A Multidisciplinary Lens on the American Dream - Part 2

I’d like to start today’s post by acknowledging the recent elections in USA with a quote that nudges us to see the nuances in our positions and perspectives.

I’m not a big fan of labels. They strip the nuance out of you. On one end is absolute individual autonomy and freedom. On the other end is draconian top-down command and control. Free market capitalism (no central planning/intervention) vs full-blown communism. Decentralization vs Centralization. Wild Wild West vs Big Government Bureaucracy.

It is not about the extremes - but, how does one strike the right balance? This is a question not only for the leaders of a nation but also for the leaders of corporations. Stafford Beer captured that tension elegantly in the title of one of his books - ‘Designing Freedom’ (I won't go into specifics, but I strongly recommend the book if you're curious!).

Back to the topic of labels, the only one I feel comfortable using for myself is ‘fallibilist’, as in the tradition of the philosopher Karl Popper. Fallibilism is the view that scientific knowledge and human knowledge in general is inherently uncertain, provisional and subject to revision.

Let’s now dive into the topic of today’s newsletter….

Table of Contents

• Complexity: Why Rent?

  • Optionality

  • Diversification

  • Two-way doors

• Where are we today?

  • HOAs

  • The Golden Handcuff

  • Second Order Effects

• Where are we headed?

  • Next-Gen Homes

  • Autonomous Driving & Robotics

  • Population Collapse

  • Legal Changes

Complexity: Why Rent?

We are all built differently and our life experiences shape us. Some pursue certainty, while others embrace anti-fragility. Some focus on building wealth, while others prioritize optionality. Some like to meticulously plan their lives, while others want to prepare for anything that happens in the future. As the saying goes, personal finance is more personal than finance.

In an increasingly uncertain world, are there any benefits in renting instead of buying? Let me explain from the lens of complexity…

Optionality 

Optionality refers to having the flexibility to take advantage of opportunities or avoid/limit downsides as circumstances change. Nassim Taleb talks about how living in a rent-controlled apartment in New York is a great example of optionality:

FWIW, Taleb walks the talk and maintains optionality in his own life:

Not everyone is lucky to be in a New York rent-controlled apartment. But, when you look around you’ll be able to find asymmetries in the real estate market where the ‘buy vs rent’ is favorable to renting vs buying (with the difference going into investing in the stock market or a startup).

Diversification

Society often promotes buying a home as a safe and wise investment. But, the people who lost their homes during the 2008 housing crisis might beg to differ. Even otherwise, the risks of illiquidity and overexposure to a single asset are highly underrated. Middle class, after all, has a lot riding on home ownership:

Also, the liquid net worth of American adults might surprise a few:

Why care about liquid net worth? Nick Maggiulli puts it well:

Be mindful of the concentration risk and diversify accordingly.

Two-way doors

For many home buyers, a top-notch school district is a crucial factor in their decision-making process. They often rely on the district's rating, typically represented by a numerical score, to guide their purchase. A higher rating generally correlates with a higher home price, as this value is already reflected in the market.

However, each year, a small percentage of students have a negative experience at the school despite the district's high rating. Despite attempts to address the issues, nothing seems to improve their situation. Consequently, these families resort to enrolling their children in costly private schools, adding to their financial burden alongside hefty mortgage payments. Alternatively, they might choose to relocate to a different school district, opting to rent after selling or renting out their current home, sometimes at a loss.

That’s just one example. There could be many - noisy neighbors, litigious neighbors, friendly relatives close-by who later become bitter enemies, frequent car break-ins, drug addicts dying in front of your garage, etc. A lot of things can go bad quickly. Here is a street in Detroit - just ten years apart:

The ability to walk away (without ruin) when something bad happens (in your neighborhood/town/city/state/country) is highly underrated. A two-way door decision is one that allows one to quickly reverse or change the decision if things don’t work out as you had originally anticipated. Renting is the closest thing to a two-way door decision when it comes to choosing where to live.

Renting allows you to relocate easily when the proverbial shit hits the fan or on the bright side - if a better job or life opportunity comes along elsewhere. You're not tied down by the complexities or losses of selling a property (especially when it is under water).

Life is path dependent. While I highlight the advantages of renting, I’m not dismissing ownership entirely. The key is to be mindful of the trade-offs, ensure appropriate diversification and make sure that any commitment doesn't excessively limit the number of choices in your future.

Let me end this section with an old tale for the post-election weekend:

For premier-tier subscribers, I’ll now bring together multiple perspectives including my own, and discuss where we are today and where we might be headed in the future.

Subscribe to "I'm Serious" to read the rest.