I think there's a pretty critical piece of analysis missing here: inflation. An alternative explanation might be that housing prices are being driven up by inflation, and wages haven't caught up yet. There are two ways to lower the home value/income ratio:
1. Decrease housing prices
2. Increase wages
We haven't seen meaningful wage increases for a long time now, so perhaps it is time. Maybe this is just a symptom of wages not tracking with inflation, and the solution is to pay people more.
100%. Though, interest rate based appreciation is likely at its apex, presuming zero is the floor. If we find ourselves with negative rates (after taxes and fees; there was one case of negative rates in Europe, but net inclusive of fees, it was still positive) -- then we're in truly uncharted territory.
At this juncture, it seems most appreciation will arise from supply issues, which aren't new to the post-2008 world. And while we do have lots of unoccupied housing nationally, we don't have it stock in areas where it's most needed: e.g, job centers. You can easily find a $10k home in Detroit if you wish.
The graph would be helpful it broke out metro versus rural areas, in addition to factoring interest rates.
I agree that wage growth is stagnant but I think the changes over the last 20 years of real median wages is definitely meaningful. Look at the changes from peaks in 2000, 2007 and also from a deep trough in 2012:
I upvoted your comment because it clicked with me, but now I'm thinking about it more.
_I'm_ content with my pay now, perhaps others aren't and there is little they can do about it. How might we even define "content" for a cohort as large as "anyone buying a house"?
An increase in wages (real or nominal) without any increase in housing supply just leads to more money chasing the same supply which means higher rents. We are seeing this play out as we speak in every major city in the U.S.
The solution is not to pay people more, it's to increase the supply of housing to the point that people can pay drastically less for housing. Look at China: apartment towers on every street, each 30+ floors easily. Where is that kind of density in the U.S.?
Some very clever and influential people better start finding and implementing real solutions to housing prices right now. If they don't, expect overwhelming support from Millennials for massive expansions to public housing and rent control, if not even more draconian measures.
Draconian is a strong word (but cool-sounding) and what I really mean is "antiquated". But they are also somewhat blunt instruments and have historically lead to unwanted consequence. We already have more modern, market-oriented solutions, like vouchers and tax-credit housing, but those have problems too. My bigger point was, Millennials tend to react big when specific issues rise to the forefront, and if there aren't better solution than what is already on the table, we risk people clinging to whatever ideas do exist, which in the realm of housing, are mostly shit ideas.
Its interesting how often on HN the main problem always ends up being how people will "feel" about the next crisis, and the danger of that feeling itself. It's a weird kind of proxy self-consciousness older generations have on behalf of the economy. Always and forever: "no no, it's not that bad, really!"
meanwhile people are very much homeless, whether they are millenials or not, whether they react strongly or not.
Some forms of rent stabilization make perfect sense. But most of the policies implemented in big cities are far too restrictive. There is a lot of policy to be explored between "your rent never goes up forever" and "you can't be immediately evicted for no reason". No one wants the latter, but there are better ways to address that, like much longer notices for rent increases, or requiring multi-year lease options.
San Jose limits annual rent increases to 5%. That seems reasonable (unless inflation gets out of control). Tenants aren't immediately forced out of their homes if the market rate jumps 20% in one year. But landlords can still eventually raise rents to market rates spread out over several years. There's no absolute limit on maximum rent.
Technically, it only works if the (notional, I’m not sure this is an actual tracked category) PPI for rental housing is low, general (CPI) inflation may loosely correlate with that, but its not directly relevant.
Inflation may not be out of control yet, but certainly things like insurance, parts and labor for repairs and maintenance, and HOA dues are already increasing more than 5%/year. And property taxes alone are guaranteed to increase 2%/year in California. Not saying we should feel sorry for landlords, but when some parts of a market have price controls and other parts don't, distortions are inevitable.
> And property taxes alone are guaranteed to increase 2%/year in California
No, they aren't. Assuming no increase in property tax rate (which is a good assumption, since your local taxing jurisdiction almost certainly already charges the maximum nominal rate of 1% allowed under Prop. 13), your property taxes will increase only by the amount your assessed value for taxation increases, which is capped to the lower of 2% or the actual annual (trailing) rate of inflation.
For 2021/2022 the actual cap is 1.036%, based on the actual California CPI for October 2019 through October 2020.
> If we could make things cheaper by passing a law we’d do it for everything.
Price controls for medicine are proven to work, based on single payer European systems. They cost cheaper and provide better outcomes than the US system.
That’s different. The drugs are invented and produced all over the world and can be imported to Europe. So low European drug prices will harm overall pharma innovation a bit without killing the entire market.
Housing, OTOH, is always local. Low rents will discourage development which will make the real, underlying problem worse.
That is an example of what economists call the free rider problem. European countries get cheap drugs only because they are effectively being subsidized by Americans.
Outcome differences are due more to public health and social factors like obesity. Expensive drugs or lack thereof have only a tiny impact at the population level.
US pharma spends an outsized amount on sales and marketing, expenses that could be eliminated if public funding was spent directly on R&D.
Europeans aren’t free riding; they’re paying a reasonable rate for these goods while Americans are shouldered with extraction of revenue for pharma profits and those inefficient (and arguably unnecessary) sales and marketing expenses.
Only two countries in the world permit marketing directly to consumers to promote pharmaceuticals: the United States and New Zealand.
There is already a lot of public funding for basic biomedical research. Actual drug development is another thing entirely. If this were publicly funded then funding would be allocated based on political priorities rather than realistic scientific and economic assessments. That misallocation of resources would overwhelm any savings from reducing sales and marketing expenses.
But in general the traditional drug development approach of finding small molecule drugs to treat specific diseases is running out of steam. Most of the low-hanging fruit has already been picked.
A ban on marketing prescription-only drugs directly to the public existed in the US until recent decades. The amount spent on marketing skyrocketed when that ban was removed.
An outright ban would be very difficult now that the genie is out of the bottle. The FDA can regulate what goes in the ads, like requiring disclosure of the expected benefit, how prevalent some of those side effect them mention are, how common the condition it's meant for actually is, and of the list price of the medication. Many of these drugs are for rare conditions and the drugs, though approved, help a smaller percentage of patients than the ads portray and to a lesser extent.
It's not like profit motive is a great allocation method either though. There are massive perverse incentives to favor expensive ongoing treatments over cures or prevention.
But, because healthcare is public in NZ you wouldn't bother with the brand names as you'll have to pay for them (generics are funded by the taxpayer through Pharmac, which is the crown entity that is responsible for buying all publicly funded medication for NZ).
It's like Private hospitals, we have them, but very few people use them as the public system is better equipped and paid for by the tax payer.
As described by Freakonomics and general economic education, this is more or less right.
However keep in mind there's two kinds of rent. You can rent a house, or you can rent money and buy a house.
Historically and across countries there's been some willingness to restrict mortgage LTVs and interest-to-income ratios. At least in some European countries the interest ratio depends on a fixed interest rate (eg 5%) rather than the current interest rate.
We can create and destroy money more easily than we can create and destroy homes, maybe that's a worthwhile lever to try.
Not the OP, but I'll guess that it's because both of them strongly erode property rights. Another, more freedom-preserving, approach is to make it easier to build build build. Planet Money had a decent introduction a couple years ago.[0]
In the current NIMBY climate, my neighbor is struggling with the red tape to repave her driveway. Building a new home around here seems about as improbable as a hobbyist making the first human Mars landing.
Are property rights freedom-preserving? One of the most infuriating bits of my visit to the US West coast was driving up from LA to SF and a lot of the really nice bits of coast not being accessible to the public. There's compromises like germanic Jedermansrecht [0], but overall I think limiting property rights is often a net gain of freedom.
I do agree on the problem of NYMBYism though. There's a funny-if-not-so-sad dispute here in Berlin at the moment, where the leftist state government is desperately trying to build public housing while the leftist local government in the district of Lichtenberg is blocking a major developing due to local concern. Sadly I can't find an article in English, but I am sure there are dozens if not hundreds of examples for that.
California coast is public up to mean high tide. This is appreciably different from, for example, Oregon where it is public further in (typically to the vegetation line, details are slightly complex). It makes it significantly easier for California property owners to de facto remove public access to beaches, which is very common in some areas. On top of this, CA courts have often been reluctant to enforce public rights to beaches.
Those coast lines are most likely either inaccessible due to environmental protection concerns, or just straight up not easily accessible — lots of cliffs on the West Coast.
Or just not very fun to be on. The beach cities of Southern California are blessed with having some of the most accessible beaches.
You’ll find that historically speaking “freedom” and “property rights” are treated as synonymous for some political theorists, including the ones that founded the United States. This is one of the foundational aspects[0] of liberalism that has come to rule the western world; the idea that property rights are sacred and must have an exceptionally high bar for the collective to intercede on.
Whether or not that equivalence is true is a debatable matter. One of the unfortunate outcomes is the ability for the individual to withdraw their property from public use, often to the detriment of the whole (such as the beach example you provided).
Also, the fact that the founding thinkers of liberalism and America itself tended to own slaves or trade in them doesn’t necessarily disprove the basic argument, but it’s a pretty strong counter point at least.
0 - There are of course other tenants to liberalism that I’ve not included here, due to their irrelevance for the subject at hand.
You're forced to rent or sell at certain prices for a certain number of units as a condition for your permit to build. So you're not building what you want to build, nor are you pricing it at market rates.
Econ 101 says that rent control (in effect a price ceiling) just results in scarcity (people are unable to get ANY housing), rather than actually reducing the cost of housing.
I'm not sure why you're being downvoted. This is the theoretical prediction based on simple microeconomics. By example, I believe NY rent controls were ineffective to the point where rents outside of controlled areas went higher than they otherwise would have and within rent control areas there was (and is) scarcity of housing.
It also exacerbates other problems that go hand in hand with urban areas, such as traffic. Most people would rather stay in their rent controlled apartment and drive an hour to work instead of having to move and pay the current market value
The issue then becomes silly games with shell corporations hiding how many homes people own, which pushes homes into the hands of larger landlords who can afford to pay someone to play those silly games.
This is what pisses me off the most. America's housing is being sold to the wealthy, who then just turn around and siphon the rest of the wealth out of the middle-class and younger generations by forcing them into renting because the barrier to break into homeownership simply eclipses them.
There's a whole cottage industry of house hackers now thanks to biggerpockets who specialize in BRRRing, as in buying, doing minor renovations, raising rents and then cash out refinancing to have money for the next downpayment.
Of course it is, Millennials are as young as 25 this year. Its doubtful many can afford a house just a few years out of college (and even more doubtful if they didnt go to college). Even those that can may not be ready to settle down and commit to such a large purchase.
I don't know if this is a problem? I am perfectly happy focusing on my career and my hobbies and not worrying about home repairs, insurance, taxes, natural disasters, etc.
It is more financially and emotionally rewarding for me to prep leetcode, solve software problems, etc. than it is to deal with home renovations, plumbing repair, etc. on a home.
Plus the flexibility of location is huge. I can follow the job market much easier if I am not locked into an address.
the mobility will be less valuable, but I'd imagine if I had children, renting would give me more time to spend with them since I won't have to maintain a home.
It's not so much that they're the loudest as it is that the other 50% of us are busy living in affordable parts of the country and getting on with our lives.
1. Residential homes are no longer allowed to be 'investment properties' aka every person(or married couple) can own exactly one house. Corporate entities except for Banks(even then can only own it for the time it takes to sell it in the case of foreclosure) can't either.
2. Only actual Americans can own property in America. Single-fam, multi-fam, land,etc. doesn't matter.
Exactly no one needs to rent houses if mulit-fam exists and actual houses aren't speculative instruments or places where foreign nationals hide their money.
1. Just bans people from renting houses to other people. This reduces the supply of rentable houses to 0. Reduces the supply of rentable stock in general. And very slightly marginally reduces the price of houses.
2. Can corporations still own commercial property? And can foreigners own corporations ?
Even "simple" solutions like those you've proposed so often wind up having unintended consequences.
For your first proposal, I wonder about folks buying a house through an LLC or trust as folks often do to protect their privacy. Are we banning that? I also wonder about inheritance - if I own a house and my parents die, leaving me their house, how long do I have to sell one to be "in compliance?". Maybe their house needs work and I'd like to spend a few months or a year fixing it up to maximize what it'll sell for. Is that ok? And speaking of timing - I remember during the wave of foreclosures after the last housing bubble, banks kept a lot of houses off the market for a while to moderate prices, rather than listing everything at once and panicking the market further. Seems like banks ought to have some leeway to maximize their return (e.g. if a house has a pool and is foreclosed on in the late fall, maybe they judge that waiting until spring would get a better response from buyers).
Doesn't that sound insane from a mile away? By the time you are done making exceptions, you'll have infinity carve outs. This is not a solution so much as a way to squish the problem into a different, weirder shape.
1. Everyone is forced to sell their lakehouses, cabins, ADUs? Detached mother-in-laws? (wtf is "Exactly one house?")
No one is ever able to rent a single family home ever again? Right now 14.5 million households / 44 million residents rent single-family homes in the United States. They're... out of luck? On the street? Gotta save for a down payment? If those houses are force-sold, don't you think people-other-than-the-current-inhabitants will come in and buy them?
Actually, can anyone ever rent ever again? Or is it a buy-vs-homeless dichotomy here? Or do towns have to become miniature companies and play landlord? Or states?
2. Timber companies are forced to give up their land, bankrupting all of them and driving the cost of wood sky high. Mobile home land must now be sold, except no one can buy it. Farms except for sole proprietors are forced to give up their land (sorry partnerships, amish, people with discontiguous lots, and everyone who wants to eat this year, you're out of luck)
IMO you should focus on laws that let people build more (eg, ADUs, duplexing) rather than getting out the stick and hoping there won't be huge side effects.
We already have waaaaaay more empty houses than homeless people, so that seems like kind of a huge side effect from speculation / investment that is terrible for normal people.
Can someone answer why any developer would ever create low income housing when margins on luxury condos / McMansions are so high?
Neoliberal capitalism is totally failing at efficiently providing housing to anyone other than the rich, but sure, lets just keep sucking up to developers
> Exactly no one needs to rent houses if mulit-fam exists and actual houses aren't speculative instruments or places where foreign nationals hide their money.
okay, but what if I have (an opportunity for) positive cashflow, minimal savings, and want to move away from my parents' house? does it just suck to be me or what?
There are good reasons to be a renter, it’s hard enough getting an apartment in the time between accepting a job offer and your start date, I couldn’t imagine hunting for a house/condo in that time.
Who builds new homes if builders can't own them pre-sale? I imagine you have a carve out for that, but who qualifies as a builder?
What about people who want to live in cities? How do they come together to build say a small condo building? Do we only allow co-ops? How is that financed?
When you say "Americans", do you only mean citizens or permanent residents? Where do temporary residents live?
How do people move to new cities/states? Where will the new housing come from?
The solution is to build more housing. California has historically been terrible about that but SB9 and 10 are significant steps in the right direction.
It's been so frustrating watching people celebrating UK governments who have repeatedly failed to really tackle the supply side issues while propping up the demand side with tweaks that just increase the prices.
The most amazing example of this was the stamp-duty holiday to help stimulate the market for a few months during covid. The maximum you could save was £15k. The average house price increased during that time by about £16k...
They were still likely benefiting to be fair. Remember stamp duty is paid externally to the mortgage so it effectively comes off your deposit, not your loan.
And many times rightly so, living next door to a long construction project is a mistake I will only make once in my life. Utter insanity to be woken up by literal bombs going off in the bedrock.
Me too! I think the average American thinks "increase supply" means skyscrapers with apartments, rather than lower impact multiunit, mixed-use apartments/street shops that are more common in Europe.
Another issue with increasing supply/density: where is every household going to park its 2-3 cars?!
(Disclaimer: I've been watching tons of City Beautiful and Not Just Bikes on Youtube)
The issue is that those kinds of mixed use neighborhoods are literally illegal in most American Suburbs. Strong Towns goes over this, but our zoning laws are basically designed to create and exacerbate this problem long run
The demand in Europe is just as high as in the US. Density is not the same however... Think about how large European cities would have to be in order to match US population at US density.
We don't have as many skyscrapers here.
Regardless there are plenty of reasons not to want car-centric suburbian neighbourhoods. Unwalkable, outrageously expensive to maintain, encourages car ownership and usage (yay more debt and running costs), etc.
Increasing supply can help some. But when you do that, you increase demand for material and labor, which can negate some of the benefit depending on what markets we're looking at.
The real problem isn't supply at all, it's the distribution of supply and the choices of people to live there.
> The real problem isn't supply at all, it's the distribution of supply and the choices of people to live there.
I’ve said this plenty of times; America has plenty of homes, it just doesn’t have enough homes where people actually want to live.
You can get a home in my parents home town (which they left) for $60-100k right now. The issue is that there are no jobs and even fewer services. It was probably a great place to live 80 years ago when small towns were the norm, but now it’s shrinking, aging, and a long distance from any of the amenities that most Americans now demand.
The same problem of the house price to income ratio shows there is as much of a housing shortage in rural America as well. "Solving" housing by moving all high CoL people to rural America is just going to price out all those with lower CoL area salaries. Our vacancy rate nation wide is low, likely well within the frictional margins that need to exist for a healthy market.
"The same problem of the house price to income ratio shows there is as much of a housing shortage in rural America as well."
Not necessarily. You can't use the overall picture data to make claims about localized or subcategories of data. Especially if the bulk of the people live in suburban and urban areas.
Remote work could solve a lot of this. I would love to live in a more rural area with cheaper housing.
"... a long distance from any of the amenities that most Americans now demand."
Like what? Many amenities and services have been moving to the at-home or online model for decades - arcades, movies, shopping, car buying, telehealth, etc. It seems there should be less reliance on physical amenities now than in the past.
We are starting to movement from HCOL and high tax areas. Companies are moving for tax and regulatory purposes and most people seem happy to follow when the cost of living is significantly lower.
The data seems to imply that remote work is letting high paid workers move from the coasts to smaller cities, not rural towns. The persistent low prices of houses in rural America certainly backs this up. Meanwhile home prices in small cities are skyrocketing.
> Like what? Many amenities and services have been moving to the at-home or online model for decades - arcades, movies, shopping, car buying, telehealth, etc. It seems there should be less reliance on physical amenities now than in the past.
My parents town’s nearest major store is a Walmart 45 minutes away. There is a significant difference between “we need less amenities now” and “we need no amenities”. Committing to an hour and a half drive for anything Amazon can’t deliver is sub ideal.
The price of houses in rural America seems to also be skyrocketing. My house 40 miles outside of the nearest "smaller city" (population ~20k) has gone up in value over 50% since I bought it 3 years ago.
The price of land in the middle of the desert east of San Diego (Ocotillo Wells, Borrego Springs) is skyrocketing.
It would be utterly impractical to live there most of the year. And yet compared to NFT's and some cryptocurrencies it's probably a great investment. There's definitely a bubble going on, I just don't know when it will end or why.
No, vacancy rates are at near all time lows. Any reputable study will show we have a housing shortage. Even in rural America, house prices are skyrocketing. We need to build more, ideally near transit hubs as to minimize the effect on infrastructure, and reduce our environmental impact.
The vacancy rate may be at a low, but it is still about 10%. Sure, we still need to build more houses, but the point here is that distribution is important to both. If you build houses in a HCOL area, the cost will be higher. We should be looking at redistributing to areas with the highest rates of vacancy an LCOL.
Part of why prices are going up is inflation and cost of materials and labor. Prices in rural america are up, but I wouldn't say skyrocketing. There might be places that are skyrocketing, but I'm guessing they are in commute distance of the cities.
Remote work can unbound that, at least within a low percentage situation, like under 10% vacant. Not to mention that some companies are moving out of higher cost areas to lower cost ones (like CA to TX).
Lol, and once you build houses in those new regions, I'd assume those neighbors also block new housing from being built near them? Plus there's still plenty of jobs that cannot be done remotely, I feel generally in the tech world people are highly overestimating the amount of remote jobs proportional to the rest of the population.
Why the companies are moving from California to Texas is exactly because Texas' local zoning laws aren't as stringent allowing for cheaper housing.
The fix really isn't that complicated, it's allow more houses to be built where jobs are demanded. Not quite sure why people always twist and turn justifications for why only 1-story houses should be built.
"The fix really isn't that complicated, it's allow more houses to be built where jobs are demanded."
