The sooner we collectively decide that housing shouldn't be a market, the better. We all need it, and we should figure out mechanisms to make it available to all.
Practically that means paying to build and maintain housing stocks, changing tax incentives so developers are incentivized to build more housing and less luxury housing, charging a premium for unused land in desirable areas (parking lots don't house people), abolish mandatory minimum parking, and upzone neighborhoods (eliminating the "single family home" neighborhoods as a zoning type.)
I'm also of the much more radical opinion that we should protect tenants over landlords in nearly every case, that we should protect the rights of people to live where they've historically lived (eg, one shouldn't be "priced out" of the home they've lived in for 20 years), and we should offer extensive public housing (built as many geographically distributed small apartment buildings and 5 over 1s, not giant tenements or projects.)
The inevitable outcome of housing inflation and elimination of the middle class is slums: illegal housing. People will have to live somewhere. And when that becomes unaffordable they'll just improvise.
This is not a technical problem but a policy problem. The solution is changing the policy. The current policy is to drive up housing prices by creating completely artificial scarcity. All the land is owned and earmarked. Just not for housing. This problem exists in most wealthy nations. There is no shortage of space. Just of access to that space. Mostly that's completely intentional and reinforced by generations of politicians acting on the will of the people they represent to ensure that can never change.
You have NIMBYs and vested financial interests basically. Nobody wants their property devalued. So, social housing always is unpopular with the locals. Places like San Francisco where the homeless take dumps on Market Street are of course a bit extreme. But same principle. No shortage of space there.
But it's all reserved and off limits. So, the homeless are camping out there. In the middle of a city full of some of the richest NIMBYs on this planet. That's not a temporary solution. That's a slum and it is growing. Complete with people just shitting all over the place. Slums are what happens when you let things escalate.
> The current policy is to drive up housing prices by creating completely artificial scarcity.
This is true but not in the way that you mean. As you said there is no shortage of space. But it's important to point out that on a global scale there is no housing shortage either. Vacant dwellings outnumber homeless people by far in most industrialized countries where homelessness is rampant (for example: 3 million empty dwellings here in France).
You seem to imply the problem is housing regulations and NIMBY preventing new constructions, but who cares when the houses are already there. I agree with you the problem is that of policy, but i would say the policy responsible for that immense suffering is "private property", the religious belief that land should be owned and that a piece of paper should dictate whether you can sleep under a roof or not and/or have access to food/healthcare/education.
We can eradicate homelessness in under 48h: it's just that no politician cares at all about poverty from their ivory tower! Just give the police instruction not to intervene for "breaking and entering" in *vacant* housing (or even better, abolish police entirely) and we can rehouse every homeless person in the next two days. Of course it would take a few weeks to rehabilitate some of the housing unit and make them real decent, but even in the meantime old housing would be much better than no housing.
The problem is, one, that those vacant homes are not necessarily in places people live or want to live (unless we’re shipping homeless people off to empty homes), and two, that homeless people aren’t the only ones in need of housing - there are far more people living in overcrowded housing, or who are unable to move out of their parents’ house, or can’t afford to live without roommates, than there are vacant homes. That’s to say nothing of the people who are overpaying for housing today, whether in rent or mortgage, reducing their overall standard of living.
There’s a massive housing shortage in the United States and it’s acting like a vacuum, sucking up wealth and diverting it to landowners.
> those vacant homes are not necessarily in places people live or want to live
Good point, although i would like data to back that claim. For example in France, 200k empty dwellings are in Paris alone: this does not account for vacant industrial/office space which could also be converted to housing. In all cases, *proposing* (without coercion) homeless people a house somewhere does not sound inhumane at all.
> there are far more people living in overcrowded housing
Good point, too. Although as i said i would like to see data suggesting that the current real estate market (accounting for all vacant units) can't house everyone decently.
> There’s a massive housing shortage in the United States and it’s acting like a vacuum, sucking up wealth and diverting it to landowners.
To be clear, i'm not saying we should stop building houses entirely. But as long as you allow housing to remain vacant, prices are driven by speculation not by actual supply. I believe we should both rehouse homeless people immediately and keep investing in eco-friendly collective, affordable housing.
Also, just because it's "vacant" doesn't mean it can actually be used to house homeless people. It could be undergoing renovations, or on the rental market.
10% doesn't seem entirely reasonable. Maybe bit high, but still if the vacancy is because renovation, waiting for new tenants either renters or owners. You want some slack in any market. And ofc, there is some number of second or third properties in cities like Paris. Maybe part of solution would be to ban these and AirBnB entirely. Only allow hotels and like to exist.
> Parkmerced is a neighborhood in San Francisco, California, designed by architects Leonard Schultze and Thomas Dolliver Church in the early 1940s. Parkmerced is the second-largest single-owner neighborhood of apartment blocks west of the Mississippi River after Park La Brea in Los Angeles. It was a planned neighborhood of high-rise apartment towers and low-rise garden apartments in southwestern San Francisco for middle-income tenants. It contains 3,221 residences (after sale of five blocks to San Francisco State University (SFSU)) and over 9,000 residents, and is one of four remaining privately owned large-scale garden apartment complexes in the United States.
On my block, just on my street, there are over a dozen empty garden apartments, 2- and 3-bedrooms, that have been empty since (more-or-less) the beginning of the pandemic lockdowns. Folks started leaving and no one has moved back in. Next to my house there are three empty apt.'s to the left, one to the right, and four across the street.
The owners haven't lowered rents though.
The theory is that they would rather keep the rents high and the apartments empty than lower the rents because if they do that it affects their ability to raise rents later on (rent control is the only way I afford to still live here. For better or worse my family pays less than half the market rate. However, as I am describing, the market rate is not "clearing the demand" or whatever the economic jargon would be. No one is renting at "market" rate right now.) The other problem is that rents going down affect the valuation of the property, something like that. IANAEconomist.
Anyway... There are literally hundreds of perfectly fine apartments ready to rent here in Park Merced, with the M line light rail going directly to downtown SF in about 20-30 minutes and a BART station in walking distance.
- - - -
Get this.
Some folks moved in to the place across the street on Monday, but then Wednesday the staff was here kicking them out: they were squatters. I spoke to one of the staff who told me that this was a group of people who were breaking in and squatting in units all over the property, that they had changed the locks on the house they tried to squat in, and that he had called the police, who asked if anyone was being violent (no) and then still hadn't shown up an hour later! They never did show up. The squatters moved all their stuff and their two dogs back into their vehicles and left.
This is one of the reasons rent-control is a bad idea. It is foolish to leave an unrented apartment empty, provided you can maximize your revenue when market conditions change. Only when locked into a low-rent does it make sense to keep it off the market. Not to mention it disincentives investment and improvements.
We need to make it easy to use the the housing we have, build more housing (of any kind) and subsidize those who need assistance.
Seems like rent controls are the issues. Causing markets to be inefficient. No surprises there. Get rid of them and maybe supply increases as it can better match demand and capability of renters to pay.
Markets are not a magical oracle of true value though, especially in our current, deeply distorted economy which has the rich gobbling up assets and increasing prices well beyond any livable standard, which is the point of TFA.
Isolating price controls as some kind of glaring inefficiency in an otherwise rational system sounds like ideology, not reason.
It should be manifestly clear that an unregulated market has not served us well for the issue of housing, not just for the indigent but for all non-wealthy individuals and families who spend well over 50% of their income now on rent or mortgage payments.
Attacking rent control in isolation is irrational. Yes it can create a bad situation for landlords in the absence of any other policies designed to mitigate the disaster we are in. But saying that "market efficiency" is the answer is just sticking your head in the sand.
In a world w/o rent control, how do you imagine things playing out here? If the landlord lowered rates now and got tenants (without rent control), then demand rebounds, does the landlord then increase the rent again? Wouldn't that put a lot of the new lower-rent renters back out on the street?
Anyway, the OP's point stands: there are perfectly good homes going empty. They aren't out in the woods. They are right here in SF.
Yes, terminate the contract according to local regulations. Rent again for higher price. Then those who can't afford would need to either move out to cheaper regions or find ways to pay the correct market rate.
That seems like it would make for a pretty precarious living situation for people who can't find ways to pay the correct market rate, eh?
The bottom line (no pun intended) is that the corporation that owns Park Merced has (presumably) done the math and they expect to make more money by keeping the apartments empty and eating the losses now (and paying the overhead of evicting gangs of squatters) so they can rent them later at the "correct" market rate (a pretty likely speculation, I'll grant them) than by renting them at a market rate that fills them up again now and getting locked in to rent control at the new, lower rates later on.
So, in other words, the poor people can't live there because someday soon the rich people will almost certainly want to live there again.
What you suggest would instead let the poor people stay in the apartments until the rich people wanted back in, so I guess that's an improvement?
But I don't follow how getting rid of rent control would incentivize supply increases?
> But I don't follow how getting rid of rent control would incentivize supply increases?
Leaving units empty, or locked into lower-than-market rates are going to reduce the average profitability of investments. Investment in new units is in part a function of how profitable they will be sell, or to rent out.
But honestly the incentive for bay area real-estate is there, what really is needed is the ability to build with fewer encumbrances.
> That seems like it would make for a pretty precarious living situation for people who can't find ways to pay the correct market rate, eh?
Yes, this is generally referred to as gentrification. But, renting, even to poorer people, nevertheless is still usually profitable, albeit with more risk requiring a larger portfolio.
"This is true but not in the way that you mean. As you said there is no shortage of space. But it's important to point out that on a global scale there is no housing shortage either. Vacant dwellings outnumber homeless people by far in most industrialized countries where homelessness is rampant (for example: 3 million empty dwellings here in France)."
I always wonder about public transportation. It never really took off in the US, but it IS way more efficient. If we had very fast subways / trains, we could theoretically stretch housing way out away from the city. Then there is more equal opportunity for jobs / attending universities without living on campus.
I know this is a bit off topic, but it always seems to me like having QUALITY public transportation is efficient, but I can't quite defend it.
Not even to the exclusion of cars. For example I know a lot of workers who drive their car to the subway station in Toronto (and other cities) and then spare themselves the traffic and gas cost of sitting on the highway for 2 hours. And this is the ONLY solution for a big city, since most can't afford to live by the jobs/colleges (even suburban single-bathroom costs are over a million 40 mins out from downtown).
EDIT: I can see residents downtown paying the most taxes being against it though - all it does for them in personal terms is erode their power. Makes their real estate cheaper (removes exclusivity of quick access to offices / educational facilities) and makes the downtown areas accessible to people who can't live there.
The housing away from the city still needs to be pretty dense, otherwise you're building a ton of infrastructure to transport few people (or people need to drive / take the bus to the train station which isn't the end of the world).
> I can see residents downtown paying the most taxes being against it though - all it does for them in personal terms is erode their power.
It could also help subsidize their taxes to some extent since commuters are occupying offices and spending money in the city without occupying housing. Depends how things are set up. I don't think the people living in Manhattan resent people commuting from Jersey or Queens for work.
It sounds incredibly naive to imagine that stopping enforcement of breaking and entering will suddenly give everyone a place to stay. It might work for a few minutes or a few weeks, but I guarantee that the freeloaders won't fix the window or door jamb that they break. Why should they? They have no pride of ownership.
I spent some time in the Soviet Union before the wall fell. It sucked. Idealistic ideas like this destroy housing for everyone.
The saying used to be that many think they are Temporarily Embarrassed Millionaires, but I think at this point it's fair to say that many people think they are middle class when in fact, the middle class has been swept from underneath them and they are now more or less comfortably-poor. Public services, housing affordability, food availability, product quality, fair pay and benefits. Previously middle class people are struggling to mesh it all together into a middle-class life, the money isn't there and the availability and quality of products and services isn't there either.
I think that in order to protect it's ability to offer a first world living by it's communities, the US needs to fatten up it's middle class with better wages. There could be a number of ways to do that, but the basic goal is to get more money into the hands of the average American so they can spend it in the community and make the whole country better.
You should read about inflation. Efforts to fatten up the middle class with free giveaways to certain voting blocks has and will continue to spur inflation and make those same voters ever less wealthy. But voters are myopic, so they’ll vote for free money every time. Eventually you get Venezuela.
A better way would be to protect people by not making policy decisions that reward bad behavior and punish those who avoid debt and save. Rewarding terrible behavior may get you elected but it’s bad for society. Like giving candy to pacify a cranky baby.
But such opinions have become verboten now, and actually censored.
I wasn't suggesting a handout though I can see how that's easy to read. I don't have the answers on how to achieve it, but policy changes to shift more people up the class chain rather than pushing them down is what I was thinking. Raising minimum wage, reducing service burdens on the individual, reducing the cost of housing, adjusting taxes perhaps. Generally freeing up money to be available and spent in the community and not caught up in financial instruments and real estate.
> The current policy is to drive up housing prices by creating completely artificial scarcity. All the land is owned and earmarked. Just not for housing.
That's not the problem either, the scarcity is (with the exception of foreign - i.e. Chinese and Russian - money laundering) natural and not artificial. The true problem is that following mechanization in agriculture many people emigrated from rural areas, resulting in a lack of infrastructure because it was unsustainably expensive for the low population density - particularly high speed internet and accessible (=walkable or within reach with a bicycle) basic infrastructure such as a grocery store, a GP and pharmacy and schools. That lack drives more people away, it's a vicious cycle that will need enormous amounts of money to break through.
If you want to work a modern service-oriented job or even a manufacturing/industry type job, you have to move to an urban or suburban area, and even if you have money and want to provide gainful employment you simply can't because there is no high-speed Internet for your business.
What needs to be done is that the government aggressively invests into "flyover" states to provide perspectives for the people living there and considering moving to a better place - but unfortunately I don't see that happening, not in the US and not in Europe where we have similar problems.
There's nothing natural about zoning restrictions. Those are designed to keep people out. Especially working class people. They get to live very far away from where their services are needed in some extreme cases.
Fix the policy and house prices will drop. That creates a new problem of course for those who then end up with a Mortage that is under water. That's the real reason the policy does not get fixed.
Zoning restrictions make sense - without them, rabid capitalism takes over, and the only thing that matters is extracting the maximum profit out of any given piece of land. That in turn means no green anymore, ugly AF buildings (especially high-rises), a severe issue with traffic because public transport usually isn't even in the picture and the existing roads can't take up the traffic resulting from the newer density, and as a result of that a whole ugly neighborhood with no quality of life for the inmates. If you want an example just how ugly a city can turn out, just visit Frankfurt.
Thanks but no thanks. I'd rather like if people can move towards rural areas where possible.
> while house prices went crazy roughly after 2000.
It began earlier, the problem (why the situation in urban areas exploded) was that after ~2000-2005 it simply became apparent that the future was the Internet and there was no way government or much less the private companies would ever put up the money to provide actual high speed Internet to rural areas - and so all the new "digital" companies set up shop in urban areas, and people flocked to where the new jobs were.
Had the US government taken care to make sure that the companies not pocket literal billions of funds without providing the service that the government funded [1] you would not be in the mess you are now.
more people need to move to cities, not more sprawl. there are lots of cities where NIMBY/ YIMBY stuff isnt an issue but people on HN dont want to live in those places.
I think a real issue is the cost of infrastructure and network effects.
Essentially, a big corporation could buy cheap rural land close to a big city, develop a small city there and reap the "overpricing" benefits.
But it's very expensive to build the basic infra. And even more expensive to convince enough people to move there and create minimum network effects for it to become a "real" community and livable space.
Nobody "decided" that housing is a market. If something can be bought and sold, then this is inherently a market.
Yes, we can and should regulate markets, and we probably all agree that the purpose of the housing is for people to have a roof over their head, as opposed to use housing as an (speculative) investment market. This can easily be regulated via taxes (on ownership and transactions), but it comes with a caveat: if something is over-regulated to benefit the user, then there is less incentive for investor/landlord to build housing, which makes housing scarcer and drives prices up.
I buy electricity from a monopoly provider in my area, run the government. Is that a market? I buy sewer and garbage service likewise.
There are some commodities we choose to operate as natural monopolies because competition and profit seeking leads to bad outcomes for society. My argument is fundamentally that housing is the same.
No, not at all. We don’t choose natural monopolies. We recognize them. The whole point is they are naturally occurring whether we want them or not. Housing shares nothing in common with the other services you mention which are anything but commodities!
The natural monopoly of the electrical company isn’t electricity, it’s distribution. Power is a commodity, and delivery is anything but.
Your argument that housing is the same is not well informed.
There is no reason we have to pay for anything. Money is not a natural construct and is a leaky abstraction. Our ancestors built housing long before currency was even invented.
Public services are not a "natural monopoly". They are a deliberate political choice (that was paid in blood by the lower classes, see also Haymarket Affair for example). We could very easily make housing free for all, or just affordable (see also HLM program in France).
> There is no reason we have to pay for anything. Money is not a natural construct and is a leaky abstraction. Our ancestors built housing long before currency was even invented.
As you note, there are other ways to pay for things than money. Whether it's "paid in blood" or other barter system, there is always a cost to pay.
> We could very easily make housing free for all, or just affordable (see also HLM program in France).
Would love to hear your very easy solutions. Affordability is relative. If you have more demand than supply (as we do with housing) the only way to increase affordability in real terms is to shift the supply curve. This shift is not free, and somebody has to pay for it. This is where the "omg it's so easy" arguments typically fall apart.
> Whether it's "paid in blood" or other barter system, there is always a cost to pay.
I meant the social rights/protections had to be paid in blood. But nothing in itself requires payment. We just happen to live in a society which commoditizes everything. If everyone worked some field they're passionate about (and people are passionate about many things) and we evenly shared the work for undesirable jobs (eg. cleaning) we could have everything for free.
> If you have more demand than supply (as we do with housing)
This is highly uninformed. In many countries around the planet, empty dwellings easily outnumber homeless people so we don't need to build anything at all to house everyone. Moreover, if we just stopped tearing down housing and started renovating them, that's also much less work/resources. Finally, if you really want/need more housing, a government run program (such as the HLM i mentioned before) shows you can build affordable housing for 10-30k€/appartment and rent them for a final user cost (after government help for housing) of under 100€/month.
It's a shame like all public services across France the HLM system is being corrupted and coopted into money-making machine. The buildings in popular neighborhoods go unmaintained while administrators pocket all the money, and the little that's left goes into developing higher-classes "HLM" housing which we popular classes can't afford.
> If everyone worked ... we could have everything for free.
Nothing is free. As you say yourself, everything requires work. This is just physics.
> This is highly uninformed.
Ok sure, I'll bite. Your understanding of supply and demand is extremely naive. An empty dwelling does not mean excess supply. If I own two houses, it's because I want two houses. It's not because we have too many houses. In fact, hoarding is a classic sign that we don't have enough of something.
I think you ought to step back and understand why the things you mention exist. You will find out more by doing that than you will shouting into the void on HN. If it were as easy as you proclaim, we would be doing it. The world is not stupid.
The point is that 1 KWh is 1KWh, but your home on the top floor of Millennium Tower is not equivalent to my home across from the 680 overpass. Housing is not a commodity like electricity, it's not fungible.
Is anyone in this thread proposing this kind of system? This is kind of an insane strawman.
You can have a regulated market that still has prices. OP only proposed incentives to build and disincentives to hoard. Homes would still have prices, there would just be less scarcity.
OP is claiming that housing is a commodity. If treated as a commodity, all houses would be priced the same. Then the reality sets in and you have to deal with the fact that some houses are more desirable than others, so you need to distribute them somehow without changing the price.
I suppose, in the same way negative interest rates are just interest rates with extra steps.
Start from a position of "everyone gets a home" and then ask "in that case, how do we make sure folks who end up in less desirable homes are compensated?"
I suppose you could frame it in the language of prices, but in this case the price is paid to the tenant.
Indeed, it would be a tragedy if someone’s taxpayer-provided housing was insufficiently desirable that we must create a bureau to determine how much additional largess they should receive. That system seems likely to end well.
Ah hmm, that's interesting. How have lotteries for highly desired goods worked out in other centrally planned regimes? Did we find a pretty broad socioeconomic distribution among dacha owners in the USSR?
That’s exactly what Singapore does with new public housing - it’s a lottery.
And now they are “clawing back” future price appreciation because it’s literally like winning the lottery if you get a place in a prime ___location as public housing is heavily subsidized.
If you get selected for a prime area apartment it’s a huge financial win 5 years down the road when you sell at market prices.
And oh yes, Singaporeans game the hell out of the system. From carefully falling under household income limits, to bidding on a new public housing unit despite owning one now.
The government is constantly trying to keep up with all the new incentives each new rule creates.
This is a fair question, and one I'm not entirely satisfied that I have the answer for. Ideally, in my mind, I wouldn't own my home but I'd also be on the hook for maintenance and upkeep. But I recognize this does not meet everyone's needs and needs more thought.
I would also hope that we would tend to build fewer mansions in favor of more multi family complexes, cohousing, coops, and small community oriented housing on the beach.
You know this kind of leads towards communism... Which I think is the key problem with any kind of shared equality by force system, it will work nicely so long as no one running things decides they don't want it to, then it works really poorly.
Looking at any single step on a path and rejecting it because the extreme end of the path isn't desirable is a quick way to never make any progress.
We can improve things, we can do social good, and never slide to authoritarianism. (I assume you are talking about authoritarian communism vs, eg, council communism.)
Of course we can, but doing it at a society scale is very difficult and you have to be vary careful about who is on charge - or ends up with most influence - as history has consistently shown.
I think it's easy (well reasonably) to do if resources are plentiful, but what do you do if there are more people than resources available to support them, who starts making the hard choices?
You're confusing want and need though. You might not like to live in any house, and you might need to be roughly geographically located to do work, but for the most part any house that fits your family is interchangable.
