This part particularly surprised me, as it flies in the face of a lot of confident-sounding opinions voiced here.
> For example, proponents of the “supply-side” argument frequently point to low vacancy rates as an indication that supply is low, which drives rents higher. During the COVID-19 pandemic, the national vacancy rate went up from 2 percent to 3.2 percent, a 60 percent increase. What happened to rents? They, too, went up, by 3.6 percent. In Toronto, vacancy rates more than doubled between October 2019 (1.5 percent) and October 2020 (3.4 percent). What happened to the average rent in the city? It rose by 4.7 percent. A Canada Mortgage and Housing Corporation report explained that, in hot markets like Toronto and Montreal, landlords chose to wait longer to fill vacancies or offered one-time rent discounts instead of lowering rents.
In 2021, a prominent housing expert, Steve Pomeroy, demonstrated that “between 2006 and 2016, Canada added 1.636 million households and built 1.919 million new homes . . . almost 30,000 extra homes were constructed each year compared to the increase in the number of households.” And yet housing prices and rents went up at a breakneck speed during those years. Neither Pomeroy nor I contend that Canada has enough housing or that additional supply would not be beneficial. The point is that supply alone will not solve the problem.
Supply has to be in the desired location, and it has to be brought into the market if empty. If property taxes are too low such that many can afford to have multiple houses, then that will result in in insufficient supply in the market, even though it exists.
WRT the tax point, I've heard this previously, but it doesn't make sense to me yet.
For example, a person who owns multiple properties would be in a better place to absorb tax hikes by simply passing them along to renters. It would be the single family that ends up the most affected by this.
Moreover, I agree with the person who said "property tax is not a sin tax". The income received would not be invested to help the common person. For example, my municipality would most likely spend the additional money on sports teams, which I firmly oppose, but is something supported by rich interests in the city.
Other taxed can be reduced if property taxes are increased.
And costs do not simply get passed on. If that were true, then no businesses would fail and everyone would enjoy a minimum profit margin.
Low property taxes means higher profits for landlords, which means more incentive to hold onto extra properties. Higher property (specifically land value) taxes means the land has to be used more productively to earn a return. Instead of a single family house on a 10k sq ft lot, there would be 3 townhouses, condos, etc.
There would also be more incentive for landlords to lower the rent more quickly in response to the market. Right now, lots of “space” sits empty, while income tax from people who work pay for the police and courts to keep that space “secure” for landlords. It is a massive subsidy from workers to non workers.
> Canada’s “housing crisis” is a permanent state of affairs that harms people in, or in need of, rental housing; roughly one-third of the country’s households.
and
> A housing system that serves all but one group is not in a state of crisis; it is one based on structural inequality and economic exploitation.
I think my point here is the lack of common understanding of what "crisis" means and a belief the linguistic narrow interpretation is "this is not a crisis" because its a systemic failure in design and goals.
Well, "capitalism is in crisis" has been a catch-cry of the left for 80+ years and remains true, despite a lot of shareholder value being made along the way.
There obviously is a massive underlying problem around affordable homes. The article is trying to draw focus to it but I find the "its not a crisis" thing somewhat small as a hook to hang it on. If you're young, or fleeing DV, it's a crisis indeed.
The phrase which comes to mind is "permanent crisis" which I went looking for, and indeed it's been a thing for a very long time.
So no. I disagree. Housing IS in crisis, it's a permanent persisting crisis, which advantages the investor side at the expense of social well being at large.
And if like me you are at the end of your mortgage and working life, you have almost certainly been complicit in this crisis, a fight of the old against the young. We mortgaged the 60s and 70s against the future, and now the future is impoverished.
Right. The obvious counterpoint is the now commonly used term “climate crisis”. The danger has been obvious for years yet has been largely unaddressed because of structural aspects of the global economy and society. That lack of adequate response doesn’t mean global warming isn’t a crisis!
I am of course guilty of fighting a second or third order issue trench war here because the primary issue is the housing crisis, or whatever we want to call it.
English is not my first language but the dictionary states a crisis is:
a time of intense difficulty or danger.
a time when a difficult or important decision must be made.
However, it comes from from Greek krisis ‘decision’, from krinein ‘decide’.
It seems you can have your crisis the way you like it :) The housing decision was to have it be unaffordable. But it is only a permanent crisis if it was decided to be that way.
I do like the article, the point still stands. I do doubt if it is a road to a solution.
I would try a different angle. If rents grow to match income then salaries must grow to match rent. There should be people out there who pay salaries and don't like how expensive that already is.
People who spend 1/3 of their income on rent would welcome a 5% pay cut in exchange for 30% lower rent.
In the supermarket I ran into the big boss from the firm I rent from.
I did a funny monologue:
My rent is well below average in this city but I still managed to pay 3 times the 2010 market value of the property, the price at which you offered to sell it to me but I couldn't afford. Not much was done over the years, a paint job, some plumbing, no real expenses were made. I'm not the first tenant, before me people paid 2-5 times the 2010 value(?) Now the property value has gone up dramatically. This means you've made even more money, much more!
Then you send me a letter that argues you are increasing my rent because you've made so much money. Every year you want one more week of my salary because you've made so much money.
I also know you have a giant waiting list while you are selling houses rather than building them. I get it, if earnings grow beyond a point you may no longer mix social housing with private housing projects. This will make your job much more complicated and the transition comes with considerable costs you are not looking forwards to.
I have great idea, you are not obligated to increase my rent every year. You could sell fewer houses, own more property and have more renters.
You see where I'm going with this? >points finger<
Then I walked away not waiting for an answer.
The next year the standard letter said my rent would go up by 0%.
Over many years of using the internet, I’ve found that the most viral ideas only have a maximum of one point to them. Additional points or context only add baggage to the points made, and ensure that the idea either doesn’t spread very far or just get left behind in discourse entirely. It’s easier on Reddit and Twitter and HN (to probably a lesser extent) to communicate and upvote “your side” if an idea is as simple and distinguishable from “the other side” as possible.
So we get “build baby build” and “r/fuckcars” and “microservices vs monoliths” and “OOP vs FP” and all the nuance of the argument gets lost.
I agree with this article that building new housing is only one of many interventions that government will need to handle to bring down the cost of housing. But I don’t think the idea will ever go as “viral” as the supply and demand arguments that you see everywhere.
The majority voting (and donating) block, old people, are all becoming ridiculously rich from their $15k houses they built/inherited/bought 30-40 years ago, many of which are now valued over $1m.
Nothing will change on this front until millennials are the majority voting block. If anything it's going to get worse before it gets better.
I don't see millennials being complicit with greedily jacking up the prices like boomers and others have been when one of the core experiences of being a millennial has been that you have to be a multi-millionaire to afford a home because of the decisions of our parents and their parents. Everything our parents got essentially for free or minimal effort (house, college, pension) is now 10x harder to obtain. It's just a different vibe and you don't just forget that.
Sure, things will feel different when a lot of millennials suddenly own something for the first time in their lives in like 20 years, but I simply don't see them forgetting their roots when their legacy has been "we were fucked over by our parents".
By then many of those houses, built with cheap 1970s and 1980s construction practices, will need to be rebuilt from the ground up by then anyway, and millennials have already shown a strong preference for building from scratch when given the opportunity. I think a huge percent are going to immediately sell and then build their own, which means they will care about affordable building costs, etc. They aren't going to long hold these houses, which means there will be plenty of houses on the market as well as plenty of new construction, which equals lower housing costs.
Also, I think a surprisingly high number of these boomers are going to reverse mortgage everything (or similar situations like sell the house to pay for the luxury nursing home) as a final fuck you, meaning millennials won't be as flush with cash as one would hope. Such things are just in the DNA of that generation it seems.
By many metrics, boomers have been more conservative and more selfish than generations before and after them. They really are a special bunch.
> I don't see millennials being complicit with greedily jacking up the prices like boomers and others have been when one of the core experiences of being a millennial has been that you have to be a multi-millionaire to afford a home because of the decisions of our parents and their parents.
We would not be the first, nor will be the last, generation to mistakenly believe itself morally superior to the ones that came before.
I've seen millennials fall for the same bullshit moral panics they rolled their eyes at as obviously stupid and wrong in their tweens and teens. As one myself I expect complete hypocrisy along with 'but this time is different" and turning out just like their parents.
