FEDERAL-AID HIGHWAYS NATIONAL SUMMARY (2023)

The Federal gas tax does not pay for local roads (urban or rural). The exceptions are meaningless--in the whole county, it's .000083%. (About 500 miles out of 7 million, or less than 1 in a million). 

Source: hm18m.pdf

Against Homeownership

If you like money, you are better off renting and putting money in a savings account than buying a house and enjoying the appreciation. This is poorly recognized generally but explicitly recognized by people who are serious and conscientious about their money. It is poorly recognized generally due to the persistent bullshit* of real estate agents, who will talk about appreciation, tax benefits, and the value you can add through home improvements. 

Appreciation is Geographically Limited

Research has shown that home price appreciation is only substantial if you if you live in a supply constrained coastal metro. Anyplace else, land markets still function and rising prices result in increasing supply*. 

Accumulating Equity

The real estate agents who collaborate in the selling/buying of your home will claim a total fee equal to 3% of the total value of the home. On a $250k home, that represents $7,500. Other substantial fees exist. The rule of thumb I learned is that if you sell your home within the first seven years, you lose money--the transaction costs outstrip any value created**. 

The Pretend Appreciation of Inflation

A combination of inflation and the effects of compounding. If you buy a house for $250k and sell it for $300k ten years later, it's tempting to think you've made $50k. But in reality, as prices have inflated by 2% a year over those ten years, you've actually lost money. Inflation has been so regular for most of my existence that it's hard to come to terms with the fact that prices have increased by 25% in the past five years. So a house bought for $200k in 2020 ought to be worth $250k, just thanks to inflation, without any actual increase in value. 

Tax Benefits

The home mortgage tax exemption no longer exists. Which barely matters, as after the standard deduction was doubled a few years back, it basically only benefitted HENRYs ("Higher Earner, Not Rich Yet"). 

Home Improvements

The research is pretty clear that most home improvements don't make a statistically significant difference. The only ones that do are revamping your kitchen and adding square feet. Your real estate agent will tell you to paint the house to improve the curb appeal, and that's probably a good idea--your agent will get more calls, and your house will sell faster. But it won't sell for any more money. The buyer knows they can pay for regrouting the tile. Even fixing the roof doesn't necessarily help you--some buyers would rather have a bad roof they can fix in their own time rather than pay a premium for it up front. 

As Default Savings

The only serious financial argument that can be made about homeownership is that it requires people to save, by requiring them to invest. There is something to be said for the power of defaults, but the argument is specious. It's only meaningful if: a) you lack the discipline to save, and b) you can afford to keep making those mandatory contributions regardless of shifting conditions. In the case of b), such as for marginal buyers, all its done is load at-risk people with additional risk. 

Quality of Life

People serious about money can eventually be argued around to recognizing that they are buying a home for quality-of-life reasons--to obtain things they can't obtain by living in an apartment. But if you buy a luxury car so you can have a nicer quality of life, you recognize you didn't buy the car as an investment. If you buy a house for a nicer quality of life, you didn't buy the house as an investment.

Secondly, the advent of "Build to Rent" (BTR) houses as undermined the logic of this. Nowadays, it is possible to have all the non-financial quality of life perks we often associate with home ownership without actually needing to own a home.  

Social Benefits via Selection Bias

Detached homes are often erroneously associated with a wide variety of social indicators, including better school test scores, higher graduation rates, and lower divorce rates. This drives well-meaning but idiotic efforts to improve social metrics by improving home ownership rates. The benefits are entirely a function of a selection effect. If you can afford a house, you've got your act together in other ways, implying both financial stability and wherewithal. 

"People Invest In Their Neighborhood" 

Quite rare. People will act to defend an investment in their home, in a variety of ways both unethical, and quasi-legal. But actual improvements to the public rare are scarce. The best that can be hoped for is some extraordinary soul will dedicate a decade toward getting an informal trail recognized and paved. Mostly, it's that a class of folks with spare time and a college degree will show up at a public meeting and NIMBY anything that might lower property values. 

Sweat Equity

Buying the worst house in a good neighborhood was once a viable strategy. But one of the offspring of the Great Recession was an industry of 'flippers', devoted to buying, rehabbing and re-selling houses, with access to cheap capital and professional labor. 

In Conclusion

Comparing renting to owning is hard, because it's an apples-to-oranges comparison. Either type of tenure is a bundle of perks and problems, among them: size, location, private access, private open space, legal privileges, legal liabilities. Both apartments and houses offer things you can't get without pre-selecting for a housing type. But deciding the financial case for home ownership is much simpler: there isn't one. 

Others have written most of this more eloquently and more extensively.