Or move jobs to areas where housing is cheaper and easier to build. Just allowing more houses to be built doesn't solve it entirely. For example, labor will be more expensive in HCOL areas.
"Why the companies are moving from California to Texas is exactly because Texas' local zoning laws aren't as stringent allowing for cheaper housing."
Not really, although it might be a secondary component. The main part is taxes and regulation.
> Just allowing more houses to be built doesn't solve it entirely. For example, labor will be more expensive in HCOL areas.
Labor increased cost is really nothing compared to the zoning barring new construction. If labor was truly the barrier then when upzoned no construction would take place. Additionally a large reason why labor is so expensive is from the constrained housing in the first place -- again stemming from the zoning.
> Not really, although it might be a secondary component. The main part is taxes and regulation.
"If labor was truly the barrier then when upzoned no construction would take place."
Not a barrier, but a factor. You seem to be misunderstanding me. It's not that it can't be done in the populated area, but that it's better done in areas not already in a precarious situation.
"Additionally a large reason why labor is so expensive is from the constrained housing in the first place -- again stemming from the zoning."
So we have circular logic here. If the labor is expensive, you aren't going to make it cheaper (at least short term) by building more houses because the labor cost to build those houses will still be high. They have to pay their existing mortgages.
Are you really not aware that when people are mentioning Texas' easy regulation many times they are literally often talking about zoning?
> You seem to be misunderstanding me. It's not that it can't be done in the populated area, but that it's better done in areas not already in a precarious situation.
No I completely understand you, and find the "too many dense already" line of logic ludicrous. Most of these American cities have zoned over 80% of their land at one story buildings only. American cities are already at the lowest density compared to European or other countries density. They can accommodate plenty of housing fine.
> So we have circular logic here. If the labor is expensive, you aren't going to make it cheaper (at least short term) by building more houses because the labor cost to build those houses will still be high.
No there is no circular logic here. As I already noted the larger burden of the cost of housing comes from zoning restricting the amount of buildable land. And yes you will need to build lots of housing -- thats what happens one restricts building housing for decades.
"Are you really not aware that when people are mentioning Texas' easy regulation many times they are literally often talking about zoning?"
Source? The ones I have seen say "business-friendly regulations". They also mention companies moving their headquarters to the state, which means taking advantage of incorporating there, which extends to out of state worker, for which zoning does not apply.
The cheaper housing is why many individuals are moving to TX.
"They can accommodate plenty of housing fine."
If the infrastructure is only set up for single family homes and the land is covered in them, then you would need massive infrastructure updates which the cities can't afford, and you would also have to demolish many existing homes to make room - what a waste.
"No there is no circular logic here. As I already noted the larger burden of the cost of housing comes from zoning restricting the amount of buildable land."
Do you have an economics background? Can you explain how the labor cost suddenly decreases as the demand for labor increase and their costs stay the same?
"... and find the "too many dense already" line of logic ludicrous."
My position is more nuanced than that. It seems you've already made up your mind and dont care to explore my position. Good luck.
> Source? The ones I have seen say "business-friendly regulations".
Zoning also is for businesses too. For example Elon's relatively fast approvals for their new factories
> the infrastructure is only set up for single family homes and the land is covered in them, then you would need massive infrastructure updates which the cities can't afford
Again another ludicrous claim. Seriously every country around the world can build this infrastructure for supporting beyond 1 story tall. America is not some special snowflake here. Yes it'll cost some money to upgrade it -- not it's not rocket science nor some giant cost.
You're just working backwards justifying why American cities couldn't accommodate anything beyond 1 story tall then grabbing any reason to block it.
> Do you have an economics background? Can you explain how the labor cost suddenly decreases as the demand for labor increase and their costs stay the same?
I could ask the same to you do you have an economics background? But in any case yes I do.
Regarding the labor cost, I was responding to why you think labor costs are a barrier to housing and while it's true, the root cause to solve it goes the other way around. Aka even if labor costs were flat it wouldn't solve the housing crisis.
> My position is more nuanced than that. It seems you've already made up your mind and dont care to explore my position. Good luck.
It can be as complicated as you want but as the end of the day if it's stemming from blocking housing it really isn't that special.
Because it doesn't actually work. It helps a tiny little bit, in the places that are actually somewhat constrained (like SF/BayArea specifically). But it's not any kind of significant fix. Housing is an investment asset for stock market folks, it doesn't follow a Econ-101 understanding of "supply" and "demand" in any meaningful way.
The Midwest and the South are both way ahead of California on the whole "just build more housing" thing, for example, and have been for many years. And yeah, it makes us somewhat cheaper than a coastal city if you have California dollars to burn. But our Price-to-Income-Ratio's are still in the high 5-7+ range too, just like everywhere else.
We have basically zero population growth, and every single stray piece of land is getting built on right now (record high construction, record high new housing starts, for the past three years straight) and housing prices still rise 10% to 15% every single year like clockwork, with no end in sight.
"Just build more" sounds really pretty, but that alone will never get housing prices back down to a real-world-affordable figure for most people.
Are you saying that if the housing market has 10 million homes and 7 million people live there, prices will continue to appreciate to stratospheric levels because someone will magically appear to buy the excess 3 million properties and leave them without tenants? That's what it sounds like to me.
We don’t build enough - density levels are extremely low compared to much of the world. Most US cities have a small downtown dense area and are surrounded by single family homes. Even the Bay Area is something like 80% single family zoned.
NYC on the other hand is a good example of what you’re talking about - it’s expensive to live there and pretty dense already. But Tokyo for example had 150k housing starts on a recent year, which is more than LA, NYC, Boston, and Houston combined (source: https://www.google.com/amp/s/www.wsj.com/amp/articles/what-h...) - amp link to get around paywall.
I think there’s tons of evidence that we just don’t build enough myself. In bangkok, another market, they’re throwing up more new tall buildings every year than almost the entire USA does.
> Housing is an investment asset for stock market folks, it doesn't follow a Econ-101 understanding of "supply" and "demand" in any meaningful way.
You are partially right that Econ-101 doesn't explain it well, but if you take Econ-201 it does explain how housing supply/demand works. Why it doesn't work as easy as 101 is that the location matters for the 'good' unlike say cars which can be shipped in from anywhere. And also zoning artificially constrains land from being used for housing.
California being terrible is only a recent phenomenom. It used to be common to convert your sfh into an apartment complex. There are 5 story single lot brick apartments on my block that are still illegal to build on a neighboring lot today with SB9 and 10.
Even just straight up rolling back to zoning codes that existed in 1960 without much further change would do a lot for supply. Los Angeles in 2010 had a population of 4 million and was zoned for 4.3 million homes. Los Angeles in 1960 on the other hand had a population of 2.5 million and was actually zoned for 10 million homes.
The solution, like it's been for pretty much all of American history, is to _move_. We're a migrant people; when opportunity calls or the cost of living where you are gets too high, we go west in search of greener, cheaper, less heavily-zoned pastures.
Seems fitting that in the 21st century we flip that on its head. Cost of living in SF or Seattle got you down? Go East, young man! Head down to Texas or east to Ohio, and register to vote when you get there.
This is emphatically not the solution, nor is it a viable option for the vast majority of people. Uprooting oneself and losing your personal and professional networks is simply not realistic for most who aren't already very comfortable. Not to mention the damage that does to the communities that people migrate into.
The solution is, and always has been, to increase supply, specifically in the form of increased density.
"better start finding and implementing real solutions to housing prices right now"
They can't. Providing supply will suffer the wrath of BANANA/CAVE/NIMBY anywhere you dream of living. Constraining demand will either get you voted out of office or devastate your political network or both, depending on which policy you attempt. You're competing with a whole planet full of people that want to live here and have more means than you.
Seek property where demand is lower and development isn't effectively outlawed. Forget any livable cities or high population states. For 99% of you that means living far away from your preferred locale among people you probably loath. If that's not acceptable then keep renting or live in a van.
The good news is many of you can work remote. That is an affordance you can leverage to great benefit.
> For 99% of you that means living far away from your preferred locale among people you probably loath.
Parent comment is vitriolic but not actually wrong. Myself, I take great comfort in the idea of huge swaths of liberal, well-educated millennials and xennials migrating out of coastal cities and into small towns across the South and Midwest. Can you work remotely? Want to own your own home on a multi-acre lot for $100k, and live in a place with sunshine and warm weather nine months out of the year?
Sure, you'll end up living in the most conservative parts of deeply red states -- but try it. Live among people you disagree with -- we're all still Americans, it'll be OK -- and if enough of your friends and fellow Ivy alumns make the jump you'd be surprised how easily you could turn Texas or Georgia nicely purple.
We've got to end the big sort, at any cost. And the hilarious difference in cost of living is probably our last, best hope.
I was ready to buy an estate in the Georgia mountains earlier this year - then I saw the internet connection options. Then I looked up how much it would cost me to get a decent wired connection out there.
Totally unviable for tech workers to live in most of the solid red areas of the country strictly due internet capabilities, or lack thereof.
Then keep looking. I'm a liberal, minority techie living on a farm: one of my base requirements for moving here 15 years ago was at least a minimal amount of wired broadband.
This summer the phone company has been pulling fiber all over the place. I was told that it's not going to be put in use until next year, but at least they're planning ahead.
Especially after the last year and a half of distance learning and working from home, there is a big push all over the place to get faster internet connections because the people already living out here are demanding it.
Correct. There is fiber all over non-Asheville Appalachia right now. It’s reflecting in home prices too.
I’m looking at this move myself and the final decision point is state taxes (TN, WA, FL) or fiber/cheap homes (largely Western NC and GA), both paired with some cool nature.
All ears on places with $200k and below homes and fiber, quite candidly.
Extrapolating from 'rural mountainous Georgia' to all red states, including Texas and Florida is a bit of a stretch. I live in a remote mountain town in North Central Washington and there are dozens, if not hundreds, of remote tech workers. I have good internet through a local ISP and starlink is now prevalent in our area as well.
Fair enough. I was looking in the triangle between Asheville, Nashville, and Atlanta. The few homes i was like "I will buy this now if i can get good internets" did not play out for me. I'm looking for an excess of land though, to indulge my many hobbies, so that is certainly constraining my options. It's okay though, I'm in no rush. Once Starlink is rolled out en masse I'm sure the equation will drastically change for me.
Also, FWIW, I meant more rural areas than just "red states". Even in solidly republican states there is a fairly prominent urban/rural divide.
I think there’s plenty of real reasons people don’t do this economically, but don’t downplay the social parts of it - we have very Balkanized communities in the US. Ask a minority what it’s like going on a road trip sometime - I guarantee there’s many places where they won’t want to stop.
Living in a place with no amenities, an extremely regressive/borderline extreme social climate and a lack of economic opportunity for people who don’t have remote tech jobs and it gets depressing really fast. Also when you try to buy healthy food from a dollar general.
>I guarantee there’s many places where they won’t want to stop.
As someone who recently made the jump to a rural area, these problems are almost entirely imaginary. The notion of backwards, ignorant, racist rednecks occupying all the rural lands is nothing but a bigoted stereotype.
Southern hospitality is real; and while rural peoples will be more likely to notice and acknowledge cultural differences, they generally are open minded and just as respectful of nonwhite neighbors as white ones. It's the city folk who don't understand the roles that politeness and respect play in southern living, necessary for the unbelievably high trust society that only really exists outside of cities.
The truth is that urbanites have been hypersensitized to so called racism, and completely mislead as to what rural/conservative culture is actually like. But I don't mind a bit, that means more cheap land for me.
This contradicts with my experience growing up in WV. The last time I went back there (5 years ago) I still saw the same confederate flags and n-words being thrown around casually. The reality is that 'the south', like anywhere, has pockets of diversity and acceptance; but your stereotype of universal 'southern hospitality' is not in line with my experience at all.
The reality is that the confederate flag only represents racism to the side that doesn't wave them.
The reality is that it's possible to "throw around the n-word" and still have respect for black friends.
The reality that we are forbidden from acknowledging is that those rallying the hardest against racism don't actually understand racism. Its not binary.
Appalachia is very different than the rest of the south, much less rural areas in other parts of the country. It was populated by Scots-Irish herders, versus say German farmers in the rural midwest.
Appalachian culture is extremely insular, even with respect to other white people. I once had a conversation with a (white) guy who had married into a family in Appalachian Kentucky. Folks in town regarded him as an outsider even after a decade of living there.
I'm happy to hear that's your experience. My experience comes from being raised in such a place (not the south, just rural conservative), and fleeing to the nearest metro region as soon as I was able while growing up. That was a while ago though, and this was over LGBT things - a bit less about abject discrimination and more that it was impossible to even think about finding a date, and a fear of being found out with people regaling me of stories of houses of known queers being firebombed in recent years. I don't really speak about the stereotypes of the ignorant rednecks - the most virulent haters were the orderly christian pastors and the true believers who opened up multiple conversion camps in my area. There were 2 black students in my high school of 1500 kids, and both of them got pulled over literally dozens of times in just a few short years, and it wasn't for driving fast.
Culture has changed somewhat since then. I don't presume to speak for anyone's experience but my own, and I go off of the stories that my friends have told me for other things.
That said, Trump flags fly everywhere, and BLM flags get torn down/burned/vandalized. I don't think its really fair to say that its all politeness and mutual respect - in my experience that is how it is until you accidently fall into one of the cultural battlegrounds, and then its more conform or die. Lastly..
> The truth is that urbanites have been hypersensitized to so called racism
I think this can be true while the rest can also be true.
Well, to be fair, my experience is limited to a couple locales and only an hour or so away from major cities. I might have lucked out because I made a solid first impression on the community and don't have to worry too much about having the wrong opinions.
I suppose you could say that ruralites are more tolerant of intolerance in general, even when they individually may be welcoming. No argument about the flags around here...but I get the impression that, at least where I've settled, even if you're a little different, if you stick to your property and don't make waves nobody is likely to mess with you...and to be honest I kind of appreciate that sort of live and let live attitude, even if it requires some degree of conformity.
As far as I can tell, a somewhat rigid common culture is sort of the price of high trust living, where you can leave your doors unlocked and your keys on the porch. That doesn't justify violence against minorities/lgbt of course but... there's always the city for that I suppose. It's definitely a very different non-pc attitude around here. I certainly understand why a guy like Trump is so popular in these parts.
> Ask a minority what it’s like going on a road trip sometime - I guarantee there’s many places where they won’t want to stop.
Certified brown person here. The only thing I think about in terms of deciding where to stop is how far I can get before needing gas, and what the odds of finding decent food are. I've travelled in rural areas all over the country: midwest (my wife grew up in rural iowa), west coast (wife's family is from the rural oregon coast), and south (worked a summer in southern virginia, my best friend lived in south georgia for a decade). I just got back from a road trip through rural Utah, Idaho, and Wyoming with my white wife, mixed kids, and Latina au pair. In all this time nobody has even looked at me sideways.
Hell, the precinct where I live went for Trump 58-34 in 2016 (the year I moved here). The precinct a few minutes away where my parents live was 57-32. Most of the ones around us were 60-30. Again, no problems.
I have to agree with the sibling comment. I have no idea how these folks would perform on an IAT (and I don't care because they're bad science: https://qz.com/1144504/the-world-is-relying-on-a-flawed-psyc...). Southerners are nice to visitors and keep their thoughts to themselves for the most part. I'd rather deal with that than west coast frigidity or NYC aggressiveness.
This is immaterial. People can be very welcoming to tourists and hostile to the very same people as immigrants. As a brown person who drove extensively through the US both North and South you would mostly see very welcoming people, the same places you would hear horror stories from people like me who actually lived there.
As a brown minority who travels regularly all throughout the US, I believe your statement only rings true for minorities with strong politically left-leaning identities. The only reason that persuades me against stopping in any location is the price of gas is too high or there’s better food options in the next town. Additionally, I find the contrary to be more true — people in major cities generally make me much more nervous.
That's an interesting point and I wonder what's the cause. It's possible that minorities who had bad experiences growing up in rural areas moved to urban areas and developed left-leaning political identities.
I think there's also an element of cultural mismatch. Trevor Noah has a great passage in his autobiography about how he could cross the intense inter-tribal antipathies in South Africa by speaking another tribe's language: https://www.josephineelia.com/power-of-language. Rural places in America are like places everywhere else in the world--you have to "speak the language" of the people in the place where you are. If you go to rural France and conspicuously don't speak French, you'll face hostility. Obviously in America we speak English everywhere, but if your mannerisms and attitudes give you away as an outsider, you might not get the same warm reaction as someone who knows the cultural cues.
If you lived in the types of areas where people 'move to', you'd see it's not the state that turns purple, it's the immigrants. Then they turn reddish (or they quickly leave).
Please don't. The housing market is fucked in EU urban areas now too. Without an inheritance you can't afford to buy anything decent around a developed city with jobs even on a tech salary.
As selfish as this may sound, the last thing we need is more foreign competition on the housing market with bigger pockets.
It would be fair that if people from the US want to buy property here with their foreign megabucks, we should also get unrestricted visa-free access to the US labor market. Tit for tat. Otherwise it's just unfair to Europeans to be outspent out of their own housing market.
Of course it wouldn't ruin the countries themselves, the countries would profit somewhat, but it would however hurt the middle class since now they have more competition on the housing market that's much wealthier so you're increasing inequality.
Just because the country is profiting from your megabucks, doesn't mean the average Joe is.
Look at Austria. The most touristic areas are profiting a lot from all that foreign tourist money, but a lot of the locals can't afford to live there anymore as all that tourist money is only going into a few pockets. Those who don't already own something or have an inheritance have been royaly fucked by that tourist money. It increases inequality between the haves and the have-nots.
If the middle class are the ones buying the properties, then they're the ones selling them. Therefore it actually injects money into the middle class, foreign capital that never existed in that country.
>he most touristic areas are profiting a lot from all that foreign tourist money, but a lot of the locals can't afford to live there anymore as all that tourist money
Those who move to a country to work and live there on anything but a very short term basis on not generally considered tourists. Most of the money flowing into the rich is a function of capitalism, not just tourism. You can examine virtually any industry and make the same statement. Yet, some fraction of money is usually better than nothing for the middle class people benefitting.
The US has your Austrian analogue, it is called Hawaii. In Hawaii most money is made from tourism. The common person there is mostly employed in tourism. Housing prices are high, because lots of people want to live there. The result when it was mostly closed off for coronavirus was that although demand for housing decreased, unemployment skyrocketed without tourism, making the middle class worse off.
>If the middle class are the ones buying the properties, then they're the ones selling them.
Sorry but since you make no distinction between someone owning and selling a house ($500k asset in Austria) and someone who doesn't own a house and call them both middles class is just plain wrong.
The property owner middle classer is significantly better off than than the other and would benefit even more from your intention of buying while the other middle classer is worse off without a property to his name and will suffer more from being in competition with you.
Sure, one guy profits, but you can't possibly tell me with a straight face someone else doesn't get screwed from this wealth driven game of music chairs which is the property market right now.
You just said the middle class was the competition for these houses. If the middle class are the ones who own these houses it follows they are the ones selling them. You seem upset you were caught up in your fallacious logic and fail to understand it's the middle class making the money off these sales.
I think you misunderstood my comment, but whatever. Still, to follow up on your latest example, the classes below those who own the properties you want to buy get screwed since you're still increasing inequality between the asset owners and the non-asset owners by increasing housing demand. Simple.
I don't follow. The total wealth inside country starts out here:
value of house + value of rest of economy.
Now someone foreign comes into the country to live there and work in tech from abroad. They buy a house. Now the wealth inside the country looks like this:
value of house + foreign money paid for house + value of rest of country.
You can see that the wealth inside the country has increased. If it is the middle class owning those houses, then the wealth of middle class has changed by the difference in value between the value of the house and what it was sold for. The middle class then further benefits from whatever money the foreign worker spends in the country, which is a net gain for the middle class, plus the injection into the economy of the foreign money paid for the house. The only way the middle class end up worse off here is if the foreigner doesn't live and work here, and is just a foreign landlord (siphoning money out of the country) -- which is something I think we can both agree is detrimental.
I will say here in the US people have a lot of problems with foreign landlords and people who buy property here and don't live here. But only the most backwards rednecks have serious issue with an honest foreigner who buys a normal middle class house to live their lives, especially if they are injecting foreign capital into our economy.
I know in Berlin they consider themselves to be having a housing crisis but last I checked apartments in desirable districts of Berlin were like a quarter of Bay Area housing prices, for example < €1000/mo for a 2 bedroom / 50 m^2 apartment.