We're not comparing apples with apples though. Boomers were born into a fortunate timeline where they did everything they were supposed to do and were MASSIVELY rewarded by a factor of 10x.
Millennials have experienced the opposite and have watched as Zoomers get it even worse than us in many cases.
All things are not equal with this one. Yes we can assume millennials will drift right like every generation does, but boomers have never experienced what it's like to be told just do X, Y, and Z and you'll be all set only to come out 1/10th what their parents were able to accomplish, despite expending more effort. That is not something you just forget about because after waiting 40 years you finally get to flip a $2m property.
Boomers never had to learn that lesson, millennials at least understand it presently.
> boomers have never experienced what it’s like to be told just do X, Y, and Z and you’ll be all set only to come out 1/10th what their parents were able to accomplish
Neither have millennials. The class of millenials doing worse than similarly situated members of previous generations (and still by far less of a margin than your hyperbolic 1/10th as well) are largely men without a college degree – overall, millenials are only slightly below the performance of earlier generations at similar ages, but the education gap in economic performance has widened and the gender gap narrowed.
"Performance" is relative to the times. Back in the 60s good performance meant a union job with a pension and building a house by 25.
None of the things in that sentence even exist anymore for the vast majority of people.
If I were to say "hey let's buy or build a house right now" you would rightly say "that's a bad idea at the moment", so the opportunity that boomers had simply does not exist present day.
My uncle was a grocer back in the day at a local grocery store, and he is able to live completely off of his pension that is still paying him some 30 years later. Those kinds of opportunities simply do not exist anymore. Companies don't even exist that long anymore, and if they do, they probably spend all their money and effort lobbying against unions and limiting or ending any existing pension programs they may have once had. The only exception being federal jobs and workplaces that have managed to unionize despite historic anti-union sentiment thanks to Reagan et al.
The performance I refer to is relative to inflation-adjusted dollars.
Relative to the times, obviously, people at every time do exactly as well. You would be measuring a thing against itself.
> Back in the 60s good performance meant a union job with a pension and building a house by 25.
Most people the 60s didn’t build a house, and, if they did, didn’t do it by 25.
> None of the things in that sentence even exist anymore for the vast majority of people.
Private sector union jobs and private sector pensions are far less common, and that’s a big reason why Millenials (and Gen Xers) without a degree are worse off than comparable Boomers and earlier.
On the other hand, college educated Millenials (the majority) are doing better than college educated Boomers, despite being a larger share of their generation.
> Relative to the times, obviously, people at every time do exactly as well. You would be measuring a thing against itself.
My point is that "relative to the times" captures a lot of the crucial things worthy of comparison. The fact that menial, what would now be considered "gig" jobs, in the 60s and 70s all were W2 and all had unions and pensions, many of which are still paying out to this day, is a gargantuan difference to how things are now. It's something you can't simply ignore.
Imagine an Amazon warehouse worker making enough money working fair hours to build a house and then live off their pension for 30 years. It would be physically impossible in our current timeline. In this timeline, even tech workers don't have benefits that will last beyond their 2.5 year tenure at whatever startup, and those lucky enough to have equity have no guarantee that it will be worth anything for more than a few years.
The favorable circumstances of yesteryear are gone, and that's the elephant in the room that any charitable analysis of this absolutely needs to quantify and address.
> I don’t see millennials being complicit with greedily jacking up the prices like boomers and others have been when one of the core experiences of being a millennial has been that you have to be a multi-millionaire to afford a home because of the decisions of our parents and their parents.
That’s not an actual thing. The majority of millennials are homeowners, but also very far from multimillionaires, so the millennial experience has definitively not been “you have to be a multi-millionaire to afford a home”, no matter what reason you try to attach to that.
> Right, now we're the "stuck in a 30 year mortgage we can't afford and If I lose my job I could lose my house" generation.
> Humbling, in a way boomers never experienced.
Boomers actually did experience that, and, in fact, lots of them lost their houses.
Yeah. Housing asset prices were lower, but maybe you should look at the industrial disruptions, wage trends, inflation rates, and interest rates during the Boomers prime earning years.
Union jobs were great — until the whole domestic industry your union and job were in collapsed in favor of overseas competition. Pensions were great, if you could work your whole career with the same one; if your firm didn’t collapse and take its underfunded pension fund with it, and if you didn’t want the choice of looking for a better current pay than your employer offered, because pensions weren't portable. And, if you had to job shift mid-career (or even, for late Boomers, fairly early career) you probably didn’t have any of those on the table at all, as the shifts which led to the terminal decline in private sector union jobs, the long decline from the 197ps to 1990s in real wages, and made private sector pensions rare for new hires happened fairly early in the overall timeline of Boomers in the workforce.
In the US you can expect healthcare, assisted living and end of life care to wipe those gains away. There are several industries dedicated to extracting maximal value from people from retirement til death
Not sure why a new generation would change anything. It seems like it is homeowners vs non. The millisecond someone acquires property, it is in their financial interest to protect it as an investment.
Not if their first impulse is to sell it and then build a house. Now we have two houses, which does what to the price? Oh, makes it go down. And if they're building a house, their voting and lobbying at least for a few years will be in line with keeping construction costs down.
but if they're underwater, they aren't exactly lobbying, they're just people with no voice beyond whatever candidates corporate america has put on the menu of the day
I get this argument but.. also I have problems with it. Even if your net worth increases on paper, if you’re living in the home that’s meaningless, because that value doesn’t mean anything until you sell it. So for most old people the increase in value is actually a problem, because it means that their property taxes go up. The only people that really benefit from this is large institutional investors, and maybe house flippers. That’s where I would assume the political pressure is coming from.
> Unlike most services and commodities, the price tag on rental units has no real relationship to the cost of providing housing. Rents are determined by “what the market will bear,” as economists say.
Absent regulation, “what the market will bear” is what sets the price of all things. I’m interested to know why the author thinks that housing is unique here.
It's pretty clear they're arguing their point from a Marxist lens of exploitation and oppressive classes. I don't mean to state that pejoratively, just factually.
Yeah, this is true of everything from oil to fruit to toasters.
Although I would argue that the price tag of rentals has a strong relationship to what it costs to build/operate additional units of rental space. While one landlord might have had their unit paid for 3x, where would a new entrant to the market be?
If you ever go through the process of buying vacant land you’ll find the biggest risk is whether the city will ever let you build anything on it. Even a house being there once before isn’t a guarantee. It could be the green belt, too close to an airport, or just zoned wrong.
At least in Canada land is not that scarce (even in desirable areas like the GTA) you just aren’t allowed to build on most of it.
This is why land development is so commonly associated with corruption. The best way to make money is to buy up artificially restricted land and bribe the government into letting you build.
No but don't you see? They "have been building for decades" (in the sense that, every year, some small number of new units are built) and prices haven't fallen! So clearly "building more units" can't be the solution. That's just an excuse to line the pockets of developers! And besides, the "build more crowd" wants nothing but to "provide financial and regulatory incentives to developers", there is definitely no movement to remove regulations that prevent building! No, the author, who clearly has a deep understanding of this issue, has never heard of such nonsense.
The problem with housing (in the States at least, can’t speak for other countries) is simple.
Renters want housing to remain affordable and to increase no faster than inflation.
Owners expect (and bank on) the value of their house increasing faster than inflation.
Both cannot be occur at the same time, at least not for long. As home prices increase, so too will rents. And if rent stays flat, the price of housing is forced to remain flat as well.
Housing cannot simultaneously be affordable if it is also supposed to increase in value endlessly. Someone has to lose.
To solve the housing crisis, Americans need to be deprogrammed out of this belief that owning a home is supposed to yield a return. It makes literally no sense to expect or feel entitled to a return just for owning property. Barring improvements the value of the home should depreciate slightly as the house gets older.
That’s not to say that home values should never go up anywhere. As a city improves compared to other areas and brings more jobs and better services, home prices there should reflect the increased value associated with living in an area that is better than other places. Home prices should not being going up everywhere at the same time, which is what Americans expect to happen —- that almost all property should appreciate in value on average.
Agreed. Being a landlord isn't a job. You aren't doing work, and don't deserve to be paid for doing nothing. Houses are for people to live in, not an investment.
