>One other reason that density might have been more politically acceptable in Japan is that houses are not used as a vehicle for middle-class wealth accumulation.
How do the Japanese build wealth, then? Buying a desirable home in a solid market is pretty much the only way for an average person earning the median wage to make it into the middle class.
Rising housing prices have played out the same across the Anglophone world. It's not sustainable as a means to get the lower classes into the middle class, because the higher prices rise the more debt they need to take on to join the game.
Housing is something people consume. It's durable, but so are cars and imagining them as being a gateway investment to the middle class because they will cost more in the future should be just as silly as for housing.
Yeah the whole housing structure in the US seems to be geared towards creating a ton of wealth for the real estate business. Which isn't the worse thing; but lets not confuse ourselves that it is a legitimate way to build wealth (it is somewhat so; but you can usually get better returns from other financial instruments over the long haul).
>Housing is something people consume. It's durable, but so are cars and imagining them as being a gateway investment to the middle class because they will cost more in the future should be just as silly as for housing.
But when you're talking a capitalization period on the order of the average person's lifespan, it becomes a new class of asset in my mind. You can't treat something which will pretty much guaranteed always exist until the day you die the same as a usable good.
the simple answer is that they don't. They have recognised that closely networked cities, short commute distances, easy access to public services has significantly more advantages than building your own little castle in the prairie.
You've basically snuck in a tautology in your question. 'Breaking into the middle-class' in the US has simply become synonymous with owning a house, without really asking whether owning that house actually provides people with material benefits to begin with.
Like Switzerland, Germany or South Korea among some other countries Japan is very much a nation of renters. This has arguably saved them from some very grave problems.
Not only does Japan have a homeownership rate similar to the US, but a pretty significant fraction of those owners own single family detached homes, which make up the bulk of Japanese suburbs. The main difference from the US is the different zoning regime which doesn't force homeowners to pay for a minimum quota of land in order to buy a house, and suburban houses on 1000 square foot lots are not uncommon.
> Buying a desirable home in a solid market is pretty much the only way for an average person earning the median wage to make it into the middle class.
There's also low-cost index funds and ETFs...cheaper, lower barrier for entry, more diversified, more liquid. The government won't seize them for non-payment of property taxes in case of unemployment or health issues. I'd argue they're a better choice than a home for an average person to build wealth.
Index funds and ETFs have been around since the 70s - nearly 50 years.
Do we really want the "average person" investing with leverage? That didn't go so well 10 years ago.
Besides, GP stated that real estate ownership was the "only way" for Joe-sixpack to get into the middle-class. Homeownership may well have financial and tax advantages but it's by no means the sole way to build wealth.
While not the sole way to build wealth, it’s one of the most accessible ways for anyone who isn’t already wealthy and intends to live somewhere more than a few years.
I could, tomorrow, go buy a duplex, triplex, or quad with only 3% down and immediately rent out all units except the one I’m living in. Usually a much higher cash on cash return than index funds when done properly, your co-tenants are paying your rent, and you’re getting to depreciate an asset annually on your taxes that is most likely appreciating.
How could you tell people not to take advantage of such a good deal?
> I could, tomorrow, go buy a duplex, triplex, or quad with only 3% down and immediately rent out all units except the one I’m living in.
But that's not something an average person does. The poster I replied to was speaking of real estate wealth building solely in terms of buying a house, living in it till you retire, then selling it at an appreciated value and going live in Florida or wherever. (or alternatively change house every 10 years, rolling the appreciated property value into a bigger house every time)
What you're talking about is the work of a real estate investor, and is far more time-consuming and involved than buying a few index funds on Vanguard. Researching properties, finding and screening tenants, performing or managing repairs is a non-trivial amount of work.
You're trivializing the work of getting into landlording (maybe you're already doing it so you underestimate how much work it is for someone who has no experience doing it). If it really was that easy to earn better than index fund returns, everyone would be doing it and the returns would naturally come down.
> While not the sole way to build wealth, it’s one of the most accessible ways for anyone who isn’t already wealthy and intends to live somewhere more than a few years.