When you take the other things, like job and where you want to send your kids to school it becomes a hell of a lot more fungible.
Given that commoditization is a scale, I would say it could be toward that end of the spectrum if we wanted it to be.
> Given that commoditization is a scale, I would say it could be toward that end of the spectrum if we wanted it to be.
Commoditization is only a scale inasmuch as the underlying goods are fungible. Corn is a commodity because nobody cares about differences between individual kernels, but if some process came around that only worked with super-specific kernels, then you'd be reducing the commoditization of corn.
I can, however, think of nothing that would make housing even close to fungible. Views, neighborhoods, neighbors, noise, history, ___location -- the list of things which are entirely unique per property is higher than basically any other market I can think of.
Those are things you're attaching because of privilege though. One visit to China will give you a view of just how much housing can be commodtized. Endless rows of apartment buildings, each identical, supplying everything you could need.
If you're without a home, one house is very much like another. It's only once you have money and ambition that you might want a better view, better schools.
Treating something as if it's a commodity does not make it a commodity. Treating two things as if they're equivalent does not make them equivalent.
You might say "your right to choose between houses is a privilege", but literally every culture in the world is going to observe differences between two houses, regardless of how they're allocated.
Even considering buildings where every unit has an identical layout, and all residents have access to the exact same amenities, one unit might be closer to the elevator and one unit might be closer to the garbage chute. These are fundamental differences between these units which make them not interchangeable.
> Endless rows of apartment buildings, each identical, supplying everything you could need.
"Providing everything you could need" is not how we define commodities. Fungibility is how we define commodities. One can argue that we should just be thankful with whatever home we get, but trying to act as if they're equivalent is just wrong.
I’ve been to Asia that’s not true at all. Higher floors are more valuable. Views are more valuable. And not even to mention fung shui and the direction doors open.
> If you're without a home, one house is very much like another. It's only once you have money and ambition that you might want a better view, better schools.
Particularly if you're poor, ___location matters a lot.
The very rich will build a mansion in a beautiful but inaccessible area and commute to work by helicopter. The merely rich have the nice cars to get to work. But the poor have no car so need to be either very close or within public transport (mostly nonexistent in the US) to get to that job.
Eh I see your point but I disagree. Look for housing in a highly competitive city, and soon enough you stop caring about geographical specifics and instead look for some combination of useful attributes. In practice, that's fungibility.
This whole thread is filled with similarly absurd statements like this one. That is not “fungibility” at all, not in practice, not in the slightest.
Fungibility is the absolute incontrovertible likeness of two separate units to the point where they are entirely interchangeable across all parties in the economy.
US dollar bills are fungible. Even BTC are not entirely fungible anymore. Houses are not even remotely fungible.
Just because you're willing to accept a wide range of houses does not make them fungible. Each house is unique and each home buyer has different priorities.
That's why houses a priced individually. When you go to the grocery store, they don't individually price each cob of corn. There might be two different buckets with a differentiator (organic vs non organic), but within the bucket each cob is fungible. It doesn't matter which one you grab.
I think gasoline or diesel is a commodity because for the most part a gallon of gasoline is a gallon of gasoline whether you buy it at Shell or at Costco. I mean Shell will probably try to say they have better detergents or whatever but for the most part they are the same.
Similarly, one unit of electricity from solar is the same as a unit of electricity because a kilowatt hour is a kilowatt hour. You could say well my unit of electricity is better because Elon Musk sold it but for the most part they do the same thing.
Housing is not that very interchangeable. For example, in the Denver area in Colorado apparently the Cherry Creek area commands a higher sticker price because of the school district.
Some homes are just more desirable than others. For me, I desire:
* Excellent public transit
* Excellent symmetric high speed fiber optic Internet connection to the home
* Costco or Sam's Club within half an hour or inexpensive grocery stores within walkable distance
And there are unspoken assumptions like somewhere an ambulance can get to me in time if I am dying and take me to a hospital so good roads and proximity to a good hospital.
I'll try and argue the point without the useless pejoratives in a companion comment.
Those payments are the equivalent of rent in the housing market. The thing that isn't a market and isn't being bought and sold is the right to provide those services, it's the power grid and generation plants, or the garbage infrastructure. The monopoly on those is what is anti-market and is the equivalent of not being able to buy and sell property.
I'm not making a political point there, I happen to thing some thing are natural monopolies and that markets have their limit. Housing is a complex issue in this respect. Flats in big city blocks are much like a commodity and limited urban building space naturally reduces competition, while nice houses in the suburbs or country are very much a market with lots of options suiting different needs.
> I buy electricity from a monopoly provider in my area, run the government. Is that a market?
It's not a market for you, but it is to your provider. And it naturally impacts the cost that's layed upon you, whether directly through electricity bills or through taxes if it's subsidised.
"then there is less incentive for investor/landlord to build housing, which makes housing scarcer and drives prices up."
This doesn't ring true, it just moves the incentive to people to build housing to live in them selves, and with less competition in the market it would drive prices down.
A more practical solution is housing coops like the BRF system in Sweden. Individual landlordism is mostly banned (there are some company rentals though) - you buy the place you live in, and there are restrictions on renting it out (no more than 2 years in a row, etc.).
It's helped a lot here.
I don't think that social housing is a good solution. It's a complete disaster here in Sweden, with 12+ year waiting times, and massive inequality between those who have those rent-fixed privileged first hand contracts and those stuck in the unregulated wild west of second hand renting. Often resulting in the working poor effectively subsidising wealthier, older people to keep their very cheap flats in the city centre, etc.
To expand on this point, and a similar system in Finland called asumisoikeus:
Municipalities have a pool of housing units. The tenants do not buy the house itself, they buy a right to live in that house, which usually costs about 10% of the price of the house, reimbursed when they move out. They also pay a rent that takes care of the energies and depreciation of the house. Socio-economic status is taken into account when figuring out who's eligible
Now, there are some criticisms of the system, mainly that the rents aren't that much lower than commercial properties. However, it does keep house prices in check. 100m^2 (~1100 sqft) house in the capital region is about 9 years of average take-home income - or 5 years for a couple
In the BRF system, you literally do not "buy the place you live in", you instead buy the right to live there. The actual ownership of the property is with the BRF.
The word is "bostadsrättsförening" [1] which roughly translates to "living rights association" or something (Wikipedia uses "housing cooperative" so I guess that's the best).
The word "förening" is hard to translate, the closest seems to be "voluntary association" [1], it is a formal collection of people with some common purpose (like managing a house). There are legally various types with varying requirements, and so on.
Sweden doesn't have social housing. What you are discussing is called rent control and means that landlords can't decide rents for their properties by themselves. Without rent control you'd get even more segregated cities as many areas would become too expensive for most to live. Landlords and their lobby organizations want rent control abolished though because doubled rents would greatly increase their profits.
What of people who can’t or don’t want to afford to buy and maintain a property? Several times in my life I benefited from renting a room, apartment, or house (in college, just after college, after a breakup/move out, moving to a new city with an unstable job).
It would have been a massive financial burden and personal inconvenience if I had to buy/sell every one of those times.
The probability of an average person being able to afford to live in a home in a "nice area" is much higher in Sweden and other countries with rent control than in countries without. There is no shortage of homes, there is a shortage of homes that people can afford.
Has it really helped? I remember talking to a young Swede a while ago, just a few years out of college. He said he bought a flat in Stockholm pretty much as soon as he had a job, and that the price appreciation since has almost outstripped his salary.
Yeah, but my brother lives in Barcelona - and there it's even worse, on lower salaries.
We ended up paying the same price for relatively similar flats, but in BCN that's much harder to achieve, and they are older and need renovation - and there are thousands of AirBnB slumlords buying up everything.
So yeah, the price increases have been a problem (and hit me badly combined with the interest rate increases) but it's still better than most of Western Europe.
Not trying to be too skeptical, but that doesn't exactly sound like it's working too well. I remember charts by the ECB as showing Sweden with the most overpriced real estate in the EU. It might look ok in comparison to Barcelona, but that one's probably only second to Venice as the world's tourism hot spot and has an extreme concentration of AirBnBs, not exactly representative of Western Europe in general.
Heavy taxation on NPD (non-primary domicile) housing solves this by itself. It's just that convincing people this is in their best interest will take a lot of effort - not to mention that there's a fairly ubiquitous problem of local politicians being in the pockets of property developers in the areas where these problems are at their worst.
People still believe that their home is a good investment, without any thought given to who's going to buy it from them later or where that person will be getting the financing.
I really think most of the solution is in the first part of your plan.
There’s no need to micromanage tenant-landlord relationships or setup governmental panels on who historically deserves to live where, if the government can just make sure there is an oversupply of decent housing at all affordability levels.
The rest really takes care of itself at that point.
Hundred percent. I have a personal ethos that believes profit from rent is amoral, but we could probably address housing concerns without meeting my personal ethics standards, which I freely admit are more extreme than most.
“profit from rent is amoral”. Care to elaborate on this? Does this ethical standard also extend to other human needs as well? For instance should farmers not be able to profit from providing food?
I feel like there's a difference between making a sustainable profit and squeezing every bit out of a trade or contract. I'm not as idealistic as GP, but think we should aim at improving things.
Markets and competition work really well on frontiers in a situation where basic things are covered, because like this more people can participate freely.
There are many things that we have figured out to a pretty high degree and that benefit from collaboration and (very) long term thinking. I think housing, transport, basic medicine/treatment and perhaps to some degree food and water belong to that category. You can always have the luxury/explorative version on top with markets and that model works pretty well where it is applied.
To contrast, if your under such financial stress so you constantly worry whether some big bill is coming your way or you cannot even afford the very basics, then your stuck in a perpetual loop. Landlords, collectors and even police come knocking. It takes a lot of courage, discipline and enough luck and stamina to get out of this. In my opinion this is a a monumental task and effort _wasted_ on a inefficient and short sighted system of power relations.
A farmer and a landlord are different things. My family are farmers, I've been a landlord.
(FWIW, before anyone calls me a hypocrite, I paid back every renter every penny of profit I made from them plus appreciation.)
The labor that the farmer puts in should absolutely be rewarded. But the labor of a farmer is absolutely nothing like a landlord who makes money purely because they had enough money to buy housing. Plenty of landlords hire property management firms, and do little to no labor at all, but still make a profit.
That modality doesn't exist in farming and food the same way it does in housing today.
Why should labor be rewarded but not capital? Seems like an arbitrary distinction. Does your family allow anyone to farm and extract value from their land? No? Then they're no different than a landlord.
People mischaracterize the ease in which landlords make money. Take the past two years and eviction moratoriums for example. Landlords in the United States in many areas had to allow tenants to rent without being able to remove them for non-payment.
Landlords inherently have to be well capitalized in order to properly maintain the house as most individuals are not experts in all trades.
>before anyone calls me a hypocrite, I paid back every renter every penny of profit I made
I wouldn't have called you a hypocrite even if you didn't pay back anything. Living in the real world™ doesn't mean you can't criticise it. If we can't challenge things we take part in, how do we improve anything?
> purely because they had enough money to buy housing
The nominal assumption is that they must have earned that by providing someone with something of value to them. The money they receive is a formal/cultural recognition of their indebtedness -- that they have provided something useful but have not receive anything of material value in return. Money is a way of claiming something useful in return for something they had provided, but separated in time and place.
Of course this is the theoretical and intended mechanism. It does get subverted in many ways when one earns money without providing anyone with anything materially useful. Inheritance can be interpreted as one such. Although it can be interpreted charitably too -- dont compensate me for the goods and services I provided , I am dead, compensate Saul instead.
This really is wrong. There's so many contracts the landlord has to keep up with, and pay, the council on various cases like rates, water, upkeep of lawns or council will and bill, keeping up with changing building codes and rules such a fire alarms which update every x years, then insurances, then maintenance of the house structure, the plumbing, electrical .. as well as that the 'money' represents their savings from other work they did. It's serious job and you're not seeing the reality of it if you think the landlord does nothing but profit. It's a bloody business, with work, responsibilities and risks, and if everything goes well the expectation of a profit but not the guarantee. It's also a business that provides significant real value to people - a modern house has so many features and meets so many beauracratic and safety rules beyond just a roof over your head.
Living in a teepee is looking more attractive by the day haha.
This is just handwaving voodo - we expect better on hackernews.
Reality is landlords are in all different situations, some have spare money above costs of interest, rates, insurances, rental agent fees, etc etc and can use that to pay for maintenance. Many are putting in their own money to pay for maintenance, the same way they put in their own money to afford the deposit and purchase costs.
And when there's a problem a landlord can't just ring the first inflate-a-quote contractor and open up the unlimited checkbook you seem to be ascribing to them, they will be bankrupt very quickly if they did. Instead, they have to assess the issue, try to find a economical solution, get multiple quote and spend time finding a contractor who can do it reasonably well the first time at an affordable cost. That is not the same work as a farmer, but it sure is work. If it's not done the house quickly becomes unlivable with a broken toilet or whatever and being unlivable is also unrentable and produces no value to anyone. It's work, and it's important to keep the house functioning.
Really as you seem to think landlords do nothing but profit, similar to gnomes and underpants, perhaps you should give it a try yourself. If nothing else it will be quite a learning opportunity!
Yes, they use the money in order to maintain the house. Furthermore owner-occupancy is a thing, where the landlord does some maintenance themselves.
However no matter what, no landlord can maintain all aspects of the house alone. You think a single person can be a master of all trades and have all equipment on hand all of the time in an apartment, for instance?
Why does it even matter if someone pays others to maintain the house? Do you think there are people who build modern houses alone with no machinery?
Because homes are overpriced, because they're treated as capital instead of a durable good & because all financial / building policy advantages existing homeowners
> There’s no need to micromanage tenant-landlord relationships or setup governmental panels on who historically deserves to live where, if the government can just make sure there is an oversupply of decent housing at all affordability levels.
The problem is, that is outright impossible in urban areas where almost all space is already built out, not to mention it is immensely wasteful (8% of all CO2 emissions is caused by the manufacturing of concrete!).
Governments should rather look into making rural areas livable again (by subsidizing basic infrastructure such as internet, grocery stores, doctors and public transport).
Having had lived in urban areas all my life, American urban cities are criminally under built. There is sooo much room for growth (note room doesn’t mean land, it means airspace).
If you have a pastoralist dream, feel free to build rural housing units. But for the government to spread out the country and then try to connect it using extractive transportation technologies (gas, batteries etc) just seems like roundabout / inefficient way to achieve the same goal.
>Governments should rather look into making rural areas livable again (by subsidizing basic infrastructure such as internet, grocery stores, doctors and public transport).
And schools, churches, youth soccer leagues, parks, and playgrounds
I support government-owned housing at a variety of sizes and configurations, but I don’t want government involved in providing luxury housing. Government studios, 1BRs, 2/1s, 3/2s, 4/2.5s, and 5/3s for basic housing needs for singles and families? Absolutely.
Government 10 bedroom, 9000 sqft seaside mansions? Not just no, but hell no!
I agree of course, but I'm not sure what your point is, other than to be a little bit distracting. It seems pretty reasonable for a government to subsidize modest multi-family homes without subsidizing mansions.
Right, the government should make sure housing is available at all levels. Presumably it’ll have to do very little to make sure luxury housing is available.
If there’s ready supply at the low and middle end of affordable for all family sizes up to ~12, the program will have succeeded in my book. I would not want so much a single taxpayer dollar go to “improve” the situation from that baseline to one where luxury housing was also readily available.
Isn't the problem that housing isn't more of a market?
In an actual market, margins are competed away and prices drop over time, there's elasticity in supply and demand, and people don't view their 15-year old cars or whatever as "investments", they trade them up for a newer model and pass down the older stuff to people who can't afford them as much.
In housing, we artificially constrain supply with zoning laws and building codes, and we stimulate demand with subsidized mortgages and rent control laws. It's pretty much the opposite of what you want to do if you want there to be more affordable housing.
This is how I view it as well. And there'd be a analogous method for getting medical costs lower in America by increasing competition (within reason, I understand why no one wants to go back to the days of snake oil remedies in an unregulated free for all).
Also odd is how these HN threads on housing often devolve into redesigning a socialist utopia from scratch in America, as if such a radical revolution has any chance, when Californians can't even organize enough to get Prop 13 repealed. Removing red tape and zoning to get to a more efficient market is much more achievable.
> The sooner we collectively decide that housing shouldn't be a market, the better
Housing is already barely a market. An actual market would be much better.
We artificially restrict the construction of new housing supply by policy and then act all surprised when demand exceeds supply and prices skyrocket.
The same thing is happening in medicine: we artificially constrain the training of new MDs and then act all surprised when demand exceeds supply and prices skyrocket.
Then people come out of the woodwork with "oh look markets aren't working!" -- but in fact the markets are working exactly as designed: those with control over the supply are acting to constrain the supply, in the process enriching themselves at the expense of all others. But instead of recognizing this fact, we look for other reasons. Sure, there are other reasons and interactions, too, but the primary drivers are supply constraints!
Imagine if we explicitly forbade the construction of new grocery stores, forced farms not to use modern agricultural techniques, causing reduced yield, and then bought up a bunch of farmland just to take it out of commission. What would happen? Food prices would, obviously, skyrocket! That's exactly what we're doing with housing.
Your proposed solutions probably won't hurt, but aside from making it easier to build housing, they're noise. In particular:
> upzone neighborhoods
This is the only one that matters -- and it needs to come with other changes too, including construction "by right", that is, without needing to go through a 3-year process of fighting with neighbors who will try whatever they can to prevent new construction because they've been convinced it will destroy their neighborhood and/or property values.
> changing tax incentives so developers are incentivized to build more housing and less luxury housing
We don't need to change tax incentives to get developers to build more housing, we just need to stop preventing them from building more housing. Developers are not sitting around waiting for incentives, they're actively being denied the ability to build. Let's fix that.
I can't imagine physical housing not being a market. Even in a post scarcity star trek world someone gets the penthouse, someone gets the house on the hill with a view, someone gets the beach front property, someone gets the house in a convenient ___location or close to public transportation. How would that ever not be decided by a market? Even without money it would end up as a market of "merit" or policial capital
> The sooner we collectively decide that housing shouldn't be a market, the better.
How do you or we decide it's not a market?
If people are paying money for housing, it's a market. And it's not just money, but the largest lifetime expense by an order of magnitude and more.
> I'm also of the much more radical opinion that we should protect tenants over landlords in nearly every case
That's already the case, at least in many places (I know not all). If you take it too far the result is no landlords, thus no rentals. Perhaps that's ok if everyone wants to buy, but if there is anyone who wants to rent, it's useful to have rentals.
The problem in almost every country with out of control house prices is low interest rates since the dot com crash.
That's where everything went wrong. At 0-1% interest you can get insane mortgages for 90-95% of the value of the property, pushing the price up to where people spend every last cent they can on mortgages, but at $xxxx per month you can easily afford hundreds of thousands of dollars in mortgages.
Raise interest rates (happening), go into recession, crash the market, stop people getting mortgages, house prices will drop insanely fast and hard.
Of course no government wants to do this because it will panic the home owning class. Well - you have to chose at this point. Make it impossible for young people to buy a home, or piss off homeowners.
Rental units on their own don't matter from a market perspective. There is some sentimental value in owning your own house but apart from that, costs have to be equal or demand shifts until they are.
Private equity can only make a profit if they corner the market and hold back units until prices massively increase.
This is possible to some extend but at its core it is most likely illegal because it requires collusion or a monopoly. So if that's an option, then there is a bigger problem than just housing prices.
But even in an entirely corrupt market, private equity cannot beat the market after Covid. Home office has become fully acceptable so huge fractions of the population are not bound to a specific city. People are free to choose where they live. There will be some municipalities that offer an abundance of housing so that prices will stay down.
Then, once people move there, companies will be founded there or move there, too. Wages will be lower because costs are lower, which will be a huge problem for the companies that didn't move.
So if the established municipalities allow the private equity companies to profit, they risk their own demise.
However, this depends on the willingness of the people to move. It is also contradicted by silicon valley being able to maintain its large housing prices.
My guess is that prices will rise for a while but some Asian city will crack the code and offer cheap housing despite being a cultural center which would make it the technological capital of the world.
I don’t have any proof of this but I strongly believe private equity, especially the big ones were the biggest beneficiaries of QE and they were closest to access the money.
If we are talking about a recession caused by fed tightening, PE won’t have any money. Especially as higher interest rates will mean they also can’t borrow lots to finance purchases or anything
Isn’t there tension between what I’m assuming is land-value tax to push developers to create more housing and keeping people in the home they’ve lived in for 20 years? That home has probably become inefficient from a public value standpoint and would better contribute if it was a multi-unit dwelling. I’m with you that people should be able to continue to afford to live in the same neighborhood even (with a shift in the type of building most likely), but attempting to protect their exact house just creates the equivalent of a public subsidy to exempt them from keeping pace with local land efficiency demands.
There is huge tension. We've forced ourselves into a situation where it is difficult to fix things because housing is such a huge portion of many people's wealth. Policies that improve things for the poor and lower middle class in meaningful ways will crush the upper middle class, who have a lot of local political influence because they've got enough money to have free time but there are still a lot of them. Somebody with a mortgage 4x their gross annual income is going to fight hard to prevent their house from tanking in price, even if that means promoting anti-social policies.
More generally, there’s tension between people who prefer nothing to change and those who want to allow change.
If you like your house and your neighborhood, you probably don’t want demolitions and construction, even if it’s not your house. It’s noisy, it brings uncertainty, and maybe when your neighborhood won’t be the same after buildings get replaced. Maybe the new buildings are too ugly or the residents undesirable or the infrastructure unable to keep up. Or maybe none of those are true but you personally are anxious from the thought of change so you don’t want to risk it.