I don't view my home as an investment, or expect a return from it, but that hasn't stopped it from appreciating 50% in the past decade. How would deprogramming this belief more widely lead to a material change in market conditions?
Your home has appreciated because you either live in an area that has gone through a major growth period (it has improved relative to other areas) or because other owners around you have voted to keep the value of their property increasing and your property has appreciated along with theirs as a result.
Probably both.
“Deprogramming” would help with the latter cause of appreciation. It would allow policy makers to enact laws and regulations to keep housing costs stable without facing a mass revolt from homeowners who have basically all made a $100K-$nM bet on their house increasing in value much faster than inflation.
> To solve the housing crisis, Americans need to be deprogrammed out of this belief that owning a home is supposed to yield a return. It makes literally no sense to expect or feel entitled to a return just for owning property. You did nothing to earn $300K or however much your home appreciated since you bought it.
I think people expect this because it happens. You will not be able to change the expectation without first making a dent in the phenomenon's consistency.
So then we're back to the question about how to make housing costs go down. One way or another, a lot of new houses would have to be built, or rationing would have to occur.
Not to all the current homeowners that have bought over the last 30 years which is a LOT of people.
The only realistic way both sides win is with government mandated rent caps on some housing in dense urban areas coupled with opening up of newer markets in smaller cities where people without a lot of financial resources should be able to buy at lower rates while developing new urban centers.
We already have these things and it hasn't done any good. Housing is still treated as an investment (these new growing markets sound like an opportunity) and it gets passed down to the renters.
Really though this is true of basically everything in our society, the lower classes essentially subsidize the higher classes. Below the lowest classes in North America are the poor of the rest of the world who are left with almost nothing.
Setting homeowners and renters at odds in this way is a straw man, since these are two distinct stocks of housing that only affect each others prices indirectly, and are free to appreciate at different rates to some extent.
It’s more appropriate to consider landlords vs renters, as they are on opposing sides of transactions involving the same housing.
Contrary to your assertion, landlords are not primarily focused on the appreciation of the market value of their assets exceeding inflation but instead on achieving a reliable income stream from rents. This cash flow can be sustainably profitable under stable rents, so the structural conundrum you propose doesn’t exist in the real world.
In Canada, at least, there are many people who have bought 2nd and 3rd+ homes and rented them out. There's more overlap between "landlord" and "homeowner" than you might think.
Sure, a single person can have multiple roles in the system. But this line:
> Owners expect (and bank on) the value of their house increasing faster than inflation.
may be true for an owner-occupier for whom price appreciation is the only way they can treat their house as an investment, but it’s not at all true for someone receiving monthly rents that exceed their costs. It’s like comparing the prices of two stocks while ignoring the large dividend payments paid by one of them.
While not contending directly for the same stock, homeowners are very interested in matters that influence rental prices, albeit in less direct way, as you say. Try proposing to build affordable housing in a neighborhood and you’ll find yourself drowning in homeowners coming out of the woodwork complaining that “we want more affordable housing, but this project just isn’t right for our neighborhood.”
I think we’re on the same page. As I wrote in my comment, rents and home prices cannot diverge >for long<, and you write that they can diverge >to some extent<. I think we are saying the same thing, just emphasizing different aspects of the same statement.
> Contrary to your assertion, landlords are not primarily focused on the appreciation of the market value of their assets exceeding inflation but instead on achieving a reliable income stream from rents. This cash flow can be sustainably profitable under stable rents, so the structural conundrum you propose doesn’t exist in the real world.
Rare is the landlord who continually settles for a stable rent when increasing it is feasible.
As home prices rise, would-be buyers are forced out of the market and have to contend with existing renters, increasing demand for rental housing, which in turn causes rents to increase. Taxes on rental properties increase, also serving to increase rent.
It depends, but I don't think it's true to say there is no conflict. The article centres around the Canadian market, and in many areas there's a active push against building more types of housing, zoning changes, demographics changing, from both landlords and homeowners that essentially have control over neighborhoods that are already predominantly populated by people who have no option to buy into that same neighborhood, but who otherwise make that neighborhood.
Many homeowners have prejudice against different types of housing other than these behemoth ranch houses or Victorian mansions, yet are perfectly happy enough to literally lift up their house and rebuild their ground floor as a rental unit, effectively preventing renters from doing anything but renting basements.
Homeowners, regardless of whether they're landlords or not, will sometimes actively oppose anything they think will negatively impact their appreciation, regardless of whether it's even remotely true, sometimes even going so far as to preemptively move away if mid-rise apartments go in nearby.
> Housing cannot simultaneously be affordable if it is also supposed to increase in value endlessly. Someone has to lose.
It can if density increases too.
Existing home increases in price, but new homes being built are single-family homes torn down and replaced with 4-plexes, which are then replaced with apartment buildings in turn. Thus SFH price increases over inflation, “housing” price doesn’t have to, because new options are less pricy.
> Renters want housing to remain affordable and to increase no faster than inflation.
> Owners expect (and bank on) the value of their house increasing faster than inflation.
Also: in many hot markets it costs more to buy than to rent, sometimes by 2x or more. Rental and owned stock are not always the same markets, not always the same housing even though it seems like they “have to be”.
I came to exactly the same conclusion when looking at a far worse housing market (Australia). Promoting housing as a vehicle for middle class wealth creation will soon be viewed as one of the stupidest economic policies ever pursued by democratic countries. It's unsustainable for the exact reasons you laid out.
I do wonder if a handful of countries (Canada and Australia in particular) are going to suffer drawn-out stagflation, since incomes need to increase to account for increased housing costs, but homeowners won't vote for anything that will temper their investments, so the cycle continues until demographics swing the voter base in favour of non-homeowners.
> To solve the housing crisis, Americans need to be deprogrammed out of this belief that owning a home is supposed to yield a return.
It's not about programming or entitlement.
It's because there is literally no other social safety net. Even here in Canada, where we laud our healthcare to Americans (despite it's massive flaws), there is no social safety net for retirement.
For a substantial percentage of north american homeowners, the expectation is you hold on to your home, downsize when you retire, and live off the difference until you die.
This needs to be fixed if we otherwise break this fundamental ssumption.
> Americans need to be deprogrammed out of this belief that owning a home is supposed to yield a return
I think you have the cause and effect reversed. They believe a home yields a return because it does. They aren't delusional or stupid - they're making money. There's nothing to "deprogram".
Maybe dive one layer deeper and ask why investing in houses has been better than investing in stocks or bonds/CDs.
Houses are where the average person gets to be a leveraged investor. If I invest in an index fund and it goes up 10%, I've made 10%. If I invest in a house and it goes up 10%, but I invested with 5% down, I have tripled my money.
But the reverse is also true. People are hugely sensitive to house prices falling, because they are leveraged. If I owned my home outright (no mortgage) and the value fell 10%, I wouldn't be happy. But if I had a mortgage with 5% down, all my equity got wiped out, and I'm now 5% underwater.
Housing wouldn't be expensive if you could teleport anywhere instantaneously. No matter how hard homeowners wanted to keep prices high. I see some much cheaper more luxurious homes listed in less dense cities than mine. I suspect we've finally begun to exhaust the available land within a reasonable commute from the top populated cities that was opened up after creating the interstates. If we found a way to reliably go twice as fast out of the city in many directions we'd open up four times as much land. I'd bet everything house prices would hardly rise for many years.
Unfortunately, this conflicts with basic tenets of how capital and free markets work: if you deny capital a market competitive return then the capital quickly moves elsewhere. For private housing, that means squalor and slums.
Market competitive returns for housing need to account for taxes, maintenance and management, vacancies and risk. This needs to EXCEED stock market returns or prospective landlords put their capital into the market. Already, the US quietly subsidizes housing returns with tax policy including 1031 exchange, tax deductions for every conceivable expense and more -- and even then, residential real estate is risky, illiquid and a hassle vs just buying ETFs.
This also affects builders: if they're starved of returns, they're quickly starved of capital, which means no new housing.
Public housing can be a nice solution: compete with the free market by offering a low cost option devoid of the capital constraints. When this works, you get Swedish housing, when it doesn't you get NYCHA. It's worth nothing that neither one has kept up with demand, with very long waitlists. Neither system supports transfers out of region, which destroys social mobility i.e. great inventors/etc are not able to develop themselves and do great work because they can't afford to move. All of these is theoretically fixable, but extremely hard in practice.
