enough those councils are fined. Its up to them to decide where planning submissions are approved for that. I favour high density developments near towns personally, as also transport costs are less and residents have access to jobs.
However, property taxes discourage construction of new homes, and maintenance and repair of homes, because these taxes increase when landowners develop and improve their property, and annual property taxes are passed onto renters as they roughly scale up with occupancy.
A fairer alternative is land value tax, a.k.a. "the perfect tax". The tax is levied based on the potential value of the land to its owner, which creates the opposite incentives. Landowners use land as a speculative asset less due to the cost of LVT, and benefit from developing land in order to realise higher incomes against the cost of LVT. Also, the cost of the tax is not passed on to tenants.
Essentially, property taxes are regressive and create deadweight loss, while land value taxes are progressive and economically efficient.
That also explains the conflicting views on housing affordability in the US.
Rising home prices are a benefit for those who already own homes and a detriment to those who do not. Each side wants to benefit, but helping one hurts the other.
Do you have more info on this sort of thing?
Not financial advice:
Any lender can give you an FHA loan, it gives you rates comparable to a credit score around 750 (so little to no benefit for the top 50% credit percentile). They allow you to put only like 5% down but I believe there is a mortgage insurance fee of like 3% of the purchase price upfront
When you do get a mortgage look at zillow and bankrate to find competitive lenders and reach put to 7 or 8 of them so you can get your interest rate down
Wow thank you
Np, went through all this for the first time a couple months ago so its fresh in my head
Also note that mortgage insurance is based on the assessed value of the home. If your home increases in value you can request your mortgager to reassess the value to leverage new equity against what you owe. For us we needed to have at least 20% of the assessed value covered before they’d remove the PMI. It was around $500 to have the property reassessed, but it cut off years of those payments.
It depends on the terms of your mortgage. Terms in my mortgage was I had to reach 20% of the value I paid for the house, didn’t matter what it may appraise for. With an FHA loan you won’t ever get rid of pmi unless you refi into a conventional loan.
Yep, my terms are similar, 20% of original assessed value, or prove that I did enough home improvement to justify the increase in valuation (ie, not just market fluctuations)
Sad news when I found that out last week.
One thing to know about FHA and VA loans is that they can also be assumable - meaning if the new buyer qualifies and the lender agrees, the buyer can get the loan with interest rate if the original loan (something very desirable in this market if it was created in the last couple years where rates were even under 3%). Conventional loans are not assumable.
Another perk of the FHA and VA loan products (although paying mortgage insurance through the life of an FHA loan rather than it going away like PMI after 20% down is a cost).
I didn't remember about it being assumable... but that's interesting!
Yes, it looks like a net positive. But the actual long-term impact on society (and, likely, you personally) is almost certainly a net negative..
Consider the world where there are no FHA loans, no pseudo banks like Freddy and Fanny, mortgage interest is not tax deductible, laws like prop 13 in california (which limits real estate taxes) do not exist..
What would that do to home prices? Almost certainly they would be significantly lower (especially in areas which are very expensive: where homeowners would be under higher pressure to sell and move into a less expensive area). Basically the current system floods the housing market with money and drives prices up while simultaneously encouraging people to hold-on to their current houses.
What would it do to rent prices? Here the impact would be more complicated but the prices would likely end up lower too: current homeownership laws "lock" a lot of land into very-low-density single family housing, if that land is "unlocked" then single-family will get replaced by multi-family housing which far more efficient (cheaper!)
Another way to look it: the governments are trying to subsidize almost every buyer on the market, that does not work and cannot work, it just drives prices ups. I suspect that the primary beneficiaries of the current laws are real estate agents and development companies (and to a lesser degree long-term home owners).
Viewing a single comment thread. View all comments