In any case, the no-change crowd holds all the power except when those pursuing change have a lot of money. This further reinforces negative impressions of what it means to allow change in your neighborhood.
Yes! And thank you for approaching this with a thoughtful question.
One solution to this would be to guarantee a unit in any multi family or apartment building to the current resident, and pay for their relocation while the new unit is being built.
Alternatively, buy units from people who are leaving or who have passed away.
We do need to knock down some houses to build more housing, but we can do it in a way that is minimally disruptive.
>One solution to this would be to guarantee a unit in any multi family or apartment building to the current resident, and pay for their relocation while the new unit is being built.
You are just increasing the cost of the building's rent with this stuff. You'll have a few birthright units and everything else will be luxury to cover costs. This is the same problem we currently have with affordable units, huge missing middle.
The government would pay to do it. Or there would be taxes or rents paid to developers in accordance to the number of people housed x the quality of the housing. Or people like me would rent units because housing is important, and rent their space at cost.
We can choose to pay for housing for everyone, we just have to adjust the formulas we use to decide who benefits.
We already have voters deciding how much housing gets built. The result is we have not enough of it.
We’ve also seen, during this pandemic, what happens to rental prices when landlords are powerless over tenants. They go up. And landlords discriminate harder against tenants who look like they’ll be bad tenants if they can’t easily evict.
And just as my ability to get sued is what allows me to enter contracts, my ability to get evicted is what lets me pay cheap rent.
Today, if I cannot pay, I get no housing. Taxes allow us, as a community, to decide that we should all chip in a little bit extra (commensurate to our means) to make sure everyone has a roof over their heads.
Also, government operated facilities do not have a profit motive, so there's less incentive to maximize the cost of housing.
>Also, government operated facilities do not have a profit motive,
Great, so the shit-show we have now, except without any incentive to efficiently spend. Sure that will go over swimmingly. Everyone knows that government construction projects are known for coming on-time and on-budget, and for the best value.
Its not like private sector is free from overspending and funds misallocation - most of money that flows in there is still controller by the jerks on top that are stroking their ego by investing in buzzwords. The invisible hand of market is myth as much as santa is.
The US market is far from the invisible hand. There is a massive hand with a club attached called the Federal Reserve, which has artificially held down interest rates resulting in a major manipulation of the housing market.
Additionally, there are numerous governmental restrictions on minimum square footage, sometimes onerous building codes, impact fees, and zoning restrictions to name a few.
Yes, there are many artificial constructs that prevent true free market, but I still do not believe that capital accumulation by capital overs is not an property of this idealistic system. Do You have any real example of invisible hand working (by which I mean not ending with the top dogs holding all the bones) ?
You acknowledge the imperfection of the private sector, including wasteful spending. Now imagine that except with the power to waste even more money by sending an IRS agent to take your money at gunpoint and without being constrained by (at least if 'turtledove' word to be take) a ' profit motive'.
Profit motive is so primitive and so one dimensional constrained and yet it somehow mesmerized so many thinkers that we build build "golden idols" in praise of it (https://en.wikipedia.org/wiki/Charging_Bull).
I do not believe that this is it - there have to be other better constrains combinations. It just that there is so much vested interest in current system that no one will dare to contest it enough to really try something different.
The beautiful thing about art is you can interpret it however you want. You interpret it as a "golden idol" of the profit motive. I could interpret it as an angry bull sick of the ways of capitalism; a bull that wants to inspire free health care for all.
I marely tried to defend our ability (as humans) to create more complex systems that works. I do not believe that free makrets are the end game. The obvious inefficiency of public sector does not make capitalism the ultimate answer.
The invisible hand is just the profit motive. Most people are indeed incentivized by (not solely) by money and profit.
The advantage of a market in this context is two-fold 1) Private-losses, mispent investments should have the investors bear the cost of losses. Granted, we often bail out investors or banks, but that isn't a market phenomena, it is a political one. 2) Where there is more profit to be had (high prices) there is more incentive for more investment.
Now, one could argue that a market system is more likely to be corrupted such that the connected get bailed out or other advantages. But if you don't trust the political system to regulate the market, why would you expect it to better regulate a bureaucracy that more directly controls the relevant resources?
I think You are underselling it - that's just the mechanic through which it works.
But at the same time too mamy people treat it as idealogy and sell it as a silver bullet and not merly a tool which it should be.
My main point is that we should not see markets as an end game - this is just a primitive human made system that should be evolved.
Seattle just built a major light rail expansion ahead of schedule and under budget.
But I specifically believe in building more, smaller units. Places with eg 20 apartments. By building smaller scoped projects, costs are better understood up front, maintenance costs are lower, and you need less specialized construction expertise.
Building 50 20-unit complexes to house a thousand families is going to serve everyone better than building one mega project to house a thousand families.
"Sound Transit’s light-rail system, called Link, has also had its share of challenges. The 25 miles of light rail that voters were told would be completed by 2006 at a cost of $1.7 billion, have resulted in 23 miles of track which, when completed, will end up costing $5.2 billion."
"The $2.6 billion spent so far on the starter light-rail line takes the rider from Westlake Station downtown to an airport station 0.4 mile from the terminal in 37 minutes. "
Sort of? That's a very old article. The project was voted on as a $1.6B project, and was approved. It came in almost two hundred million under budget in 2016.
There are floor area ratios (FAR) now that prevent small units. I have a 6500 sqft lot. I can build 14 units. I have a FAR of 3, so 19500 sqft / 14 units is 1390 sqft per.
Zoning is your problem, not who is building.
Developers and landlords are working in the insanity that are municipal governments. Do you understand why we write people off when they say they want more of their involvement?
Loosen zoning and I'll take advantage of it. We don't need to pay some bureaucrat who has no incentive to do their job efficiently to sit in the middle of this. Zoning office budgets should be tied to number of permits approved or units built. Right now they get the same money for being impediments.
Oh, I almost forgot, I also need to have 14+ parking spaces if I build out fully. Again, zoning problem. Developers don't just love parking lots.
Ah, the classic "private enterprise is better than government" argument!
Private enterprise is good at projects where the project owner can (directly) capture the majority of the value created and is responsible for the majority of the costs involved in that creation. The mis-alignment is that this creates strong incentive to shift the costs outside the organization.
Government is better at projects where the majority of value created is diffused across a large share of the population and/or over a long time frame. They do have a strong incentive to keep costs down, because costs are paid by taxes and taxes are unpopular and lead to revolution.
This is simple economics.
There are numerous examples of government projects which may or may not have been under budget, but which created 10x or 100x or 1000x returns. Things like "public roads", "internet", "education" spring to mind.
>Government is better at projects where the majority of value created is diffused across a large share of the population and/or over a long time frame. They do have a strong incentive to keep costs down, because costs are paid by taxes and taxes are unpopular and lead to revolution.
>This is simple economics.
I'm sorry, but simple economics from where? By what authority is that some immutable 'simple economics?' I reject your thesis. Regarding 'costs' being 'taxes' and them going 'down', I invite you to study the change in federal taxes as a proportion of GDP in the past say 130 years.
>There are numerous examples of government projects which may or may not have been under budget, but which created 10x or 100x or 1000x returns. Things like "public roads", "internet", "education" spring to mind.
Yes now think about how much better return, and many other projects may have emerged, had the government not sucked that money out of the economy. "Muh roads" sounds nice but you can privately build a road without taking money at gunpoint from peoeple, and also get good returns. If I take $20 from you and buy you a $1 pen, I don't get to brag that because I bought you the pen you wrote a multimillion dollar book (even then it is true in some perverted sense the pen [road] had 1000x+ returns).
No doubt you'll need more "fixes" before you're done.
It's like rent control in SF or public housing in Singapore. Design a new system and you'll create loopholes to be exploited. Fix those and new loopholes are created. And on and on.
Easier to just remove government restrictions to supply and build until prices come down.
For who? How's that working out for the 1/3 of Singapore who is completely ineligible, yet pays taxes into the public coffers?
Singapore is unique in that they have a massive well (proportionally much bigger than US) of workers paying taxes who are ineligible for much of the fruits of those taxes. Only the 2/3 with Citizenship or PR can meaningfully get public housing.
I'm sure about any nation could have more affordable housing if they have endless wells of guest workers who can shoulder the cost without yielding that benefit for themselves.
If you're talking about providing housing in a country that had little quality housing 70 years ago, then yes, it's successful.
If it's providing affordable housing for young people, then I'd challenge that. You can't even apply for public housing unless you are married (otherwise wait until after you are 35). The government overbuilt before, so now it's a 4-5 year wait after you win a lottery to get a house. People are still pumping real estate like crazy and the average home in the resale market is >$1M now (which is a 3 bedroom, 100 sq m apartment with a 99 year lease).
Singapore is stuck in the exact same situation as every other developed country - housing is an asset that the middle class expects a healthy return on, yet increasing costs are a barrier to new owners.
I grew up in a "commie block" as everyone aaround me. There was nothing wrong with them (decently sized, balconies, etc.) besides the comparatively poor insulation. It was certainly much better than the quality of your average Parisian housing in a century old building.
There's a meme that shows "leftist housing", and it depicts concrete tenements. It shows "capitalist housing", and it depicts tents under a bridge.
Haha.
But memes aside, no, there are many, many examples of public and social housing that are not concrete slums. Look at Singapore, Paris, the Marxhof in Vienna. Quayside Village in Vancouver.
If you'd like, I can provide links to many examples from many countries around the world of successful public housing that isn't Soviet bloc housing.
Social housing here in the Netherlands isn't quite soviet block but it's poorly built and maintained to the lowest acceptable standard.
In streets where one side of the street has been sold to private owners you can see the difference. The privately owned houses are well maintained and have received upgrades where the social housing is merely 'acceptable'.
I'm also familiar with how the assignment process for social housing works. I'm not sure how acceptable you think it is to wait 10 years to be able to move to a different city.
Social housing must look nice from a distance but i wouldn't want all housing to be social housing.
As many people have told you repeatedly throughout this thread, your understanding of the great success of glorious public housing worldwide is seriously misguided at best.
But I suspect you most likely just glean all of your political opinions from memes, which could explain some things.
Profiting from housing, yes, is not something I personally consider moral. But also, I believe that we don't need to meet my fairly radical moral stance to make housing more affordable and attainable for all.
We can make incremental progress here by just tweaking incentives. We can go further by reducing profits. It's not some binary all or nothing affair.
Most types of profit are immoral. Providing housing is at least genuinely clearly useful.
Manipulating people to buy stuff they don't need (advertising, marketing, hollywood) is immoral in so many ways. Weapons are very questionable, massive markups on basic stuff (cosmetics) etc etc if you go on about 80% of our economy is actually immoral. Even foods which are a basic good, are generally bottom dollar hollowed out poisons compared to what they could be if health was the primary concern. Don't get me started on the corruptions of profit to the medical process.
I don't know what your problem is about housing but it seems out of perspective if you're not going to campaign against profit from just about everything.
Well then, feel free to buy a house and sell it at cost. Don't worry about all that money you put into the home over the years to improve or maintain it, either.
Oh, and to add to the utter inanity of what you're proposing, make sure that you sell it at your purchase cost and not the 200%ish extra that they tack on to a 30 year loan at 4% interest.
Go ahead. Chalk it up to a personal experiment and let us know how it turns out in 30 years.
And I've done what you describe. I was a landlord for a decade.
I paid back each of my tenants all the profit I made from them, thousands and thousands of dollars per tenant. Adjusted upwards by the amount the property had appreciated.
I now rent in a sliding scale, capped at the cost of the unit.
Granted, it's only been ten years, not the thirty you suggest, but it's worked out great. Nearly every tenant has used their time with me to build a nest egg or savings that enabled them to move into a house they owned.
You could also just donate to charity, the effect might be similar (or even stronger, since it would go to needier people). By the way, this is all very nice of you but it is off-putting how you seem to want to impose forced charity on every other landlord.
When most people are talking about home ownership, we're not talking about being someone else's landlord. We're talking about living in a place until we move, and then selling that property.
I don’t like landlords (such as those in SV) collecting so much of the value, but a more productive solution here is minimal zoning, a high land value tax (with other taxes lower), and letting people do what they want with their property, allowing some tragedy of the commons with respect to traffic and population.
This also means deadbeat tenants get kicked out, but I think that is intrinsically a good thing. Occupying somebody else’s home and not moving someplace you can afford is just immoral.
It's absolutely realistic, and the fact that you're writing it off so quickly shows your ignorance. Social housing is successful in many parts of the world. Look at Singapore, for instance.
Mandatory parking minimums are going away in cities across the US, and units are getting more housing as a result.
Washington State is considering removing single family zoning.
Cities like Paris have many smaller apartment complexes that are public housing.
Everything I've suggested either exists or is being discussed seriously in some capacity. But, by all means keep your head in the sand rather than try to engage with actual housing policy.
Oh my, clearly you’ve never lived in these places. I used to live in Singapore: it’s one of the most overheated housing markets in the world.
All of the things you mention exist in the US to much larger degrees (do you know how much the US spends on social housing??) You are slinging insults to other commenters but you are really out of your depth here and have picked a couple of things and hailed them as solutions. You know not what you speak of.
Source: American expat currently living in London, previously Singapore.
Washington State is considering removing single family zoning.
No, no they are not.
Washington state has more than Seattle in it. It has rural areas, and mountainous regions, and no, every house in a rural area is not on agriculturally zoned land.
Nor does it make sense to have multidwelling houses, miles apart from each other.
I think, as others in this thread have stated, you are mistaking musings, ponderings, and "feelz good" ideas for serious discourse.
I support public housing, but that has zero bearing on changing the housing market. Which, I may add, is in a tiny, temporary inflated bubble. A decade ago, it was still recovering from the largest crash in modern history.
In terms of public housing, as land value increases, so do property taxes.
Thus, municipalities then have more funds to... build and maintain public housing! Which means that housing costs do not change the percentage of a city's budgetary costs, to build and maintain public housing.
The singapore housing system is a great policy. I dont see it how it fits with your ideas. First landlord is protected over tenant (rents are through the roof in singapore as well).
The hdb scheme is worth look into: government build apartments sold to people with medium income and racial quotas.
About a third of Singapore is persons who don't have Citizenship nor PR. Their public housing is propped up by making like 1/3 of the often lower earning workers (who are ineligible for public housing) pay taxes so that the Citizens and PR holders can profit.
If 'Success' is your metric, the Singapore analogy to America would be to import way more Canadians and Mexicans, ban them from public housing and then make them pay for it.
It's funny. There are ignorant people everywhere. But smug ignorance, that I only find it in Americans, for some reason. Maybe it's that "best country in the world" mentality leaking. That mentality doesn't make humble people.
It's really incredible that you're saying "superficially similar policies are being enacted in multiple, disparate geographies around the world, in vastly differing cultural and economic contexts, so you can't deny that all of them should coincide in one totally separate place I've chosen."
I notice you didn't mention Berlin's rent control fiasco btw
The reason the housing has turned into such a market is not because the evil overlords are deciding. It's due to overwhelming demand and the supply cannot keep up, so landlords have the freedom to choose any prices. The reason there is so much demand is because there are way more people on this planet now than there ever used to be. So if you want cheaper houses, solve the overpopulation problem first.
Disagree that this is a universal desire. We don't all want to have more money than everyone else. Plenty of us just want to have enough money to live modestly and comfortably.
> have enough money to live modestly and comfortably
That necessarily means having more money than everyone else. If you don't, the people who do can and probably will make things very uncomfortable for you.
Landlords who acquired property 20 years will use 'market rate' as a justification. I know of someone making a living from such a building consisting of 2 small apartments and a single office. He doesn't have a job, just idols away at home at all day getting anxious about climate change and identity politics.
landlords are definitely taking advantage of the situation, but that's a consequence of the bigger picture. In EU the constant influx of immigrants from 3rd world countries is creating demand and raising the prices while decreasing the salaries since they work for half the price and quality than locals but companies hire them regardless and they don't mind living 5 people in 2 bed flat. Moreover overseas oligarchs and cartels are buying out properties and raising the prices even more.
We should enforce this with the law. Right now, landlords raise rents anyway. I've never once heard of a landlord lowering the rent once they finish paying their mortgage, even though their expenses are now far lower.
Let me be the first then. I've been a landlord for a decade. I've paid back each and every one of my tenants the rent I collected in surplus to costs. Adjusted upwards to reflect the appreciation of the unit.
I now rent at cost, choosing to believe that it's better to help the people who live with me establish themselves and build financial safety.
In some cases we have rented a mother in law unit. Are different apartments in the same building under the same roof?
I tend to be broader about community then many folks in the States. Imo, you live with the people in your local area, whether that's house, apartment building, or block.
I was inspired by someone else who did it and posted about it on Reddit somewhere a long time ago. So there are at least two, but likely many more than two of us out there.
Housing investment is a business. Buying the house is a risk, and you sink money and effort into it in the early phases, in the hope of getting profit out of it in the later phases.
If you are going to make that business unprofitable then no one will do it. People won't sign up for the risk, cost, effort and frustrations of being a landlord with no upside.
While we're on the topic, why not prevent programmers from putting their salary up? After all software is essential to society these days?
> charging a premium for unused land in desirable areas (parking lots don't house people)
Housed people need parking lots though. Tons of places are not, and never will be accessible with public transports. I live in a city with a great public transport network but I still need a car, as much as I'd love not needing one: I need to visit friends or family outside the city, I have to make bulk grocery shopping sometimes and bags are not enough, I sometimes buy big housing furniture, I even had to retrieve parcels outside of the city sometimes... Heck, even to go to work, sometimes I'm late, or I missed my bus, or public transports are on strike, or anything can happen that I need my car to save 1 hour.
The majority of places where housing is a problem are places where it makes far more sense to go through the short term pains of minimizing car usage in favor of long term space optimization. Cars take an obscene amount of space when combining everything required to keep individual car ownership afloat.
Almost all the problems you present can be solved by planning differently. You don't need bulk grocery shopping with a shop open nearby in walking distance, available at least once every 3 day. Big housing furniture is a rare occurrence and can be delivered, or you can rent a car capable of transporting it. Punctuality can be solved socially. The main problem is density, and cities certainly don't have a shortage of population density.
Car ownership is a huge luxury with a giant price tag, and it's finally catching up to society.
> I live in a city with a great public transport network but I still need a car
Your experience doesn't match mine. I also live in a city with a good public transport network, but I've never had a car, or felt much need to have one, or even to learn how to drive. For your examples (except the parcel one, which hasn't happened to me and I have no idea how it would happen):
> I need to visit friends or family outside the city
The friends or family I have which live outside the city actually live in other nearby cities. To visit them, I'd take a bus to their city, and then a bus or taxi within that city.
> I have to make bulk grocery shopping sometimes and bags are not enough
Every store large enough that I'd do "bulk grocery shopping" in it has a taxi stop next to it, sometimes even within the store's underground parking floor. So whenever I do bulk shopping on one of these stores, I simply take a taxi.
> I sometimes buy big housing furniture
Every store which sells big housing furniture has the option to send the furniture to your home using their own truck. You might have to wait for the next day (since they batch the deliveries - it's a big truck), but for big furniture, you usually aren't in a hurry.
> Heck, even to go to work, sometimes I'm late, or I missed my bus, or public transports are on strike
If I missed my bus, I wait less than 10 minutes for the next one. If I'm late, public transport is still faster than a car (or a taxi). And if there's a strike, it's true that having your own car might help, but when that happens (and it's not common enough to make it worth it to have a car just for that), the traffic slows to a crawl.
At the limits of this, we will have people living in 5^2 meter boxes on the Pacific coast complaining that it's not affordable and that they should just build more supply.
The problem isn't supply. We have (practically) unlimited supply. People just don't want to live in Pennsyltucky.
Are you American? I feel like you are assuming taking extreme measures to solve US problems. Have you considered how similar measures already affect markets in other countries?
ad. "not a market" - When you do that are you going to also forgive my crazy large mortgage?
ad. "protect tenants" - In Czechia we protect the tenants more than landlords. If you mean that this should scare people from renting that works quite well. People do not have much leverage here to kick out tenants who are problematic or skip payments.
>The sooner we collectively decide that housing shouldn't be a market
Then how would you recommend houses trade ownership?
>so developers are incentivized to build more housing
How do you prevent the development of shitboxes (it's a technical industry term)? Because that's what builders build when they need to hit a particular price point at scale. Houses that are quickly built out of low end materials and will decay over about twenty year period unless a homeowner invests considerably in upgrades.
>one shouldn't be "priced out" of the home they've lived in for 20 years
I'm in full support of the concept, but when you start to look at the causes of this, it gets complicated quickly and many of the causes aren't even directly related to housing. It's not just as simple as property tax moratoriums.
At least in the U.S., you'll also need to replace the system of local governments being mostly funded by local property taxes. That results in local government (and the residents who elect it, and whose taxes fund it) being very strongly in favor of high-end residential development (ideal - a gated neighborhood of mansions, or a luxury skyscraper, with absentee owners), and very strongly against low-end residential development (worst case - a mobile home park). Vacant mansions will pay very heavy taxes, require minimal city services, and generally push up property values (good for all those already aboard the property ownership pyramid scheme). Mobile home parks will do quite the opposite.
> I'm also of the much more radical opinion that we should protect tenants over landlords in nearly every case,
At least you understand this is radical. Developers/landlords are the ones providing and maintaining housing, not tenants. The government is incapable of doing this themselves which is why it’s left to the free markets.
The only real issue is that the ‘free markets’ are anything but. Governments overly try to dictate policy which continues to hurt us (a well known feature is state run economies)
Examples of this are zoning restrictions (NIMBY) and rent control.
Broad, idealistic government policies are a disease; they will never be as efficient as entrepreneurs.
Housing shouldn't be a market? Then how would housing be allocated? The state builds and gives housing to everyone?