A Caveat: Getting Lucky

Buying a house in an 'up-and-coming' neighborhood, as previously unsafe / polluted / run-down neighborhoods transition is an astonishingly good way to make money. There exists an entire class of developers focused on this strategy (which requires money and political capital and time and patience). Catching and riding such a wave of transition can be enormously lucrative. 

But planning a property purchase to match public or investments in infrastructure or policing (or land use-transition away from noxious industrial or nuisance users) isn't feasible for an investor for whom their investment is also their shelter. 

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* In the technical sense, where bullshit is a statement which is made without any effort to ascertain the truthfulness of the statement. On Bullshit - Wikipedia

** During the Great Recession, I had the unpleasant experience of explaining to a single mother who had bought a house (in a then-marginal neighborhood), and that the two years she'd owned her house had built her almost no equity, and that there had been no appreciation at all. 

On Redeveloping Single Family

Many years ago, I worked on analyzing when real estate would redevelop, and the analysis simply ignored single family homes, because they rarely redevelop. As long as you have land to spare, you can simply add more building. And in many cases, adding another story is also trivial. So it's not until you run up against fire code for wooden structures (at five stories) and 100% lot coverage that demolition and replacement is a better alternative to a structural retrofit.  And that's a greater level of density than 99% of America.

Of course, doing that is illegal almost everywhere. Partially for good reasons (fire code). But you can see the dynamic in action in wealth neighborhoods--where people aren't running afoul of unit limits, parking requirements, or non-related family status laws. People just keep adding on extensions, with some minimal setback from the neighbor's house. Generates terrible internal floorplans over time, so eventually someone guts everything inside the walls, improves the foundation, and builds something of similar dimensions but much better quality. Without various zoning laws, the same dynamic would apply to multifamily, but we can't have Those People in Our Nice Owner-Occupied Single-Family Neighborhood. 

It's fallacious to equate "there is no demand at that price point" with "there is no demand".

If the starter housing bonus was less profitable than building monster/luxury houses, developers (rightly) ignored it as irrelevant. It's obviously fallacious to equate "there is no demand at that price point" with "there is no demand". A single look at a basic economic chart* makes it pretty clear:

The price we 'see' and can observe is an equilibrium between supply and demand.  If I want 1100 SF of house, I can get that for $2000 a month. But If I could get 1200 SF, I'd take it. Likewise, if I could get 1100 SF for less than $2000 a month, I'd take that too. If push comes to shove, I might take 800 SF of house, but I'm not going to be willing to pay $2000 a month for it. 

Further, the discount in price has to reflect the discount in the quantity of what is being purchased. Being asked to pay $1800 for 800 SF is a bad deal when I can get 1200 SF for $2000. Of course, both supply and demand are non-linear (hence, curves), so I might be willing to pay $1500 for 800 SF, rather than the $1333 you'd intuitively expect. 

Regardless, there is no demand for starter houses at large-house prices. A subsidy offering me an extra $50 if I'll take an 800 SF house is totally irrelevant if aforesaid house costs $1600 a month. The subsidy just shifts the price curve down, but it's the equilibrium point that matters. Saying "there is no demand for starter houses" is nonsense. Look at that curve--there is a huge amount of demand below the equilibrium point! But none of it is matters, because the price is too high! 

* Undergrad economic textbooks are bad to the point of being gibberish. Do yourself a favor and buy Economix. I specifically mention this as mine left me baffled when it talked about things 'moving along the curve'. To be clear, in the chart, when one of the curves move, the equilibrium point shifts to a new point along the other curve. 

On Greedy Developers

 Developing housing is incredibly risky, and (successful) developers are incredibly risk averse, so they walk away from anything that even smells like it might not be profitable. A lot of people chalk this up to greed, but that kind of misses the point. If you are a developer, anything you do is with borrowed money. And if you borrow money, and can't repay it, no one will ever loan you money again, and your career is over, and your company is bankrupt. So, every developer is incredibly cautious to never let that happen. And the best way to prevent that from happening is to plan for projects that are incredibly profitable. That way, when things go wrong  is to have a project that is planned to have a very high profit margin. Lot of developers won't touch anything with less than 10% profit at the initial planning phase. It's not greed, but a rational reaction to being an investor in a high-risk context--only the risks with the highest potential reward are worth gambling on.

A useful contrast is the Good Samaritan who plans to build housing with 0% profit. When things go wrong (permits delayed, material prices go up, labor costs rise), the project doesn't get finished, and the half-completed construction is ruined, all the money is wasted, and no housing is produced.