When was that? Prices are higher now for something decent.
Also I was taking about buying property not renting.
>districts of Berlin were like a quarter of Bay Area housing
So what? Nothing touches Bay Area prices, even in the US. And then there's the income difference as well.
Try comparing to something more similar like Texas. Last I checked average dev wages in Austin are easily 2x more than average dev wages in Berlin while buying a house there costs the same. So who's buying power is stronger then?
Buying something decent in Germany now, in the current market is nearly impossible without an inheritance.
I have no idea why I have been downvoted. There are many comments on HN recommending immigration to US, whereas people can remote work from Europe too. There are plenty of places where you can live well as English-speaking person. It does not have to be a capital of an EU state, there is plenty to choose from, esp. when working remotely.
OK but this is not actually happening. Young, well-educated people with high incomes are the only types of people who continue to flow into California. They are driving out poorer and generally less-well-educated people, because of course that is how it will work in a competitive housing price market.
The source just shows a net outmigration of taxpayers from California.
It doesn't say that rich young people are replacing old.
It just says that wealthy & older people are leaving in big enough numbers that there's a sizeable ourmigration.
It's important to note that natural born residents have been fleeing California for a long time, and a substantial portion of the young, high paid workers are on H1B - so non-permanent.
> Live among people you disagree with -- we're all still Americans, it'll be OK
I grew up in the American south, and migrated to California as an adult. As a Black person I can say this doesn’t work as well in practice. It’s better than the old days (when my mom was growing up segregation was still legal and the military warned her parents to be back on base before sunset.) But I’d much rather live in a welcoming area.
That is...a very fair qualification. I grew up white in the South, where my mom used to tell me stories about school integration. Knowing that my otherwise-welcoming neighbors/family/peers might randomly turn out to be racist assholes when confronted by someone of slightly different skin tone was and remains my least favorite thing about the place, by a margin that's wider than Texas.
There's "be the change you want to see", and then there's "move to a place where you're likely to murdered in the street for pointless, intractable reasons." I can't say I blame you for getting the hell out; I just hope that in our lifetime you feel comfortable going back to where you grew up.
The weather's great (except for the hurricanes) and the barbecue is amazing (except in the Carolinas). Maybe one day you can get back here and we can all work together on fixing whatever the hell is wrong with (some of) the people.
I grew up in West Virginia. I'm not going back to 'the south'; people there would slash someone's tires if they found out they're gay. In contradiction to the history of the state, confederate flags fly over every half dozen trailer parks on the 30 mile one-way trip to Walmart (the only supermarket). Multiple bomb and shooter threats every semester at a school with 900 students. My high school graduating class had 1 non-white student to give you an idea of the cultural diversity your child might be exposed to. The jobs are leaving and not coming back. I personally know someone who died of prescription opioid abuse. Would you want to raise a family there?
(By the way, the county where I grew up is considered 'progressive' due to its proximity to the NOVA area)
I think it's already a foregone conclusion at this point with respect to the migration. Places like Boise Idaho have already been smacked with the SV stick and their housing market has been a horror show ever sense. The problem won't be the personal politics of the migrants but rather the effects that come from them eating up more resources which the governments in those red states haven't accounted for, especially housing and schools. There's already a strong anti-migrant (or rather anti-Californian migrant) sentiment in places like Colorado and Idaho last time I read up on it. I expect this to get worse and probably cause some strange events (not like personal violence but more political upsets in the coming decades).
> Providing supply will suffer the wrath of BANANA/CAVE/NIMBY anywhere you dream of living
TBH I would have said the same thing 5-10 years ago, but I think this notion is outdated now.
I live in a famously NIMBY city (Seattle) and things have changed a lot in the last 5 years. I would guess that single-family zoning will be gone within 5 years.
Although I don't buy it, some people even argue that SFH zoning is already gone in Seattle due to ADU/DADU reforms.
State level reform is important. Here in Oregon, we have HB2001 that allows for up to 4-plexes everywhere. City council's can't stop it. A local NIMBY lady ginned up a bunch of opposition to its local implementation and even put a full page ad in the newspaper. It went through anyway.
The folks at YIMBY Action are a great resource if you're serious about making progress on this kind of thing.
The solutions are political not technical. Housing needs to be something that isn't used primarily to make money. Cooperatives, Vienna-style PPPs, and a society where if your house price doesn't constantly increase you can afford to retire.
The solution is to leave cities that aren't affordable. Sorry, but you may not get to live beach-side or be in walking distance from your hipster coffee joint in downtown SF.
I really think a lot of the problem is our generation grew up watching too many movies and they just think it's normal to live in some high end condo in Manhattan while working for Enterprise Rent-A-Car. That's not realistic.
Yeah a lot of older millennials grew up on shows like Friends. We were disappointed in our mid-20s when we discovered our entry-level job wouldn't afford that large condo in downtown SF or Manhattan.
But it has got out of hand. I earn 90% more than most full time workers. And like 50%+ of "households" out there, it's just me, so no dual income. And I don't think it's appropriate to expect 40 year olds to still live with a bunch of roommates like they did when they're 22.
Forget the 2K ft^2 apartment in Manhattan or Mission District, I can't even afford the starter home out in Jersey or East Bay or Beltway DC. These aren't the mythical "McMansions" that everybody always uses to deflect from the affordability crisis - these are the exact same properties on tiny lots that a single-earning non-college-educated factory worker or postman or paper pusher could easily afford for his family in previous generations.
And if I - earning 2x-3x more than most workers - can't afford these basic homes, how the hell does everyone else who earns the median income of $60K do it?
>And if I - earning 2x-3x more than most workers - can't afford these basic homes, how the hell does everyone else who earns the median income of $60K do it?
By living in a rural area or not on the coasts.
>And I don't think it's appropriate to expect 40 year olds to still live with a bunch of roommates like they did when they're 22.
I guess that depends on your culture. It's pretty normal to have multiple families or roommates in other countries.
The only legit way I can see to fixing some of these issues is to ensure you do not let investors outside of your country buy up property. China is notorious for this. Secondly maybe you limit companies like Blackrock as well. I really dislike the idea of rent control. I don't think people that own a few properties should be punished and pushed out of the market. This just leads to larger corporations owning everything.
You have to take interest rates into account. The amount you pay, monthly, for a mortgage of the same size is very different at different interest levels.
What people care about is their monthly mortgage payment - that's what makes a home affordable or not.
(Which isn't to discount that downpayments are a percentage of home cost, and that's pricing people out of being able to buy anything at all, even something they can easily make repayments on.)
People being underwater happens to mean that the banks have bad loans. We have seen that movie before.
Interest rates will not be allowed to increase faster than the property market can absorb. You can count on that; the political imperative could not be more clear. The next crisis will probably be some novel flavor of financial recklessness.
Exactly and the market is confident the the government would intervene to prevent another housing market collapse which just compounds the effect further.
One thing this ignores is interest rates and availability of credit.
The biggest determinant of homes people buy is not the total price, but rather how much cash do they need for down payment, and what will the monthly payment be.
With low interest rates and increased credit availability ( you don’t need 20% down payment in many cases now), people on the same income are actually able to buy a more expensive home.
I think looking at monthly mortgage payments to income ratio over the long term might actually be more informative.
Agreed. As much as any other factor, that anyone with a bit of money can now buy an expensive house feels like the thing making the housing prices go up. (As well as our general inability to build.)
> The biggest determinant of homes people buy is not the total price, but rather how much cash do they need for down payment, and what will the monthly payment be.
I agree this is mostly how people decide, but it's not necessarily a good idea. buying a very expensive home at historically low interest rates is a significant risk. there's a good chance you get upside-down on that loan over a 15-30 year period. better hope you don't get divorced, lose your job, or need to relocate during that period.
I've heard 3x income as a rule of thumb for how much house one can afford, but it looks like that's never been widely followed. It also doesn't make a whole heck of a lot of sense as interest rates have varied so widely - a better rule of thumb might be a ratio between the total amount of payments over the life of a mortgage and one's income.
The 3x income rule is usually mentioned by your loan officer, and your real estate agent. They will present you with houses costing 3x your income as a baseline of what you can afford.
Does it matter? From an individual's perspective, if you can make the monthly payment then all is well. Sure, the market may tank but all that does is effect your ability to move.
Over what time period? I think I’m America you can get a 30 year fixed rate mortgage. In Canada, 5 years is the most you can get even if the amortization period is 25-30 years.
IMO the ratio depends entirely on your age. It makes a lot of sense for someone in their 20s to go for a 4x ratio (with caveats, such as fixed mortgage rates). It makes no sense at all for someone in their 60s.
3x income for your debt load or for the overall home cost? Either way it seems like it wouldn't really directly translate to a % of income as monthly payment.
That is a link to the banker's manifesto. The ideal scenario [in the manifesto] is for home prices to far eclipse yearly income, and for houses to be owned by banks instead of occupants. Everything old is new again...
I’d be interested in seeing the total cost after accounting for interest in the loans, or monthly cost compared to monthly income. Most people don’t pay cash, and they pay more than the asking price due to interest. So high interest rate periods look artificially lower because they ignore a substantial amount of the price
Very true. The 2008 housing bubble did not have low interest rates. 30 year average was around 6%. Now it's under 3%. That 3% makes a HUGE difference in purchasing power.
This is very interesting but I wonder if the housing crisis is not reflected in that chart because it's an average of presumably average American mortgage rates. What about California mortgage rates? I'd love to see that last chart restricted to California where the prices have skyrocketed.
But really covid was the perfect opportunity to let the housing market collapse and reset buying us an additional decade. Wasted opportunity by bailing out landlords.
Pay is not gaussian so comparing median salary to average home price is confused (average salary is 45% more than median salary in the US with wide regional variation). Case Schiller also only looks at single family housing stock so it won’t capture anything higher density (apartment like condos, duplexes, etc).
These charts are not very useful without taking interest rates and inflation into account; in fact you could almost use them to discuss interest rates and inflation, they are so intimately tied to housing prices and income.
If housing interest rates stay low or drop, prices will keep rising. Absent wage inflation that ratio will go up.
If inflation flows through to wages as it seems to be in process of doing, the ratio will stabilize or drop.
While it doesn't directly affect the average person's purchasing power, the same dramatic increase is happening in other asset values as well. [0] One interesting thing to note is that 2019 EV / EBITDA values were already "high," before the coronavirus was spreading.
I suspect these two phenomena have different causes overall, but low interest rates are a common factor that cause all asset prices to increase.
On the housing side, I suspect consumers purchase the house that their cashflow can comfortably support, not necessarily the one where they believe it is correctly valued, because the assumption that house values only increase means purchasing a well constructed house is almost never a "bad deal."
I'm not sure what the "solution," is, but knowing that voters hate when their home values fall does not give me confidence that prices will decrease in the long term.
This jibes with my experience of buying a house about 6 months ago.
My reasoning was that we were experiencing rapid asset inflation fueled by low interest rates and COVID stimulus, and our cash was losing its value relative to housing by the month. I figured that this propping up of asset prices is likely to continue, as any administration that lets housing / 401k values collapse will get massacred in elections.
People are working, unemployment has been falling like a stone since 2017. That money is going to go somewhere (and for most that is not 'the bank'). It's going to get spent or put into investments. We're going to continue to see strong commodity prices (and most of these have been rising into the headwind of a stronger dollar) until unemployment creeps up, or real wages falls too far behind inflation rate. I think the increased commodity supply that would normally rebalance pricing before demand does is going to be delayed. Why? Though interest rates are low, loans aren't going into commodity capital projects (because risk and returns ratios don't look good to lenders when compared to inflation rate? not sure).
I think there is an issue with that logic - it doesn't account for the ever accelerating wealth inequality. People are working a ton right now - and creating massive amounts of value. It's so freaking easy to get consumer goods delivered next day that we're all forgetting that this service would likely cost fifty+ dollars in the early 90's - there are similar trends across the economy.
The issue is that a lot of that created value is being isolated out of circulation and is pooling in investors that can, at a moments notice, pull the rug out of a number of great companies if they sense a panic. Wealth inequality creates the opportunity for instability in the form of extreme sudden market rushes alongside reducing the purchasing power of most folks. We're in a rough spot.
Very complex situation, and we likely agree on some of it. I won't rehash that part. Some seldom-described (or taboo) opinions:
Part of the dislocation (behavior inconsistent with historical macro economics 101) is caused by dollars exiting the system faster than they used to. Remember the graphics/vids we all saw of people passing dollars around the community and the total supply expands? Now, good portions of those dollars are naturally shunted out of our system to where the manufacturing took place. Worse, some of the money in the graphics that went to Bill's hardware store disappears (because Bill's store is still in town, but he has a subsidiary in a foreign country and captures most of his revenue there).
Then there's income inequality. In addition to the depredations of two generations of greedy bastards, we have to understand that we import (legally or not) way too much unskilled/lowskilled labor, and that this has a negative affect on the entire bottom half (more-or-less) of the wage structure in our nation. It has a salutory affect (though i think one that is smaller than some imagine) on the top half, in that pressure on wages for unskilled to middling skilled workers results in more return on work and investment at the top of corporate structures, and other fields that compete with them for talent.
The US population grows by almost 2M per year - almost 40M since 2000. The workforce since 2000 has only grown by 17M. Workforce participation is down.
Two, somewhat hypothetical questions, I'd have to answer first.
What would happen to the if everyone suddenly agreed that there was a hard-cap to how much the global economy can grow; Especially if that cap was somewhat near to where we are today?
How do you solve the core problem of "climate change" (which I'll define here as the unsustainable use of natural resources) without essentially implementing a hard cap of the global economy. This question isn't just about electricity versus oil. It's about trash, disposable (or planned obsolescence) consumer goods, fish/wildlife, forests, ect...
You could interpret the change in climate is just a single symptom of this runaway train. And any effort to pull the brakes is likely to cause the whole train to derail and crash. Maybe we'll make it to mars before then. Or maybe there will be a massive decrease in human life (war or another pandemic) and this whole question will solve itself.
The math for this ends up being extremely complex. The leverage is one part, and a big one. You have to account for closing costs (especially when selling), and uncertainty around how long you'll stay. But you could theoretically rent it out. But as we've seen, some cities could keep an eviction moratorium going and that could be costly. Housing in some areas skyrocketed in values, but you could be buying a lemon since "no inspection contingency" is the norm in hot markets. Taxes and HoA fees can go up a fair bit too, and there's maintenance. There's a few psychological factors that don't factor in the math, like how you may do renovations that don't translate 1:1 to home value that you wouldn't do if you're renting. On the other hand, rent does go up, generally faster than property taxes.
It's really a toss up based on a lot of variables, but generally, yeah, home ownership will come up ahead. Not always though. While if you invest in a total market index, you're main risk is the entire country tanking, it's different with a home. You're gambling on that ONE PARTICULAR HOME in one particular place. That's a lot riskier than an index fund.
But you get to make holes in the walls without anyone yelling at you, and that's a big plus.
e.g. I want to “own land” in Seattle so I’m never priced out, but averaged across the city so there is no single point of risk. With the added benefit that I can add capital in small increments.
If such a REIT were structured as a COOP that would be even even better from my perspective.
Yeah. At the same time, I have a condo in a super hot area of a tech hub, and it still didn't really appreciate any faster than the market (you'd think it did with those crazy leaps, but the market has been pretty crazy for the last couple of years too).
If it wasn't for the leverage, no tax capital gain and rent saving and fringe benefits of owning a home, it wouldn't be that great an investment, so REIT don't really compare.
I suspect that dual income families could be a contributing factor in increased home prices of single-family homes.
Even 'worse' is dual income, no kid families that are delaying and skipping child costs. Thus with "double" the cash flow and shared costs, couples afford higher prices at a lower cost.
E.g. it's a lot easier to have two working people in a couple make $300K total vs only one person making $300K. It would be interesting to go back in time and correlate the rise of dual working couples vs housing prices adjusted for other factors e.g. inflation
At least in tech hubs, the "one person making $300k" is marrying up with another person that makes $300k, resulting in a $600k household and $1-3M home prices.
Yup. Don't forget the whole "frequently choose not to have a kid" part, and it becomes extremely one sided. Dual income families aren't new, but 2 high earners professionals with no kids aren't just the occasional doctor/dentist/lawyer couples anymore.
I'm a software engineer myself in one of the high paying tech hubs, and married the same. When we went to look for a home and toured open houses, all you saw were pairs of young couples wearing Google, Microsoft and Facebook swags. Sure, I didn't personally ask every single one of them where they worked, but I'd venture that a non-zero amount of these couples were "Tech DINKs", like us.
The average person simply can't compete with that. Add that in the urban areas these folks are less likely to want a big car, some may be happier playing Final Fantasy 14 during vacations than traveling across the world (I know plenty of travelers, but there's certainly a lot of "low cost" vacationers in the industry), and some level of financial literacy (common for people who get compensated with RSUs), and it's absolutely one sided.
With that said, median home prices have only increased a little faster than inflation. When you account for interest rates tanking + inflation, a median home in 2021 is the same price and sometimes cheaper than it was in 2005 (data for the last few months is harder to find, and there's been a unusual spike, so it may not be quite true right now, but it was just a few months ago).
The bigger problem is that everyone wants to live in the same place (usually in urban centers, where the jobs are, and where you don't have to drive an hour and a half to work). So prices where people want to be have increased higher than median.
I'd expect people are more ok with paying a larger portion of their income to live where they want to be. Even as extremely high earner DINKs, housing will eat up a good chunk of our cash flow if we feel like blowing it all to live in Manhattan in a condo that doesn't suck.
What do you think are the best books to recommend to people who don't have enough financial literacy? This is a common theme in this kind of HN thread but I haven't seen many recommendations or lists of books that can help people level up in their financial wisdom.
The bigger problem is that everyone wants to live in the same place (usually in urban centers, where the jobs are, and where you don't have to drive an hour and a half to work).
I'm hoping WFH greatly disrupts this, opening up rural areas to tech workers. It won't work for everybody, but it does work for SWEs and many kinds of technology employees and contractors.
There are a lot more reasons to live somewhere than commuting convenience alone. The reports of the death of the city have been greatly exaggerated. It turns out city dwellers need a lot more infrastructure than just a local brewery. Namely a functional school district and a population that isn’t 97% white and strongly skewed conservative.
Some people want a community that skews conservative, and don't want to live in a shithole hellscape like San Francisco or Portland, with overpriced housing, tent cities under every bridge, drug dealers on every corner, and human feces on the sidewalks. Especially people who have families with children.
WFH only changes things in a small number of professions (hard to wait tables remotely, and sometimes doctors need to see patients in person). A large amount of people in those professions don't want to WFH (thus why a lot of big tech companies are INCREASING their real estate footprint rather than reducing it right now. Google, HubSpot, Spotify. Some of these are very open to WFH, but a lot of folks don't want to).
It will make a difference, but it will be small. During that time, the rest of folks will still flok to cities.
As to financial literacy, books tend to make things much more complicated than they are, and will be too focused. For a beginner, there's a few things that matter.
First, the "flowchart". You can find a bunch of these online, but I like this one:
This is so you don't fall in the trap of, let say, having a 5% investment while sitting on a 15% debt, or not use your employer 401k matching and invest the money somewhere worse.
The next is understanding how the US market works. It averages 10% a year even if you include the great depression/recession and every other downturn. One day it could do like Japan and never recover/stay flat, but it has never happened in the US so far:
Even for the great depression, while you'll hear that it took 25 years to recover, but that's based on the Nasdaq, which is a very small sample of stocks. The market in aggregate recovered much faster.
Finally, you want to understand all the variables when comparing cost/return of home ownership vs renting. It's a LOT more complex than people make it sound. The NYT has a calculator that shows it, alongside a paywalled article: https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...
Bonus: a lot of it just comes down to internalizing the average market return and its risk, and comparing it against all the gains and leverage you can make in other ways. For example, with current interest rates, you probably want to pay your mortgage -as slowly as possible-, which is counterintuitive to most people.
This is something that Elizabeth Warren and her daughter Amelia covered in their book "The Two Income Trap." I'm aware that recommending a book by a political figure is fraught, but I'm not aware of any economists who took umbrage with the claim, either. They make the observation in chapter 1 that "Even as millions of mothers marched into the workforce, savings declined, and not, as we will show, because families were frittering away their paychecks on toys for themselves or their children. Instead, families were swept up in a bidding war, competing furiously with one another for their most important possession: a house in a decent school district."