Maybe you should take a trip to Eastern Europe one of these days to see the final result of what you're advocating. Pros: everyone is given an apartment to live in. Cons: your city's skyline looks like this: https://i.imgur.com/5X1sIeP.jpg
"We collectively decide" just means you decide for me. You think you know better than everyone else and want to impose your values on others.
Eastern European cities aren't the only examples. Nordic cities (e.g. Stockholm and Copenhagen) are great examples - they have different problems but people are housed. Cities like Berlin don't have a speculative housing market due to excellent renters rights meaning the majority of people rent long term. Finally, Vienna is the poster child for "how to do social housing".
What is Stockholm a great example of? There's still a housing market with absurd prices and all signs of a bubble.
It's impossible to get an apartment in Stockholm unless you have a 20-year waiting time, buy an illegal third-hand contract or have the wealth to buy an apartment. The housing crisis in Sweden is extreme.
Almost every major city in Europe has the exact same problems. Or arguably worse, depending on your socioeconomic status. Where this myth of "European cities are great" is coming from I don't know, and I would love to know.
>Due to excellent renters rights meaning the majority of people rent long term
This backfires spectacularly once you realize landlords continue to hold the reigns and put up huge demands to avoid "bad renters". As long as the rights don't cover the entirety, landlords will continue to pressure renters in different, more obscene ways.
And in today's society, renting long term also isn't as great as people make it out to be, when your long term rent is a glorified broom closet and there's a great job opportunity a few cities over.
All these cities still have a housing market albeit a more regulated one than your average American city. Housing is still developed and owned by private interest and responds to supply and demand. We could debate the policies of these specific cities (for example, the trade-offs of Berlin's rent control: https://archive.ph/l3i2w) but that's beyond the point.
The parent's position is "housing shouldn't be a market", and I am showing an example of what soviet-style state control over housing looks like in practice.
Is avoiding "skyline is ugly" really worth the enormous cost to society when so many people can barely afford housing? Is that belief system not worth criticism?
I’m sorry but respectfully, literally none of this will effect the outcomes you desire. You will assuredly constrain supply and decrease vendors to produce new supply.
And how is that different from a market? All we have to do is tax land appropriately and remove NIMBY regulation that prevents higher density building. Over time the land tax will displace inefficient single family homes, parking spaces, etc where needed. A good way to celebrate the upcoming 150 year anniversary of the release and continued ignorance of the book that pioneered this policy.
I guess you are unaware of all the money people pour into their homes - renovations, furniture, upkeep, maintenance. People spend all kinds of money on nice things, but nothing comes close to the home itself. There will always be a market for this.
Housing isn't a market because there are 1001 restrictions on supply and subsidies for holding large amounts.
I'm far from right wing, but let's not pretend the issue here is a market not working. It's that we rigged the whole system and then blame "the market" for the results...
Cut down home ownership to max 3 homes per household. Otherwise rent from someone else.
And yes it’s possible to be capitalist and agree with sensible regulations. I’d rather we focus on building amazing companies and utilizing labor effectively.
I'd claim the big issue is Blackrock coming in and buying all the available housing and renting it out for the max amount possible. If you restrict individuals, but not corporations, you create a worse problem!
Capitalism does imply the absence of regulations imposed by a bunch of goons with guns that claim to be "a legit government representing the people".
Mixed economies are not capitalism.
You can say you're a bit capitalist - that's an easy one, we have plenty of data to show that positive economic effect for everyone are linked to free markets - but still believe fairy tales about the government being moral and caring about something which is not being re-elected and stealing money from people.
Bro I can also pretend government can buzz off, but we need a military to protect our interests. We need some semblance of order so we don't descend into anarchy and chaos. People who exist at polar ends and bring up edge cases without contributing to fixing them to bring us closer to the middle actively make things worse, imo.
These are not zero sum games, and people that think they are probably have no skin in the game. Even the people with lots of wealth and resources worry about losing them, and in order to maintain it you need to make concessions when necessary and be pragmatic.
In spirit I agree with some of your ideas, and I hate rent-seeking.
However, where I live, I nearly ended in a situation where I was not allowed to sell an appartment I owned and had lived in for 20 years.
I had moved to a different city to work and live with my girlfriend, and had rented out the apartment, because obviously it is expensive to both hold one apartment and pay for a second one in the new city.
I had rented out the apartment, because initially it wasn't clear if we were staying in the new city or going back to the old city, once my girlfriend had finished her degree in that city.
I had made a written agreement with the tenant they rented for 2 years.
1 and a half year later, we had decided we were going to buy a house in the new city and stay there.
I wrote the tenant to inform them, I had decided to sell the apartment, come the 2 year date.
"OK", replied the tenant, "it's just that, I've decided I don't want to leave this nice cheap apartment anyway, and prefer to stay.."
So I start to read up on the law in my country regarding these things. It turned out, in my country it is nearly impossible to make a pre-determined time-limited rental. In fact, there are only 4 scenarios where it is possible.
It turns out, our contract should have had the specific wording "I rent out this apartment for a period of 2 years, because after 2 years I am going to move back to it myself, on this date, because I have the following specified timelimited activity I'm doing at ___location X". Because my contract only stipulated the duration, but not specified the exact legal grounding for the limitation, it was not valid.
TL;DR. I ended up having to 'bribe' the tenant with a huge sum of money, to get their written consent to leave the apartment by the originally agreed-upon date. I also ended up losing a significant amount of money on the sale, because the presence of the previous tenants hurt the price I could negotiate on the sale.
In fact, I would have made 5x more money on the sale,
than I made from received rent for renting out.
(ie I received maybe 50000 some-currency in rent (without expenses subtracted, so in practice it may have been more like 10-20000).
But the reduced salesprice was ~300000 lower, because I ran the sale while the tenants were still present (in hindsight, I should not have put it up for sale until the tenants were gone, but I paid a huge price to learn that lesson :-(.
So if I had let the appartment stay empty for 2 years instead of renting it out, I would have made 300k instead of 20-50k.
Apart from the fact, that those 50k ended up being what I had to pay in "bribe money" to get the tenants to leave. So I basically let two strangers live for free for 2 years in my apartment,
in return for them making it very difficult for me to sell my own apartment.
A final caveat is, that technically it's even illegal to leave the apartment empty in my country - if it's empty for a prolonged period of time, you have to register it for "public rental", at a reasonable rent price..
So, yes, I definitely want the rights of tenants in place and protected, but it is possible to protect them so much,
you actually make the life of people who have bought a single property miserable.
A postscript: I know many won't buy my arguments about "losing money" here, since the money I would potentially earn or lose here, are exactly the sort of 'board game monopoly money' we are arguing about whether anybody should have or be entitled to.
IE the money I would make back on the sale of the apartment I have owned for 20 years, are exactly those 'the game is rigged' money,
that appear out of thin air, for not exactly doing anything (apart from maintaining my apartment against wear and tear.)
Ah yes, I also was deeply enamored with Coruscant the first time I saw it depicted. It never occurred to me to reverse engineer the planning policies which could give rise to such a nightmare however.
So many of these ideas are some other vision in disguise.
Cars are bad, you see, and therefore, let's pick some irrelevant problem (parking lots), and conflate it with housing issues.
First, most places have zero housing issues. Mostly, certain tiny areas(with large populations) of California do, but the rest of North America has no shortage of land to build on.
And unlike California, most of the world doesn't seem to have issues with zoning for new builds.
In fact, in most of NA housing is quite affordable, with the exception of a current bubble, which exists due to COVID issues, a once in a century event.
This has only been going on for a year or so, and is already starting to cool.
Californians: a note. Your issues are not nation wide.
Others: stop trying to solve other pet peeves, by conflating issues. I assure you, you just end up sounding uninformed.
No. The problem is "space is being used inefficiently." The reason to get rid of enormous surface parking lots is to build more efficiently, not to kill cars.
"Nearly every case" is very wishy washy, I assume you have some specifics, what about trashing a property, who absorbs that cost?
Living where one has historically lived is interesting, take London - you're implying it should be a birth right for natives - what about the immigrant flow into such cities, how would you reconcile the "right of natives" with human capital?
Not a birthright, I don't think it should move across generations, but I do think that it's needlessly cruel to force someone out of their home because wealthier people want to live there.
As for tenants v landlords, I believe it should be difficult to evict tenants except in cases where the tenant is clearly a danger to others or to the home itself. If they are vandalizing the property, that should be an eviction. Likewise if they are cooking meth. But I think tenants should be protected if, eg, their income drops due to a layoff or unforseen medical expense.
So the landlord what, eats all of the downside in that scenario? But I'm sure you'd also restrict their ability to raise rents on other tenants (if they have multiple units) to compensate, so why would the landlord even do this to begin with? It's potentially 100% downside and restricted upside.
Yep. You got it in one. Private landlords are a part of the problem. They have every incentive to prevent new housing from being built. It should be challenging to be better at providing housing than the municipality government.
Exactly. Landlords aren’t entitled to a good business. If you diligently maintain the home you rent out AND pay income tax, it’s not a great business now. The profits are in neglect and appreciation.
Depends. But what you label a flaw, I might label a feature. There is space for both of us to disagree about whether certain outcomes are desirable or not.
> But I think tenants should be protected if, eg, their income drops due to a layoff or unforseen medical expense.
They should stay if they can't pay? Who takes the loss? It would be sensible to have a government program to help people in such circumstances. But if you'd be asking for the landlord to just take the loss, that's not sensible. The owner is probably barely breaking even on rent vs. costs, so they can't afford it.
If you are passing laws to dictate what someone does with their property, then society should cover the losses. If they are free to do as they wish with their property then the landlord can cover losses. You're suggesting we privatize the costs of a social problem.
This also assumes good faith on behalf of the renters.
Why? If we pass a law dictating that chemical companies have to pay for cancer patients that developed the disease because of their use of those company's products, does the state cover the losses of the people who hold stock in those companies? No.
Landlords always say that they should be compensated for the risk of homeownership. If that's true, then some landlords need to lose money.
The system you purpose is not a loss some times, it is a system that can be abused all the time.
Who says landlords aren't losing money?
I am currently taking a loss. Two units are rent control at 600 per month, the third at 2300 hasn't paid in ten months with an eviction trial next week, I am in the last unit. I will be shutting down the property and using it as a single family home due to this loss. If you remove the incentive you remove housing or prices rise to cover the risk.
I see rent control as privatizing the cost of a social problem. You create restrictive zoning then say random landlords will subsidize people's rents. The single family home owners should share in the cost, and to a lesser degree, so should the renters who benefit.
Now you purpose an expansion on that same idea. Just remove zoning so housing can be built. Don't add more impediments like relocation fees and guaranteed housing in new construction for old residents and price controls. Then you will just have legacy units and luxury housing, an exacerbation of the current system.
You're putting landlords should lose money before there should be abundant and affordable housing. Landlords still lose money, these policies remove housing from the market, cause distortions, and lead to the luxury / affordable split.
Isn't this one of those "If everyone is crazy, you're crazy" situations? If every house is overvalued by some metric, then maybe the metric is wrong. People's perceptions of value are a large part of the actual value(meaning what someone would really pay) for things like housing that should depreciate over time.
I think there's a more concrete measure of value: house prices related to income. Historically (Robert Shiller has a chart for the US going back to 1890) house prices (and mortgages and rents) have maintained a stable relationship with income. Occasionally that relationship is strained but it has usually fallen back in line. One exception to this was the extraordinary, ongoing, support to the financial system post-2008. House prices and other financial assets have ballooned in relative proportion to wage income. That's more than a perception of value, that's a matter of social stability as most people depend on the same paycheck for not only housing but food, medicine, etc, as well as housing.
The US is rotating from housing as commodity investment to housing as intergenerational asset, something which has happened in a lot of other countries already (see e.g. Western Europe, mentioned in other comments here).
House prices will remain up because any gain from sale will be plowed into the next home. It's a ratchet upward. Higher mortgage rates are somewhat irrelevant in this dynamic, because the home itself is not an asset to get capital gain from, but a claim to shelter a family for an _indefinite_ period of time in a chosen ___location.
USA was inoculated for a very long time, because horizontal expansion over cheap land allowed for expansion of supply. That era is over. Car and highway technology is no longer adequate to expand cheaply and still remain within viable commuting distance.
There really is no limit on how high home prices relative to income can be. When meemaw dies, her inheritance will fund the downpayment of little Sally. That's the perpetuum mobile in Europe, which the US is now cranking up as well.
Rents may still remain affordable, but home prices will detach.
> USA was inoculated for a very long time, because horizontal expansion over cheap land allowed for expansion of supply. That era is over.
True.
> Car and highway technology is no longer adequate to expand cheaply and still remain within viable commuting distance.
False. The US has mind-boggling amounts of land available. What's changed is the ability and desire to build on it. Used to be, the government would pay you (in land, anyway) to build a house. We gave railroads untold amounts of land to develop it.
These days, to build a house you pay the government for all manner of permits, studies, etc. -- and that's if they even let you build in the first place! Zoning laws prohibit new construction in overwhelming amounts of the country, especially in the most expensive areas. In NYC and SF, most existing buildings would be illegal to build under current zoning rules.
What makes building housing expensive is policy, not a lack of "cheap land".
I don't know if the same applies in Europe, perhaps not. In both Europe and the US land has long been the primary vehicle for intergenerational wealth transfer (think estates and productive land, not housing, though -- middle-class homeownership is an extremely recent phenomenon).
> What makes building housing expensive is policy, not a lack of "cheap land".
I am flummoxed every time the discussion of housing prices shows up. Seems like 95% of everyone who comments is completely clueless to the most basic aspects of it.
In the vast majority of Western regions, high home prices are caused by a deliberate decision not to allow building enough homes to match demand, in the places where people want to live. It's really that simple.
In itself, this is a state of affairs we could accept as the current democratic consensus, but it's really stupid when most discussion of the problem pretends that the root cause is something else.
I agree with current zoning and permitting is harmful. I can't wait for a better urban life here, with services and amenities in proximity, which more homes closer together would enable. I don't think it will meaningfully reduce cost of home ownership. Infill development is more expensive, and the dynamics at play (if I'm correct) are moving to a European model. Generally pointing in a direction of demand having really high ceilings(the estates of those dead boomers are really going to help with that, the biggest wealth transfer in history is only just starting), and supply will be incredibly responsive to changing conditions, since a home is a claim to a ___location, sellers will only sell when they can buy again into the existing market.
It's very possible I'm wrong. We'll see what the rate hikes will do to home prices in the next 2-4 years, and already we're seeing relaxing of zoning in many metros, so we'll see the effect of that in 5-10.
Fertility rates are dropping, and national population growth is slow across the West -- the problem is generally where the housing is rather than how much there is in aggregate. Old estates in the hinterlands are cheap, that's not where the wealth transfer is happening. Google will yield you some fantastic estates across the UK and Western Europe costing less than half of a modest 2br ranch-style home in Palo Alto.
> I don't think it will meaningfully reduce cost of home ownership.
More housing would absolutely meaningfully reduce the cost of home ownership. Just look at cities like Detroit and Pittsburgh that, for a time, had a surplus of housing and a declining population: houses became super super cheap.
What's happening now is that housing stock is increasing 0.5% per year, while city population is increasing 5% per year, and then policymakers are turning around and saying "look, we're building more housing, and prices keep rising, it's not working!" -- of course, because cities need to build enough housing to satisfy demand, not just "more housing". Each year we have a new housing deficit, the housing "debt" goes up. To reduce prices, you need to build more than the demand is, which we are so far from doing it is laughable.
> Infill development is more expensive
This, too, is per policy. The sweet spot price-wise for construction costs alone is 4-5 story apartment buildings; outside parts of SF, Manhattan, and a few other inner cities, we aren't there yet. But the cost of infill development these days also includes (1) drafting environmental impact reports; (2) multiple sets of meetings with neighbors to convince them not to oppose your plans; (3) delay and stalling tactics from well-heeled neighbors who oppose your plans anyway (see: CEQA); (4) extensive requirements on insulation, window area, solar panel inclusion, etc. that push costs upwards; and finally (5) years of paying property taxes while you attempt all of the above to get your plans approved. That's leaving out (6) extremely high labor costs for construction, because construction workers need housing too, and their rent is also super high.
We are not going to see meaningful change until we remove at least some of the constraints on housing construction and new supply can begin to exceed new demand. In California, lawmakers are starting to wake up to the problems, but solutions are slow to come.
> The US has mind-boggling amounts of land available. What's changed is the ability and desire to build on it.
Times have changed and most people don't want to live in marginal lands that are available in mind boggling quantities. In addition, the reason that a lot of cities were built a few generations ago in the hinterlands was because manpower was needed for resource extraction industries, which have since either become highly automated or fallen into secular decline. We are no longer a nation of farmers and miners.
> most people don't want to live in marginal lands that are available in mind boggling quantities
That's not "times have changed" -- people have never wanted to live on marginal lands, that's why the government paid people to move there.
> a lot of cities were built a few generations ago in the hinterlands
Few cities are built in the hinterlands for the purposes of resource extraction; cities grow where trade is, but yes there are definitely towns that have vanished because we don't as many farmers and miners.
The SF Bay Area is dominated by single family homes on large lots. Yes, SF proper has a high density, but the surrounding areas really don't, and not for lack of demand: developers who would build more housing are literally stymied at every turn, and this is not an accident, it is an intentional plan to reduce the availability of housing and keep it expensive, to avoid "traffic", "crowding", and "changing the character of the neighborhood".
I like your thesis, but the problem is we only need to look back 15 years to see that housing has had massive corrections before.
I think you're underestimating buyer sentiment. In Canada all it took was a couple rate increases in April for housing prices in the 'burbs of Toronto to drop ~20%.
Housing can go from "hot" to "not" really damn quick when prices start their downhill trajectory. What was suddenly a "must have, hot asset" becomes a "fool's game" when people get burned badly.
And based on social media posts, people are getting burned badly in Canada right now.
Thanks, I'm sensitive to that, and it's a great point, in the US for sure the 2008 correction was felt for years.
US will likely continue to see rate increases in the next couple years. We'll see if that is going to affect home prices here. Let's check back in 2025 :)
Houses in the US couldn't serve as intergenerational asset simply because they are built of wood with average livespan of ~70 years. While in Europe houses are generally build of brick or cement and last centuries.
All houses need maintenance and upkeep to survive.
My wood frame house in Oakland was built in 1896. Clearly it lasted longer than 70 years. Brick is a terrible building material in California, due to earthquakes.
My brick house in Amsterdam was built in 1886. However, the piles it sat on were wood, which decayed, and the house sank 8 cm.
Both needed new foundations, both were gutted and remodeled on the inside to update them to modern standards.
My (paid for) house in the Bay Area was built ~70 years ago, and it’s just fine, thanks :)
As a European living over here for the last two decades, I agree that European houses are generally sturdier (my parents house pre-dates the USA, I don’t expect mine to last that long), but when you’re spending 6 figures on something, looking after it is a good policy. Catching problems early is the key - as soon as you notice something, fix it and fix the cause…
Don’t know how it is in most of Europe, but I think that, in the UK, you don’t actually own the land your house sits on; Lord Such-and-Such owns it, and collects rent from you.
In the US, we own the land, and that is usually the real value. I’m the proud owner of a 0.125-acre New York postage stamp. It’s in a fairly affluent area, so is fairly valuable. In Wyoming, they’d laugh at it.
In the UK, there is a concept of Freehold and Leasehold. In the former case you own the land under and everything built on it. In most of the country you buy the Freehold.
The Leasehold gives you ownership of the building but not the land under it. You lease the land from the owner. I've personally considered this form of "ownership" a trap. It has become more common in recent years as a way for sellers to screw buyers. Particular in the London area where demand is always extra high.
It’s not incorrect, either. I phrased it carefully, to indicate that I don’t know for sure. It describes my grandparents’ house, in Liverpool (I assume it was a “leasehold.” I never knew the official name). I know that my mother did not inherit their house, but there may have been other factors, involved.
Technically, I guess I don’t “own” my own land, either, but I pay (significant) taxes on it (because I “own” it, according to the taxing authorities. They don’t tax the bank; they tax me). The taxes are assessed on the total value of the land and the building, and ___location^3 is a fairly significant coefficient.
Land is a weird (but frequently lucrative) investment. You can’t lock it in a safe, and, if your neighbors start a hog farm, you can’t just pick it up and move away.
> I think that, in the UK, you don’t actually own the land your house sits on; Lord Such-and-Such owns it, and collects rent from you.
This isn't quite right.
There's something kinda like that called leasehold, where you basically own an extremely long lease on a property (typically 70+ years, often up to 999 years), with the freehold (outright ownership) sitting beneath it. Generally it's used on apartment blocks and certain new-builds in specific areas (e.g. they're more common in London, but outright banned in Scotland outside of some pre-existing edge cases). There's a good chance the whole thing will be functionally reformed out of existence in the near future (see here https://commonslibrary.parliament.uk/leasehold-reform-in-eng...).
But in any case, the vast majority of UK property is sold freehold, or as you put it "we own the land, and that is usually the real value".
The only reference I had, was my grandparents’ “named” house, in Liverpool (It was actually a pretty nice place, near the beach, for what that’s worth, in Liverpool).
I remember my grandmother, explaining it to me, and that was what I got from it.
I was too young to have a decent frame of reference, though.
You're paying taxes, yeah? And if you were to overlook those tax payments, what would become of your supposed ownership? And subject to eminent ___domain? Not to mention the many laws of the lands and social expectations besides.
In that sense, you don't own your body either: At any time, the government could send goons to shoot you or jail you or harvest your kidneys. Even if you leave the country, they could put a bounty on your head or send assassins.