Chatting with a not-for-profit housing developer, the way they do the analysis is not to build in explicit profit, but to make plans that everything is going to cost 10% more than they expect. (Not everything does, but when one thing costs 20% than expected, the project doesn't die).

A Marxist take on home ownership

If I felt like being more Marxist about it, I'd say that the existence of mortgages was a capitalist ploy to destroy class consciousness by permitting the proletariat identify as petty bourgeoisie by permitting them access to the trappings of capital ownership, while actually entrapping them with debt. 

After all, once you've taken on a mortgage (and put that 20% down), it's not until the 153rd payment that you are actually paying more principle than interest. And since your equity in the home is proportional the  sum of the principle you've paid, the amount of equity built early on the loan is nominal. Add that you will lose 2-4% of any equity you've built when you sell, that wipes out any gains if you move within the first 6-7 years.

Extending the length of the loan (splitting principle accrued over more payments) means less equity will be accrued per payment. Meaning more total interest paid.

To pay off a 50-year mortgage by the time you retire at age 67, you'd have to buy a house at age 17. Ergo, such mortgages are never intended to be paid off--they are just a form of lease. 

A mortgage is just paying rent on money

A mortgage is just paying rent on money. Until you own your home outright, you are still a renter. Even now, assuming a 30yr mortgage only works if you are <35, and the average age of new homeowners now exceeds that.

Most Roadways Aren't Multi-Modal

After someone can be made to recognize that a corridor where cars occupy 99% of the space and have (effective) priority at all conflict points, and admits that cars are being prioritized, they will then attempt to weasel their way out. After several years arguing with goons on Twitter, this usually consists of series of disputable claims:

All Roads are Multi-modal!

Dream on. If it was actually multi-modal, it would have a dedicated lane for that mode, and design standards that reflected all modes, and managed conflict between them.  If I design a home for horses, no one tries to pretend it's for humans, even when humans can use it. There are no 45mph humans, so no road with a 45mph design standard is designed for humans.

Sidewalk, Curb, Gutter, the park-strip and 'Safety Area' are Multi-modal!

Bunkum. Curb and gutter exist to funnel water aware from the road, to ensure that water flowing off the road doesn't undermine the roadbase* that supports the asphalt. Even if you didn't need to have a sidewalk, a road would still need to build it. And the 'Safety Area' between the right-most travel lane and the curb and gutter, which gets used for bike lanes? It's for car safety. Older highway manuals will still give it the proper name, which is "recovery space", and "obstacle free zone" and it was intended to give an out-of-control car time to recover before it ran off the roadway and crashed. In urban areas, it's been coopted for on-street parking, resulting in lots of crashes. The 'park strip' is also a misnomer, because it's actually where obstacles get put--telephone poles, traffic cabinets, bus stops, and sometimes some grass and small, bedraggled trees**. These things would be fine to have in the 'safety area', except cars. So, for your standard arterial, that's four lanes of auto traffic, one turn lane, two 'recovery space' areas, curb and gutter, the park strip, and two 5' sidewalks. Which means 95% of space is getting devoted to cars. 

Curbs exist to Protect Pedestrians!

Nonsense. I drive an SUV, and I drive over the curb every time I try to parallel park. For an out-of-control car, a curb is barely a speedbump. Bollards, now those protect pedestrians. I can offer no better evidence than 7-11, which clearly understand that stopping a moving car requires a massive metal pole reinforced with concrete, embedded four feet into the ground. 

*roadbase: specialized compacted soil that can hold up heavy weights. Often a mix of crushed rock, gravel, pea gravel, sand, and maybe some clay. Largely free of organic matter (which is why street trees die). 

**Not by accident. Trees get planted in roadbase, which is basically free of any kind of nutrient, so they don't grow. Which is fine for highway enginneers anyway, as they  don't want roots disrupting the road base. (Many state codes require cities to put trees in concrete boxes to constrain roots. And as trees are as large above as they are below, a 5'x'5 concrete boxes creates a 5'x5' canopy above. 

Awkwardly, rapid transit does almost nothing for drivers in the peak hour

 To be awkward, thanks to the Triple Convergence, rapid transit does almost nothing for drivers in the peak hour--trips just converge from other routes and other times. However, drivers on the shoulders of the peak (from whence trips migrate) do benefit. Rapid transit can still induce the long-cycle aspect of induced demand, when less-miserable commutes induces new development in peripheral areas. However, rapid transit continues to act as a congestion 'safety valve', such when the traffic congestion gets too bad, people switch from cars to rapid transit. But talking about rapid transit as a congestion reliever kind of misses the plot--parking is the real story, and rapid transit allows places to get denser (earlier, more cheaply) by reducing parking demand.