Review: Selfish Reasons to Have More Kids

This is a review of Bryan Caplan’s book Selfish Reasons to Have More Kids. Co-written with Walid.

Summary

Adoption studies indicate that differences in parenting styles have mostly small impacts on long term life outcomes of children, such as happiness, income, intelligence, health, etc.. This means that parents can put less effort into parenting without hurting their children’s futures. If you think kids are neat, then you should consider having more. 

Review

Note: We think this is a pretty useful book, and it has changed our minds on how many children we want to have, though neither one us has any children yet. Also, neither of us are experts on twin or adoption studies.

Caplan argues that parents drastically overestimate their ability to improve the adult lives of their children. His argument is driven by adoption studies, which suggest that there is very little that parents can do beyond techniques employed by the average parent that would get them better results with their children. Specifically, the following areas are identified as areas where differences in parenting don’t seem to matter:

  • No effect on life expectancy, overall health (as measured by the presence/absence of particular health problems and self reported health), height, weight or dental health.
  • No effect on intelligence.
  • No effect on various measures of personality: conscientiousness, agreeableness or openness (not certain about extroversion or neuroticism).
  • Little or no effect on marriage, marriage satisfaction, divorce, or child bearing.

But that is not to say that styles outside of the average do not matter at all -- there are a few areas where parenting differences do seem to have an effect:

  • A small effect on adult drinking, smoking and drug problems.
  • A small effect on educational attainment, but no effect on grades in school or on income.
  • A large effect on political and religious labels, such as whether you call yourself democrat or republican or Christian or Muslim but small effects on actual political and religious attitudes or behavior.
  • A moderate effect on when girls start having sex (but not boys), but no effect on teen pregnancy or adult sexual behaviors. 
  • Possibly a small effect on sexual orientation.
  • A moderate effect on how children remember and perceive their parents.

So how do adoption studies lead to these conclusions?

Adoption studies (If you have a link to a better overview or discussion of adoption studies, we'd appreciate it) help find out the influence of parenting differences on adult outcomes by comparing adoptees to their adopting family. If adoptees systematically tend to be more like their adopting family than like other adoptees along some measure (say religiosity or income), that implies that parenting differences affect that measure.

When an adoption study finds that parenting does not affect outcome X, it does not mean that parenting cannot affect it, just that the parenting styles in the data set did not affect it.

The evidence Caplan talks about is primarily long run life outcomes. Shorter run life outcomes often do show larger effects from parenting, but these effects diminish as the time horizon increases.

If parenting doesn’t matter, what does?

Caplan references twin studies in showing that genetics have relatively big effects on all the measures previously mentioned. This explains why we see strong correlations between parents’ traits and children's’ traits. He specifically uses it to call out attributes that we would commonly ascribe to parenting, but may actually have a much larger genetic component.

Implications

Once Caplan has argued for the stylized fact that parenting has only small effects on major life outcomes, he explores some of its implications. 

Don’t be a tiger parent

One big implication is that you should put less effort into trying to make your kids into great adults and more effort into making your and your kids’ lives more fun right now.

For example, parents probably spend too much energy convincing their children to eat their vegetables and learn the piano, given that it won’t affect whether they will eat healthy as adults or be more intelligent. No one likes fighting. If you want your kid to learn the violin so they’ll have fun right now, it may very well be worth it, but don’t do it because you think it will increase their future income or intelligence. If neither you nor your child likes doing an activity, consider whether you can stop doing it.

Adoption studies provide good evidence that most activities don’t have a much of a long term effect on your children, so you need good evidence to start thinking that an activity will be good for your kids future. The odds are against it.

Have more kids

Focusing more on making your and your children’s lives more fun means that overall, having kids should be more attractive. If having another kid no longer means fighting about finishing their broccoli every night, maybe it’s not such a bad idea. On the margin, you should consider having more kids. If you were planning to have zero kids, consider having one. If you were planning to have 3 kids, consider 4, etc.

Other Topics

In much of the rest of the book Caplan gives common sense advice for making parenting easier for the parents. A couple of these, such as the Ferber method for dealing with infant sleep problems, are empirically based.