Housing is a great way to establish a level of security for your family and kids; but there's a finite number of houses with proximity to good schools, jobs, and other necessary resources, and so families needed to dedicate larger and larger portions of their income to compete against other dual-income families that were bringing new money to the housing market.
I've thought about this a lot, though if you google around you'll find people who dispute this claim. Still, it makes sense to me.
If you have single income households, and all of a sudden everyone's a double income households, you're not any better off. You'll get inflation, especially in housing. People will point out that stay at home moms weren't THAT pervasive, even decades ago (not as pervasive as us younglins would think), and that may be correct, but double professionals as a common thing is still more recent. We're making some (slow) progress toward wage equity on top of all of it too. That's a good thing, but it doesn't change much when people are bidding against each other.
But all things are not equal: It's not as simple as "back then it was 1 income families against 1 income families and now its 2 vs 2".
Not at all! Now you have 1 income families, 2 income families, 2 income families with no kids, 2 income families where both are software engineers, etc. All of these always existed in some form, but now it's very visible.
If my partner and I (we're DINKs, both in software engineering and highly successful) go to bid on a home, and a single working parent with a partner who stay at home, and 3 kids, try to outbid us... Well, let's hope for them that the single earner is a world famous neurosurgeon, else they're not getting that home.
I'm not going to say that the larger number of women entering the work force has had no effect on home prices, however even if it did it's not necessarily a net negative. A larger workforce leads to more economic output, more innovation (there are countless innovations that have probably failed to be made over the generations due to the impact of women not working) that leads to quality of life improvements, productivity improvements, price drops, and other improvements. Food as a percentage of income has dropped dramatically over the years. Same with technologies like computers and home appliances. Houses are also way bigger than they were decades ago.
I live in a 2 income house with a kid, I'm not sure that the alternative (considering the economy as a whole and not just home prices) is actually preferable.
It's also probably pretty difficult to disentangle the effect on home prices from more women working from the effect on home prices from other things like low interest rates. There's likely not a single cause for this, but rather an outcome of some aggregate of causes. It's entirely possible that more women working does increase home prices some, but that it's only some fraction of the overall increase we've seen, and that families come out ahead on this economically by a wide margin. Especially taking into account the aggregate effect a larger labor force has on output and productivity.
It's definitely not a negative and I'd pick a fight if I met someone face to face who said it was. I 100% agree with all of the benefits you outlined, and totally believe it's worth it.
I'd also not focus too much on the "women entering the work force", because that's only one part of it, and not even the biggest part. More families not having kids, fewer families supporting their parents, more complex family structures in general, etc all impact it.
I also don't think it has a significant impact on home price. After all, when accounting for inflation and interest rates, home price is not up by that much. Depending which periods you compare it to, it may even have gone down.
What it changes, is the dynamics of bidding wars in low supply areas, which is a lot more specific, and is generally what people talk about on social medias. The whole "Omg this home went 100k over asking!" shock factor. Again, adjusted home prices didn't go up that much at the median. It's specific homes in specific areas that are skyrocketing.
There's not many alternatives beyond increasing supply. I always like to contrast it with raising the level cap in an MMORPG. Everyone who quickly maxes their level after an update is back to square 1, all being the same. But the person who just started playing is at a huge disadvantage. It may be specific, but for readers familiar with Final Fantasy 14, if you start the game fresh today, you're in for hundreds of hours of catching up...It's very similar to the economic situation we're discussing.
> A larger workforce leads to more economic output, more innovation (there are countless innovations that have probably failed to be made over the generations due to the impact of women not working) that leads to quality of life improvements, productivity improvements, price drops, and other improvements.
You're thinking too short term. This logic does not work for more than one human generation.
Say you're playing Civilization. I give you a button in the "change civics" category. You click it, and two things happen:
1. You double the number of professionals in all cities, as a factor of your total population.
2. Your population growth rate goes from strongly positive to slightly negative.
Do you click the button?
Let's make the numbers easier: If you don't click the button, you have a 2x growth rate per generation, and if you do click the button you have a 1x growth rate, i.e. perfectly balanced replacement. Well when happens if you click the button? You get ahead for one generation. But your opponent catches up in the next generation. And in the generation after that, they have 4x the population and therefore 2x the professionals. Before long they're outproducing you on every dimension.
> If you have single income households, and all of a sudden everyone's a double income households, you're not any better off. You'll get inflation, especially in housing.
?? The growth in output would offset the increase in dollars bidding for the same goods - ie. more people working would mean more supply and also more $$ bidding for goods.
Yes, thats why median home prices didn't really go up that much higher than inflation when adjusted for interest rate decreases.
People don't want "a home". They want THAT home (or at least, a home in THAT area). Yes, there are supply issues because of zoning and NIMBY policies, but even super dense areas like Manhattan have significant supply issues.
So you have income increases that can't be offset by the output, because supply is limited.
> Housing is a great way to establish a level of security for your family and kids; but there's a finite number of houses with proximity to good schools, jobs, and other necessary resources, and so families needed to dedicate larger and larger portions of their income to compete against other dual-income families that were bringing new money to the housing market.
One way out of that is simply to increase the supply of desirable neighborhoods. The number of those are finite, but can be increased. The hard part is how to do it?
Sometimes I like to imagine there existing something like Kickstarter but for cities. You get a few thousand people that want to build a house but can't afford land, a handful of employers, and maybe a University that wants to establish a new branch and they pool their money and buy a couple square miles in the middle of nowhere. They divide it into lots and start building. Property values rise, and as that happens leftover lots get sold to finance construction of infrastructure, schools, fire departments, and so on.
>You get a few thousand people that want to build a house but can't afford land,
This exists in a way. "Off the plan" apartment buildings are sold before the building is actually built. If enough people buy it, the construction goes ahead. If not, you get your money back.
The amount a household can spend on housing scales at a faster rate than income. Say, a family is making $2000 a month with one person working, and spending $800 on housing. If another person goes to work making $2000 -- spending, maybe $300 in work-related expenses, gas and such -- that household now has $800 + $1700 = $2500/mo available to spend on housing, while maintaining an otherwise similar standard of living.
So doubling of income tripled the amount that could be spent on housing.
But wait, there's more. People buy housing with debt, and a doubling of the monthly payment on a mortgage more than doubles the price that can be afforded. So that household paying $800/mo could move from their $195k house into a $600k house with a $2500/mo payment.
So, a doubling of income has the potential to increase the amount of house a household could afford by six. Granted, this ignores things like taxes, and most people don't spend their entire raise on housing. But this fact is probably what helped drive prices in places like California into the stratosphere.
The crux of the problem is probably that income follows a roughly pareto distribution. When housing is limited, the poorest households drop out of the market. And when populations grow but a town doesn't, housing gets bought by people higher up in the income distribution curve. And past median, incomes climb quickly.
If you have 30k houses, in a town with 60k people, then housing will be affordable to a median income. But if the population grows to 120k, but housing doesn't, then only the top 75% of households can afford a house. Median income, to top 75% is a huge jump.
When it's all assets going up, it's not the assets cost more, it's the dollar is worth less.
So for all the help and assistance. Housing is LESS affordable than ever before.
You cannot infuse trillions of extra dollars into the economy without inflation. There's no magic pill - there must be consequences.
I take much less issue with that assertion. That high housing prices are because the dollar is worth less is what I find rather absurd. Inflation is measurable. And you have to embrace some real quacky conspiratorial thinking to go down the rabbit hole that dpweb seems to have gone down.
Inflation is not just about measuring prices. It is a really complicated number synthesized from both price signals(arguably the most objective data), surveys and ... educated opinions. For instance, economists just kinda have to put a number on what new technologies are worth. Modern car maybe costs more dollars, but you're also getting a better product type issues.
Inflation is based both on measurements and on judgement calls by economists responsible for calculating it. It's more objective than LIBOR or some crap, but (way way) less objective than the price of something on the stock market, or some other pure price signal.
'Asset' inflation isn't even part of CPI(like stock, cost of owning a house, tho rental is), is it? It's not even a claim to say that the dollar is devaluing against assets, it's just like tautologically what it means that asset prices are booming.
> It's not even a claim to say that the dollar is devaluing against assets, it's just like tautologically what it means that asset prices are booming.
Yep. This is true. The issue is that the OP seemed to suggest that the price of assets (e.g., housing) was wholly explained by the devaluation of the dollar.
That's CPI, not inflation. CPI has a number of ways that a thumb may be put on the scale, for example hedonic quality adjustments seem to me to be highly subjective.
I mostly just look at the money supply. Print 10% more money, that's 10% inflation. It may not be uniform throughout the economy, or take effect immediately but that's 10% more money chasing the same assets. It's all has to go somewhere.
Money supply in theory is chasing actual economic effects such as growth, so your view of just one side is not very meaningful. The flaw is in considering assets static.
What is the actual money supply though - if I earn 1k and put it in a bank and it gets loaned out to someone else is there now 2k in circulation since my money is insured?
Only a teensy tiny portion of "value" in the economy is actually on printed bills - but even the abstract value we can track won't tell the whole story.
One note, is that bank loans are not taken from deposits anymore, that story we were told as children does not reflect modern banking. There's not even "fractional reserve" so much anymore, just "stress tests." So banks really do own a printing press when it comes to money, which is sometime called horizontal money, as opposed to the "vertical" money that comes from a monetary sovereign.
This is just incorrect. Value is added to the economy every day. Take the home you're living in. That probably did not exist 100 years ago (and if it did, it certainly wasn't as nice as it is today). That's new value, and having money in circulation to correspond to that value makes perfect sense.
No: If you're approved for a $100K loan, you are credited with $100K balance to draw from your account, and the money supply is recorded as going up by $100K.
But if you don't withdraw any money from the account (e.g., a HELOC that you intended only for emergencies), then how can it be inflationary if it's not circulating in the economy? But it is registered as increased money supply.
Do a lot of people take out loans they never use? If you get a loan to buy a house, the seller gets the money immediately and uses it to buy another house. You've just put a whole house's worth of debt into circulation.
When a couple markets in housing are going up like crazy? Sure. When essentially all asset classes or supply constrained service/goods globally are going up everywhere at record rates? It’s hard to not see the need to at least consider it. Especially after the massive amount of money printing still ongoing.
Hedonic quality adjustments are necessary though. If people start buying smartphones instead of dumb flip phones, it's not a sign that there is massive inflation in telecom sector, it's a sign that they're getting a lot of value. The BLS's own example uses TVs [1]. When you went from a $200 20" CRT to a $1000 dollar 42 inch plasma, that 5x increase in price is not because your money was less valuable, it's because you're spending 5x the money and getting 5x the goods.
I imagine creating cash to solve a liquidity trap is like continuously taking laxitives for a constipation problem... At some point you get a different problem!
On topic: my experience of housing prices in NZ is that people bid up house prices to the point that they can only just afford the mortgage payments.
Creating more housing doesn't "fix" the problem, because the more wealthy buy two or more houses, and are happy to leave one empty. I've left a house vacant in a tight rental market because the hassle of a tenant was not worth the risks for me (possible gain was a very small percentage of my income).
I am in New Zealand, and New Zealanders bid against each other in an almost zero-sum game for the properties that exist... We are borrowing from overseas to pay for it, so most New Zealanders gain nothing and global finance is the real financial winner.
Yet, politically the game is difficult to change... We have a left leaning party strongly in power, and they are struggling to create a more level playing field so that people can afford to get a home (rather than pay rent, which is more expensive than a mortgage).
Edit: also we can only lock in fixed interest rates for up to 5 years and most people only lock in for 1 or 2 years because short term rates are cheap - the 30 year mortgage system is completely foreign to us.
> Creating more housing doesn't "fix" the problem, because the more wealthy buy two or more houses, and are happy to leave one empty
This surely can't go on forever though. People's ability and desire to consume housing is not infinite, particular in a given locale. If they're buying them to rent out, then a flood of other wealthy people looking for tenants reduces the landlords' bargaining power in the market, which means rents have to drop eventually. If this isn't happening yet, it's most likely because the amount of housing being produced is still too small.
You can't purely demand-side subsidy your way out of housing being expensive. You have to build.
You do have to build, but low interest rates drive capital to seek investments with lower average returns. Private equity used to stay out of housing, but now there are funds to buy up trailer parks. I hypothesize this is driving some of the insatiable demand. Higher real interest rates, or more productivity growth so there's better places to park the ocean of money, or taxation would do wonders.
Even when the world ran on the gold standard not all value was actually backed by anything - now we're not even close. You can pick a stick up off the ground and whittle it into a boat - you have, by doing so[1], made the dollar worth slightly more since, for all the dollars in existence, there are now more goods to purchase. Inflation is spurred to increase over time for a variety of reasons - but asset accrual is not one - in actuality all the houses people own are constantly depreciating while the land they're built on continues to gain value from age - they gain value from the increased shortage of supply - and they gain value from the constantly increasing cost of building houses (labour and materials - the material increase mostly also due to labour).
There are some incredibly complex feedback loops in the economy - especially in the housing market - but inflation isn't the issue for most first home buyers. Inflation does, however, hit people with savings harder - every dollar you have in a savings account is slowly losing value. That, however, is quite intended since savings accounts are poor tools for economic growth (banks can leverage the value for loans but there are more efficient investment methods - and that leaves us with all our eggs in one basket which might be a quite irresponsible bank that's pumping out subprime mortgages).
1. In a very very infinitesimally unmeasurably minor manner.
> 1. In a very very infinitesimally unmeasurably minor manner.
Great point. And to explicit what you're alluding to: we live in a world where factories around the world are running 24/7 producing trillions of items with infinitesimally small values relative to global wealth. But none-the-less, these goods at up to real value.
Meanwhile entropy is eroding the value of many of the made and manufactured things in the world. Termites are eating houses, cars are wearing out, children are breaking toys, clothes get holes in them...
If you're interested in the scenario where that depreciation outpaces all else I might suggest reading the Foundation by Asimov series which includes an empire in its sunset and suffering from systems collapse. If we were in such a situation it'd be pretty clear to everyone as maintenance costs would prevent any sort of productive activity. I personally think that, short of a sudden disaster that causes extreme knowledge loss, a systems collapse is infeasible in the modern world since we've invested so much of our ongoing maintenance into detecting these sorts of insidious critical failures.
But, in short, those depreciations are far outweighed by value creation right now.
Stocks and equities in the US have been going up for 10+ and the infusion of "trillions of extra dollars" wasn't present for all of those years. Canada has had increasing home prices, barely slowing down in 2008, and it hasn't had QE.
Japanese asset prices would otherwise be deflating, so the "infusion" has absolutely had an effect.
The CAD has tracked the USD pretty closely in terms of value so even if there wasn't explicit QE there was definitely sufficient inflation to devalue the Canadian dollar.
Lyn covers this topic fairly well in her article on Japan[0]. In short, private debt in Japan has shrunk by 300 trillion yen over the past 25 years. The growth of the money supply is all coming from public debt.
It matters who gets the new money and what they spend it on.
Do you mean fiscal policy? You absolutely can infuse trillions of dollars into the economy without causing inflation after the economy takes a $4T hit from a pandemic; the government spending will be what prevents disastrous deflation.
People worry about inflation, but forget how awful deflation is.
(And on a side-rant, it’s really bizarre how the hyperinflation of Weimar Germany is cited as enabling the rise of the Nazi party. The timing doesn’t work. They came to power during the depression-era deflation.)
I've never understood how deflation could ever be a concern in countries that print their own money. Can you not just print your way out of it every time?
Politicians don't give a damn about deflation. They will tell you how governments must be responsible with their budgets and do debt ceilings and austerity, while simultaneously promising income tax cuts for the rich which they finance by cutting public investment. It'll trickle down.
I'm not really sure the "dollar worth less" framing is super helpful, but maybe I'm wrong. I think it's a little better to specify in what context we're talking about.
Actual inflation is generally low aside from short-term issues, but "asset inflation" if you want to call it that is high. I think the most important thing in terms of day-to-day existence is CPI-type measures that reflect your ability to consume things with money. If you can't do that anymore, then it becomes a real problem for everyday life, as people are unable to afford things they need. But that's not that situation we're in.
The situation we're in is that assets are over-valued across the board, including in the stock market and housing. I think the risk here is that once you're in this situation, getting out of it is really hard. If we allow housing prices to fall (by raising rates, for example), what happens to all the people who are now underwater on their mortgages? If value is erased from the stock market, a lot of people are going to be left holding the bag. Is there a plausible way we can get out of this situation?
> Is there a plausible way we can get out of this situation?
Yes, tax the hell out of the wealthy in order to reduce their total share of the money supply (which is driving asset inflation), shield the middle class, and provide better housing, social services and benefits to the working poor. Home prices would settle because supply would go up and the range of bids on a given property would be more egalitarian.
If we are responsible with the new revenues
(we won't be) we would also destroy about $5-7T of what's collected to remove it from the overall supply to prevent reoccurrence.
> On the housing side, I suspect consumers purchase the house that their cashflow can comfortably support, not necessarily the one where they believe it is correctly valued, because the assumption that house values only increase means purchasing a well constructed house is almost never a "bad deal."
I'd agree with this. I think housing in my area is wildly overpriced, but I still bought a 100 year old condo for a solid million. Compared to renting, I got double the space, plus parking, plus a private garden, plus an outdoor patio, and my monthly costs went up about 25%.
Is there a difference in the property tax there for multifamily vs single family dwellings? Around here people pay almost double their mortgage in property taxes for a single family dwelling, but landlords have managed to get much lower taxes for multifamily dwellings.
In my municipality I'm not aware of a difference between multifamily vs single family, but there aren't many single families anyways. Property tax is absurdly low, with a very nice deduction for owner-occupied units. My effective tax rate is around 0.3%
Cambridge is atypical: it has tons of biotech, FAANG offices, etc to tax, so the city ends up having one of the lowest residential property tax rates in the state. In fact, Cambridge's residential rate is almost 2x less than those of each of its neighbors (Arlington, Belmont, Boston, Somerville, Watertown. https://joeshimkus.com/MA-Tax-Rates.aspx)
It depends where, as cities have some level of freedom in the shenanigan they implement in their tax structure.
Normally though, taxation is just a matter of the property value. Often, cities with lower housing cost have higher tax rates (because the people working the sewers aren't any cheaper and they need to get paid).
Many cities also have owner occupant or primary residence abatements, so the landlords pay more in taxes than the resident owners. Some cities though split homes in one of several categories, and single families may be taxed differently from multi family or condos. Sometimes multi family and condos are taxed less to encourage higher density construction, but it wouldn't change anything if you're a landlord or not (aside for the tax abatement). Landlords can deduct some of their expenses from their business' taxes though, and I think (don't quote me) their property taxes are part of that. Your millage may vary.
> Normally though, taxation is just a matter of the property value.
Total tax burdens are a function of government expenditures. Property tax is a rough attempt at scaling the tax burden to a person’s wealth, but it has many caveats varying in many jurisdictions. However, government debt is a big part of expenses, and each city and state’s debt can vary greatly than from another.
Here is a good website ranking the big cities and all the states:
I would expect cities and states where the per taxpayer debt burden is a standard deviation or more from the mean to have measurably higher taxes and/or fewer government services/investments.
yes, though I'm not sure what it has to do with the original question. Someone is comparing 2 types of property in a given area. The city's tax burden is a constant between the two in that scenario, so the only variable will be how the tax burden is implemented by that city, which is usually property value with some abatements based on residency status and type of properties.
Home prices are a function of monthly costs. As much as people want to compare the value of a home from year to year, in every instance, I've seen values reflect to monthly spending power.
I would love to see some estimate that takes more into account like household income, tax breaks, and interest rates. If I have a interest deduction, my relative taxes are lower. If I have children, my taxes are lower. If I have historic property, my taxes are lower. If I have solar, my monthly bill is lower. All these things make owning a home easier and allows people to buy more home.
Education is another example, prices largely mirror federal subsidized loan values. I'm not arguing that government should get out of housing, people should realize that the value of something is relative to the demand especially when the supply is largely fixed or has linear growth.
I agree with your comment, and just want to add that interest rate changes alone can explain a lot of the appreciation.
If you have the exact same income and rates are at today's 3% vs 2008's 6%, the payments on a $1.0MM home mortgage would be $4.2K vs $6.0k. The difference between those two payments is about $40k/year of gross income difference.
A person in 2021 with the exact same income as 2008 would be paying the same for a $1.4M mortgage per month as the person in 2008 at a $1.0M mortgage.