Sure, there's courts and laws, but they pick the judges and can choose to change the laws. They could pass a constitutional amendment tomorrow giving themselves the right to harvest your kidneys, the same way local counties can pass a law at any time raising your property taxes.
And, even if you argue that you have rights under the current government, empires don't last forever. 300 years from now, who's to say barbarians won't be ransacking the house you left to your kids? In that sense, your rights are only contingent on the barbarians being too scared to attack, and not absolute.
So if your argument is, "You can't own a house because the government could take it away", it seems like you have no hope and no possible policy change would give you any "true rights" to anything.
While you have governments that can legally steal everything from you just because they can, you'll never really be free.
That said, there are degrees of freedom.
Property taxes in the US are very high so I consider it an inferior degree of freedom compared to owning a house in a country where I don't have property taxes.
The more corporation / income tax I have to pay the less free I am, hence why I'll move to a country which charge less corporation / income tax.
Sure, I'm still owned by the government because they have soldiers and guns and I have none - but at least I can live my life as close as possible to how I'd like to live it.
It is possible to fix this situation once and for all: abolish the government and its idea of legitimacy, let people organise their own defence from the goons of other countries by paying voluntarily.
You won't end up with a much different system, you'll still have some people not paying anything and some people paying more to defend their community - but at least I would pay voluntarily what's needed for my defence without enriching the politicians, fake intermediaries with empty promises, and it wouldn't be coerced out of me under threat of fines and imprisonment.
That was, at least the common narrative goes, the fundamental basis for most if not all states. Mutual defense. And it's hardly any different today. There have been many cases of non-state societies who did organize their own protections. But to try and connect the dots with such factions (many of which are still functioning today) and the modern man is an error. We're talking societies with scribal and priestly classes which in no ways exist in the modern era, when the global average literacy sits at 83% and the mindblowing advancements we've seen in the last two decades alone is a force multiplier for autonomous organization that is totally unprecedented, like most of all of the advancements seen since the seminal moments of the industrial revolution.
But ultimately your negative outlook on the human condition is your own, 99% of daily life proceeds under conditions of total anarchy, authority and security are entirely illusory and we pay incredible costs to maintain those illusions, not in terms of liberty alone, but in toil and life itself. It leaves little left to live for, read the Death of Ivan Illyich if you want a better understanding of what I mean.
> 99% of daily life proceeds under conditions of total anarchy, authority and security are entirely illusory and we pay incredible costs to maintain those illusions
Those costs are totally worth it. I'd rather live in a nation with liberal democracy and property laws, than whatever more "pure" or original model you seem to have in mind.
You say that but history has lots of examples of people taken in by such egalitarian societies and doing an about-face, and when the European societies took in people, they more often sought to return.
In any case, what I'm talking about is democratic and does not forego property rights, in fact it could give you stronger property rights. But you didn't read the grandparent.
To be clear, anyone can own the freehold that you’re leasing the property from. The mention of ”Lord Such-and-Such” could give you the idea that this is some antiquated construct where all lands are somehow truly owned by the nobility, but that’s not how it is.
You don’t really own it. That’s just a legal construct. If you have to pay rent to the government (property taxes) to “keep” it then you don’t really own it
In Virginia, you need to pay taxes for your car (at least, you used to. Not sure if they still do). This was different from registration, and applied, even if your car is sitting in your driveway without plates.
I think they also used to charge tax for significant-value property, like computers.
The really old homes I’ve seen in Europe are made out of wood oddly enough. Of course, when the house was built in the 1400s, it is probably a ship of Theseus. Well, most homes that are around for a whole have to be maintained, even (especially) if they are made out of concrete or brick.
I’ve seen the houses being built and “intergenerational asset” is an almost laughable assumption (not by you, but by the American public). Yes the land is worth $$, but I would be surprised if a currently-priced $300k home lasts more than 20 years without needing a $50-100k injection and who knows what labour and materials will actually cost by then.
There’s no rule that you should be able to afford a house on a middle class income. In fact in many countries, particularly in Western Europe, it’s unimaginable that you would be able to afford a detached, single family home on a middle class income. Lots of people in that situation will live in apartments, row houses, or condos for the rest of their lives.
You can't compare Western Europe to the US. Maybe to specific regions or super-urban areas, e.g., the LA to SD corridor or the Bay Area.
In which case the two are comparable: there are few if any middle-class families in the bay area that own their homes except by inheritance or some other luck (gift, lottery). Even condos and other high-density housing are all but completely out of reach for all but the top 10% of income earners. And those condos are almost all studios or 1- or 2-bedroom units that are very tiny.
"... there are few if any middle-class families in the bay area that own their homes except by inheritance or some other luck ..."
This is a ridiculous statement.
There are plenty of middle class (by Bay Area standards) folks who have bought houses in Fremont and San Pablo and San Leandro and Hayward.
In fact, even in Marin there are parts of Novato and weird pockets of West Marin (Forest Knolls ?) where this was, and continues to be, done.
They are boring places and middle class folks working boring jobs have purchased homes there year in and year out for the past 25 years. Yes, they had to make choices and sacrifice some things for other things in order to do this.
Perhaps the ability to do that is comparable to a lottery win ?
I’m surprised anyone has heard of Forest Knolls! I grew up there.
It definitely used to be weird and relatively affordable for the middle class but not really any more.
Last year someone bought a house in the neighborhood for $1.3 m. It was worth $350k when my parents moved to the area about 25 years ago. The new owners have a pair of new Porsches in the driveway. Maybe that counts as middle class in the Bay Area these days but it’s still not obtainable for the vast majority of Americans.
$350k in 1997-dollars means that 25 years ago, it was worth $627k in today-dollars.
Adjusting for inflation, it's doubled in real value over 25 years, which works out to <3% APR. It's a decent return, but we've also ignored 25 years of property tax and maintenance. (on the other hand, we've also ignored 25 years of effective rent)
I guess the point I'm trying to make is that $1.3M isn't worth what it used to be but it sounds big in our head because we remember a time when a dollar went a lot further than it does today.
Just running some numbers into affordability calculators. Buying a house at $350k probably had your annual income between 70-80k which was about the top 1/3 of households 25 years ago. That was middle class. To afford $1.4M you're looking at an annual income around 350k. That's about the top 2%. Even if you stretch your budget more and have a hefty down payment you're still going to probably be in the top 5% of income to buy that house.
You wrote: <<there are few if any middle-class families in the bay area that own their homes except by inheritance or some other luck (gift, lottery).>> That is a bold, sweeping statement with no supporting evidence provided.
I Googled for about 10 seconds to find some statistics about Bay Area homeownership.
Zoomable map to visualise California homeownership (very cool!): https://dig.abclocal.go.com/california/homeownership-maps/BayArea_homeowners_zip_map.html
Homeownership Rate (5-year estimate) for San Francisco: https://fred.stlouisfed.org/series/HOWNRATEACS006075
At a glance on the first link (zoomable map), the Bay Area looks similar to SoCal (LA/OC/SD). Why do people think homeownership is so low in areas of California with lots of good jobs? It isn't. To be clear: I doubt people on this discussion are interested in homeownership rates in extreme suburbs (2+hours away) and rural areas.
> There’s no rule that you should be able to afford a house on a middle class income
Here in the US, if one was asked to define “middle class” from a lifestyle perspective, probably the first thing that comes to mind is “homeowner.” I don’t think it’s possible to separate home ownership from class distinctions in the US social strata.
Case in point, home ownership rate has remained largely stable for decades at around 65% of the population. That’s despite incomes being more varied in relation to actual value over time.
I was told that middle class in the US is the class that owns tools that they use to augment or repair their home, whether owned or rented. Poorer and you don't have time between jobs to do it or the spare income for the tools, so it doesn't get done. Wealthier, and you just hire it done, because it isn't worth your labor rate.
That’s an interesting take. It sounds intuitively correct, other than the part about “owned or rented”. Generally speaking in the US, the one major advantage to renting is it’s the landlords responsibility to take care pf the property, and on the flip side you are usually not allowed to modify or augment it in any way.
So I’d say if you extended it to incorporate that understanding, it’s pretty accurate.
Total population / total land area is an irrelevant statistic for country comparison. By population-weighted density the United States isn't significantly less dense than Western Europe.
Unfortunately, directly comparable, prepared numbers are difficult to come by. The 3 most memorable sources I've found are:
* https://theconversation.com/think-your-country-is-crowded-th... - Discusses (introduces?) the concept of "lived density" and provides graphs for Europe. I'm not sure how well the author was familiar with related work regarding population-weight density, which seems to be the more correct term.
* https://arxiv.org/abs/2005.01167 - A COVID-19 pandemic-related paper which incidentally includes comparable population-weighted density metrics for both Western Europe and the United States.
I haven't looked into things since 2018 (excepting taking note of the 2020 COVID-19 paper), but IIRC census.gov has some population-weighted density numbers somewhere based on MSA and census block (tract?) proximity. It's not easily comparable to available European statistics, but it might be a good place to start if you want to play around with U.S. density numbers.
Maybe there have been better resources published since the above.
That’s a sweeping comparison. I’ve visited both and my take would be that Europeans have a higher standard of living than Americans. But that’s just a hunch, I’d be interested to see a breakdown by specific metric and class.
I’m not sure GDP is a reliable national wealth indicator in countries with very high levels of inequality and cost of living. Certainly not as a comparator. Plenty to google on that too. This isn’t a criticism of your point - more that we need a better set or metrics to evaluate “wealth”.
> There’s no rule that you should be able to afford a house on a middle class income.
This isn't really an ownership issue, it is an occupancy issue. Monthly rent needs to cover the expenses of a property including any mortgage, property taxes, etc as well as maintenance, so rents wind up tracking house prices. If you can't house the middle class, a) they're not really middle class and b) you have a societal problem.
Most of those cities have a lot more density. They were designed before cars existed. I wonder what a fresh piece of earth chopped up and designed for the future would look like economically.
Don’t forget to mention they still have full health coverage in the EU.
It’s not possible to afford housing or robust healthcare in the US.
Keep in mind there’s no rule we have to tolerate either.
Imagine being a teenager in the US, having just seen how essential workers are treated, knowing in all likelihood your future is an “essential worker”.
I replied to that comment as well. Affordability of housing the EU (or Japan, or China, or India, etc) isn't really that relevant to the situation in the US.
Based on your green account name, it appeared you were new to HN. I commented because the site guidelines include:
> “ Eschew flamebait. Avoid unrelated controversies and generic tangents.”
Your comment, “Don’t forget to mention they still have full health coverage in the EU.” was doing exactly what the guidelines ask us not to.
My hope was that bringing attention to this would help deflate the impending generic argument about health care and help you improve future conversations on the site.
It's not a ToS, they're guidelines. You're not legally bound, relax.
The point of these guidelines is that _generally_ most people follow them and it stops this place going to garbage like every forum before it, and allows it to stay a place for professionals to discuss topics, rather than us vs them flamebaiting and boring jokes.
You're totally welcome to go, but you're also welcome to stay. If you step back and calm down, you might find you like it here :).
Non-essential surgeries tend to have longer wait times (such as hip replacements in elderly people), but conversely, essential care is accessible to everyone at no cost and in a timely manner.
I live in Canada, and recently had appendicitis. My appendix was removed less than 24 hours after symptoms began, and 10-12 hours after I arrived at the hospital. I walked in to the ER (after a very painful car ride), they asked me some questions and gave them my health card, they said how much, I said 7, they did blood tests and I had a CT scan, I waited a few hours, and then I was wheeled up to the operating room, after which I spent the night in the hospital and discharged the following morning. Not once did the question of insurance or payment come up, and I even had a private room after the surgery.
> Non-essential surgeries tend to have longer wait times (such as hip replacements in elderly people)
Something ridiculous like 70% of lifetime healthcare spending in the US occurs in the last two years of a person's life (half-remembered number from like 10 years ago). The uncomfortable truth is that we spend way too much on hail-mary treatments for people who are almost certainly going to die, and too much on useless shit like knee replacements for the elderly, and far too little on the earlier stages of their life. But nobody wants to tell the elderly "no" because they vote.
Obamacare had the right idea with "death panels". A lot of treatments that happen near the end aren't medically justified by quality-adjusted years-of-life or similar metrics. And that money comes out of the healthcare of younger people, whom the US treats like shit compared to the elderly. Because they don't vote.
But nobody likes the optics of "pulling the plug on grandma".
What you describe in your last sentence is one of the reasons I went with Kaiser. Yes, there are still co-pays for most treatments and prescriptions, but they have in my experience never been more than $20. This includes an elective procedure. It seems to share some aspects of the Canadian system you described, such as longer wait times for non-essential care, and a relative lack of choice in which doctor you see. But to me that is an acceptable trade-off for care where no single visit has cost me more than I would have spent on lunch that same day, and has been consistently of high quality.
I’ve waited longer for basic treatment in the US than I did anywhere else in the world and still paid exponentially more.
And all that extra time and money got me was people saying “You should be glad it isn’t socialized health care!” Yeah. If it were, I would’ve gotten treated faster and cheaper.
Both of these things are true. I don’t want to fully derail the larger discussion, but having lived in both EU and US and used healthcare in both, basic care is significantly better in the EU than the US on nearly every facet. The exact reverse is true for specialized care.
NHS Health Check is the equivalent of the Medicare Annual Wellness Visit. It's recommended every five years, starting at age 40, for people without pre-existing conditions.
For people with pre-existing conditions it begins at a younger age and is recommended more frequently, based on the determination of your GP Surgery.
You should get your first invitation to an NHS Health Check around the time of your 40th birthday.
One major problem I see with comparing housing prices to income is that most homebuyers in the US are using leverage (a mortgage) to buy their home, and the last 15 years or so have seen comparatively low mortgage rates compared to the several decades beforehand.
Housing prices have been able to balloon because debt has been very, very cheap. Whether or not that will continue remains to be seen.
A majority of consistent voters own homes and want house prices to increase. That means most politicians want house prices to increase. The government dominates all aspects of residential lending.
This comes up a lot. But it's wrong, or at least incomplete. People who want to live in their house don't want the value of that house to go up, because then their taxes go up.
There are laws like California's prop 13 which allow some demographics of consistent voters and home buyers to have their cake and eat it too by insulating them from property tax increases as their home value increases.
How many people in this day have actually decided "Hey, I want to be in this one house for the rest of my life."; moreover how many are actually presented with that option? I live in a boom town so I can't really say one way or another, but it strikes me that very few people born of recent generations have the impetus or place enough faith in the systems they're reliant on to yield the security necessary for that sort of commitment - and it's not a new development, and it's not necessarily specific to my locale, but is rather a shift in principals of business and government.
So while I understand your argument I'm reticent to accept it on the basis of the concerns mentioned above. Settling down permanently is not the same proposition it was fifty years ago. My grandma grew up in Denver, the rapidity that it grew with was apparently astounding and that growth drastically altered the culture and the landscape, what were once dirt roads are now median-divided 3-lanes with cookie cut houses lining them as far as the eye can see. If you can imagine not wanting to live there with the rapidly accelerating growth and the headaches that come with it, you're not alone.
There are also economic concerns, which can be highly unpredictable, and these are considerations I'm sensitive to. I've watched commodity fluxuations result in massive layoffs time and time again. When given the requisite information to make a decision on whether or not to sell, it's plain to see that it's a benefit to have pricing steadily increasing, whether it's to avoid the wave of sells when an industry reels back or shutters, or when one is intent on moving to greener pastures, or at least a better home in a more agreeable neighborhood.
I'd pay taxes which, given the parent statements terms, would roughly equivocate them with asset price insurance before I stuck my neck out to get burned or blown up.
Most people who own are moderately content for their house to stay somewhat stable in price.
They definitely don't want it to go down, especially below the loan amount; but tools like Zillow make it way too easy to book "paper profits".
If you bought for $100k and later noticed Zillow say your house as $250k, and now it's saying $200k you can feel like you lost out even though you're still "up" - something that was more difficult before as you'd have to try to compare similar homes for sale.
> A majority of consistent voters own homes and want house prices to increase.
Are there actually data that say that? I'd only expect data to exist on the first half, but there may also be data (as opposed to a fairly good supposition) from the second.
If we ignore the word majority (since that will vary by jurisdiction I'm sure) and say that homeowners are more likely to vote and pay particular attention to issues that affect their home's price then this recent paper does provide some support: https://www.andrewbenjaminhall.com/homeowner.pdf
I'll say from personal experience, it does change your perspective. If a sewage treatment plant moves in next door, I can't move like a renter can. It's a feeling of real vulnerability that I didn't fully understand until I felt it.
I understand the NIMBY-ism. I do wonder how much people care about the value of their house going up if they don't plan to sell soon. There are advantages to your home being less valuable and the only disadvantages come if you want to leverage your home more, refinance (not likely with rates going up) or sell it.
If they didn't care except when they were selling, that makes the effect of them being more consistent voters on zoning issues hard to explain.
I think this idea of wanting your house price to be low to avoid property taxes then suddenly increase the value when it's time to sell is like the idea of having your employer pay a trust so you can collect food stamps 11 months of the year then the trust pays you all your money in December.
It might be possible and it wouldn't shock me if a few people do it but it's not the normal approach.
> the effect of them being more consistent voters on zoning issues hard to explain.
No one wants to live next to a dump. That's why it affects property values. Because it also effects living conditions.
Meanwhile, a lot of people never plan to sell their home. Yes, if you plan on moving soon, you care about property values going up. If your horizon is 10 years, 20 years, or your kids selling the place? Less so.
As rates rise to more normal historical levels, and purchasing power diminishes, who will people sell their homes to? Prices will eventually have to come down.
This is the argument that homes are currently overvalued.
This is the exact same phenomenon as with the stock market. Yields progressively moving towards zero means more and more leverage driving PE ratios and prices to extremes.
Given that we've rediscovered fiscal stimulus and inflation as a result, I have a feeling that era is dead. You can't have low rates in an inflationary environment.
That would work if the supply of houses has kept up with populations growth, and just as importantly, the desired ___location of where people want to live.
If there's housing scarcity, then prices will rise far ahead of ability to pay. That's the source of a lot of other types of today's inflation, for example, cars.
> If there's housing scarcity, then prices will rise far ahead of ability to pay.
Housing costs tend toward people's ability to pay, otherwise folks default. That's why the banks ask you about your income and credit worthiness, they want to know you'll be able to pay the mortgage and not default. If money costs increase faster than income, folks won't be able to afford as much money (as high a price).
Housing costs do tend towards ability to pay, and when there's scarcity, that "ability to pay" starts cutting out those with the lowest incomes, since they do not get the housing.
That's how housing costs can increase faster than the income of an area, it's the market displacing those with lower incomes, and readjusting to only house the wealthiest.
Add in that housing prices are distinct from the housing costs, and that leases only change rent occasionally, and lots of people are owners and have fixed costs, and prices can rise quite a bit faster than incomes.
Population may have flattened, but a toooooon of people were looking to move suddenly to new areas, which is another way that scarcity is created.
Your chart is the number of units under construction, but that high number doesn't translate into more new homes than ever before, because completions have been massively delayed. So there's a lot of homes sitting half finished as they wait for supply chain crunch's to resolve. And to compare this to numbers from the 80s means normalizing for length of construction, something which is getting delayed more and more.
Overall, construction has massively constructed since 2008, and even before that it had been trending down for a long time.
The connection between interest rates and housing prices is weaker than I would have expected (it certainly exists, just not to the extent I imagined) and oddly enough it takes a couple years to show up: https://www.bis.org/publ/work665.pdf
I suppose it makes sense. They say not to spend more than 1/4 (or 1/3) of your income on housing but if a house costs 2/5 of your income you're probably not going to set up a tent and wait for interest rates to come down.
One criticism I have of Shiller is his index looks at comparable houses across time. This under estimates appreciation due to the housing stock itself becoming more luxurious. In my area, houses are about 500 sqft larger than a generation ago and have amenities like AC and often a granny unit.
> This under estimates appreciation due to the housing stock itself becoming more luxurious.
How so? Large, luxurious, houses get counted just the same way as small houses. If you mean that new houses that have not been resold aren't a factor in the index and that this biases it against the latest housing, OK. But even new houses tend to be priced in line with comparable sales, linking them to history in a way compatible with how the index is calculated.
The Case-Schiller price index is at all time highs across almost every real estate category. As my friend would put it, a dollar is not worth a dollar. A pack of gum and a house are going to value that same dollar differently for you but, as you said, you only have so many dollars :(. As it is I don't think many people will ever own a home in the near term.
The specific chart I picture was originally in a 2005 article in the NYT, but it is reproduced as the second chart on the Wikipedia page [0] for the Case-Shiller index. Note also that page's section on 'Key events and episodes.'
We'll find out over the next 6-12 months. At some point, a lot of home buyers started shopping by payment without regard to total price. With interest rates near their lowest in anyone's lifetimes that was workable.
With interest rates rising, as buyers who haven't locked in lower rates begin looking at the current payments on offer, they will have to look at lower priced homes or drop out of the market. If this boom has been driven primarily by buyers flush with cash, foreign or domestic, then prices should remain high. Payments are largely irrelevant to cash buyers. Any buyer using debt will be forced into lowering their ceiling of properties they can afford. Home prices should then fall.
The concept of the cash buyer is a bit of a farse as well. What usually takes place is a cash offer. They just need to proof of funds to do this. But then, they get financing to close. Nobody in their right mind is putting that sum of cash in real estate when they could borrow at 2% or whatever it was before the recent run up. The mortgage interest even has favorable tax treatment so it’s effectively much less. Oh and the actual cash can also grow tax deferred. I really don’t understand why you’d actually put a large sum into a house when interest rates were as low as they were.
Not true at all. If you are self employed getting underwritten can be a nightmare.
We had savings galore but they wouldn't count it for a variety of reasons (withdrawn from biz account in last 90 days, biz account showed slight decrease because of covid), then calcs with old place and new together are hard.