Here are some other topics Caplan discusses in his book:

  • Happiness research on parenting. Caplan argues that although being a parent seems to make people less happy, the effect is small (Ch 1).
  • Child safety statistics. Children are many times safer than in decades past (Ch 4).
  • Many of the benefits of having children come later in life (e.g. having people who will come and visit you, etc.), which makes it psychologically easy to ignore these benefits (Ch 5).
  • The externalities of children. He argues that on net, extra people have large positive externalities (Ch 6), so you shouldn’t feel guilty for having more children.

What parts should I read?

We wholeheartedly recommend reading the first 5 chapters (121 pages) of Selfish Reasons To Have More Kids as these have the most useful parts of the book; the rest of the book is less valuable. 

Criticisms of Selfish Reason To Have More Kids

There are a number of criticisms relevant to Caplan’s arugments. For example:

  • Nisbett claims that heredity is much less important for IQ than thought (see also counterclaims posted below).
  • Will Wilkinson claims (one, two) that the cost of parenting plays a small role in people's family size decisions, thus it's not a very strong reason to have more kids.
  • Jason Collins likes the book but would like it to discuss the research on non-shared environment (i.e. that not explained by genetic or parenting differences, such as peer effects) (link).  
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I haven't read the book, but I've been reading Caplan's blog for years, so I think I'm sufficiently familiar with his positions to comment.

It seems to me that the elephant in the room here are the peer effects. I don't think even the strongest hereditarian theories would imply that it doesn't matter for your kids' future outcomes if they socialize with peers who display low-class or antisocial habits and behaviors.

Now, if you live in North America, making sure your kids are isolated from low-class kids is extremely expensive. If nothing else, you must be able to afford a house in a nice neighborhood. Unless you are extravagantly wealthy, or perhaps enjoy some very unusual combination of an upper-middle class income and high job security, this means getting into an enormous debt, which you won't be able to pay off for decades, and living a stressful and anxious existence on the edge of solvency, in which a fit of bad luck can easily send you into ruin. And this latter possibility doesn't mean just falling back to a more frugal but still respectable lifestyle -- it means being thrown, together with your kids, right into the dreaded underclass in which all sorts of frightful social pathologies are rampant. It's like precariously holding onto a rope above a pond full of crocodiles. Needless to say, the marginal expense of raising each additional kid will make your situation only more precarious!

Of course, this may be nonobvious to a professor who proudly admits to living in a bubble (and who is presumably not rich, but does enjoy the extremely unusual position of having an upper middle class income and full job security). However, while Caplan is certainly right that people should relax and stop the ridiculous helicopter parenting, he seems to be oblivious to the problem of ensuring quality peers for your kids.

"making sure your kids are isolated from low-class kids is extremely expensive"

My personal experience on peer effect is, that it is not so extra important for the kid to avoid contact with "unsuitable" children. It might be important to have a CHOICE of both "suitable" and "unsuitable" peers - I am not sure about that, have no experience on living exclusively in low class environment.

My story: I went to a regular elementary school, where low status kids from our neighborhood attended, as well as "middle class" kids. (It was in the diminishing communist era in Slovakia, the good neighborhoods and bad neighborhoods were not so geographically separated as they are now). I naturally associated with those kids I felt comfortable with (who had hobbies, mostly but not 100% better grades) and dissociated from the kids I did not like (aggressive, bad grades, skipping lessons). Some of the aggressive kids are dead by now due to drug overdose, but I did not try a drug ever. My parents did not forbid me from contact from any of the kids I wanted. In the first two years, my best frend was from the "lower class" group - gypsy, bad grades - but NOT agressive, and my parents actually supported my choice even against the opposition of my teachers. I am now a research scientist and have a PhD in molecular biology, so I think seeing those little criminals everyday at the elementary school did not affect my success in life that much.

That peer effects still seem like they would be important is a fair point. The question is: if peer effects are important, why don't they show up in adoption studies? Perhaps parents don't think peer effects are important, but that seems implausible to me. Perhaps, as you suggest, it's really expensive to affect your childrens' peers. But then that fits Caplan's argument pretty well; if if you have to spend millions of dollars to change your childrens' peers then maybe it's just not that cost effective, and you shouldn't worry about it too much.

