People intuitively jump to the conclusion that the problem is caused by a lack of building. While more building would help, a lack of it isn't the main cause of this problem.
Ask yourself, do Canada, Australia, New Zealand, the US, Britain, Ireland, etc, all have the same inability to build or is there maybe some other common cause?
In my view this is symptomatic of a more fundamental issue - global asset price inflation driven by a broken financial system (i.e. a system being artificially pumped up with cheap credit). Housing is just where the rubber hits the road and regular lives are directly effected. Just look at the tight correlation between the increase in the money supply and property prices.
For those who insist that the number of properties is inadequate, take a look at the numbers for each of the countries I mentioned in the first chart here: https://www.oecd.org/els/family/HM1-1-Housing-stock-and-cons... (Total number of dwellings per thousand inhabitants, 2022 and 2011).
This is a problem of underutilisation in my view. Too many properties are being used as investments and not as a primary residence.
Cheap credit causes an increase in demand. This is not demand for homes but additional 'artificial' demand for properties as investments. Think short term rentals, second homes, land banked properties, etc. By definition, only investment properties can be underutilised - owner occupied homes are occupied! So in an environment that encourages property investment you will see more underutilisation.
What will cause prices to fall is higher interest rates. This is what has been happening in NZ.
> do Canada, Australia, New Zealand, the US, Britain, Ireland, etc, all have the same inability to build …?
Sort of? See eg https://www.ft.com/content/dca3f034-bfe8-4f21-bcdc-2b274053f... for some graphs that show Europe vs anglophone countries in an obvious way. Obviously there are lots of differences between the countries, eg the specifics of their planning systems and economies. The US is different because of the big diversity of local governments – housing is more affordable lots of people outside of desirable cities, and places like Austin and Houston do build lots of homes and that seems to be a possible reason they haven’t grown like prices in California.
Credit costs have followed similar trends everywhere (obviously there are differences, especially in the US) and yet house prices have not followed similar trends but rather behaved differently in different places. I agree that when interest rates are lower you should expect to see higher prices, but that’s because interest rates change the price that a given income can afford. I don’t think interest rates are good at explaining the changes to affordability over time, or why affordability is different in different places.
Also, in your linked chart, you see something like 20% more dwellings per person in developed EU countries vs English-speaking countries, which doesn’t feel like no difference at all.
The issue in the article of affordability becoming worse across the US recently is probably interest rate related – prices change more slowly than interest rates, 30-year fixed rate mortgages mean rates change more slowly, and the higher rates mean existing mortgage-payers don’t want to move as they’ll lose their low rate, which reduces supply. I don’t know why prices are still up though – if interest rates being high was making housing unaffordable, one would expect prices to be down.
> for some graphs that show Europe vs anglophone countries in an obvious way
Housing is still extremely expensive in most major European cities relative to income. e.g. Milan, Lisbon, London, Rome, Munich are significantly more expensive than San Francisco or San Jose (e.g. Milan is more than 2x more expansive) if you're earning the median income.
It's not like most people in some European countries chose to live in rented cramped apartments they simple have no choice because they can't afford anything else.
> you see something like 20% more dwellings per person in developed EU countries vs
It's not clear how much of that is because of lower (or negative) population growth. e.g. Italy has one of the highest dwellings per person ratios and there are towns/villages which are basically giving away houses for free Milan is still relatively the most(?) expensive city in Europe and housing in other major cities is still less affordable than pretty much anywhere in the US.
Housing affordability is qualitatively different between Europe and the US. When a European city is expensive, it's usually only the central part that's expensive. Prices drop steeply as you get to the suburbs and satellite towns. In the US, suburbs and satellite towns are more likely to remain expensive, as long as you are within a semi-reasonable commuting distance. I guess that's because the US city is more likely expensive due to the job market and the European city due to the desirability of the city itself.
I think you are close but slightly off. EU has historically better public transit and lower sprawl allowing more price points of housing while still a "reasonable" commute.
US cities are vastly larger by land size, because America is larger allowing it, added with fewer public transit options.
Look at Houston, massive sprawl and some of the cheapest housing in the country.
The transit part is key for Tokyo, everyone talks about how housing supply is robust, zoning is loose, density is high and unit sizes are small; but few talk about how having 130 rail lines with pervasive express service means that there’s an enormous amount of land within commute distance.
Set this charting tool to Density, plug in Tokyo with a number of other major world cities, you’ll see the effect in the data.
Or you could just upzone. The nine-county Bay Area is larger in size than the Keihanshin area containing Osaka, Kyoto and Kobe and has 12 million less people.
Yeah. Bay Area denizens also would be wise to note that if they hate towers so much, part of how Japan stays low rise with higher density is by having smaller roads and more transit. So you still should be building those trains (and downsizing those roads!)
I am biased in that I live in Tokyo and am used to "a ton" meaning 150+ rail lines in this metropolis [1], constructed in a lattice that makes it hard to be very far from any train line within a large radius of the city center. What most Americans think is "a ton" is, in my view, closer to "bare minimum", but that's probably since I live in a city with an order of magnitude more transit than the most built out city in the USA.
I agree that the local land use is a total disaster, but even if they made it better, SF has a few skinny tendrils of transit which creates a few skinny corridors of transit-accessible area.
The constant excuse I kept hearing when I was living there was that there isn't enough space!! But that's only true if you won't do anything to increase the viable space to live in (and optimize the space that is present, through better land use). Even densifying the transit along these corridors, San Franciscans will still whine and complain about how there's no space, ignoring the obvious solution.
The answer to me is to do it both, yesterday. But I'm not a San Franciscan anymore and I understand that my values differ from theirs.
Aside, it's also worth mentioning that in Tokyo as well, single family homes near train stations abound. The difference is that they're smaller and denser, and mixed in with apartments. There aren't that many towers here! But the roads are mini-sized and they pack units tightly to better use land. If San Franciscans hate towers that cast shade, they have alternatives.
Prices can drop quite steeply in suburbs in US as well. It's just that when the rent is that high in most desirable areas to begin with, it's still too expensive for many after that drop.
> if interest rates being high was making housing unaffordable, one would expect prices to be down.
I think you have to be careful with the definition of "unaffordable".
Housing, at this moment, is unaffordable in the sense that the cost of housing squeezes many people's discretionary budget, savings, and even sometimes the budget for necessities. It is not unaffordable in the sense that (most) people do have enough money that they can pay for it, even though paying for it might cause them hardship elsewhere.
Housing is an inelastic good - particularly for demographics who have limited access to transportation and therefore need to live very close to where the jobs are. The price increases until it consumes all the money available to pay for it.
> Housing is an inelastic good - particularly for demographics who have limited access to transportation and therefore need to live very close to where the jobs are. The price increases until it consumes all the money available to pay for it.
Housing is not rising in price because it is an inelastic good. Housing is rising in price because the growth in the supply of housing is less than the growth in the demand for housing.
Indeed, the very fact that housing has inelastic demand means that it is particularly susceptible to price reductions when supply is higher than demand.
Anyway, supply and demand are murky concepts that don't map well to reality when trying to take them out of the supply/demand chart. You can't actually quantify potential "demand" because "someone wants a good or service" is not a data point for demand, only actual trades that happened do.
You are taking as an assumption the very thing we are currently questioning - does lack of supply actually account for the increase in housing prices?
Lack of supply would cause prices to rise - but so would cartel behavior on the part of those who control that supply. Housing of the type necessary for relatively low-income individuals, where the location must be close to jobs (see above), is typically controlled by a set of entities who exhibit cartel behavior in how they price the rent.
That’s a fair point. To be more precise, I mean that many people who buy houses need mortgages to do so. Higher interest rates mean that for a fixed deposit and budget for mortgage payments, the amount one can borrow decreases. All other things being equal, one would expect the demand for purchasing houses (I’m trying to be careful here to not talk about renting, which I guess the term ‘housing’ often includes) to decrease. Something that might not be equal is the available mortgage payment budget – it may be lower due to more money being spent on other things or it may be higher due to wage increases – so perhaps that’s part of it.
> you see something like 20% more dwellings per person in developed EU countries vs English-speaking countries, which doesn’t feel like no difference at all.
I was attempting to highlight the change in numbers for those countries I mentioned and how they are clearly inadequate when trying to explain the change in prices over the same time.
In NZ there was little change from 2011 to 2022 but median house price went from NZD350k to NZD900k.
I agree with regard to demand being different in various locations within a country, but those localised demand differences would have had to shift pretty dramatically over the same ten year period to explain much I imagine.
> Why would money printing increase housing prices but not wages?
Because most of the freshly printed money wasn't immediately used to increase the demand for consumer goods. Instead, it only kept consumer goods demand about neutral, until the summer of 2022.
Without inflation in consumer goods, most businesses don't have increased profits, and no incentive to try to hire more people, which kept wages down.
Instead, the extra money found it's way into assets, pumping up the stock market and housing market.
That started changing in 2022, as inflation hit (which SHOULD have surprised nobody). But the inflation was kept in check by increasing the interest rate.
The increase in the interest rate stopped the amount of money from continuing to grow and even fall slightly. But not nearly enough to reach pre-covid levels.
That means that there is still a lot of excess money in the system slushing around. As long as the real interest rate on bank deposits is still low, people are not tempted to keep them as deposits. So the money stays in assets, maintaining the high price.
> Why would money printing postpone its effect on prices until after interest rates increased?
I'm assuming you mean consumer prices here, not housing prices. Consumer prices stayed low during the pandemic, since people generally reduced their consumption, especially the consumption of services (restaurants, entertainment, etc). A lot of "regular" people paid down credit card debt or increased the size of their savings account.
In 2022, that changed. "Regular people" started to spend more of their savings again, and this caused inflation to rise. As inflation was going up, the fed (and other central banks) slowly increased the interest rate, but not quickly enough to stop the sharp rise in aggregate demand. (And war in Ukraine and continued lockdown in China didn't help either, nor did various initiatives to re-shore production of anything from microchips to ventilators, or for that matter the huge investments of capital currently going into AI infrastructure).
And as demand pushed inflation up, that lead to some increase in the demand for labor. So even if the salaries haven't kept up with inflation, inflation definitely has been increased by the increase in salaries.
Naively, one might expect that the inflationary pressure will cease once aggregate inflation reaches 25% relative to 2020.
And if you wonder why wages haven't kept up. I think this can be explained by a weakening of the demand side of consumer goods, driven by various inefficiencies in how capital allocation, due to the cost of building new and robust supply chains, due to the situation in Ukraine/Russia and China and AI investments etc (as listed above, too).
> I don’t know why prices are still up though – if interest rates being high was making housing unaffordable, one would expect prices to be down.
This is counterintuitive, but also persistent across high-interest rate environments. I asked my mom what the housing market was like in 1980, when rates went up to ~20%, and she said "Prices were basically stable, but nobody was selling houses." Similarly, if you look at historical data, you'll notice that home prices usually remain flat during recessions but don't really go down. Even in really bad recessions (eg. the Bay Area from 1989-1994, which got hit with the triple whammy of interest rates going up to 10%, a tech bubble bust in the workstation & AI market, and the crash in defense spending after the end of the cold war), you might see at most a 10% decline.
The reason comes from a fundamental asymmetry in the housing market: everybody needs a place to live, but most home sellers do not need money. If they fail to sell, they can take the place off the market and continue living in it, or rent it out, or just leave it vacant in hopes of better market conditions next year. So the negotiating leverage usually lies with sellers in the housing market.
When rates go up, affordability goes down, but sellers are usually unwilling to take a multi-hundred-K$ hit. So they don't. They rent it out, they live in it, or they hold onto it. It's usually worth taking a few thousand dollar hit in property taxes to avoid a $100K hit in home value. Liquidity dries up - instead of prices going down, inventory disappears. We're seeing that now, and the older generation saw it in 1980 and 1990.
To make prices actually go down substantively, you need those forced sales, where owners want/need to get out at any price. This could take the form of a foreclosure/bankruptcy crisis like in 2008, where the owners legally lose possession of the house, and the banks need to sell at any price to avoid bankruptcy themselves. Or it could be rising crime, like what happened to Detroit & the Rust Belt after the 1970s or SF in 2020. But many things that you would think would destroy home prices don't actually - New Orleans did not see a significant decline after Hurricane Katrina in 2005, and Silicon Valley did not see one after the dot-com bust in 2000.
One other thing to note is that when prices in a region decline, it's almost always because nobody wants to live there. This is actually rather intuitive - if rates and affordability go down but people still want to live there nobody will sell, while if people are forced to sell but others still want to live there you will still have competition among bidders and prices will go up. But it means that there's no magic bullet: "affordable" housing means that home prices stay stable while incomes rise, and if you can't get your income to rise, you are just screwed.
That is the shape of housing market corrections. Housing prices are sticky because of a range of financial and emotional reasons. Because of this prices hardly ever crash outright. What happens instead are periods of price stagnation while inflation does the work of reducing real prices. And a real collapse of prices indicates neither wages nor financial devices could support the market any longer.
Affordable is a different issue. Housing assets exhibit strong depreciation under normal circumstances and extreme depreciation under any kind of stress. Affordable houses are used houses in a way similar to how used cars are fundamentally more affordable than cheap new cars.
I guess I was surprised by the increase mentioned in the article. Rereading, it says:
“The median home sale price, external in the US has jumped by nearly 30% since the end of 2019”
So I guess you could have the increase due to Covid effects (or whatever else happened around then) and then seller hesitancy due to high interest rates, even though most potential sellers don’t stand to lose much.
Sellers do have much to lose. I think you're saying they have 30%+ in equity so why not sell and use it? Well they have 30%+ equity AND low interest rates.
If they sell, they need to buy again at a higher interest rate. So they can sell at a profit but then monthly payments will be higher.
Anyway, this is only 1 scenario. Urban areas are hit hard NYC/SF and sellers are sitting out waiting for recovery, so they rent them out.
My claim about ‘not losing much’ was more that many sellers would have had the property since before 2019 so in some sense they could feel like they didn’t lose anything if they just forget the 30% rise since 2019. But I guess you’re right about many not wanting to lose long mortgage terms at low rates (this does feel like a US-specific thing though hard to change in the short term as mortgages would have been priced based on the current rules)
But this is where it gets messy. Interest rates as they are now are already considered 'too high' by the WS crowd ( I have my own opinion, but it is just that -- an opinion ) and any indication that FED will lower rates is met with glee. There is, naturally, a solid reason for it. High rates will slow down the reckless flow funds sloshing around the economy ( and would help with the ridiculous prices ). However, this would come at a cost that no one wants to pay. I am not even talking about the political cost. No one wants to think of paying that high a price for serving US debt. I mean, I hold negligible amount of US bonds and I don't want to pay that..
But then US wants to 'invest' in current wars.. sorry, national security ... and money has to come from somewhere.
I feel like I should explictly state this is not an attempt at derailing this thread.. politics and rates are part of the reason we are in this mess. I agree that 20% rate would clean it all up really quick
Under utilization can be measured as a factor of the vacancy rate; which influences both home pricing and rental pricing.
Here in Canada, the desirable places to live all have relatively low vacancy rates for residential housing, and have for quite some time. Ie, it's rare to see cities with vacancy rates for apartments exceeding 3%, let alone a healthy 5%.[0] The CMHC estimates that by 2030 we will need 3.5M additional homes beyond the expected number to be produced.[1] The PBO has come up with similar numbers; roughly speaking, Canada needs to complete a new home every 50 seconds just to maintain current price levels.
There's much gnashing of teeth up here over our housing crisis, and it's clear to me that it's a multi-factor concern[2]. While there simply exists much more demand than the supply can service, the reasons for low supply are many and complicated. There are the obvious zoning and infrastructure issues; we don't build for mid and high density nearly enough, and we rely too heavily on cars. There's the labour supply issue the politicians focus on. But most unnerving, to me, is the suggestion that we simply do not have the capacity to produce or source the raw materials necessary in construction.
Why is the vacancy rate so low in desirable neighborhoods?
Is it that there isn’t enough housing period, in the entire country. Or is it is people and investments abandoning rural areas in favor of a handful of city neighborhoods?
I’m also curious if those vacancy rates can be / have incentive to be gamed by the homeowners, or otherwise don’t paint a very accurate picture. I lived in a wealthy part of NYC for a while, and my apartment faced a courtyard on the interior of the block. As a result, I could see into the windows of 100s of apartments of 3 adjacent buildings. Only maybe like 5 out of 100s of apartments consistently had someone living in them. This reflects my feeling on the street: the streets were empty, especially given the relative density of the apartment buildings.
I know this is anecdotal evidence, but everyone I know that lives in NYC has the same observation.
I wish scientists and experts would take these concerns seriously and research by this gap in perception and the reported vacancy rate is so different.
Just a note that "occupied" != "can see people milling about". A lot of people (particularly in NYC) treat their apartment as just a place to sleep. During the day, they're at work. For breakfast and dinner, they eat out. In the evenings, they hit the clubs, or go over to a friend's, or visit one of any number of cultural attractions. That's why they live in NYC, because of the density of non-home forms of entertainment. Particularly if you value your privacy, it makes sense to keep the blinds permanently shuttered, leave your apartment in the morning and come back at night, and just sleep & shower there.
Heck, it can make financial sense too. We tend to keep our windows covered most the day regardless of season. In winter it helps to keep the heat in and there's no natural light to miss out on anyway. In summer it helps to keep the heat out, and we mostly don't care about natural light in the apartment because we're outside enjoying the weather. (What's even the point of living in the city with the highest % public green space in North America if we're going to just stay at home bingeing Netflix all evening?)
And you can't necessarily see the lights on when somebody's home because we use the most blackout-y blackout curtains we can get. Urban light pollution has gotten so bad - especially since the switch to superbright LEDs - that they've become a sleep hygiene necessity.
This effect is also exacerbated in wealthier areas by bigger units. Units are less likely to seem lively because people are using a smaller proportion of rooms at any given time, and those rooms may not always even be visible to you. E.g. my grandparents flat would often have looked dark and abandoned from the courtyard, because that side of the flat was unused for much of the day, and often only lot when the curtains were closed, even when they were home and had visitors and a full house.
> Only maybe like 5 out of 100s of apartments consistently had someone living in them.
I would be highly surprised if this were true. I lived in NYC for year and the myth of tons of empty units is pernicious and just won't die. There has been a TON of research on this topic and it all points to there being a huge shortage of housing in the city. As a percentage of total housing stock vacant units make up a fraction of a fraction of a percent.
Anecdotally, my apartment building has 0% vacancy rate.
And a newer building across the street has at least 10 apartments vacant for the most of the year.
Anecdotally, i know quite a few boomers that own multiple properties (>3) in manhattan, some of which they rent some of which they keep vacant for when they want to come to the city
I feel like at least some % of apartments in the city are visibly vacant most of the time because they are just part time homes for the wealthy.
The research for this does account for pied-à-terres, which do exist in some number but are a tiny fraction of he total and mainly exist in a handful of Manhattan neighborhoods. There are only about 10K of these in NYC[1] which is 0.27% of the 3,644,000 total housing units in the city. This just doesn't seem like a real problem when the rental vacancy rate is shockingly 1.4%[2] (of the 2,183,064 total rental units).
I struggle to believe that pied-a-terres are less than 1% in NYC, particularly in the post covid era. Maybe paid off condos in NYC owned by people who also live in Florida aren't counted somehow? Seems like everyone with a net worth of $2.5mm has two properties.
My best friend's brother has a rent controlled manhattan apartment that sits vacant 80% of the time and is used as a crash pad for a rotating cast of ~12 people, what do you call that?
Why would you struggle to believe something that is accounted for in tax records and other city records?
The median household income in NYC is about $70k almost no one relative to the population has a $2.5mm net worth. There are only 350,000 people in NYC with a net worth of more than 1mm.[1] Anecdote is clouding your understanding here, the idea that there are tons of empty units in NYC is just another luxury belief, it stands up to 0 scrutiny.
A good friend bought her Hell's Kithen flat (read: condo unit) from a Japanese company. Years ago I had another friend who worked for a company that had a sizeable place in the Village.
There aren't that many. NYC housing data is sliced, diced, and studied by so many agencies, non-profits, think tanks, and so on that someone would notice. There's a marginal number of units that appear to largely unoccupied. Corporate and LLC ownership shows up in tax data and the totals are a drop in the bucket of the nearly 4 million units.
Yes, but you only need one unit per building to be over-bid and that then drives up the prices of other units in that building? It might not be an occupancy issue per se, but it doesn't help the overall residential market.
Housing exists in price bands more or less, so the thing you’re measuring has to be large enough to have an effect on the band. There’s a lot of research on NYC housing issues and no one has ever identified corporate housing as a contributing factor, so there’s a very high burden of proof on your claim.
Desirable neighborhoods in Canada and US typically resemble pre-automobile orientated design type neighborhoods. These are on short supply.
So while there might be enough physical houses around the country/province/city, what makes a place desirable to live extends far beyond the walls of your home.
Regarding your anecdote. I definitely notice the same thing, walk through the wealthiest parts of any bigger city and you will see many/most of the houses completely shuttered for >90% of the year. That also explains why the vacancy rates are low, the wealthiest 0.1% (whom ended up with much of the relief funding during the GFC and Covid) park most of their money in assets, but they are not interested in renting out these houses, so when they buy houses they reduce vacancy rates even when they don't live in them.
Growing housing costs and wealth inequality have been extremely correlated, anyone looking for other reasons for the housing inequality really needs to have a very good explanation why they are not related.
Vacancy rates should be lower where the total inventory increases and people’s ability to predict the market increases. That’s also going to be places people want to live.
Consider a city of 10 million people vs 1,000 small towns of 10k people. The variability for demand in those small towns is higher and vacancy rates can’t drop below zero. So some towns hit 0 while others might be 20%. But in a city if some apartment complex is full people just go to the apartment down the street.
Sure but on average Americans move once every ~7 years on average. A 5% vacancy rate would be ~4.2 months between owners/tenants which seems unnecessarily high. Most apartment complexes I was at could turn them over in a few weeks if someone wanted to move in. So 5% would seemingly represent a significant economic inefficiency.
3% may represent local shortages as Santa Monica is more desired than West Adams etc. So increasing availability in undesirable places may not reduce rents in general.
The 5% is a sliding window. Some of those have just opened up, some of those are about to close at any given time. And it also represents all buildings, from super in demand complexes to slower moving listings, and is a rule of thumb that also aggregates seasonal differences.
In aggregate, 5-7% seems to be a sweet spot where landlords can find tenants in a reasonable amount of time and tenants are not scrambling to send out a dozen applications a week.
I moved around a lot and the majority of the time I signed a lease it was 1+ months out for an apartment that was still occupied. Having some availability right now is definitely beneficial as stuff can happen, but current housing stock just wasn’t what I was looking at basically ever.
Though I agree less desirable locations should definitely increase the average, as should purchases vs rentals etc. It’s just 3% is already including a lot of mandatory time from cleaning, painting walls, replacing carpets, etc. So prices could fall heavily at a sustained 4% long before you hit the 5-7% range.
Expensive housing markets are very unhealthy. A median home is considered affordable at 5x median income. Most of the expensive areas (San Francisco, New York, Seattle, Los Angeles, etc.) are at 10+x.
The other metric is median rent as a percentage of median income. Nationally it has hit 40% when the affordability mark is 33%.
Just because what you are experiencing has been a norm for a while does not make it good, or the goal.
People who rent tend to move more often than people who own a house. Landlords will often take an apartment out of the rental pool for a few months to remodel it.
Actually, California population (for example) has fallen by >400k over the last several years. The first falling year was 2019, 2020 saw a small rise (<50k), 2021 saw a fall of >300k, 2022 a fall of ~150k, and 2023 a fall of ~50k.
That includes both births/deaths and in/out migration. Population growth rate has been generally falling since 1990 (except for a peak in 2000) and significantly so since the GFC in 2009. However, prices have skyrocketed.
China has overbuilt their population by 10-100million (yes, and there are even more outrageous numbers) homes over the last 10-15 years, and yet prices in Shanghai/ Beijing/ Shenzhen still exceed NYC or SF by 50%. They have a falling population.
Crowding is huge in California though. The starting point was "multiple unrelated families living in one house." If the population has dropped by 1% but you started with 3 families per house, you still have (to some rounding error) 3 families per house.
China has the confounding issue where it has both poor social security systems and a mistrusted, dysfunctional stock market and financial system, so everyone shoves money into real estate for retirement.
This is not even a new problem. The imperial landed gentry was so named because bureaucrats would shovel their money into land.
A net migration out of California does not mean an increase in available housing. There are a lot of families (adults+kids) where the children grew up and then can’t afford a home in California and left the state. A household of 4 then becomes a household of 2 but the housing supply stays the same.
The price finds whatever level it needs to maintain a population that fits within the housing supply. Obviously population can’t grow that much against a fixed housing supply; once the vacants and spare bedrooms are filled up, people just get priced out. This is Malthusian NIMBY policy working exactly as intended.
Population geography also shifts from rural to urban and from declining to rising cities even as the total population size holds constant or shrinks. The fact that there is space for you on a farm or in a coal-mining town is cold comfort to someone with a STEM degree and a job offer at a corporate headquarters.
Did you forget to factor in that it is a replacement rate? Sure, more people are born every year, but plenty of people pass along in one way or another (mortality, downsizing, various care facilities).
but it's not necessarily needed in dense urban centers. Plenty of laptop class people could secure housing in rural areas for a fraction of the cost of what they're paying now.
One of the many things contributing to pricing, is that not enough road corridors are being built or widened.
It's harder live further out, when traffic slowdowns extend commute time 10x. And governments love the idea that expensive roads can be waved away using environmentalism as an reason.
Yet these same governments don't build fast transit either, and without fast amd efficient transit, trips take far far longer than a car.
At this stage we should be building both, as we're that far behind.
The point is, there is a move for 'dense urban areas'. Pack 'em in. Increase that housing density. Yet there is another way in North America, where there is often an endless bounty of space. Better transportation corridors.
Better transportation corridors means that housing costs plateau, because it's just easier to drive 10 minutes more, 20 minutes more, than spend 4x for housing.
That said, even the laptop class often does need to commute:
* Many remote workers have to attend once a week, or more often.
* People make lives, friends, contacts, have relatives in specific areas.
* Every once in a while, you may need to go to "the city" for something important. Medical treatment or specialists, specialty products, etc. Not everything can be shipped, or is shipped.
Anyhow, it seems you sort of missed the point, that is... the faster you can get into a city, the further you can live from the city and still be part of it.
> People intuitively jump to the conclusion that the problem is caused by a lack of building.
In my experience, people "intuitively" jump to basically every conclusion besides this one. "Greedy landlords" or "[favorite scapegoat] collusion" are intuitive conclusions which are far more common than supply and demand.
> Ask yourself, do Canada, Australia, New Zealand, the US, Britain, Ireland, etc, all have the same inability to build or is there maybe some other common cause?
Yes they do, to varying degrees. The Anglo land use regime is a disaster.
> Yes they do, to varying degrees. The Anglo land use regime is a disaster.
Population growth (which is mainly concentrated in relatively small number of areas) is not helping either.
e.g. in European countries which have comparable population growth to Ireland/UK like Norway, Sweden, Belgium real estate prices have been increasing at a similar pace.
And yet housing prices in much of Asia is still insane. The only market that is sane is sort of Japan with a falling population and an aversion to property speculation due to getting burned on their last property bubble.
Chinese housing market is completely messed up, with turn over almost halted since the government won’t let prices fall no matter what, while they have overbuilt like crazy.
Chinese municipal governments are funded through the tax assessed on the sale of the home and not through a continuous property tax - or at least that used to be the case, haven't checked in a while. That resulted in municipalities encouraging higher prices for housing.
Some locales have experimented with property tax, but they haven't really expanded the program yet, and they usually exempt your first home. It isn't enough to fund municipal services, and cities are still screwed when it comes to income (the central government collects most of their VAT, they are expected to pay for a lot of services without a lot of income beyond taxes on property sales).
> And yet housing prices in much of Asia is still insane.
They're generally lower than the US, despite having a higher population density.
> Chinese housing market is completely messed up, with turn over almost halted since the government won’t let prices fall no matter what, while they have overbuilt like crazy.
A place with the government policy objective of not allowing housing prices to decrease isn't much of an argument that supply and demand doesn't work in general. China is just its own kind of broken.
Whereas prices are significantly lower in e.g. India, not just Japan.