Overall, the NYSDOH inspection teams found hazardous environmental and health conditions throughout
the NYCHA system. Approximately 83 percent (212 out of 255) of all units inspected contained at least
one high severity environmental quality hazard. Inspection teams found similar issues in building common
areas with 75 percent (48 out of 64) containing at least one high severity hazard. The top three high
severity issues found in NYCHA units were insect infestation (mostly cockroach infestations), issues with
walls and/or floors and the presence of mold growth.
In the UK, there is a similar mechanism, but also with a perverse twist.
Housing is very expensive, and buying your first house is often a titanic effort. It requires years of saving, often ain informal loan from family and then a substantial mortgage.
So once you buy this thing, your biggest fear is that it will depreciate. Never mind making money out of it.
This creates a lot of very strong local NIMBYism, and in the UK it's not that hard for the local population to stop housing projects.
When phrased like this, I do sympathise, even if it's "selfish". A mere announcement of new housing projects in the vicinity can cut your house value by 10%, or easily more.
So we created a world where house owning club is super expensive to join, and once you're in, it is your existential imperative to keep house prices high.
All this before you even say "appreciation". I posit that most people in the UK would be quite happy with affordable housing whose price is linked to inflation or sth.
This is a very good point! Thanks for adding. This is definitely also true in the US and homeowners will explicitly discuss "real estate value": X increases RE value and Y hurts RE value. It's a big deal.
I own the house I live in and would prefer its value did not increase! What do I benefit if my house is worth more? I pay higher rates (council -- ie. local government), have less options to move house (because other houses are just like mine, increasing in cost), and it makes me less mobile for work (because rents are likely to be up elsewhere to).
Owners who are using housing as an investment may want house prices to rise, but I don't. The shortfall between those two can be managed with tax, surely? I am no expert in this market, but owning one extra house would mean I assist with rental supply, owning two maybe moreso, but owning 5? 10? 100? Why is property tax not applied at a greater rate/value as the number of properties you own increases?
And of course, if there is money to be made investing in housing, institutional investors will capture that value readily, as they have done in Australia (and probably elsewhere I would imagine).
Actually, when housing value grows faster than inflation, rents stay low, and you could have observed that yourself in 2010-2020, when the capital gains in the property value subsidized renters. When the growth stops is the time for rents to catch up.
>To solve the housing crisis, Americans need to be deprogrammed out of this belief that owning a home is supposed to yield a return.
Markets don't quite work like that. A seller will sell at the highest price offered (as same as the buyer will buy at the lowest price), if you were able to "deprogram" this behavior, you'd put the entire market, not just the real estate, in complete chaos.
Not if the highest price offered is too low for the seller and they are sitting on a low fixed rate mortgage and/or low property taxes.
That is the difference between land or space and most other items in the market. If the annual costs are low enough, many times it makes sense to just wait for the government to bring back easy money, and you get to profit for doing nothing.
Someone who is not selling is not a seller, is he? And, predicting the next correction, someone who cannot afford to buy even at the lowest price, also, is not a buyer.
A properly functioning market requires lots of sellers and buyers. Hence people complaining about extended time of empty storefronts and empty housing, it shows the lack of a properly functioning market.
This depends on your definition of "properly", a market doesn't require either. E.g. a market for fine art usually has no sellers most of the time, it might not be properly functioning but it's a market and still follows the same principle: people will sell for as much as they can possibly get and buy for as little as possible.
The market efficiency is a theory that asserts that the seller sells at the highest price available and the buyer buys at the lowest, it doesn't not put any requirements on having lots of either [1]
EMH assumes good price discovery (since it is always referring to deep markets like publicly listed stocks), which depends on having many buyers and sellers:
Not really: if Mona Lisa went on sale, I am sure all the prospective buyers learned about such an event despite having just one possible seller. The information propagation on the American RE market is also quite robust, most of properties go through the MLS and even if not, buyers scout for possible deals very vigilantly.
>>To solve the housing crisis, Americans need to be deprogrammed out of this belief that owning a home is supposed to yield a return.
> Markets don't quite work like that. A seller will sell at the highest price offered (as same as the buyer will buy at the lowest price), if you were able to "deprogram" this behavior, you'd put the entire market, not just the real estate, in complete chaos.
I don't think your criticism here works. The point is that people buy with expectations of return, and therefore are willing to pay investment prices rather than just equivalent-to-renting prices. Your reply doesn't address that at all.
If I understood correctly, you are saying that the buyers on the RE market pay more than they could have to clear the deal? I'd like to see some sources for that.
No. I'm saying that the demand side price for "a place to live plus an investment" is higher than for "a place to live"[1]. Within that dynamic, prices are where they have to be to clear the deal.
[1] I think this is intuitively obvious. The promise of future return will never have a price of zero.
That's quite possible but then I don't understand your critique. Investment driven demand appears to result from the already raising prices. I don't know who could possibly manipulate the market if it has been naturally declining, the capital requirements for that are insane.
I'm saying that, in your reply to _vertigo, you are thinking (or at least replying as if you think) that _vertigo wants to break the "accepting the highest price offered" behavior of sellers. I don't think that's _vertigo's point at all. I think the point is to change the "I can offer more because it's going to go up in value after I buy" psychology of buyers. That will change the offered prices, of which sellers will still accept the best.
> Investment driven demand appears to result from the already raising prices.
This is more on point... and it's also almost the definition of a bubble (people buying as an investment because the price is going up, and the money coming in raising prices further). I don't know any way to fix it except to increase supply enough to soak up all the money coming in, plus a bit. But, worse, I don't know any way to fix it that won't damage people who bought it as an investment.
I guess the only thing I can see is to build more, but not absolutely flood the market, so that the price goes down (or at least stops going up) but doesn't absolutely crater.
Yeah, _vertigo is mistaken IMHO, believing that the prices on housing raise through some kind of "programming" and not through the market as I observe in reality.
If people believing something is a sound investment made something an investment you could just buy random equities on the stock market and make bank as everyone* on that market believes that they make a sound investment.
* Statistically everyone, there might be some individuals intentionally taking a loss, I imagine.
This is an article about Canada, which I'm not qualified to really critique. In the US, we there is a housing crisis, though I think the phrase "lack of affordable housing" gives people the wrong idea.
We especially need more of a certain kind of housing, housing we used to build and don't anymore. Housing aimed at renters with entry level jobs who may not have a car.
We've underbuilt for decades, so it seems to also be negatively impacting more middle class Americans, but I haven't studied that anywhere near as much as I have studied what is causing chronic homelessness for many Americans, something we didn't see at this scale in the past.
Humans will breed to fill all available habitat. Building housing increases the supply of humans, just like building more roads increases traffic. Don't fall for it. The world doesn't need more humans. It needs a non-boiling atmosphere.
Fact check: Canada does indeed have one of the highest immigration rates, accepting 4x more migrants per capita than the US. 26.4% of Canada's population are first-generation immigrants. This is followed by 17.6% who are second-generation and 56.9% who are third-generation or more.
If you’re interested in why housing is so expensive when there is so much land – and what to do about it –, you should read about Land Value Tax/Georgism.
> Housing increases in value over time; someone holding on to an empty apartment in Vancouver is making lots of money in absolute terms, even if comparatively less money than if the apartment were rented. When a new tenant agrees to pay a higher rent for years to come, the waiting pays itself off in a few months, and the rest is profit.
So let's pick a median apartment but an owner who thinks they can wait out a higher rent. What extra revenue do we believe is reasonable for them to hold out for? Let's be EXTREMELY generous and say they want to hold out to get $3200.
The maximum legal rent increase in BC is 2%/year. On a 5 year timeline, the baseline is 2800+2856+2913+2971+3030=14,570. If they somehow get $3,200, that's instead 3464+3396+3329+3264+3200=$16,653. A difference of 2083$!
Wow, 2 thousand dollars, that's a lot of......wait, no that's literally less than ONE month of rent revenue. Holding out for even ONE month and having the unit unoccupied erases ANY possible benefits from the extra rent.