I don't own a home, so I'm not saying this to justify my purchase, but if I just take the info in the graph, I actually wonder whether there is a lot more room to go in the market. I wonder if we are looking at another 20-30% appreciation before the top?
I don't have all of the math for all the scenarios you describe, but still, overall you're completely correct.
If you account for inflation and interest rates, and look at median home price, a home earlier this year was CHEAPER than home in 2005. Roughly the same monthly payments before accounting for inflation, because of the interest rates (6.X% vs 2.5-2.8%ish). That alone makes a huge difference.
People are also becoming more financially literate. Once folks are able to crunch all of the numbers on their own, start calculating how much rent costs, how much money they will make from asset valuation, how much they can save from using HELOCs instead of credit or other types of loans, they're willing to spend more, too. There's the tax deductions, but that got gutted, so it's not that big anymore.
one can say the down payment increases, but it increased slower than the market did, so if you just sat on investments since 2005, you can make a BIGGER down payment now than then, proportionally. At current interest rates, even with PMI, you're potentially better off doing a 3% + PMI than putting a large down payment (unless you're expecting a market apocalypse the likes of which the US has never seen).
We could crank up the interest rates to 10% and home values would tank. It wouldn't reduce monthly home costs any though.
I appreciate this effort since this gets closer than reporting on house prices alone. As other's have pointed out there are a lot of significant factors being left out (e.g. interest rates). One of my favorite analysis is the historical chart on how many hours you had to work for an hour of artificial (candle, lamp, electric, etc.) light. I'd love to see this applied to housing, though housing is extra difficult because the quality has also changed immensely (indoor plumbing, electricity, etc.).
> 2. houses have gotten much better since a few decades ago.
I'm sometimes reminded of this when I see old footage of shows like "Lifestyles of the Rich and Famous". Many mansions from the 1980's kind of look like dumps.
Just wanted to correct that no.2 is irrelevant. Things being much better has only to do with technology and productivity.
If you had told me "Houses have gotten much better, but the cost to manufacture the things that make them much better remains the same" then you'd have a point.
I see this argument over and over. "You're so much better off than your parents, what are you complaining about?! For example in my time we couldn't even fly, and now with your "low wage" you can! Proof that the wage is not so bad!" Well BS argument. For example, now we don't fly in fully manually built airplanes, that were designed on paper, with hand calculators.
How long will you and your Reddit pals keep saying this before you realize how untrue it is?
Last prediction I heard was that everything was going to crash today. Now it's next week. Next week will it be November? 2022? 2024? 2030?
Over and over again, I see newly minted retail investors discover the only hard part about investing; actually knowing when things will happen. If you can't say when the MOASS (or whatever the "bad thing" is this time) will actually happen, it's useless to keep doomsaying about it in the meantime.
I don't hold a single share of public stock nor crypto and have never posted on any investing forums.
Evergrande could end up tanking the Chinese real estate market and a take bunch of banks down in the process unless the CCP steps in and nationalizes it.
It could indeed do that highly unlikely and globally catastrophic thing, or it could be mitigated substantially by the amount of time and resources that "bunch of banks" have now that this has been going on for some weeks.
Ever since Taleb wrote about "Black Swan events", it feels like people are falling over themselves to identify the next one at every opportunity, and when (through random chance) some group or person gets it right, it's going to be paraded about as some kind of indication of their sage wisdom.
In the US, lending standards in 2005-2008 were openly silly and terrible. Lending standards today are much stricter, though not perfect.
I'd bet on a horizontal. (<-- PERSONAL PREDICTION HERE) The government is in a bind now -- they cannot just allow a housing pop because that affects the middle and upper-middle class voter base. Ending ZIRP would also pop the equity bubble -- again bad for the wealthy and middle-class voter base.
The best they can do is try to contain it. We've already seen the government too scared to reign in monetary policy in 2009-2021 even when things were good -- so thats a good indication of how scared they are to normalize things again.
The best they can do is allow controlled inflation, as they are doing, and allowing real prices to stabalize on an inflation adjusted basis.
Unfortunately, in all this, US fiscal and monetary policy has truly punished the young.
What’s hard to believe about this? Do you think the analysis is wrong?
Since you’ve given an anecdote, I’ll share mine.
I make more than the median income where I live. The closest place that matches 2x my income is more than 100km away from me and it’s a mobile home.
My current apartment is 3.5 times what I earn, but that’s because I bought it 5 years ago when it was 4.3 times what I earned. If I sold this apartment today, then someone earning the median income would be paying at least 7.5 times their income.
30+ years ago my parents bought a house for less than what I paid for my apartment. They also earned more than 2x what I earn now. So they might have been in a similar situation to you had they not gotten divorced. People buying that same house now have to pay 10-12 times income if they make what my parents did. Closer to 20 times income if they earn a median income.
I just got a 15yr fixed rate at 2% (!) which made me think a lot about what's behind your comment. In particular, what will happen once rates go back up:
1) Right now we are at zero short term rates, and moreover mortgage rates are propped due to Fed purchases of Agency MBS
2) Say rates go up 2% (not crazy) in parallel. So now your 3.5% becomes 5.5% which is still historically moderate. However, the 5441 required monthly income from your formula is now 6877! 26% increase.
Regarding 3 I would figure either prices would have to come down, financial assistance comes from somewhere, or the house winds up being rented after being purchased by a management group.
House price is inversely correlated to interest rates BECAUSE most buyers are getting a mortgage. So the price of the house "will drop" (hard and fast estimate here not a law) if interest rates rise because people are paying for house+interest = total_cost_able_to_pay.
I watched this play out in real time as I purchased my home. Rates dropped, prices went up to fill the gap. Owner got a bit more money vs the bank instead.
Basically I gave my money to a different person, but the "all in" was about the same.
I’d love to see the same charts in terms of monthly payments on a new mortgage, rather than sticker price. The price itself matters in terms of downpayment, but ultra low interest rates are a huge factor. Right now, interest rates are so low that a huge mortgage has the same payments as a small one years ago would have been. Especially when you take inflation into account.
One thing I think people overlook is that there's a hidden cost to buying at low interest rates: if rates go up that will eat into your resale value, and it's less likely you can refinance at a lower rate in the future.
If you bought at a high interest rate and then rates drop you really make out, and that's less likely to happen to people buying now.
Also, artificial low rates are causing increased inflation of prices, which means cash buyers and buyers that would pay off their mortgage quicker are at a disadvantage.
For example, Interest rates are so low that the traditional alternatives of stock investments are no longer present. Traditionally, a bond would include a rate that is beyond inflation. Nowadays, government bonds return rates below inflation. This is artificially low and creates a bubble in the stock market (and other assets like real estate) since the traditional option to put money in bonds has been artificially devalued.
How much of this is a result of our "don't tax the rich" policies that created a staggering amount of wealth at the top that has nowhere else to go? So many ultra rich investors are looking for something, anything, to invest in. Plus there is the feedback loop of massive growth you get as the bubble inflates.
Is this a direct result of our fiscal policy? Have we destabilize the economy in order to create the richest muilti-billionaires?
I fully expect that as we tax investment income more and more, we'll see this trend in real estate worsening as it becomes an even more attractive investment vehicle.
This is happening outside of the USA, in countries with more progressive taxation too. Canada, UK, Israel - all with much worse house price to income ratio compared to the USA.
These homes are not owned by billionaires either. It’s an asset class that’s very broadly distributed by its definition; most people own their homes.
I think it’s mostly driven by macroeconomics. Near zero interest, population growth (organic or through immigration) and historical real estate appreciation all fuel this trend.
I’ve never seen any data showing that housing bubbles are attributed to “the rich”. The housing market is made of tens of millions of individual home owners, not some moguls cornering the market.
“Rich people” investment properties are a negligible share of the total housing market so this theory most often used as a scapegoat by the “eat the rich” crowd.
If anything, more real estate investment would create more housing stock. Someone’s not building enough.
I don't actually think new housing developments are a really high RoR and building your own house has a high barrier of being able to support and house yourself while floating the full value of the house you're trying to build - for that reason new home owners almost never buy their own house. Additionally arguably the most valuable part of owning a home is the appreciating value of land - and land most steadily appreciates in stable communities (where a plant closure won't suddenly tank the market) and the best of these are urban centers where the market is extremely stable. All that is a long way to say that investors specifically want to buy that condo that's right next to your office and they're much less interested in investing in some development out in the boonies that will only gradually accrue value (and be impossible to exit for the year or so that the units are actually under construction).
Lastly, we've got NIMBY - this is the source of nearly all our housing woes because if you could buy up all those single homes in SF and convert them to condo towers we'd solve the housing crisis overnight - but that would "ruin the neighborhood" and, more importantly, depreciate the value of all those inflated house prices - and that's why all the neighborhood councils will continuously vote to perpetuate the shortage of housing.
People do want to build more housing - but people who own the land are stubborn assholes. When it happens that an investor manages to secure a full block of single family homes in a downtown core they'll almost always try and convert it to condos - but then they've got to fight against the NIMBYism and they'll usually lose because as every 80's movie ever taught us: "The evil developer is trying to tear down the community center - we've got to stick up for the neighborhood and win that tournament!"
Agreed, but the fundamental problem is that inventory is so low. Super low inventory and vacancy rates cause far more problems in addition to prices being set by a wealthier percentile.
I don't think the bottleneck for new housing is investment capital, it's mostly about getting permitted to build, and also getting enough labor. There's a fairly big shortage in the trades, as the boom-bust-cycle has forced more experienced people out, and there hasn't been many new people getting trained.
Also, a lot of the opportunity for large scale projects is gone; building a large tract of homes in the Bay Area means building super-exurban in places like Tracy. Projects like the Vallco mall replacement in Cupertino take a decade+, and what ends up getting permitted will not usually look anything like the initial plans, or what's technically allowed by law. (This is changing slightly in California in that by adding enough below-market-rate deed restricted units, you can build according to code and zoning without greedy neighbors vetoing the project. )
It might be helpful to take a deeper look at the housing markets of Toronto and Vancouver - both are urban centers with a lot of employment opportunities and homes owned by regular folks - but they've also both been ravaged by a plethora of investment properties which, in a self-fulfilling manner, are driving demand through the roof thus justifying more investment.
If you asked me what keeps NYC real estate prices up, I'd say "rich people", but the dynamics of distinctive urban centers such as Toronto, London, San Francisco and others don't apply at all on a country level. It's not the same types of assets, buyers or price levels.
So yes Toronto might have been influenced by rich Chinese buying properties, but does that extend to Canada as a whole?
The amount of private equity in housing is really underreported I think - still the vast majority of people owning second homes or additional property are doing it for investments, but there is nothing stopping an “uber for housing” where they use VC money to buy up massive amounts of properties and influence pricing. I believe this is one of Zillow’s primary models.
My take is that we need to treat housing as an actual human need, and there should be penalties for buying houses to rent or for investment purposes outside of ones primary residence. That sort of exists in the mortgage interest tax deduction but with rates near 0 that’s become far far less effective.
> there should be penalties for buying houses to rent or for investment purposes outside of ones primary residence.
There are lots of people who don't want to own a home (e.g. who value the mobility/flexibility of renting), and people who are unable to afford the fully loaded homeownership costs. In these rent-vs-mortgage discussions people often overlook the non-mortgage homeownership costs which can be very significant and hard to predict. I say this as a person who found myself needing an unexpected $25k+ roof replacement in my first year of homeownership.
I suspect living standards for the bottom quintile would actually fall if they had to maintain their own homes. E.g. how are the people who can't put together $400 in an emergency, the minimum wage employees living hand to mouth, etc going to be able to afford to replace an unexpected leaking roof (a $10k+ problem) or a broken water heater (a $5k problem) or refrigerator (a $500+ problem)? A lot of basic amenities are legally mandated for landlords to provide that I think low-income tenants would not be able to maintain on their own. A landlord with a larger net worth is better able to absorb these cashflow problems and keep the property in a healthy state.
Anecdotally, I live in rapidly growing, tech-friendly metro and track housing data in the area. The county assessor's office exposes homeowner's names and you can easily spot the "private equity" owners. They are very few and far between.
> The amount of private equity in housing
I think this issue is, at least at the moment, overstated. Could be a problem in the future though.
I think nationally it just approached 1% of all purchases being done by "e-buyers", with much heavier concentrations in certain areas they're targeting.
> That sort of exists in the mortgage interest tax deduction but with rates near 0 that’s become far far less effective.
FYI, mortgage interest on an investment property is also tax deductible. In fact, there's no limit on it like there is on your own personal-use home. It's basically treated like a business expense (which, arguably, it is).
and normal homeowners stopping densification out of fear of reducing the value of their own home or just not wanting the riff-raff living near them. These people are really the ones doing a directly harmful thing for pure selfish greed. They're not super-rich, they're just people's parents. But they're trying to make money by excluding others instead of doing anything useful.
Agree! It's also the densification of urban areas. Where once each occupant had a private office, now 5-6 SW engineers occupy the same office space footprint. That has implications for already dense urban office and associated housing needs.
The long-term trend in urban housing is diffusion, not densification. One hundred years ago a family of five lived in an apartment now occupied by a couple.
I was surprised to learn that the population (and density) of Manhattan was higher 100 years ago than it is today. It's been falling pretty steadily throughout the entire 1900s.
What "don't tax the rich" policies? 61% of Americans pay zero income tax.
Why are the rich getting tremendously rich? Because the Federal Reserve has printed money at an astonishing rate, which inflates asset prices. Who owns the most assets? The rich do.
People are so focused on taxation (because it's something the average poor or middle class understands) when the real issue is the Fed (something most Americans aren't even aware of).
That income tax statistic is misleading. Most Americans do pay social security payroll taxes, which are income taxes, they’re just not called “income tax.”
Even though social security is administered as a pay-go program, the amount of social security you can withdraw is based on how much you put in. This makes it much more like a forced savings account than a tax.
Social security is more of a forced 401k. You will get back the money (in theory), but yes, it's not progressive and impact the poor more than the rich. It's a bit of an iffy one. If the social security system rolled up into federal income tax, it would be much more progressive, but it would likely receive significant pushback in the political space (not knowing its history, I assume it was structured as a separate thing exactly for that reason. I should read up).
Still, the point still stand: federal income taxes are quite progressive, and would surprise most people who wave their angry fist asking for the rich to be taxed more. The problem is mostly at the state and local level.
The top 50% pays 97% of federal income tax.
If you include most types of taxes, including social security, you end up with something a little less polarized: the top 1% have an effective tax rate of a little under 34%, while the poors are around 20%. One could easily argue it's not progressive enough, but it's still not the usual narrative of "I pay more taxes than millionaires".
A a handful of ultra rich abuse loopholes to death to pay very little, and these people are averaged in the statistics (so the average rich person actually pays more than the stats show, if only a little). It's a minority though.
Not nearly as directly though. Social security is basically money in -> money back. A glorified forced 401k, or at worse a kind of retirement insurance. It's a bit more separated. When I pay taxes, I don't get a direct return for it, I get (in theory) a fully functioning society.
Social security would be a little closer to a sewer and water bill from the city (which you have to pay if you're a owner, but you get a sewer in exchange. Whether you like it or not). It's still not a great analogy because Social security is more deferred. It's really its own thing. Still, it doesn't work quite like a tax either.
I personally wouldn't mind if it did though. It's one of those things where we'll pay for it one way or another. If there's an entire generation of people who can't properly retire and pay medical bill, we will pay for them through taxes anyway. May as well do it preemptively and efficiently.
It's not quite a forced-401k though. Social security could technically be abolished (or payments diluted, etc) via an act of congress (even though politically unfeasible right now) - then you don't get anything out of your "investment". It's much harder to "abolish" a diversified 401k plan unless you abolish all private property (i.e. Russia 1917).
Yup, like I mentioned, it's really its own beast, and all analogies will be flawed in some ways. But it also doesn't work quite like other taxes, at least in practice.
> Don't you get the value of the money back for all taxation, according to any theory that approves of taxation?
Roughly speaking, anyone paying more in taxes than the per capita spending is probably not receiving the full value of their taxes. We see this where most welfare (Pell Grants, SNAP benefits, Obamacare, etc) and tax credit schemes (CTC, electric car credit, etc) phase out as people pay more taxes.
Tax is the solution, though, because we should treat owner-occupied homes differently than investment homes. Owning a home to live in it should be more accessible than owning it for capital gains. The market doesn't and can't price in this externality any other way.
> Why are the rich getting tremendously rich? Because the Federal Reserve has printed money at an astonishing rate, which inflates asset prices. Who owns the most assets? The rich do.
This is exacerbated by capital gains and dividends being taxed at a lower rate; if the gains due to asset inflation were being taxed at 37% instead of 15%, then at least all this money printing would help balance the budget a bit...
Segueing from “rich” to “multi-billionaires” is a neat trick by rich professionals to divert attention from themselves.
Five years ago, we moved into a 3,000 square foot house in the Annapolis suburbs. We are right on the water so it cost a princely $485,000. But it was easy to get a house in the neighborhood for $300,000 or so, or just 4 times the county’s median income. As a result, the neighborhood has lots of young families (many without college degrees!), retirees, etc. Today, the house next door is under contract for double the price, and is smaller than ours. As far as I can tell, there’s no billionaires or even centi-millionaires anywhere near us. Just upper middle class people whose 401ks have done really well thanks to the Fed printing money like crazy, not to mention upper middle class welfare like more than a year of deferred student loan payments. (Lower income folks with student loans were already eligible for income based repayment.)
Reaganism has won so completely in America that even AOC doesn’t want to tax upper middle class people. But these are the people directly competing with the middle class for fixed resources. They’re the people driving residents out of gentrifying neighborhoods, driving up the price of coffee, etc. There’s not enough 0.01%-ers out there to move the needle on these assets and services.
Well, and most people have fucked up views on what defines "upper middle class". There was a topic on reddit the other night where the most popular posts were saying, without jest, that upper middle class starts at $10 million bucks in liquid savings (and ends around $50MM).
That seems to be a typical view on income and wealth in this country: people's opinions are wealth are out or proportion with reality by factors of like 100. For reference, upper middle class technically starts at around $120k/yr, so $10MM could pay 80 years of an upper middle class income. So there's no conceivable way an actual upper middle class family could actually save enough to be consider what the public thinks of as upper middle class.
In my mental model, I’ve always considered upper middle class to be people who still do their own grocery shopping, but don’t really look too closely at the prices.
In my experience the kind of people this heuristic selects for is around the same monetary threshold you’ve noted in the low 6 figures.
Yes! My wife and my families both crossed that boundary (on opposite sides of the country) around when we were in high school and we both remember grocery shopping as a key difference.
For comparison: Sydney has a median house price of AUD $1.4M right now, and a house on the water is $2M-$6M easily.
Median income is $56K for Australians in general, and about $90-$110K for areas of Sydney that have water views.
Recently the federal deputy treasurer made a speech that younger residents of the city should consider moving to the country to afford a home. The not so minor issue with this statement was that you have to go very far down the list of towns by size in the state to get to a place where he himself could afford a home on his government salary of well over $200K a year!
I wouldn’t say we’re in a bubble, even though the numbers look like the last bubble. At least in my local market there’s a small number of home sales being distorted by a handful of people at the top of the income distribution.
What we’re seeing is a lack of housing, not middle class people buying up housing they can’t afford.
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[ 4.7 ms ] story [ 439 ms ] threadhttps://www.corelogic.com/intelligence/comparing-two-home-pr...
1. Decrease housing prices 2. Increase wages
We haven't seen meaningful wage increases for a long time now, so perhaps it is time. Maybe this is just a symptom of wages not tracking with inflation, and the solution is to pay people more.
At this juncture, it seems most appreciation will arise from supply issues, which aren't new to the post-2008 world. And while we do have lots of unoccupied housing nationally, we don't have it stock in areas where it's most needed: e.g, job centers. You can easily find a $10k home in Detroit if you wish.
The graph would be helpful it broke out metro versus rural areas, in addition to factoring interest rates.
https://fred.stlouisfed.org/series/MEHOINUSA672N
_I'm_ content with my pay now, perhaps others aren't and there is little they can do about it. How might we even define "content" for a cohort as large as "anyone buying a house"?
There's nothing to worry about.
The solution is not to pay people more, it's to increase the supply of housing to the point that people can pay drastically less for housing. Look at China: apartment towers on every street, each 30+ floors easily. Where is that kind of density in the U.S.?
meanwhile people are very much homeless, whether they are millenials or not, whether they react strongly or not.