As a side note: I sometimes get a very "politics" vibe from your comments, and it gives me the impression that your thought quality isn't very good on those topics (other comments good quality). I don't know if others get the same feeling from your posts; maybe it's just me.

For example, "enormous debt, which you won't be able to pay off for decades, and living a stressful and anxious existence on the edge of solvency, in which a fit of bad luck can easily send you into ruin. And this latter possibility doesn't mean just falling back to a more frugal but still respectable lifestyle -- it means being thrown, together with your kids, right into the dreaded underclass in which all sorts of frightful social pathologies are rampant. It's like precariously holding onto a rope above a pond full of crocodiles." reads a lot like standard political rants.

The question is: if peer effects are important, why don't they show up in adoption studies?

Generally speaking, when I search for literature on peer effects, the information is sparse and confusing. I'm not too surprised, since such effects are much more difficult to disentangle than heritability and shared environment.

My working hypothesis is that:

  1. Peer effects matter a lot, but only up to a certain threshold of peer quality, and this threshold is basically what people intuitively perceive as sufficiently respectable company for their kids. So, basically, underclass peers will ruin your kids, but upper-class or genius peers won't improve things relative to the company of ordinary middle-class kids. (Just like downright abuse will ruin them, but helicopter parenting won't improve them.)

  2. In order to quality for adoption, people must pass through sufficiently strict checks that they are highly unlikely to provide an environment below this threshold. So there aren't any good natural adoption experiments that expose kids to underclass peer groups.

I'd be curious to hear about any contrary evidence, though.

I sometimes get a very "politics" vibe from your comments [...] For example, [the middle paragraph in the above comment] reads a lot like standard political rants.

Maybe it does, but this really is my honest impression of what the situation looks like to a typical person aspiring to a middle-class lifestyle these days. I'm curious if you would disagree with any of the following statements, which seem to be roughly equivalent to what I wrote above (all given in the context of contemporary North America):

  1. A house in a place where your kids will grow up with -- and, in particular, go to school with -- kids from respectable middle-class families is very expensive. In many places, and especially prosperous centers of economic activity that offer good career opportunities, it is somewhere around an order of magnitude above the median yearly household income.

  2. Unless one is extraordinarily wealthy, to obtain such a house, one has to get into debt that is, just like the house price, enormous relative to one's income.

  3. Such debt, due to its sheer size, can't be repaid in any time shorter than several decades. Just to pay the interest, let alone to make any dent in the principal, one must part with a significant part of one's income during this period. In this situation, a plausible bad luck scenario like job loss, health problems, etc. can easily push one into insolvency.

  4. Worse yet, this situation implies that the bulk of one's net worth is completely non-diversified and invested in a single asset -- of a sort that is notoriously prone to bubbles and price crashes. Even worse, the occurrence of such crashes is positively correlated with bad economic conditions that make job loss and decreased earning power especially likely.

  5. Even with a minimalist approach to parenting, raising kids is expensive. Each additional kid makes it less likely that one will manage to remain solvent under the above described conditions.

  6. Sufficiently bad financial ruin can plausibly put one into a situation where one is no longer able to afford to ensure a peer group for one's kids that will be above the threshold where bad peers exercise significant bad influence. Also, generally speaking, below a certain class threshold, all sorts of social pathologies are rampant to a degree that seems frightful to a typical middle-class person -- and, again, bad financial ruin can make one unable to afford to insulate oneself from people that fall below this threshold.

  7. Taken together, (1)-(6) makes for a rather stressful existence, in which having more kids will seem to a lot of people like an additional burden in an already difficult situation, and an additional risk in an already uncomfortable gamble.

I'd be really curious to see where exactly our opinions diverge here.

Even with a minimalist approach to parenting, raising kids is expensive. Each additional kid makes it less likely that one will manage to remain solvent under the above described conditions.

I think Caplan is correct that this is not the marginal analysis that parents do in considering whether to have another child; that the relevant margin is their time.

More tangentially, I generally think your description is too prescriptive and not an accurate description of how people think, leading to predictions that don't match the world. In particular, I don't think we see a clean line between acceptable and unacceptable neighborhoods. People don't just seek out acceptable neighborhoods free of bad influences, but bid up ever more exclusive neighborhoods, sometimes in the name of good schools and sometimes not. People take on a lot of debt not just to get into acceptable schools, but to get into these exclusive neighborhoods. On the other hand, I think people are much less stressed than you describe, largely because they are irrationally optimistic about debt, employment stability, and real estate as an investment.