I really really liked everything else about this article. But this super fundamental mistake makes me question the credibility of the author :/
You calculated gross. You should calculate net. It's a non-zero cost to have a tenant. For demonstration purposes, if it costs $2700/month then the difference is $1,070 in profit vs. $3,153 over 5 years, corresponding to about 2.5 years.
If the market rate increases by 10%/year than if you wait a year you can charge an additional 8% over having a tenant.
Mortgage payments give you equity. Once you pay it off, you get title to building, and its full worth.
If your tenants are paying enough to cover your mortgage plus maintenance then after the mortgage is paid off (in 20-30 years), you can sell the building and not split the sale price with anyone.
Now, you do lose out on the interest payments. On the other hand, access to more capital via a loan gives you access to a better ways of generating money, so you need to calculate the full expected future value.
Just like if you buy the building with cash - no mortgage! - you have to factor in the effects of your lower liquidity.
In any case, my point is that your earlier "basic scrutiny" omits some very important "super fundamental" details so cannot be used to reach the conclusion you think it did.
Tiresome. Left-wingers will continue to make up wilder and wilder economic conspiracy theories to explain away the "so-called housing crisis" because the obvious solution -- building more homes for more people -- admits the possibility that someone might make money building homes and selling them, which they find ideologically distasteful.
"Building more homes won't solve the housing crisis, because [ landlords, immigrants, greedy developers ] will buy them all up!" is a popular rallying cry against even attempting to build more homes. But a more honest statement of their complaint, "building more homes won't solve the housing crisis in its entirety without additional measures to help the most vulnerable" would admit that building more homes is absolutely part of the solution, not part of the problem.
The only way to solve the obvious crisis is to follow Japan model, make the real estate a depreciated asset rather than appreciated, especially when most North American houses are also made out of wood similar to Japanese ones (unlike other countries where it’s made of cement and concrete). Additionally, fix the zoning stupid laws, prevent foreigners from buying, limit property ownership to be maximum of two properties. Those for a starter.
> The word crisis suggests something that is infrequent, surprising, and widely undesirable—something that leads to dire consequences unless it is brought under control. ... In contrast, Canada’s “housing crisis” is a permanent state of affairs that harms people in, or in need of, rental housing
That sounds like a high school debate method - "Webster's Dictionary defines 'crisis' as ... This does not meet that definition. Therefore this is not a crisis."
As a counter-example, people have been using the term "climate crisis" since at least the 1980s. Does decades of use make the underlying situation a permanent state of affairs that we should accept?
Furthermore, the idea of "crisis" used in this structural fashion has been around for even longer. A quick Google Scholar search found Holton (1987) "The Idea of Crisis in Modern Society" in The British Journal of Sociology:
] In the contemporary world we are told that 'crisis' threatens us on all
sides ... I want to examine the analytical utility of the crisis metaphor for an understanding of the contemporary western world. ...
] The metaphoricality of the language of social crisis draws of course on older aesthetic and medical usages. In the aesthetic structure of drama, for example, crisis is manifest through a key moment or moments in a narrative wherein the dilemmas of human life and the fate of human actors are dramatised. This structure presupposes that crisis is an abnormal and discontinuous feature of narrative rather than a permanent fixture. ...
] The crisis metaphor has of course been translated into social enquiry as a means of dramatising perceptions of social pathology, social breakdown and disorganisation, and to give full vent to feelings as to the intolerability of the present. Its use is thus embedded in discourses about social change and debates about appropriate forms of political action. The assumption is that crises are unacceptable, and that they can and ought, sooner or later, to be resolved.
The phrase "housing crisis" is based in this latter, metaphorical use. Tranjan appears to require it only fit the former and older definition.
Holton goes on to write:
] While the use of the crisis metaphor in social criticism is not without pronounced disadvantages, it does retain a considerable degree of utility. In the first place it underscores the refusal to accept all features of social life as necessarily 'given' and 'unproblematic'. In so doing any notion of 'normality' is itself brought into question. The social pathologies identified by crisis theory pre-empt the 'normal' functioning of social life, while yet leaving space for successful recovery, if the appropriate social changes eventuate.
The term "housing crisis" is used for exactly that purpose - to refuse to accept the current situation as necessarily given and unproblematic.
Ricardo Tranjan's essay rejects the term "crisis" precisely to normalize the long-term structural issues which the crisis-ist consider unacceptable and "ought, sooner or later, to be resolved."
> Rents are determined by “what the market will bear,” as economists say.
No? I mean, they can be that way, but the author clearly knows about rent controls, which determine rates in a different way than simply what the market will bear.
> The purpose of the rental market is not to ensure the highest possible number of families is securely housed. The purpose of the rental market is to extract income from tenants, and as far as this goal is concerned, it works like a charm!
The purpose of a produce market is to extract money from selling produce, not to ensure the highest quality of nutrition.
That doesn't mean the government can't regulate produce sales to set minimum quality levels. Nor does it mean that the government can't regulate the rental market, even if doing so reduces profits.
It's so painful reading this marxist leaning stuff because they say really dumb things really intelligently. If you didn't have a moderately decent understanding of reality before reading this you would think they were making good points.
Where this goes wrong: The market has no purpose other than to facilitate exchange. People buying property are buying because they correctly believe the price will go up because the supply/demand characteristics of the market indicate that will happen. Yes, we did produce more houses than we created additional households for the last several years, however, at least as of 2021 Canada had the lowest housing stock per capita of any G7 nation, so the market is still extremely tight so prices should and did rise. If you don't like that the correct answer is still to push for policies that increase supply (despite what this marxist crap says). The nuance is that we have structural issues in Canada (and many other places) that limit the speed at which we can build housing supply that people actually want and that incentivizes knocking down the low end cheaper rental units and building luxury units instead because of scarcity in high density zone residential land. So the policies we need to push for are things like getting rid of minimum parking requirements, rezoning vast swaths of single family home zoned land to at least allow multi family medium to high density, especially around the core, and supporting this newly rezoned land with better transit, better walkways, better bike paths to get more people out of cars and into transportation better suited to higher density.
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[ 3.1 ms ] story [ 171 ms ] thread> For example, proponents of the “supply-side” argument frequently point to low vacancy rates as an indication that supply is low, which drives rents higher. During the COVID-19 pandemic, the national vacancy rate went up from 2 percent to 3.2 percent, a 60 percent increase. What happened to rents? They, too, went up, by 3.6 percent. In Toronto, vacancy rates more than doubled between October 2019 (1.5 percent) and October 2020 (3.4 percent). What happened to the average rent in the city? It rose by 4.7 percent. A Canada Mortgage and Housing Corporation report explained that, in hot markets like Toronto and Montreal, landlords chose to wait longer to fill vacancies or offered one-time rent discounts instead of lowering rents.
In 2021, a prominent housing expert, Steve Pomeroy, demonstrated that “between 2006 and 2016, Canada added 1.636 million households and built 1.919 million new homes . . . almost 30,000 extra homes were constructed each year compared to the increase in the number of households.” And yet housing prices and rents went up at a breakneck speed during those years. Neither Pomeroy nor I contend that Canada has enough housing or that additional supply would not be beneficial. The point is that supply alone will not solve the problem.
For example, a person who owns multiple properties would be in a better place to absorb tax hikes by simply passing them along to renters. It would be the single family that ends up the most affected by this.
Moreover, I agree with the person who said "property tax is not a sin tax". The income received would not be invested to help the common person. For example, my municipality would most likely spend the additional money on sports teams, which I firmly oppose, but is something supported by rich interests in the city.
And costs do not simply get passed on. If that were true, then no businesses would fail and everyone would enjoy a minimum profit margin.
Low property taxes means higher profits for landlords, which means more incentive to hold onto extra properties. Higher property (specifically land value) taxes means the land has to be used more productively to earn a return. Instead of a single family house on a 10k sq ft lot, there would be 3 townhouses, condos, etc.
There would also be more incentive for landlords to lower the rent more quickly in response to the market. Right now, lots of “space” sits empty, while income tax from people who work pay for the police and courts to keep that space “secure” for landlords. It is a massive subsidy from workers to non workers.
and
> A housing system that serves all but one group is not in a state of crisis; it is one based on structural inequality and economic exploitation.
I think my point here is the lack of common understanding of what "crisis" means and a belief the linguistic narrow interpretation is "this is not a crisis" because its a systemic failure in design and goals.