They are only lower in the sense that incomes are lower, and often not even that much lower than American cities even if incomes are ten times less. India, for example, if you take median home prices and median incomes, they don’t match at all. Yes, an American moving to India who retains an American salary somehow will find it affordable. The locals are struggling, much more than Americans could ever imagine. Japan housing wins by being smaller, and having less requirements like central heating, that would never fly in the west. We really should have that lower end housing, I agree, but then we are comparing apples to Orenjis.
China is simply repeating what Japan went through in the 80s/90s. Maybe market sanity comes only after a period of crazy insanity.
> They are only lower in the sense that incomes are lower
The urge to measure everything by income leads to absurd results, like putting Saudi Arabia and the UAE near the top of the "housing affordability" list because they're flush with oil money, and for the same reason the United States.
> We really should have that lower end housing, I agree, but then we are comparing apples to Orenjis.
But that's the point. Someone in the US who makes 20% of the median household income still needs somewhere to live, and by refusing to provide smaller units, we make things cost more for everyone else too. Because now they have to spend their entire salary on housing and make up the rest with government assistance, which bids up housing costs for people in the middle -- who are also the ones footing the bill for subsidies made necessary by the high costs.
It's not just about the cost per square foot, it's also that small units aren't even available because the rules proscribe more units from being built on the same lot. The result is a de facto prohibition on smaller units because ordinarily it costs a similar amount to build a small number of large units and a large number of small units, but now the latter is unlawful and a small number of small units is uneconomical.
> The urge to measure everything by income leads to absurd results
If you believe housing is for people to live while doing the work they can get at the salaries those jobs are willing to pay them, then it is absurd not to consider income in housing affordability.
Exactly right. Ignoring income of local buyers in market would be ridiculous.
My family bought an apartment couple of hrs from Delhi for about $100K which is huge amount for locals considering it is center/ hub of nothing. And as far as fit/finish goes one can easily spend another $50K on it to bring it barely to level of basic rental apartment in US.
If it costs e.g. $200,000/unit to create a housing as 5-story buildings then housing should not cost more than $200,000 anywhere that isn't already saturated with 5-story buildings (which includes every metropolitan area in the US), regardless of what local salaries are. Only regulatory rules that constrain construction prevent this from being the case.
There is a minimum amount that it intrinsically costs to create housing, e.g. the cost of lumber, and in some places local wages are too low to afford that, and that sucks but the reason for it is low wages rather than housing scarcity. Then there are places where housing is unaffordable, not because wages are low, but because housing costs are artificially high, and that is a different problem with a different solution.
First, it costs way more than $200k/unit for new builds where I live (Seattle). Unless they go for scale, then maybe they are getting $200k with lots of profit and a $1k/month HOA. The biggest cost these days is simply labor. Construction workers aren't cheap.
Second, the housing is not at all equivalent in Asia. The standard 30 story overbuilt concrete apartment buildings, completely un-renovated (but at least you can get that done for cheap), but it keeps migrant workers employed (they overbuild on concrete for less technical builds, at the expense of increased building maintnence and/or reduced building lifetime). China and India just don't magic up these buildings, and often times it is used as a jobs program (or they would move on to more expensive but longer lasting builds, the fact that the buildings will be torn down in 20-30 years is seen as a feature and not a bug). But those cheap to build flats are still going for $1 million/each in cities like Shanghai or Shenzhen.
> First, it costs way more than $200k/unit for new builds where I live (Seattle).
That's the point. If you restrict where they can be built, and how they can be built, they cost more to build. And then prices go up.
> The biggest cost these days is simply labor. Construction workers aren't cheap.
This is part of the regulatory cost. Rules that require labor-intensive construction methods (preferred by both labor and landlords because they both want new construction to be more expensive), and licensing requirements that statutorily take a long time or significant money to satisfy (e.g. multi-year apprenticeships, expensive licensing exam fees) rather than immediately licensing anyone who can pass the exam and not charging to take the test.
> China and India just don't magic up these buildings, and often times it is used as a jobs program
At which point it's a government subsidy, but that doesn't really get you out of anything at scale. Somewhere or another somebody is paying for the construction.
> But those cheap to build flats are still going for $1 million/each in cities like Shanghai or Shenzhen.
You can allow something to be built without allowing enough of something to be built.
You can also build enough of something and still have high prices because of some other constraints or regulations preventing the people paying the high prices from using some of the supply, so it goes to waste.
But these are not the reasons that a $1000/month flat in India is unaffordable to locals. The reason for that is that local wages are low.
> The urge to measure everything by income leads to absurd results
What? Measuring relative to income is the only criteria that matters. What would be absurd is not to compare to income.
There isn't any absolute number at which housing is affordable or not affordable. It is purely a function of what percentage you need to spend of your income to be housed.
If the global price of materials means that it isn't possible to build a housing unit for less than $40,000 then in places where $40,000 isn't an affordable housing cost, your only options are to somehow lower global commodity prices or somehow raise local wages. Both of which are hard, and neither of which are particularly specific to the housing market. It's just not a place where that problem can be solved.
Whereas if the global price of materials means that it is possible to build a housing unit for $40,000, but local regulations make it cost $800,000, and then as a result local housing costs are $800,000, that is a problem in the local housing market.
It's global in the sense that it's present in multiple countries, often for the same reasons. For example, the costs are high in the UK for similar reasons as in the US. But many of the comparisons just don't apply.
If you look at a country with a very low median income, of course housing costs a lot compared to the median income -- everything costs a lot compared to the median income. And housing in particular requires skilled labor and global commodities like timber and steel, which put a floor on the cost regardless of what local incomes are.
So housing in India or Vietnam costs a lot relative to local incomes because wood costs a lot relative to local incomes, even though housing there doesn't cost a lot in absolute terms. Which is not the problem in San Francisco, is it?
It is more than that. In the UK we track this through a figure called HPI (house price inflation). It just means the cost of real estate. My guess is that the graph would look quite similar for most non war ravaged countries around the world. Rocketing HPI over the last few decades.
There is more to it than just "anglo countries don't build enough".
There are more components to housing prices than just not building enough, but in ordinary markets that aren't constrained by pathological factors (e.g. China), supply and demand operates and increasing supply lowers prices.
For example, suppose you don't have artificial supply constraints and then you lower interest rates. No problem, more people can get a loan to buy a house which causes more houses to be built and them more people get to be homeowners. But long-term prices stay the same, because it's easy to add supply, so it keeps getting added until prices fall to the construction costs, which acts as a long-term ceiling on prices.
Now suppose you do have artificial supply constraints. Prices are at $200,000 but you've made it cost $1,000,000 to create a new housing unit. Now if you lower interest rates, prices are going to go up, because you can't increase supply at the current price so people just end up having to outbid each other on the existing supply. And the same thing if local demand increases or anything else like that, because you've prevented supply from responding to demand until prices hit a million dollars.
But the problem isn't low interest rates or growing cities or anything like that, because the only reason those things are a problem is that supply can't increase until prices are unaffordable.
The difference is that China had a housing bubble. After it popped, housing prices started plummeting. In the US, housing is just expensive. Given the current supply and demand, there isn't a good reason why the price should be lower.
> After it popped, housing prices started plummeting.
Prices haven't plummeted in China. Sales volume has seized since the red families control the real estate agencies. They have added more incentives, like easier access to hukou, and have eliminated limits on how many homes you can buy.
The government is doing everything they can stop it, but home prices are indeed falling [1]. A 2.2% decline doesn't sound like much, but it's wild given the strong GDP growth over the same period.
I wouldn't take much credence in reported GDP growth. Tearing down a building that was built last year creates reported GDP. Also, you really really need to look at volume, since the party will just cut off sales if they have to (since they control the real estate agencies).
I only have firsthand experience in the US but it makes a lot of sense to me that the influence of colonization by Britain would cause all of the listed countries to have similar issues related to land use.
Every state west of the Mississippi has at least 50% of all land owned by the Fed Gov and isn't used at all. We have plenty of land, that isn't a real problem.
There are only 5 states with federally owned land over 50% (Nevada, Utah, Idaho, Alaska and Oregon). Other states west of the Mississippi don’t necessarily have a large percentage of federal land. For instance, Texas only has 1.78% that is federally owned, Arkansas at 9.38%, Oklahoma at 1.59%, Kansas at 0.52%, and the Dakotas at 3.91% and 5.41%. In fact, there are only ten states with over 30% of federally owned land in the Union, granted they are all in the Western part of the States.
I don't know that that is what they were claiming. Land use policy != Land availability. If it was, Russia would have ended homelessness 500 years ago.
Much of that are involves forests far away from where people would want to live anyway. Often without roads.
When people say the issue is land, that usually implies a very particular smaller subset of land which is in proximity other populations, economic centers, and with certain features and infrastructure.
There are also plenty of houses in recently a abandoned ghost towns. The catch is that they were mostly abandoned due to lack of jobs nearby, meaning nobody could afford to live there.
Seattle is building far more than many other cities and rents are lowering as a result. Rents are up nationally, but down over 7% in Seattle. If you've visited recently, the amount of new construction and cranes is immense.
Ten years ago people talked about how much Seattle was building and how many cranes were everywhere as well - then as now, it’s because all that building is in the same ten square yards of “urban villages” across the city where you are allowed to build densely.
And now we are running very short of buildable volume. There are not many places left you can build a tower. We need to allow a lot more. Also, in the meantime, we have added more time to the permitting process, all in the name of aesthetics/design, not safety.
The market in Seattle has become softer for sure but is not evenly distributed. In my area, the vacancy rate for apartments appears to be in the 10-20% range depending on the building and the incentives are becoming more aggressive. A bit more surprising, some housing prices in nice neighborhoods have also declined since a couple years ago (some areas have also increased). Renting makes a lot of sense in Seattle right now.
Anecdotally, all of my friends renting have had their rents continually raised with no breaks. Perhaps there is a wider trend, but if so, their landlords do not seem aware of it.
Part of that is also a fact that renters face the pressure that real estate firms now use big data to manage the rent accross a set of units. They know people will keep paying to avoid the skids so they can keep both rents high, and vacant houses because the over under makes them money.
If you had the state / city charge rent to owners on vacant property you'd see rents fall through the floor as realestate companies would quickly pack anyone that could pay something into an structure.
There is actually currently a Seattle class action lawsuit on renting because a majority of the corporate landlords use the same big data company to set rents, and the big data company says you must use their rates (and so do the landlords instructing their property managers). It turns out you may not be able to launder price fixing using an algorithm.
No, lack of building _is_ the main problem. It doesn't matter if the demand for homes is "artificial" or not - the easiest solution is to build more.
> Ask yourself, do Canada, Australia, New Zealand, the US, Britain, Ireland, etc, all have the same inability to build or is there maybe some other common cause?
This is something I've wondered, and I'm of the opinion there's two reasons that are rarely discussed. One is the great recession/sub-prime crisis, which, at least in the US, caused a collapse in housing construction - I'm not sure how much this is true for other countries. The other is the coming of age of millennials, leading to a "bump" of people in their 20-30s trying to get their first home - I'd expect this to apply to most of the countries listed.
You really need to provide data to make that assertion. Shortages of buildings are not the only reason that property prices can be high.
Properties are made up of a building and a plot of land that it's attached to. Whilst we can nake more buildings, we can't make more land, so the land in a given location is by definition going to be in a permanent state of shortage. If more poeple want to live in that location OR (the main driver of this crisis) if more money is chasing the same fixed supply, then the prices rise. The land component is the part that has become more expensive recently, not the buildings.
> Shortages of buildings are not the only reason that property prices can be high.
It pretty much is - everything else is window dressing. Pretty much every single city in China is 3-10x more dense than any area in the US, so lack of land is a reason I find continually uncompelling. Our lack of density, zoning practices, NIMBY attitudes and car dependency all contribute to this, with the result being a lack of construction.
Here's a grad student on tiktok who does good, well-sourced analysis on this front (he has an entire playlist on the issue of vacancy rates given how frequently it comes up): https://www.tiktok.com/@divasunglasses?lang=en
Land price is inherently tied to buildings though, in the sense that the cap of value one can realize from land is the maximum square footage you can build by zoning.
Land that you can develop into multifamily that still has capacity is getting ever rarer. If you poll Americans the preference split is 60-40 suburbia for suburbs vs dense walkability, and yet in metropolitan regions the residential land allocation looks more like 93-7. This shows up in square footage prices, where dense walkability is priced much higher per square foot.
It’s a shortage of floor space that is the issue. The problem is the Anglo countries have mostly made it illegal to supply it, in both dimensions. Auckland clearly showed this when it upzoned.
Doesn't the US already have something like the most sq footage of housing per capita in the world amongst major countries?
We have lots of secondary and tertiary homes, parked empty RVs, vacant investment properties, and lots of floor space per occupant, empty spare bedrooms, dedicated social entertainment rooms that are only used for parties, etc.
This might be one of those things where the obvious bit (built more!) is both true, and reductively incomplete. We do have a sense that just building more housing in the presence of lots of liquid capital and easy credit seems to create a speculator market -- even down to retail investors. (e.g. The China real estate bubble bursting seems to be strong evidence that this can happen.)
We also have some evidence that building a single type of housing leads to another kind of speculator bubble (e.g. the subprime mortgage crisis of the early 2000s was proceeded by a massive wave of construction of primarily giant single family homes for example). Even if somebody was interesting in buying something smaller at that time, there wasn't inventory anyways - yet those smaller housing units were not where prices increased the most (note: I'm aware I'm not providing specific evidence of this, but if memory serves it's basically correct) yet they often saw large increases in rental prices.
So from those two examples we can likely say that a market that:
1. Speculation causes housing prices to rise, even when millions of units are being built.
2. Lack of diversity in housing construction can lead to both high prices for some types of stock and lack of availability for others.
So how can we solve this beyond the trivial "build more"?
I'm starting to believe a few things are needed for a healthier housing market:
* We need to limit housing speculation, or at least make it less interesting as an investment option. In South Korea, they've introduced various taxation schemes that limit the appeal of owning multiple properties after decades of housing speculation. The idea there is that housing does exist, but occupancy rates are lower than desired. The result seems to have been an explosion in new housing starts with entire districts in Seoul being razed and rebuilt.
* We also need to find ways to ensure diversity in housing. Now that interest rates have gone up and single family homes seemed to have softened as a market, it seems that developers are concentrating on building "luxury" units of various other types. It's a good start, but if these units are still outpricing need, then they'll sit empty or end up speculated on. Many areas have dealt with this by mandating a certain amount of "affordable" housing, but that has turned into a joke in these areas.
There needs to be other ways for developers to build lower budget units, perhaps tax incentives, or changing zoning to allow for more types of housing.
Here's an example of the problem: The D.C. Metro recently added an entire new line to the system intended to connect the major international airport into the city. The areas around the new stations along the line have all been subject of new rezoning plans, higher density, urban fabric, etc. However, the construction that's happening along that line, while adding tens of thousands of new housing units, is almost all "luxury" (e.g. high price). One of the areas along the line is among the largest reurbanization projects on the planet (Tysons), and Reston/Herndon could grow into a contiguous "city" as large as many other "name recognized" cities in the U.S. like Providence, or Salt Lake City. Average housing unit prices in that area have been rising double digit percent per year (quarter over quarter) with the average home price (not just single family, but condos, town homes, etc.) is at around $700k USD. People who bought in this region even just a few years ago would be unable to afford their own homes today given pricing and interest rates.
So we see another example of "build more" and even "build more types" but aren't being met with "limit speculation" and "build more diversity" - and even in the presence of harder to get credit, the prices are spiraling.
Because property taxes are one step removed from builder incentives. Better to directly adjust builder housing price choices, at least for intents of building less luxury housing.
> developers are concentrating on building "luxury" units
And many of those "luxury" units don't cater to families, but single people. You'll find 1 or 2 bedroom units with bedrooms where you can barely fit a queen sized bed. So these are units that are not only more expensive than, say prewar or midcentury units, but more expensive per unit area than those units.
I think you might be missing the point of the poster. While building more might in the reduce housing stress in the next few decades, rapid building for the sake of feeding the investor market is pouring gas on the fire.
This is where discussing the housing problem becomes challenging. Half of us want to burn the whole system down and take housing back to the basic human need it is, while the other half want to work with the system we have.
Multi-faceted and interrelated: a lot of housing would become a less attractive investment vehicle if near-substitutes were more plentiful. An overseas investor buying a Vancouver condo assumes that the asset will have high resale value (in addition to its use value as, e.g., a rental or airbnb). But in a saner world, housing would depreciate in value over time in proportion to its use and maintenance, like other durable goods.
That would make sense in a world where the surrounding location is completely static, but generally as a town/city grows it's much more desirable - more work for better wages, more business opportunities, economies of scale, better education... A world that doesn't respond to that with increasing price doesn't seem sane. Imagine that you start with a house in the middle of nothing. 20 years later there is a major city around you - and the house should be cheaper than it was when there was nothing? What about new housing around your house, should it have the same nearly zero price too? What even is depreciation in case of housing - my grandmother lives in a 120 year old house and I'm pretty sure my grandchildren will live there too.
Not so much it'd be visible in the price - maybe 5-10% up or down, more pronounced in remote locations. The location is the important factor. Realtors work with square area pricing set for entire towns or municipalities.
That REALLY depends on the type of housing, not only on location. And it also depends on the interest rate relative to inflation.
In fact, it's really similar to dividends on stocks, just with cost instead of profit.
For a house in a suburb or rural area, maintenance (enough to keep the house in the same condition you bought it in) can easily cost as much per year (on average) as the cost-of-money (interest rate - inflation) for the debt.
And in some case much more than that.
If one such house is twice as expensive to maintain (over time) due to differences in building materials, environmental conditions, size/geometrical factors, etc, the cost of owning the house over a time period may easily be 25-50% higher for the most expensive compared to the least expensive if we assume the same purchase price.
Purchasing a single piece of land with the expectation that it will increase in value, is similar in many ways as to do so with single stocks.
Land and stock tend to go up in value. But land also sometimes go to 0, just like stocks.
With the booming American car industry in the 50's and 60's, who would have thought that houses in Detroit could go from having a premium price in 1970 to be sold for $1 40 years later?
A single peice of land may or may not appreciate. but a diversified portfoilio of land will always appreciate if the last 10,000 years has anything to say about it.
The rockefellers and other "Old Money Family's" have the three rules to building multi-generational wealth. Land, Art and Gold.
Even for detroit, land prices have only increased since the 80's[0] and over long time horizons, i'm sure will be back in line with other "Single peice land bets".
> A single peice of land may or may not appreciate. but a diversified portfoilio of land will always appreciate if the last 10,000 years has anything to say about it.
I believe there are large parts of Europe that would take centuries if not a millennium to reach the peak value it had during the Roman Empire (measured vs gold).
In general I agree, though. A portfolio is fine.
Most people tend to have most of their "savings" in a single property though.
As an example, what do you think this $2500 property cost when it was new? (Edit: make that 1965, since it's quite old.)
Short of it being on a superfund site most residential land will never have a value of 0. It's called REAL estate for a reason. Partial ownership in a company can evaporate, but 405 park west, manhattan nyc will always be there, at least for the next million years.
Some actually sell for $1 ($0 may be technically more difficult), some may sell for less than 10% of what it was once considered worth, which is close enough to 0 for the difference to not matter much.
a person buying a condo in Vancouver generally isn't purchasing land, and if they are, then yes, the land might appreciate even as the thing built on it degrades over time due to a bunch of natural processes (e.g. wood decays)
someone buying a condo is absolutely buying land. That land just is split up across x number of condos. The appreciation that you get on the Condo, is the fact that the land is usually in a very ideal location. That's when the economics of "Going up" even makes sense.
> But in a saner world, housing would depreciate in value over time in proportion to its use and maintenance, like other durable goods.
Without any external influencing factors, a house would not typically depreciate. So a depreciating house isn't normal, there is something external causing it (like the city is going broke, lost most jobs, or environmental factors make the area bad to live in, etc).
But if all is well, a house will not depreciate if it is lived in and maintained. A house can last centuries and inflation means building an equivalent house is always more expensive later than it was to build this one.
So it is not natural to expect a house to depreciate.
Exactly! And important to recognize the interest groups behind preventing progress on each.
Fixing the issue has been stymied for too long by each pointing at the others and saying "They're the real problem!" to justify inaction / rolling back fixes on their pet interest.
These aren't all issues though. Another contributing factor is that home/lands ownership can be inherited.
That's going to be the biggest contributer as time goes on (not right now though), as eventually all desired land will have been bought by what amounts to an oligarchy.
Honestly, land/homes should never be inheritable, and companies should never be able to own land altogether.
Not that this would ever happen. The status quo is too profitable for the land/home owners.
Eh, nah. But, there should be inheritance taxes set at a level which prevents the formation of a "landed gentry". Unfortunately, the issue has been demogogued to the point that middle-class people (who won't have anywhere near the assets to be taxed, as in not by an order of magnitude) treat the idea as anathema.
The middle class is afraid of taxes that are "for the rich" being extended to tax them. And not without some reason - income tax was sold as "only for the rich".
Immigration Numbers alone are Wörth nothing. How many people emigrated. How many people died? Tell me how the Population Numbers chnaged per years instead If Just looking at Immigration.
Well since Canada only has a slightly declining natural population rate, not many in comparison to births?
They added 500.000 people to their populace since the beginning of the year. The births are on top of that.
It‘s not true that immigration numbers are worth nothing. Immigration happens mostly in densely populated areas, thereby further increasing home prices.
Just shy of 1% of people die each year (~389,000 people) but the birth rate is just over 1%. That means all immigration counts towards the pop increase
Uh, it's not strange at all to expect a single cause when a system fails. Rather, there's often a chain of failure but with one thing at the head. You can look at how a car breaks down - you go from a single belt failing to a damage spread around.
Your list can be easily sorted this way (Notably, foreign nationals with money are just an instance of asset price inflation, in no way an instance of "nuance" or something).
I see the chain of causation thus - a flood of printed money has increased the value of all capital assets (some of that money appears as the money of foreigners and some of domestic investors, some as hedge funds, etc). Housing has been a focus and areas with restricted supply are where the money has been most attracted (it's spread more and more as the scale increases - a key point of the gp).
The issue is always lack of building. Higher interest rates just mask the problem and hand more money to rich people for no effort.
The problem is that the private housing production system responds to increased credit availability only at the margins and does not over produce. That’s largely because houses are still hand built and not really substitutable like a vehicle. You don’t generally have a choice of two houses on the same site.
However if you produce houses publicly then you can force private housing to compete outside the margins. At which point you get excess supply, as we see with cars and then house prices start to stabilise and even depreciate. At which point the “investment” hoards would start to liquidate.
We need the housing market to behave like the production car market, not the classic car market.
The fix is public policy producing housing in order to force a situation of excess supply.
Where I used to live, it cost $7k to get a plot of land ready to build on. Today, that cost is $70k and 6months to 1y to get past all the permits and paperwork.
And then having to deal with a governing body that doesn't understand how money works, and it is no surprise no one builds affordable houses anymore.
Or increase planning department funding with higher emphasis on throughput. It's the bureaucratic delay (nearly a year for approvals or revisions in many places) that causes much of the pain, not the regulations themselves.
About the biggest delay in Seattle permitting is the requirement to get a board of volunteer assholes to approve the visual appearance of the project, which is estimated to add an average of 8 months to the permitting process but is allowed to last for an indefinite period. The average total permitting time for these projects (over 35,000sq ft) is about 18 months.
Hopefully they will be thrown out soon. The really fun note is that these boards are almost entirely made up of architects who are getting the chance to single-handedly destroy a competitor’s work.
This sucks. In addition to adding so much time and costs to projects, visual approval boards are going to be culturally suffocating. Some of the most iconic structures in the world were widely considered to be eye sores when new, see: Eiffel Tower.
At minimum any sort of approval system needs to come with some sort of rubric to bypass it: "build it this way and it's approved automatically". It gives the approvers the same agency while prohibiting holding anything up, and it puts the onus on the approvers to say what they want to see instead of the builders finding a way to hit a nebulous target.
The better solution along these lines is to give them a week to render a decision (with stated reasoning that can be immediately appealed) or the application is automatically approved. Then they can request more resources if they don't have enough to be thorough but what they can't do is delay rendering a decision.
One of the ways government can help us by funding counter-cyclical building, keeping the sector afloat and preventing supply crunches when a recession ends.
The almost 7% that the US is currently at, vs the < 3% it was at back in 2021, 2.3x as much. It's true 7% isn't high compared to a peak of 18.5% in 1981, but neilwilson said higher, not high.
> You cannot realistically build enough so that the rents decrease.
I'm curious what makes you think this.
Suppose you built twice as many housing units as you had residents. Rents wouldn't decrease? Why not?
Or do you think that a sufficient amount of housing wouldn't fit? For reference, the San Francisco metro area has ~7.5M people in an area of ~3500 square miles. With housing at the population density of Manhattan, the number of people who could be housed in that area is approximately 250M people, i.e. three quarters of the entire US population. Obviously you wouldn't do this, but you could, so that can't be the constraint.
> when you build you just fuel the vicious cycle of people -> opportunities -> people
So long as a place is desirable to live, people will keep moving there. Obviously there's a logical limit to the argument- things get weird when you build more housing than there are people- but then so too do the logistical issues of sewer, water, electricity, and geology (some locations simply aren't economical to build high rise buildings on).
> So long as a place is desirable to live, people will keep moving there.
The underlying premise being that they're moving to this place from some other place. But that has an obvious solution: Build more housing everywhere. People can't increase the population of everywhere by moving from everywhere to everywhere.
It also implies that building it in one place still helps to reduce the cost somewhere else. If you make San Jose more attractive and people move from San Francisco to San Jose then you're reducing demand in San Francisco and lowering the prices there.
> Obviously there's a logical limit to the argument- things get weird when you build more housing than there are people- but then so too do the logistical issues of sewer, water, electricity, and geology (some locations simply aren't economical to build high rise buildings on).
The constraints at the physical limit are irrelevant because you don't need to get anywhere close to it. The point is that you could if you had to, not that you actually have to.
This incorrectly assumes that housing is expensive everywhere. It isn't. My house's mortgage payment wouldn't get me a studio apartment in San Francisco.
Not that it necessarily invalidates your comparison, but the home pricing run-up has resulted in many people who wouldn't be able to afford a mortgage on their own home if they had to re-qualify and buy at market price.
Far from assuming this, that is the entire premise. Housing isn't that expensive in Detroit. It's expensive in San Jose. So more housing needs to be built in San Jose. This won't remove people from Detroit because the people have already left Detroit (and those cities are quite far apart). It might remove people from San Francisco, but that's a good thing too.
> > You cannot realistically build enough so that the rents decrease.
> I'm curious what makes you think this.
> Suppose you built twice as many housing units as you had residents. Rents wouldn't decrease? Why not?
It seems entirely logical that rents should decrease.
Not the OP but I do always question this, despite sounding logical. Why? Because it has never worked that way in practice. Can you think of a city that built so much housing that rents became cheap (relative to local income)?
It's easy to say "built twice as many housing units as you had residents" and I agree if you could do that overnight, rents would free-fall. But in practice it would take years to build so much housing. Meanwhile, more and more people and jobs are moving in, attracted by all that new housing. The area becomes ever more popular and more expensive. So you end up with a city that is more vibrant, with a lot more people and a lot more jobs and economic activity. All good things, but rents don't go down, given all this success rents go up.
> Can you think of a city that built so much housing that rents became cheap (relative to local income)?
Most cities with a declining population. They built more housing than they needed, then people moved out, so now housing costs there are low.
It's hard to find other examples of places that have built too much housing, because there is no market incentive to do that. In practice the best you can do is prevent there from being too little.
But the areas with less restrictive zoning do have lower housing costs.
Houston metro, not very restrictive zoning:
Per capita income: $68,344
Median home price: $192,500
Riverside metro, California zoning:
Per capita income: $50,407
Median home price: $393,000
> Meanwhile, more and more people and jobs are moving in, attracted by all that new housing. The area becomes ever more popular and more expensive.
It isn't the housing that attracts them, it's jobs etc. The housing is then needed to give them somewhere to live, or you get California.
In some ways having more people will create more jobs and attract more people, but the idea that it's not possible to keep up with demand is just defeatism. You can't build a million new units overnight but neither do a million new people move in overnight, and even if they did, you would then be better off to build a million new units over five or ten years than to not do this.
Whereas the argument is simply that building the units should not be prohibited. You obviously don't need a law against it if your actual problem was people not doing it fast enough, right?
If we magic in twice as many housing units there would be calamity and chaos, because a bunch of building magically appeared, in violation of the understood laws of physics. I doubt money would be as much of an important concern in the ensuing chaos. So sure, if we look at a supply and demand graph, and double the supply, the intersection of the two moves, meaning the price goes down.