In particular, I don't think we see a clean line between acceptable and unacceptable neighborhoods. People don't just seek out acceptable neighborhoods free of bad influences, but bid up ever more exclusive neighborhoods, sometimes in the name of good schools and sometimes not. People take on a lot of debt not just to get into acceptable schools, but to get into these exclusive neighborhoods.

You're right that I oversimplified things in this regard. Besides the minimum acceptable neighborhood quality, there are also many expensive status games people play that they could in principle cut back on without any negative consequences for their kids. On the other hand, the difficult question is how much you can really cut back on status games without jeopardizing your social status in ways that could damage your career and make your life generally unpleasant. (It's a difficult topic, but it seems to me like it's hard to escape the effect where higher income comes with the requirements of more intense and expensive status signaling, thus significantly reducing the increase in one's truly discretionary spending power.) On the whole, I'm not quite sure what to think about all this.

On the other hand, I think people are much less stressed than you describe, largely because they are irrationally optimistic about debt, employment stability, and real estate as an investment.

Could be. Except for your closest friends who will presumably speak their mind to you, it's hard to figure out what people really think behind the socially expected facade of radiating success and optimism. I strongly suspect that the events of recent years have shaken a great many people out of their optimism, though.

Yes, the exclusive neighborhoods could be a form of social signaling, but so too could the helicopter parenting. I think people feel the same kind of pressure towards the two.

Is leasing so uncommon, though? My mom always taught me that buying a house was retarded, admittedly contra what I took to be common wisdom.

ETA: Actually, I think it might have been me always teaching my mom that buying a house was retarded. I think even at ten years old I was better than my mom at economic rationality.

In the contemporary North America, buying a house definitely looks to me like a raw deal. On the other hand, the popular wisdom is indeed the opposite, i.e. that renting is a raw deal, suitable only for people whose tarnished reputation makes them unable to get credit. (The whole issue could be approached by asking some simple and obvious questions suggested by basic economics, but puzzlingly, nobody seems to be asking them.)

On the whole, however, I definitely have the impression that among the great bulk of people who aspire to live a middle-class lifestyle, home ownership is considered as an essential goal for any serious person, let alone family. A contrarian on this issue is likely to face enormous pressures from friends, family, spouse, etc., and risk coming off as seriously weird. (Maybe I am overestimating this phenomenon in the wider society by extrapolating from my own social circles. But it certainly exists to a significant degree.)

In the contemporary North America, buying a house definitely looks to me like a raw deal.

So, perhaps this is a sign of how brainwashed by the status quo I am, but I don't see how this is obvious, nor indeed how it could be obvious, given that everyone who is renting a house is renting it from someone who bought it, who is presumably not losing money on the deal. (Or is that a false presumption? Do landlords typically spend more to purchase and maintain their property than they make in rental income? How could that possibly be true?)

So I would love some more explanation here. Is the idea here that buying a house N years ago was a good idea, but buying one in 2012 is not?

[E]veryone who is renting a house is renting it from someone who bought it, who is presumably not losing money on the deal. (Or is that a false presumption? Do landlords typically spend more to purchase and maintain their property than they make in rental income? How could that possibly be true?)

You can also ask a different question. If you borrow money to buy a house, you must find a lender willing to lend you at some interest rate. The interest rate is nothing but the price of renting money. So if it costs less to borrow (i.e. rent) the money to buy a house than to just rent the house directly, then how can the lender possibly be willing to lend you the money instead of investing it into a house himself and earning a rent higher than your interest?

When I make this argument, people usually try to argue that somehow you profit from buying by building equity with time. But if the money rent, i.e. interest, is equal to the house rent, then to build equity, you must make payments to the lender above this basic rent/interest rate -- otherwise you'll just keep renting the same amount of money indefinitely. And if you rent the house instead of making these higher payments, you can save and invest this difference, with the same positive effect on your net worth (which will also have an effect equivalent to the reduction in payments as the principal gets lower). Of course, this isn't true if the interest is lower than the rent, but then we get to the above question of why anyone would be so irrational as to lend at such terms. It also isn't true if the house price grows faster than any alternative investment -- but even ignoring the lessons from recent history, this again gets us to the question why someone would ever lend you the money at this cheap interest rate instead of investing the money himself into these fast-appreciating houses.