Well, "capitalism is in crisis" has been a catch-cry of the left for 80+ years and remains true, despite a lot of shareholder value being made along the way.
There obviously is a massive underlying problem around affordable homes. The article is trying to draw focus to it but I find the "its not a crisis" thing somewhat small as a hook to hang it on. If you're young, or fleeing DV, it's a crisis indeed.
The phrase which comes to mind is "permanent crisis" which I went looking for, and indeed it's been a thing for a very long time.
So no. I disagree. Housing IS in crisis, it's a permanent persisting crisis, which advantages the investor side at the expense of social well being at large.
And if like me you are at the end of your mortgage and working life, you have almost certainly been complicit in this crisis, a fight of the old against the young. We mortgaged the 60s and 70s against the future, and now the future is impoverished.
a time of intense difficulty or danger.
a time when a difficult or important decision must be made.
However, it comes from from Greek krisis ‘decision’, from krinein ‘decide’.
It seems you can have your crisis the way you like it :) The housing decision was to have it be unaffordable. But it is only a permanent crisis if it was decided to be that way.
I do like the article, the point still stands. I do doubt if it is a road to a solution.
I would try a different angle. If rents grow to match income then salaries must grow to match rent. There should be people out there who pay salaries and don't like how expensive that already is.
People who spend 1/3 of their income on rent would welcome a 5% pay cut in exchange for 30% lower rent.
In the supermarket I ran into the big boss from the firm I rent from.
I did a funny monologue:
My rent is well below average in this city but I still managed to pay 3 times the 2010 market value of the property, the price at which you offered to sell it to me but I couldn't afford. Not much was done over the years, a paint job, some plumbing, no real expenses were made. I'm not the first tenant, before me people paid 2-5 times the 2010 value(?) Now the property value has gone up dramatically. This means you've made even more money, much more!
Then you send me a letter that argues you are increasing my rent because you've made so much money. Every year you want one more week of my salary because you've made so much money.
I also know you have a giant waiting list while you are selling houses rather than building them. I get it, if earnings grow beyond a point you may no longer mix social housing with private housing projects. This will make your job much more complicated and the transition comes with considerable costs you are not looking forwards to.
I have great idea, you are not obligated to increase my rent every year. You could sell fewer houses, own more property and have more renters.
You see where I'm going with this? >points finger<
Then I walked away not waiting for an answer.
The next year the standard letter said my rent would go up by 0%.
So we get “build baby build” and “r/fuckcars” and “microservices vs monoliths” and “OOP vs FP” and all the nuance of the argument gets lost.
I agree with this article that building new housing is only one of many interventions that government will need to handle to bring down the cost of housing. But I don’t think the idea will ever go as “viral” as the supply and demand arguments that you see everywhere.
Nothing will change on this front until millennials are the majority voting block. If anything it's going to get worse before it gets better.
Sure, things will feel different when a lot of millennials suddenly own something for the first time in their lives in like 20 years, but I simply don't see them forgetting their roots when their legacy has been "we were fucked over by our parents".
By then many of those houses, built with cheap 1970s and 1980s construction practices, will need to be rebuilt from the ground up by then anyway, and millennials have already shown a strong preference for building from scratch when given the opportunity. I think a huge percent are going to immediately sell and then build their own, which means they will care about affordable building costs, etc. They aren't going to long hold these houses, which means there will be plenty of houses on the market as well as plenty of new construction, which equals lower housing costs.
Also, I think a surprisingly high number of these boomers are going to reverse mortgage everything (or similar situations like sell the house to pay for the luxury nursing home) as a final fuck you, meaning millennials won't be as flush with cash as one would hope. Such things are just in the DNA of that generation it seems.
By many metrics, boomers have been more conservative and more selfish than generations before and after them. They really are a special bunch.
We would not be the first, nor will be the last, generation to mistakenly believe itself morally superior to the ones that came before.
Millennials have experienced the opposite and have watched as Zoomers get it even worse than us in many cases.
All things are not equal with this one. Yes we can assume millennials will drift right like every generation does, but boomers have never experienced what it's like to be told just do X, Y, and Z and you'll be all set only to come out 1/10th what their parents were able to accomplish, despite expending more effort. That is not something you just forget about because after waiting 40 years you finally get to flip a $2m property.
Boomers never had to learn that lesson, millennials at least understand it presently.
Neither have millennials. The class of millenials doing worse than similarly situated members of previous generations (and still by far less of a margin than your hyperbolic 1/10th as well) are largely men without a college degree – overall, millenials are only slightly below the performance of earlier generations at similar ages, but the education gap in economic performance has widened and the gender gap narrowed.
None of the things in that sentence even exist anymore for the vast majority of people.
If I were to say "hey let's buy or build a house right now" you would rightly say "that's a bad idea at the moment", so the opportunity that boomers had simply does not exist present day.
My uncle was a grocer back in the day at a local grocery store, and he is able to live completely off of his pension that is still paying him some 30 years later. Those kinds of opportunities simply do not exist anymore. Companies don't even exist that long anymore, and if they do, they probably spend all their money and effort lobbying against unions and limiting or ending any existing pension programs they may have once had. The only exception being federal jobs and workplaces that have managed to unionize despite historic anti-union sentiment thanks to Reagan et al.
The performance I refer to is relative to inflation-adjusted dollars.
Relative to the times, obviously, people at every time do exactly as well. You would be measuring a thing against itself.
> Back in the 60s good performance meant a union job with a pension and building a house by 25.
Most people the 60s didn’t build a house, and, if they did, didn’t do it by 25.
> None of the things in that sentence even exist anymore for the vast majority of people.
Private sector union jobs and private sector pensions are far less common, and that’s a big reason why Millenials (and Gen Xers) without a degree are worse off than comparable Boomers and earlier.
On the other hand, college educated Millenials (the majority) are doing better than college educated Boomers, despite being a larger share of their generation.
My point is that "relative to the times" captures a lot of the crucial things worthy of comparison. The fact that menial, what would now be considered "gig" jobs, in the 60s and 70s all were W2 and all had unions and pensions, many of which are still paying out to this day, is a gargantuan difference to how things are now. It's something you can't simply ignore.
Imagine an Amazon warehouse worker making enough money working fair hours to build a house and then live off their pension for 30 years. It would be physically impossible in our current timeline. In this timeline, even tech workers don't have benefits that will last beyond their 2.5 year tenure at whatever startup, and those lucky enough to have equity have no guarantee that it will be worth anything for more than a few years.
The favorable circumstances of yesteryear are gone, and that's the elephant in the room that any charitable analysis of this absolutely needs to quantify and address.
That’s not an actual thing. The majority of millennials are homeowners, but also very far from multimillionaires, so the millennial experience has definitively not been “you have to be a multi-millionaire to afford a home”, no matter what reason you try to attach to that.
https://www.fool.com/the-ascent/personal-finance/articles/he...
Humbling, in a way boomers never experienced.
> Humbling, in a way boomers never experienced.
Boomers actually did experience that, and, in fact, lots of them lost their houses.
Yeah. Housing asset prices were lower, but maybe you should look at the industrial disruptions, wage trends, inflation rates, and interest rates during the Boomers prime earning years.
Union jobs were great — until the whole domestic industry your union and job were in collapsed in favor of overseas competition. Pensions were great, if you could work your whole career with the same one; if your firm didn’t collapse and take its underfunded pension fund with it, and if you didn’t want the choice of looking for a better current pay than your employer offered, because pensions weren't portable. And, if you had to job shift mid-career (or even, for late Boomers, fairly early career) you probably didn’t have any of those on the table at all, as the shifts which led to the terminal decline in private sector union jobs, the long decline from the 197ps to 1990s in real wages, and made private sector pensions rare for new hires happened fairly early in the overall timeline of Boomers in the workforce.
https://thehill.com/homenews/3939854-half-of-millennials-now...
Or do you think Millenials as a whole are completely helpless and too stupid to properly assess mortgage terms?
Although I would argue that the price tag of rentals has a strong relationship to what it costs to build/operate additional units of rental space. While one landlord might have had their unit paid for 3x, where would a new entrant to the market be?
At least in Toronto, the answer is, losing money.
https://www.cbc.ca/news/canada/toronto/gta-condo-investors-l...
