Future of Boston Metro - Urbanism, Econ, Public Policy

BussesAin'tTrains said:
How many of them live or want to live in the inner metro area? A lot of those 10%-20% households are in the 'burbs, and not looking to move into the city. Still probably plenty of $200K earners for the city though, but at those rents, most people earning that much money will be looking to buy. Some of the slack is probably picked up by foreign nationals looking for crash-pads for their college students, or for a portfolio investment. Companies also occasionally lease units for employee assignments.
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I'll reiterate that a lot of these high income households are couples or individuals in their 20's and early 30's and emptynesters or early retirees in their 60's. Even if 90% all high income people prefer to own a villa in Weston or Sherborn and only 10% of them are renters, then we can modify 100's of thousands of prospects to mere 10's of thousands.

I'll also reiterate that the luxury rental market has always been alive and well in Boston, it was just based around a few older towers and heavily renovated townhouses/brownstones rather than new construction. These places need frequent (like once a decade) renovation to maintain quality and keep up with trends. If they overbuild new construction luxury units, then the older lux rental stock will simply go unrenovated and drift slowly downmarket.
 
^ I guess I just don't understand why someone with the money would choose to blow it on high rent rather than own property.
 
BussesAin'tTrains said:
^ I guess I just don't understand why someone with the money would choose to blow it on high rent rather than own property.
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That is a very old fashioned way of thinking. "Owning" property comes along when you finally develop some equity after many many years of "choosing to blow money" on interest, PMI, taxes, insurance, repair men, renovations, etc. Not to mention that you have to leverage yourself 4:1 if you are lucky, many people go in 10:1 or worse, and with all your eggs are in one basket. I'll take a rental agreement, some diversity, and liquidity any day.

Homeownership makes sense for some people and it doesn't make sense for others. If homeowners understand the risks they are taking, the opportunity cost they are giving up, and still think it is the right financial choice for them then more power to them. But if a homeowner bought something to avoid "blowing" their money on rent then they need* to be more thorough in their financial planning.

*Edited to remove an unnecessary inflammatory comment.
 
^ Agreed except that I would say that it isn't about being "old fashioned" it's about being caught up in the American approach to homeownership-promotion-as-social engineering, the form of various government subsidies, etc.
 
Matthew said:
^ Agreed except that I would say that it isn't about being "old fashioned" it's about being caught up in the American approach to homeownership-promotion-as-social engineering, the form of various government subsidies, etc.
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I guess that is exactly what I think of as old-fashioned. The idea that we all get a job and keep it for life and get married and stay married for life and live in one community for 40 years until retiring to FL or AZ is the mindset in which buying a home always makes sense. For Gen Y and the Millennials (and to some extent Gen X as well) we've lost that faith in job security or even sector security. I suspect most working people these days (at least the smart ones) keep in the back of their mind that may have to uproot and completely reinvent their life at any moment. Change location, change specialty, change career altogether.

The economy used to evolve on a generational timescale. Now it has become more of a decade timescale. I think it is fair to assume the acceleration of change to continue and the former "stability" of home ownership becomes more of a "ball and chain".
 
The only reason I hesitate to call it old-fashioned is because that whole attitude is really 1950s-fashioned. Or maybe mid-century-fashioned, if you prefer. Old-but-not-THAT-old-fashioned.
 
My god, how old does something have to be to seem old to you? Over half a century old thinking isn't "old fashioned?" Does it need to be biblical? or just medieval?
 
Well, I am a fan of "traditional urbanism" and architecture, and by that I typically think pre-19th century. So, I guess I'm old-fashioned ;)
 
Owning a home and living in the 'burbs is the "American Dream" of a bygone era. Look at the condo and apartment boom going on in pretty much every major city in the country. This generation would rather live in the city and rent and have money for other luxuries and travel, etc.

Oh and thanks to the ridiculous cost of college these days you'll need that extra cash to pay off your loans as opposed to a new roof, home appliance repairs, landscaping, and the assload of other costs that come with owning a house.
 
fattony said:
That is a very old fashioned way of thinking. "Owning" property comes along when you finally develop some equity after many many years of "choosing to blow money" on interest, PMI, taxes, insurance, repair men, renovations, etc. Not to mention that you have to leverage yourself 4:1 if you are lucky, many people go in 10:1 or worse, and with all your eggs are in one basket. I'll take a rental agreement, some diversity, and liquidity any day.

Homeownership makes sense for some people and it doesn't make sense for others. If homeowners understand the risks they are taking, the opportunity cost they are giving up, and still think it is the right financial choice for them then more power to them. But if a homeowner bought something to avoid "blowing" their money on rent then they need* to be more thorough in their financial planning.