Sometimes if you just leverage equity in old place you will be moving from + hard money + savings, you can do a cash offer, then sell off old place (we had a preemptive offer 4 days in well over asking - bay area).
Now you only have to be underwritten for one property (before selling old property they included both in calculations which made it hard). We got a 3% rate, then used that to settle up everything back to the way it was.
Actually there a lot on business owners that can’t get mortgages because they don’t don’t have stable income reported on a w2. It can often be easier to buy cash and refinance than try to get a purchase mortgage
The ultimate endpoints of personal wealth are… home equity itself (down payments) and cash flow (retirement). There are also major purchases like college but compared to housing they’re pretty small. A fancy private education costs just 10% ($250k) of a decent 3BR in a walkable neighborhood ($2.5m).
It seems like home equity is actually a pretty safe and efficient form of cash flow. Even with a cheap mortgage, the payments I need to make each year are about 5% of the principal, which is of course more than the standard 3-4% safe withdrawal rate for investment. The mortgage interest deduction is relevant, but the mortgage is also the reason I would need to realize so much taxable income in the first place. There are no taxes on imputed rent or home equity. Living in a paid off home, you can appear to the income tax system and even some means-tested programs (those that consider income not wealth) as a pauper.
Because housing so dwarfs all other expenses, it is not clear to me why growing my principal at the expense of housing-sized cash flow would be a good tradeoff.
Because for some people, it’s not about maximizing financial returns, but to have only their name in the deed and not the bank. Zero hassling with banks is freedom.
> At some point, a lot of home buyers started shopping by payment without regard to total price
Isn't this how everyone has always shopped for housing? House prices are just a Present Value calculation. For example, if you can afford $3,000/mo over the next 25 years and you have a copy of Excel or OpenOffice calc handy:
Affordable house price at a 5% mortgage rate: =PV(0.05/12,25*12,-3000,0) => $513K + [your down payment]
Affordable house price at a 2.5% mortgage rate: =PV(0.025/12,25*12,-3000,0) => $668K (30% higher) + [your down payment]
Atm, here in the UK interest rates are basically back to where they were in late 2019, but housing is still priced 20% higher. This is due to the chronic lack of housing stock and shifting buying patterns
The interest rate hasn't even gotten to 1% yet and these things take time to filter through to the market. And it is worth pointing out that as you can see from the link below the UK has had rates at less than 1% since the GFC.
Sure, we've had sub 1% zero rates since 2009, but over that 13 years the cost of housing has tripled. Even going to 2% over a couple of years could be devastating to home equity when people are so leveraged.
Home prices will fall if rentals fall, otherwise no one will want to sell and low market supply will keep prices where they care. But with rising interest rates, sustained demand for rental can be expected.
> . At some point, a lot of home buyers started shopping by payment without regard to total price.
At a N-year fixed interest rate, it's smarter to shop by payment without regard to total price. All the more if you can avoid a large downpayment. After all, that's what matters, right?
Cheap and easy credit has driven house prices up with people continuing to pay very large sums only because they anticipate capital gains. Many buyers just want a home but wouldn't pay these prices if capital gains were out of the question.
If we reach debt saturation due to higher interest rates or some other economic shock then capital gains are not so certain. In that situation it would be a wondrous trick for prices to somehow 'levitate' and not fall.
With investors and home buyers no longer anticipating capital gains - even anticipating falls - what sets the price?
I would say two things. For investors, the income potential of the asset - in this case rent. For home buyers, the cost of servicing a loan relative to the cost of renting (with a markup to account for the additional benefits of ownership over renting).
What are interest rates now? What were they two years ago (pre-covid)? Price falls are likely to take us back to where we were when we had similar interest rates, perhaps further if sentiment shifts enough.
In NZ this is playing out now. 20% down in Auckland city already. That happened within a few months of the peak. 30% would take us to pre-covid prices, but interest rates are likely to reach higher levels than they were then. How long they stay elevated is the million dollar question. Regardless, I think we'll see falls somewhere between 30-50% in NZ in an astonishingly short amount of time. Ireland saw -50% over five years, but that was with the support of global QE and falling rates.
EDIT: Of course we just don't know what central banks and politicians will cook up to try to kick this one down the road again. Thankfully, the correction looks almost inevitable this time. Perhaps inflation is the answer - as unpalatable as it is?
Well, according to the University of Michigan Survey of Consumers, the "buying conditions for houses" index has reached its lowest point since 1982, with 68% of respondents saying it is a bad time to buy in the March 2022 survey. A year ago respondents were equally likely to say that prices were low or high, now 20x more respondents say that prices are high.
Yes and no. I would agree, but housing is, for the most part, fungible (at least for people with tech salaries). If I sold my house, I could pay for rent in my high-cost area for the better part of a decade with just the income off the sale. I am starting to think I might be crazy not to sell and pocket the money: I could rent down the street and pay rent off my salary while that large pile of money collects rent. A house isn't a particularly liquid asset, and half a house worth of liquidity seems like a safer position in the current market.
Overvalued not necessarily mean the value of current stock has to drop. This is - an ongoing for at least decade now - cry that we don't build enough and we don't built fast enough. Pandemic obviously didn't help either.
So I don't consider articles like that a bell ringing "sell sell sell". Until we are overwhelmed with new constructions coming up everywhere, there will be more people willing to buy, than to sell.
Anecdotally, we decided with wife to pull a trigger on $380k house in Florida (decent ZIP code) just a month before COVID hit, in March 2019. We had 90 days to cancel with $2,500 penalty, pandemic scared us with possibility of builder being lawfully able to be stuck on a construction site for up to 3 years. But eventually we decided to go on because we got tired of renting. By end of 2021 I got offer for $475k, cash, and someone "stole" our plans and our builder built exactly same house next street for $450k (we went inside everything was the same so same options were selected). Then "correction" should come and everyone expected Jan-April 2022 to be a 25% cool off since market rose so much. Well, our "correction" was that prices stopped going up, that's it. Now just few days ago I got an offer by mail (they find your address and mass-mail you) for "amazing amount, just to call". Out of curiosity, I called and was told upon doing title and lean research, an Executive Manager can show up overnight with $525,000 check.
So a slightly more sophisticated analysis would be "how does housing appreciation in each market compare to stock market appreciation over the same time period" - but the description in the article leaves that out, looking just at historical incomes/costs/rents. In a world where homebuying is increasingly out of reach of a larger percent of people, you'd expect it to be more disconnected with average or median income/rent, and more pegged to higher percentiles.
I mean, just about every house has an owner that lives in it.
Homes are expensive. Most people just can’t afford a big slice of land and home. They have to accept they will have to make do in an apartment that may be shared. Should the home they deserve just magically appear?
You can look at the percentage of people in the under 45 bracket, and it's been trending down for decades. The total is probably remaining high because the lifespan was going up.
What does this mean, exactly? They do have the right to purchase on at fair market value for structure + land - it's just they can't afford it. The land is crazy expensive.
I'm assuming "have one commissioned" is suggesting something about supply/zoning, but it's not clear to me what, exactly - if someone could afford to build or buy a house 3 miles from Dallas, should they also have the right to pay the same price to build something in the middle of Dallas?
Fair is the key word. The present government enforced scarcity is neither a free nor a fair market. A free market lets participants take the economically optimal choice[0]. A fair market cannot require kowtowing to the arbitrary and capricious whims of a planning board.
Ergo I hold that the respective governments and their zoning/construction policies are trampling on the individual right to a fair market and worse are creating grotesque amount of economic inefficiency, and by extension social damage, in the process.
[0]Trivially: adding units to a lot to capitalize on a high price of land relative to materials + labor.
Who is going to build these structures? Tradesmen today are already overbooked. And they’re going to work on projects that pay the best. That’s probably not affordable housing projects at scale.
The point is between land, materials, and labor, a lot of people can’t afford what they think they deserve.
They could be overvalued relative to rent which is a much more compelling case, since renting a property is a near exact (not perfect, but close) substitute for owning one, on a practical utility level.
Where I live (not USA), monthly rent is about 0.1% - 0.2% of the price value of an apartment. For example, I pay about 350 USD/month and the owner is (trying) to sell the apartment for 180,000 USD.
The Moodys analysis, as I understand it, is house prices relative to median incomes in a market.
I don’t think it’s a fluke that the overvalued markets correlate to regions that a lot of tech has moved over the pandemic like Boise, FL, TX and Nashville.
If they’re measuring current house prices to 2020 and 2021 tax data then they may be missing an influx of income in the denominator as well.
Stocks would be an obvious point of comparison. They’re down but real estate prices remain up.
The argument for overvalued housing is that everyone got antsy during the pandemic and wanted to change houses and change neighborhoods, but that will settle down now that the pandemic is waning.
Tech stocks seem to be falling because the pandemic-driven surge of screen time is fading now that the pandemic is waning.
So: is real estate entirely different from stocks? Or will it see a similar post-pandemic slump but just has more lag?
Tech stocks falling won't necessarily lower home prices. The number of tech employees is growing rapidly, but the number of houses for sale isn't, so if ten years ago it was enough to win the bidding war against the top 10%, now you compete with the top 5% and their finances, even with lower stocks, are a lot better. By 2050 it will be a competition among the top 1%.
The money supply expands primarily by debt, and it relies on people paying back the debt with actual value (or dollars representing the actual value).
When tightening, there arent enough dollars in circulation to do that.
But the bankers get the actual value (homes, collateral, liens on income) regardless. Lenders dont keep seized collateral on their balance sheet, so they sell it at the best price (and they dont need the max price because they already made so much on interest payments). So they push prices down in their firesales.
For the tightening money supplt and people trying to find dollars, think of it like the poison map closing in on Call of Duty Warzone.
Eventually, housing costs begin to outstrip income. Starts at the bottom and goes up. In South Bay a quarter million of household income can’t get you a modest family home. Simple single family homes go for $3M.
It's wild. Single family houses are being listed at $2M-$3M and going for $1M over asking. And the houses would often be considered fairly modest anywhere else in the country.
I imagine a lot of buyers can afford this by selling their existing homes. Or perhaps they socked away a huge nest egg during after an IPO or over the duration of the stock market run up.
But new homebuyers would need to earn about $750k+/year for the foreseeable future for this to make financial sense. That could be a risky wager over the next few years.
If I were paying a mortgage with equity rather than salary I’d be nervous right now. There has to be a non trivial amount of people in that situation, and the stock market tanking means some people will not have the planned upon income. Then what?
There are multiple ways to value an asset other than its current price. One is cash flows: if you rented it, how much money would you get? Another is historical norms: if historically a city with N million jobs providing average income X can only support housing prices of Y, then one could conclude that housing is overpriced relative to the ability of people to pay for it.
The HCOLA house my wife owns in which we live would rent for ~5,000 a month as it is inside our respective city beltway, in a good school district, in a low crime, historic area. When we got married $5,000 is pretty close to our much smaller apartment rental costs, summed. The vacancy rate is pretty low, and the demand is strong.
Like all real estate calculations though, this is completely local.
You’re assuming that the people who buy house in an area work in the area. People who are able to work remotely statistically have jobs that pay more. They can live anywhere. A $700K house is a steal for even a mid level person working at BigTech who use to live on the west coast.
OTOH not everyone is crazy and not everyone is participating in this market. The only people playing are those who can afford to pay at these prices. Huge numbers of people are sidelined and can't afford to even put in an offer. IMO either those people on the sidelines manage to save or generate enough to jump into play or prices fall to meet the buyers when there are simply no more high income people who can pay those prices within a given local market, since high income people are ultimately a finite entity given how there are a few and finite amount of high income jobs in a given market to support these payments. Even with remote work shifting that regional effect some, I can't imagine there are enough people migrating to cause crazy long term effects outside of already supply constrained popular places (like Tahoe/other skiing etc).
Renters aren't really active participants like homeowners and sellers are, they are passively beholden to the market. For example, they aren't actively setting prices the way home buyers do when they try and put in a bid. They are passively setting prices perhaps, but once again the only reason why these drum ups are also possible is because there are renters who are willing to pay at these prices because they are compensated enough to pay these prices.
Plenty of people are on the sidelines in this situation too, either in waiting in a rent controlled apartment perhaps, or opting to add another roommate and keep rent low in the face of an increase which also removes this new roommate from entering the market for themselves and contracts further the number of renters who are out shopping for apartments on the market at these prices.
> If every house is overvalued by some metric, then maybe the metric is wrong.
We're seeing people moving, and supply limits are influencing both rental prices and purchase prices. It's a weird housing market.
The question of the rationality of the valuation is:
1. Do you expect these migration patterns to continue?
2. If so, when do you expect new construction to pick up the slack for demand?
3. How bad of a recession is the Fed going to cause to break inflation?
> housing that should depreciate over time.
It does, amusingly. Housing stock ages and units you build now will generally be worth less in 10-20 years. Land is the thing that can appreciate in value.
I don't know how it works in the US, but in France, when you buy an apartment or house, you pay about 8% to the state (notary / attorney fees), that participates in the inflation I guess
In the US, you pay about 6.5-7%. You pay 5.5 to 6% to the two agents (buyer and seller agents) and about 1% in closing costs (title insurance, etc).
It has always seemed wildly inefficient to me. Especially the “buyer agent” who gets a couple percent entirely for escorting the buyer through homes and submitting an offer.
The buyer’s agent might show someone dozens of properties all around town and not get a sale. The seller’s agent has it much easier: an almost guaranteed sale, and for what effort? They just hire a photographer, help choose a listing price, and maybe do one open house. I’d rather be a seller’s agent any day.
My buyer’s agent could be replaced by giving me access to MLS and lockboxes.
My seller’s agent, on the other hand, was super useful and irreplaceable except by another smart human. I felt like he got us top dollar for the house based on how he renovated, staged, photographed… much more money than we expected.
Also, my experience was I set a budget, put my stuff in truck, left my house a dirty mess, handed the agent my keys, and left town. Then he did all the renovating/etc, posted it, collected offers, and we got paid.
who's everyone exactly? it's moody's saying that homes in 97% of //cities// are overvalued. or, in other words, moody's is predicting a sudden drop in house prices in basically all american cities.
is it not typically the case that, before the price of something goes off a cliff, most people think it's worth the going price?
your first sentence is quippy, but i don't think it's saying anything.
Not when you have a populace that is by definition average & in need of a place to live/start a family, but have an external investor class of the foreign ultra rich or Wall street douche canoes buying everything up because fuck you & they can.
Crazy if you believe most of our nation should be essentially indentured servants for basic housing.
Banks will loan some people billions at rates half of which they would give you, if they even gave you a loan. Thus they can buy everything for inflated prices.
"essentially indentured servants" is a bit rhetorically distracting, don't you think? Let's pin that down. What's a reasonable amount of work that a human should be expected to do to live? Not just housing, but food, and whatever else.
i agree. and the other paradox i keep thinking about is everyone says houses are too expensive it’ll to buy, but every house sells within 1-2 weeks on the market
I thought that was weird also until I became a homeowner (in Seattle). There are two other townhomes in my cluster, both are owned but unoccupied most of the time. My neighbors have other homes, one is technically owned by parents in China (who might occupy it someday, my wife is Chinese so chatted about it with the person who occupies it occasionally). It might be totally weird luck, but maybe those houses are being bought by a small segment who are acquiring multiple ones?
Because for all that today's sales prices are driven by that consensus, you can do math on the expected future income stream (including imputed rent) (adjusting it for interest rates and inflation and risks) and determine that it comes up a bit short by most measures.
Moody's who quite famously engaged in what should be criminal conspiracy regarding the rating of MBS [1] leading up to 2008 that cost pension funds, mutual funds and investors billions of dollars makes further statements about the housing market.
Sorry but I don't put a lot of stock in what Moody's says about anything.
There's pretty strong evidence that the rise in house values is structural not speculative. This is essentially the constraint of supply. There are multiple causes of this including:
1. The US building very few new homes 2010-2020. There are lots of reasons for this. A big problem is the type of housing being built, particularly in urban center where like NYC where the vast bulk of new housing units are ultra-luxury condos;
2. Permissive policies allowing the rich to park money in real estate. This particularly includes foreign nationals from places like China, India and Russia; and
3. An increase in people owning multiple properties. These include second homes, vacation homes and short-term rentals (most notably for AirBnB). There's strong evidence that AirBnB in particular has huge negative impacts on a lot of metropolitan areas.
A lot of tempted to blame Blackrock and other instituationl investors as constraining suply. this is completely overblown. These account for less than 1% of US homes.
You might be right. But I just want to add that this housing asset bubble is global in nature.
We here in Canada have been running the interest rate increase experiment ahead of the US. We've also had a much worse run up in housing prices. There are rundown shacks in Oshawa, Ontario selling for more than nice homes in Los Angeles. Where the hell is Oshawa? That's the whole point, it really doesn't matter but it's a former General Motors factory town about 1 hour east of Toronto.
Two months ago the real estate bulls were saying what you were saying now about supply. But the numbers are in for major areas like the greater Toronto area after a single 50 bps increase this past quarter like the one the Fed just dropped down south. Some suburbs of Toronto have already seen median prices drop 10-20% off their January/February 2022 peak prices [1].
The volume of home sales has plunged 41% in Toronto [2] as the market absorbed the 0.5% interest rate hike. And we haven't seen anything yet. A huge chunk of the buyers today have pre-approvals with interest rates from 75 bps ago. Around June 1 these buyers need to commit to a purchase to provide enough time for their lenders to close the deal at the old interest rates before those expire. The Bank of Canada is also expected to make a further 50 bps to 100 bps jump in rates in early June.
Anecdotally, there are already horror stories of over leveraged buyers -- perhaps amateur investors or a family that stretched themselves to the limit to buy -- only for their deal to fall through because the banks won't appraise the home at what they agreed to pay for it.
As a wannabe first time homebuyer myself, I've heard every argument you've said repeated ad nauseum up here in Canada the past half year by real estate bulls -- who I might add, have been totally right in their assessment of our crazy market which could only go up for perhaps the past 15 years -- only for the market sentiment to completely change overnight within a month or two of the 0.5% interest rate hike.
I think the biggest factor whether or not prices have room to fall is how built out an area is to its zoned capacity and how many jobs there are in the given metro area. Job growth incurs population growth with incurs development. Development will continue if there is sufficient population demand. In cities like LA, job growth has triggered huge surges in the population over the past century, and in turn this triggered development to the limits of zoned capacity. LA is 92% built out (1). In other words, all the low hanging fruit of how much can actually be built has been built already, and what's left in that 8% are probably the edge cases that for one reason or another have been picked last by developers for development because they are not going to very easily receive financing by lenders who are going to want to see penciled out and sound business plans before loaning money, not the crap in the remaining 8% of zoned capacity that is hardly going to generate a profit.
In order to stand a chance of working our way out of this, we need to make it easy to build in terms of what happens at city halls to make more supply increasing projects viable in the eyes of lenders. We need to increase the zoned capacity of our job centers so they can actually support the workers they employ versus force the lowest earning workers to far flung commutes or into living multiples per bedroom. It's like a law of physics. Make it possible for developers to build and supply will expand like a gas to fill available zoned capacity until demand incurred by labor are met, and prices should not appreciably rise if there is no need to enter bidding wars far above ask.
There's also strong differences in density - in the US it's often either single family homes or apartment high-rises; but if the City of Los Angeles had the 5-10 story wall-to-wall houses that Paris has it could see a population of 22 million, compared to the current 3.8.
Going for the metro area could be even larger.
One huge advantage places like Paris have is that they've been dense for so long that there is older housing available in dense areas; in the US any new density will be new construction, and therefore tend to aim at the luxury/higher-cost buyer.
There is a lot of this middle density already in places like the city of LA. This is a good map showing the true density of different parts of the city (1). The darkest blue are about as dense as the densest parts of paris (50k/sqmi). The model is already there in American cities, it just needs to be expanded to more neighborhoods especially near the job centers which are increasingly in these low density suburbs over transit connected urban cores. This also makes it more challenging to serve transit to more people when only a small portion of your workforce is traveling along any given corridor and in multiple directions). This is an older map not showing the more recent rail lines, but it shows how jobs are distributed across the county unevenly and how convoluted the commutes can grow to be in order to get to these different job centers across the county from the dense housing areas which don't always overlap the dense job centers (2).
This is part of the confusion people often have - what LA needs isn’t metro connections to the dense areas - it needs metro to light areas that can then be redeveloped into denser.
But the sprawling setup doesn’t help make it easy.
We've been hearing the 'under-supply' argument for over a decade in NZ. StatsNZ shows that in the last 30 years the number of private residences relative to households has increased considerably (roughly 3.5% difference to about 6.5% from memory).
Our housing market is in deep trouble right now. Big falls in the major cities over the past few months (-20% in Auckland city). Listings where I am are up from 1000 this time last year to 3000. Prices are falling. Rentals up significantly too with prices falling.
A speculative boom creates excess demand. Just like Ireland did, we are seeing that the problem was not on the supply side, but the demand side. Speculative vacancies are now being revealed.
I can’t help but think of that saying “the market can stay irrational longer than you can stay solvent.” Yes, prices in many markets are very high and appreciating at a rapid clip, but if there are buyers, competition, and houses are continuing to move quickly, then it’s a bold statement to say they are overvalued and that we should predict a significant decline.
> if there are buyers, competition, and houses are continuing to move quickly, then it’s a bold statement to say they are overvalued and that we should predict a significant decline.
No, for the simple reason that (most) people buy homes with mortgages. Take a look at the 30 year mortgage interest rate over the past few months.
The total cost to own a newly purchased home is what matters, not the actual sale price. That's mostly paid by the bank.
Even if buyers are prepared to absorb the massive increase in total cost of ownership necessary to keep prices moving upward, it probably doesn't matter because many prospective buyers will no longer even satisfy the mortgage DTI qualification at current prices.