What these considerations show is that according to the textbook spherical-cow microeconomics, on a free market for housing, renting and buying should be equally good deals, since in efficient markets there is no possibility of arbitrage. And buying can be profitable over renting only if there is a strange opportunity for arbitrage where it's cheap to rent money but expensive to rent a house, even though money and houses are readily convertible into each other. A similar argument can of course be made against the possible advantage of renting -- except for the issues of risk-aversion and asset diversification, which decisively favor renting over owning.

In reality, of course, these simple spherical-cow models don't work, and there are lots of complicated and ill-understood factors involved, including all sorts of people's biases and signaling issues, high transaction costs, Knightian uncertainties, exuberant speculation, and not the least of all, huge government interference in the market by various subsidies, regulations, and other convoluted and dubious enterprises. The result is a complicated mess in which an accurate analysis of what's really going on is practically impossible, and in which there may indeed be possibilities for arbitrage.

However, regardless of all that, it seems to me that buying has some tremendous drawbacks, for which I can't see comparable upsides under any realistic circumstances. The first and foremost is that you're investing the bulk of your net worth (and on top of that a huge pile of borrowed money) into a single non-diversified asset, which seems like a crazy idea by the most basic principles of sound personal finance. [1] For various other drawbacks, one could perhaps argue that they are offset by the downsides of renting (though I would disagree), but this one really seems to me by itself like a decisive argument against getting into house ownership.


[1] Note that this is one possible solution to your landlord puzzle. The tenant may want to pay a premium to avoid placing most of his net worth into this asset because of risk-aversion, while for the (rich or corporate) landlord, it's just another item in a large portfolio with the risk well spread.

Here are some complicating factors:

The renter is paying the landlord to assume the risk of tenant mobility. That is, if the renter needs to move, they can do so and the landlord could be stuck with a vacant unit. On the other hand, someone who owns a home and needs to move, needs to find a buyer for the old place, and incurs material (~7%) transaction costs. People who want to stick around for a long time have no reason to pay a premium for an option they won't use, so longer-term residents tend to buy and not rent.

On the other hand, as long as they can make mortgage payments, homeowners almost never get kicked out of their homes. If you want to bring up kids and build memories/accumulate sentimental value in one place over your whole life, a rental is probably not for you. If you want to customize your home and/or make capital improvements, a rental is also probably not for you.

There's a kind of pooling equilibrium, and very little incentive to live in the "wrong" arrangement.

It's also a mistake to compare nominal rent with nominal mortgage payments, as you also have to consider tax deductibility, maintenance costs (which people often underestimate), heating/cooling/electricity/water bills, real estate taxes, and mortgage amortization.

However, regardless of all that, it seems to me that buying has some tremendous drawbacks, for which I can't see comparable upsides under any realistic circumstances.

Before I bought my house I ran the numbers and came to the same conclusion, that home ownership would not maximize my net worth and would increase certain types of risk. As a result I see home ownership as a luxury, not as an investment. I bought my house because I wanted it as a luxury and believed I could manage the risk.

If mortgage interest is tax-deductible but rent isn't, then you have to pay higher rent in order for it to be converted into an interest payment that would come out of pretax income. I think this is how Michael Vassar said the market got so messed up, though I don't know if I'm correctly attributing it to him, or if the notion is unique to him (I expect not).

There are two puzzling observations here, though:

  1. In booming real estate markets, rent may in fact be cheaper than the interest on the equivalent house price even considering the tax break. I suppose this is because people count on appreciation, but we know how good that assumption is.

  2. The lack of mortgage interest tax breaks in Canada doesn't make people's attitudes towards renting vs. buying any different than in the U.S. The only observable effect, as far as I know, is that Canadians on average struggle to pay off their mortgages more quickly.

I'm not sure I understand what "conversion" you're talking about, but it sounds like you might be saying that the landlord has no mortgage interest deduction, so they need to receive a larger rent payment to break even, than it would cost the renter to own the same property. If that's not your point, then disregard the rest of this comment.