*Edited to remove an unnecessary inflammatory comment.
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Man, you really went off on the phrase "blowing money"... I'm a renter too, but I do so out of necessity. If I had the resources to buy, I would. If I'm spending money on rent and insurance and earn no equity, versus spending money on a mortgage, interest, taxes, insurance etc. and earn equity, I'd rather earn equity if I could afford it.

But maybe that makes me old fashioned, or uninformed about economics.

I'm not talking about buying a house with a lawn in the 'burbs, I'm talking about owning an apartment. The condo market is red hot in Boston, I'm not sure why there would be clamoring for rental projects to switch to ownership projects if everyone had leapt off of the ownership wagon. The balance has definitely shifted from homeownership to renting in the last decade, I get that trend as much as anyone else here, I'm not sure I see it as much of a shift to not wanting to buy from not being able to buy as you do.
 
BussesAin'tTrains said:
Man, you really went off on the phrase "blowing money"... I'm a renter too, but I do so out of necessity. If I had the resources to buy, I would. If I'm spending money on rent and insurance and earn no equity, versus spending money on a mortgage, interest, taxes, insurance etc. and earn equity, I'd rather earn equity if I could afford it.

But maybe that makes me old fashioned, or uninformed about economics.

I'm not talking about buying a house with a lawn in the 'burbs, I'm talking about owning an apartment. The condo market is red hot in Boston, I'm not sure why there would be clamoring for rental projects to switch to ownership projects if everyone had leapt off of the ownership wagon. The balance has definitely shifted from homeownership to renting in the last decade, I get that trend as much as anyone else here, I'm not sure I see it as much of a shift to not wanting to buy from not being able to buy as you do.
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I shouldn't have jumped down your throat, but this is a issue that sets me off. People want to a buy a house because they have been told that it is a good financial move - usually by a real estate agent and/or by their dad. Most people are completely irrational in their desire to buy a house and they would literally be wealthier if they rented their whole lives instead of buying.

The caveat is that you have to invest the money you would have used as a down payment in a diversified portfolio. The returns you forgo by putting the down payment into a house instead of the market outweigh all the money saved on rent on timescales less than about 6-8 years. 7.5 years might be 25% of a 30 year loan, but you only accrue about 15% equity in that time. AND you are leveraged 4:1 which is great if your property value increases and completely devastating if it decreases. Nobody offers 4:1 leverage on any other type of equity investment because it is insanely risky! When you factor in the additional risk associated with the illiquidity of a house (you may not be able to sell it when you need to - see years 2008-11), homeowners should demand an even high return (compared to alternative investments) and thus really need to stay put for 10 years or more to come out ahead.

If you change homes more often than 10 years, you end up wasting so much money on closing costs and renovations that you would have been better off renting, with the downpayment money invested in the stock market. This is where the "old-fashioned" thinking comes it. In post-war America with a tremendous economic boom people were enjoying lifelong jobs with pensions and the new interstate highways linked middle-class wage earners to cheap suburban land. It was easy to believe that one would buy a cheap house and live in it for 20-30 years or more.

Nowadays, all the underlying assumptions that made home buying an obvious home run have been lost and yet people blindly parrot the alleged virtues of home owning. For many people, the numbers do add up to say they should buy a home. But for many others, they just buy a house because their dad bought one and their coworkers bought one and they feel left out or something.

As you save up money to buy a home - you need maybe $50-100,000 downpayment in today's condo market - I hope you have the money invested in the stock market and not stuffed in your mattress. When the time comes to buy the house and you have to pull that $100,000 out of a diversified, liquid portfolio and sink it all into a single illiquid asset I hope you'll think twice if it really is the right move for you.
 
fattony said:
I shouldn't have jumped down your throat, but this is a issue that sets me off. People want to a buy a house because they have been told that it is a good financial move - usually by a real estate agent and/or by their dad. Most people are completely irrational in their desire to buy a house and they would literally be wealthier if they rented their whole lives instead of buying.

The caveat is that you have to invest the money you would have used as a down payment in a diversified portfolio. The returns you forgo by putting the down payment into a house instead of the market outweigh all the money saved on rent on timescales less than about 6-8 years. 7.5 years might be 25% of a 30 year loan, but you only accrue about 15% equity in that time. AND you are leveraged 4:1 which is great if your property value increases and completely devastating if it decreases. Nobody offers 4:1 leverage on any other type of equity investment because it is insanely risky! When you factor in the additional risk associated with the illiquidity of a house (you may not be able to sell it when you need to - see years 2008-11), homeowners should demand an even high return (compared to alternative investments) and thus really need to stay put for 10 years or more to come out ahead.

If you change homes more often than 10 years, you end up wasting so much money on closing costs and renovations that you would have been better off renting, with the downpayment money invested in the stock market. This is where the "old-fashioned" thinking comes it. In post-war America with a tremendous economic boom people were enjoying lifelong jobs with pensions and the new interstate highways linked middle-class wage earners to cheap suburban land. It was easy to believe that one would buy a cheap house and live in it for 20-30 years or more.

