Blog by Sumana Harihareswara, Changeset founder

16 May 2009, 16:19 p.m.

Slapdash Thoughts On Real Estate

Hi, reader. I wrote this in 2009 and it's now more than five years old. So it may be very out of date; the world, and I, have changed a lot since I wrote it! I'm keeping this up for historical archive purposes, but the me of today may 100% disagree with what I said then. I rarely edit posts after publishing them, but if I do, I usually leave a note in italics to mark the edit and the reason. If this post is particularly offensive or breaches someone's privacy, please contact me.

I need to read about property.

Specifically, I need to read philosophy of property. What does it mean when we say, or feel, that we own something? In the free software crowd, this is a perfectly normal thing to want to learn and does not make me any nerdier than I already am.

[This is in contrast to how people reacted to me at Thursday night's meetup. To make it easier to make conversation, I wore a reusable whiteboard-ish nametag upon which I'd written my name, my handle, and a bunch of topics I'm interested in: Le Guin, Battlestar, Stephenson, Trek, open source, feminism, stand-up comedy, and tax history. (Write on it with a Sharpie, erase with any sort of alcohol. I used perfume.) People invariably looked at it, nodded along, and then asked incredulously, "Tax history?" to which I responded, "That's what makes me a nerd here." Laughter & bonding achieved!]

I need to understand theory of property because I've been trying to understand my own feelings about ownership. For example, I have some inchoate thoughts on analogies among our property intuitions regarding homes, romantic and filial relationships, and intellectual property, especially regarding homesteading/squatter's rights/Lockean "mixing your labor with the land." But right now I want to talk about buying versus renting.

In personal terms, investing 300% of your wealth in one asset seems like dubious personal finance.

So why, in the US in the later twentieth century, did it make economic sense to buy a home to live in? Well, these days, the cost of rent or mortgage is now like half or more of income, on average. The government made interest on home mortgages tax-deductible, so it's like you don't have to pay taxes on the income that you used to pay that mortgage. And on a 30-year (standard) mortgage, interest is like 80 or 90% of the monthly payment.


Sure, renting makes you feel like you're throwing away money every month instead of investing in your own wealth, and your rent goes into the pockets of the rentier class. But given the huge proportion of interest to principal in a mortgage payment, a mortage builds equity pretty slowly, and all that interest goes to the rentier class too. And it decreases the homeowner's mobility, of course, which hits knowledge workers especially hard. (I'm assuming that if you're reading this knowledge work is your lot.) Being able to move to a new city to command higher wages or consulting fees is an economic benefit too.

And house prices are not guaranteed to go up! Like Franklin Mint collectibles, they are not guaranteed to increase in value. And past performance really is no guarantee of future results. Buying a house is making a big, big bet.

But this is where we get to the intangible benefits of permanence, and all those other benefits of "owning" "your" "own" "home." (Heck, even our language is biased. We say "I just bought a house" or "she owns her home" as shorthand for "I just signed a mortgage and intend on owning this house outright eventually" or "she is slow-mo buying her home on the installment plan.")

If I own my house and live in it for a long time, it's a lot easier to raise kids, to run for office, to customize my living space, to feel neighborly, and so on. But what comes from what? What parts of those benefits are coming from choosing a city and staying there, from staying in one particular home, or from having a deed to a piece of land?

When I sleep overnight in my parents' house, or my sister's condo, what is that strange comfortable feeling I get? Do you get that feeling too?

So, just as I want to interrogate my emotional attachment to intellectual property, I want to make sense of my relationships with other forms of property. For example, I am used to living in a house that my family "owns". But what are other options? I could rent a house on a longish lease, to make that commitment that leads to the other benefits of long residency. I could buy a house with a mortgage of shorter duration so more of my money would go towards principal (and thus equity) rather than wasteful interest. I could join co-ops, communes, what have you.

The real shock, the one I have to overcome, is realizing that my reflexes when it comes to home ownership are based on certain historical contingencies about my childhood, the interest tax deduction for homeowners' mortgages, the existing financial and banking institutions, etc. I'm like the RIAA -- mistaking a common business model for What's Owed Me. But the universe does not owe me the deed to a piece of land and a four-bedroom two-bath. Nor does it owe me happy fleet-footed technomad ease in spatial (or social) mobility.

Buying a house to live in makes sense for some people. Will it ever make sense for me? I need to read about property.


18 May 2009, 10:57 a.m.

Some people buy houses to invest in, which we all know is risky. But for those that bought it to live in, the fact that it will be worth more in 30 years is icing on the cake, because, unlike other investment vehicles, like stocks and bonds, a house can also be lived in! When a stock portfolio is worthless, it is written off and thrown away. When a house loses value, normally the holder of the house can still live in it, basically poo poo-ing the intrinsic value the market places on it.

The nice things I have enjoyed about home ownership include: a feeling of community comittment. I have stakes! The privacy I couldn't get in apartments. Granted, you can rent homes; I just never could afford to in CA. The fact that, one day, I will own it outright, is a built-in inheritance to the kids. We must think of the children! During times of inflation, the home acts as a fixed cost. The frustrating thing about renting during the boom days of CA real estate market was that a chunk of each raise went toward a rent increase, and they were substantial in CA in the mid-2000's. Now, any raise is a true increase to my standard of living, because my mortgage does not increase (I have a fixed, not an ARM). And, it's mine. I don't have to worry about foregone deposits if I choose to repaint or put nails in the walls.

Frustrating things of home ownership: anything that breaks is fixed by me, a white-collar CPA. I miss having a landlord to unclog toilets, mow the lawn, repair the flooded basement, etc. Repairs not only take time, but money. They say that you will spend 1% of the value of your home on yearly maintenance, repairs. That really adds up. You may buy a house, love it, and then the neighbors move and in comes some skinheads, or worse, some Stepfords. And you're stuck with them!

I think there was a time when you could still be semi-transient and own a home. But those days are gone, at least for now.

18 May 2009, 12:04 p.m.

(I was secretly hoping John would comment.)

Thanks for sharing your experience, John. I need to think about this more.

22 May 2009, 11:04 a.m.

Neat post!

The whole concept of "property" is a pretty weird one in some ways. Have you read Proudhon?

I have a couple of potentially vaguely relevant links from a few years back.

I think that a lot of the concept of house-buying in the US has to do with the intangibles that you mentioned, and sense of ownership and such; but I think it also has to do with common wisdom that the real estate market, like the stock market, does almost always trend upward over time. You made good points about (among other things) investing a lot in one thing and future results not being guaranteed, but I think in a lot of places and times (in the modern US) the investment has not been all that much of a risk. Which I think is one part of how we got into the current mess (as you suggested)--it's easy to go from thinking "real estate trends upward most of the time" to thinking "all real estate is a good investment."