To the landlord the mortgage interest is a business expense and can typically be deducted. So there's (ceteris paribus) no difference between the net cost of the mortgage to the landlord, and to a homeowner.

What I'm saying is that you can either pay $2000 of rent using post-tax income or $2000 of mortgage using pretax income. This might work out to the difference between a $3300 mortgage payment (pretax income) or a $2000 rent payment (after the $3300 has been taxed at an e.g. 39% marginal rate by state and feds).

OK, that's what I thought you meant, thanks for clarifying.

Owning a house has the advantage that, even in extreme contingencies, you will still have your Maslovian need for shelter under control. Same reason someone would eagerly trade gold for an equal weight of grain in a sufficiently severe famine.

This is true if you actually completely own your house. However, many "homeowners" don't; they have mortgages which they are not yet in a position to pay off completely. Given sufficiently extreme contingencies (which needn't, actually, be all that extreme) they could find themselves without shelter as easily as their renting peers.

Paying the mortgage involves a marginal step toward that desirable condition of true homeownership in a way that rent does not. Essentially, a mortage is rent + a commitment to investing part of your income every month, which many people would not otherwise have the willpower to do.

Yes, the structure of a home mortgage loan helps someone save when they might not have otherwise. But your original comment was that home ownership was helpful because it increased your security that you would have shelter - which is a different point.

If you lose your job and the mortgage has not been completely paid off, you are not in an appreciably better situation re: shelter if you own vs. rent. I suspect that the foreclosure process is more time consuming for the party trying to evict you than the landlord eviction procedures - but 1-3 months vs. 9-12 months* is probably not that useful a difference in the grand scheme of your life.

*These numbers are a guess, but I think the relative difference in time is roughly accurate.

Having three or four or twelve times as long to search for alternative sources of income can make an enormous difference in the grand scheme of your life.

Let's say it's 3 months for eviction, 9 months for foreclosure, and it takes six months of searching to obtain a new job. Someone who was renting would have to complete the second half of that search while homeless, a condition which brings with it many unpleasant, life-altering complications. Social capital must be burnt on preserving life and limb when it could have been spent to aid the search itself, or hoarded against future calamities.

How important the difference between 1-3 months and 9-12 months is in that scenario depends a lot on how long it takes me to find another job.

Comparing monthly costs is a bit misleading. There are a whole bunch of less-direct costs and benefits to ownership. A bunch of these depend on your estimation of future economic conditions and of your future desires.

1) If you own a house, you're incurring the risk that you have to move for personal or professional reasons, and then can't easily sell. Landlords typically don't have to sell on short notice -- it's perfectly possible to be an absentee landlord. Not an absentee resident.

2) As a landlord, you can potentially hold the house as one asset in a portfolio. As a homeowner, you've locked up a lot of your potential capital in that high-risk illiquid asset; you're much more exposed if property values go down.

On the flip side:

1) Residents with a mortgage get a tax break that landlords don't.

2) Being an owner means you don't have the risk of future rent increases, and can profit if property values go up.

3) Being an owner entitles you to make structural or other changes -- repainting, say -- that a tenant can't easily.

Regarding 1... can't a resident of a home, should the need arise to move on short notice, become an absentee landlord on the same property? If the monthly costs of renting equal or exceed the monthly costs of owning, presumably the rental income covers the cost of owning the property, and the former resident can go rent property wherever they happen to need to be.

I would add to your second list:
4) Owning the property means I get more upside if property values go up.
5) Renting the property means I am subject to the owner's whims in addition to my own.

Being an owner means you don't have the risk of future rent increases...

That is true, but as far as I can tell, rent increases don't follow soaring house prices during real estate booms. Rather, the price to rent ratio tends to go out of whack. (Check out these graphs -- I can't vouch for the accuracy of their numbers, but they are consistent with what I observe on the ground. Since I've been renting my current house, my rent hasn't gone up by a single cent, not even to compensate for inflation, while the house prices where I live have gone up by something like 40%.)