You may object that some are buying with cash. While that's true, it's not enough of the market to sustain prices.
So this is not entirely correct. If I am not mistaken 30% of buyers are cash buyers, hence they do not care about the mortgage rate.
Second, the big issues is with houses supply. The high rate basically lock most current sellers which have very low mortgage rate (compared to 5%), hence reducing the supply more.
> If I am not mistaken 30% of buyers are cash buyers, hence they do not care about the mortgage rate.
Not necessarily. For anyone who's been working at FAANG and amassed certain amount of financial independence, the advice generally ran along the following scenario:
1) Secure a pledged-asset loan against your stock portfolio. That reduces the need to sell anything and trigger capital gains.
2) Shop around for real estate and submit a cash based offer to signal that you can close quickly.
3) Finalize the transaction.
4) Shop around cashout refi loans with fixed rates. Refi. Cashout. Repay the asset-backed loan.
Many of the cash buyers are either proxies (Ribbon, etc) or turn right around and get a mortgage. One of the touted benefits of real estate is enhanced leverage with equity as the collateral. "Cash" on an offer is more of a waiver of financing contingency, it does sound cool though.
Too many people seem to think 'cash deals' in real estate equate to a guy showing up with a louis vutton bag full of 100s that's been collecting dust in their shoe closet
It's just an indication of a lack of nuance in the deal-making, lack of contingencies (i.e. I'll give you $XYZ for your house as soon as I get $ABC for my house - agreed?!)
"Cash buyers" may very well have a mortgage, but they have enough assets/collateral that the bank is willing to give them carte blanche (ie the bank will waive inspection, because if there is a major flaw that makes the house uninhabitable, they'll just collect some other asset of yours).
I disagree. Until now there might have been 30% buyers with cash, but with rising interest rates that will stop being the case if house prices stay up.
People with large sums of spare money always look for ways to park their money. Interest based products (term deposits, bonds etc.) will now become more attractive, diverting some cash flows away from housing.
Alternatively with interest rates higher, buyers might think they can't get a higher return than the interest rate on the mortgage, thus lowering the opportunity cost of paying all in cash.
The interest on most interest based products will not rise as fast as inflation and so I'm not sure they will be "more attractive" (at least compared to real assets).
Why would anyone pay cash for a house when even a horrendous mortgage rate is still only 6%? That cash is earning 10% easily with zero effort. Put 15 minutes of effort in and open a Betterment account and you’re likely getting closer to 20%. Cash buyers make no sense to me.
"Just get 20% returns easily" LOL! The fact that you would not only think that type of return is consistent and "easy", but literally think that you should go into debt betting on that, is laughable. If it was guaranteed money, everyone would be doing it.
What are you getting? Are you looking at time weighted or money weighted? I just checked and I’m getting an average of 21.6% across 7 different portfolios on betterment (annualized, not cumulative).
I'd reference the Nikkei 225 circa 1990 [1]. That graph is not inflation adjusted. Up to 1990 everybody thought Japan was well on its way to becoming the world's largest economy on an exponential and unstoppable economic acceleration. And it was unstoppable. Then it stopped.
I am not saying this will be the case, but rather that we're at what is likely the largest inflection point in modern history, and trying to predict where the world will be at in 10 years has become effectively impossible.
I doubt the 10%+ year over year increases will be sustained with increased mortagage rates.
That's a long way away from predicting a crash or even a significant decline in prices, though. That would require a lot more inventory, and all those folks with 3% mortgages are going to be in no hurry to sell, and the stats on their mortgage amounts vs incomes looks WAY better than it did in 2007.
The problem is that supposedly, since 2020, the Fed has printed somewhere between 40-80% of all dollars in existence (The M1).
So my question is, if there is twice as much money in the system, but the same number of assets, why would it be shocking that housing continues to inflate?
M1 is a useful tool to understand why the prices of consumer goods have increased but not at all useful to understand home buying power.
People regularly sell stocks, bonds, and other homes in order to produce the down payment for a mortgage and have done so since long before 2020. M1 does not measure any of these.
The set of homebuyers and the set of stimulus recipients in a lot of these markets are non-overlapping, too.
Crypto, on the other hand, is something I know was sold for a downpayment by several of my acquaintances, which is acting as its own form of "money supply increase" since they spent orders of magnitude less to acquire it. The anti-inflation tool creates its own inflation by turning into "new money." :)
Well in this case it’s more like the market can stay irrational longer than you can stay homeless. Secure shelter is something that everyone needs to live, and in our economy you further need to find one close enough to your workplace. Thus, even if you think prices are crazy, you still must pay them.
In situations like this, where demand is for a vital good and supply constrained, the government should be carful about managing the market. From what I can see, US politicians do care about the housing problem but their solutions thus far just exacerbate it by injecting guaranteed loan money and driving up prices.
> but if there are buyers, competition, and houses are continuing to move quickly,
They’re not though. Thats the whole problem.
Asset bubbles can inflate the paper value and there might still be some trading activity. But if nobody can actually buy the asset, it’s pretty much useless.
People are buying them though. I think the problem is people think they’re richer than they are and don’t want to live in the places their income and wealth suggest they should. Previous generations handled this better.
People are very opposed to the idea that they can’t buy a house where they grew up, or in an area they feel is comparable. Which I suppose I can understand.
But to your point — things change, you aren’t rich enough, it sucks, get over it.
But so much of the new age groups is sold the dream HARD by social media ala Instagram. Aspirationalism is far worse than it was with previous generations.
That is what they are saying though - people are actually buying the assets? All anecdotes I have seen recently say that houses go off market very quickly.
They may be going off the the market very quickly now. That’s exactly how asset inflation works. People living in their homes that are suddenly worth millions of dollars aren't going to sell their homes now necessarily. When they do get around to selling it the market might not be the same.
The thing is I don't think it is bold at all. Housing being overvalued seems perfectly obvious consequence of negative or near-zero interest rates. One side effect of those policies is that the mortgage rates were artificially lowered.
A lot of people buying houses unfortunately don't really look at aggregate home ownership cost and focus (incorrectly) on monthly payments. So, because they can afford the monthly payment, they think they can afford the house. This of course works works until the music stops.
Housing is a notoriously illiquid asset with high transaction costs. In addition, the percent that turns over each year is an incredibly small percent of all homes (and homes aren’t fungible, each one is unique, so comparables are imperfect).
That makes price discovery harder and means that the market price can lag what is a sustainable long-term price.
If someone buys an asset for $100B that yields one penny per year with no growth - it is safe to say it's overvalued / a speculative investment. It does not mean that someone won't buy it for $200B tomorrow.
I would agree. I think the fact that mortgage rates have essentially doubled in the last 3 months, but housing prices continue to climb tells you we’re not even close to the ceiling.
Everyone seems to agree that speculation in housing is a global problem with adverse effects on communities and societies. Toronto seems to be a good example of how the end-game will look like.
People are priced out of owning a home for good and/or have to leave places where they might have been living for their whole life.
Rent controls don't seem to work, and just cancelling (by whatever means) the market for real estate in general might yield a lot of unwanted side-effects.
I believe there are 'simple' measures to curb rampant speculation without distorting the market to badly:
- Disallow foreign investment in residential real estate.
- Disallow for-profit corporations to purchase residential real estate.
- Stop subsidizing speculation by bailing out real estate investors
- Invest in infrastructure so that living apart from big cities is more worthwhile. Especially broadband internet and schools.
- Add a tax penalty to vacant residential real estate.
If you have n units of housing and 5n people looking for homes, no amount of rent control is going to help. There is no fixing the market without a substantial increase in construction.
My suggestion is somewhat simple: return to the early 20th century model where if you own the land, you're free to build homes on it. Even if it means the neighbourhood now has reduced parking, you block someone's view of the mountains (Vancouver I'm looking at you), the building casts a shadow in the local playground, etc.
I don't think what the market thinks of the value of the houses is going up. It's mostly inflation and people thinking everything else will go down compared to houses (stocks, fiat, crypto).
If we stopped messing with the market and started using a currency with actual backing in physical resources, maybe we would experience less recessions and crises.
Avoiding all the short term pain is not free just because the government say so, you'll have to pay it sooner or later.
In a market without government actors capable of breaking rules probably owning houses wouldn't be that valuable. There is plenty of unused land in the world and without a government starting a new city or profitable businesses would be way easier than now.
Yes I forgot that. But just building seems to be not as straightforward either as construction cost and regulation make building non-luxury housing difficult to justify economically. At least in denser urban areas.
Agreed those restrictions should be... restricted. But, even luxury housing gets old. The primary driver remains a shortage in supply, everything else is approaching long tail.
>> - Invest in infrastructure so that living apart from big cities is more worthwhile. Especially broadband internet and schools.
The rest of your list is good, but I don't agree with this at all. American cities need less sprawl, not more. Denser cities need less infrastructure, which means less stuff to maintain and have to rebuild as it ages.
IMO we should strive to make it so that living far from cities is what is expensive, not in them. I know not everyone prefers that, but it's by far more sustainable, economically.
Where I live, in an affluent town on the east coast, homes have been going for 50%+ over ask. And the asks were high.
Something is broken. Homes that wound have been listed at $1,000,000 in 2019 are going for $1.750,000 today. Interest rates going up should cool it off but I fear it will break much of the rest of the economy. There was a massive mismatch in executive policy and fed policy and here we are.
> “Inflation is always and everywhere a monetary phenomenon...” - Milton Friedman
It turns out years of suppressing rates combined with dumping many trillions of dollars onto a supply constrained economy causes a rise in prices. Huh... You'd think the trained professionals at the fed would know this by now, but they continue to believe they can defy reality.
The crux of MMT is the idea that spending creates money and taxing destroys money, so deficits are made up and only inflation matters. Doesn’t seem like a “so much for” moment for MMT, which also predicts this if there’s too much money in the economy. The real question is whether there’s political appetite for the MMT-prescribed treatment here, which is to significantly raise taxes. I’m guessing no.
The government has a money source and a money sink, and the idea that input and output must balance is an anachronism dating to days of physical currency. Under MMT, the government spends the amount it needs to spend to fulfill its obligations, and taxes the amount it needs to tax to prevent inflation. Under this model the purpose of taxation is not to collect money so that it can be spent (since government spending comes from the money source), but rather to collect money so that it can be destroyed by feeding it into the government's money sink. In a growing economy with a growing population it's implausible that balancing inflow and outflow would be ideal, since over long time scales that would result in the number of dollars per person and per unit of economic activity to decrease, leading to deflation.
The essence of MMT as I understand it is that money is made up so the government should spent as much as necessary for infrastructure, essentially creating money, and in order to cut off inflation it should tax money and just... do nothing with it, just destroy it.
I know that MMT is very hated but it seems very compelling.
Asking prices are just advertising to get your foot in the door. If an asking price of $1 were to start a bigger bidding frenzy than one that's 30% underpriced, sellers would list homes for a buck.
What’s the mismatch? Biden got a trillion or two in handouts and Powell bought up all the bonds. Now Biden is taking a step back (not completely but not another trillion) and Powell said he’ll start selling.
Halting rent and college tuition paybacks while also spending trillions for people not to work and businesses to not open while the fed also cut interest rates continuously.
Any landlord who finds themselves so burdened by missed rent payments ought to just sell their properties. The market's never been better. They can use the windfall to start a real business instead.
Pretty sure the covid stimulus passed while trump:Biden was/is president is like 2:1.
Not giving either one a pass though because Biden reappointed Powell and failed to give Powell the political direction to raise rates late last year when it was obvious inflation was anything but transitory.
The Federal Reserve is independent of the executive branch's political aims. Its mandate is to keep inflation and unemployment in check with the tools it has at its disposal (interest rates, balance sheet).
> The Federal Reserve is independent of the executive branch's political aims.
That's the theory anyway.
The fed chair is appointed by the president and still has some accountability to the political machine. It is independent in many ways but it is not truly independent.
> Its mandate is to keep inflation and unemployment in check
Yes and now it is also trying to fight climate change, wealth gaps, and other "ESG" goals.
Even if you’re right that’s kind of misleading. Trump’s stimulus and Powells actions were basically necessary to prevent another 2008style economic collapse. Biden’s came as “voluntary” unemployment was already high and during a recovery. Either way that was another example of the fed and exec branch working together. However anyone’s feelings are about politics and the things said, us policies were quite competent during the pandemic.
For anyone interested trillion dollar triage is a great book.
High immigration + no construction -> High demand + low supply. Then on top of that you have record inflation with stagnant wages.
The market is being completely rational. What "overvalued" here means is "are homes expensive compared to local wages" not "are homes irrationally expensive." Normally this would drive construction but the market is distorted by credit such that new construction is less economical (a result of 2008.)
This also forms a feedback loop: people are giving up on labor since housing consumes more than they make, driving up the price of construction, driving up the price of housing. It's likely the dollar will crash before middle/lower class hosing will.
People keep repeating these statements about underbuilding or lack of supply as if they're backed by data, but it's just he said she said. Number of housing units to households is the same as it was in the year 2000, and in line with historical levels.
Home price gains were driven by a low rate induced speculative frenzy. It's inflationary psychology at work. E.g. people spin narratives about why you need to buy now to avoid being priced out, thus everybody starts to panic buy making the prophecy self fulfilling in the end.
But this never ends well. At the root of every bubble is some collective narrative that "justifies" its existence
High construction in Idaho does nothing for housing in New York. National construction rate averages are pointless. Gotta break it down by geography and locations of (in-person) jobs.
Housing is fungible in a remote work world. So construction in cheaper locales can help reduce costs in HCOL areas. E.g. people migrate from CA to FL, reduces number of households in CA. Not for local jobs of course
But anyway, beyond fungibility, demographic trend is towards population decline. Spread between population growth and rate of new home construction is at an all time high.
And even CA recently passed a law allowing densification on certain SFH plots
As long as going to the same bar as your boss during happy hour leads to a promotion, career progression + economic opportunity will be tied to geography. Barely any companies operate like Gitlab does.
Demographic decline is a much bigger problem to solve, not something that should stop us from taking action.
US immigration is cratering, it's a national crisis nobody cares about.
The supply constraint is old but its not why housing is high - housing prices are high even in places where there is a lot of construction. Monetary policy explains it a lot better, and it predicts that at some point the trend will reverse.
It's not exactly all about supply and I talked about that in my original comment but maybe that needs clarification. Yes the prices are high because supply is limited, normally that would drive construction but because the prices are so extremely high and interest rates so low almost everyone has to buy housing with credit. One of the many problems with this is that lenders get to be picky about what exactly people are allowed to buy and one of the things they don't like is people financing new construction. The result is people who could otherwise afford to construct new housing (and construct it in more efficient ways) for themselves in less populated places being forced to compete for the already short supply.
Perhaps legal immigration is but immigration overall is very high.
I've hit my quota, here's my reply: illegal immigrants still have to live somewhere So they're going to take housing off the market. They manage to rent houses in various ways (employers, government programs, ngos etc.)
I'm places like California, illegal immigrants can get state issued drivers license and open bank accounts, and that ignores the simplicity of renting or owning a house in another's name
There’s something happening with Euro/JPY vs USD that is forcing a significant inflow into US assets. It’s going to continue because: (1) EU kicked the can for far too long and they cannot meaningfully raise rates without facing the realities of the debt crisis of 2010-12, and now made impossible due to Ukraine, and (2) Japan is committed to driving down the yen even further. USD is king and real-estate will reflect that reality.
The weak yen is going to help Japan win back manufacturing from China. China is in a very tough spot right now. Between "zero covid" and losing mfg due to monetary and political reasons China may be reaching a local maximum for a while.
I used to believe such things and then I did a median income vs price per square foot worldwide comparison and it turns out the United States is one of the cheapest, if not the, cheapest place in the world when it comes to the “affordability” (median income vs price per square foot).
I think the issue is that the United States has been too cheap and finally that era of abundance at a low cost is coming to an end.
Price/area is a flawed metric. People are not only buying square feet but also houses they can live in and houses with a certain number of bedrooms and other features. A better model would assign a part of the price to a 0-room 0 square feet house, a part of it to each room, and only a part to the size of the house.
The biggest affordability issue I see is that nobody builds starter homes for sale. In most areas, you can easily find a small 1br or 2br apartment to rent, but you can't buy a similar apartment. If you have to continue renting for years after you have settled down, because you can't buy anything smaller than 1000 square feet, it's harder to afford buying that 1000+ square foot house.
Square feet aren't a great affordability measure (they tend to come in rather larger lumps).
In any case, why not just continue the era of abundance? We aren't really running short on space, and there is at least some indication that the lack of housing availability is a policy failure (rather than an expected outcome of some physical process or limit).
We lack space in the few urban areas people want to live in. If people were flexible about where they wanted to live, you’d think that the cheap land/lightly zoned places would prosper, but they don’t.
most of US cities have no public transportation, weird parking zonning rules that making it impossible to have small commercial scene and lack of parks.. just handful of cities are actual cities, not just offices for suburbs.
For sure. I grew up in the deep south outside ATL and houses there are still "cheap". They're certainly outpacing the poor folks who were born and raised there, but you can still snag a house with an acre or so of land in the 100,000s.
Beautiful land too. Forests, creeks, and wildlife.
One issue with this is that it just reflects a certain amount of space bloat - if it's impossible to find anything that's not 50% larger than in a certain other country, but it's 50% less per sqft... you get more space, but it's not more within your reach.
Some parts of the US have pretty high price per square foot and pretty low median incomes within that neighborhood though, so looking at things nationally hides a lot of the nuance that is important to understand the whole. Overcrowding is common among low income people in the U.S. as it is anywhere else in the world. I can take you to parts of CA that will make you think I'm referring to central america and not california with that abbreviation, and these aren't far from cushy white collar jobs and expensive white collar owned homes, sometimes within a couple miles or so. OTOH in areas where housing is considered cheap the poor often aren't faring much better, since social safety nets are either worse or nonexistant and wages (and sometimes even available unskilled labor) amounts to little after the mandatory costs paid in these areas (perhaps car dependency due to a lack of reliable transit to commute to work).
The bigger reason is you can buy a house with 20% down (or less) in the US, where that is nearly impossible just about anywhere else in the world
Edit: I should say anyone can buy a house for 20% down or less. In much of the world some can do this, but credit is not extended to nearly as many of the population as it is in the US
> that is nearly impossible just about anywhere else in the world
I don't know about "anywhere else in the world" but I can guarantee you that
you can buy a property everywhere in EU with a 20%.
Also, property taxes in EU are generally lower than US.
I keep saying that americans, pay lots of taxes, they are simply not aware of it.
Yeah it’s true. Property taxes are so low in the UK. With “free” healthcare and almost no property tax, it’s easy to retire young. But it’s harder to make retirement money.
I wish you well but the way things look, you’re completely fucked. Your interest rates have been so unsustainably low for so long. And now things are going up fast and will likely continue to due to rapid inflation.
In the US, 15, 20, and 30 year fixed are boring standard mortgages, with various adjustable rate mortgages available from 1-10 years (and even some interest only products, where you’re essentially just renting the property from the bank and not building any equity).
Agreed except for your mischaracterization at the end. An I/O mortgage is a leveraged asset speculation you live in, without the “forced low interest savings” of traditional mortgages.
Historically, real estate has always appreciated at a health rate except during a handful of tail events. It’s less speculation and more allocating capital elsewhere versus dead capital in your home (and if the interest rate spread between the note and your other investment growth opportunities is significantly robust to make the effort worth while).
20% down (80% loan-to-value (LTV)) is the standard minimum for avoiding mortgage insurance. If you're willing to pay a mortgage insurance premium, 5% down (95% LTV) is not uncommon AFAIU, especially for large, "jumbo" mortgages, at least in coastal California. (Elsewhere it's probably the case that jumbo mortgages require a greater equity stake, not lower. Coastal California is a little unique. While prices are nuts, the risk of a significant valuation crash is negligible compared to, say, Nevada or Florida, so issuing banks are more comfortable with the additional risk and seemingly more eager to have that asset in their portfolio.)
Also, in case there's some confusion, "deposit" and "down payment" are distinct. In American real estate parlance a deposit is earnest money (often 5% of the initial offer) to bind the seller into closing--the process of finalizing contracts among all involved parties, and transferring assets. A deposit might be forfeited if the buyer pulls out. A minimum down payment is the minimum equity a mortgagee (e.g. bank) requires the borrower to hold in the property as a condition of making the loan.
Many apartments (condos in the rest of the country) in Manhattan are structured as co-ops with huge monthly obligations. The sales prices are lower because you can easily be committing to $2000 a month in payments to a co-op board. The total monthly outlays bring the numbers back in line.
Higher average wages, but not do much higher median wages. Unless those rich people who are driving up the average are giving their money away, the ones who are closer to the median are in a sore spot.
No...average is always average, median is always median. Newspapers often mislabel the numbers they are reporting, but the distinction is always made clear in the data. See:
> The average annual wage in 2019 in the US was $51,916.27, and the median annual wage was $34,248.45. The median wage is the wage “in the middle,” while average refers to the measure of central tendency for all the data.
This is an artifact caused by the fact that the house book is thin and so is rapidly depleted by a few moves from a HCOL to LCOL area, but the incomes there don't rise to match.
Essentially, a few hundred rich people moving from SF to some smaller town won't move SF's housing cost but will skyrocket the small town housing cost. However, the few hundred rich won't boost the income significantly.
This is a data artifact made from the fact that "prices" are determined by what's on the book and "income" is determined as a whole. The difference between what's on the book vs. the whole is best illustrated by San Francisco, where most people pay far less for a 1 br apartment than the "going rate for a 1 br apartment".