Same with fruit and oil. When avocado soared in popularity, new people entered the market until there was a price equilibrium.
At least in Canada land is not that scarce (even in desirable areas like the GTA) you just aren’t allowed to build on most of it.
This is why land development is so commonly associated with corruption. The best way to make money is to buy up artificially restricted land and bribe the government into letting you build.
Renters want housing to remain affordable and to increase no faster than inflation.
Owners expect (and bank on) the value of their house increasing faster than inflation.
Both cannot be occur at the same time, at least not for long. As home prices increase, so too will rents. And if rent stays flat, the price of housing is forced to remain flat as well.
Housing cannot simultaneously be affordable if it is also supposed to increase in value endlessly. Someone has to lose.
To solve the housing crisis, Americans need to be deprogrammed out of this belief that owning a home is supposed to yield a return. It makes literally no sense to expect or feel entitled to a return just for owning property. Barring improvements the value of the home should depreciate slightly as the house gets older.
That’s not to say that home values should never go up anywhere. As a city improves compared to other areas and brings more jobs and better services, home prices there should reflect the increased value associated with living in an area that is better than other places. Home prices should not being going up everywhere at the same time, which is what Americans expect to happen —- that almost all property should appreciate in value on average.
Probably both.
“Deprogramming” would help with the latter cause of appreciation. It would allow policy makers to enact laws and regulations to keep housing costs stable without facing a mass revolt from homeowners who have basically all made a $100K-$nM bet on their house increasing in value much faster than inflation.
I think people expect this because it happens. You will not be able to change the expectation without first making a dent in the phenomenon's consistency.
So then we're back to the question about how to make housing costs go down. One way or another, a lot of new houses would have to be built, or rationing would have to occur.
If there's a God and they are just then the renters would win.
The only realistic way both sides win is with government mandated rent caps on some housing in dense urban areas coupled with opening up of newer markets in smaller cities where people without a lot of financial resources should be able to buy at lower rates while developing new urban centers.
Really though this is true of basically everything in our society, the lower classes essentially subsidize the higher classes. Below the lowest classes in North America are the poor of the rest of the world who are left with almost nothing.
It’s more appropriate to consider landlords vs renters, as they are on opposing sides of transactions involving the same housing.
Contrary to your assertion, landlords are not primarily focused on the appreciation of the market value of their assets exceeding inflation but instead on achieving a reliable income stream from rents. This cash flow can be sustainably profitable under stable rents, so the structural conundrum you propose doesn’t exist in the real world.
I think we’re on the same page. As I wrote in my comment, rents and home prices cannot diverge >for long<, and you write that they can diverge >to some extent<. I think we are saying the same thing, just emphasizing different aspects of the same statement.
> Contrary to your assertion, landlords are not primarily focused on the appreciation of the market value of their assets exceeding inflation but instead on achieving a reliable income stream from rents. This cash flow can be sustainably profitable under stable rents, so the structural conundrum you propose doesn’t exist in the real world.
Rare is the landlord who continually settles for a stable rent when increasing it is feasible.
As home prices rise, would-be buyers are forced out of the market and have to contend with existing renters, increasing demand for rental housing, which in turn causes rents to increase. Taxes on rental properties increase, also serving to increase rent.
Many homeowners have prejudice against different types of housing other than these behemoth ranch houses or Victorian mansions, yet are perfectly happy enough to literally lift up their house and rebuild their ground floor as a rental unit, effectively preventing renters from doing anything but renting basements.
Homeowners, regardless of whether they're landlords or not, will sometimes actively oppose anything they think will negatively impact their appreciation, regardless of whether it's even remotely true, sometimes even going so far as to preemptively move away if mid-rise apartments go in nearby.
1) population growth. If population grows faster than the housing, you would expect house prices to go up.
2) limited amount of land, especially in places where people want to live
It can if density increases too.
Existing home increases in price, but new homes being built are single-family homes torn down and replaced with 4-plexes, which are then replaced with apartment buildings in turn. Thus SFH price increases over inflation, “housing” price doesn’t have to, because new options are less pricy.
> Renters want housing to remain affordable and to increase no faster than inflation.
> Owners expect (and bank on) the value of their house increasing faster than inflation.
Also: in many hot markets it costs more to buy than to rent, sometimes by 2x or more. Rental and owned stock are not always the same markets, not always the same housing even though it seems like they “have to be”.
I do wonder if a handful of countries (Canada and Australia in particular) are going to suffer drawn-out stagflation, since incomes need to increase to account for increased housing costs, but homeowners won't vote for anything that will temper their investments, so the cycle continues until demographics swing the voter base in favour of non-homeowners.
It's not about programming or entitlement.
It's because there is literally no other social safety net. Even here in Canada, where we laud our healthcare to Americans (despite it's massive flaws), there is no social safety net for retirement.
For a substantial percentage of north american homeowners, the expectation is you hold on to your home, downsize when you retire, and live off the difference until you die.
This needs to be fixed if we otherwise break this fundamental ssumption.
I think you have the cause and effect reversed. They believe a home yields a return because it does. They aren't delusional or stupid - they're making money. There's nothing to "deprogram".
Maybe dive one layer deeper and ask why investing in houses has been better than investing in stocks or bonds/CDs.
But the reverse is also true. People are hugely sensitive to house prices falling, because they are leveraged. If I owned my home outright (no mortgage) and the value fell 10%, I wouldn't be happy. But if I had a mortgage with 5% down, all my equity got wiped out, and I'm now 5% underwater.
Market competitive returns for housing need to account for taxes, maintenance and management, vacancies and risk. This needs to EXCEED stock market returns or prospective landlords put their capital into the market. Already, the US quietly subsidizes housing returns with tax policy including 1031 exchange, tax deductions for every conceivable expense and more -- and even then, residential real estate is risky, illiquid and a hassle vs just buying ETFs.
This also affects builders: if they're starved of returns, they're quickly starved of capital, which means no new housing.
Public housing can be a nice solution: compete with the free market by offering a low cost option devoid of the capital constraints. When this works, you get Swedish housing, when it doesn't you get NYCHA. It's worth nothing that neither one has kept up with demand, with very long waitlists. Neither system supports transfers out of region, which destroys social mobility i.e. great inventors/etc are not able to develop themselves and do great work because they can't afford to move. All of these is theoretically fixable, but extremely hard in practice.
https://www.google.com/search?q=swedish+public+housing
https://www.google.com/search?q=swedish+public+housing+waiti...
https://www.google.com/search?q=nycha+assessment
--- Overall Findings
Overall, the NYSDOH inspection teams found hazardous environmental and health conditions throughout the NYCHA system. Approximately 83 percent (212 out of 255) of all units inspected contained at least one high severity environmental quality hazard. Inspection teams found similar issues in building common areas with 75 percent (48 out of 64) containing at least one high severity hazard. The top three high severity issues found in NYCHA units were insect infestation (mostly cockroach infestations), issues with walls and/or floors and the presence of mold growth.
https://www.governor.ny.gov/sites/default/files/atoms/files/...
Housing is very expensive, and buying your first house is often a titanic effort. It requires years of saving, often ain informal loan from family and then a substantial mortgage.
So once you buy this thing, your biggest fear is that it will depreciate. Never mind making money out of it.
This creates a lot of very strong local NIMBYism, and in the UK it's not that hard for the local population to stop housing projects.
When phrased like this, I do sympathise, even if it's "selfish". A mere announcement of new housing projects in the vicinity can cut your house value by 10%, or easily more.
So we created a world where house owning club is super expensive to join, and once you're in, it is your existential imperative to keep house prices high.
All this before you even say "appreciation". I posit that most people in the UK would be quite happy with affordable housing whose price is linked to inflation or sth.
Owners who are using housing as an investment may want house prices to rise, but I don't. The shortfall between those two can be managed with tax, surely? I am no expert in this market, but owning one extra house would mean I assist with rental supply, owning two maybe moreso, but owning 5? 10? 100? Why is property tax not applied at a greater rate/value as the number of properties you own increases?
And of course, if there is money to be made investing in housing, institutional investors will capture that value readily, as they have done in Australia (and probably elsewhere I would imagine).
>To solve the housing crisis, Americans need to be deprogrammed out of this belief that owning a home is supposed to yield a return.