Rent control won’t work for the same reason a price control for food or cars won’t work.
https://freakonomics.com/podcast/rent-control/
No, they aren't. Assuming no increase in property tax rate (which is a good assumption, since your local taxing jurisdiction almost certainly already charges the maximum nominal rate of 1% allowed under Prop. 13), your property taxes will increase only by the amount your assessed value for taxation increases, which is capped to the lower of 2% or the actual annual (trailing) rate of inflation.
For 2021/2022 the actual cap is 1.036%, based on the actual California CPI for October 2019 through October 2020.
Price controls for medicine are proven to work, based on single payer European systems. They cost cheaper and provide better outcomes than the US system.
Yet here we are.
But you are correct that in those cases it can work well. Same with other monopolies like utilities.
Housing, OTOH, is always local. Low rents will discourage development which will make the real, underlying problem worse.
https://www.investopedia.com/terms/f/free_rider_problem.asp
Outcome differences are due more to public health and social factors like obesity. Expensive drugs or lack thereof have only a tiny impact at the population level.
Europeans aren’t free riding; they’re paying a reasonable rate for these goods while Americans are shouldered with extraction of revenue for pharma profits and those inefficient (and arguably unnecessary) sales and marketing expenses.
Only two countries in the world permit marketing directly to consumers to promote pharmaceuticals: the United States and New Zealand.
But in general the traditional drug development approach of finding small molecule drugs to treat specific diseases is running out of steam. Most of the low-hanging fruit has already been picked.
It's like Private hospitals, we have them, but very few people use them as the public system is better equipped and paid for by the tax payer.
Since medicine is mostly a technological good, it lets the rest of the world freeride off America paying for much of medical R&D.
However keep in mind there's two kinds of rent. You can rent a house, or you can rent money and buy a house.
Historically and across countries there's been some willingness to restrict mortgage LTVs and interest-to-income ratios. At least in some European countries the interest ratio depends on a fixed interest rate (eg 5%) rather than the current interest rate.
We can create and destroy money more easily than we can create and destroy homes, maybe that's a worthwhile lever to try.
In the current NIMBY climate, my neighbor is struggling with the red tape to repave her driveway. Building a new home around here seems about as improbable as a hobbyist making the first human Mars landing.
[0] https://www.npr.org/sections/money/2019/03/05/700432258/the-...
I do agree on the problem of NYMBYism though. There's a funny-if-not-so-sad dispute here in Berlin at the moment, where the leftist state government is desperately trying to build public housing while the leftist local government in the district of Lichtenberg is blocking a major developing due to local concern. Sadly I can't find an article in English, but I am sure there are dozens if not hundreds of examples for that.
[0]https://en.wikipedia.org/wiki/Freedom_to_roam
Or just not very fun to be on. The beach cities of Southern California are blessed with having some of the most accessible beaches.
You’ll find that historically speaking “freedom” and “property rights” are treated as synonymous for some political theorists, including the ones that founded the United States. This is one of the foundational aspects[0] of liberalism that has come to rule the western world; the idea that property rights are sacred and must have an exceptionally high bar for the collective to intercede on.
Whether or not that equivalence is true is a debatable matter. One of the unfortunate outcomes is the ability for the individual to withdraw their property from public use, often to the detriment of the whole (such as the beach example you provided).
Also, the fact that the founding thinkers of liberalism and America itself tended to own slaves or trade in them doesn’t necessarily disprove the basic argument, but it’s a pretty strong counter point at least.
0 - There are of course other tenants to liberalism that I’ve not included here, due to their irrelevance for the subject at hand.
You mean "tenets", but in a discussion about property rights I approve of the play on words.
Since you asked, another idea would be to slap a vacancy tax on top of this.
It's the same equation as crypto mining, as long as there's a return on investment they will continue to buy up GPUs.
It is more financially and emotionally rewarding for me to prep leetcode, solve software problems, etc. than it is to deal with home renovations, plumbing repair, etc. on a home.
Plus the flexibility of location is huge. I can follow the job market much easier if I am not locked into an address.
2. Only actual Americans can own property in America. Single-fam, multi-fam, land,etc. doesn't matter.
Exactly no one needs to rent houses if mulit-fam exists and actual houses aren't speculative instruments or places where foreign nationals hide their money.
2. Can corporations still own commercial property? And can foreigners own corporations ?
For your first proposal, I wonder about folks buying a house through an LLC or trust as folks often do to protect their privacy. Are we banning that? I also wonder about inheritance - if I own a house and my parents die, leaving me their house, how long do I have to sell one to be "in compliance?". Maybe their house needs work and I'd like to spend a few months or a year fixing it up to maximize what it'll sell for. Is that ok? And speaking of timing - I remember during the wave of foreclosures after the last housing bubble, banks kept a lot of houses off the market for a while to moderate prices, rather than listing everything at once and panicking the market further. Seems like banks ought to have some leeway to maximize their return (e.g. if a house has a pool and is foreclosed on in the late fall, maybe they judge that waiting until spring would get a better response from buyers).
1. Everyone is forced to sell their lakehouses, cabins, ADUs? Detached mother-in-laws? (wtf is "Exactly one house?")
No one is ever able to rent a single family home ever again? Right now 14.5 million households / 44 million residents rent single-family homes in the United States. They're... out of luck? On the street? Gotta save for a down payment? If those houses are force-sold, don't you think people-other-than-the-current-inhabitants will come in and buy them?
Actually, can anyone ever rent ever again? Or is it a buy-vs-homeless dichotomy here? Or do towns have to become miniature companies and play landlord? Or states?
2. Timber companies are forced to give up their land, bankrupting all of them and driving the cost of wood sky high. Mobile home land must now be sold, except no one can buy it. Farms except for sole proprietors are forced to give up their land (sorry partnerships, amish, people with discontiguous lots, and everyone who wants to eat this year, you're out of luck)
IMO you should focus on laws that let people build more (eg, ADUs, duplexing) rather than getting out the stick and hoping there won't be huge side effects.
Can someone answer why any developer would ever create low income housing when margins on luxury condos / McMansions are so high?
Neoliberal capitalism is totally failing at efficiently providing housing to anyone other than the rich, but sure, lets just keep sucking up to developers
okay, but what if I have (an opportunity for) positive cashflow, minimal savings, and want to move away from my parents' house? does it just suck to be me or what?
What about people who want to live in cities? How do they come together to build say a small condo building? Do we only allow co-ops? How is that financed?
When you say "Americans", do you only mean citizens or permanent residents? Where do temporary residents live?
How do people move to new cities/states? Where will the new housing come from?
The most amazing example of this was the stamp-duty holiday to help stimulate the market for a few months during covid. The maximum you could save was £15k. The average house price increased during that time by about £16k...
Another issue with increasing supply/density: where is every household going to park its 2-3 cars?!
(Disclaimer: I've been watching tons of City Beautiful and Not Just Bikes on Youtube)
We don't have as many skyscrapers here.
Regardless there are plenty of reasons not to want car-centric suburbian neighbourhoods. Unwalkable, outrageously expensive to maintain, encourages car ownership and usage (yay more debt and running costs), etc.
The real problem isn't supply at all, it's the distribution of supply and the choices of people to live there.
I’ve said this plenty of times; America has plenty of homes, it just doesn’t have enough homes where people actually want to live.
You can get a home in my parents home town (which they left) for $60-100k right now. The issue is that there are no jobs and even fewer services. It was probably a great place to live 80 years ago when small towns were the norm, but now it’s shrinking, aging, and a long distance from any of the amenities that most Americans now demand.
Not necessarily. You can't use the overall picture data to make claims about localized or subcategories of data. Especially if the bulk of the people live in suburban and urban areas.
"... a long distance from any of the amenities that most Americans now demand."
Like what? Many amenities and services have been moving to the at-home or online model for decades - arcades, movies, shopping, car buying, telehealth, etc. It seems there should be less reliance on physical amenities now than in the past.
We are starting to movement from HCOL and high tax areas. Companies are moving for tax and regulatory purposes and most people seem happy to follow when the cost of living is significantly lower.
> Like what? Many amenities and services have been moving to the at-home or online model for decades - arcades, movies, shopping, car buying, telehealth, etc. It seems there should be less reliance on physical amenities now than in the past.
My parents town’s nearest major store is a Walmart 45 minutes away. There is a significant difference between “we need less amenities now” and “we need no amenities”. Committing to an hour and a half drive for anything Amazon can’t deliver is sub ideal.
It would be utterly impractical to live there most of the year. And yet compared to NFT's and some cryptocurrencies it's probably a great investment. There's definitely a bubble going on, I just don't know when it will end or why.
The vacancy rate may be at a low, but it is still about 10%. Sure, we still need to build more houses, but the point here is that distribution is important to both. If you build houses in a HCOL area, the cost will be higher. We should be looking at redistributing to areas with the highest rates of vacancy an LCOL.
Part of why prices are going up is inflation and cost of materials and labor. Prices in rural america are up, but I wouldn't say skyrocketing. There might be places that are skyrocketing, but I'm guessing they are in commute distance of the cities.
The housing crisis is more accurately an imbalance of houses-to-jobs in a metro area.
Why the companies are moving from California to Texas is exactly because Texas' local zoning laws aren't as stringent allowing for cheaper housing.
The fix really isn't that complicated, it's allow more houses to be built where jobs are demanded. Not quite sure why people always twist and turn justifications for why only 1-story houses should be built.
Or move jobs to areas where housing is cheaper and easier to build. Just allowing more houses to be built doesn't solve it entirely. For example, labor will be more expensive in HCOL areas.
"Why the companies are moving from California to Texas is exactly because Texas' local zoning laws aren't as stringent allowing for cheaper housing."
Not really, although it might be a secondary component. The main part is taxes and regulation.
Labor increased cost is really nothing compared to the zoning barring new construction. If labor was truly the barrier then when upzoned no construction would take place. Additionally a large reason why labor is so expensive is from the constrained housing in the first place -- again stemming from the zoning.
> Not really, although it might be a secondary component. The main part is taxes and regulation.
Zoning is regulation.
Business regulation.
"If labor was truly the barrier then when upzoned no construction would take place."
Not a barrier, but a factor. You seem to be misunderstanding me. It's not that it can't be done in the populated area, but that it's better done in areas not already in a precarious situation.
"Additionally a large reason why labor is so expensive is from the constrained housing in the first place -- again stemming from the zoning."
So we have circular logic here. If the labor is expensive, you aren't going to make it cheaper (at least short term) by building more houses because the labor cost to build those houses will still be high. They have to pay their existing mortgages.
Are you really not aware that when people are mentioning Texas' easy regulation many times they are literally often talking about zoning?
> You seem to be misunderstanding me. It's not that it can't be done in the populated area, but that it's better done in areas not already in a precarious situation.
No I completely understand you, and find the "too many dense already" line of logic ludicrous. Most of these American cities have zoned over 80% of their land at one story buildings only. American cities are already at the lowest density compared to European or other countries density. They can accommodate plenty of housing fine.
> So we have circular logic here. If the labor is expensive, you aren't going to make it cheaper (at least short term) by building more houses because the labor cost to build those houses will still be high.
No there is no circular logic here. As I already noted the larger burden of the cost of housing comes from zoning restricting the amount of buildable land. And yes you will need to build lots of housing -- thats what happens one restricts building housing for decades.
Source? The ones I have seen say "business-friendly regulations". They also mention companies moving their headquarters to the state, which means taking advantage of incorporating there, which extends to out of state worker, for which zoning does not apply.
The cheaper housing is why many individuals are moving to TX.
"They can accommodate plenty of housing fine."
If the infrastructure is only set up for single family homes and the land is covered in them, then you would need massive infrastructure updates which the cities can't afford, and you would also have to demolish many existing homes to make room - what a waste.
"No there is no circular logic here. As I already noted the larger burden of the cost of housing comes from zoning restricting the amount of buildable land."
Do you have an economics background? Can you explain how the labor cost suddenly decreases as the demand for labor increase and their costs stay the same?
"... and find the "too many dense already" line of logic ludicrous."
My position is more nuanced than that. It seems you've already made up your mind and dont care to explore my position. Good luck.
Zoning also is for businesses too. For example Elon's relatively fast approvals for their new factories
> the infrastructure is only set up for single family homes and the land is covered in them, then you would need massive infrastructure updates which the cities can't afford
Again another ludicrous claim. Seriously every country around the world can build this infrastructure for supporting beyond 1 story tall. America is not some special snowflake here. Yes it'll cost some money to upgrade it -- not it's not rocket science nor some giant cost.
You're just working backwards justifying why American cities couldn't accommodate anything beyond 1 story tall then grabbing any reason to block it.
> Do you have an economics background? Can you explain how the labor cost suddenly decreases as the demand for labor increase and their costs stay the same?
I could ask the same to you do you have an economics background? But in any case yes I do.
Regarding the labor cost, I was responding to why you think labor costs are a barrier to housing and while it's true, the root cause to solve it goes the other way around. Aka even if labor costs were flat it wouldn't solve the housing crisis.
> My position is more nuanced than that. It seems you've already made up your mind and dont care to explore my position. Good luck.
It can be as complicated as you want but as the end of the day if it's stemming from blocking housing it really isn't that special.
The Midwest and the South are both way ahead of California on the whole "just build more housing" thing, for example, and have been for many years. And yeah, it makes us somewhat cheaper than a coastal city if you have California dollars to burn. But our Price-to-Income-Ratio's are still in the high 5-7+ range too, just like everywhere else.
We have basically zero population growth, and every single stray piece of land is getting built on right now (record high construction, record high new housing starts, for the past three years straight) and housing prices still rise 10% to 15% every single year like clockwork, with no end in sight.
"Just build more" sounds really pretty, but that alone will never get housing prices back down to a real-world-affordable figure for most people.
NYC on the other hand is a good example of what you’re talking about - it’s expensive to live there and pretty dense already. But Tokyo for example had 150k housing starts on a recent year, which is more than LA, NYC, Boston, and Houston combined (source: https://www.google.com/amp/s/www.wsj.com/amp/articles/what-h...) - amp link to get around paywall.
I think there’s tons of evidence that we just don’t build enough myself. In bangkok, another market, they’re throwing up more new tall buildings every year than almost the entire USA does.
You are partially right that Econ-101 doesn't explain it well, but if you take Econ-201 it does explain how housing supply/demand works. Why it doesn't work as easy as 101 is that the location matters for the 'good' unlike say cars which can be shipped in from anywhere. And also zoning artificially constrains land from being used for housing.
Even just straight up rolling back to zoning codes that existed in 1960 without much further change would do a lot for supply. Los Angeles in 2010 had a population of 4 million and was zoned for 4.3 million homes. Los Angeles in 1960 on the other hand had a population of 2.5 million and was actually zoned for 10 million homes.
Seems fitting that in the 21st century we flip that on its head. Cost of living in SF or Seattle got you down? Go East, young man! Head down to Texas or east to Ohio, and register to vote when you get there.
Be the change you want to see.
The solution is, and always has been, to increase supply, specifically in the form of increased density.
They can't. Providing supply will suffer the wrath of BANANA/CAVE/NIMBY anywhere you dream of living. Constraining demand will either get you voted out of office or devastate your political network or both, depending on which policy you attempt. You're competing with a whole planet full of people that want to live here and have more means than you.
Seek property where demand is lower and development isn't effectively outlawed. Forget any livable cities or high population states. For 99% of you that means living far away from your preferred locale among people you probably loath. If that's not acceptable then keep renting or live in a van.
The good news is many of you can work remote. That is an affordance you can leverage to great benefit.
Parent comment is vitriolic but not actually wrong. Myself, I take great comfort in the idea of huge swaths of liberal, well-educated millennials and xennials migrating out of coastal cities and into small towns across the South and Midwest. Can you work remotely? Want to own your own home on a multi-acre lot for $100k, and live in a place with sunshine and warm weather nine months out of the year?
Sure, you'll end up living in the most conservative parts of deeply red states -- but try it. Live among people you disagree with -- we're all still Americans, it'll be OK -- and if enough of your friends and fellow Ivy alumns make the jump you'd be surprised how easily you could turn Texas or Georgia nicely purple.
We've got to end the big sort, at any cost. And the hilarious difference in cost of living is probably our last, best hope.
Totally unviable for tech workers to live in most of the solid red areas of the country strictly due internet capabilities, or lack thereof.
This summer the phone company has been pulling fiber all over the place. I was told that it's not going to be put in use until next year, but at least they're planning ahead.
Especially after the last year and a half of distance learning and working from home, there is a big push all over the place to get faster internet connections because the people already living out here are demanding it.
I’m looking at this move myself and the final decision point is state taxes (TN, WA, FL) or fiber/cheap homes (largely Western NC and GA), both paired with some cool nature.
All ears on places with $200k and below homes and fiber, quite candidly.
Also, FWIW, I meant more rural areas than just "red states". Even in solidly republican states there is a fairly prominent urban/rural divide.
Living in a place with no amenities, an extremely regressive/borderline extreme social climate and a lack of economic opportunity for people who don’t have remote tech jobs and it gets depressing really fast. Also when you try to buy healthy food from a dollar general.
As someone who recently made the jump to a rural area, these problems are almost entirely imaginary. The notion of backwards, ignorant, racist rednecks occupying all the rural lands is nothing but a bigoted stereotype.
Southern hospitality is real; and while rural peoples will be more likely to notice and acknowledge cultural differences, they generally are open minded and just as respectful of nonwhite neighbors as white ones. It's the city folk who don't understand the roles that politeness and respect play in southern living, necessary for the unbelievably high trust society that only really exists outside of cities.
The truth is that urbanites have been hypersensitized to so called racism, and completely mislead as to what rural/conservative culture is actually like. But I don't mind a bit, that means more cheap land for me.
The reality is that it's possible to "throw around the n-word" and still have respect for black friends.
The reality that we are forbidden from acknowledging is that those rallying the hardest against racism don't actually understand racism. Its not binary.
Appalachian culture is extremely insular, even with respect to other white people. I once had a conversation with a (white) guy who had married into a family in Appalachian Kentucky. Folks in town regarded him as an outsider even after a decade of living there.
Culture has changed somewhat since then. I don't presume to speak for anyone's experience but my own, and I go off of the stories that my friends have told me for other things.
That said, Trump flags fly everywhere, and BLM flags get torn down/burned/vandalized. I don't think its really fair to say that its all politeness and mutual respect - in my experience that is how it is until you accidently fall into one of the cultural battlegrounds, and then its more conform or die. Lastly..
> The truth is that urbanites have been hypersensitized to so called racism
I think this can be true while the rest can also be true.
I suppose you could say that ruralites are more tolerant of intolerance in general, even when they individually may be welcoming. No argument about the flags around here...but I get the impression that, at least where I've settled, even if you're a little different, if you stick to your property and don't make waves nobody is likely to mess with you...and to be honest I kind of appreciate that sort of live and let live attitude, even if it requires some degree of conformity.
As far as I can tell, a somewhat rigid common culture is sort of the price of high trust living, where you can leave your doors unlocked and your keys on the porch. That doesn't justify violence against minorities/lgbt of course but... there's always the city for that I suppose. It's definitely a very different non-pc attitude around here. I certainly understand why a guy like Trump is so popular in these parts.
Certified brown person here. The only thing I think about in terms of deciding where to stop is how far I can get before needing gas, and what the odds of finding decent food are. I've travelled in rural areas all over the country: midwest (my wife grew up in rural iowa), west coast (wife's family is from the rural oregon coast), and south (worked a summer in southern virginia, my best friend lived in south georgia for a decade). I just got back from a road trip through rural Utah, Idaho, and Wyoming with my white wife, mixed kids, and Latina au pair. In all this time nobody has even looked at me sideways.
Hell, the precinct where I live went for Trump 58-34 in 2016 (the year I moved here). The precinct a few minutes away where my parents live was 57-32. Most of the ones around us were 60-30. Again, no problems.
I have to agree with the sibling comment. I have no idea how these folks would perform on an IAT (and I don't care because they're bad science: https://qz.com/1144504/the-world-is-relying-on-a-flawed-psyc...). Southerners are nice to visitors and keep their thoughts to themselves for the most part. I'd rather deal with that than west coast frigidity or NYC aggressiveness.
I think there's also an element of cultural mismatch. Trevor Noah has a great passage in his autobiography about how he could cross the intense inter-tribal antipathies in South Africa by speaking another tribe's language: https://www.josephineelia.com/power-of-language. Rural places in America are like places everywhere else in the world--you have to "speak the language" of the people in the place where you are. If you go to rural France and conspicuously don't speak French, you'll face hostility. Obviously in America we speak English everywhere, but if your mannerisms and attitudes give you away as an outsider, you might not get the same warm reaction as someone who knows the cultural cues.