Moreover, the standard ways in which mortgages are done leave one exposed to the risk of future interest rates increasing, and they can go up much faster and higher than rent. (And as far as I can tell, one must pay a huge premium to get a permanent fixed rate and avoid playing this financial equivalent of Russian roulette.)

In the US, the large majority of mortgages are fixed rate. Until about 10 years ago, virtually all were. I think mortgages are a lot more popular in the US than in Europe. I'm a bit surprised that fixed rate mortgages haven't spread into Canada simply by proximity. Maybe they're propped up by Fannie Mae.

I have no idea what the ultimate reasons for it are, but in Canada, I don't think it's even possible to fix the rate for more than ten years. When Canadians speak of "fixed rate," they typically mean fixing it for only five years or so.

Wow. Yeah, signing up for a mortgage I expected to pay off over thirty years would frighten me with that arrangement.

All Canadian banks offer up to 10-year fixed rate terms, none do longer. "A typical mortgage in Canada has a 5-year term with a 25-year amortization period." Not sure what is so scary about that...

It's interesting to see that the common-sense view is now that buying a house is a bad idea. Just a few short years ago anyone questioning the wisdom of buying a house was seen as mentally deficient, if not downright evil.

This just as prices have reverted close to fair value and buying is starting to make a lot of sense compared to renting. [As long as you have the capacity to pay the loan and you are not likely to move soon.]

This I take to be a sign we are close to the bottom in housing.

This I take to be a sign we are close to the bottom in housing.

Absent some very extraordinary insider information, there's never any good reason to believe that. At any moment, prices are where they are because they could go either way.

Maybe I am overestimating this phenomenon in the wider society by extrapolating from my own social circles.

No, that sounds about right.

In the contemporary North America, buying a house definitely looks to me like a raw deal.

In US, a 3000-dollar-per-month mortgage lowers your taxable income by 36000 dollars. The standard deduction for a married couple (perhaps renting a house for 3000/mo) is 12000. Can't this go a longer way toward explaining it than peer pressure?

Of course, property taxes are high in good school districts.

Honestly, I think that for the overwhelming majority of people, these tax issues are way over their heads. (I have no confidence that I understand them myself. In finance, reliable and accessible information is very hard to find.) So I think that such considerations, while not completely irrelevant, are easily trumped by the combination of peer pressure, deeply ingrained but obsolete folk wisdom, the sheer emotional appeal of home ownership, the intuitively appealing but fallacious view that renting means giving away money while paying a mortgage means saving it, and the irrational optimism about future trends in house prices (which has abated in recent years in the U.S. but is still rampant in Canada).

On the other hand, the counterargument about asset diversification seems to me unassailable. Putting all your eggs into one basket is correctly considered as a crazy financial strategy, and a fortiori, putting a bunch of borrowed eggs along with them is crazier still. Yet houses are somehow considered an exception.

[Edit to add: Looking at this a bit more, I realize I didn't even know there was such a straightforward tax deduction for mortgage interest in the U.S. However, this only strengthens my point, since no such thing exists in Canada, but people still think and act the same way.]

Is leasing so uncommon, though? My mom always taught me that buying a house was retarded, admittedly contra what I took to be common wisdom.

Your mom seems to have instilled in you a politically incorrect and sometimes offensive word usage!

Your mom seems to have instilled in you a politically incorrect and sometimes offensive word usage!

What is it about people with practical-worldly-knowledge that causes their speech to be littered with so many un-PC words and phrases?

What is it about people with practical-worldly-knowledge that causes their speech to be littered with so many un-PC words and phrases?

The same thing as with people who don't have practical worldly knowledge that causes their speech to be littered with so many non PC words. But I would estimate to a lesser degree on average.

Well, you can live in an apartment, for one thing.

(I don't know how the math works out nowadays, so I'm not really advocating it, just pointing it out.)

A house in a place where your kids will grow up with -- and, in particular, go to school with -- kids from respectable middle-class families is very expensive.

This may be true in suburbs, but not everywhere. My mother grew up in a small college town in Kentucky. Her parents, and the parents of her friends, were mostly college educated but below national median income. They lived in small, inexpensive houses. Local kids had access neither to ballet and karate lessons nor drugs and gangs. Her social life focused around church and folk dancing. From what I understand, it was a high-quality, low-cost childhood.