Nowadays, all the underlying assumptions that made home buying an obvious home run have been lost and yet people blindly parrot the alleged virtues of home owning. For many people, the numbers do add up to say they should buy a home. But for many others, they just buy a house because their dad bought one and their coworkers bought one and they feel left out or something.

As you save up money to buy a home - you need maybe $50-100,000 downpayment in today's condo market - I hope you have the money invested in the stock market and not stuffed in your mattress. When the time comes to buy the house and you have to pull that $100,000 out of a diversified, liquid portfolio and sink it all into a single illiquid asset I hope you'll think twice if it really is the right move for you.
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I can agree with this. I think at the higher-end of the market, where you have the financial resources and are looking to diversify your assets, buying a condo makes sense over renting. The rich usually pay cash or put down a big down payment at this end, and buy in excellent locations (a condo in the Back Bay or overlooking the Garden, a condo at the Ritz or on the harbor, a place in Newton, ect.).

Personally, I'm more irked the way people view cars financially. Buying vs. leasing, trading it in every three years, ect. :)
 
fattony said:
People want to a buy a house because they have been told that it is a good financial move - usually by a real estate agent and/or by their dad. Most people are completely irrational in their desire to buy a house and they would literally be wealthier if they rented their whole lives instead of buying.
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But let's not forget that "rationality" is not equated with wealth-creation. There are other reasons people wish to own. Yes, the idea that owning is always financially better than renting is erroneous for all the reasons you mention, but I prefer to own primarily because I like the security of knowing that I can live in a place I like as long as I like, anticipate future costs pretty accurately, and, of course, I can make the living-space choices that mean a lot to me. I have moved around a lot. I have always owned and I have always done very well financially when I sold (dumb luck combined with a bit of savvy about the intrinsic value--and under-valuation--of an area). I have a place here in Boston that I think I will keep as an investment even if I move elsewhere (currently, I can easily rent it for more than my mortgage, taxes and fees). So I wouldn't attribute owning to feeble-minded people listening to realtors (god, you would have to be feeble-minded) or your dad (god, you would have to be feeble-minded to listen to my dad ;)).
 
fattony said:
If you change homes more often than 10 years, you end up wasting so much money on closing costs and renovations that you would have been better off renting, with the downpayment money invested in the stock market. This is where the "old-fashioned" thinking comes it. In post-war America with a tremendous economic boom people were enjoying lifelong jobs with pensions and the new interstate highways linked middle-class wage earners to cheap suburban land. It was easy to believe that one would buy a cheap house and live in it for 20-30 years or more.
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I think this is part of the reason why close-in areas are "hot" right now - as they offer greater flexibility in terms of mobility and access to jobs and a career network. buying a house way out in the suburbs isn't such a good move unless you are certain your source of income and location of employment is secure.
 
I think at the higher-end of the market, where you have the financial resources and are looking to diversify your assets, buying a condo makes sense over renting.
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A lot of uber rich actually prefer renting. Short term and high end, renting is usually a lot cheaper than buying, and the money saved will have a higher rate of return in the stock market rather than the housing market.
 
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Tombstoner said:
I prefer to own primarily because I like the security of knowing that I can live in a place I like as long as I like
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This is huge in the current metro market right now. I can immediately name three of my renter friends with landlords who are booting them to sell high. If that happens to you twice in as many years, you better believe you'll be looking to buy just to get off the merry-go-round. Meanwhile, the lucky ones who aren't getting the boot are still dealing with huge rent increases. You buy and you can plant your roots so long as you pay your monthly costs, which will tend to be much more fixed than with a rent arrangement.
 
Fat chance of buying at anywhere near a reasonable rate in my neighborhood. All properties come with revenue potential priced in, looking to be picked up by slumlords.
 
The three neighborhoods where my friends were living are the South End, South Boston, and Coolidge Corner. And condos all. Even with high sale prices, the monthly savings on a mortgage vs. rent in those neighborhoods could be in the hundreds of dollars, allowing for a relatively quick recoup of closing costs.
 
The high costs associated with moving apply to renters as well as owners. Not as high for renters, but as stated above, a lot of people buying in the city probably aren't planning on moving within Boston metro for a long time. Renters have no guarantee they won't have to move every couple of years, even if they want to stay where they're living. It can be very disruptive to suddenly find out in May or June that you have no option of resigning for September, even if you'd like to. Moving from an apartment to another requires a lot of overhead costs too. When we found out our rent was being hiked 10% this year with no negotiation, we considered moving, but figured out that the cost of moving and signing a new lease elsewhere wouldn't be worth just biting the bullet and paying the higher rent. Variably, new lessees have to fork over three or four months rent when they sign a lease: first/last, security deposit, broker fee.
 
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