2016-09-15

The housing debate that rages in the SF Bay Area and other coastal cities can be seen as a clash of cultures between one which considers housing as an investment, and the other which considers housing to be a fundamental societal building block.

When people are told that housing is an investment asset with an expectation of appreciation, they will psychologically prime themselves to treat housing primarily as a means to growing their wealth, discounting the other societal roles of housing.

Not all societies are like this. Japan for instance has a general expectation of value loss for their houses and condos. Berlin (from what I have heard), has taken a top-down approach to control rental costs for its residents, considering this to be a desirable feature of their society.

But once we have set this expectation of "housing as an investment", it will incentivize residents to protect their investment at almost any cost. This includes electing an anti-density city council, enacting anti-density rules, and other market manipulation including (in the past) racial segregation. Different cities will manipulate their market to varying degrees and varying ways, but all are incentivized to warp things in homeowners' favor.


Additionally, there are external forces pushing housing prices upwards:
- Banks provide cheap financing via mortgages, enabling people to lever up on the asset class.
- Federal government encourages leverage through mortgage tax deduction.
- Federal government encourages home ownership through property tax tax deduction.
- Federal government encourages upgrading homes to a more expensive one through a capital gains rollover.
- California government restricts supply by discouraging long time homeowners from selling their homes through Prop 13.
- Federal Reserve Bank's low interest rates have suppressed mortgage rates, facilitating the financing of higher home prices.