However, we don't live in a world of perfectly spherical cows and because we don't live in a world where we can double housing units overnight, realistically the reasons we're in this problem is because we can't build enough housing units. Given than, we're not going to be able to double the number of housing units, so realistically we can't build enough to lower rents.
The reasons we can't build enough housing aren't going away overnight, so even pretending they did, it would still take many months, if not years, before new housing units were being sold. Given the time it would take to double housing supply, the natural increase in demand over time because the population is increasing means it would rise to meet supply to keep rents at the current level. Lets say demand increases by 9% each year and it takes 10 years for double the housing stock to come online. Demand is basically doubled by the end of 10 years if that 9% remains constant.
With those problems not disappearing, new housing units are going to be slow to come online, so realistically, again, realistically, because we're not going to double the housing supply, so the best (and my bias is that of being in the SF Bay Area) we can hope for is for rents to increase at a slower rate. (Aka the derivative of rents goes down.)
I just don't seeing the rents themselves decreasing, relative to inflation of money, as well as inflation of the population.
> Suppose you built twice as many housing units as you had residents. Rents wouldn't decrease? Why not?
People make the same specious arguments about gpu production during mining booms etc. Surely producing more gpus will lower the price, or reduce the profit per gpu at least? Are you saying prices don’t fall with increased supply!?!? that’s a counterintuitive statement, Mr Bear!
it just also turns out to be a true one. Getting more people into the bubble etc, or building more hype around the bubble, often only drives the bubble higher even with increased supply. Macro and micro are different things and the forces can work very differently!
now, ponder the way we’ve turned housing into a bitcoin-style money machine full of people who never want the number to go down… yeah there actually is all sorts of counterintuitive and hazardous second-order effects involved in housing, why would you ever think there aren’t?
(The American housing market is basically the exact same kind of “deflationary asset” as bitcoin by design, in fact - if the system is built around the idea the number can never go down (can never be allowed to go down, in fact) that’s what you’ve got, regardless of any actual utility delivered in the process. We have turned housing into bitcoin instead of a place to live and that’s the overarching problem here.)
Maybe increasing the supply only increases the supply of luxury condos, which if they are all consumed by wealthy individuals might push housing prices upwards etc. Such activity could, similar to bitcoin, actually stimulate enough economic activity in an area itself to sustain upwards trajectory on pricing, or merely crowd everyone else out without prices actually dropping “on older condos” as everyone blithely handwaves. These effects are observable in real towns - Colorado mountain towns have a massive worker shortage yet no workers able to afford housing, so the area has been wracked with crippling labor shortages for multiple decades now! Markets are weird and inefficient in all kinds of exciting ways!
Basically economics 101 is barely sufficient for economics 101, and frankly every assertion you can pull from such content is somewhat incorrect and massively oversimplified, even one as simple as “prices will decline if production volume increases”. No, not always - and that’s not the only case I can think of where that simple, confident assertion is completely wrong, it’s not true of giffen goods either for example.
> Surely producing more gpus will lower the price, or reduce the profit per gpu at least?
But that is what happens. The issue with GPUs is that a) there are only a small number of companies that make them b) fab capacity has to be booked in advance, and c) they know it's a bubble, so they're not going to commit to buying a large amount of future fab capacity when it could pop at any time. So then they don't actually increase supply, and prices don't go down.
> Maybe increasing the supply only increases the supply of luxury condos, which if they are all consumed by wealthy individuals might push housing prices upwards etc.
Only in the sense that the average cost might increase because the average unit is now larger, not in the sense that the existing smaller units would cost more rather than less. After all, their occupants no longer have to outbid the wealthy individuals who have put their money into the new luxury units instead.
> Such activity could, similar to bitcoin, actually stimulate enough economic activity in an area itself to sustain upwards trajectory on pricing
The premise here is that if you make an area more attractive then more people may want to live there. But that's fine. Suppose building 10 units increases demand by 5 units. So if you need 10 more units, build 20 more units.
In some kind of hypothetical edge case or rare circumstance, building 10 units might increase demand by 11 units, but that is obviously not sustainable -- if you built 50 million units, there aren't 50 million people in the region to live in the city, so at some point it stops being true, if it even ever was.
> Markets are weird and inefficient in all kinds of exciting ways!
This isn't markets being weird. If prices are high then construction companies want that money, which they get by building new housing. Weirdness only occurs when regulations interfere with their natural market incentive.
Especially for nvidia, who have been badly burned by crypto bubbles going from 100->0 very rapidly in the past and ending up with massive oversupply of both used and new GPUs.
Especially given the AI people are buying dedicated business GPUs and not gaming ones like the crypto miners were, that's probably good news for gamers that nvidia haven't gone full bore AI only. If they were, it wouldn't make sense to spend fab time on a new series of gaming GPUs as they have leaked they're doing.
In the case of Nvidia, I don't think they see gaming GPU's and AI as being in direct competition with each other.
Continuing to also produce gaming products give a few advantages, besides simply to serve as something to fall back to if the AI boom turns out to be a bubble.
For instance:
- Having consumer GPU's out there has marketing effects and can also increase the population of developers who experiment with AI development.
- Consumer GPU's can be built with cheaper memory types (no HBM needed) and less efficient process technologies (like when the 30-series used Samsung's).
- Having an installed base of consumer GPU's out there allow AI companies to deploy AI products (inference) to edge devices.
- Related to the previous: In the future, AI technology, VR, gaming and TV/film may merge into a single entertainment class, with everything happening or being told in an interactive VR environment, complete with fully AI agents acting within. Having much of the processing power in the edge device may increase the quality of such experiences, and may cause consumers to be willing to significantly increase spending on such products.
>People make the same specious arguments about gpu production during mining booms etc. Surely producing more gpus will lower the price, or reduce the profit per gpu at least? Are you saying prices don’t fall with increased supply!?!? that’s a counterintuitive statement, Mr Bear!
That is not the argument. In your example, demand is increasing more than supply, so obviously prices would not fall.
Supply has to increase at a rate greater than demand (including higher property taxes to incentivize sellers to increase supply of properties for sale).
Yes, exactly. But sometimes a vast increase in supply actually induces additional demand by itself. Demand would not have increased by itself if you did not increase the supply, potentially even if the price increases.
Traffic lanes work this way, notoriously. It’s also fundamentally one of the mechanisms underlying Jevons Paradox.
Again, the practical example in real estate is Colorado mountain towns. Demand, supply, and prices all accelerate together, and this is particularly amplified because of the customer base in question not having any real price sensitivity etc, and then driving out the portions of the market which do have price sensitivity.
Like it or not, induced demand is a very real phenomenon, and in real estate and similar markets it observably does not always occur at a lesser price due to other positive feedback loops being induced. And you cannot “peel away” those effects separately - the price increase will not necessarily occur exogenously without the demand induction and vice versa.
Again, you’re trying to pick apart the “but that’s separate from the supply increase!” and unfortunately that’s not really severable. The demand increase wouldn’t have occurred without the supply increase. Jevons Paradox being real doesn’t mean gas prices will never go up, so to speak.
> But sometimes a vast increase in supply actually induces additional demand by itself.
Induced demand is a specious argument because the demand is not actually induced by the new construction, it's suppressed by its absence.
If you have traffic congestion, or a housing shortage, then people who would have used the road or moved to the city instead do something else. The normal amount of demand that would exist in a functioning system is suppressed.
If you then alleviate some of the shortfall, that demand comes back. But you haven't induced it, you've just stopped suppressing it through congestion or high prices.
The most important thing about this is that the amount of demand at the lower cost isn't infinite. It's just more than there is at the higher cost. What this means is that you thought you had a shortfall of 100,000 units but you actually had a shortfall of 250,000 units. What it doesn't mean is that you can't solve the problem by building more units -- you just have to build 250,000 rather than 100,000.
> Again, the practical example in real estate is Colorado mountain towns.
This is not a practical example because Colorado mountain towns are not fungible or reproducible. This applies to much of the western US that features amenities in very limited supply that cannot be increased, such as low humidity, tall mountains, surfing, and vast expanses of public land. So the US west will always be expensive, especially if you have an airport/Costco/Apple/Trader Joes nearby.
NYC has a similar dynamic, since no other US city will come close to having a comparable subway transit system.
But this would not apply to places that are relatively fungible and in greater supply, which include many metros in the southeast/midwest/northeast.
Induced demand is a thing, but the population of people is limited hence total demand is limited.
well, no real-estate is fungible, that's not an actual distinction between GP’s thesis and mine.
I don't think that's the fundamental/underlying dysfunction of the real-estate market, because the same induced-demand effects clearly exist in other areas. Again, things like Bitcoin pretty clearly demonstrate that supply can induce its own demand and then build a positive-feedback loop that would not have existed exogenously.
But regardless, it's equally true of the real-estate that both grandparent and I were talking about. If induced demand doesn't count because every real-estate parcel is a unique good, then you also can't ever compute a curve for price, because supply will never exceed n=1 either. Therefore the Law Of Supply and Law Of Demand do not exist in this universe and GP's assertions are still false.
I'm not sure that's a useful way to think about the world, clearly real-estate is at least somewhat fungible (people don't not buy an apartment because they lost a single bid) but if you want to use that model, grandparent's arguments are equally broken, for whatever value of broken you are asserting here.
The more useful analysis imo is that real estate is mostly actually not about real estate - it’s about community, economy, etc. And those are clearly things that are highly susceptible to induced demand. There is a near-infinite supply of beautiful mountain slopes, but that’s not really what people are buying homes in Vale or Breckenridge for. They are buying it for the social factors, which is effectively 100% pure induced demand in this context.
An interesting example of this phenomenon is the development of derelict neighborhoods. I used to live in an area which was re-developed from abandoned buildings and working class housing to a luxury playground. While supply was significantly increased, typical rents skyrocketed.
But what happened to prices in the areas the new residents moved from? Didn't it make them more affordable?
And what would happen to prices in the new area if you kept building, instead of stopping? Finding an inflection point in the curve and passing legislation forcing everybody to live inside it is no proof that there isn't a point higher on the curve where more supply reduces prices again.
It would seem to me that more supply = more construction + more maintenance + more taxes = more costs. And these costs must go somewhere. Obviously, they would fall under the landlords responsibility, but they probably would try to pass on these costs as much as possible.
Now this is where it gets iffy...
Vacancies don't earn revenue, and so obviously would be costly to landlords. If there is more supply than renters, landlords would be competing with each other for the renters (or risk having vacancy and the costs falling on them), so they would have to compete (such as by lowering rents) in order to attract the renters. Rents therefore decrease.
However...
Let's assume again that there is more supply than renters, but this time there is few landlords (for hyperbole one landlord). Competition for the renters is thus low, (in the case of one landlord - none), and so there is less need to lower rents to attract renters. In fact, in the case of one landlord, he can raise prices despite there being more apartment supply than renters, and have them pay for all the units, including the vacancies. Rents therefore increase, despite there being more supply.
> It would seem to me that more supply = more construction + more maintenance + more taxes = more costs.
More total costs divided by more total units is just the same cost per unit, if not lower because of economies of scale.
> Rents therefore increase, despite there being more supply.
If there is a monopoly landlord then rents will be at the monopoly rent whether you increase supply or not. Even then increasing supply could lower rents, because the monopoly landlord could capture more rents by charging $9000/month on twice as many units than $10,000/month on half as many units, and can't charge $10,000/month on twice as many units because there aren't enough tenants who can afford that.
Also, the premise here is that you're increasing supply. The monopoly landlord would have to outbid everybody else for the new supply or they'd lose their monopoly, and have to pay the monopoly price or else the new units would be cheaper than their existing ones. But then the construction companies would be receiving the monopoly price and become flush with cash to build even more housing until the monopoly landlord ran out of money.
There is a reason landlords collude through zoning boards: It's otherwise quite easy for someone new to enter the market.
> Also, the premise here is that you're increasing supply. The monopoly landlord would have to outbid everybody else for the new supply or they'd lose their monopoly, and have to pay the monopoly price or else the new units would be cheaper than their existing ones. But then the construction companies would be receiving the monopoly price and become flush with cash to build even more housing until the monopoly landlord ran out of money.
All of which presumes the risk here is all on the monopoly landlord, when this isn't the case. Even disregarding zoning, construction companies have to compete for bidders, and the monopoly landlord may not have to compete with bidders. Additionally, if insufficient housing is really a problem because more people and businesses are moving into the neighborhood, then the monopoly landlord isn't likely to have problems running out of money. If that isn't the case, and there is sufficient housing (or renters are struggling to afford rent), then they have market advantage over new entrants to the market in the appropriate pricing of bids. This increases risk and pressures margins for new entrants, limiting their ability to compete, which puts risk onto construction companies in bids. In other words: it is quite possible the new entrants or construction companies fold before the monopoly landlord does.
Again, it's all iffy, but, fact is, every new supply constructed comes with a cost, and it falls on someone, even if cost/unit goes down. The assumption that that cost won't fall on renters, isn't a certainty, nor is the assumption that renters will be the ones to benefit from a decreased cost/unit.
> Even disregarding zoning, construction companies have to compete for bidders, and the monopoly landlord may not have to compete with bidders.
What?
The premise is that there is a monopoly landlord but it's possible for others to create housing, e.g. the landlord owns all of the existing rental properties but anybody can buy an empty lot or single-family home and build a multi-unit building there instead.
Obviously if the monopoly landlord owns all of the land then you have a different problem, but that isn't even close to the case in any metro area in the US. (Though neither is anyone owning all of the rental properties for that matter.)
> Additionally, if insufficient housing is really a problem because more people and businesses are moving into the neighborhood, then the monopoly landlord isn't likely to have problems running out of money.
Won't they?
Suppose it costs $200,000 to build a new housing unit, but because of the existing monopoly they sell for $1,000,000, whether it's to the monopolist to sustain their monopoly or to someone else who would break it. To sustain the monopoly the monopolist has to remain the high bidder.
But now the construction company has a million dollars, and it still costs $200,000 to build a housing unit. So they build five new housing units, and now they have five million dollars. So they hire more guys and start training new apprentices because in the next round they're going to have 25 million dollars and build 125 new units which the landlord will still have to buy for a million dollars each.
It doesn't matter how much money the landlord has, the landlord is going to run out of money, because now the construction company has its own R&D division dedicated to construction automation it's only five more rounds before the landlord is paying the entire US GDP to the construction company.
> In other words: it is quite possible the new entrants or construction companies fold before the monopoly landlord does.
It costs them $200,000 to build something the monopoly landlord has to buy from them for a million dollars, or someone else will buy it from them for $999,999 which then happens again and again and destroys the monopoly.
> but anybody can buy an empty lot or single-family home and build a multi-unit building there instead
Anybody can buy and build? Yeah... only if they have the funds for it!
That's what you're ignoring: running out of funds isn't just a possibility for the monopoly landlord, it's possible for new entrants to the market, as well as the construction companies. The new entrants and construction companies are facing that risk, just as the monopoly landlord is.
For example, a new entrant to the market may have to go into debt to fund his bid or construction in order to compete with the landlord. The monopoly landlord on the other hand, might not have debt and instead has large capital reserves. Depending on the circumstances, it is even possible for the new entrant needing to rent ABOVE what the monopoly landlord already does to just to break even on costs that the monopoly landlord doesn't have (e.g. because of debt, and/or they overbid for the risk in the market, higher land costs, and other reasons). If done in a market where there is already more supply than renters, it would be a very risky venture for the new entrant.
And again, it's also entirely possible that there are 0 bidders showing up to compete with the monopoly landlord (due to shear lack of other participants willing to step in to compete). In which case, the monopoly landlord doesn't have just a monopoly on rents, but bids, and the construction companies would have tough time running the monopoly landlord out of business, no matter how much they build.
> It costs them $200,000 to build something the monopoly landlord has to buy from them for a million dollars, or someone else will buy it from them for $999,999 which then happens again and again and destroys the monopoly
Look... we can make a bunch of "what if" scenarios, but the scenario you made doesn't necessarily have to be the case (nor any of my examples). But, you had inquired about:
>> You cannot realistically build enough so that the rents decrease.
>I'm curious what makes you think this.
All I need is one possible example to demonstrate how that can be.
> Anybody can buy and build? Yeah... only if they have the funds for it!
The construction costs are much lower than property values, so construction would be highly profitable. Every wealthy person in the world would be lining up to invest in a hundred construction companies because they would be yielding a 400% year-over-year return until the monopoly is broken.
> All I need is one possible example to demonstrate how that can be.
You need a real example, not a contrived one. "What if the emperor of the world declared that rents have to stay high?" Then you don't have a market anymore and we're no longer talking about what happens in markets at all.
>The construction costs are much lower than property values, so construction would be highly profitable
You have purchase property to construct something on. So high property values works against your own argument.
> You need a real example, not a contrived one
No I don't, as I did not make the original argument you inquired on. That poster needs a real example, I however, only need to entertain how that possibly could be.
> You have purchase property to construct something on. So high property values works against your own argument.
The basis of construction is that you're converting fewer units into more, on the same piece of property. If a single-family home is a million dollars then you can buy one for a million dollars, build a 50-unit condo tower on the lot at a cost of $180,000/unit, apportion the original million dollars across 50 new units so the cost per unit is $20,000, and you're creating new units at a cost of $200,000/unit while selling into a market where a unit goes for a million dollars.
> I however, only need to entertain how that possibly could be.
But that's only interesting if it's something that might plausibly happen in practice. You can make anything possibly happen given an arbitrary set of unrealistic constraints.
Again, we can make up a bunch of made up scenario's, but you seem to want to ignore your own questions, which suggests you're not arguing in good faith. Let's revisit this question of yours:
>Suppose you built twice as many housing units as you had residents. Rents wouldn't decrease? Why not?
I gave you an example of how that would not happen: in an uncompetitive market such as a monopoly, additional supply doesn't impact price if it is simply hoarded. Now we could argue whether that's realistically to happen or not, but I see not why that is relevant to your question.
> in an uncompetitive market such as a monopoly, additional supply doesn't impact price if it is simply hoarded.
Let's consider whether this can even possibly happen. In order for a monopolist to own all the housing, there would have to be somebody with that much money.
The largest wealth fund in the world is China's, with a total value of around $2.75 trillion US dollars. This is the entire fund across all asset classes. Jeff Bezos with his paltry $200 billion can't even hold a candle to it. By contrast, the total value of US housing is north of $47 trillion dollars. So if you were to double the amount of housing in the US, no one in the entire world exists who could afford to buy all of it. Even the entire government of China isn't within an order of magnitude of it.
Ireland are a complete outlier, as the government incentivised itself not to deliver on housing as a result of IMF/Troika bullying. It set up National Asset Management Agency in 2009 to clean the property crash related debts from the balance sheets of the main Irish banks.
https://en.wikipedia.org/wiki/National_Asset_Management_Agen...
As per the usual government mouthpieces, it was a roaring success -
"NAMA's overall contribution of €10.5 billion to the State, comprising its projected surplus €4.9 billion and recoupment of the €5.6 billion of state aid it paid to the participating institutions, represents a significant outperformance relative to expectations at inception in late 2009"
https://www.rte.ie/news/business/2024/0306/1436280-nama-ibrc...
Sadly it has resulted in arguably the worst housing crisis in the EU. 68 per cent of people aged between 25-29 in Ireland still live at home. This figure is nearly 26 per cent higher than the EU average of 42.1.
NAMA is not in any way responsible for the housing crisis. Its purpose was not ever to fund or incentivize homebuilding and in any case, if I think back a decade, to a point where NAMA had been in operation for five years, there was no housing crisis. Neither NAMA nor the Troika ever discouraged housebuilding. Even if it had been a policy of theirs, there wouldn't have been any need: a sizeable proportion of the building companies here went bust after the 2008 crash and their employees had to emigrate or retrain. Furthermore, none of the local banks were in the financial position (or the mood) to fund property development.
The Irish housing crisis has very simply and abruptly come about because of the massive growth in population that has occurred here over the last nine or ten years. Due to the catastrophic implosion that occurred in the indigenous building industry after 2008, speedily ramping homebuilding up to a level that can keep pace with inward migration is essentially impossible.
We may eventually be able to build fifty thousand dwellings a year, but the shortages will persist until then. There are other factors that exacerbate the problem, most notably our sclerotic planning system, but the fundamental issue is the hollowing out of the private construction sector that occurred at the start of the last decade.
I never claimed its aim was to fund or incentivize housebuilding - in fact not only was NAMA emblematic of the overall government policy to restrict supply in order to re-bolster its portfolio of residential housing in deep negative-equity, it also played a significant role in worsening the housing crisis through its sale of assets to real estate investment trusts (REITs).
https://www.irishtimes.com/opinion/housing-crisis-why-nama-s...
Dr Rory Hearne's research from Maynooth sums it up brilliantly
"The housing crisis has also been caused by wider government policy from 2010 to encourage the entry of global investors and vulture funds (via various tax incentives, lobbying and fire sale of assets) into Ireland in order to offload toxic loans from NAMA and the banks. Rising house prices and rents post 2013 were also viewed positively and were promoted as an enticement to investors, while rising prices and rents were also viewed positively for rehabilitating the balance sheets of the banks, a core aim of all policy post 2008. The impact on the housing system was not considered an issue, despite myself and others highlighting the potential problems.
We can see now that these policies have contributed directly to the crisis with vulture funds hoarding land purchased from NAMA. Vulture funds are more likely to repossess houses in mortgage arrears and raise rents on buy to let properties (for example, Ireland's biggest landlord Ires Reit has raised rents substantially). The increase in investors purchasing homes means they are competing with potential home owners. We need to cool off this speculative inflow of investors into our housing system (investors bought up to a fifth of all homes in 2017) and extend the vacant sites tax to derelict property and increase it further to force either sale or development."
https://www.maynoothuniversity.ie/research/spotlight-researc...
At least in our city, another big thing that seems to be tied to cheap credit is the rise of house flipping. Fueled by cheap interest rates and low capital gains taxes, it's easy for a decently capitalized speculator to buy up older houses, do quick, cursory updates to the interior modeling, and then put them back on the market again at a significant markup.
This is a quadruple whammy for people who just want somewhere to live. It means people who only have budget for an older home need to be hasty with purchases so they can get ahead of the speculators. It directly reduces the supply of homes by extending the period in which they aren't occupied. It reduces the supply of more affordable housing by quickly converting it all into more expensive housing. And it robs people who might want to fix up their own home of the opportunity to choose their own decor.
It's not actually front running, but it still feels like a similar kind of problem.
> Total number of dwellings per thousand inhabitants, 2022 and 2011
The issue here is that demand shifts regionally over time. Dwelling units in Detroit don't satisfy demand in San Francisco. The result is that you continually have to increase supply in the places demand currently is. To keep prices flat, the number of units per thousand inhabitants has to increase over time, because the number of empty units in areas that have fallen out of demand will increase, but the high prices you're trying to avoid will be somewhere else.
> By definition, only investment properties can be underutilised - owner occupied homes are occupied!
This is also not true. You can have e.g. a 3-bedroom home with one occupant, even if the occupant is the owner. You can also certainly have underutilized land -- any single family home in an area where there is demand for more housing but zoning prevents it from being constructed on that piece of land. Because then you have that acre of land providing housing for one family when it could have been two or twenty.
> global asset price inflation driven by a broken financial system (i.e. a system being artificially pumped up with cheap credit).
This can only happen when supply is artificially constrained. If it cost $200,000 to add a housing unit and suddenly everyone can get a bigger loan than before, the instantaneous effect would be for housing prices to increase -- but once they're above the construction cost, construction occurs until they no longer are, i.e. until they fall back below $200,000.
At that point cheap credit might cause people to buy bigger houses, or use the loan money to buy things other than housing, but long-term you can't get the price of the same housing unit to increase above the cost of creating more of them, or supply would just increase until it fell back to that cost.
What you can do is increase the cost of creating supply, e.g. by restricting where it can be done, so that the cost of doing it goes up and with it the price of a given housing unit. Which is what has happened.
> Dwelling units in Detroit don't satisfy demand in San Francisco.
They do help though. Individuals need to realize they can’t afford to live in a place like California and have to give up that luxury if they want more affordable housing arrangements.
> They do help though. Individuals need to realize they can’t afford to live in a place like California and have to give up that luxury if they want more affordable housing arrangements.
But this is no solution at all because everybody knows that. People want to live in California because there are jobs in California and not in Mississippi. In Mississippi you pay $100 less for a house and then make $200 less in income, so who is going to do that?
To fix this you either need to make housing cost less in California or make jobs pay more in Mississippi. But if anybody knew how to do the second one they'd be doing it already, whereas we do know how to do the first one -- build more housing.
> In Mississippi you pay $100 less for a house and then make $200 less in income, so who is going to do that?
I understand your point but you’d have to validate this assumption.
You’re also not accounting for the costs to build more housing in California. Instead something you may want to look at is moving employers to Mississippi (or wherever).
To take your point to its logical conclusion everyone in America would move to California for the highest paying jobs relative to housing. But that would never work in the real world even if we had no restrictions on housing development.
When you look at the entire planet I think this becomes more pronounced. When you look at hyper-local environments as well (say Manhattan) it also demonstrates the point.
> I understand your point but you’d have to validate this assumption.
This is basically the efficient market hypothesis. If it was better to live in Mississippi then people would be doing it. Which allows housing in California to be overpriced by the amount that jobs in California pay better, before it starts happening. Which is bad, because then all of the people still in California are overpaying for housing.
> You’re also not accounting for the costs to build more housing in California.
Stop inhibiting it from being built and people will voluntarily pay to build it.
> Instead something you may want to look at is moving employers to Mississippi (or wherever).
But how? And is that even good? There are some benefits to having regions specialize in things.
> To take your point to its logical conclusion everyone in America would move to California for the highest paying jobs relative to housing.
The high paying jobs are for people in particular industries that are currently concentrated in California. Those people do live in California, or other similarly situated places like New York, rather than places like Mississippi or West Virginia.
The way you prevent everybody in that industry from wanting to move to the same city is by creating more housing in every city, so that it balances and the result is not net migration but rather just an increase in real wages at the expense of incumbent landlords.
They can, but I think it is missing the other component. Housing alone in a vacuum is not going to. Its not a case of, build houses and they will come. You also need other things that attract people. Jobs, activities, amenities, restaurants, etc. But yes, if building more dwellings in Detroit along with building other things people want make Detroit more attractive to someone who would have moved to San Francisco instead, it can alleviate housing demand in San Fransisco. Which is what some of these places should be gunning for.
I hear what you are saying, but I have an issue with saying something to the effect of 'you are too poor to live in this state'. I can kinda accept it at the city level, but saying 'just move to another state' is a little much. And I am saying this as a person, who moved few thousand miles, because that was my best opportunity at the time.
I agree with you, but we don’t need to focus this on only San Francisco. Other cities should be walkable and productive. Tech companies should relocate jobs from “status” cities to non-status cities across the country.
Some cities have untapped potential for more suburban sprawl. It's unlikely that any such place capable of attracting tech investment has enough commutable land to make a difference before succumbing to the same problems.
Every area that's a candidate for urban density and public or active transportation has people living in it already. Those people are not any different from San Franciscans in terms of their concerns about gentrification, traffic, parking, shadows, or change.
People join Goldman because it opens doors to other higher paying jobs.
If they don’t like it they can relocate to other financial services jobs in other locations, make less money, but have more discretionary income to spend on houses. Everyone can’t work at the most prestigious companies or life in the most prestigious zip codes.
Alternatively maybe Goldman should open tech and investment banking jobs in Poughkeepsie.
It’s a multitude of factors - limited supply in certain (most?) markets, “cheap money”, supply chain factors with certain common building materials, “corporate owned homes”.
One thing that has definitely not helped is hostile building codes that prevent density. In some cities in the US, building height is constrained by the nearest single family home. Then there’s the parking minimums for buildings that allocate more space for parking than for building space for people.
In Austin, TX (USA), you frequently see buildings with massive amounts of multilayered parking but a smaller fraction of the building used for residential or commercial space. Some “clever” developers have tried to disguise the parking structures as part of the building itself to hide this fact from public view.
Problem with America is that we think this is 1950 and we can scale by building more deadass suburbs, expensive regional highways, and further strain our limited pool of resources (water, sewage, electrical infra) to support suburban living without any consequences.
> Problem with America is that we think this is 1950 and we can scale by building more deadass suburbs, expensive regional highways, and further strain our limited pool of resources (water, sewage, electrical infra) to support suburban living without any consequences.
That doesn’t explain why it’s so hard and expensive to build things. We built those suburbs in the first place when we were much less rich as an economy. Indeed, we built all the water and sewage and electrical infrastructure all over the place too.