I believe you, but places of the sort you describe are increasingly rare. For most people, I don't see any plausible way how they could move to some place like that and organize their lives there.

As phrased above, your position seems like a reasonable starting point for a discussion, and I probably would not have made my comment if you had first commented with something closer to that.

I was trying to comment on the way you presented the argument before rather than argue that your object level point is mistaken, since I don't have strong views here. It's not a serious issue, just something I thought you might like to be aware of. The more I think about this, the less 'justifiable' it seems to bring this up.

You used several adjectives with a normative tinge "enormous debt", "edge of solvency" and colorful imagery "precariously holding onto a rope above a pond full of crocodiles", which sound like they're designed to get the reaction "Oy My God! What has America (or pick your favorite country) come to?!", rather than the reaction "buying a house in an expensive area sounds risky".

Does that make things clearer?

On the object level topic, your argument seems very focused on debt, do you think renting a house in a similar area substantially lessens the burden?

You used several adjectives with a normative tinge "enormous debt", "edge of solvency" and colorful imagery "precariously holding onto a rope above a pond full of crocodiles", which sound like they're designed to get the reaction "Oy My God! What has America (or pick your favorite country) come to?!", rather than the reaction "buying a house in an expensive area sounds risky".

I have no problem with your comment, and I'm glad to explain the reason why I made my original comment that way. The reason why I used such emotional imagery is that I wanted to depict the way people feel about their situation, which is the relevant thing in this context, even if the way they feel is unrealistic and biased. (Since the way they feel, and not some ideally objective evaluation of the situation, will ultimately determine their decisions about having kids.)

(By the way, do you really think that "enormous debt" and "edge of solvency" are not perfectly realistic descriptions of how many, if not most people in their child-bearing years live these days?)

On the object level topic, your argument seems very focused on debt, do you think renting a house in a similar area substantially lessens the burden?

I'm probably over-focusing on debt, since I myself consider any serious indebtedness with horror. I would guess that debt by itself is probably a much lesser source of worry to most people.

Now, when it comes to the issue of renting vs. buying, this is one of those things where people, including otherwise smart and successful people, tend to have opinions that seem seriously crazy to me. As far as I can tell, among the North American middle classes, it seems to be near-universal belief that a basic prerequisite for serious family life is owning a house, so the idea of renting is a non-starter. There is also the near-universal belief that renting is somehow a raw deal compared to buying, so that renting sends a strong signal that you're either stupid or, more likely, can't be approved for credit because of some shameful history you're hiding (and all the bad qualities it likely implies).

All this despite the fact that basic economics strongly suggests that renting should be a better deal for nearly everyone. (Unless perhaps the relevant markets are distorted to an enormous degree by subsidies, regulations, and perhaps also status signaling games, but in reality I see only the latter in sufficiently strong form.)

However, this gets us to the more general issue of various other expensive status games that one is supposed to play in order to be accepted among one's social group nowadays. This is a difficult and complicated topic, but on the whole, it seems to me that for a variety of reasons, these signaling requirements tend to expand as one's career and income advance, so in the end, it's difficult to avoid the situation where one is constantly walking on the edge financially. Needless to say, all this certainly isn't conductive to having kids.

I wanted to depict the way people feel about their situation, which is the relevant thing in this context, even if the way they feel is unrealistic and biased.

So it seems we all agree that your crocodile-pit description does not necessarily reflect reality.

Except for certain child-bearing zoo employees.

It depends on the concrete place and people we're talking about. There are ways to escape falling into the underclass even with very little money, but that requires luck and talent that many (and I'd even say most) people don't have.

Well, in 15 years I'll let you know whether my decision to live and reproduce in a city that has poor people has turned my kids into underclass wrecks.

It would be mere anecdotal evidence. I kind of feel you are trying to tell or signal something other than offering to eventually share with us the results of a long term experiment.

...you're right, I'm not making housing and childrearing decisions with the main goal of providing a useful data point to LW 15 years in the future. And I am trying to signal that I think poor people are not a crocodile pit. Enough so that I am choosing to share a neighborhood with them.

I don't think he was painting it as a crocodile pit, I read him as pointing out that negative effects on life outcomes are to be expected on average. It seems a highly probable hypothesis.