Markets don't quite work like that. A seller will sell at the highest price offered (as same as the buyer will buy at the lowest price), if you were able to "deprogram" this behavior, you'd put the entire market, not just the real estate, in complete chaos.
Not if the highest price offered is too low for the seller and they are sitting on a low fixed rate mortgage and/or low property taxes.
That is the difference between land or space and most other items in the market. If the annual costs are low enough, many times it makes sense to just wait for the government to bring back easy money, and you get to profit for doing nothing.
No one is hurt by a less efficient art market, so there is no outcry about it.
An inefficient property/land/house/space market leads to all sorts of problems in society.
1.https://www.investopedia.com/terms/e/efficientmarkethypothes...
https://en.wikipedia.org/wiki/Price_discovery
> Markets don't quite work like that. A seller will sell at the highest price offered (as same as the buyer will buy at the lowest price), if you were able to "deprogram" this behavior, you'd put the entire market, not just the real estate, in complete chaos.
I don't think your criticism here works. The point is that people buy with expectations of return, and therefore are willing to pay investment prices rather than just equivalent-to-renting prices. Your reply doesn't address that at all.
[1] I think this is intuitively obvious. The promise of future return will never have a price of zero.
> Investment driven demand appears to result from the already raising prices.
This is more on point... and it's also almost the definition of a bubble (people buying as an investment because the price is going up, and the money coming in raising prices further). I don't know any way to fix it except to increase supply enough to soak up all the money coming in, plus a bit. But, worse, I don't know any way to fix it that won't damage people who bought it as an investment.
I guess the only thing I can see is to build more, but not absolutely flood the market, so that the price goes down (or at least stops going up) but doesn't absolutely crater.
If people believing something is a sound investment made something an investment you could just buy random equities on the stock market and make bank as everyone* on that market believes that they make a sound investment.
* Statistically everyone, there might be some individuals intentionally taking a loss, I imagine.
We especially need more of a certain kind of housing, housing we used to build and don't anymore. Housing aimed at renters with entry level jobs who may not have a car.
We've underbuilt for decades, so it seems to also be negatively impacting more middle class Americans, but I haven't studied that anywhere near as much as I have studied what is causing chronic homelessness for many Americans, something we didn't see at this scale in the past.
I'm not seeing words like "immigration", "immigrant", or "foreign" at all within the article.
I don't think that this topic can be seriously discussed without factoring in the impact of immigration.
The cost of housing is just one of many significant economic distortions caused by bringing in a relatively huge number of people each year.
I recommend the writings of Lars Doucet: http://gameofrent.com/
This doesn't hold up to basic scrutiny. According to https://www.zumper.com/rent-research/vancouver-bc, "As of August 2023, the average rent for a 1-bedroom apartment in Vancouver, BC is $2,800"
So let's pick a median apartment but an owner who thinks they can wait out a higher rent. What extra revenue do we believe is reasonable for them to hold out for? Let's be EXTREMELY generous and say they want to hold out to get $3200.
The maximum legal rent increase in BC is 2%/year. On a 5 year timeline, the baseline is 2800+2856+2913+2971+3030=14,570. If they somehow get $3,200, that's instead 3464+3396+3329+3264+3200=$16,653. A difference of 2083$!
Wow, 2 thousand dollars, that's a lot of......wait, no that's literally less than ONE month of rent revenue. Holding out for even ONE month and having the unit unoccupied erases ANY possible benefits from the extra rent.
I really really liked everything else about this article. But this super fundamental mistake makes me question the credibility of the author :/
If the market rate increases by 10%/year than if you wait a year you can charge an additional 8% over having a tenant.
Which you have to pay regardless of whether the unit is occupied or not.
So the actual situation is FAR worse than what I estimated.
If your tenants are paying enough to cover your mortgage plus maintenance then after the mortgage is paid off (in 20-30 years), you can sell the building and not split the sale price with anyone.
Now, you do lose out on the interest payments. On the other hand, access to more capital via a loan gives you access to a better ways of generating money, so you need to calculate the full expected future value.
Just like if you buy the building with cash - no mortgage! - you have to factor in the effects of your lower liquidity.
In any case, my point is that your earlier "basic scrutiny" omits some very important "super fundamental" details so cannot be used to reach the conclusion you think it did.
"Building more homes won't solve the housing crisis, because [ landlords, immigrants, greedy developers ] will buy them all up!" is a popular rallying cry against even attempting to build more homes. But a more honest statement of their complaint, "building more homes won't solve the housing crisis in its entirety without additional measures to help the most vulnerable" would admit that building more homes is absolutely part of the solution, not part of the problem.
That sounds like a high school debate method - "Webster's Dictionary defines 'crisis' as ... This does not meet that definition. Therefore this is not a crisis."
As a counter-example, people have been using the term "climate crisis" since at least the 1980s. Does decades of use make the underlying situation a permanent state of affairs that we should accept?
Furthermore, the idea of "crisis" used in this structural fashion has been around for even longer. A quick Google Scholar search found Holton (1987) "The Idea of Crisis in Modern Society" in The British Journal of Sociology:
] In the contemporary world we are told that 'crisis' threatens us on all sides ... I want to examine the analytical utility of the crisis metaphor for an understanding of the contemporary western world. ...
] The metaphoricality of the language of social crisis draws of course on older aesthetic and medical usages. In the aesthetic structure of drama, for example, crisis is manifest through a key moment or moments in a narrative wherein the dilemmas of human life and the fate of human actors are dramatised. This structure presupposes that crisis is an abnormal and discontinuous feature of narrative rather than a permanent fixture. ...
] The crisis metaphor has of course been translated into social enquiry as a means of dramatising perceptions of social pathology, social breakdown and disorganisation, and to give full vent to feelings as to the intolerability of the present. Its use is thus embedded in discourses about social change and debates about appropriate forms of political action. The assumption is that crises are unacceptable, and that they can and ought, sooner or later, to be resolved.
The phrase "housing crisis" is based in this latter, metaphorical use. Tranjan appears to require it only fit the former and older definition.
Holton goes on to write:
] While the use of the crisis metaphor in social criticism is not without pronounced disadvantages, it does retain a considerable degree of utility. In the first place it underscores the refusal to accept all features of social life as necessarily 'given' and 'unproblematic'. In so doing any notion of 'normality' is itself brought into question. The social pathologies identified by crisis theory pre-empt the 'normal' functioning of social life, while yet leaving space for successful recovery, if the appropriate social changes eventuate.
The term "housing crisis" is used for exactly that purpose - to refuse to accept the current situation as necessarily given and unproblematic.
Ricardo Tranjan's essay rejects the term "crisis" precisely to normalize the long-term structural issues which the crisis-ist consider unacceptable and "ought, sooner or later, to be resolved."
> Rents are determined by “what the market will bear,” as economists say.
No? I mean, they can be that way, but the author clearly knows about rent controls, which determine rates in a different way than simply what the market will bear.
> The purpose of the rental market is not to ensure the highest possible number of families is securely housed. The purpose of the rental market is to extract income from tenants, and as far as this goal is concerned, it works like a charm!
The purpose of a produce market is to extract money from selling produce, not to ensure the highest quality of nutrition.
That doesn't mean the government can't regulate produce sales to set minimum quality levels. Nor does it mean that the government can't regulate the rental market, even if doing so reduces profits.
The government could also ...
Where this goes wrong: The market has no purpose other than to facilitate exchange. People buying property are buying because they correctly believe the price will go up because the supply/demand characteristics of the market indicate that will happen. Yes, we did produce more houses than we created additional households for the last several years, however, at least as of 2021 Canada had the lowest housing stock per capita of any G7 nation, so the market is still extremely tight so prices should and did rise. If you don't like that the correct answer is still to push for policies that increase supply (despite what this marxist crap says). The nuance is that we have structural issues in Canada (and many other places) that limit the speed at which we can build housing supply that people actually want and that incentivizes knocking down the low end cheaper rental units and building luxury units instead because of scarcity in high density zone residential land. So the policies we need to push for are things like getting rid of minimum parking requirements, rezoning vast swaths of single family home zoned land to at least allow multi family medium to high density, especially around the core, and supporting this newly rezoned land with better transit, better walkways, better bike paths to get more people out of cars and into transportation better suited to higher density.