From the econtalk with Russ Roberts and Tyler Cowen. Tyler says,
I do think there will be a big generational shift away from the physical product. There will be a general decline of stuff, including the desire to own a home of your own. And we see this in the data–lower rates of household formation, lower rates of owning stuff… we see in collectibles markets is that overall the prices of collectibles have fallen after the advent of e-Bay. That to me suggests a net desire to get rid of stuff
I hear that the bike-sharing network in Manhattan is doing well. Driverless cars, if and when they become commonplace, call out to be rented rather than owned.
I wonder if on some of these predictions, he isn’t reading too much into recent, short term trends. You would’ve made the same statement about home ownership during the Great Depression. Some people are spooked from the housing market, but they will return, unless the government starts to overturn some of the home owner friendly policies. (the bike thing and some other renting trends, may however stay)
The other trend is Texas (not mentioned in this post, but another example of drawing conclusions from a short term trend). Energy has had a relatively strong job market over the last several years. If that turns, then Texas may not be the big destination he thinks it is.
I suspect he is saying how he wants things to go, more than how things are actually going. Somehow driverless cars seem to kick people into far mode.
I would think that renting from a car service is much like riding the bus right now. It is certainly desirable for many people, because you avoid an up-front capital cost, you avoid liability for any collisions, and you avoid all manner of maintenance. However, most people prefer not to ride the bus, even in places that have the best imaginable ones. The bus is usually slower than driving yourself, and the vehicle you ride in is never going to be as nice as one that you take care of yourself.
Self-driving buses will be marginally better than human-driven buses. However, I don’t see why they would cause any major change to people’s overall preferences.
Similarly for owning a home, but more forcefully. What trend has occurred that makes owning your home less desirable? People have sold off a lot of second homes in the last 15 years, but their primary home? Rental is nice if you want to stay somewhere less than 5 years, but you can’t really settle downs in a rental. You have to always be ready for the landlord to change their mind and possibly hike the rent or pull the rental from the market. You can’t make major improvements very easily, because it requires negotiation with the landlord.
If land use regulations were heavily lifted, I think emergent order would reveal that ownership units for housing are inefficiently small, and there’s probably a large latent demand for corporatized housing that’s small, affordable, and groups you together with like minded people.
As such, the arbitrage opportunities between owning and renting aren’t as big as they would otherwise be, so more people get funneled into home ownership.
My general opinion is that home ownership isn’t worth it unless you’re confident you can payoff the mortgage, which is important for living in old age.
However, there might be some long term trends for the large cohort of youth that are underemployed right now and not accumulating any financial assets to be used later on.
This could result in even more to get everyone in a home, and/or new market forces to provide low-cost “hive housing” for large amounts of people.
A big part of the “rentership society,” particularly among the young, has to do with digital goods. DRM and other restrictions means that many things are more rented than owned, but a lot of people seem willing to take that tradeoff in exchange for convenience.
I’d suggest also that we now have a much more mobile society than my parents’ generation, which tended to work in one geographic location or area, for one or few employers during a career, and whose children may have also tended to reside in their childhood geographic location. It made sense to buy a home where you had a chance of paying off a 30-year mortgage while living amongst family.
How many in today’s higher-tech working (employed and self-employed) stay in one geographic location longer than 5-10 years — which is just long enough to begin paying down more than a pittance of principal on a traditional 30-year mortgage? How many of your readers have adult children who have scattered from coast to coast?
Owning your home used to mean “putting down roots” in a community. What if that’s no longer the more-mobile working stiff’s preferred modus operandi? The home-owning mobile society now has to pay heavily with traditional front-loaded mortgage loans, but also wonder if the home market will be favorable when it’s time to re-locate, as well as absorbing the transaction costs of selling one home and purchasing another: at ~6% commission per transaction, it ain’t cheap.
…and all that presumes that the homeowner has some level of equity in his home & CAN sell it without bringing cash to the closing.
Among all the other possibilities, I believe that renting has lost whatever stigma it may have carried in the past of transience (or maybe shiftlessness?), and simply provides more options for those who may need to be nimble with regard to employment location.
“How many in today’s higher-tech working POPULATION (employed and self-employed)”
However, the statistics showed that mobility actually decreased post 2008, probably in no small part because of people being tied to underwater mortgages.
I was thinking more prospectively than retro.
Would not that experience of seeing the effects on mobility and opportunity of the decrease in RE market value since 2008 perhaps simply accelerate the trend to rental and away from ownership (if indeed there has been/is a trend, which I am not claiming, merely suggesting)?
If you’ve seen your neighbor forego job opportunities in another city, county or state because he was locked in an underwater home, might you not learn from his experience to preserve your options for greater agility? Given all that you may have read about the difficulties of underwater mortgages, short sales, and the like, should you obtain a new job in another city, county or state, might you not choose to rent for a year before committing to purchase real estate in an uncertain real estate and/or employee market environment?
I make no claim on expertise or special knowledge of these things — more going on common sense and “gut instinct.” I’m here to learn and appreciate your comments.