For one - all the easy places to build now have things in the way. Because they had things built there.
In the 50’s these were mostly empty range land, or timberland, or farms, or swamp, or whatever. One (or just a few) owners, low property values, little to no political/environmental resistance - relatively easy to buy someone out and develop.
Now? HOAs, tons of urban zoning rules and environmental rules, thousands of stakeholders for any sizable project.
Which also now means more stakeholders, more political resistance, more BS if you want to increase density there. Or building in not-so-easy places, like steep hillsides, more remote locations, etc.
Most of the existing folks don’t want change. In 1950, especially out west, there essentially were no ‘existing folks’. Even the natives had been wiped out.
And as an economy, we were used to building things at a war economy pace, and had reasons to continue to want to do so.
Now everyone would rather blame someone else (or ensure they get their sizable cut) rather than do anything about it.
As the boomers slowly die out and assets change hands, the momentum will change. Eventually. But we’re talking about a decade plus.
Then it will be the millennials turn to be the ‘bad guys’.
I recently visited a Baltic state and was impressed with a refurbished Soviet style brutalist building used as a hotel/ long term stay. It definitely seemed like a good solution.
While it is a multitude of factors, a bunch of those factors could be solved in an instant with a simple new regulation: a cap on how many homes a single entity/person can own, with steep taxes applied to every home above that cap. This would flood the market with homes as investors and corporate landlords moved to unload inventory and the prices would fall drastically. One could even have a cap that lowers over a long period of time to avoid shocking the market too hard with stock and keep current homeowners relatively stable, but ultimately, we can't keep letting corporations and wealthy people lock up perfectly usable housing behind private property nonsense. It's literally killing people.
Ultimately, these empty homes are investments and sometimes investments fail, and if they're big enough sometimes those failed investments cause people to lose a lot more than what they invested. That's literally the definition of investment risk. We can't keep doing status quo with this shit while the market continues to sail further and further out of reach of all the people who actually need what it's selling.
It seems to me that such a cap would help affordability for people who are currently renting homes that they can't afford to buy, but it's not going to make more homes available (and might slow down the rate of building due to the value of a newly built home being lower), so won't help anyone who isn't already in a home, or who already owns their home. (The latter of which it will hurt by decreasing their home value.)
Hard disagree. The market is complex but a massive driver of price hikes is investment companies and private owners coming in to an already hot market and making cash offers that are higher than any aspiring homeowner can match with loans, which are inherently tied to the stated assessment of the property. It's the largest factor in the absolutely ridiculous prices we're currently seeing, and also the most straightforward to address.
It won't fix everything, of course, but it will give us a much more normalized market to then attempt further reform on, rather than the current one which has more in common with a casino floor than a market.
I'm not really clear on what you're disagreeing on. I've acknowledged that prices could go down for people who are already in homes and who don't own them - that's the only portion of the market that your post and proposal addresses.
I'm not watching that clickbaity nonsense, but I will happily flip through the studies they cite as their sources, and doing so tells me several things.
For one, the city did not "ban housing investors," they banned some investors from purchasing a subset of homes, which is already weak, and only made weaker by the fact that the first study analyzes only a few months of market activity under that new restriction.
That being said, both studies do indeed conclude that a link cannot be established with certainty between the policy and house price reduction.
> Results from the difference in difference analysis show that the null hypothesis that the policy effect on home prices and days on the market is not significantly different from zero cannot be rejected. This means that it cannot be concluded that the buy-to-let restriction reduced housing prices or increased the days on the market.
However, this is one city, not in America notably where the problem is at it's worst, and they did not restrict lower income housing which is the most liable to be outbid on by private investors and rented, so I would hardly say these two studies by themselves utterly disprove anything in the way your dismissive comment implies they do. I don't think a partial restriction on a housing market in one metropolitan area out of the roughly ten-thousand currently on the planet is definitive proof.
It was such a small study that it favorably attracted outsiders that finally got a chance at owning, which gentrified the community. If this was more of a global policy, the study would have reveal massively different results.
Yes, at one time it was estimated that roughly 1/3 of Vancouver’s condo supply was vacant. So the city implemented an empty homes tax [0] and promptly raised $115,000,000 in tax revenue [1].
However, the tax is still far too low and it contains various loopholes that allows developers to hold condos empty for years until deep-pocketed buyers show up [2].
Vancouver isn’t unique. Housing is being traded like poker chips everywhere, often but not always by ultra-wealthy foreign nationals with zero regard for the local consequences.
Vancouver has obscene housing prices because the city and the politically connected spend tens of thousands of hours fighting against any new housing, and any new supply. Just look at what happened when the Squamish Nation decided they were going to build high rises on the land they were given: https://reason.com/volokh/2024/03/14/canadian-indigeneous-na...
The entire city and all of the NIMBYs cried about their "neighborhood character" and tried every legal trick they could to block the development: threatening to not connect it to utilities.
Vancouver literally has single family homes within half a mile of downtown! Clearly there is room for growth.
I think a lot of people still feel burned by the property crash in the 1990s, when you saw billboards on I5 driving up offering flats for $100k in 1997.
(Note I actually remember seeing those billboards and pointing it out to my gf at the time on how affordable Vancouver housing was, when she just spent $200k on a two bedroom in Issaquah)
3% vacancy tax producing $115M in revenue indicates roughly $3.8B in empty housing stock. Average condo prices in the CoV are roughly $2.1M, and so we can conclude there is likely around, or a little less than, 2000 empty condos hit by this tax.
That's not 1/3 of Vancouver's condo supply. Not by a long shot.
I'd guess that many of the unused condos are borderline condemned, and priced way below median. So, it's possible there are ~20,000 condos that need enough work to make repair uneconomical.
Still, it doesn't sound like that'd make much of a dent in Vancouver's housing supply. (Razing them and building higher density buildings might, though.)
IIRC, the oft-repeated and rarely-cited 1/3 vacancy is a misunderstood statistic which showed that 1/3 of condos in BC are investor-owned[0]; where an investment property is any property where the owner is not the occupant.
> Empty Homes Tax has reduced Vancouver's number of vacant homes by 36%
> After five years of the EHT being in effect, the total number of vacant properties within Vancouver has fallen to 1,398 homes or 36% fewer properties compared to 2017, when the tax regime first launched.
The statement about 36% is a relative percentage, not absolute percentage points. What happened is that ~2184 homes were vacant in 2017, and fell by 36% to 1398 in 2022.
It's saying that of the homes that were originally vacant, there is 36% less of that now. It is not saying that of all homes that exist, the vacancy rate decreased by 36%.
1. People have mortgages with very low interest rates. If they sell the home, they give up that cheap mortgage for a much higher mortgage interest rate with the next home. So, they stay.
2. The capital gains tax exemption of $500,000 has not risen with inflation. Selling your appreciated home will result in a large tax bill. It makes sense to sit in the home until you die, then it gets a basis boost when transferred to the heirs.
> 1. People have mortgages with very low interest rates. If they sell the home, they give up that cheap mortgage for a much higher mortgage interest rate with the next home. So, they stay.
This may be true only in the US. In Canada, for example, the maximum term a mortgage rate is fixed for is 5 years, after which you have to "renew" your mortgage and renegotiate the rate. So a lot of people are already being forced into higher interest mortgages here.
In the UK most owner-occupiers don't even have a mortgage. Of those that do, the majority took the mortgage out 15+ years ago when prices were far lower as a percentage of current wages, and thus higher interest rates don't really make it terrible.
The people who suffer are those who bought 5 years ago -- prices going down means negative equity so you can't sell and move to a cheaper place, and you reach the end of your 5 year fix.
That said, wages have increased a lot over the last 5 years, so higher rates aren't the end of the world. My mortgage increased last year by about 25%, but as average wages are up at least that much that's not devestating.
let us all remember the US is special. The government buys all mortgages -kind of- and that's what makes it possible and cheap to get 30 year fixed rates.
With regard to (1), I would have to agree, though I think this is only the case in the US?
For (2), absolutely. Tax advantages play their part (adding to investment demand relative to other investment options). Is it not also the case that interest payments on a residential mortgage are tax deductible in the US?
> Is it not also the case that interest payments on a residential mortgage are tax deductible in the US?
They are only if you itemize your taxes nowadays. During the Trump administration the tax law changed so that the vast majority of Americans now take the Standard Deduction. I received the mortgage interest deduction for about 15 years but haven’t received it for 5-6 years now.
Life Expectancy differs from human years lived, no? Got any numbers?
It seems difficult to believe all the medical treatment advances and insane amounts of money spent are having zero effect on postponing date of death (Or even the date of loss of ability to live independently including death).
Of 100,000 people born in a nation 80 years prior, how many still alive and living independently in that nation. Compare with the same metric in 2004. This is to net out immigration, which can be considered separately.
You don’t necessarily have to use “alive” as the metric though.
Do we know if older people are living unassisted in their homes longer? That’s all we really care about in this context. Or not even unassisted, but family members moving in and taking care too.
And they have below-expected dwellings per 1,000 residents. The "Total number of dwellings per thousand inhabitants, 2022 and 2011" suggests there are potential supply problems.
As someone with spare bedrooms, this itself is a problem of undersupply. If you can't be sure of being able to trade up when you need to (e.g. after starting a family) because house prices are up 100% in 10 years, then you're going to want to buy a house for all possible future needs, rather than current needs.
Add to that, things that might be desirable for other reasons, like garden space, rooms for use as offices, large kitchens, etc. all tend to scale with bedroom count too.
Also trading up comes with stamp duty, which is a damper on moving house unless you absolutely have to. Not only is your new house bigger and more expensive then anything you've ever bought before with that extra bedroom, plus the large expenses and hassle of moving in general, it's likely another £10k or more in stamp duty unless your new 3-bed is somewhere pretty cheap in the country. You don't get the first time buyer discount either, as you already have a house.
It's basically a tax that punishes labour mobility and not oversizing property.
Of course, you have to pay to heat and maintain that bigger house and pay higher council tax on it, so your saved stamp duty will probably be used after a few years, so in an ultra-rational way, it comes out in the wash, but it certainly doesn't feel like it at the time.
House ownership is higher among boomers, who are not going to have children anyway. Maybe for some people concern for future prices is a good reason, but certainly it is not for everyone. If there’s spare capacity enough for 20% more people and population growth forecast by 2050 is just one third of that, you cannot really talk about undersupply, when there’s enough accommodation to cover even future demand.
This assumes a level of fungibility that's just not there. Apart from the discussions elsewhere in this thread about why spare bedrooms might not be suitable to rent, even for those that are, splitting a family of 4 across 4 spare bedrooms in 4 different properties is suboptimal at best and legally child neglect at worst.
Equally, houses in Cornwall are of little use when the jobs are in London.
If you're talking about the study that everyone was talking about last week, that definition of "spare bedroom" includes a family of four with three bedrooms who gives each child their own bedroom when they could just have them sleep in the same room.
Just to conceptualize this, it's like every 5 bedroom house having 1 unused bedroom, perhaps being used as an office. Of course, most houses don't have 5 bedrooms, so in reality this is an extra bedroom for every 2 houses. Again, possibly being well used for another purpose. That doesn't seem like a lot of underutilization to me.
Guest bedroom is underutilized space unless you are a hotel or full-time Airbnb. How often people are staying there? A few months a year in total, if children spend the whole summer with grandparents and visit on rare holidays?
Is that a problem? It's a guest bedroom for every two houses. Something approaching the vast majority of all economic output goes toward things which are extraneous when measured against the historical median standard of living. But people like nice things. And a guest bedroom is a nice thing that some people like.
My home is listed as having more bedrooms than people.
They are not dead spaces, and they wouldn't somehow become more useful if I knocked a wall or two through to reduce the room count or reclassified them.
Are you purposefully being obtuse? The point is the difference between bedrooms, bedrooms used as offices, etc, and spare bedrooms. You can have more bedrooms than people and fully utilize the rooms not being used as bedrooms; the statistic is 20% of rooms are being underutilized ie spare bedrooms that don’t get used.
I'm not deliberately being obtuse - I simply don't believe that many people have literally empty rooms that they don't use.
I don't know anyone that has an empty room in their house, or one that no-one enters for weeks at a time, etc. Maybe the odd country estate is like that.
To a communist, the concept of having a guest room, office, storage room etc might feel like "underutilization".
If we apply that more generally, then the park outside my house is underutilized because the maximum capacity are not sunbathing in it at all times. I think that's a pretty silly use of language.
I absolutely know people with rooms that are literally unused. They aren’t empty, but it’s not a valuable use of space just because it means you don’t have to get rid of your last three couches and a desk that’s nice but not nice enough to use.
Who decides what "valuable use of space" is? Next we'll be taxing people whose living rooms are too big because they're not "valuable use of space" and could be split into another bedroom.
In life, some people look up, some people look down.
I'll never understand how someone could think that completely normal things like a house, garden, car, etc are somehow "too much". But they do. It's baffling.
I can understand, though not agree, with being angry with someone who owns say, tens of thousands of houses, millions of acres of land, and leaves it all empty.
But the idea that a house is underutilized if it doesn't have as many people as could possibly live in it? All I can say is, Hong Kong exists, Manhattan exists, feel free, I'm not in for that.
> I don't know anyone that has an empty room in their house, or one that no-one enters for weeks at a time, etc.
I don't have any statistics to hand but, based on experience, there are a lot of houses in the UK like this. Particularly among middle class couples in their 60s, whose children have left home. In fact, my parents have two spare bedrooms that are only used a handful of times each year.
Labeling formal logic as „communism“ won’t help (it‘s also kinda funny when people with certain cultural background use this word as synonym for some biblical evil, rather than for what it is). Guest room is not a necessity in most cases, it is convenience for which alternatives do exist and may even be more cost efficient/practical. Since it is not, downsizing your home in retirement to release space for bigger family will be more efficient than building everyone a house with a spare bedroom. It does not have to be expropriation of the property for this to happen, just a policy with good incentives (less maintenance effort, less taxes to pay, better investment opportunities etc).
> Since it is not, downsizing your home in retirement to release space for bigger family will be more efficient than building everyone a house with a spare bedroom.
This is true. The problem tends to be that people become settled in an area, and would prefer to downsize there so they don't need to uproot themselves. This is often very difficult, as there may not be availability in that area for a suitable smaller property.
The owner is living there and happy with the space or they would move. That is not underutilization. The solution to housing shortage is to build more housing, not to create “bedroom police” who go around and tell you’re not allowed to have your house because they will decide for you how much space you need.
Lol bedroom police. Yes, because that's exactly what we were discussing.
Or, you could, you know, make it more affordable to build smaller homes with fewer bedrooms so people actually have options when they become empty nesters.
The difference showing that Ireland, Canada, New Zealand, and the US had either the same, or more dwellings per thousand inhabitants in 2011 than 2022?
I don’t know if I’m just misunderstanding your point, or misreading the material, but that is also not an example of underutilization.
My point is that the relatively static proportion of people to dwellings in those countries over that period suggests that a supply shortage is not sufficient to explain the accommodation crisis.
What I am suggesting is that incentives to invest in property have led to an increase in the number of properties that are not being used as a primary residence (i.e. are underutilised) and that that is the most significant factor causing the shortage of available homes.
I see now through a US & REIT centric bias, I think.
Given a market like NZ’s size, growth/prices, and attractiveness I can see demand like speculation, STRs, and 2nd homes possibly affecting utilization more than supply.
Given US markets that are larger, cheaper, and less attractive where investment properties fueled on cheap credit were rented out or to a much smaller degree flipped, it’s truly, significantly more difficult to imagine vs simple lack of supply (especially given historically low US rental & homeowner vacancy rates).
I think you’d want to look at household size - 4 five person households need fewer houses than 10 two person households, even though the population is the same.
That's a good point and I have done that in the past (for NZ). Household size has remained steady over roughly the same period (decade up to 2018 where census data is available). This doesn't account for a possible significant change in household size distribution of course (e.g. the possibility of many more elderly living alone while young people increasingly live in shared housing).
> This is a problem of underutilisation in my view. Too many properties are being used as investments and not as a primary residence.
I hear this argument a lot and always wonder if the causal direction is flipped: people use housing as an investment because it’s scarce, not that it’s scarce because it’s used as an investment. If there weren’t so many restrictions on building, the supply would grow to meet the demand and parking your money in property wouldn’t be such a hot idea.
Tbf many of those restrictions are there for good city planning reasons - and important to keeping a city livable and not outgrowing its infrastructure. But the cost of enforcing those is quite often a ridiculously bogged-down planning department that often takes months or a year to process applications and revisions, significantly inflating the risk and thus costs of construction, and relegating it to big firms that can handle all of the legalese and scheduling turmoil.
Now, why dont governments better fund those departments and emphasize faster throughput? Well, let's ask their main constituents - who are largely homeowners and companies in the industry - whether they'd like to dedicate more taxes to a service that would speed up construction and drop their housing prices.
> Tbf many of those restrictions are there for good city planning reasons - and important to keeping a city livable and not outgrowing its infrastructure.
I don't believe this to be true. If someone wants to build a single multi-story building in an area, no additional infrastructure should be required. It's one building, the existing infrastructure shouldn't have so little slack in it that this could be a problem.
If lots of people are building lots of buildings, the city government can notice this taking place and while the buildings are going up they expand the capacity of the infrastructure in that area. It's no excuse to refuse the construction, it's just something the city has to do as a result, because that is a city's job.
Their job is not to decide what can be built, it's to allocate the property tax on the new buildings to paying for the things the new buildings need.
Nobody is talking about building a single multidwelling building. But you can't make rules just for a single building (what are you going to do for the next building... And the next). There are plenty of examples where local governments have removed lots of restrictions and essentially created Airbnb wastelands, a good example is the southbank in Melbourne. The last time I looked into it (admittedly some years ago), they had a single primary school and one post office for ~50000 people IIRC. It was definitely high density housing, but no infrastructure that makes it liveable except for running Airbnb and rich people who want a holiday apartment close to the casino.
> Nobody is talking about building a single multidwelling building.
Then why is that the level at which the decision is made?
> But you can't make rules just for a single building (what are you going to do for the next building... And the next).
The point is that you can respond to demand rather than legislating it. If four high rises are going up in a neighborhood, the city officials can notice this and use the new tax revenue to build infrastructure those new buildings need, and then go on the MLS and find a local property for sale in the area which is in a good location to turn into a park etc. None of this requires restricting the construction.
> There are plenty of examples where local governments have removed lots of restrictions and essentially created Airbnb wastelands
This is really the opposite problem. If you have restrictions that heavily constrain where you can put short-term rentals, and then you set aside an area where they're permitted, of course that area is going to be saturated with them -- you're still prohibiting them from being anywhere else, so they all end up there.
This is the fatal flaw in the zoning board. "You can build anything here" should be the default, and then if you want to set aside 20% of the land in the area to be exclusive for e.g. single-family homes for the people who want that, that's fine. But we do the opposite -- 80+% of the land is required to be single-family homes and not even the entire remainder is allowed to be multi-unit buildings.
Monocultures are shitholes. Nobody wants to live in a place which is exclusively short-term rentals, or exclusively office towers. It even sucks to live in a place which is exclusively single-family homes, because then you're isolated from the community and have to spend half your day sitting in traffic to get anywhere.
What you need is the majority of the land area to be mixed-use zoning. Which is the opposite of having an area set aside which is predominantly short-term rentals.
Ya, and housing used as an investment doesn’t need schools or any real infrastructure, so we could basically build them anywhere. Planning is only needed if people are going to live in them.
Ireland leading up to 2008 basically ended up trying that, with ghost estates that then got knocked. China has also basically done this.
It obviously doesn't work as housing, but even its value as an investment is at least nominally tied to the fact that someone, somewhere could value it as a house. Otherwise, eventually it's found the emperor has no clothes and it comes tumbling down.
I had a wonderful idea for this. The trick is to put some truly bizarre requirements on the constructions that when done in volume adds up to an extraordinary place to visit.
For example a single floor dwelling that is the socle of a giant statue depicting a person appropriate for that street. Each must come with a plaque describing who they are and a qr code to a website about them that lives up to some high standard. Think what you will, it is considerably more interesting than "buying" a picture on some blockchain.
People able to buy lots of properties as investment won't allow an increased supply as it ruins their investment. Restrictions on building is just a service one can buy.
Lack of building can play a part but even the interests that want housing as investment naturally want to limit supply.
The main thing is that the US has been printing dollars for several decades - primarily to deal with or prevent periodic financial crises. Ben Bernacke's "Helicopter Dollars" speech was infamous but nothing has changed but the (increasing) scale (and, yes, all the central banks of the developed world are doing it too).
Effectively, the modern order has come to involve an endless hand-out to those who already have money while "market discipline" prevails against those who don't. Of course, this has long term problems aside from its immorality.
>Ask yourself, do Canada, Australia, New Zealand, the US, Britain, Ireland, etc, all have the same inability to build or is there maybe some other common cause?
Do they all have zoning, urban planning requirements, and restrictions on what landowners can do with their property? Yes?
This isn't a complicated issue, this is 100% a self inflicted "problem" that can be solved with the stroke of a pen.
Pro-tip: abolish all restrictions on what landowners can build in the property. No licensing requirements, no filings, no nothing.
The sum total requirement for someone to build something anywhere should be them asking themselves "do I have permission from the landowner to do this?" And getting to work.
That's not a winning formula at all. When my neighbor's DIY grow farm in a shed burns down, the fire spreads and affects me. When my neighbor decides to open a diesel engine repair business, the noise and fumes affect me. Most people don't want that.
Segregating housing from industry makes sense, and is what's done everywhere, but segregating housing from services, like coffee shops or day-care, is a very uncommon thing globally.
Where I am there’s been a huge increase in houses being bought for cash by equity hedge funds, like 25% of houses going on the market. Nearby Kushner bought hundreds of houses in Baltimore. The impact of this is that house prices soared because no one can compete against a multi-billion-dollar company to buy a house, which artificially pushes up prices.
Secondly, I’ve done a lot of engagement with policy makers and builders and you are not going to get affordable housing being built if you relax zoning laws (which I’m in favor of across the whole city). Instead, what is supposed to happen is that the older properties become less attractive and hence their prices (or rent) are supposed to fall. That’s the theory anyhow. Anyway, the builders all say there is no financial incentive for them to build affordable housing, they make so much more on luxury buildings. You’ll only get it if the local government does it themselves and most in America are reluctant to get involved (it’s why they like saying 15% of a complex should be ‘affordable’ because they don’t have to do anything about it, the builders do, and it’s too small an impact to fix the issue).
> Anyway, the builders all say there is no financial incentive for them to build affordable housing, they make so much more on luxury buildings.
This is only really a problem insofar as building luxury homes reduces the throughput of new supply because they take longer to build than affordable housing. In terms of overall market effect, as long as you're not allowing places to sit empty, it doesn't particularly matter if you're adding new homes at the top or the bottom of the market.
> Where I am there’s been a huge increase in houses being bought for cash by equity hedge funds, like 25% of houses going on the market.
Is this increase in absolute number of sales, or increase in the percentage? Because, if the house affordability due to high interest rates goes down, one of the only buyers with money that remain are hedge funds. So, in the past you had 1000 homes selling per year, 100 of those going to hedge funds, now you have 400 total sales, with 100 going to hedge funds. The relative percentage of houses bought by hedge funds increases from 10% to 25%, even though the absolute number remains flat.
It seems to be an increase in both absolute number of sales and increase in the percentage. Some signs indicate hedge funds purchasing consumer real estate (houses/apartments) is working towards an all time high thanks to the bottom falling out of the commercial real estate market in 2020 and it being far less reliable an investment post remote-work culture. A lot of commercial real estate investors have flipped to consumer real estate in a way they hadn't before. It may be a while before a new equilibrium happens.
(This is where investments in risky things like flipping various cities' "downtown' commercial real estate into additional consumer real estate are starting to look really interesting, especially in some of the cities that had massive corporate tower investments just pre-2020. It's also where you see some cities directly and indirectly pressuring major corporations into RTO policies in the hopes of it releasing some of the pressure on the consumer real estate market in those cities by encouraging hedge funds to reinvest in corporate real estate. It's hard not to feel those pressures are somewhat futile long term, but to feel sympathy for why they seem like necessary short term sandbagging projects.)
It's true that the current large developers will never meet the need for affordable housing, but that's where small local developers can fill in assuming zoning and regulation allows them to. All of the small projects that are profitable but too tiny to justify the time of large developers can be picked up by small, local developers who have a vested interest in incrementally improving a place.
All those countries killed their manufacturing and offshored it over the last 40 years. Factories and manufacturing meant good jobs located far away from major cities, and towns/communities built up around those jobs.
Now all the jobs are located in large cities so housing prices there are going through the roof. If you are young you almost have to move to a major city if you want to start your career. Meanwhile there are "ghost cities" and other dwindling towns where you can buy a house for pennies.
> look at the numbers for each of the countries I mentioned in the first chart
The number is irrelevant - people want to live in desirable areas where's there are jobs, and are constrained as such. Rebuilding high density in towns and cities is an issue, as well as maintaining decent services ( hospitals, roads, public transport, post office etc).
You say that houses are being treated as investments, that's why these crises happen; but then why are building materials and tradespeople also at sky-high prices (in Ireland)? Is it all competition on investment building?
> why are building materials and tradespeople also at sky-high prices (in Ireland)?
Similar issue in NZ. Cost of building materials was getting extreme. There's an argument to be made that these are linked to profitability of building and so increased during the speculative boom. Helped along by the fact that many suppliers are monopolies. Cost of building materials has however started falling considerably since the property market crashed here. Likewise the cost of labour and building quotes overall.
The price of a home in an area is strongly related to the aggregate income divided by the total number of housing units. Even if the numerator is significantly affected by the artificial credit pumping you mention, that does not mean changing the denominator wouldn't help.
In Swedish big cities, prices are also ridiculously high despite investment in properties being much harder than in Australia or the US due to some strict rules regarding renting out. I live here now but lived in Australia before. Prices in Stockholm are more or less on par with Perth or Brisbane I think (i.e. crazy, but not at the completely off-the-charts Sydney prices, at least... when I lived in Sydney like 20 years ago I remember you already needed half-a-million to get just an average house... today it's like well over a million to get anything at all).
Can confirm that as interest rates went up, people just can't afford the enormous loans anymore and prices of houses (and apartments to a lesser extent as they're a bit cheaper overall) fell, up to 20% at the worst, I believe. But as soon as interest rates are expected to go down, prices already shoot up again (even while interests are still high as people and banks estimate how much they may expect to spend in the near future).
Unfortunately Perth and Brisbane have climbed a great deal closer to Sydney now. The gap in terms of cost to buy or rent is narrowing, at current rates we're looking at the gap closing entirely in the next 5-10 years.
Immigration. It's not that immigrants buy up the houses (opposites, we tend to live cramped up in flat shares). It's that they support landlords profits (with cream on top of not knowing your rights) and have overall pressure on market.
Building should at least match immigration/population growth.
Also not building dense enough. Kiwis always tout "I wouldn't wanna live in a house without a backyard" - well I don't wanna rent forever either. Given choice of no housing and shitty housing I choose shitty housing.
I think people have the causality the wrong way around, the immigration is to prop up the economy. Price is set at the margins and even relatively small amounts of new immigration keeps pushing the margins up. Any successful attempts to fix the housing market, by reducing immigration or any other means, will implode the Ponzi economy. Absolutely no politician is going going to do that - you might as well hand them a grenade at ask them to pull the pin.
It's my view that this implosion will happen, just later, with less control and with more devastation.
It's one of many factors. NZ already becoming unattractive partly due to expensive housing and somewhat low wages - immigration is slowing down. Also new law allows import of foreign-certified building materials so that might help too.
Thing with politicians is (depending on party) something like 90-100% of them are property owners and 30-70% are also property investors [0] so I just can't see how they would be willingly taking a haircut.
(Cherry on top - most of them couldn't even afford to buy their homes now on MP salary)
The underappreciated problem with immigration is that it allows advanced economies to cover up issues that make raising kids difficult. A shrinking population crashes the housing market. A growing population powered by immigration rather than birth rate props up the housing market.
The irony being that (from a UK perspective at least), in the absence of immigration, childcare and senior care would be even less affordable than they are.
Somebody has to do this work: it's essential, as well as hard, unglamorous and badly paid, and societies must take their pick from:
- Family members, almost always women, who have to give up paid work.
- Paid labour from less educated parts of their existing/indigenous population.
- Migrant labour, whether temporary or permanent.
