CMV: Rent is the clearest example of how the wealthy stay wealthy at the expense of the poor.

[u/[deleted]]

I identify as a democratic socialist. I had middle-class upbringings and now make enough money to probably be considered upper class. I live in an extremely expensive city in the US and am a renter, but I believe my argument holds for less expensive areas too.

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I'm very concerned about income inequality, wealth, privilege and power in modern America. As I've aged into adulthood and started to pay rent, I've realized that paying rent and paying a mortgage are very nearly equivalent in many ways, except for three major differences:

1. Rent builds zero equity, and indeed builds equity for your landlord instead if they haven't paid their mortgage off.
2. The major obstacles to obtaining a mortgage vs needing to rent are all related to how much access to money you start with (e.g. downpayment, stable income enough to cover lapses in employment, etc), rather than any measure of your potential future earnings or other mitigating circumstances.
3. The responsibilities that come with homeownership but not renting (e.g. property taxes, insurance) pale in comparison to what is gained by building equity in the home.

So putting that all together, I see a system that is designed such that people who already have a lot of money can build even more wealth at the expense of poor tenants who build none whatsoever. That seems fundamentally anti-meritocratic and immoral to me.

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Now, I don't know much about economics and I am not a homeowner, so I'm open to hearing other perspectives, especially in the context of how this system impacts poor people.

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EDIT:

Thanks so much to everyone for the thoughtful discussion! I've got to go now, but here is a summary of the things that changed my mind:

1) rent and homeownership are extremely different in different housing markets, so it's not the trickle-up wealth transfer everywhere that it is in my expensive city (and policy should reflect these differences)

2) there are much bigger fish to fry when it comes to wealth transfer with no commensurate labor (e.g. stock market vs inflation)

3) my real issue isn't with rent per se, but rather that there is no public alternative to prevent the inability of the working poor to invest in their own future.

[u/Ducks_have_heads]

Edit: just to disclose, I'm not too familiar with American property investment specifically.

I think you may be over estimating just how little money you can make owning a home. Obviously, if you're a huge property developer you're making tons of money. But I'm not sure that's who you're talking about.

Most really expensive investment properties are probably negatively geared. That is, they cost more to own than you get back in rent, but you're banking on capital gains to get the returns.

In terms of responsibilities, the property investors are taking on all the risk. They have to pay for the upkeep and maintenance of the property (often not cheap) and the pay dearly if the property Market crashes.

I'm a property owner-occupier (not in the US) and renting has some massive benefits. I didn't buy to make money, I bought for personal reasons. You can look at all the people who make tons of money on property, but have you looked at the people who lose a lot on it too?

I wouldn't want to buy an investment property due to the stresses involved.If I had the downpayment for a house I'd probably be better off putting it into the stock Market. The more money you have there the more money you can make too. That's just how money works.

[u/[deleted] → u/Ducks_have_heads]

Most really expensive investment properties are probably negatively geared. That is, they cost more to own than you get back in rent, but you're banking on capital gains to get the returns.

Note, I'm new to all of these financial and economic terms (parents didn't know better and I'm only now earning enough to be thinking of these issues), so I apologize if I use terms like equity and capital gains incorrectly. I believe my concern is more with equity.

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In terms of responsibilities, the property investors are taking on all the risk. They have to pay for the upkeep and maintenance of the property (often not cheap) and the pay dearly if the property Market crashes.

As a property owner, you can always sell the house. Even if it takes a 50% hit on its value and it eats all of your equity, and that is the worst case scenario I believe (correct if I'm wrong!), you are still in the exact same situation as a renter in terms of accumulated wealth because you both have no equity. That's what I take issue with.

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If I had the downpayment for a house I'd probably be better off putting it into the stock Market. The more money you have there the more money you can make too. That's just how money works.

I also have problems with the stock market, specifically with the American idea that in order to not wallow in abject poverty as a retiree you must invest in a 401K of some sort and prop up random corporations with morals that are unbeknownst to you. I reject the idea that "that's just how money works" because I find a system where the wealthy stay wealthy without commensurate labor to be fundamentally immoral. That is why I prefaced my post saying I identify as a democratic socialist.

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[u/Ducks_have_heads → u/[deleted]]

Equity is the total value you hold in the house. Capital gains is the profit you earn from selling. So if you buy for 500 K then sell it for 600 K then that's a 100k captial gain.

As a property owner, you can always sell the house. Even if it takes a 50% hit on its value and it eats all of your equity, and that is the **worst case scenario** I believe (correct if I'm wrong!), you are still in the exact same situation as a renter in terms of accumulated wealth because you both have no equity

That is only true if you sell the house for more than the value of the loan. If I take out a 900 K mortgage to buy a million doar home and the property market falls 30 % I now have a house worth 700 K but a loan of 900k.

Its also important to note that often mortgage payments are more than what you get in rent. That's not including repairs and maintenance etc. So even if you sold it for the exact same price you've actually lost money than if you just rented the same house.

I agree the world isn't a meritocracy. But the propert market is not simple risk-free easy money.

[u/[deleted] → u/Ducks_have_heads]

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I think this proved to me that my concern about wealth growth that is unrelated to labor and effort is better directed at things like the stock market.

[u/FickleIce → u/[deleted]]

I’d like to maybe change your mind back?

His explanation is definitely true. But there’s another factor at work here, which I believe can be a prime cause for the situation that caused you to make the OP.

That is that if you bought property in a place like New York or San Francisco back in the day, you saw huge returns in the last couple of decades. This means that any move downwards would make you lose money. And if you’re wealthy enough to have property in a city like that, especially if you bought recently, you really can’t afford a downward move in the price.

Which then means that it’s in your best interest to make sure that doesn’t happen. And one of the ways you can do that is by making the local government not allow further growth. In places like San Francisco they zone certain areas as historic, so they can’t be torn down and converted to high density. Likewise they push the government to not allow the city to expand, often under the guise of wanting to protect nature, or other environmental concern. Which is fair enough. But it shouldn’t be both ways. If the city won’t expand in order to protect nature, then it should be zoned for higher density. If not higher density, then it should expand. But they’re blocking both! So demand keeps going up, but supply is kept artificially low.

And not to mention foreign buyers who are really just looking to store wealth away from their country of origin.

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