I don't even agree with that. To buy a single share of an ETF you need $50-100 max to spare. To put even 3% down on a property that you can rent out, you're talking thousands of dollars + decent credit for getting a mortgage on the property.
Doing it already, I probably am glossing over the complexities of doing so. My apologies.
My point is that almost always, real estate values in the US go up. So if you need to live somewhere, and the government is going to give you cheap money to do it, you’d be crazy not to.
Yes, it’s not as easy as opening a Vanguard account and buying a share of a mutual fund. But it’s also not terribly difficult.
You would have gotten killed in the 90s if you think real estate could just go up. You definitely have risk that prices might not be where you want them to be when you need the liquidity.
As with all investments, you must ensure you have sufficient capital to not be forced to liquidate your investment when it’s not advantageous to do so.
Your market investments did fine if you could weather 2008. If you had to liquidate, you got wrecked.
I have yet to have a property I couldn't keep tenants in for at least a decade. Some even sign 2+ year leases if they plan on being in the area for a while.
As long as the mortgage is covered, I can hold a property indefinitely.
2007-9 isn’t really comparable to what went down in the 90s, especially for californian real estate after the Japanese had to liquidate from their binge, but all throughout the country as well.
You can't live in an index fund. They might be a superior alternative to vacation/rental property, but you're going to pay for a primary residence one way or another.
Lack of consumer credit debt, and a steady savings rate.
> Buying a desirable home in a solid market is pretty much the only way for an average person earning the median wage to make it into the middle class.
Not true. You, too, can ascend from poverty if you don't fall into the finance-everything lifestyle of the (former) American middle class.
The question here was “how do Japanese build wealth?” and someone suggested the stock market, so I replied that in the Japanese case, that might not actually be likely, because they had a big crash in the 80s which they have yet to recover from. No offense intended, but your comment doesn’t seem relevant to the discussion.
The point is that any asset class can crash, and it's very relevant.
People need to stop treating housing with the expectation that the value of a house should grow and grow and grow, because that's part of how we got to all this NIMBY bullshit.
They don't. Personal debt levels have been going up and savings diminishing in Japan, while wages have been stagnant for decades. Japanese middle class has been getting poorer and poorer consistently.
There was an analysis on HN not too long ago that extrapolated real estate and stock market valuations back 150 years or so and concluded that the return on investment for both were roughly at pairity.
the ROI for stocks would have to be significantly higher than the ROI from real estate for it to make sense for a working/middle class person to invest in stocks instead of the structure they live in. you need to pay for housing either way.
The insane levels of year-over-year appreciation/rent hikes make any calculator say "buy" in expensive major cities, regardless of the difference in cost today.
Citation needed. That's not the case in the SF Bay Area, Manhattan/Brooklyn, Vancouver, or Toronto. The new tax bill's provisions to cap mortgage interest deductions has further tilted the balance against expensive houses.
401k, defines benefit pensions, HSA, IRA, 529 plans, etc. There are tons of government subsidies for the stock market, and not just via tax incentives.
What tax incentive is there for real estate other than the small SALT deduction? A mortgage is just leverage, you can similarly deduct margin loan interest (with no cap other than investment income IIRC).
Isn't that a chicken and egg situation? If homes aren't considered to be equivalent to wealth, then not having a house doesn't preclude the average person from membership in the middle class.
I’m also keen on this question. Seems like there’s a broad vested interest in maintaining a scarcity of housing supply. Is there a compromise that can keep homeowners mostly profitable while allowing for others to get reasonable rents / purchase prices?
There is no such compromise. High and rising house prices are inherently incompatible with low and flat housing prices. These are two counterparties on opposite sides of the same market.
If housing prices don't go up, landlords make profits from rents rather than appreciation. Currently in SF, if housing wasn't appreciating, landlords would demand a greater percentage of the purchase price from renters, or house values would stabilize at a lower point where rent receipts are enough to make a reasonable return.
They mostly haven't in recent years. Japanese homes are famously disposable [1] and there's generally been an asset price collapse followed by stagnation since the early 1990s.
How do the Japanese build wealth, then? Buying a desirable home in a solid market is pretty much the only way for an average person earning the median wage to make it into the middle class.