The great mistake of Brexit is that the UK has now replaced temporary migrant labour (Poles and so on, who'd mostly come here in their early/mid 20s, stay for ten/fifteen years and then go home to raise families and be closer to their elders) with permanent migrants from much poorer countries who won't want to go back if they can at all avoid it.
It's not my sentiment, but I do see it why it's a big part of culture and life here.
Flats tend to be horrible here. Townhouses are ok and are growing, albeit too slow and too far from public transport.
There was some news yesterday about new row of townhouses around Auckland being classified as rural and unable to receive mail (rural mailboxes must be grouped in one spot, not on each house).
> Ask yourself, do Canada, Australia, New Zealand, the US, Britain, Ireland, etc, all have the same inability to build...
Why wouldn't they? They are relatively similar countries in many ways, any problem that one has could easily be replicated in others. For example I imagine zoning laws are all somewhat similar, favoring suburbs and strictly zoned areas vs market driven mixed use areas.
I also suspect they all have significant migration, high labor costs and high building standards.
I agree. Inflating the money supply (for example, via cheap credit policies) distorts the economy and creates malinvestment. Unadulterated consumer demand is eclipsed by the artificial demand created by the newly created money. The new money isn't distributed uniformly and immediately in an economy. It starts out somewhere. So, in this case, one of the distortions is in the housing market.
Working people are perfectly willing to purchase homes they can afford. In fact, it is safe to assume that it is one of their top priorities. If affordable housing isn't being created, something is amiss. See above!
I think it is a question about the area of central locations grows much slower than the amount of people who wants to live in a central location.
Dubai is expanding like there is no tomorrow, and the price of down town and marina just keeps increasing, regardless of how many new high rise areas the emirate undertakes.
China has hundreds of literally empty cities, yet people are being priced out of living in Beijing.
The question is not about a lack of new buildings, or under utilization of current buildings but simply you cannot built _dense_ enough to follow demand.
The empty cities are interesting. People don’t want to live there because there are no jobs and no services. There are no jobs or services because there are no people. Sounds like an opportunity for the government to step in and create employment, e.g. move a big military contractor there to “bootstrap” the city.
Several countries in Asia are/were not only making new cities, but new Capital cities (Malaysia, Egypt, Indonesia, etc) and they have mixed results. Old city pull and inertia is so strong.
> Ask yourself, do Canada, Australia, New Zealand, the US, Britain, Ireland, etc, all have the same inability to build
Yes, everybody does. The population exploded everywhere, and rent-seekers enriching themselves out of land price increases popped out everywhere. All at about the same time.
Other strategies to discourage the usage of properties as investment have existed at various times ... Things like squatters rights laws have been deployed for this purpose in some parts of the world at various times (Netherlands for example had quite large movements where the youth would occupy empty homes owned by rich investors in order to take advantage of favorable (to the squatters) laws -- which discouraged folks from sitting on unoccupied investment properties home at least at some historical points in time
> In my view this is symptomatic of a more fundamental issue - global asset price inflation driven by a broken financial system (i.e. a system being artificially pumped up with cheap credit).
Maybe? 2008 happened. At that point, there was a policy choice: allow a deflationary collapse, or prevent it. If we allowed it, there would be a lot of ruined businesses and ruined people. There would have been a lot of people who lost their houses. Instead, we chose to prevent the collapse, and we wound up here, where people can't afford houses. That's almost the same place, except that 1) the numbers are higher, and 2) it happened gradually rather than in a shock. That is, people didn't lose their existing houses, but new families can't buy their first homes.
So is this better or worse? My impression is that, for all the problems, it's still better than a collapse in 2008 would have been. But given the situation in 2008, some damage was inevitable. This amount of damage 16 years later is actually pretty good, considering.
I agree that there's more than one factor, but not building enough is absolutely a major one. There's tons of data to back this up.
Another one is the hyper-concentration of high paying jobs and other opportunities in a small number of cities.
There's always been a power law distribution for cities and opportunity with larger cities tending to win out, but since roughly 2000 it seems like it's greatly intensified. I've asked this question to many older people and have looked up some stats and both back up the sense that this has gotten significantly worse in the last 2-3 decades.
In the USA if you are not in one of maybe six cities you are second-tier, and it's much harder to find high paying and upwardly mobile jobs. The very top tier cities of SF Bay, NYC, Seattle, and LA are of course fantastically expensive.
Telework helps a bit but generally you still have to do time in one of those cities to establish yourself enough to get good high-paying telework jobs. Telework is often a senior-level thing or something you need a strong network to land.
I agree higher rates are likely to help with prices, and that low rates drove asset price inflation, and purchases of non-primary residences, as well as rental properties, but I also think there's also an element of nobody being willing to stomach a loss leaving supply constrained. And it seems like maybe that can only be loosed by more supply coming from somewhere, while in the meantime, it means prices only get higher.
One thing that's surprised me is that I'd expected this situation to lead to building being relatively cheap compared to buying. But land + labor + materials price increases seem to have left building less competitive in most areas meaning new supply can't actually undercut the market much, if at all. Or seemingly won't. It really feels like there's nothing that can give at the moment, like it's some kind of doom loop.
IMO the main issue are zoning laws and urbanization. You can find lots of articles about rural areas, small villages elsentially dieing out, while large cities just (try) to grow larger.
Also there is a shift from people living in families to living single or just with one person which is more inefficient and requires more space.
We're definitely in some kind of next stage of urbanization where people are moving into the big cities even from smaller ones. It's very noticeable in the former Soviet states, but I believe it also happens elsewhere.
I've been looking at getting a house built, and that starts at about €200k*, but the land in Berlin is at least another €200k on top of that (and usually more).
If I was willing to live in the back end of nowhere, I can get the land for almost nothing, halving the total cost.
But then I'd be living in the back end of nowhere, and turning that into an interesting town (let alone city) would need some very expensive infrastructure to be built, just to support that many residents.
Make the infrastructure cheap, and you can build New Towns.
Most of the developed world seems to struggle with infrastructure during my lifetime, be it major roads, railways, sewage, electricity networks, or anything else.
* list price €100k but that's a cheat as it's the outer shell only, no plumbing or interior plastering
I think the rule of thumb is that you should not buy at more than 4x household income.
I know that the salaries in Berlin are in the lower end, but 100k EUR a year in household income seems like a reasonable expectation for people wanting to live in attractive areas.
But even if the median income were €100k, the €400k level was around the cheapest I could find that you could actually live in and wasn't a weekend house, or a reverse-mortgage you'd only get to use when the seller died, or a building opportunity with no land, or they're rented out and as Germany has fantastic protection for tenants you are not going to move in etc.
If the standard is 4 years, even then you'd be excluding 50% of the households from ownership at €100k/year and €400k minimum prices. As is, €43k/year is closer to 9.5 years income still not being enough for 50% of households.
> not everyone gets to be on software engineering pay scales
Not everyone gets to live the most popular places.
> The median pre-tax household income in Berlin is €43,572
Seems like Germany can not afford to not allow mothers into the work place.
Edit: At a median household income of EUR 43k the issue is not housing prices. in Denmark the median salary (not household) is 73.000 EUR a year. I think Germans need to negotiate their salaries.
> Not everyone gets to live the most popular places.
Definitionally, everyone who actually lives in a place must be able to afford that place. If people suddenly can't, they leave, it's now less popular.
Right now, it's rent controls which allow most Berliners to live in Berlin. Without that, many would be forced to leave, making the city less popular, and thus less expensive.
(Perverse incentives, yay!)
> Edit: At a median household income of EUR 43k the issue is not housing prices. in Denmark the median salary (not household) is 73.000 EUR a year. I think Germans need to negotiate their salaries.
As a salaried person one has a responsibility of putting and upwards pressure on the salary (with the help from unions) - companies have the responsibility of making their ventures profitable.
Anecdotally, Tesla Berlin pays in the range 50-60k/year in Berlin (for SWE roles) - I am quite sure they are able to pay muuuch more.
So either are workers in Berlin less than half as effective as Tesla's other offices or Berliners accepts a much lower pay.
GDP is a number - If the Berliner kebab was priced at 12 EUR instead of 6 EUR, then they could afford paying double the salary - The rest of the world is about to add zeroes to everything. Why wouldn't Berlin?
My thinking is that this is Europeans focussing on "budget rather than profitting".
> If the Berliner kebab was priced at 12 EUR instead of 6 EUR, then they could afford paying double the salary
And then the houses and the land also double, or house builder's salaries real term wages halve and the workers leave and stop building stuff. Land prices are harder to draw conclusions about, but the owners have to want to sell at the price being asked, which is ultimately what the market will bear.
> The rest of the world is about to add zeroes to everything. Why wouldn't Berlin?
At a median household income of EUR 43k there is definitely not a housing cost crisis in the Berlin area - there is a stagnant wage crisis.
This is roughly 1/3 of the Danish household income. If I were German I would riot for higher salaries - we simply can not accept such disparities in a modern world with movement of labor and remote work.
It seems like German fear is what forces the ECB to lower the interest rates causing severe asset price inflation in Denmark.
I think a lot of it is this. A lot of our grandparents literally built their own houses, and while that's probably easier than ever nowadays, it doesn't solve the infrastructure problem. I won't save much money doing that if getting a road / electricity / water / Internet / sewer to the property will cost as much as (or more than) the house itself.
IMO it's yet another network effect caused by fewer people being willing to work in these kinds of fields, and a decreasing birth rate. Infrastructure inherently requires maintenance, so as it increases, so does the amount of people required to maintain it. Yet we have fewer and fewer people to do it, so adding new stuff just becomes unreasonably expensive.
RE "problem is caused by a lack of building" In my opinion there needs to be more houses built so the vacancy rate rises from the present extremely low ( round 1%) to the long term average of around 3% house vacancy rate. This 3% vacancy rate is recognized as a fair equilibrium between renters and property owners. Furthermore such a rate helps stop property owners raising rents as much , as happened in recent years. This is in Australia, do not know about other countries. Alos with record low interest rates, my opinion is lots people over commixed to loans, without proper consideration if they could afford the loan when interest rates rise to the long term average of around 7%
The worlds population has doubled since 1974. In every country listed the rate of new building construction has stayed roughly constant or declined since then. You can explain this phenomenon with an Econ 101 supply and demand curve without need for any further elaboration.
That's contradicted by the provided OECD link that shows that in many countries the housing stock per capita has stayed the same or slightly increased since 2011. Yet prices continue to increase.
But people per household has plummeted. Going from 6 to 4 to 2, see page 9. Combined with population pyramid flattening out, that is a lot of increase in demand for housing, until the population pyramid is upside down and more people are dying rather than being added to demand for housing.
Are the houses equal though? If houses 20 years ago averaged 1500 square feet and 10 years ago averaged 2000 square feet it would increase the price even if they stock increased.
do Canada, Australia, New Zealand, the US, Britain, Ireland?
Yes they do. This is exactly the problem. Specifically in big cities. Zoning and nimby-ism holds back building. Even Toronto which builds a lot doesn’t build enough housing units to keep up with growth. And they only build as much as they do because the province is constantly overruling the city.
Every western major city is blocking building on any meaningful scale. This leaves cities at effectively net 0 increase in supply. In major US cities, new builds are more expensive to own due to changing property taxes. And California is just a huge F U to young people by making new owners have to pay higher taxes than the old ones.
> Ask yourself, do Canada, Australia, New Zealand, the US, Britain, Ireland, etc, all have the same inability to build or is there maybe some other common cause?
Yes! Yes they all do! None of them are producing housing at anywhere near the rate required.
The statistics are skewed because the demand varies a lot between different regions .e.g there are towns in Italy selling houses for $1 (well sort off...) that doesn't mean that housing is affordable in Milan or other major cities. Same Applies to US, Canada, Ireland etc.
Prices are increasing for a few reasons, some you named and others I think you underweighted:
1. Asset price inflation generally
2. Population growth (incl. immigration)
3. A lack of building (housing stock is inflexible, e.g.: if we need more two beds, then no number of 1 beds or 4+ beds is sufficient, really).
4. We are changing our ways of living (see 3), that’s partly social norms and partly demographic
5. Working from home changed the market. If the economic hub of your country is priced well above the national average excl. the hub, then WFH will see prices move towards the average incl. the hub, if not higher.
NZ is maybe a poor example, as we do not have capital gains taxes on houses (or most things), and do tax foreign investments (via a ~1.5% annual wealth tax, so house flipping is tax-free money)
This is true, but I wouldn't underestimate the tax advantages property investment has relative to other investments in many countries.
Take Australia for example. People in NZ often say a CGT won't help because AU has one and it doesn't seem to make a difference. What they forget is that there is 50% discount on CGT there, so the relative advantage of property investment remains. Also negative gearing.
In the US I believe there are two obvious advantages given to residential property investment - 30 year fixed mortgages and tax deductions on interest payments.
I think it wouldn't be too much of a stretch to guess that all of those countries I mentioned earlier have different reasons for residential property investment being favoured relative to more productive investments.
> Housing is just where the rubber hits the road and regular lives are directly affected.
The reason why we didn't see rampant consumer product inflation in the wave of irresponsible money-printing meant to soften the 2008 crisis was that the stimulus targeted at the wealthy and went into assets, such as the housing you just mentioned. However, COVID-19 stimulus checks were given to normal people, so inflation now hits normal people's daily purchases.
> This is a problem of underutilisation in my view. Too many properties are being used as investments and not as a primary residence.
Not in London - according to a pressure group saying there are too many houses used as non-primary-residence [0] - they claim just 1 in 45 houses are either airbnb, second homes, or empty, and half of those are second homes (i.e. someone with a small flat in the city and their main house in the country)
On top of that you have the hidden demand. A typical 3 bed house will house 4 or 5 30yo adults in a HMO because there simply isn't enough housing.
Lower rates means House prices are higher sure, but that's because the monthly cost will always rise to meet what's affordable. If supply outweighed demand then prices would fall.
It is primarily restrictive zoning. When Auckland up-zoned there was a clear relative decrease in prices. You can also see it in the massive price discontinuity on the city’s rural-urban boundary.
It’s a pretty simple problem: existing owners have an interest in restricting new supply, and there aren’t many costs associated with being a nimby. Housing stops being a good investment when supply is responsive.
Refreshing to see other voices out there who get it, thanks for posting. The financialization of housing and guarantee of an increasing asset price allowed global wealth to pile into purchasing as much real estate as they can.
Not only does the pump of money increase housing purchases (it's a short against the currency), but unstable currencies also cause real estate to go up as wealth looks for safety.
>Cheap credit causes an increase in demand. This is not demand for homes but additional 'artificial' demand for properties as investments. Think short term rentals, second homes, land banked properties, etc. By definition, only investment properties can be underutilised - owner occupied homes are occupied! So in an environment that encourages property investment you will see more underutilisation.
An important nitpick: cheap credit intensifies the search for returns. You need to consider why those races end in real estate. In the US, at least, the answer is that the American single family house is the single most privileged asset class in the history of the world. The entire economy assumes that housing prices will grow at a rate that outpaces inflation. You cannot, in that system, be a person who calmly watches to evaluate the correctness of the hypothesis.
No, you shut up and push. Whether you're the President or the Fed or some affordable housing commission, you shut up and push for housing as an appreciating asset.
That's comingling a few things, because a lot of the privileges around holding a home as an asset don't extend to investment properties. E.g. the easy availability of competitive mortgages and individual tax breaks.
Personally, I think we should lean into that -- make single family homes completely unattractive as an investment.
Rental units are more debatable, because of the density argument, but I think we should probably disincentize it as an asset class too. In favor of offering townhomes for sale.
I didn't mean even tax advantages or favorable financing. The heart of the issue is that we have a national policy of not letting housing prices go down because that would crush too many people's equity and with it their financial stability. The longer it goes, the more we ratchet up the tension between affordable housing and housing as investment.
There's probably a lot to be said about the secondary market for conforming mortgages, but I'm not the knowledgeable person to do so.
Half of my city and many other cities around my country were built during the communist 70s and 80s... and then we stopped building and maybe built 5, 6 apartment buildings in the last 30 years.
Then urbanization came, centralization, everyone wants to live in a city.. but we're not building more housing.
We can look around europe.. how many apartment projects were done in the 70s and 80s, and how many are being built now.... we built whole new neighbourhoods back then, and now we have 4 people sharing a two bedroom apartment.
While I agree building housing is a symptom, and not the core problem. But I'm skeptical that increasing building or density would actually lower housing costs. If that were true, high dense cities like Beijing, Tokyo, Singapore, or Hong Kong would have much lower cost housing.
Housing more people in a concentrated area creates more demand for services, which creates more demand for housing which jacks up prices. Packing 1,000 people into an apartment build creates extremely high demand for plumbing, house cleaning etc, services, which jack up housing prices. But if cities were low-density with commerce centers decenteralized across many neighbhorhoods or towns, you don't create location demand hotspots (e.g. cities) that jack up prices.
Property taxes and interest rates are a forcing function to keep unoccupied properties in check, as long as the appreciation doesn't dramatically exceed the risks of being a LL. For Tier 1-3 markets in the USA, you can't cash flow properties as rent is drastically lags property ownership costs.
The article is specifically about purchasing homes. Even the USA, it also is cheaper to rent than to buy. Buying a home in Singapore has a 6 year waiting list to access public housing with properties exceeding $1m SGD.
Taxes, Transportation and food costs are cheap, but property is not.
Singapore is not really typical of anything anywhere, it's a small island nation with insane population pressure with regards to housing.
Almost any other Asian city from Bangkok to Ha Noi has room to expand. In fact speaking of Bangkok buying a condo there is widely considered a bad investment because there is so much supply.
Beijing has cheap rent, at least for foreigners making western wages. That 10k RMB/month 1 bedroom is supposed to cost 7 million RMB to buy, so you are still screwed if you are looking not to rent for some reason.
I hear Shanghai is much worse, but never lived there before.
Your argument about increasing demand for services isn't convincing. Since there are more people in the area, should supply be higher as well, balancing prices?
It seems more likely that costs are higher in cities because there are valuable opportunities for skilled people who demand high salaries, simultaneously encouraging dense living to maximize access and increasing cost of living through the Baumol effect. High prices causing density, not the other way around.
> Since there are more people in the area, should supply be higher as well, balancing prices?
I think we are starting a conversation about gentrification: Rich white-collar/coat workers move into an area creating demand for service work. There is some price competition for their service work labor, raising wages, but typically housing costs are too high for these workers, so they leave (lowering supply, pushing up wages).
But this is just assuming the conclusion. Suppose that you were to increase the housing supply as much as, or more than, the increase in population. The existing lower-wage workers don't have to leave until prices have already increased to price them out, so their leaving can't have been the cause of the higher prices but rather its effect.
So it's a feedback loop, but one which is prevented by keeping supply enough to meet demand, because then lower paid workers aren't priced out and cost of living doesn't increase.
I don't think looking at density is sufficient enough, what matters if total supply can keep up with demand. Hong Kong and Singapore are very dense, they have to be to sufficiently house the population, but it's still not enough.
> But I'm skeptical that increasing building or density would actually lower housing costs. If that were true, high dense cities like Beijing, Tokyo, Singapore, or Hong Kong would have much lower cost housing.
Increasing building and increasing density are different things. Singapore and Hong Kong are dense because they have a very limited geographic area to build in. You can’t point to their density and conclude that adding housing doesn’t help lower housing costs. They would be even more expensive if they weren’t so dense.
> In my view this is symptomatic of a more fundamental issue - global asset price inflation driven by a broken financial system (i.e. a system being artificially pumped up with cheap credit).
I've been crowing on this since the 2008 crash. The cycle is this:
1. A person has a job, but can't afford things
2. They get credit to buy the things they want, in lieu of demanding better pay
3. Everyone does this, so demand goes up and prices go up
4. The value of their dollar goes down
5. Go to 1.
Consumer credit has _broken_ money. Broken it. We've seen this in housing prices and student loans, and now that we have online checkout buttons that say "you can have this for $17/mo!", we're starting to see it in stock-and-trade consumer goods even more now.
We have to -- have to -- eliminate consumer credit if we ever want to give people a fair shake at maintaining the value of their money and purchasing things. Otherwise, prices will be determined by people who are dumbest with their money.
Speaking of Canada; here the problem is the unwillingness to build, coupled with rampant immigration, fueling a real-estate bubble that is compounded by speculators (foreign and domestic). Cheap money throughout the 2000's didn't help either.
I've been told that immigration isn't a driver for the housing problems in the USA though, interestingly.
Higher interest rates and/or regulations against excessive (however that is defined) ownership. Any regulation should focus on the bigger players as a priority.
The person with the second vacation home isn't a priority but the fund with hundreds or thousands (or 10s of thousands as is the case in the US) should be a focus.
> Ask yourself, do Canada, Australia, New Zealand, the US, Britain, Ireland, etc, all have the same inability to build
Of course. Remember, homebuilding continues to be incredibly labour intensive. Meanwhile, all of those countries have enjoyed "full employment" for many, many years. Which means that workers have all kinds of job options.
In other words, you can't build without people. Ask yourself, why would the people choose construction? Wouldn't sitting at a comfy desk programming computers all day be more desirable? The small few who enjoy it can’t keep up.
Do you work in construction as a career? If no, why not? What would it take to get you to start building houses? Higher compensation than other jobs, perhaps? But guess what high compensation brings...
> Too many properties are being used as investments and not as a primary residence.
When properties are being used as an investment, they are rented out. If that's true, it should show up as higher rental vacancy rate and low/stagnant rent. That's not the case in Vancouver, BC as we have low vacancy rate and rising rent.
Homes could be left as left empty as well, but we have multiple annual taxes, ranging from 0.5% to 3% of the total property value targeting these underutilized home, and that hasn't driven price down. In additions, these taxes essentially provide an one-time only increase in the number of homes available. They can be easily absorbed by population growth.
With the population increase in Canada, building more is the only way out.
> By definition, only investment properties can be underutilised - owner occupied homes are occupied!
I think this part is what kills the anti-investment argument. If we hypothetically got rid of all the property investors we’d have only owner-occupied units. So then where do you find a vacant house when you want to move out of your folks’ place? Everyone has to find land, buy it, and build? (I won’t even get into the fact that single family homes aren’t really a sustainable use of land)
As long as there are enough vacant units investors will lower rent enough to fill them to an equilibrium. Nobody makes money on apartment buildings that are 50% empty.
Let’s not forget that low financing rates allows companies like homebuilders to build homes and subdivisions on credit that are intended to be owner-occupied. These developments are never intended to be rentals.
I think it’s a little funky that, especially in the US, nobody really had a problem with apartment buildings being apartments until landlords started owning single family homes. Now everyone has pitchforks over it and want to ban investors from owning homes - which seems kind of insane when you think about how cities with skyscrapers work. It would make condo and apartment buildings impossible. There’s nothing different about a single family home compared to an apartment besides form factor.
The thing that all those countries have in common is low supply in the tradespeople. Those are all countries where you’re better off learning to do a desk job rather than working for a construction company. In addition, a bunch of home builders went bust in 2008 in the United States.
In the case of Canada and the US they also have some horrible bad habits when it comes to city planning. Single family home building causes the growth Ponzi scheme raising the cost of city services per capita and pushes affordable housing crazy far from the city center and strains single occupant car highway infrastructure. You’ve got to own one car per person in the US in Canada in addition to your mortgage. Then load up student loans on top of that.
> What will cause prices to fall is higher interest rates. This is what has been happening in NZ.
I hope so. But this assumes a fair market. I believe the NZ market will be pumped up through government action in order to avoid paper losses for property investors, landlords, and also for regular family property owners' unrealised gains.
Case in point: reinstating full interest deductions for residential property, reducing the tax investors pay. A $2.5b kickback to landlords. 60 per cent deduction in 2023/24, rising to 80 per cent in 2024/25 and 100 per cent in 2025/26.
It's basically this. Because there's a finite supply of land in desirable areas, home ownership is an investment, unlike renting. Same as how I got "priced out" of owning 1/10000th of Apple Inc.
IMO takes like this are problematic. The problem is not enough building. That's it. All the other stuff you said is just noise that confuses people into believing this is some hyper-complicated modern-financial-system problem that's going to end the world due to its intractability. Its not any of that. Its just not enough building.
There are problems which feed into there not being enough building; the biggest one is definitely that property represents a major portion of Americans' investment portfolios, and thus our democratic system is filled with people (and companies) (and their representatives) who are heavily biased toward any decision that will raise property values. But its not that low building causes this; its just NIMBYism. This causes low building; it causes weird municipal rules about density; it causes expensive permitting; etc.
People also say "well, there's not enough land in the place people want to live so of course house prices are insane". Also bullshit. The "place people want to live" changes and expands all the time. Exurbs that were forests 15 years ago are now extremely hot. Why? BECAUSE WE BUILT. That's it. That's all it takes. Build housing. Build parks and sidewalks. Allow cool businesses to open.
Everyone, including and especially local governments, has made this so freakin complicated when its seriously not. Its freakin MBA prediction brain all over again. They're so afraid they don't understand the full problem, or the implications of their decision, that they refuse to act (build) and instead blame the lack of action (building) on intractably large problems like "interest rates" or "blackrock".
It IS more complicated than that. It's not easy to build within a 1 hour commute of a dense population center. All that land is owned, built, and called for. Calling it "overpopulation" could be fair.
A parallel problem is immigration and, as the top comment pointed out, cheap credit encouraging vacancy.
Not enough building, and also the inequality in ownership of land and houses. May be tax every third or later house owned higher and plug loopholes that allow you to own an extra house under trust or other structure to rent.
But where will this end for a lot of investors (which in Canada seems like a lot of the influential population) ?
> Not enough building, and also the inequality in ownership of land and houses.
Its really just building.
I grew up in a somewhat rural part of the US, basically just farm land and forests, but a few dozen miles from a city of ~100,000 people. The amount of NIMBYist "we gotta protect the farm" "we'd never sell to some big developer (spits on the ground)" you hear day to day was extreme, to say the least.
Ten years later, that city of 100,000 people is 115,000 people, a half-dozen miles closer to the rural farming community, and they just opened a strip mall outside of town. In another ten years they'll likely have a Starbucks and a luxury apartment complex. In thirty years that small community won't really exist; it'll be called an "exurb" of a city of 250,000 people.
My point in saying this in response to your comment is: Density brings money; and money trumps everything else. It trumps NIMBYism. It trumps Good Ole American Values. It can also trump inequality, weirdly enough; because density (aka money) increases the efficiency of our land use. The issue is: We aren't building enough.
> where will this end for a lot of investors
Constant-ish property asset values relative to baseline inflation. Its really not the end of the world. There's so many places to park money in the US economic system, its weird that we're so caught up in something so real and ugly as residential real estate. Go park your money in Nvidia.
Here's my take: the government should back low interest rate and high eligibility loans specifically for the purchase of housing which has never been lived in before. There should be some provision which allows the loans to be used in the case of initial development, or redevelopment if the new development has a higher density than the previous development on that lot (e.g. the lot had 1 unit before, now it has 4 units, you're good). These loans should be made available to individuals; two per person, some reasonable market-dependent limit per loan. That's it. If the specifics are correct, a program like this would fix an extreme number of problems the US housing system has. It would create a few problems, for sure, but critically: a program like this would create liquidity in the housing system, and its far, far easier to fix problems in a liquid system versus an illiquid one.
It posits that the high prices are caused by rich people parking their money in houses. It explains many problems with a few variables.
While it's not the whole picture, it explains why the middle class is getting squeezed out of house ownership. And why stimulus package didn't much help.
It's more likely a correction on interest rates combined with lack of supply. It will even out, it's not a failure of the system. If more houses are build then value gets diluted, private capital can't keep buying up all the "extra" supply. Rates will also need to drop and more people can buy, as people include "that payment is more than I can afford" every bit as much as "this house costs $X"
In the US, it's a combination of lack of building, increased materials costs, and (in places like California) government policies that block new construction.
Note that Trump's tariffs on Canadian lumber increased the cost of new construction by 20% over a period of a few months (the article mentions the cost of materials, but not the root cause, which was this tariff, and some climate disasters, like when the Texas storms took out 20% of global PVC production for a year or so). Biden has been aggressively increasing tariffs, so they are both directly to blame.
The interest rate spike and high inflation were predicted by pretty much all economists when Trump decided to needlessly keep rates low during his first term, so blaming Biden never made much sense to me
Anyway, lots of studies have been done looking for root causes for homelessness and unaffordable housing. Every theory I've heard (drugs, mental health, nice weather for tent encampments, joblessness, etc, etc) has been shot down by such studies except the idea that if you have fewer houses per capita, then you will have more homeless people and more expensive houses.