Even the repeat-sales method for home pricing is not immune to this data artifact because we don't use a new-job method for income. This causes decoupling of the fundamentals when you get the remote-work revolution.
I picture that vertical M2 supply graph from March 2020 whenever I hear ‘overvalued’ when it comes to real assets.
The money has changed, not the property. I’m now curious how undervalued it really is and what a huge accounting trick it was to play on everyone over the past two years.
Its because they changed the definition of m2 in may 2020 not because anything fundamentally changed - not sure why people keep thinking this.
>Beginning May 2020, M2 consists of M1 plus (1) small-denomination time deposits (time deposits in amounts of less than $100,000) less IRA and Keogh balances at depository institutions; and (2) balances in retail MMFs less IRA and Keogh balances at MMFs. Seasonally adjusted M2 is constructed by summing savings deposits (before May 2020), small-denomination time deposits, and retail MMFs, each seasonally adjusted separately, and adding this result to seasonally adjusted M1.
The change increased M1 by moving common components of M2 downstream into M1. It's why M2 is all anyone should track. And a "definition change" is not in fact the primary reason for a large increase in the money supply in 2020.
Are You trying to argue that nothing happened in 2020 that caused us to increase the money supply?? We did 4 trillion in stimulus while doing the hardest quantitative easing we have ever done.
The issue, as with health care, is that this is a market the consumer cannot choose to exit. I can't decide to not live somewhere, just as I can't decide not to have an appendectomy. I can decide not to have a tablet or a car or a bike or an espresso machine, so markets work well. But if you must participate in a market, it changes the dynamics to the detriment of consumers.
I love free markets but they don't exist without laws and regulations, and those laws and regulations must match what is being sold.
I mean think about it, people can't get housing in cities without paying a ridiculous multiple of the costs to create that housing. It's like if restaurants cost 10x or more than the cost of goods for meals. I can make my own steak dinner for like $50 in components, but if I want to eat out at a nice place, even 3x is extreme, and really nice. This is like if all restaurants, even cheap ones, were $500+. It's insane.
Would you rather hold cash or a home during a period of inflation. Most people wisely chose to put it in a house. With a 7% compound interest rate, your money doubles every 10 years. With a 7% inflation rate, I believe it halves in the same time frame. Perhaps it's not that houses are worth more, it's that money is worth less. A 350k house in 2010 should be 700k now if the real inflation was 7%. And at least where I live, that checks out. However, employers haven't raised wages to keep up with this new reality.
Or we might see a level of inflation not seen in decades. The kind of inflation we saw before the fall of Communism. Where communist governments kept printing more and more money while working people could buy less and less with it. It got so bad that eventually they just barely had enough for food.
They may be overvalued but don't see how they could fall without forced sales. At start of pandemic borrowers got mortgage repayment holidays in Australia - so didn't have to sell if you got into financial trouble. Yesterday one of major bank bosses telling borrowers to call the bank if rising interest rates and cost of living getting people into difficulty. Somehow they will work it out whatever that means.
Housing definitely is sticker than stocks - but that is a sleigh of hand. Buyers unwilling to lower prices are taking themselves off the market, not sustaining the market price.
Volume would go down, and whatever is sold will be done at a much lower market price.
Argentina had a RE bubble in 2017, and property prices dropped 40% since. It has happened, it is happening, and it will happen again.
Price formation is complicated - think about the fact 5-6m home sales a year, at the price for 80-90m homes, if the composition of those buyers and sellers changes, that changes the “implied” price for everyone
Not sure if it's different in the US, but in Australia rental incomes for residential property are a tiny percentage of the value of the investment and most of the money is made through leveraged capital gains.
For example, I pay $24k a year on a house worth around $1.4m. This gives a return of around 1.7%, which is nothing compared to cap notes (5%) or dividends (~4%).
However, someone buying our house would only need to put down 20% up front, and could reasonably expect to see the price raise by 5-10% a year if trends continue. So that $280k deposit could theoretically return $500k+ over the course of 5 years because of the high leverage. The rental return over that period would only be $120k - not even enough to cover the interest repayments on the loan.
Of course, that's assuming trends continue. If prices started falling by 5-10% per year, that $280k deposit would turn into a $500k+ loss and the investors would be absolutely fucked.
I agree with you but to add another point, if house prices were to decrease significantly then loan margins would kick in for homeowners too.
And with low interest rates, low wages(vs house price) for so long the margins for that are tight for a lot of (silly?) people who borrowed "as much as they could".
It seems like:
- house prices up, investors win.
- house prices down, homeowners lose.
It will be interesting to see how it plays out but at this stage either side of political argybargy are doing SweetFA and advertise policies to do more of the same.
Theoretically, the market going up or down shouldn't make any difference at all to most owner-occupiers.
If they hold onto the house, short-term fluctuations don't affect the eventual sale price. If they buy a new property in a similar market after selling the old one, then the "losses" on the old house are made up for by the "savings" on the new property.
It's only people who downsize or leave the property market altogether that would be affected by a short-term dip.
(The caveat being, of course, that this completely handwaves away human psychology! Being "underwater" on the mortgage would definitely make a lot of people stressed and anxious.)
This is absolutely not true. “Investor” properties account for about 18% of secondary home sales. 90% of those sales are to individuals with 1-4 properties. The remaining 10% of investor sales, ~2% of the total, is ALL of the professional invesotr purchases. Its billions of dollars, in a trillion dollar market.
I’ve heard this but I’ve not experienced it. If corporations are buying houses and using it as rental income, they’re probably losing money. Ignoring vacation rentals, detached homes are among the hardest to rent.
Some data would be nice. I've followed real estate investments for a while, and renting houses is fairly poor if you paid all cash for the house. The math is easy to do.
Most RE investors I know who do this make good money only if they buy a significantly undervalued house - often one that is unsellable. They buy it, put in $50K to repair it, and then rent it out.
Those who buy regular houses at 20% down and rent it out have a target of $200/mo net profit. Clearly, they're not buying $600K houses at $120K down to get a measly $200/mo out of it.
RE investing - especially the rental market - is very nice in that it's pretty simple math and very transparent. Anyone can plug in the numbers and see what they'll get. Generally, in places where houses go for $800K, the rent will likely not even cover the loan payments. So then you play the game of taking a long term sustained loss in the hope of appreciation. But as someone else pointed out, this makes sense only if you're paying about 20% down and not with paying full cash.
Buying houses with all cash is almost always a very poor investment.
Random example in my area: Houses in a certain neighborhood are selling for $900K. They rent for $3.5K/mo. Assuming no costs, it would take 21 years to get the money back. Even with rent appreciation, it would take well over 10 years. Over that period, even including appreciation of the house, you're almost guaranteed to get better returns with the S&P500.
If a house is being rented it means I can't buy it, supply is low. That's what I understood housing supply meant when talking about house prices. Renting is not a factor, it's another market.
Even assuming the markets were separate, if corporations were buying up tons of housing stock and flooding the rental market with it... shouldn't rents be going down?
Historically ~30% of all listings were adjusted down. That makes sense when listings are about price discovery. IIRC currently about 15% of listings have a downwards price correction. That is VERY hnusual, and yet still a meaningful portion of secondary market.
Yet another asset crash would annihilate whatever assets millennials have happened to acquire. This would leave the millennial generation largely asset free as they enter their 40s except for inheritance.
A majority of "normal" buyers in the past couple of years have been millennials. Sure there are cash buyers and corporate buyers but outside of that, this has been younger buyers stretching their budgets while interest rates are low. A crash in housing prices while the jobs market cools could easily end in disaster for them.
Millennials have so far been a bi-modal generation in terms of economic outcomes. Effectively going through college debt birth lottery, and a career lottery.
If your a millennial who managed to get through the lottery and have assets, then you are likely heavy in housing and stocks. If assets crash, these individuals will lose out - but ultimately be at the same point as their peers who never accumulated assets.
It will add yet another economic catastrophe to the list, as people generally form businesses in their 40s and 50s we likely wont see much in the way of SMB formation.
It would likely trigger larger economic shifts that could cause job loss, tank the market, etc. Hard to buy homes if you have no income or have your investments obliterated before you can sell.
A housing crash only matters if sell your house during the crash. Prices will eventually come back up. And your fixed rate mortgage gets cheaper every year due to inflation. Certainly some people will have not choice but to sell. But a millennial should be able to ride out a crash - don't read the news and don't stress.
Not sure about the US, but in Canada (where the median house is 2x the US), home ownership rates among under 40's is a couple percent lower than in 1989 (mostly due to longer period of education before entering the workforce).
That doesn't stop social media from flagging a "millennial crisis".
I'm not in the US, but can only think of one person in my rough age and social circle that is renting (and that was because he split with a partner and she bought his share of their house). Fairly middle class cohort, mix of public and private schooling. Average house price here is about $1m, though most would have bought earlier and cheaper.
Anyone younger and buying now would be up against it. I think housing affordability is one of the biggest issues we have.
I'm guessing that is ___location dependent, though it has changed recently, many people I've known (admittedly college educated or further, corporate tech) have been homeowners since their early-mid 20s. (millenial)
I guess it is this site but I always see SF Bay Area mentioned, everyone knows it is an outlier. Guess there's a lot of other cities in similar positions.
Housing should never have been an asset to make piles of money on. That's how we're in this mess to begin with. We need a place to live. The first priority for a house is to HOUSE someones. That should matter first and foremost.
Investors should be forced to legally go fuck themselves. Same with flippers. Same with landlords. All of these just add extra cost and exfiltrate equity for some rich person to get richer. (I've lived with landlords for 40 years. My hatred is deep here. They've taken my money, built their equity, and charged 1.5x more than the housing would have cost. Damn straight I'm angry.)
there's few cases where landlords of a form make sense - dense housing is needed in cities. Treat them like cooperatives, or do like utility companies where this service is guaranteed and here's the cost. But companies should not be able to unduely profit on the fact that people have to live.
Where I live a house across the street that was estimated at $800K just sold for $1.3M. Our house went up 25% in 6 months. There's not enough inventory in good low crime areas. Even in less safe places we see close to zero houses for sale, and if one appears, it's sold in a week. And there won't be inventory any time soon, because residents don't want tall buildings here.
10% drop - yeah, good luck, noone will notice that.
I live in a blue collar neighborhood of a west coast city. I’ve done extensive work to update my home, I’ve added features like central air, new floors, new lighting, and landscaping. It’s like a new house (though it was built in 1955). Both Zillow and Redfin tell me my house is worth roughly double of what I paid for it in 2015. That’s without even considering the upgrades I’ve done. A 10% drop from the current estimate is meaningless when most homes are worth 50-150% more than what they were worth 10 years ago.
In my city, 10 years ago, a nice starter home was around 150k. Now you can’t buy a dump for less than 200k. And those same nice starter homes are 250k+. It’s not hard to imagine why. People flipping burgers can easily make 40k per year now just in base pay. A single person working an incredibly low end job now makes enough money to get approved for nearly 200k loan.
Highly dependent on the area. If that city is say Indianapolis or Toledo it would easily pay all your bills and buy you a house. If that city is San Francisco it's enough to buy some lube for the moonlighting profession you'll have to do to make rent.
Right, and for good reason. It used to be the case that houses were affordable on a basic salary. That hasn’t been the case for a long time for a lot of people. (And to be fair, still isn’t in urban areas.)
The combo of slightly higher wages, more young people moving out, and low interest rates does mean more people have the opportunity. And that’s not a bad thing. If you cancel any of those factors, you’re blocking access to people who would love to own a home.
I think the factors that should change are supply and investors. It’s not like we live in an era where housing is cheap and bountiful. Clearly it’s severely constrained. The other part is investment. With low interest rates, it’s easy to justify a house as an investment vehicle.
Legislatively, it needs to be easy to build and hard to buy more than one property.
It is also a vicious cycle. If you want to hire construction workers in a place like Seattle, you have to pay them enough so they can live in the area.
Houses lose value by depreciation. In few decades the value is zero, then becomes negative - the price of demolition for the next project.
What gains value over time is land. Poeple only think they invest in houses, but they are fooling themselves and overspend on the construction and interiors. They pay for land.
Easy to prove - construction material and labor are highly mobile. Cement, bricks and imported labor costs the same in New York as in middle of nowhere. The price differs only by transportation costs and temporary lodging of workers. The real difference comes from 1. price of land 2. bribes for construction permits of a respective town. In other words - ___location is what you pay for.
Most of the 1-10M+ homes in NYC, SF, etc. were built 100+ years ago. I know a number of people who live in perfectly nice homes built in the 1700s in rural areas that have consistently kept their values. Homes don’t depreciate and need demolition “within a few decades” if you just keep up with basic maintenance. If you don’t believe my anecdotal evidence, you can do a basic Zillow search and filter by price over 1M and built before 1980 and see how many results you get all over the country.
I wish this were true legally - my property tax bill on my 40 year old house would be 0, but sadly it increases every year as my home value appreciates.
Housing economics is old and studied field. When you consider all the different countries over the world, it also means that you have multiple parallel experiments running at once.
That means we know what works.
High prices are the result of supply and demand not meeting.
There is very strong evidence that just these work in combination.
1. Building enough housing into cities (by compact zoning, with good infrastructure). Japan is main example. Tokyo has no housing crisis. They just kept building houses until everyone had one.
2. Taxing empty apartments extra (nobody registered to live there for over a year). Taxing undeveloped properties in zoned areas extra.
After these two have been implemented. It just works. It does not matter if it's luxury or not as some claim. When luxury house is build, one frees up somewhere (as long as they are permanent residences). One new luxury house starts a chain where only 3-4 hops away someone with low income gets a new house.
> Locals in Boise are now competing with buyers from San Francisco and other big cities, who often have more money to spend on housing. That is driving up prices beyond the reach of many people earning a typical salary in those regions.
I’m always wary of “this time is different.” But sometimes, times are different.
If we assume a house bought by an exiting San Franciscan must be resold to a local, yes, the home value is askew. But if we assume it will be sold to another tech worker forged in New York or the Bay Area before achieving sufficient seniority to go remote only at high pay, the denominator is different.
I don’t think that explains the gap. And code fixes would burst the bubble; while there has been historical opposition to such tweaks, a carpetbagger-longtime local divide is about the best fodder for it. But local deviations from the national premium may be explained by permanent factors.
If the supply in SF is limited then the army of cashed up buyers is also limited.
Forget SF and just follow the money. More dollars created since 2015 than before 2015. https://fred.stlouisfed.org/series/M2SL. Half the money supply came about in the last 7 years!
Tech workers are closer to the money than ever before (maybe closer than quants etc.) because
money is looking for yield at any risk. Tech investment provides that promise.
Which was sold for 2.5M NOK / 261k USD. It is 13 m^2 / 140 ft^2, and 11 years ago, the same apartment was sold for 325 NOK / 34k USD.
As you can see, both of these tiny apartments have increased by around %700-%900, or a 11-12 year gross CAGR of around 20%!
As you can imagine, these apartments are not meant for long-time living. These apartments have been bought and sold 3-5 times since 2010, and if I had to guess, they have been bought by the parents of students, and sold as soon as they've graduated. No-one has lost money on these apartments.
At least here in Norway, more so Oslo, real-estate pricing has slowly but steady outpaced the purchasing power of young people. In fact - over half of first buyers in Oslo are backed by parents / family. The ones that don't get help, probably have to rent and save for a longer time.
It is purely anecdotal, but I've seen this divide in a pretty stark way...those that get help from their parents, buy their first apartment straight out of university (sometimes even while being students), so around age 22-24. People that don't get any help, late 20s / early 30s.
While Oslo would be the worst place here for first-time buyers, most mid-sized cities in Norway are trailing these prices and trends.
Average household income vs Average home price in US over the past 70 years. Looks like an average American is going to be a happy renter in about 10-15 years as home ownership prices reach the moon.
God it's depressing. I'm jealous of the generation who bought homes for the equivalent of one year's salary, sat on them while their value multiplied 20x, and then had the economy shut down for two years for their safety. And of course, they received healthy pension increases while the minimum wage remains stagnant.
I think it’s a combination of not enough available housing (and pandemic increasing costs for building new homes), fall in the value of the denominator due to central bank action, and people moving often having lots of equity in their existing home they shift to the new one so the increase in mortgage size isn’t huge.
There won’t be a big crash (unless we see a deep recession with rising unemployment and defaults) but central bank tightening and raising rates will definitely curb house price growth in the next couple of years.
Moody's, who starred in the 2007 / 2008 bubble? Yeah, there's a credible source.
Futhermore, attributing this run up to Covid is revisionist history. The Fed has been goosing the economy for too long. Even my dog knows this. And that has assisted those who are investing in residential homes (because office space has been slipping into the shitter).
This is Moody's and its WS family getting out in front of what's coming. Hear it enough times and we'll believe it.
One aspect that I felt was missing in the discussion is inflation. You could imagine a situation where house prices have risen before everything else did, and now that inflation is approaching double digits, all the other items in the economy (and wages) will just catch up slowly. But then again, I'm sure the they've included such factors in their analysis.
Doubtful. The rental market has stayed consistent with incomes. VERY few people have seen their incomes rise 25% in the past year. Most urban markets have seen that kind of growth in house prices.
Maybe some people are. Property taxes are state by state. But that's not the way they do property taxes where I live.
Where I live, they have an amount of taxes they need to collect, and then they divide that up based on property values. If the value of everyone's property doubles, they still need to collect the same amount of property taxes, so everyone's property taxes stay the same.
I guess in some places, they just do it based on property value, and when house prices skyrocket, the government just says, "Score!".
I believe in some states, there's a limit to how much the tax-assessed value can increase in a year. So even if the housing prices double, they may only be able to increase taxes by a couple percent.
Yes. I mean some places have laws freezing property taxes but in most places yes. My state switched to something like Zillow-based assessments that they did for every house in my county this year.
It’s kind of funny thing that interest rates did but the escrow portion of my mortgage payment is bigger than the principal and interest.
> The economist said a given housing market is considered overvalued if property costs in the area are "well above" the historical relationship between home prices and incomes, rents and construction costs.
Which, no surprise there, prices are up in a lot of places!
Whether or not that is "overvalued" or suggests a crash coming seems a lot more complicated. Would historical trends hold if historical conditions have changed? Mortgage rates rising are one of those things you'd expect to certainly arrest some of that price acceleration. If everyone who moved to Boise decides to move out of Boise, that's another one. (Though if a bunch of folks moved back from Boise to SF, that's not gonna cool down the also-seen-as-somewhat-overvalued SF market!)
Maybe a bunch of folks are just spending a bunch of crypto winnings, naturally causing inflation but not necessarily leading to a crash. ;)
I think a lot of people are panic buying at this point. The fed has several rate hikes planned, so the TCO is only going up from here. I don’t see prices coming down. We could see the increase in prices slow down, but it’s almost guaranteed a house right now is going to be cheaper than a house in December. Even if the price stays the same, your rate might be 12% in November.
Until a prohibition on investor owned single family occupancy residential property is put in place (basically make AirBnBs illegal), there is zero chance this will get better...
If rates go up like that the housing market will freeze up and people wont sell if at all possible to avoid.
Banks who own the assets if they force people to sell don't want to see the asset values go down below their collateral required. Hence banks move softly and let the majority of underwater people ride it out instead of selling.
If rates go up, there would be massive liquidations all across the board. Landlords with 12 properties would have to scale back to survive. Those properties would be sold for fire sale prices. Fire sale priced homes are not going to rent for a lot of money. Bonus; it will totally bankrupt Blackrock. Rates will go up if we are lucky enough to have a world in which we will be in it.
Sorry this is just another dumb me trying to see what solution could be.
Maybe 3rd world countries could start opening up their citizenship/PRs for US/Western Europe/Canada/Japan/Korea/1st world citizens. i.e, Give up your origin citizenship, say US, for Indonesia for example (because Indonesia doesn't allow dual citizenship), and gain these benefits for you:
- Extremely cheap cost of living
- You can own a house and a yard as big as you want, with nice cars, and maids, drivers, gardeners
- You can send your kids to international school that are cheaper than your private school, and also of better quality education wise than your local public school
Meanwhile, Indonesia will gain:
- The new citizens/PRs can help create opportunities/businesses in Indonesia and employ locals
- The new citizens/PRs will spend their money in Indonesia, buying local goods and services
For example, a nice area in Serpong (just a bit south of Jakarta, cluster-style 2 story houses, 3 bedrooms, will cost you around $150.000. Complete with security guards.
I'm sure there are other countries that are ok too, like Thailand, Vietnam, Philiphines.
Most people will not give up family, friends and roots for a house in some third world country.
People have jobs where they live, they know the city or at least the country. The language is not a problem, they are familiar with food, laws, standards, processes.
I worked in many different countries before, developed and less developed. It's "fun" for a while, but in my experience people don't want to stay, they only stay temporarily that for career reasons.
Plus, how long will it take until the local folks will get mad because your kids are treated better (in the international school), you have a bigger house, enjoy a better life? There will be the same "those migrants are taking away our stuff!!!" sentiment that we already know here in the WeSt.
And how are you going to generate a US level income in Indonesia? This can only work for retired people living completely off passive income, and even then, it ignores the many cultural and infrastructural problems of living in a poor place.
Practically that means paying to build and maintain housing stocks, changing tax incentives so developers are incentivized to build more housing and less luxury housing, charging a premium for unused land in desirable areas (parking lots don't house people), abolish mandatory minimum parking, and upzone neighborhoods (eliminating the "single family home" neighborhoods as a zoning type.)
I'm also of the much more radical opinion that we should protect tenants over landlords in nearly every case, that we should protect the rights of people to live where they've historically lived (eg, one shouldn't be "priced out" of the home they've lived in for 20 years), and we should offer extensive public housing (built as many geographically distributed small apartment buildings and 5 over 1s, not giant tenements or projects.)