As selfish as this may sound, the last thing we need is more foreign competition on the housing market with bigger pockets.
It would be fair that if people from the US want to buy property here with their foreign megabucks, we should also get unrestricted visa-free access to the US labor market. Tit for tat. Otherwise it's just unfair to Europeans to be outspent out of their own housing market.
Just because the country is profiting from your megabucks, doesn't mean the average Joe is.
Look at Austria. The most touristic areas are profiting a lot from all that foreign tourist money, but a lot of the locals can't afford to live there anymore as all that tourist money is only going into a few pockets. Those who don't already own something or have an inheritance have been royaly fucked by that tourist money. It increases inequality between the haves and the have-nots.
If the middle class are the ones buying the properties, then they're the ones selling them. Therefore it actually injects money into the middle class, foreign capital that never existed in that country.
>he most touristic areas are profiting a lot from all that foreign tourist money, but a lot of the locals can't afford to live there anymore as all that tourist money
Those who move to a country to work and live there on anything but a very short term basis on not generally considered tourists. Most of the money flowing into the rich is a function of capitalism, not just tourism. You can examine virtually any industry and make the same statement. Yet, some fraction of money is usually better than nothing for the middle class people benefitting.
The US has your Austrian analogue, it is called Hawaii. In Hawaii most money is made from tourism. The common person there is mostly employed in tourism. Housing prices are high, because lots of people want to live there. The result when it was mostly closed off for coronavirus was that although demand for housing decreased, unemployment skyrocketed without tourism, making the middle class worse off.
Sorry but since you make no distinction between someone owning and selling a house ($500k asset in Austria) and someone who doesn't own a house and call them both middles class is just plain wrong.
The property owner middle classer is significantly better off than than the other and would benefit even more from your intention of buying while the other middle classer is worse off without a property to his name and will suffer more from being in competition with you.
Sure, one guy profits, but you can't possibly tell me with a straight face someone else doesn't get screwed from this wealth driven game of music chairs which is the property market right now.
value of house + value of rest of economy.
Now someone foreign comes into the country to live there and work in tech from abroad. They buy a house. Now the wealth inside the country looks like this:
value of house + foreign money paid for house + value of rest of country.
You can see that the wealth inside the country has increased. If it is the middle class owning those houses, then the wealth of middle class has changed by the difference in value between the value of the house and what it was sold for. The middle class then further benefits from whatever money the foreign worker spends in the country, which is a net gain for the middle class, plus the injection into the economy of the foreign money paid for the house. The only way the middle class end up worse off here is if the foreigner doesn't live and work here, and is just a foreign landlord (siphoning money out of the country) -- which is something I think we can both agree is detrimental.
I will say here in the US people have a lot of problems with foreign landlords and people who buy property here and don't live here. But only the most backwards rednecks have serious issue with an honest foreigner who buys a normal middle class house to live their lives, especially if they are injecting foreign capital into our economy.
>districts of Berlin were like a quarter of Bay Area housing
So what? Nothing touches Bay Area prices, even in the US. And then there's the income difference as well.
Try comparing to something more similar like Texas. Last I checked average dev wages in Austin are easily 2x more than average dev wages in Berlin while buying a house there costs the same. So who's buying power is stronger then?
Buying something decent in Germany now, in the current market is nearly impossible without an inheritance.
See this report for details: https://lao.ca.gov/LAOEconTax/Article/Detail/675
It doesn't say that rich young people are replacing old.
It just says that wealthy & older people are leaving in big enough numbers that there's a sizeable ourmigration.
It's important to note that natural born residents have been fleeing California for a long time, and a substantial portion of the young, high paid workers are on H1B - so non-permanent.
I grew up in the American south, and migrated to California as an adult. As a Black person I can say this doesn’t work as well in practice. It’s better than the old days (when my mom was growing up segregation was still legal and the military warned her parents to be back on base before sunset.) But I’d much rather live in a welcoming area.
There's "be the change you want to see", and then there's "move to a place where you're likely to murdered in the street for pointless, intractable reasons." I can't say I blame you for getting the hell out; I just hope that in our lifetime you feel comfortable going back to where you grew up.
The weather's great (except for the hurricanes) and the barbecue is amazing (except in the Carolinas). Maybe one day you can get back here and we can all work together on fixing whatever the hell is wrong with (some of) the people.
how dare you
(By the way, the county where I grew up is considered 'progressive' due to its proximity to the NOVA area)
Are you suggesting we kill off part of the current population? What's your point with this comment?
TBH I would have said the same thing 5-10 years ago, but I think this notion is outdated now.
I live in a famously NIMBY city (Seattle) and things have changed a lot in the last 5 years. I would guess that single-family zoning will be gone within 5 years.
Although I don't buy it, some people even argue that SFH zoning is already gone in Seattle due to ADU/DADU reforms.
The folks at YIMBY Action are a great resource if you're serious about making progress on this kind of thing.
I really think a lot of the problem is our generation grew up watching too many movies and they just think it's normal to live in some high end condo in Manhattan while working for Enterprise Rent-A-Car. That's not realistic.
But it has got out of hand. I earn 90% more than most full time workers. And like 50%+ of "households" out there, it's just me, so no dual income. And I don't think it's appropriate to expect 40 year olds to still live with a bunch of roommates like they did when they're 22.
Forget the 2K ft^2 apartment in Manhattan or Mission District, I can't even afford the starter home out in Jersey or East Bay or Beltway DC. These aren't the mythical "McMansions" that everybody always uses to deflect from the affordability crisis - these are the exact same properties on tiny lots that a single-earning non-college-educated factory worker or postman or paper pusher could easily afford for his family in previous generations.
And if I - earning 2x-3x more than most workers - can't afford these basic homes, how the hell does everyone else who earns the median income of $60K do it?
By living in a rural area or not on the coasts.
>And I don't think it's appropriate to expect 40 year olds to still live with a bunch of roommates like they did when they're 22.
I guess that depends on your culture. It's pretty normal to have multiple families or roommates in other countries.
The only legit way I can see to fixing some of these issues is to ensure you do not let investors outside of your country buy up property. China is notorious for this. Secondly maybe you limit companies like Blackrock as well. I really dislike the idea of rent control. I don't think people that own a few properties should be punished and pushed out of the market. This just leads to larger corporations owning everything.
You have to take interest rates into account. The amount you pay, monthly, for a mortgage of the same size is very different at different interest levels.
What people care about is their monthly mortgage payment - that's what makes a home affordable or not.
(Which isn't to discount that downpayments are a percentage of home cost, and that's pricing people out of being able to buy anything at all, even something they can easily make repayments on.)
Although it's more likely that they'll just remain stagnant, which would be just fine.
Interest rates will not be allowed to increase faster than the property market can absorb. You can count on that; the political imperative could not be more clear. The next crisis will probably be some novel flavor of financial recklessness.
The biggest determinant of homes people buy is not the total price, but rather how much cash do they need for down payment, and what will the monthly payment be.
With low interest rates and increased credit availability ( you don’t need 20% down payment in many cases now), people on the same income are actually able to buy a more expensive home.
I think looking at monthly mortgage payments to income ratio over the long term might actually be more informative.
I agree this is mostly how people decide, but it's not necessarily a good idea. buying a very expensive home at historically low interest rates is a significant risk. there's a good chance you get upside-down on that loan over a 15-30 year period. better hope you don't get divorced, lose your job, or need to relocate during that period.
This then begs the question: what will happen once rates go up even a bit, and houses suddenly require a 50% larger monthly payment.
Median salary is about 80k AUD in Western Australia. Median house price is 840k.
Even with 2 full time salaries of 80k your maximum would be 480k.
That is a link to the banker's manifesto. The ideal scenario [in the manifesto] is for home prices to far eclipse yearly income, and for houses to be owned by banks instead of occupants. Everything old is new again...
That said, it doesn't do much for down payment.
Here is the same chart but for California regions
https://www.corelogic.com/wp-content/uploads/sites/4/2021/06...
* https://awealthofcommonsense.com/2021/03/what-if-housing-pri...
But really covid was the perfect opportunity to let the housing market collapse and reset buying us an additional decade. Wasted opportunity by bailing out landlords.
If housing interest rates stay low or drop, prices will keep rising. Absent wage inflation that ratio will go up.
If inflation flows through to wages as it seems to be in process of doing, the ratio will stabilize or drop.
I suspect these two phenomena have different causes overall, but low interest rates are a common factor that cause all asset prices to increase.
On the housing side, I suspect consumers purchase the house that their cashflow can comfortably support, not necessarily the one where they believe it is correctly valued, because the assumption that house values only increase means purchasing a well constructed house is almost never a "bad deal."
I'm not sure what the "solution," is, but knowing that voters hate when their home values fall does not give me confidence that prices will decrease in the long term.
[0] https://www.statista.com/statistics/953641/sandp-500-ev-to-e...
My reasoning was that we were experiencing rapid asset inflation fueled by low interest rates and COVID stimulus, and our cash was losing its value relative to housing by the month. I figured that this propping up of asset prices is likely to continue, as any administration that lets housing / 401k values collapse will get massacred in elections.
The issue is that a lot of that created value is being isolated out of circulation and is pooling in investors that can, at a moments notice, pull the rug out of a number of great companies if they sense a panic. Wealth inequality creates the opportunity for instability in the form of extreme sudden market rushes alongside reducing the purchasing power of most folks. We're in a rough spot.
Then there's income inequality. In addition to the depredations of two generations of greedy bastards, we have to understand that we import (legally or not) way too much unskilled/lowskilled labor, and that this has a negative affect on the entire bottom half (more-or-less) of the wage structure in our nation. It has a salutory affect (though i think one that is smaller than some imagine) on the top half, in that pressure on wages for unskilled to middling skilled workers results in more return on work and investment at the top of corporate structures, and other fields that compete with them for talent.
What would happen to the if everyone suddenly agreed that there was a hard-cap to how much the global economy can grow; Especially if that cap was somewhat near to where we are today?
How do you solve the core problem of "climate change" (which I'll define here as the unsustainable use of natural resources) without essentially implementing a hard cap of the global economy. This question isn't just about electricity versus oil. It's about trash, disposable (or planned obsolescence) consumer goods, fish/wildlife, forests, ect...
You could interpret the change in climate is just a single symptom of this runaway train. And any effort to pull the brakes is likely to cause the whole train to derail and crash. Maybe we'll make it to mars before then. Or maybe there will be a massive decrease in human life (war or another pandemic) and this whole question will solve itself.
One can get 20% leverage at ~4% on a stock portfolio.
One can get 2000% leverage (5% down) at 2.9% on a house.
Granted, the leverage on the house requires paying interest and 1/3600th of principle each month. But, unlike the stock portfolio, it's not callable.
It's really a toss up based on a lot of variables, but generally, yeah, home ownership will come up ahead. Not always though. While if you invest in a total market index, you're main risk is the entire country tanking, it's different with a home. You're gambling on that ONE PARTICULAR HOME in one particular place. That's a lot riskier than an index fund.
But you get to make holes in the walls without anyone yelling at you, and that's a big plus.
e.g. I want to “own land” in Seattle so I’m never priced out, but averaged across the city so there is no single point of risk. With the added benefit that I can add capital in small increments.
If such a REIT were structured as a COOP that would be even even better from my perspective.
If it wasn't for the leverage, no tax capital gain and rent saving and fringe benefits of owning a home, it wouldn't be that great an investment, so REIT don't really compare.
Even 'worse' is dual income, no kid families that are delaying and skipping child costs. Thus with "double" the cash flow and shared costs, couples afford higher prices at a lower cost.
E.g. it's a lot easier to have two working people in a couple make $300K total vs only one person making $300K. It would be interesting to go back in time and correlate the rise of dual working couples vs housing prices adjusted for other factors e.g. inflation
I'm a software engineer myself in one of the high paying tech hubs, and married the same. When we went to look for a home and toured open houses, all you saw were pairs of young couples wearing Google, Microsoft and Facebook swags. Sure, I didn't personally ask every single one of them where they worked, but I'd venture that a non-zero amount of these couples were "Tech DINKs", like us.
The average person simply can't compete with that. Add that in the urban areas these folks are less likely to want a big car, some may be happier playing Final Fantasy 14 during vacations than traveling across the world (I know plenty of travelers, but there's certainly a lot of "low cost" vacationers in the industry), and some level of financial literacy (common for people who get compensated with RSUs), and it's absolutely one sided.
With that said, median home prices have only increased a little faster than inflation. When you account for interest rates tanking + inflation, a median home in 2021 is the same price and sometimes cheaper than it was in 2005 (data for the last few months is harder to find, and there's been a unusual spike, so it may not be quite true right now, but it was just a few months ago).
The bigger problem is that everyone wants to live in the same place (usually in urban centers, where the jobs are, and where you don't have to drive an hour and a half to work). So prices where people want to be have increased higher than median.
I'd expect people are more ok with paying a larger portion of their income to live where they want to be. Even as extremely high earner DINKs, housing will eat up a good chunk of our cash flow if we feel like blowing it all to live in Manhattan in a condo that doesn't suck.
The bigger problem is that everyone wants to live in the same place (usually in urban centers, where the jobs are, and where you don't have to drive an hour and a half to work).
I'm hoping WFH greatly disrupts this, opening up rural areas to tech workers. It won't work for everybody, but it does work for SWEs and many kinds of technology employees and contractors.
It will make a difference, but it will be small. During that time, the rest of folks will still flok to cities.
As to financial literacy, books tend to make things much more complicated than they are, and will be too focused. For a beginner, there's a few things that matter.
First, the "flowchart". You can find a bunch of these online, but I like this one:
https://u.cubeupload.com/demonlesondledon/FIREFlowChart.png
This is so you don't fall in the trap of, let say, having a 5% investment while sitting on a 15% debt, or not use your employer 401k matching and invest the money somewhere worse.
Then there's basic investment strategies to get started. Bogglehead gets you pretty far there: https://www.bogleheads.org/wiki/Three-fund_portfolio
The next is understanding how the US market works. It averages 10% a year even if you include the great depression/recession and every other downturn. One day it could do like Japan and never recover/stay flat, but it has never happened in the US so far:
https://advisor.visualcapitalist.com/historical-stock-market...
Even for the great depression, while you'll hear that it took 25 years to recover, but that's based on the Nasdaq, which is a very small sample of stocks. The market in aggregate recovered much faster.
Finally, you want to understand all the variables when comparing cost/return of home ownership vs renting. It's a LOT more complex than people make it sound. The NYT has a calculator that shows it, alongside a paywalled article: https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...
Bonus: a lot of it just comes down to internalizing the average market return and its risk, and comparing it against all the gains and leverage you can make in other ways. For example, with current interest rates, you probably want to pay your mortgage -as slowly as possible-, which is counterintuitive to most people.
Housing is a great way to establish a level of security for your family and kids; but there's a finite number of houses with proximity to good schools, jobs, and other necessary resources, and so families needed to dedicate larger and larger portions of their income to compete against other dual-income families that were bringing new money to the housing market.
If you have single income households, and all of a sudden everyone's a double income households, you're not any better off. You'll get inflation, especially in housing. People will point out that stay at home moms weren't THAT pervasive, even decades ago (not as pervasive as us younglins would think), and that may be correct, but double professionals as a common thing is still more recent. We're making some (slow) progress toward wage equity on top of all of it too. That's a good thing, but it doesn't change much when people are bidding against each other.
But all things are not equal: It's not as simple as "back then it was 1 income families against 1 income families and now its 2 vs 2".
Not at all! Now you have 1 income families, 2 income families, 2 income families with no kids, 2 income families where both are software engineers, etc. All of these always existed in some form, but now it's very visible.
If my partner and I (we're DINKs, both in software engineering and highly successful) go to bid on a home, and a single working parent with a partner who stay at home, and 3 kids, try to outbid us... Well, let's hope for them that the single earner is a world famous neurosurgeon, else they're not getting that home.
I live in a 2 income house with a kid, I'm not sure that the alternative (considering the economy as a whole and not just home prices) is actually preferable.
It's also probably pretty difficult to disentangle the effect on home prices from more women working from the effect on home prices from other things like low interest rates. There's likely not a single cause for this, but rather an outcome of some aggregate of causes. It's entirely possible that more women working does increase home prices some, but that it's only some fraction of the overall increase we've seen, and that families come out ahead on this economically by a wide margin. Especially taking into account the aggregate effect a larger labor force has on output and productivity.
I'd also not focus too much on the "women entering the work force", because that's only one part of it, and not even the biggest part. More families not having kids, fewer families supporting their parents, more complex family structures in general, etc all impact it.
I also don't think it has a significant impact on home price. After all, when accounting for inflation and interest rates, home price is not up by that much. Depending which periods you compare it to, it may even have gone down.
What it changes, is the dynamics of bidding wars in low supply areas, which is a lot more specific, and is generally what people talk about on social medias. The whole "Omg this home went 100k over asking!" shock factor. Again, adjusted home prices didn't go up that much at the median. It's specific homes in specific areas that are skyrocketing.
There's not many alternatives beyond increasing supply. I always like to contrast it with raising the level cap in an MMORPG. Everyone who quickly maxes their level after an update is back to square 1, all being the same. But the person who just started playing is at a huge disadvantage. It may be specific, but for readers familiar with Final Fantasy 14, if you start the game fresh today, you're in for hundreds of hours of catching up...It's very similar to the economic situation we're discussing.
You're thinking too short term. This logic does not work for more than one human generation.
Say you're playing Civilization. I give you a button in the "change civics" category. You click it, and two things happen:
1. You double the number of professionals in all cities, as a factor of your total population.
2. Your population growth rate goes from strongly positive to slightly negative.
Do you click the button?
Let's make the numbers easier: If you don't click the button, you have a 2x growth rate per generation, and if you do click the button you have a 1x growth rate, i.e. perfectly balanced replacement. Well when happens if you click the button? You get ahead for one generation. But your opponent catches up in the next generation. And in the generation after that, they have 4x the population and therefore 2x the professionals. Before long they're outproducing you on every dimension.
?? The growth in output would offset the increase in dollars bidding for the same goods - ie. more people working would mean more supply and also more $$ bidding for goods.
Seems absurd to say "you're not any better off."
People don't want "a home". They want THAT home (or at least, a home in THAT area). Yes, there are supply issues because of zoning and NIMBY policies, but even super dense areas like Manhattan have significant supply issues.
So you have income increases that can't be offset by the output, because supply is limited.
One way out of that is simply to increase the supply of desirable neighborhoods. The number of those are finite, but can be increased. The hard part is how to do it?
Sometimes I like to imagine there existing something like Kickstarter but for cities. You get a few thousand people that want to build a house but can't afford land, a handful of employers, and maybe a University that wants to establish a new branch and they pool their money and buy a couple square miles in the middle of nowhere. They divide it into lots and start building. Property values rise, and as that happens leftover lots get sold to finance construction of infrastructure, schools, fire departments, and so on.
This exists in a way. "Off the plan" apartment buildings are sold before the building is actually built. If enough people buy it, the construction goes ahead. If not, you get your money back.
So doubling of income tripled the amount that could be spent on housing.
But wait, there's more. People buy housing with debt, and a doubling of the monthly payment on a mortgage more than doubles the price that can be afforded. So that household paying $800/mo could move from their $195k house into a $600k house with a $2500/mo payment.
So, a doubling of income has the potential to increase the amount of house a household could afford by six. Granted, this ignores things like taxes, and most people don't spend their entire raise on housing. But this fact is probably what helped drive prices in places like California into the stratosphere.
The crux of the problem is probably that income follows a roughly pareto distribution. When housing is limited, the poorest households drop out of the market. And when populations grow but a town doesn't, housing gets bought by people higher up in the income distribution curve. And past median, incomes climb quickly.
If you have 30k houses, in a town with 60k people, then housing will be affordable to a median income. But if the population grows to 120k, but housing doesn't, then only the top 75% of households can afford a house. Median income, to top 75% is a huge jump.
https://www.pewresearch.org/ft_dual-income-households-1960-2...
Given that long-term unmarried couples are both increasing in number and (I believe) more likely to be dual income, this tells the opposite picture.
You cannot infuse trillions of extra dollars into the economy without inflation. There's no magic pill - there must be consequences.
