A Millennial’s New Perspective on Home Ownership

The last few years I’ve loudly protested that home ownership is overrated; it’s a bad investment plus lots of responsibility. And yet, this summer my fiance and I bought a 100 year old house on the south shore of Long Island.

Yes, I have lost my mind.

I basically stand by my earlier position, but with greater nuance. Owning a home is a complicated undertaking. But it’s given me a greater appreciation for the nuance involved in managing real estate.

Home ownership is a great big Gordian knot of inter-dependencies. It’s massive set of knowledge problems wrapped in externality problems.There’s a massive role for local knowledge which means policy makers’ attention should be less focused on things like home ownership rates, and more on guiding the right people into the right places to take advantage of that local knowledge.

With local knowledge comes local politics. I don’t know anything about local politics, but expect more posts about what’s going on in my town hall over the next few decades.

So what have I learned in this first month of home ownership?

  • There’s something to be said about pride in ownership

It’s still a real trip to turn on my lights in my kitchen so I can do my laundry in my laundry machines. I didn’t think I’d enjoy it this much. The endowment effect is real. One effect has been to increase my interest in contributing to local public goods via civic engagement and other routes.

I haven’t been to a town hall meeting yet, but I plan on going to one tomorrow. I suspect it will be awful. But I’m walking distance, so I’ll be a little bit drunk.

  • The real estate market has some serious frictions

This might be obvious, but it’s interesting. There are artificial and natural obstacles to the efficient use of real estate. Transaction costs are significant and property rights issues are hairy.

Buying a house is a complicated transaction and going through the process has really made clear to me how difficult it is to commodify land. Each piece of land has a unique location and history. Information asymmetries are substantial. The neighborhood you’re buying into is utterly out of your control. Put simply: Amazon won’t be selling real estate any time soon.

Part of the reason I’m happy with buying a house is that our rent had been increasing about $100/month/year. Land lords absolutely take advantage of real estate frictions to charge as much as they can. The alternative (which I chose) is to lock-in to a specific property.

  • The required knowledge to operate a home is significant and difficult to evaluate.

It takes a lot of knowledge to manage a house. If I were to take a wild guess (at this non-quantifiable variable), I’d say that between 5% and 50% of a homeowner’s brain is necessary to operate a house. Even if you bring in experts to do everything, evaluating those experts is a lot of work.

There are repairs and upgrades to make, and my formal education prepared me for exactly none of those projects. On the other hand, I’ve got the Internet. Without YouTube and Reddit I’d be a half dozen unlucky mistakes away from homelessness.

On the other other hand, I’ve learned a ton of stuff I’ve got no use for. Like how to grow asparagus (which it turns out it isn’t worth doing except out of boredom).

You can’t evaluate knowledge until it’s too late. And there’s more to learn than you ever will, so you have to make mistakes. It’s true of home ownership and it’s true of life more generally.

  • Gardening is a real trip.

In History of Economic Thought professor Gonzalez shared a story about two economists meeting in Switzerland during WWII. On showing his vegetable garden to the visiting economist, the visitor said “that’s not a very efficient way to grow food,” to which the gardener said, “yes, but it’s a very efficient way to grow utility.”

I’ve wanted to garden for some time, but the market for gardens is thin. So now I’m starting with almost no useful experience. My public stance has been that lawns are boring and dumb. But figuring out how to manage a little ecosystem ain’t easy. I now get why someone would just put in a lawn and be done with it.

At my old apartment complex the entire ecosystem was made of: humans, trees, lawns, cockroaches. I suspect the cockroaches did so well because all their competition was poisoned away. As an emergent order guy, I’m not really into that. But I get it now. In the same way the king wants everyone living in neat little taxable rows my life would be easier if I could just slash and burn all the complexity out of my yard.

Tl;dr: My biggest surprise as a new home owner is just how big a cognitive load owning a house is. You hear homeowners talk about how much work it can be, but I think it’s rare to hear someone talk about how much know-how is required.

Given the capacity to generate externalities, I’m a bit surprised that there isn’t more public policy devoted to issues of home ownership* (beyond subsidizing finance and increasing barriers to entry). I supposed I’ll learn a lot more about these issues as I learn about local politics.

*That isn’t to say I think it’s a good idea to get the government involved in trying to tell people how to go about the business of daily life. I think homeowners are (basically) doing fine left to their own devices.

7 thoughts on “A Millennial’s New Perspective on Home Ownership

  1. I agree with just about everything you say and yet…. It’s also true that I live in California which may be a special case.

    I am 76. I immigrated into this country when I was 21. I had nothing (“Nothing,” not a cute way to say “little.”) I did not have much of a real job until I was thirty-three when I received my PhD and I started teaching ( if you can call that a real job). I never earned much money. I never had any prospect of earning much money. I bought my first house at the end of my second year of this first real job. I could only afford it because I was in Indiana. I sold it at a profit. I moved (back) to California without a normal job except that I started a business there (in the middle of a recession) . My wife worked as a bank teller in San Francisco. We managed to buy a house and re-modeled it. etc. , all with much help from the federal government middle-class subsidy of interest deductibility. Fast-forward. In my dotage, my wife and I own a house on near the Pacific Ocean, 45 minutes from Silicone Valley (Same wife, by the way; it’s an important detail.) I won’t tell you how much our house is worth now because I am naturally humble and because I don’t want to become an abduction target. You just guess. In case you are wondering: It’s not paid for; it never will be. Looking back on my adult life I am sure there was no other way I could have amassed nearly as much money for my old age and my wife’s. And yes, I am cruelly aware of the fact that I would now be several times richer if I had invested $1,000 in Apple in 1985. But all the remarks you make about the competences needed to own a house apply to the nth degree to investing. At least, I had seen houses all my life, at least I had lived in houses, at least I knew people who owned houses. As I see it, my wife and I both fairly lazy (or leisurely) people took the fast California real estate elevator to modest prosperity. I believe there are millions of us.

    • You land-rich Californians love to tell everyone how well you did in real estate, but where are the people who bought property in Detroit back when it was the mid-20th century Silicon Valley?

  2. Yep. Classic, quasi-useless Millenial. The guy’s probably got a “great education” but never learned any truly worthwhile life schools until he dove into – all unprepared – the adult end of the pool. ROFLMAO

  3. […] I read an older book of his. Second Nature is his record of the same experiences I’m currently going through as a gardener. This is from way back in 1991, and in it gives some evidence that he might be an epistemological […]

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