Assuming global financial stuff changed radically but we didn't build more houses, where would these people with lots of money in the bank live, exactly? Also, wouldn't that cause the price of housing to increase (increased demand, constrained supply, and inflation from the increased money supply)?
The graph you cite says the US has 0.4 houses per person. That means that, on average, we don't have enough houses for people that are single, couples without a live-in kid, or single parents.
It goes on to say that 7% of US houses are vacant, but that wouldn't make up the gap. Also, many houses in the US are vacant because there are in places where the economy has dried up, and there aren't adequate utilities, schools, groceries, etc. Even if those houses were somehow renovated, many people would still be better off financially if they chose to live on the street instead of in those places.
Most buyers would require mortgage or another kind of loan. For a loan holder, the question is monthly payment, not price. Higher interest means higher payments, thus negating the decrease in prices. Of course, for cash buyers high interest rates are good, but I suspect people worrying aboug being priced out of the market aren't cash buyers.
> What will cause prices to fall is higher interest rates. This is what has been happening in NZ.
Then again, with higher interest rates, the lower prices don't mean anything unless they drop significantly faster than interest rates are raising, yes?
Check out the Speculative Vacancy Reports (https://www.prosper.org.au/speculative-vacancy-reports/) to shed some interesting light on that. It is for the Melbourne market only, but their methodology of relying on water usage to determine occupancy reveals some interesting results.
I have a feeling that those hoping to wait it out in the hopes of a return to low rates might be caught out this time around.
The past few decades (coinciding with the property price boom) have been all about ever decreasing interest rates. What is happening now looks a lot like a paradigm shift. I wouldn't bet on rates falling substantially anytime soon.
Do lower house prices in a recession matter if no one has money, and everyone is being laid off from work? I feel like no one, except the very rich, benefits.
Unfortunately recessions and job losses are how you get lower prices. You need forced selling. As long as we're labor constrained with a hot GDP, people with a house and low rate will continue living their best life.
How do people even think of these things? You're not a computer. You have the ability to intuit when people are not talking about some stupid edge case that literally never happens.
Lack of available dwellings is currently a huge problem here in Australia - the building industry is collapsing due to cost blowouts and most available builders are snapped up by a vastly more lucrative mining industry.
>Ask yourself, do Canada, Australia, New Zealand, the US, Britain, Ireland, etc, all have the same inability to build or is there maybe some other common cause?
This is found to be true by Blackstone, who frequently notes that shortages and low increases in new supply are fundamental to their strategy of buying and building housing for rent: https://x.com/RikAdamski/status/1643477536695803904https://x.com/IDoTheThinking/status/1378737834824060931 "We could also be adversely affects by overbuilding or high vacancy rates of homes in our markets, which could result in an excess supply of homes and reduce occupancy and rental rates."
It's especially dumb because while as a whole rents are increasing in America, there are many desirable parts where it's not. Texas has decreasing rents despite an increasing population
I am not denying that the number of properties relative to people has an effect - but I am arguing that this is insufficient as an explanation for what has happened with regard to prices recently.
See my earlier comment regarding NZ. The number of homes per 1000 people changed very little between 2011 and 2022. At the same time prices went from NZD350k to NZD900k.
I think my suggestion that finance is the most significant factor here is a stronger argument than a supply shortage.
>I think my suggestion that finance is the most significant factor here is a stronger argument than a supply shortage.
You have zero evidence for this claim and cited zero sources.
>The number of homes per 1000 people changed very little between 2011 and 2022. At the same time prices went from NZD350k to NZD900k.
You cannot look at an entire country's housing/population ratio and think that explains everything. New homes in Queenstown don't reduce housing costs for people in Auckland or Christchurch. You need to look at the supply of housing in an area where it is a substitutable good: where you can switch housing without switching your job, school, friends, and life.
A new house 6 hours from me does not lower the price of housing in my neighborhood.
Do you think that a shift in demographic preferences from certain locations in NZ to other locations in NZ is sufficient to explain why - while the overall proportion of dwellings to people was steady - prices rose 250% in 10 years?
I don't think anyone would disagree that finance has an impact, but these are only indirect evidence.
It seems to me that increasing urbanisation and desire to live in cities could easily have pushed city prices up much faster than anything else, while less populated areas stagnate.
But you have to admit that no one could have guessed that increasing the money supply (ie: printing money) would have led to higher asset (including real estate) pricing.
This, and certainly no one has warned about this type of policy being inflationary by default. Granted, it is just a part of the equation, but not a small one by any means.
> Ask yourself, do Canada, Australia, New Zealand, the US, Britain, Ireland, etc, all have the same inability to build or is there maybe some other common cause?
In the UK, we have an issue with immigration that nobody wants to speak about. The birth rate in the UK is 1.49 in 2022 [1], meaning that housing demand should be going down. We build houses to last, and yet there is a massive shortage - why? In 2023 the ONS reported we had a net migration of 685k people [2], where 9% of the population do not have a British nationality at all.
The demand for housing in the UK (and related infrastructure) can be entirely explained by net migration. The reason the housing market is bubbling is because the demand is so insanely high. We need to build 340k houses a year to keep up with demand [3].
The fundamental issue in the UK is that we borrowed too much from the future, in terms of loans, but also pensions. They think that increasing the population dramatically will solve the problem, but it's actually destroying the UK. We are building on farmland, the infrastructure (water, gas, electric, roads, schools, etc, etc) is failing under the weight of the new housing. The interest on the debt owed [5] I believe is projected to exceed spending on the NHS (national healthcare system) by 2035.
The question we need to ask is whether large net migration is worth it, or whether we should largely reduce it. It seems clear to me that the UK is currently trying to grow too fast. It'll be a bitter pill to swallow, but at some point you need to deal with the spiralling situation.
> This is a problem of underutilisation in my view. Too many properties are being used as investments and not as a primary residence.
In NZ and many other Countries they put bans on foreign buyers exactly to stop this investment [4]. I know many, many professionals living in NZ that cannot afford to buy a home. They are all stuck renting, despite all earning in the top 25%.
UK has massively high house prices - at least in "desirable" areas, and some not so desirable ones where it's possible to commute to work in a desirable area.
That doesn't necessarily reflect a shortage, it also reflects availability of money - and therefore the market bearing higher prices. It also reflects the unevenness of the UK economy: the expensive and unaffordable housing is mostly in and around London (where ~all the economic activity is), and in the most scenic of rural areas which is retirees, second-home owners and AirBnB investors. There's plenty of the UK which has affordable housing, but it's too far from anywhere with decent jobs.
The boom in house prices began when it became the norm for educated women to have lifelong progessional careers. All of a sudden there was a huge amount more discretionary income in the educated class. If you consider that, circa 1970, perhaps 20-30% of one male earner's income went on housing and the rest on life's essentials, all of a sudden the potential amount of cash to spend on housing goes from 30% of one income to 130%, a more than 4x increase. It took a while to filter through, sure, but in the end, it has - to the point where most families are now obligated to have two full-time earners.
Housing is a positional good (think about an auction where demand of the most desirable items will always exceed supply), the prices bear almost no relation to rational economic utility and every relation to how much cost people are able to bear. Which is one reason they're so responsive to interest rates i.e. debt affordability.
A 1.49 birth rate and 685k net migration isn't a desirable situation for any country, but the other issue here is the health and productivity of our own population, we're using migrants to prop it up and provide much of the labour needed by the NHS, childcare and elderly care. Our government is massively anti-immigration, and yet immigration remains high, the country can't and won't go cold-turkey on that: it's not practical to do so without further increasing the retirement age, cutting pensions and increasing "sin taxes" to keep a greater proportion of the population healthy enough to work til 70. And that'd be even less popular, politically, than mass immigration.
The reforms the UK needs are to get the economy functioning better in the regions, and to make it much easier to build higher density housing close to where the jobs are. The current system where they can't build apartment blocks on train-station car parks because a bunch of pensioners complain that it spoils their view is massively counterproductive.
If actions speak louder than words then the UK government is not massively anti-immigration. I would say that devolution of power in Britain has ensured that governments are not actually that powerful and unelected authorities with views of their own, hold sway with opinions which do not reflect the electorate. Polls suggest that a majority of people would like reduced migration. Problems abound.
I agree with you about the reforms but basically Brits live beyond their means and need to lower expectations or face a very uncertain future. The NHS is a good example. Demand is literally infinite. We're all going to die and likely suffer an ailment demanding treatment so how can a health service which fails to match that hard reality, survive. As you say, we can use stick and carrot to attenuate demand but it's finally going to crack IMO as was prophetically illustrated so tragically in the pandemic.
Asking people - or indeed governments - in isolation if they'd like less migration is a bit like asking if they'd like less rain. Leaders and media who were up-front about the reality of the choices we face would make for a less toxic situation, but they're too lazy and cowardly, it's easier to lie for political points than to tell hard truths.
Agree re the NHS, my overall views are left, but the centre-right analysis that it's a National Sickness Service is correct, where is the investment in public health to reduce demand? Most Brits barely get out for a walk once a week, our environment doesn't prioritise health (driving everywhere, fast food outlets..) and the complaints when the state actually tries to do anything about it are endless.
> UK has massively high house prices - at least in "desirable" areas, and some not so desirable ones where it's possible to commute to work in a desirable area.
Other than very undesirable areas, the house prices are pretty bad. I have friends living nowhere near London in remote Scotland noticing the house price increase. I've seen a local property double in price after ~11 years.
> That doesn't necessarily reflect a shortage, it also reflects availability of money [..]
It's not clear who has an availability of money. I'm aware of zero people within recent years buying a home without a mortgage. Availability of money has never been worse.
> It took a while to filter through, sure, but in the end, it has - to the point where most families are now obligated to have two full-time earners.
I don't think we're seeing 4x the living standard of 1970. It also doesn't explain that we see house prices increase by more than 4x relative to wages [1].
> Housing is a positional good (think about an auction where demand of the most desirable items will always exceed supply), the prices bear almost no relation to rational economic utility and every relation to how much cost people are able to bear. Which is one reason they're so responsive to interest rates i.e. debt affordability.
It's didn't used to be like that. A house would feasibly cost between 4-10 years of one man's wage. But this would defend what I said, that demand outstrips supply. There is a saying at auctions: "it's only worth what somebody else is willing to pay for it."
> we're using migrants to prop it up and provide much of the labour needed by the NHS, childcare and elderly care.
It's not working, the NHS is failing. Where I live I cannot get an appointment any more. If I am lucky the doctor calls me and essentially prescribes anything I ask for. I recently saw a similar situation with midwifery.
I generally don't find myself convinced that migration is a net good. They typically have dependants and create massive burdens on our infrastructure and systems. We are now at the state where children are deferred from starting school because there just are no palce
> Our government is massively anti-immigration, and yet immigration remains high, the country can't and won't go cold-turkey on that: [..]
I suspect not. If I am right in saying that immigration increases demand for housing and therefore the price, it would make sense that the Conservative party would keep this in place as their largest donors are property developers [2].
> The current system where they can't build apartment blocks on train-station car parks because a bunch of pensioners complain that it spoils their view is massively counterproductive.
I don't think that is fair, the answer isn't to build on every square metre of the UK until it's gone. Besides, if they get rid of the train station car park, where will all the commuters park? (I've seen this one play out, they park everywhere else.)
> It's not clear who has an availability of money. I'm aware of zero people within recent years buying a home without a mortgage. Availability of money has never been worse.
"Availability of money" includes the ability to apply for, and service the debt on, a mortgage.
> I don't think we're seeing 4x the living standard of 1970. It also doesn't explain that we see house prices increase by more than 4x relative to wages [1].
I don't remember 1970, but there's no particular reason we should expect to have 4x living standard.. competition for housing can eat up a much bigger slice of the overall pie, as long as people are willing to compete.
> But this would defend what I said, that demand outstrips supply. There is a saying at auctions: "it's only worth what somebody else is willing to pay for it."
100% - but if nobody CAN pay (the asking price), nobody will be willing to pay it. And that's where positional goods matter, because effectively people are jostling for a place in a ranked queue. The prices are a function of "how much money are the people in the queue able and willing to raise and deploy". And so it's natural to have situations where incomes might only go up by 50%, but house prices can rise MUCH more if interest rates are low and the bulk of that extra income is discretionary.
> It's not working, the NHS is failing. Where I live I cannot get an appointment any more. If I am lucky the doctor calls me and essentially prescribes anything I ask for. I recently saw a similar situation with midwifery.
Bad here too, but most of the staff are immigrants or of immigrant background so I find it hard to blame that on migration, it'd be a lot worse if they turned the taps off. It's more to do with our population (native Brits and 1960s/70s immigrants) being elderly, unhealthy and generally decrepit, and a health service that tries to do too much. It excels at keeping people alive, but it sucks at keeping them healthy.
> We are now at the state where children are deferred from starting school because there just are no place
Not the case here, in a high-immigration area: they're actually closing primary schools because there aren't enough kids to fill them.
> I don't think that is fair, the answer isn't to build on every square metre of the UK until it's gone. Besides, if they get rid of the train station car park, where will all the commuters park? (I've seen this one play out, they park everywhere else.)
They should walk or take the bus. I'm talking about stations that are at most a mile or so spread out and usually served by half a dozen bus routes, suburban zone 3 & 4 London. Wouldn't work further out where distances are longer.
> 100% - but if nobody CAN pay (the asking price), nobody will be willing to pay it. And that's where positional goods matter, because effectively people are jostling for a place in a ranked queue. The prices are a function of "how much money are the people in the queue able and willing to raise and deploy". And so it's natural to have situations where incomes might only go up by 50%, but house prices can rise MUCH more if interest rates are low and the bulk of that extra income is discretionary.
If this is the case, then the best way to lower house prices would be to get rid of mortgages entirely? I don't think this would work of course. We would simply see more foreign investors who have access to mortgages.
> Bad here too, but most of the staff are immigrants or of immigrant background so I find it hard to blame that on migration, it'd be a lot worse if they turned the taps off. It's more to do with our population (native Brits and 1960s/70s immigrants) being elderly, unhealthy and generally decrepit, and a health service that tries to do too much. It excels at keeping people alive, but it sucks at keeping them healthy.
My point is that after lots of immigration, we still have a massive recruitment crisis in the NHS. It never really solved the problem, and worse still, there are now more people using these services.
> Not the case here, in a high-immigration area: they're actually closing primary schools because there aren't enough kids to fill them.
If immigrants are not having children in the UK, then that would lead towards another crisis of an ageing population. Again, I believe increased immigration is a temporary solution.
> They should walk or take the bus. I'm talking about stations that are at most a mile or so spread out and usually served by half a dozen bus routes, suburban zone 3 & 4 London. Wouldn't work further out where distances are longer.
Not everywhere is London. Where I live, there are no buses to the train station. People commute by car up to 30 minutes to catch the train.
Getting rid of mortgages rather illustrates my point. You'd lower prices but also destroy people's ability to afford/buy... anything.
Prices are a function of people's ability to access money, not their direct income.
And to your last point.. they need to build housing in places where there's the infrastructure to support it, or build the infrastructure. Building to suburban-like density in areas with a rural-like level of services (not just transport but shops, schools, leisure) is a recipe for misery.
The big new housing developments they're putting in outside midsize town ring roads are a case in point. Too far to walk to the centre (and indirect routes, because of the ring road), but the centre itself doesn't have room for them to park cheaply. No bus so no independence for teens. Nothing at all to do on the development itself. And that's before we get to the quality and design of the actual builds.
It's American style living done on the cheap. At least in the States they build large so there's room to do more at home, and the whole place is low density - their solution to the challenge of town centres is not to have town centres.
That's true. Property tax can help, but at some other level of over-supply, it doesn't even matter what the property taxes are. Once there is far too much supply (perhaps to the extent that it would be a bubble), pumping millions of dollars into housing that will sit empty or rent at a low yield will not be a good use of capital.
> In my view this is symptomatic of a more fundamental issue - global asset price inflation driven by a broken financial system (i.e. a system being artificially pumped up with cheap credit). Housing is just where the rubber hits the road and regular lives are directly effected. Just look at the tight correlation between the increase in the money supply and property prices.
Prior to covid, the global economy was booming. US and UK had low unemployment rates. the US especially was remarkably doing well, with lowest unemployment rate for minority communities.
There is a price to pay for completely disregarding long-term economic costs of reckless responses to a what was a moderately severe flu epidemic. We went nuts and shut ourselves down. And on top of that, we helicopter dropped 4-6 trillion dollars of freshly printed cash.
And the reckless governance continues in the name of flaming conflicts in Europe and ME. A lot of what happened in the recent years is attributable to just atrocious governance.
Interest rates in Canada have doubled and were only seeing a trickle of investors selling. I do agree that we have way too much investment in finished real estate, which is only hurting consumers trying to get into a market. We've been a lot more strict with ownership transparency and clamping down on short term rentals, which is still too soon to see how significant the effects will be, but the big tldr here being that rates doubled and there's still not a high push to reduce prices (yet), so both sides of the market are holding out for better.
In December there was an expectation that the FED would do 7 interest rate reductions this year. Now we are down to 1 - maybe.
I think a lot of people in the market are still holding on with a strong expectation that the interest rates will go down.
Personally, I think high interest rate environments are better for most people - it compresses asset prices and adds more value to a salary. But it will take some years for that compressions to kick in again.
There's a huge difference in rates and how it affects markets between Canada and the US. I'd assume most US based loans have a lock in period of 25-30 years, but is basically unheard of to have Canadian rates locked in longer than 5 years for fixed mortgages. That means there's a bunch of mortgage renewals that will dramatically affect the amount of disposal income for these individuals that locked in low rates a few years ago. In the US, it's more about potential buyers holding out for cheaper rates. In Canada is more about owners that "suddenly" have dramatically higher servicing rates. It's not unlikely that people are paying 1000/mo extra post renewal.
Coming from another angle, this might not be a "problem" when you consider the greater scheme of things.
Being able to obtain assets, when you don't have any is a relatively new thing, historically speaking. One could also say that we were living in a brave new world of opportunities and growth for a few centuries. And now we are returning to the historical norm. One thing that all the examples you listed is that they could be seen as "late game" economies.
I might be totally wrong, though. This is just another angle.
"Ask yourself, do Canada, Australia, New Zealand, the US, Britain, Ireland, etc, all have the same inability to build or is there maybe some other common cause?
... a broken financial system."
You claim that these countries do not have the same system of building but they do have the same financial system. That is a large claim to make. You should try to offer at least some kind of argument for why you feel the variations in the financial systems are less significant than the variations in their systems of construction.
I try to explain the ills of interest rate intervention to people all the time and they act like I'm a conspiracy theorist. The problem will likely not get better.
>do Canada, Australia, New Zealand, the US, Britain, Ireland, etc, all have the same inability to build
I don't know about the others, but we're building about 50% of what we need for Australia's population growth. Neo-liberalism has resulted in decades of de-funding of public education, which trains tradespeople, and now we have a shortage of tradespeople. And we're getting another tax cut in a few weeks so I guess that problem, plus all the others with same cause, is just going to get worse.
Yeah, too many people think supply/demand is all there is to prices, when that is just economics 101. What many people seem to not even know, is that the theory only holds true under competitive free market conditions and falls apart under captive/uncompetitive markets. Many also assume trade volume is necessarily representative of a supply shortage, when that isn't always the case, as " supply" and "supply for sale" are two different things.
But yeah, the root of the problem is because governments are subsidizing housing/costs, and the problem with subsidies, is that the money for them has to come from somewhere, meaning they come with a burden (ie cost) placed elsewhere.
In the US this is primarily done via the government backing mortgage debt. It creates a vicious circle where homeowners raise their prices, the Fed ensures the funds for the mortgages, and the buyer is on the hook for paying it.
This is also why college prices are high. The government offers student loans to help people afford college, but colleges see this and raise their prices to capture that additional funding, and the student ends up on the hook for paying the price. Rinse and repeat...
> What many people seem to not even know, is that the theory only holds true under competitive free market conditions and falls apart under captive/uncompetitive markets.
Why would the law of supply and demand fall apart under captive/uncompetitive markets? A captive or uncompetitive market may impact the quantity of a good or service available and/or the quantity of a good or service willing to be purchased at a given point in time, but that doesn't change the law.
> Many also assume trade volume is necessarily representative of a supply shortage, when that isn't always the case, as " supply" and "supply for sale" are two different things.
Huh? Supply is characterized by being "for sale". Of course, a shortage occurs when price is prevented from rising. Housing certainly doesn't have that problem. The so-called "housing shortage" is really an issue of latent demand – people desire homeownership but can't afford it.
> Why would the law of supply and demand fall apart under captive/uncompetitive markets?
For the law to hold perfectly and describe prices, everyone in the market (both buyers and sellers) must be a "price taker". That is, the amount anyone supplies(sells)/demands(buys) is entirely a function of the going market price of whats being traded, and no one believes they will influence prices. (If anyone isn't a "price taker" , then supply/demand of the good being traded are no longer the only variables in the function of price). So, typically under competitive market conditions (that is there are many buyers/sellers), as prices rise demand from buyers will drop and selling increases from sellers, whereas the opposite happens when prices fall.
However, in captive markets such as one consisting of a monopoly seller, the seller can test demand to find the most profitable price for them specifically. At which point the seller is no longer operating as a "price taker", as they will reduce selling as prices rise to find that optimal price point for themselves (as they have input costs which have their own price curves that buyers don't know or care about). Remember, a "price taker" cannot influence the price, but must take or leave it depending on price. Thus price is no longer determined purely by the market supply/demand of the good, but also profit margin of the monopolist.
> Huh? Supply is characterized by being "for sale".
It often is, and there is nothing wrong with it being defined that way. But the idea which is being expressed here is what is important. For hyperbole, if I hoarded all of the worlds water, but only listed 2 liters of it for sale (much less than the population needs), would that indicate the world has a water shortage? One would argue yes, if you defined supply as "for sale", but no if
differentiated in the way I did.
> Thus price is no longer determined purely by the market supply/demand of the good, but also profit margin of the monopolist.
In fact, the price is "purely determined" by supply/demand in the scenario you gave. The monopolist is using their monopoly position to create artificial scarcity, thus driving up prices. This is consistent with the law of supply and demand.
> would that indicate the world has a water shortage?
Impossible to say without more information. What is happening around the 2L for sale? Are you rejecting the sale based on price (i.e. preventing price from rising), instead selecting who gets it using some non-priced-based mechanism, such as a lottery or first-come, first-served? If yes, then that indicates that there is a shortage. If it is sold using a price-based mechanism, then clearly not. That is a "normally functioning" market.
Once the water is all used up and there is no remaining water supply, where no amount of money can buy more (i.e. preventing from rising), then perhaps you might say that there is a shortage. However, in the real world, absent of some other factor (e.g. price gouging laws), price will keep rising until you are compelled to make more of that water available, so that still wouldn't be a shortage situation.
> In fact, the price is "purely determined" by supply/demand in the scenario you gave. The monopolist is using their monopoly position to create artificial scarcity, thus driving up prices. This is consistent with the law of supply and demand.
Yes, if you look at it from the perspective of only the "supply for sale", then everyone still is a "price taker", so what I said is in full agreement. But if you draw your boundaries to include that additional supply that's hoarded and not for sale, the theory no longer holds. Do you see what I mean now?
In other words, this is entirely a matter of how we define things, and draw our boundaries. How we do that isn't what's important. What is important is that everyone holds the same axioms. For example, we can define 3 means 3 and 3 + 3 = 6, or we can define 3 means 27, and 3 + 3 = 54. But if you think 3 means 3, and someone else thinks 3 means 71, it's hard to have a fruitful conversation as people will be in disagreement. This is why I made the distinction of "supply" and "supply for sale".
So when it comes to building more housing supply, it will never help housing prices no matter how much we build, if that supply which gets built is never for sale. You need to address the issue of what's for sale.
Now you might think this is a silly distinction to make, but it isn't. If the data provided in the top post is any accurate, then there are quite a few more vacant properties than what's listed for sale in many markets, suggesting that needing more supply isn't the core of the problem, but obviously needing more supply for sale is. And IMO, as the top post had earlier mentioned, cheap credit is largely to blame.
> Impossible to say without more information. What is happening around the 2L for sale?
It was just hyperbole to demonstrate a concept. You can of course disagree depending on the circumstances and the axioms you choose, but hopefully you understand the point I was trying to make.
> But if you draw your boundaries to include that additional supply that's hoarded and not for sale, the theory no longer holds. Do you see what I mean now
In the same vein, if we consider the earth to be flat then the law of universal gravitation no longer works. I see what you mean, but I have no idea why anyone would ever want to convey such meaning. Of course you can "invalidate" every law in existence if you completely redefine the conditions under which the law is made, but that's rather nonsensical.
> So when it comes to building more housing supply, it will never help housing prices no matter how much we build, if that supply which gets built is never for sale.
While I am unsure of how this relates to our discussion, I expect you will find that virtually every house is for sale. Sure, there is always a "stubborn old mule", but I'm certain the vast majority of homeowners would not say no to you dropping a billion dollars in front of them.
The biggest trouble is that new construction costs even more than used houses. Nobody is going to purposefully go out of their way to build a home in order to lose money on it. So while building endless new homes would theoretically reduce prices, it would never happen in the real world because who is going to do it? Houses most certainly don't just magically spring out of the ground.
I mean, the reason I convey such a meaning is kind of exactly why we're having this discussion, which is people often have different (hidden/underlying) assumptions (which they take for granted), and conversations don't go anywhere because of it. No one does this intentionally, everyone makes and holds assumptions, but it's important we all hold the same ones if we want to come to an agreement. That's all.
Anyways, as what I meant about building more houses...
You can see elsewhere in this thread that people disagree on whether or not the core issue is that we have a shortage of houses. Some people are holding the assumption that, building more houses will increase the inventory for sale, and therefore help prices. Good old supply/demand. That's a perfectly rational assumption, and I don't necessarily disagree, but like you note, new construction is costly...
Additionally, as data given above (and elsewhere) indicates, housing per capita in 2022 is similar or better than in 2011 for many markets, but as we know, prices (even adjusting for inflation) are higher than 2011. From the theory of supply/demand, this suggests some degree of hoarding is happening, but as to how that is happening is not certain, as people could simply be living with fewer people than the past, or people could be living more or less the same amount people and investors are more of the ones who are buying up new construction. If the latter, then that new built construction might not really be for sale if you get what mean, as investors may simply rent it out or use it as a seasonal. Hence why I said "building more supply won't help if it is never for sale".
Now of course everything is for sale, just a matter of price, but who does cheap credit / inflation help more, people with assets or people without assets? That's right investors. And, given vacancies are higher than inventory for sale, I just have a hard time finding support for the idea that the core issue is that there is insufficient houses and we need to build more. The only reasoning for it seems to be the idea that more supply = lower prices (an idea which falls apart if it is simply hoarded). But of course, that's not to say, that many markets likely do need more supply, just that it doesn't seem to be the fundamental issue.
> Hence why I said "building more supply won't help if it is never for sale".
It doesn't need to be for sale to help with the situation, of course. It still relieves pressure on the demand side. An individual can never afford an infinite number of houses. Even if someone is, as you say, hoarding houses, at some point the last house they build will be the last house they can own and then they drop out of the demand side of the equation.
> who does cheap credit / inflation help more, people with assets or people without assets?
Whomever finds opportunity in it, I suppose. Same as always. Someone sitting on cash assets will be worse off (after all, that's what inflation is: a devaluing of a currency), while someone with no assets can leverage the situation to build real wealth. Even the job market tends to improve in a cheap credit / low inflation environment as businesses use that to chase more labour-requiring opportunities, which is a boon for those who have nothing. There is no one answer here.
It doesn't if it's sitting there, with no one really occupying it, and priced out of the free market's reach. You're assuming a competitive free market is always determining the price here. That's another thing people don't understand, the theory that supply/demand fully determines prices again assumes a perfectly competitive market, which is almost never the case in reality, especially in places of low liquidity. (keep reading if you don't know what I mean).
>An individual can never afford an infinite number of houses
But there is still someone who practically can afford an infinite number of houses - those closely tied to the infinite money printer. Banks are deemed "Too big to fail". Take the SIVB failure for example, yes they failed, but the assets did not and got absorbed by other big banks. Just because those assets changed hands, doesn't really change anything in the grand scheme of things. I mean hell... there's a $25 million dollar estate with a private horse track and an observatory tower near where I live, whom locals are very familiar with, which has been vacant for 25 years ever since it was built. No one has ever lived in it. I happened to meet a greenskeeper at a golf course who happens to maintain it a while back. Who is paying his salary for maintenance? The banks. How can they afford to perpetually maintain those costs? Well, when they struggled like in 2008, they got bailouts, and the assets were never sold at whatever the market would bear. So the banks just sit on it, maintenance costs just get tacked onto the price or onto the banks customers over time, and if shit hits the fan, they'll get absorbed by another bank, and they'll just sit on it until hopefully someday someone will pay the price. It's technically for sale, but if the price is set by the bank and outside what demand for it actually is, its price is not really being determined by a competitive free market.