Inflation is based both on measurements and on judgement calls by economists responsible for calculating it. It's more objective than LIBOR or some crap, but (way way) less objective than the price of something on the stock market, or some other pure price signal.
'Asset' inflation isn't even part of CPI(like stock, cost of owning a house, tho rental is), is it? It's not even a claim to say that the dollar is devaluing against assets, it's just like tautologically what it means that asset prices are booming.
Yep. This is true. The issue is that the OP seemed to suggest that the price of assets (e.g., housing) was wholly explained by the devaluation of the dollar.
Only a teensy tiny portion of "value" in the economy is actually on printed bills - but even the abstract value we can track won't tell the whole story.
No: If you're approved for a $100K loan, you are credited with $100K balance to draw from your account, and the money supply is recorded as going up by $100K.
But if you don't withdraw any money from the account (e.g., a HELOC that you intended only for emergencies), then how can it be inflationary if it's not circulating in the economy? But it is registered as increased money supply.
Many business may have them. As I mentioned, HELOCs are a thing as well.
Neither may be used to the absolute limit, but only on an as-needed basis.
https://fred.stlouisfed.org/series/M2V
1: https://www.bls.gov/cpi/quality-adjustment/questions-and-ans...
On topic: my experience of housing prices in NZ is that people bid up house prices to the point that they can only just afford the mortgage payments.
Creating more housing doesn't "fix" the problem, because the more wealthy buy two or more houses, and are happy to leave one empty. I've left a house vacant in a tight rental market because the hassle of a tenant was not worth the risks for me (possible gain was a very small percentage of my income).
I am in New Zealand, and New Zealanders bid against each other in an almost zero-sum game for the properties that exist... We are borrowing from overseas to pay for it, so most New Zealanders gain nothing and global finance is the real financial winner.
Yet, politically the game is difficult to change... We have a left leaning party strongly in power, and they are struggling to create a more level playing field so that people can afford to get a home (rather than pay rent, which is more expensive than a mortgage).
Edit: also we can only lock in fixed interest rates for up to 5 years and most people only lock in for 1 or 2 years because short term rates are cheap - the 30 year mortgage system is completely foreign to us.
This surely can't go on forever though. People's ability and desire to consume housing is not infinite, particular in a given locale. If they're buying them to rent out, then a flood of other wealthy people looking for tenants reduces the landlords' bargaining power in the market, which means rents have to drop eventually. If this isn't happening yet, it's most likely because the amount of housing being produced is still too small.
You can't purely demand-side subsidy your way out of housing being expensive. You have to build.
https://www.interest.co.nz/borrowing
kiwi dollar is the original bitcoin.. small usage, wild volatility, widely traded.
There are some incredibly complex feedback loops in the economy - especially in the housing market - but inflation isn't the issue for most first home buyers. Inflation does, however, hit people with savings harder - every dollar you have in a savings account is slowly losing value. That, however, is quite intended since savings accounts are poor tools for economic growth (banks can leverage the value for loans but there are more efficient investment methods - and that leaves us with all our eggs in one basket which might be a quite irresponsible bank that's pumping out subprime mortgages).
1. In a very very infinitesimally unmeasurably minor manner.
Great point. And to explicit what you're alluding to: we live in a world where factories around the world are running 24/7 producing trillions of items with infinitesimally small values relative to global wealth. But none-the-less, these goods at up to real value.
But, in short, those depreciations are far outweighed by value creation right now.
* https://fred.stlouisfed.org/series/MYAGM2JPM189S
Their central rate has been <1% since 1995.
Stocks and equities in the US have been going up for 10+ and the infusion of "trillions of extra dollars" wasn't present for all of those years. Canada has had increasing home prices, barely slowing down in 2008, and it hasn't had QE.
The CAD has tracked the USD pretty closely in terms of value so even if there wasn't explicit QE there was definitely sufficient inflation to devalue the Canadian dollar.
It matters who gets the new money and what they spend it on.
[0]: https://www.lynalden.com/economic-japanification/
People worry about inflation, but forget how awful deflation is.
(And on a side-rant, it’s really bizarre how the hyperinflation of Weimar Germany is cited as enabling the rise of the Nazi party. The timing doesn’t work. They came to power during the depression-era deflation.)
Or really strong deflationary market expectations, for whatever reason.
I am also bewildered. So many bad effects of deflation.
Actual inflation is generally low aside from short-term issues, but "asset inflation" if you want to call it that is high. I think the most important thing in terms of day-to-day existence is CPI-type measures that reflect your ability to consume things with money. If you can't do that anymore, then it becomes a real problem for everyday life, as people are unable to afford things they need. But that's not that situation we're in.
The situation we're in is that assets are over-valued across the board, including in the stock market and housing. I think the risk here is that once you're in this situation, getting out of it is really hard. If we allow housing prices to fall (by raising rates, for example), what happens to all the people who are now underwater on their mortgages? If value is erased from the stock market, a lot of people are going to be left holding the bag. Is there a plausible way we can get out of this situation?
Yes, tax the hell out of the wealthy in order to reduce their total share of the money supply (which is driving asset inflation), shield the middle class, and provide better housing, social services and benefits to the working poor. Home prices would settle because supply would go up and the range of bids on a given property would be more egalitarian.
If we are responsible with the new revenues (we won't be) we would also destroy about $5-7T of what's collected to remove it from the overall supply to prevent reoccurrence.
Housing has become more affordable.
I'd agree with this. I think housing in my area is wildly overpriced, but I still bought a 100 year old condo for a solid million. Compared to renting, I got double the space, plus parking, plus a private garden, plus an outdoor patio, and my monthly costs went up about 25%.
(Municipality: Cambridge, MA)
Normally though, taxation is just a matter of the property value. Often, cities with lower housing cost have higher tax rates (because the people working the sewers aren't any cheaper and they need to get paid).
Many cities also have owner occupant or primary residence abatements, so the landlords pay more in taxes than the resident owners. Some cities though split homes in one of several categories, and single families may be taxed differently from multi family or condos. Sometimes multi family and condos are taxed less to encourage higher density construction, but it wouldn't change anything if you're a landlord or not (aside for the tax abatement). Landlords can deduct some of their expenses from their business' taxes though, and I think (don't quote me) their property taxes are part of that. Your millage may vary.
Total tax burdens are a function of government expenditures. Property tax is a rough attempt at scaling the tax burden to a person’s wealth, but it has many caveats varying in many jurisdictions. However, government debt is a big part of expenses, and each city and state’s debt can vary greatly than from another.
Here is a good website ranking the big cities and all the states:
https://www.truthinaccounting.org/news/detail/financial-stat...
https://www.truthinaccounting.org/news/detail/financial-stat...
I would expect cities and states where the per taxpayer debt burden is a standard deviation or more from the mean to have measurably higher taxes and/or fewer government services/investments.
I would love to see some estimate that takes more into account like household income, tax breaks, and interest rates. If I have a interest deduction, my relative taxes are lower. If I have children, my taxes are lower. If I have historic property, my taxes are lower. If I have solar, my monthly bill is lower. All these things make owning a home easier and allows people to buy more home.
Education is another example, prices largely mirror federal subsidized loan values. I'm not arguing that government should get out of housing, people should realize that the value of something is relative to the demand especially when the supply is largely fixed or has linear growth.
If you have the exact same income and rates are at today's 3% vs 2008's 6%, the payments on a $1.0MM home mortgage would be $4.2K vs $6.0k. The difference between those two payments is about $40k/year of gross income difference.
A person in 2021 with the exact same income as 2008 would be paying the same for a $1.4M mortgage per month as the person in 2008 at a $1.0M mortgage.
I don't own a home, so I'm not saying this to justify my purchase, but if I just take the info in the graph, I actually wonder whether there is a lot more room to go in the market. I wonder if we are looking at another 20-30% appreciation before the top?
I have no idea.
https://fred.stlouisfed.org/series/MORTGAGE30US
If you account for inflation and interest rates, and look at median home price, a home earlier this year was CHEAPER than home in 2005. Roughly the same monthly payments before accounting for inflation, because of the interest rates (6.X% vs 2.5-2.8%ish). That alone makes a huge difference.
People are also becoming more financially literate. Once folks are able to crunch all of the numbers on their own, start calculating how much rent costs, how much money they will make from asset valuation, how much they can save from using HELOCs instead of credit or other types of loans, they're willing to spend more, too. There's the tax deductions, but that got gutted, so it's not that big anymore.
one can say the down payment increases, but it increased slower than the market did, so if you just sat on investments since 2005, you can make a BIGGER down payment now than then, proportionally. At current interest rates, even with PMI, you're potentially better off doing a 3% + PMI than putting a large down payment (unless you're expecting a market apocalypse the likes of which the US has never seen).
We could crank up the interest rates to 10% and home values would tank. It wouldn't reduce monthly home costs any though.
>though housing is extra difficult because the quality has also changed immensely (indoor plumbing, electricity, etc.).
This blog goes over both those points. https://awealthofcommonsense.com/2021/03/what-if-housing-pri...
tl;dr:
1. inflation adjusted mortgage payments are actually down
2. houses have gotten much better since a few decades ago.
> 2. houses have gotten much better since a few decades ago.
I'm sometimes reminded of this when I see old footage of shows like "Lifestyles of the Rich and Famous". Many mansions from the 1980's kind of look like dumps.
If you had told me "Houses have gotten much better, but the cost to manufacture the things that make them much better remains the same" then you'd have a point.
I see this argument over and over. "You're so much better off than your parents, what are you complaining about?! For example in my time we couldn't even fly, and now with your "low wage" you can! Proof that the wage is not so bad!" Well BS argument. For example, now we don't fly in fully manually built airplanes, that were designed on paper, with hand calculators.
Last prediction I heard was that everything was going to crash today. Now it's next week. Next week will it be November? 2022? 2024? 2030?
Over and over again, I see newly minted retail investors discover the only hard part about investing; actually knowing when things will happen. If you can't say when the MOASS (or whatever the "bad thing" is this time) will actually happen, it's useless to keep doomsaying about it in the meantime.
Evergrande could end up tanking the Chinese real estate market and a take bunch of banks down in the process unless the CCP steps in and nationalizes it.
Ever since Taleb wrote about "Black Swan events", it feels like people are falling over themselves to identify the next one at every opportunity, and when (through random chance) some group or person gets it right, it's going to be paraded about as some kind of indication of their sage wisdom.
I'd bet on a horizontal. (<-- PERSONAL PREDICTION HERE) The government is in a bind now -- they cannot just allow a housing pop because that affects the middle and upper-middle class voter base. Ending ZIRP would also pop the equity bubble -- again bad for the wealthy and middle-class voter base.
The best they can do is try to contain it. We've already seen the government too scared to reign in monetary policy in 2009-2021 even when things were good -- so thats a good indication of how scared they are to normalize things again.
The best they can do is allow controlled inflation, as they are doing, and allowing real prices to stabalize on an inflation adjusted basis.
Unfortunately, in all this, US fiscal and monetary policy has truly punished the young.
Since you’ve given an anecdote, I’ll share mine.
I make more than the median income where I live. The closest place that matches 2x my income is more than 100km away from me and it’s a mobile home.
My current apartment is 3.5 times what I earn, but that’s because I bought it 5 years ago when it was 4.3 times what I earned. If I sold this apartment today, then someone earning the median income would be paying at least 7.5 times their income.
30+ years ago my parents bought a house for less than what I paid for my apartment. They also earned more than 2x what I earn now. So they might have been in a similar situation to you had they not gotten divorced. People buying that same house now have to pay 10-12 times income if they make what my parents did. Closer to 20 times income if they earn a median income.
Start with home price of $250k for example. If you can manage a 5% down payment (arguable) then the loan is for $237.5k.
With a 30 year loan at 3.5%, the principal and interest is $1,066.48 per month. Gross this up by 0.7 for taxes and insurance to get $1,523.54/month.
Lenders will typically allow your payment to be as much as 28.0% of your gross income. This get us to income of $5,441.23/month or $65,294.76/year.
The multiple now if $65.3k income to $250.0k of house or roughly 3.83X.
1) Right now we are at zero short term rates, and moreover mortgage rates are propped due to Fed purchases of Agency MBS
2) Say rates go up 2% (not crazy) in parallel. So now your 3.5% becomes 5.5% which is still historically moderate. However, the 5441 required monthly income from your formula is now 6877! 26% increase.
3) What then? Prices go down?
I watched this play out in real time as I purchased my home. Rates dropped, prices went up to fill the gap. Owner got a bit more money vs the bank instead.
Basically I gave my money to a different person, but the "all in" was about the same.
Given sufficient savings, the price range for home shoppers is controlled by the monthly outlay which is driven by interest rates.
Sub-3% interest rates in 2021 means that the same monthly cost drives the headline house price a lot higher than 6%+ pre-2008.
If you bought at a high interest rate and then rates drop you really make out, and that's less likely to happen to people buying now.
What do you mean by artificial here?
Very few "natural" investors (as opposed to "artificial" central banks) would accept a 0.25% yearly return on their capital.
https://tradingeconomics.com/united-states/interest-rate
Why average numerator divided by median denominator?
Is this a direct result of our fiscal policy? Have we destabilize the economy in order to create the richest muilti-billionaires?
Can't blame the capitalists for self-preservation.
These homes are not owned by billionaires either. It’s an asset class that’s very broadly distributed by its definition; most people own their homes.
I think it’s mostly driven by macroeconomics. Near zero interest, population growth (organic or through immigration) and historical real estate appreciation all fuel this trend.
If anything, more real estate investment would create more housing stock. Someone’s not building enough.
Lastly, we've got NIMBY - this is the source of nearly all our housing woes because if you could buy up all those single homes in SF and convert them to condo towers we'd solve the housing crisis overnight - but that would "ruin the neighborhood" and, more importantly, depreciate the value of all those inflated house prices - and that's why all the neighborhood councils will continuously vote to perpetuate the shortage of housing.
People do want to build more housing - but people who own the land are stubborn assholes. When it happens that an investor manages to secure a full block of single family homes in a downtown core they'll almost always try and convert it to condos - but then they've got to fight against the NIMBYism and they'll usually lose because as every 80's movie ever taught us: "The evil developer is trying to tear down the community center - we've got to stick up for the neighborhood and win that tournament!"
Also, a lot of the opportunity for large scale projects is gone; building a large tract of homes in the Bay Area means building super-exurban in places like Tracy. Projects like the Vallco mall replacement in Cupertino take a decade+, and what ends up getting permitted will not usually look anything like the initial plans, or what's technically allowed by law. (This is changing slightly in California in that by adding enough below-market-rate deed restricted units, you can build according to code and zoning without greedy neighbors vetoing the project. )
So yes Toronto might have been influenced by rich Chinese buying properties, but does that extend to Canada as a whole?
My take is that we need to treat housing as an actual human need, and there should be penalties for buying houses to rent or for investment purposes outside of ones primary residence. That sort of exists in the mortgage interest tax deduction but with rates near 0 that’s become far far less effective.
In China, where housing costs are skyrocketing as well, there are protests when enough housing is built to start to make it affordable again.
Putting the majority of a person's life savings into their house is, in the end, a pretty bad idea.
There are lots of people who don't want to own a home (e.g. who value the mobility/flexibility of renting), and people who are unable to afford the fully loaded homeownership costs. In these rent-vs-mortgage discussions people often overlook the non-mortgage homeownership costs which can be very significant and hard to predict. I say this as a person who found myself needing an unexpected $25k+ roof replacement in my first year of homeownership.
I suspect living standards for the bottom quintile would actually fall if they had to maintain their own homes. E.g. how are the people who can't put together $400 in an emergency, the minimum wage employees living hand to mouth, etc going to be able to afford to replace an unexpected leaking roof (a $10k+ problem) or a broken water heater (a $5k problem) or refrigerator (a $500+ problem)? A lot of basic amenities are legally mandated for landlords to provide that I think low-income tenants would not be able to maintain on their own. A landlord with a larger net worth is better able to absorb these cashflow problems and keep the property in a healthy state.
> The amount of private equity in housing
I think this issue is, at least at the moment, overstated. Could be a problem in the future though.
FYI, mortgage interest on an investment property is also tax deductible. In fact, there's no limit on it like there is on your own personal-use home. It's basically treated like a business expense (which, arguably, it is).
https://ourworldindata.org/grapher/urban-and-rural-populatio...
and normal homeowners stopping densification out of fear of reducing the value of their own home or just not wanting the riff-raff living near them. These people are really the ones doing a directly harmful thing for pure selfish greed. They're not super-rich, they're just people's parents. But they're trying to make money by excluding others instead of doing anything useful.
Why are the rich getting tremendously rich? Because the Federal Reserve has printed money at an astonishing rate, which inflates asset prices. Who owns the most assets? The rich do.
People are so focused on taxation (because it's something the average poor or middle class understands) when the real issue is the Fed (something most Americans aren't even aware of).
Still, the point still stand: federal income taxes are quite progressive, and would surprise most people who wave their angry fist asking for the rich to be taxed more. The problem is mostly at the state and local level.
The top 50% pays 97% of federal income tax.
If you include most types of taxes, including social security, you end up with something a little less polarized: the top 1% have an effective tax rate of a little under 34%, while the poors are around 20%. One could easily argue it's not progressive enough, but it's still not the usual narrative of "I pay more taxes than millionaires".
A a handful of ultra rich abuse loopholes to death to pay very little, and these people are averaged in the statistics (so the average rich person actually pays more than the stats show, if only a little). It's a minority though.
Don't you get the value of the money back for all taxation, according to any theory that approves of taxation?
Social security would be a little closer to a sewer and water bill from the city (which you have to pay if you're a owner, but you get a sewer in exchange. Whether you like it or not). It's still not a great analogy because Social security is more deferred. It's really its own thing. Still, it doesn't work quite like a tax either.
I personally wouldn't mind if it did though. It's one of those things where we'll pay for it one way or another. If there's an entire generation of people who can't properly retire and pay medical bill, we will pay for them through taxes anyway. May as well do it preemptively and efficiently.
Roughly speaking, anyone paying more in taxes than the per capita spending is probably not receiving the full value of their taxes. We see this where most welfare (Pell Grants, SNAP benefits, Obamacare, etc) and tax credit schemes (CTC, electric car credit, etc) phase out as people pay more taxes.
The top 10% of Americans own about 85% of the wealth in America, and the entire bottom 90% only own around 15% of it.
This is exacerbated by capital gains and dividends being taxed at a lower rate; if the gains due to asset inflation were being taxed at 37% instead of 15%, then at least all this money printing would help balance the budget a bit...
This was just last year. The norm is far lower, but was inflated by stimulus checks.
Five years ago, we moved into a 3,000 square foot house in the Annapolis suburbs. We are right on the water so it cost a princely $485,000. But it was easy to get a house in the neighborhood for $300,000 or so, or just 4 times the county’s median income. As a result, the neighborhood has lots of young families (many without college degrees!), retirees, etc. Today, the house next door is under contract for double the price, and is smaller than ours. As far as I can tell, there’s no billionaires or even centi-millionaires anywhere near us. Just upper middle class people whose 401ks have done really well thanks to the Fed printing money like crazy, not to mention upper middle class welfare like more than a year of deferred student loan payments. (Lower income folks with student loans were already eligible for income based repayment.)
Reaganism has won so completely in America that even AOC doesn’t want to tax upper middle class people. But these are the people directly competing with the middle class for fixed resources. They’re the people driving residents out of gentrifying neighborhoods, driving up the price of coffee, etc. There’s not enough 0.01%-ers out there to move the needle on these assets and services.
That seems to be a typical view on income and wealth in this country: people's opinions are wealth are out or proportion with reality by factors of like 100. For reference, upper middle class technically starts at around $120k/yr, so $10MM could pay 80 years of an upper middle class income. So there's no conceivable way an actual upper middle class family could actually save enough to be consider what the public thinks of as upper middle class.
[1]: https://sfgov.org/scorecards/safety-net/poverty-san-francisc...
In my experience the kind of people this heuristic selects for is around the same monetary threshold you’ve noted in the low 6 figures.
Median income is $56K for Australians in general, and about $90-$110K for areas of Sydney that have water views.
Recently the federal deputy treasurer made a speech that younger residents of the city should consider moving to the country to afford a home. The not so minor issue with this statement was that you have to go very far down the list of towns by size in the state to get to a place where he himself could afford a home on his government salary of well over $200K a year!
What we’re seeing is a lack of housing, not middle class people buying up housing they can’t afford.