Monday, 22 June 2015

Thoughts on This...

From Toby Young in the Telegraph

When I have thought about it, I’ve thought that the best possible place to put any spare cash is into my home, because that’s likely to appreciate in value more than any other investment vehicle.

Do you think property’s a good investment then?
That’s indisputable, isn’t it? It’s not worth saying property’s a good investment. It’s a bit like saying: the sky is blue.
First, property’s unlikely to be beaten by any other investment vehicle, and second, you live in your home so it’s in your interest for your home to be as spacious and comfortable as possible. You don’t get any benefit from most other investment vehicles.

Does this really add up? OK, you get some utility value for your home, but you're paying a lot more in interest than the amount it rises. And you've got to heat it and maintain it. And you could put the money into other investments.

But there's also a thing I ponder about space in all of this. Me and Mrs The Stigler live in a house that's pretty snug. I'd prefer a little more space, she's not bothered, and I'm not that bothered, so we're not extending. On the plus side, that means we're living mortgage free.

We get around the lack of space by, if you like, outsourcing space. So, if my parents come to stay (which isn't often), we put them up at the hotel down the road. It's about £75/night, but a couple of times a year, that's going to be cheaper than financing the build of an extension to have a spare room that's sat empty. I like the idea of having an office at home, but in reality, I prefer to work where there's some background noise, like in a cafe.


Lola said...

"First, property’s unlikely to be beaten by any other investment vehicle..." And there's his (the?) problem right there. If (as we know) there is no 'added value' in land then clearly he is confusing rent seeking with value creation. Furthermore it is an indictment of the current settlement that wealth creators get less return than rent seekers.

Depressing isn't it?

Random said...
It's the darn fuereners according to the Guardian. Dey tuk ur houses.

Bayard said...

"When I have thought about it, I’ve thought that the best possible place to put any spare cash is into my home, because that’s likely to appreciate in value more than any other investment vehicle."

Well, if you want your money to appreciate, and the property market is rising and is likely to do so for some time, yes, property (land) is a good place to put your money but the second bit isn't always true, even though everyone seems to think it is and it's a rotten way to invest spare cash. All home improvements cost more than they increase the value of your home, except for rewiring and replumbing or putting in central heating, because of the disruption involved. The only other exceptions are increasing the number of bedrooms and things that require planning approval, like extensions, but building an extension is hardly something you do with spare cash and there's a limit to the number of extra bedrooms you can create without things getting silly.

The Stigler said...

I guess my question is: do they? As in, when you factor in house price inflation vs interest. If it's extra space you need, sure, but just having more space beyond what you need is going to cost, isn't it?

Presumably Zoe Williams has already complained loudly to Polly Toynbee about her house in Tuscany.

As it happens, my current genius plan is to empty the garage, fix the roof and turn it into a room for a freezer, big screen TV and a 5:1 system. I think it'll cost about £5-6K. It'll not pay back in terms of "investment" but it'll just make life more pleasant for a small cost.

Lola said...

It's all about leverage.
Borrowing up to 90% of the value of the property enables you to enjoy all the upside for a down payment of 10%. Hence the bigger house you buy the more you gear up your gain. The gain is far greater than the interest cost and anyway land prices tend to hedge for inflation (inflation being the destruction in the value of money).
It's also an ambition thing. Most people dream about having a 'big house in the country' (or perhaps the City).

Dinero said...

as LoLa says its an investment with leverage available. And as a leveraged investment there is insurance available for repayment on the leverage and insurance available on the asset. plus the tax treatment and low volatilaty, with the oppurtunity to wait out a downturn, and the banks loan officer asseses the viablaty of the leveraged deal for free. Thats just a list, not a sales pitch.

mombers said...

I suppose it boils down to the zero taxation of imputed rents. Your home equity acts as a tax free source of notional income to match your liability for housing. If you build up an alternative asset base, e.g. shares, bonds or bank deposits, they get taxed and also don't exactly match the rent liability - share, bonds and interest rates can crash but rents march steadily upwards with wages...
Under LVT, this problem is solved because if you want to enjoy a high rent location, you have to pony up just like high LTV mortgagees and renters do now

Robin Smith said...

Good post thanks. Has the dick head been reading MeltFund and the light turned on after having lived on planet earth for 40 years? (ave age of FTB) We've been pointing this out for donkeys. And the most astonishing fact is that the biggest gains are made during recession when even property values have fallen absolutely. The point being they have *risen* relative to everything else which has fallen *even* more. Come the recovery 4 years later and you are way ahead of the rest while the rest will never regain the lost ground. This is how property ownership concentrates over time by natural law. So bring on the next recession.

Interest on mortgage is essentially 'economic rent'. It has to be because there was virtually no capital involved in the loan. There is utterly no other place for it to come from. My apologies if you already were aware of this.

Yes, if you have spare cash to make money out of, do not invest it in a depreciating asset. What are these. Everything that is not location value and all its less profitable derivatives (such as casino finance)

Me and Mrs. Cunt happily live in a huge mansion and only use the kitchen, bedroom and en-suite.

I think you'd all do well to stop getting moral about reality. You cannot change a mind that is not operating rationally. A new approach which night have merit is to treat the irrational as they really are - irrational. And see what happens. We've been astonished many times at what emerges when we take this approach. Until then everything seems depressing, impossible and dark. If you can make the leap suddenly its like a bright light turned on. So stop be moralists and start to live in a rather difficult world.