And that seems the case in a lot of places. I mean Miami has some of the highest vacancy rates in the US, but median price is like $660k, which is also amongst the higher end in the nation. China has 65 million vacancies, and literally multiple ghost cities where there is like a few dozen people living in skyscrapers, but prices are still sky high. There's a Toronto man who owns 30,000 houses. The US has just under ~15 million vacant properties, but housing inventory for sale is ~ 1.2 million.
I mean... I don't disagree that more supply is badly needed in some places, or fixes to zoning, but how does this not look like what the top post mentioned as the core underlying issue: underutilization of housing, and cheap credit creating an asset bubble virtually around the world? It just seems to me we do in fact have supply in many places, it's just no one is really being forced to adhere to the principles of supply/demand, due to cheap credit.
> It doesn't if it's sitting there, with no one really occupying it, and priced out of the free market's reach
It does. Reiterating: Supply and demand, not just supply. When someone builds a house and keeps it for themselves, occupied or not, that is "one less demand" for a different house. Not even banks want to own an infinite number of houses.
> price is not really being determined by a competitive free market.
What difference does that make? Supply and demand says nothing about competitive free markets. Hell, supply and demand is just as applicable to socialist command economies and everything else you can imagine. Supply and demand is even observable in animal populations. It is considered a law, and not in the legal sense, for good reason.
> When someone builds a house and keeps it for themselves, occupied or not, that is "one less demand" for a different house. Not even banks want to own an infinite number of houses
Not necessarily. Are you saying that if I demand to have $1 and keep it for myself, that is 1 less demand I have for different dollars? Seems to me I can still have demand for more dollars. In practice, there may be a point where I don't have demand for more dollars, but I don't see why demand could be unlimited. Are you implying prices have a theoretical maximum? Like $1000000000000000 and once that limit is reached, prices could never go above that?
> What difference does that make? Supply and demand says nothing about competitive free markets. Hell, supply and demand is just as applicable to socialist command economies and everything else you can imagine. Supply and demand is even observable in animal populations. It is considered a law, and not in the legal sense, for good reason
The difference matters when it comes to determining prices. Again, when it comes to prices, the law only holds true under certain conditions: competitive free market conditions. If the economic environment is not a free market, supply and demand are not influential factors when it comes to prices. We already discussed this above. In socialist economic systems, the government typically sets commodity prices regardless of the supply or demand conditions. In which case, if the price set by the socialist economic system (or monopoly) is higher than the price determined by what supply/demand for it really is, it is essentially being hoarded, and thus not for sale.
> Seems to me I can still have demand for more dollars.
Only to the maximum capacity of your ability to fulfill the wishes of other people. A dollar is, after all, an IOU. For someone to willingly give you an IOU, you have to give them something first. While a single dollar may not satisfy you, there is an eventual limit to how much you can meaningfully give. Of course, as IOUs can be traded, the value is also subject to the properties of supply and demand.
> The difference matters when it comes to determining prices.
That's fine. The law of supply and demand isn't some kind of enacting force. It is not a law in the legal sense, if that is where you confusion lies? It is an observational law. The observation does not concern itself with the exact mechanics of how the price is determined, it merely notices the relationship of price as a function of supply and demand.
> the government typically sets commodity prices regardless of the supply or demand conditions.
And you will notice that the law of supply and demand still holds.
> For someone to willingly give you an IOU, you have to give them something first
Not necessarily, someone can just hand me a dollar for nothing in return.
> While a single dollar may not satisfy you, there is an eventual limit to how much you can meaningfully give
Agreed, that limit is what total supply is.
> It is an observational law... it merely notices the relationship between price as a function of supply and demand
Agreed.
> But you will notice that the law of supply and demand still holds. This idea that supply and demand only applies in a competitive free market is completely unfounded
Yes, it still holds from the perspective of what's actually being traded. But notice it's possible to withhold something from being traded. The stuff withheld is not priced according to the law. However, the price of stuff which is still being traded, still is.
> Not necessarily, someone can just hand me a dollar for nothing in return.
Value is certainly subjective. While it is possible you might find someone seeing a dollar as being worthless, just as they might give you a house for nothing in return, I don't expect you will find that to be scalable. If you have a thirst for all the dollars you can get your hands on, you are bound to go thirsty relying on this.
> Agreed, that limit is what total supply is.
There is a limit on supply, but also a limit on demand. That's why we call it "supply and demand", not just "supply". In a "normally functioning" market, demand actors start to drop out of the market as price rises.
In fact, you can see this happening in the housing market. A lot of people can't afford a house, so they are no longer participants in the housing market. They may still wish to own a house, but that's not demand, that's dreaming (or what you might call latent demand).
Hence why a shortage occurs when price is unable to rise. When price is unable to rise, there is no price-based mechanism to see that people leave the market, creating a situation where "demand exceeds supply". Which is why you will typically see alternate mechanisms step in instead, such as a lottery, or offering on the basis of first-come, first-served, to force people out some other way. A medical doctor with an ethical, and often legal, obligation to not allow price to rise is apt to use a needs-based mechanism, serving the patients in most need of care ahead of the richest patients with the common cold. That's certainly not the case in the housing market, though. Price is most definitely able to rise – demonstrably so.
> But notice it's possible to withhold something from being traded.
Of course – at which point it ceases to be supply. Just like, as above, it is possible to withhold on the other side of the transaction, at which point that ceases to be demand. This is exactly what the law of supply and demand describes.
> They may still wish to own a house, but that's not demand, that's dreaming (or what you might call latent demand)
Again this is a matter of where you draw your boundaries. Latent demand is still demand which exists just demand withheld from the market (ie priced out).
>Of course – at which point it ceases to be supply
But it is still supply which exists, just supply which is withheld from the market (ie not supply for sale). This is why I made the point of "supply" and "supply for sale". You're never going to help home prices by building more houses, if what you build is withheld from the market, because, if we use your definition of supply:
> Again this is a matter of where you draw your boundaries.
Just as with the boundaries of what shape the earth is. If you want to consider it flat, good on you. But if you want to talk about the law of universal gravitation, you'd better be prepared to accept that the earth is approximately a sphere (at very least, toroidal). Otherwise you are contradicting yourself.
> Latent demand is still demand which exists just demand withheld from the market (ie priced out).
It exists in the world where the price is lower. It does not exist in the world where the price is higher. That divide is what supply and demand observes.
The law of supply and demand says: When the price of a good or service falls, there tends be less willingness to sell said thing (decrease in supply) and when the price of a good or service rises, there tends to be less willingness to buy said thing (decrease in demand). Likewise, when the price of a good or service rises, there tends to be more willingness to sell said thing (increase in supply) and when the price of a good or service falls, there tends to be more willingness to buy said thing (increase in demand).
That's it. Not exactly groundbreaking. If you've ever stepped outside, even if only in Soviet-era Russia, you probably already reached the same independent observation. Why you think you need a "competitive free market" for that to stand is a head scratcher.
> But it is still supply which exists, just supply which is withheld from the market
It is something that still exists, but it is not supply as the law of supply and demand considers it. If "supply" was all things out there in the world, and equally "demand" every last wish someone has for something, we couldn't talk about supply and demand. It fundamentally could not be a concept. So what is it that you do think we are talking about?
> This is a problem of underutilisation in my view. Too many properties are being used as investments and not as a primary residence.
I've believed for a long time that heavily taxing income from second+ properties, similar to capital gains, would help reduce rent-seeker hoarding, to help free up and reduce the cost of properties for primary-residence owners.
Yes, any government that was serious about addressing this issue would take measures to decrease the incentives for property investment. Instead in most of the countries I mentioned property investment enjoys benefits that other forms of investment don't (tax, leverage, etc).
Personally, I think LVT would be the best approach.
It's not about vacation homes. It's about rentals in generic suburb #5, primarily, but it's also the case that an increasing number of rental properties are being left vacant thanks to "algorithmic collusion" being used to drive up rents:
How is this not a defacto transfer of wealth from renters to owners? Rental supply will go down due to reduced profits, and therefore ultimately rental prices as a whole will go up once a new equilibrium with fewer rentals is reached.
These sorts of suggestions generally seem hugely biased towards buyers at the expense of everyone else.
I don't follow. If you make holding an investment property more expensive than owning, than fewer people will own investment properties, reducing supply and increasing rental prices.
Yes, the investor makes less, but the expected result is less supply so rents are higher, not the same supply but with strictly lower rents.
Renting homes and building and selling homes are two different business.
Higherand higher marginal property taxes for owners of non primary residences disincentivizes owning secondary residences, hence disincentivizes renting, hence decreasing supply of buyers wanting to buy homes.
There will still be first time buyers or people moving, so builders should still have incentivize to build homes, hence supply should not cease to come online just because there are fewer landlords.
We tried subsidizing individual housing and caused the 2008 recession. It's better to let the homes be owned by those who will pay up whether their renter does or does not. A landlord provides a valuable insurance service in some ways.
Thing is, rental buyers really only make out well because they can rent places for more than their purchase/mortgage equivalent. If supply were large enough, I'd think rental rates below the average monthly mortgage payment would be more widespread and tend to make rental property ownership less appealing.
Absolutely agree. Everyone else that replied seems to disagree probably because they are landlords. Which is fairly high in HN. Oh I'M not the problem it's someone / something else.
The reason "not building" is not the issue, is because even brand new homes are being scooped up in investments.
Raise property taxes for all non-occupied, airbnbs, and fuck even rentals, and while it might cause rentals to temporarily go up, housing prices will drop like a brick. Make it unreasonable to rent out a home. Heck make it unreasonable to own a second home unless you're Bill Gates.
Raise property taxes? Those are usually a rounding error in a rental P&L (and it’s tax deductible)
The only way I see out of this mess is to ban ownership of SFH by anyone other than…single families as primary owners. Corporations, foreign owners, secondary homes, etc.
But we need to address other issues too: zoning (make Houston’s approach nationwide) and construction costs.
First two make sense ... rentals is really complex. How long are you willing to hurt those with the least amount of money.
Maybe a home owners break, and a second weaker first rental/vacation home break would match the current approach (and dodge more of the individuals who'd kill the legislation for for your idea. Alternately, a discount for occupied properties.
I was initially thinking corporate owned rentals or anyone with more than 2 properties, but the above seems cleaner.
Housing is such a unique thing that I think it should be treated differently when we talk in terms of 'capitalism', 'public services', etc. Everyone needs a house. Nobody can use more than one house simultaneously. Houses are incredibly expensive, but most of that cost is purely market-driven. Housing is, essentially, a zero-sum game.
The solution is to make the property-as-an-investment a less lucrative perspective by occasionally sabotaging the property value of (but not the ability to safely live in) houses that are not being used to house people.
A few high profile jury nullifications would probably be sufficient, but we gotta be the rational economic agents that the theories think we are and work together on this.
Unless you’re forming your own street gang (or conspiracy in the city planning dept.), my point is that you aren’t meaningfully influencing how risky the investment is either.
I was going to go with "union", but I suppose "gang" does the same thing, just so long as it's a significant percentage of the population, organized and acting with restraint and purpose. Because I agree, a random act here and there wouldn't do the trick.
1000%. I will never get tired of teaching people (it's news to every single one of them!) that at any given time, there are more than 20 empty housing units in the United States for every single homeless person on the street (https://www.self.inc/info/empty-homes/). There is not, nor has there ever been, anything resembling a "housing shortage". We live in a post-scarcity world as far as housing is concerned, and have for centuries. There is absolutely no barrier to housing every single human being beyond greed.
The entire framing of the issue as a false NIMBY/YIMBY dichotomy is a distraction from the reality that there is not and has never been a supply issue. The only issue is artificial demand from speculators who choose to withhold and deny a basic human right in the hope that it might magically raise in value for no reason instead of depreciate like every other asset.
I’m curious about how these empty homes are distributed? Take California for example, where there are 19 empty homes per homeless person according to the link provided. But where are these empty homes in California? If they are disproportionately located in areas far from employment opportunities, then this suggests that we still need to build more housing near employment centers. But if there are plenty of vacancies in areas close to job centers, then this is definitely something that needs to be looked into more closely.
> I will never get tired of teaching people (it's news to every single one of them!) that at any given time, there are more than 20 empty housing units in the United States for every single homeless person on the street
Are you suggesting we deport homeless people from cities with low vacancy rates, to cities with high vacancy rates?
> There is absolutely no barrier to housing every single human being beyond greed.
I suspect your answer to the question above will reveal a barrier.
Red states bus homeless to blue states, then blue states buss them right back until the problem is solved or one of them (the red state) runs out of money.
I don't understand what you mean. Nothing prevents people from moving to Madison. And let's not have any spurious claims that there are no good jobs in Madison: the unemployment rate is significantly lower in WI than in NY.
This is simply not correct once you account for the fact that people do not like to be uprooted from the communities they're part of. We are simply not in a post-scarcity situation for housing, and YIMBYism is essentially correct.
Homelessness is the most visible sign of a much larger systemic problem. For example, it's quite likely that many homes today are overcrowded, and people don't have as much space to live as they desire. This is bad! Not as bad as homelessness, but depending on the specifics still quite bad. The good news is that building vertically permits more private space per person, so we don't just have to accept things getting worse.
Your statement aggregates across cities with different job opportunities and economic outputs. You need to look at specific cities with housing problems, and ask whether building more houses in that specific city would alleviate housing shortages.
If this was true you should be able to build a new house for much less than the asking price for existing houses but unfortunately that is not the case either.
Definitely true. Probably also worth considering that during a speculative boom there is a lot more turnover which will increase the proportion of properties sitting empty while they are on the market (not sure how significant this would be but another example of how a booming market can lead to a decrease in properties used as a permanent residence).
> A lot of houses are empty simply because they are for sale. It's not unusual to take 6 months to sell.
A thought: Disincentivize having them for sale for too long, tax a % of the listing price every year it's on the market. That way gougers get penalized for crazy asking prices and there's some additional negative price pressure.
All that would result in is less transparency. People wouldn't put their house openly for sale anyone and you'd just create informal market places. Or worse people would just hang onto properties and not sell them at all, biasing towards turning houses into rentals.
>Right. (Insurance, too.) It's very expensive to let a house sit vacant.
I'd argue it's not expensive enough since it's frequently done.
EDIT: This has already become a common issue in locations like NYC, big money parked into properties with many commercial and residential units vacant. Better to pass those fees and borrow against artificially inflated value than it is to realize a loss.
EDIT2: I typo'd and meant to say 'pay', not pass those fees. (as a cost of doing business)
Commenting on Walter's comment below:
> I've sold houses before. I hated every day it was sitting there sucking up money.
I understand, my problems are with institutional/large wealth artificially constraining supply.
> As for artificially inflated values, bank lenders are not stupid and are not going to loan against a phony value.
Do correct me if I'm wrong but is it really their problem if they can sell that risk or the gov bails the whole sector out when there's a panic?
How much do you think prices would drop? Sure a lot of supply is now on the market, but for buyers it's "20% down or your sleeping in your corolla".
What about people living in an area temporarily? People who just moved?
Honestly, these ideas come across as you personally being ready to buy but wanting a lower price rather than wanting a more sustainable housing market.
This is 90% of internet suggestions. Lots of people want to buy and don't really think through the second order of their consequences (which largely fall on renters, in the end)
Rent controlled public housing. These could be mass produced and stacked like legos so that rents would be less than 1/3 of UBI. With the addition of municipal broadband there would be plentiful jobs for teleworkers in virtual call centers to provide a back end for no-checkout stores and providing teaching assistance to students using MOOCs.
Are you ”teaching” that because some 2% of housing units are empty we don’t have a shortage? Because I don’t think any of economy, capitalist or not can reasonably obtain 100% use of any resource. 98% is pretty dang efficient and I think is actually a counterpoint to what you’re trying to argue.
It does seem like we run the risk that if we expand building, especially low cost, nearly turn key rentals, that all the excess supply will be mopped up by corporate landlords like Blackerock etc. it’s a twofold advantage to prop up value of existing property portfolio, and rents have been high for so long with so much demand they may be a good return on capital over a very long term.
To counter this may be impossible; there are limits to how small you can build a SFH, and there is only so much land commuting distance from job centers.
Condos and apartments are generally a very bad investment, have huge disadvantages of high fees and lack of green space, so are a poor substitute. It’s sometimes better than renting, but it can swing wildly based on build quality of building, the maintenance, and competence of the board — very hard to evaluate or hedge against versus a SFH where you have autonomy. And in the US we rarely build family focused condos — so few have playrooms or playgrounds or 3 bed room units (outside NYC)
> In my view this is symptomatic of a more fundamental issue - global asset price inflation driven by a broken financial system (i.e. a system being artificially pumped up with cheap credit).
Spot on. You're not alone. For a more thorough and clinical review of how we're f'ed and why see Lyn Alden's "Broken Money".
To your point, ppl are fond to talk about the economy. That's a distraction. It's a false god. Fact: the economic system and the sociopolitical system both side on a foundation. That foundation is the financial system. Full stop.
I live in Portugal and here the situation is outright ridiculous.
1. There are a ridiculous amount of abandoned properties, when I walk the streets of major cities, sometimes more than half of the buildings even in expensive areas are boarded-up.
2. Meanwhile I am afraid of being homeless soon, I lost my job recently, and the unemployment benefit I can receive is literally half of my rent. Thing is, there is no "worse but cheaper" place to move to. I already live in a "0" apartment, with the "0" referring to the number of rooms. The apartment is literally just an empty square with kitchen sink and bathroom stuff. I don't even have my workstation anymore because literally there is no physical place for it inside the apartment.
People are like: "Build more homes". Yet the amount of abandoned properties (by the way, this also include abandoned farmland! Government is upset that there are tons of that, and the result is land with zero management, with wildfires, poachers, drug traffickers...) is greater than the number of families needing.
I'm sorry to recommend you that, but i have experience with homelessness. You have two temporary solutions:
- join a group of squatters (hopefully you already know someone) until you get your bearings. The less ideological ones often squat old industrial properties, or long-abandoned houses (its rough in winter, but in Portugal you should be fine). You might meet some Urbex guys, they're nice and always fine with finding squatters.
- Live in a "big enough" car. You absolutely need to rest on a completely flat surface. I knew someone who got the back seats down and put a wooden plank on it. If you're less than 1.80 and don't move on your sleep, you have a lot of choice (the diagonal is nice), else it might be a bit more expensive.
A very short-term solution is squatting with a close friend, but you shouldn't abuse it too much, it strains relationships.
I recently kayaked a stretch of the Tennessee River, between state parks, and within an hour of paddling I passed both a homeless riverside "tent city" [technically "public camping" on TWRA/state land] and then the most-expensive house for sale in our entire metro area (just around the same peninsula).
These inholdings, both impoverished and not, were each having their respective parties (cheap beer in common) along the lakeside. Titties abounded - "howdy neighbor" - the no-betterness of being "commoners, enjoying this day upon the lake."
Interestingly, the poverty beach camp seemed to be having more fun; but obviously the multi-million $$$ homeowners are in much easier/better situations (likely).
I've lived on and off a semi-rural "squatter" community by ideological choice for around a year [0] (that experience helped _a lot_ later when i was homeless by lack of resources, while i finished my engineering degree), i've probably never had as much fun as i did at the time. Learned juggling, guitar and basic human interactions i had trouble with at the time. We shared alcohol, games and stories with everyone who went to say hello, even cops at the time (it was after César but before 2016)
Did you grow up in Loire-Atlantique..? or how did you discover this community?
I probably couldn't "hack it" out in the wilderness of NAD, but always regret having not joined a hippie co-op (living situation) while in college [I once dated a gal living in one... it was so neat and inexpensive, but she was a sloot].
Close by. I was in Nantes university (UFR) in 2009, failed to get my math bachelor degree in 2012 and took a gap year (i absolutely couldn't stand uni life anymore) where i lived between NDDL and youth camps as a counselor (also was part of "Les petits débrouillards" to teach kids science through experiments, but my expenses were barely covered to be totally honest, so i don't know if i could count this as a job).
In between San Francisco and San Jose, almost every underpass that has any underbrush potentially has a homeless settlement. There was an effort to clear some of these out but I saw several on my last bicycle ride in the area. Pre pandemic there were some on ramps that had tents just off the sidewalk for several hundred yards - it's our modern dystopia. There's a railway right of way near Facebook HQ in Menlo Park that had at least four cars parked way off the road in the brush with tents, and a few miles from Apple HQ there are lots of homeless people living on water/railway right of ways and in underpasses.
You know most of the time, squatters don't hurt anyone, don't make noise as its often an industrial building that's squatted, and are pretty nice communities to live in (there is an alcohol and unprotected sex issue though). Medium to large communities (often once you have children) can be problematic but it isn't the majority in western countries.
I'm not sure if it's the case in your location, but sometimes foreign buyers come in and buy properties they don't expect to inhabit (unless something goes really bad in their country). Europe and the US have strong rule of law systems that prevent the state from just taking property. (The government charging you with a bogus criminal charge to justify taking their property in in their home country). It's also an asset that they can hold, even if it's not income generating, and even if it loses some value. (Because it's still better than most of the assets they have access to in their country). This is not always the case in every situation, but it's common. (Ed. as one person pointed out below, there is also a lot of money laundering that takes place. In that case, the property does not need to make any income).
Blaming foreigners is the trick local politicians love to use, but - at least in Portugal - very few properties are foreign-owned. Instead, people are reluctant to rent properties out in general. Real estate agents struggle to convince owners to put their properties on the market in a first place. Usually a family member dies or moves abroad and their relatives simply keep the place unoccupied. Often to convince them to rent out you have to play a match-making game: you have to know both lenders and prospective tenants for years and be a guarantor of their good character. The more contacts the two parties have in common the better. Portuguese society is very socially conservative, often connections matter a lot more than money, and rent market is one area of the economy where it is very noticeable.
To sidestep the whole "can we trust each other?" issue the owners may want to sell the property instead of dealing with tenants. Properties go to the market at inflated prices, because every house owner in the country hopes to sell to mythical "rich foreigners"* they hear so much on TV and online. Local buyers are essentially priced out of the market because the price-wage gap is simply too wide, one of the widest in the world. An average Portuguese family with two incomes can't afford a two-bedroom apartment even at a 30-year mortgage, even if we're talking about cities other than Lisbon or Porto.
So, properties stay listed for sale for years and years, owners do not maintain them in hopes of making a sale "soon", and buildings slowly degrade. Eventually owners realize they need to invest a lot of money to keep the house presentable, the money they usually don't have, and they start to lower the price way down. As a result, the market is split in two big distinct categories: something livable at exorbitant prices and places that need a lot of investment to even start living there. Like a GP comment said you can walk on a street and more than half of places are clearly unoccupied, with many of them slowly turning into ruins. If you want to describe a Portuguese urban landscape in one word the word would be "decay".
Meanwhile rent marked is under-served. All this is further worsened by the internal migration pressure. Lisbon, Porto and all towns on a narrow shore strip between the two are growing rapidly in past 30 years while the interior areas are getting deserted. Portuguese move to places where jobs are and developers can't meet the evergrowing demand.
*I recall I saw a stat that foreigner buyers account for only about 0.2% of sales each year.
As I said, it's not always the case. But in some cities there are shuttered properties, in sometimes prime locations, that are held by non-residents. In some places, like London, it's literally a money laundering who's who. Carrying costs discourage just holding on to property. (I don't know if Portugal has taxes on real property). Increase the carrying costs and the incentive is to rent or sell. That being said, you can't do much about the location of the mountains or the sea.
Portugal had a golden visa program that granted citzenship if you bought real state of at least 500k EUR. That drove home prices up signficantly in Lisbon, specailly units in that price range.
Under new law, the Portuguese Golden Visa no longer provides Residency status through Real Estate investments.
The golden visas were issued in relatively small numbers, I doubt they affect price much vs all the short term rentals like Airbnb combined with explosive popularity of Portugal.
The number of golden visas may be relatively small to affect prices on themselves (around 20.000 for Portugal in the last ~10y [1]). But I would bet that there is a connection between golden visas and the rise in the numbers of AirBnB properties.
The golden visa is just a fast and convenient way to get a foothold in the country and do further investments. And what would these investments be? Probably AirBnBs...
This is supported by data presented in [1]: >90% of golden visa holders acquired it via real estate investments. Now, would anyone pour their life's savings in a single property investment in a far away land? I would say no. So these golden visa holders are probably very well-off and they will continue "investing" in real estate, and expecting returns on their investment. Which translates to more AirBnBs.
They also have to remove that "golden visa" in Spain due to the same problem. I wonder if Italy, Greece, and Malta will also remove/reform their law due to the same problem...
I live on a sleepy street that's half dense housing and half single family homes. Density will likely take over more than half of the street some day because the city has been relegating more dense housing to the working class areas of the city, which is where I happen to live. [1]
Of those single family homes there is one that was owner-occupied for a year when we moved in. Since, it's been locked up and has had no renters. The couple that own it own several properties across my city, which I came to know as I got to know one of the owners while they lived here. It perplexes me, and the rest of our neighborhood, how someone can float a mortgage, much less an investment mortgage, without a renter. My owner-occupied mortgage costs me somewhere around $2600/m, I can't fathom paying two with one at a higher interest rate. Apparently this situation is common around my city.
On the other hand, and a bit non-sequitur, is two homes will likely become dense housing. They're foreclosures of properties that were inhabited by meth addicts. The whole property from the building to the soil will need to be removed for various reasons. At auction the properties were purchased for the average sale price of a home of that size that had no pre-existing issues. It won't be the kind of housing people need though, if I'm a betting man; my city has plenty of SROs (single room occupancy) but they're at the wrong price point. They're now called "lofts" and "studios" with a price tag to match. What will be lost is two 50+ year old homes, and likely the ability of our street to tolerate the traffic it was designed for as another issue is the city not investing in road-building and maintenance on our street.
> It perplexes me, and the rest of our neighborhood, how someone can float a mortgage, much less an investment mortgage, without a renter.
In the USA it is happening all the time because, surprisingly, landlords have little skin in the the game. LLC is the name of the game. Each investment property is "owned" by its own LLC that bares 100% of risks and liabilities associated with the property and shields the landlord from the creditors. The property is financed entirely through commercial loans from the banks or other lenders. If the property does not generate enough profits for the landlord they quietly take all the liquid assets out of the LLC and stop paying their loan and property taxes. It takes long time (often years) for banks and local governments to start legal proceedings against the said LLC. During this period of time the property is sitting there boarded up. Finally the LLC files chapter 7 -- liquidation and all its assets, close to zero at that time, are given to the creditors.
You may ask why the banks give loans to such high risk entities? First of all, if the property is bringing profits the loans are being paid of and it is the majority of the cases. Secondly, if the loan fails the banks do not have much skin in the game either. They slice and dice the loans and package them into "real estate investment vehicles". Then they sell the packages similarly to how they did it before the financial crisis of 2008. The terms and abbreviations are different now but the gist of it is still the same.
Landlords have 100% risk. Look what happened to California, when the state said tenants did not have to pay rent. Same for Washington, NY, IL, etc... The vast majority of people with rental properties are just regular people trying to make a living.
My landlords have basically frozen rent since 2010. I pay half of what the people in the houses around me do. I'm very thankful to have landlords that aren't greedy.
You because you didn’t have to come out of pocket the high cost of a down payment, handle maintenance costs, deal with the risk of mortgage default if you lost your income, deal with the possibility (and thus hold insurance for) of liability if someone is injured and sues, or lose out on the opportunity cost of money spent on the house versus what else that money could have purchased. To say nothing of you don’t know what their interest rates are, how property taxes or cost of home owners insurance may have changed (in the U.S. your escrow payments change often if taxes and insurance change) or how liquid the house is (ie could they sell if they needed to and at what discount to the market value).
Oh, and don’t forget that they’re paying interest on the mortgage and that - when adjusted for inflation - the actual increase in value versus what they’ve paid in in mortgage interest over the years is probably far less than the non adjusted gains it looks like.
It’s pretty easy to demonize owner landlords when you’ve always been a renter because you think only about a monthly payment. I’m not going to tell you that’s it’s a relative luxury to be fixated on one simple payment each month, but it’s also not the case that owning a home as an individual is some kind of pot of gold.
An owner that values their tenant and keeps their rent flat isn’t a saint. But they’re also doing a good thing in a time when they could be - by account of this thread - exploiting people for as much as possible. We don’t need to order them a parade, but it might be worth broadening your understanding of what the cost of a home is before you blanket assume they’re worthy of scorn.
Seems like I struck a nerve in some way? It's 2024 and you can call a man a dog to his face or even stomp on his blue suede shoes, but as soon as an argument has a walletary impact, the response is swift and lethal.
Maintenance is just not an argument. Unless you choose – yes choose – to rent to destructive tenants, or in other ways are irresponsible with your property, maintenance cost is a tiny fraction of what you get from rent. The same for insurance, taxes, etc that you list. Nobody is unaware of these costs.
With that said, I'm not demonizing over these landlords. I'm sure they're fine people and could be worse like you say.
A renter should not be any more grateful to the landlord than a worker should be grateful to the shareholder for paying their salary. It is an exchange. I do think it is better when homeowners at least rent out their property instead of just letting it rot abandoned like many choose. The most decent thing of course would be for them to sell property they don't need and we wouldn't be living in this dystopia from the beginning.
The youth of the industrialized nations are vanishing on a grander scale than ever seen - for petty gains to a few. And those gains will be short lived when the economy folds in on itself due to the impossibility for productive people to have a home. In the end you cannot have an extremely highly skilled workforce that is needed to sustain a modern economy, while at the same time keeping them dumbed down enough to accept total life long exploitation and their own genetical extermination.
> A renter should not be any more grateful to the landlord than a worker should be grateful to the shareholder for paying their salary. It is an exchange.
All true, but there can be a lot of "quality of life" variance in how that exchange is implemented in practice. I've been a tenant a couple of times and now had a couple of tenants myself. Landlords can make things more or less difficult while offering the same agreement, and tenants can make things more or less difficult while complying fully with the same agreement.
I'm grateful whenever someone chooses to do better than the bare minimum required by the agreement. If anyone reading this takes good faith for granted, I urge you to at least read horror stories on reddit.
If their fixed costs are low, the tenant could be making more through investments after staying in the same house for 15 years.
Buying makes a ton of sense if you're going to live somewhere for a long time of course, but if you start out not sure and you have a nice landlord that doesn't take advantage of you with perpetual rent increases every year, then it can make sense to ride it out and invest your "inflated" income every year instead. By the time the tenant moves out, they have a nice portfolio to leverage for a new property and the landlord has gotten a decent return on their investment with a stable tenant.
In this scenario, it seems to me that main driver of disparity in our society is landlords' push to always increase rent even when the mortgage is being paid 2x or 3x over each month, just because it's allowed.
I'm not saying we need rent controls necessarily as a way to fix the problem, but that is one problem that rent control solves. Perhaps paired with some other scheme (3% max increase per year for first 5 years of renting, then capped at 1%?) we could find a more equitable way to account for inflation of repair costs while not screwing tenants with "forced" moves every few years when the rent becomes unaffordable.
Where can we find stats on this? Lots of claims in this thread feel good but don't point to number-sources.
I do know a few retirees who rent-out the home they raised their family in and live in a new primary. But my town also has some developers who build and rent.
Non-sequitur to this but VA loans do. That said, VA loans are watched like a hawk for this. It's considered fraud if the loan is not on your primary residence and you cannot rent any portion of it.
> how someone can float a mortgage, much less an investment mortgage, without a renter.
They probably have an owner-occupied residential mortgage that the bank (/note purchaser) hasn't called them on. Declaring that you're residing in one unit (either falsely or temporarily) seems to be a pretty popular technique for buying rental real estate. If the mortgage was taken out during the past two decades of ZIRP, then the rate is still fixed at something very low and most of that monthly payment they're "floating" is effectively just going towards the principle as a mandatory savings account.
> It perplexes me, and the rest of our neighborhood, how someone can float a mortgage, much less an investment mortgage, without a renter.
This may easier to explain than you might expect. Anecdotally, the people I know in a similar position own all those properties free and clear, there is no mortgage. Consequently, the carrying costs of that empty house are quite low and easily afforded. Also if the mortgage is very old. I know someone with a single-family home in Silicon Valley they don't live in with a mortgage of ~$1000 per month; you can imagine how low the property tax bill must be.
While I am sure there are people with several rental properties mortgaged to the hilt, I don't think it is that common.
I think the answer to your perplexity lies somewhere buried here:
> The couple that own it own several properties across my city
Without knowing which city you’re talking about I can assure you this is rather common.
The moment a property becomes just one out of many (assets) in your portfolio your necessity to let becomes a mere annoyance.
Many of the housing market imperfections could be at play here, but it certainly doesn’t help that renters are increasingly unable to afford to become first time buyers.
>> The couple that own it own several properties across my city
There always seems to be this common thread running through these discussions, but few want to address it. It's just build build build, moar moar moar. The problem isn't that there aren't enough homes. The problem is that so many homes are owned by so few people/entities and are often vacant. We shouldn't allow people (often foreign investors or private equity firms) to buy a home, leave it vacant, and sit on it as an investment as if it were a bar of gold or something.
>and likely the ability of our street to tolerate the traffic it was designed for as another issue is the city not investing in road-building and maintenance on our street.
To be fair, the vast majority of cities need to be investing in non-car transit more than auto infrastructure. Yes, probably even Portland.
Instead of squatting people been sharing rent. In one infamous case a house that was shared between 20+ people burned down and killed 2 and sent 14 to hospital.
The empty properties are they owned or rented? If they are rented, are the tenants paying rent but just not using them? If they are owned, are the owners people who just used them for passive investment and don't rent them out?
Otherwise I don't understand how rents can be so high?
If there are places owned that aren't in use then the political solution seems pretty easy: tax property ownership massively when unused. Make unannounced visits to properties to see if the owners claim of having a property that's lived in is true.
I don't understand. Does Portugal not allow squatting? How can there be vacant land that no one wants? Surely someone would just go squat and make money living off of it.
Portugal has started offering financial incentives for restoring properties, but I'm surprised this is a factor in Major cities, which ones do you see this? Is it also an issue in Lisbon?
Lisbon is where the issue is the worst of all. When I had a job, I had to choose the office where I would work. I deliberately avoided the Lisbon office because I knew there was no realistic chance I would find a place to live there with my family with Portuguese wages.
Not OP, and not living in Lisbon, but yes, it did strike me as odd to see so many buildings boarded-up when I was visiting there 2 years ago. Even in what looked like "prime" locations.
That's crazy then. There are incentives to investors who renovate vacant properties, but high demand areas, such as Lisbon, are excluded. Crazy that there would be so many unused buildings - I wonder if anyone is sitting on them waiting for the land-value to go up, or just setting a high sale-price and waiting for it to sell. I would think getting them vacated should be the most profitable, but alas.
6-7 years ago there was A LOT of vacant or derelict properties (like, close to 50% maybe). Ever since real estate price started going up in Portugal, Lisbon has been full steam into renovating. At one point I could count 47 cranes just from my balcony in Lisbon center. It just takes at least 10 years to refurbish 50% of buildings in a city.
The reason there were so many derelict properties was a law in Portugal that prevented landlords to increase rent unless tenants were moving. Some tenant who had been renting for decades paid less than $100/mo. No wonder why landlords had no incentive to fix this. This has now changed, I think?
> Crazy that there would be so many unused buildings - I wonder if anyone is sitting on them waiting for the land-value to go up, or just setting a high sale-price and waiting for it to sell.
It's certainly a combination of various factors.
The low borrowing costs of the 2010s combined with high inflation make it a no-brainer to hang onto these properties. Figure, someone bought one of these properties for US$500k at 4% interest in 2015, after 10 years, that property is probably worth US$1.3-1.4MM and is growing at well over US$100k each year, while the 15 year mortgage payments amount to amount to only US$45k a year, plus property taxes.
So yeah, these buildings make serious money even left empty.
It's unlikely that taxing these properties is going to force people to sell. Housing inflation is so high that taxes would have to be oppressive (six figures a year) and that's a hard to get legislators behind (most of whom are participants in this problem).
For foreign investors, these properties are basically insurance policies. If they are forced to flee their home country, they'll land in a somewhat stable western democracy with enough capital to land comfortably on their feet. So there is a proportion of people who would make this investment even if it lost them money.
There's also the problem of shell games obscuring ownership to the point that nobody really knows who owns the property. So long as the taxes are paid out of an anonymous escrow account, the government isn't going to care about them.
The problem is lack of supply vs demand. In 2022,England and Wales:
- built 254000 homes[0]
- had 745,000 people immigrate (net)[1]
- had 600000 people turn 21[2]
- had 577160 people die[3]
If you gain a load of people, far more than you increased dwellings for, prices will go up and dwelling size will go down. It's not particularly complicated.
My point elsewhere in this thread is a that demand is not entirely a function of demand for homes (what I would call 'natural' demand). Finance and tax incentives play a large part too - encouraging demand for investment properties that are often not used as homes (what I would call 'artificial' demand).
This is not to say that addressing supply through more building is not helpful, just that there are other things to consider that may not require as much effort and can have broader economic benefits (e.g. changes to the tax system to encourage productive rather than unproductive investment, credit guidance, etc).
> demand for investment properties that are often not used as homes
Could you elaborate? How often is "often" in the context of the whole country?
> This is not to say that addressing supply through more building is not helpful, just that there are other things to consider that may not require as much effort and can have broader economic benefits (e.g. changes to the tax system to encourage productive rather than unproductive investment, credit guidance, etc).
If the UK is gaining enough people to require multiple cities the size of Oxford to be built each year to accommodate them, it would be surprising to find that the main issue is people are replacing houses with other buildings.
> Could you elaborate? How often is "often" in the context of the whole country?
According to this document (https://www.oecd.org/els/family/HM1-1-Housing-stock-and-cons...) 10% of dwellings in the US are 'vacant dwellings and seasonal/holiday homes'. In other words these are not owner-occupied - and what I would classify as investment properties. Now these are not all the investment properties, obviously. There are many investment properties that are permanently tenanted.
Assuming that about 65% of homes in the US are owner-occupied, then we should be able to assume that the remaining are investment properties (remember I include holiday and second homes here). That means about 30% of investment properties are not used as homes (i.e. the 10% mentioned earlier).
Investors are removing a lot of dwellings from the permanent housing stock.
It is worth keeping in mind that when you hear references to a 2% or 3% vacancy rate, this usually means the percentage of dwellings in the permanent rental market that are currently vacant - not the percentage of total dwellings that are vacant.
I think that's part of it - houses are chopped up into two flats, or are registered as HMO[0]s, so more people are living in the same space. That's what I meant by "dwelling size will go down", above. This also drives up prices, as two flats will sell for more than one house would've, given the current lack of supply.
Both are band aids for the real problem. Housing can't both be an investment and a basic need. You need to pick one or find an opinionated middle ground.
If housing is an investment, then remove all protections and open up the supply. No height regulations, no minum parking regulations, no mandatory HOAs. No moratoriams or legal protections when loans default.
If housing is a need, then regulate it like a limited resource. Ration it on the lower end. Ban hoarding (vacancies, empty plots). Limited access to repeat consumers.
When the powerful talk about "finding balance", they usually mean having their cake (earn like an investment) and eat it too (protected like a need).
IMO, Georgism strikes the best opinionated middleground of housing as an investment vs housing as a need. Grounding taxation in land's economic value regulates hoarding. Grounding the value of land in its economic outcomes makes it a transparent investment, rather than the cartelized asset that it is today.
I'm personally opposed to too-much-regulation. It always ends up being a tool for the powerful. Rent control, Prop 13, affordable housing, stacks-of-paperwork and similar regulations always do more harm than good.
You don't have to remove the sensible regulations. You need to make enforcement of regulations and the approval process easy, low risk, fast, and cheap - instead of the typical multi-month (or year) bog down that most planning departments in major cities turn into. Removing things like natural spaces, parking, fire safety, and all the other stuff that city planners enforce to keep a city livable is not going to help in any long run situation.
Why is there not more funding for those departments to make approval/revisions a breeze and make building lower risk and cheaper for construction companies? Welp - home owners (and big construction/investment companies) are the ones who vote. I expect politicians know exactly what they're doing, keeping things a complicated swamp.
But without some sort of governing regulation, I fail to see how anyone benefits in the long run with the tragedy of the commons that would ensue.
> Housing can't both be an investment and a basic need.
Yes it can, and it was for large chunks of the 20th century. Imputed rent can have high yields and therefore imply good "investment" income for households with long term stable housing demand.
My theoretical point that high rental yields can imply houses are a good asset to own without price spirals stands regardless of time period.
The 20th century is relevant because it had long periods of time where homes could be bought at high rental yields because there was lots of new construction in the USA.
I think the general premise is housing can't both be so cheap that people with nearly no net worth can get it, but so valuable that it can serve as a substitute for retirement savings. This is from first principles true, but it's really only a problem in urban areas: my pet theory is that spiking demand for urban housing is driving 100% of this. Americans used to move far more than they do now [move], even when you factor in the pandemic, and they used to be more comfortable living in all kinds of different places, but now people move to cities and stay put. This is for all kinds of reasons, all under the category "it sucks not to live in a city for almost everyone". Economic opportunity is way, way lower [econ]. Racism, misogyny, homo/transphobia, hyper religiosity, and lack of diversity are huge problems. Urban schools dramatically outperform rural schools [schools]. Health care is harder to get [health care]. I think the data bear me out here; in particular general homeownership rates are basically what they were in 1963 [homeownership], but urban homeownership rates are way below the average [urban homeownership].
There are some signs that this trend is reversing, but I think that was entirely a pandemic phenomenon. Big numbers of Americans regret their pandemic moves [regrets], so I think the environment hasn't actually changed.
It's hard to see where this goes. Most other places solve this by becoming very very dense (Hong Kong) or building great mass transit (Tokyo). It really seems like the US won't do either of those things--maaaaaaybe NYC will but that would be all. I tentatively predict that we have to wait for most of the Boomers to die and leave their wealth/houses to Millennials before we know if this is a bona-fide societal crisis or not: if enough Millennials get what they want this way it'll take the oomph out of any kind of policy change (probably reverse the momentum actually--if anyone thinks Millennials will be any better than Boomers they're super mistaken).
But, neither outcome is really good. On the one hand you have the daunting prospect of a dramatic economic reorganization of the most powerful nation on Earth. On the other you have the calcification of the most powerful nation on Earth into something fundamentally unequal, illiberal and corrupt.
What part of Georgism is Anarcho-capitalism ? It is merely a way to reason about land and taxation.
For a country with near-zero historic buildings, the US has some of the most suffocating housing regulations. Making the regulations easier to navigate does not make it anarcho-capitalism.
The US housing crisis is an urban problem. Take California for example. Prop 13 handles land-taxation, which lets you pay pennies on prime real eastate. The Bay-area is the world's tech capital and has the world's most expensive real-estate. Yet you'd struggle to see an 5-floor+ building outside of a small pocket in down-town SF & SJ. Nimbys have practically outlawed any building by exploiting environmental regulations. The troubles associated with the new Apple Campus and the SJ downtown transit extension are recent examples among many.
In the above examples, housing of those who have it, is being protected by the laws as if it is a need. However, it explicitly prices-out those without housing through the same means. The individuals who protect their housing, do so to protect an investment. To me, taking away the ability of NIMBYs to project power outside their own walls limits exclusionary regulation. And standardizing taxation by land value generates the kind of fair-market pressure that keeps supply coming.
Now yes, it fully embraces housings as an investment, and it will inevtiably comes with it's fair share of problems. But first, investments come with well-understood regulations to avoid abuse (cartelization, hoarding). And second, I can't imagine how it would be anywhere close to how bad things are now.
If you have a better solution, then I'm all ears. But, at least don't be condescending if you aren't willing to engage.
> What part of Georgism is Anarcho-capitalism ? It is merely a way to reason about land and taxation.
Sure, but that's not what you espoused. You mentioned it as the best opinionated middle ground, but ultimately concluded, too much regulation was bad--Georgism involves far more regulation than we currently have. Note that Georgism isn't just about land.
> Making the regulations easier to navigate does not make it anarcho-capitalism.
Sure, but "making regulations easier to navigate" is quite a bit different from listing every current regulation you can think of and saying they are the cause of our current problems.
Even if we charitably assume you're genuinely proposing Georgism as the end goal, that's a complicated ideology to implement. What are the steps to get there? It seems like your only concrete solution is to get rid of the too-much-regulation examples you mentioned--the few weak protections we have--and vaguely "implement Georgism". Whether you intend it as such or not, that's a motte-and-bailey fallacy: the end result of this plan is simply to get rid of regulation and then fail to implement Georgism.
I don't share your optimism that land value tax cannot simply be passed on to renters. Closing that massive loophole involves implementing the rest of Georgism, which I'm not convinced you know exists since you've failed to mention it entirely. And ultimately, I am not convinced that loophole is possible to close.
And then there's the separate problem of accurately valuing land in order to tax it.
> The US housing crisis is an urban problem.
No, it's not. Homeless flock to urban areas because it's easier to survive without a home in an urban area, and small-town/suburban cops have a lot more ability to just imprison all the homeless they encounter under some pretext. But a lack of affordable housing in suburban and rural areas is absolutely a cause of homelessness just as much as a lack of housing in urban areas is. If anything, the lack of employment opportunities in suburban/rural areas creates more housing insecurity.
> In the above examples, housing of those who have it, is being protected by the laws as if it is a need.
Is it? I don't think so, and you conveniently talked around zoning laws which are more obviously treating housing as an investment and not a basic need.
These laws presuppose that housing as an investment is a reasonable thing. I suppose that assumption doesn't mutually exclude housing as a basic need, but the laws you mention completely lack the sorts of protections with real effect that regulate investors in other basic needs. If your water company or electric company fail to provide service, they get fined--who gets fined for failing to provide housing? When food supplies became insecure, we subsidized farming at a level that creates a permanent excess of food: who are we subsidizing to create a permanent excess of housing?
> If you have a better solution, then I'm all ears.
Well, housing is a basic need. You keep dropping phrasing like "if housing is a basic need" or "as if it is a basic need", but the statement "Housing is a basic human need" surely is not under debate? So maybe we treat things the way they are. There's no need for an "opinionated middle ground"--there are not two sides to this coin: housing is a basic need. I do not care about investors in housing: people withholding people's basic needs to collect rent are a blight and should be treated as such.
No one should be able to own houses they do not live in. I have no objection to simply giving landlords a year to sell off their rental properties, but realistically this sort of regulation is hard enough to pass without cutting the oligarchy out of their pound of flesh, so some sort of compromise that reimburses landlords somewhat is a reasonable compromise if we can solve homelessness permanently.
The crux is that people can agree that "housing is a basic need" without agreeing that "no one should be able to own houses they do not live in".
Even the most well-intentioned attempts to implement this will probably be more harm than good. There will always be enough loopholes to create many of the same problems while the added restrictions can introduce other problems of their own.
Some people cannot afford to buy, and some would not buy even if they could, preferring flexibility or a different kind of market exposure. For them to have a place to rent, someone else -- be that a company, family, or individual -- has to own a place they don't live in so they can rent it out. There will always be a need for this, you can't just ban it.
Aside: Don't tell me you want state-built housing projects. People seem to forget that the USA already tried that. Even in Russia and China virtually anyone who can afford to move to private housing does and never looks back.
Australia's state housing projects may have kept some people off the streets but have not prevented runaway housing prices for everyone else. One could argue they took up valuable land that could have helped with the supply side.
It's not "anarcho-capitalist" to recognize that many laws and regulations have had paradoxical effects once implemented. Even the most die-hard planned economy maximalist has to acknowledge that the plan can function differently in practice to how it was imagined by the committee. History is full of examples of well-intentioned plans functioning far worse for both the collective and the individual.
...and crashing housing prices drastically would solve this.
> and some would not buy even if they could, preferring flexibility or a different kind of market exposure.
A lack of flexibility in home ownership means a lack of liquidity in the market. A more liquid market is the solution here, not rent.
Paying rent is not market exposure. It's explicitly excluding renters from any market appreciation. No one chooses to rent so they can "gain exposure" to monetary loss. This is an absurd argument.
> Aside: Don't tell me you want state-built housing projects. People seem to forget that the USA already tried that.
People who hate government housing love to point to urban projects built in primarily black neighborhoods before the civil rights movement, and conveniently forget that postwar housing programs built much nicer housing in primarily white neighborhoods. I grew up in one such house.
> Even in Russia and China virtually anyone who can afford to move to private housing does and never looks back.
Imagine seeing people who would otherwise be homeless become stable enough to move into nicer private homes and seeing that as a failure of public housing.
My guy, people are sleeping on cardboard outside in 10 degree weather here. Grow a sense of perspective. Yes, I also support improving quality of housing, but if your criticism is that my solution doesn't result in perfect housing, I'll point out that your opposition to all real solutions doesn't result in housing.
> Australia's state housing projects may have kept some people off the streets but have not prevented runaway housing prices for everyone else.
Sorry, what was that first part?
Australia's state housing projects couldn't meet the demands of investor greed, because corporate greed is limitless. It should be unsurprising that as long as investment is allowed in housing, housing can't be cheap.
> It's not "anarcho-capitalist" to recognize that many laws and regulations have had paradoxical effects once implemented.
True. It becomes anarcho-capitalist when you see the complexity of regulation and use it as an excuse to oppose any and all regulation.
> History is full of examples of well-intentioned plans functioning far worse for both the collective and the individual.
History is also full of examples of well-intentioned plans functioning quite well. You like working no more than 40 hours a week? You like that your boss can't lock you in your office and let you burn to death if the place catches fire? You like that your food has to be inspected for foodborne illness?
Many of the regulations we have were written in blood and there are many people still suffering because regulations have not yet been written. Your free market ideology brought us sweatshops, cars that explode when rear-ended, paychecks paid in company store credit, black lung disease, prison slavery, Chromium-related cancer clusters, opiods, microplastics, kitchen grease fires--the list is endless, and in every one of these cases people knew what they were doing was harmful, did it anyway, and walked away with the profits of, in some of these cases, literal murder, because people like you are too blinded by ideology to prioritize human lives over freedom of the market and regulate before untrustworthy corporations cause harms that they obviously will.
e: if you don't agree with my idea, please comment why instead of down voting.
--
> Housing can't both be an investment and a basic need.
Housing as investment is a beautiful solution to how many people fail to properly save for retirement. For many people entering retirement, their home is a huge part of the investment portfolio, because they always made sure to make that payment.
If properties didn't appreciate, old people would not have the assets to retire on, then what?
Not exactly sure what you're implying, but I'm assuming you're saying that Grandma moves in with you and now you can't afford to have kids and take care of grandma (which is the current situation of several of my friends).
ah, my hypothesis there is the younger generations will think they are getting their parent's house, but for many families, mom & dad will sell their house to pay for long term care facilities when they can't take care of themselves or walk up the stairs, leaving the kids with nothing.
Families have 1.9 children in the US, so all children inheriting suburban middle class homes from their dying parents is already off the table unless their parents divorced and or have some other reason to own two homes.
Let's say half of families divorce. But we then factor in your "long term care costs" and the liens those people will have requiring home sales rather than gifting and we're probably right back at half (at best) of kids possibly inheriting housing when they're in their 60s and their parents kick the bucket.
How is restricting supply not a problem? The fewer houses there are to buy, the higher prices will get, because there are more people competing for less.
Because the U.S. doesn't actually have a supply problem, despite this often getting repeated.
U.S. construction of homes has actually kept up with population growth and moves, by every conceivable metric.
What IS happening though is that landlords (private and corporate) "warehouse" units constantly to artificially restrict supply and demand, and they do it in collaboration with each other.
Every single city and state in the U.S. has a vacancy problem. We DO have both houses and apartments that are ready and able to be rented and owned.
The problem is simply the price, and the prices aren't being driven by legitimate supply and demand.
You can see this effect happen where prices increase NOT to match population (and often in SPITE of it), but they increase to match the upper bounds of regional income.
You need a place to live more than landlords need a few months of rent. This strategy to prevent downward price pressure from the market allows them to justify the current prices while setting up a "baseline" for the next few years.
Unless I’m misreading, the first two references support the idea that vacancy rates are too low but don’t comment on why.
The last reference indeed argues in favor of too much financialization of housing units but that blog is also tripping a lot of my crackpot alarms.
Can you succinctly explain why you believe the low vacancy rates in major metros (which I think we agree is the cause of high rents / purchase costs) are caused primarily by units which are intentionally held empty despite demand?
In partial defense of your assertion, the FRED data does show that 1/4 to 1/3 of vacant units are for sale or rent at any given time.
Total vacancy rate seems to hover around 10%? Rentable and buyable unit rates are an order of magnitude lower.
I’m not convinced that the Fed owning a bunch of mortgages is evidence that private companies bought homes and aren’t renting them. Wasn’t that a bail out to prevent people from losing their homes (because the companies owning the homes weren’t solvent and I guess if the company fails maybe you get foreclosed? I’m not sure why we did things the way we did in 08)
Could not the explanation also be that a lot of homes are in places that lack demand and therefore the owners don’t bother putting them up for sale or rent?
I copy-pasted this comment to my friend, who's the chief economist at a major real estate company you've heard of. Here's their response, verbatim:
> "Bullshit. It's not population that matters it's household formation. Millennials are the biggest generation and they are at the age now where they are forming their own households and there isn't any housing for them near jobs. Vacancies are all in dying rust belt towns no one wants to live in. California absolutely does not have a vacancy problem. That's just a lie."
This aligns with my (admittedly less-informed) knowledge as well.
Your assertion that "every city" has a vacancy problem is particularly mystifying to me. I live in Seattle, and there does not seem to be a residential vacancy problem of any kind. Some quick Googling shows "a homeowner vacancy rate of 1.0% and a rental vacancy rate of 2.5%." That does not sound like a vacancy problem to me. Quite the opposite. Very, very, very few homes are available for sale, even as the city's population explodes.
I also did a quick and unbiased Google search of "population growth vs housing supply." Here's what came up immediately: "In 2023, the U.S. saw 1.67 million household formations, resulting in 17.2 million household formations between 2012 and 2023. In this time period, 14.7 million housing units were started, and 13.4 million were completed." So again, household formation is outpacing housing supply, which results in more competition and thus higher prices.
Both your comment and the links you included (which I perused) seem less like they're concerned with fixing housing affordability, and more like they have an axe to grind against landlords and the wealthy in general.
Let's see the data then. Other than some "trust me bro" comment. Not sure why you expect me to engage with vague assertions of authority, especially when "he" started out emotionally unstable.
EDIT:
You heavily edited your comment. The stats you are referencing do not say what you think they say, they are not a force for increasing prices. There are already houses that were previously built, they do exist.
You made the vague assertion that "[e]very single city and state in the U.S. has a vacancy problem." You provided zero data to support that statement, or anything remotely close to that statement. I quoted data in my comment that directly refutes that, by showing very low vacancy rates in Seattle.
So you are the one who needs to provide data, otherwise you're spreading misinformation and not helping the problem.
I see you are choosing to be dishonest. You heavily edited your comment. It grew in size by ~85%.
And again, you quoted data but it is not asserting what you think it is. Look at what the data is telling you. It is a delta over a specific time period. It is not making the assertion you think it is.
>So you are the one who needs to provide data.
I provided 3 different links that go over this in pretty good detail.
Respectfully you've demonstrated you are not going to approach this in a constructive manner or in good-faith, so I won't be engaging with you past this comment.
What's one piece of data from your links that supports your assertion that "[e]very single city and state in the U.S. has a vacancy problem"?
There isn't any.
I'm not sure what your motives are. But your claim about vacancy problems is false, and your lack of desire to correct that misinformation leads me to question your motives.
What if the people building the houses are incentivized to build large, expensive homes? That means the buyer does not have choices in their preferred price range and must buy above what they actually want
You see this a lot with new condos, where the only kind of condos being built are "luxury condos" with fancy amenities and features. There's some theorizing that these will eventually become downmarket units as they age, but I'm somewhat skeptical.
I once lived in a condo built in the 70s and the materials used were very pedestrian - linoleum counters and flooring in the kitchen, carpet everywhere else. Ceilings were 8'. No balcony. I don't see today's granite and hardwood condos with 10' ceilings ever becoming downmarket.
I've heard the theory that high-end housing still creates opportunities for lower-end housing. If a desirable neighborhood gets new expensive units, that means (1) some residents who now earn more than when they first came can "upgrade", leaving their older and cheaper units open, and (2) people who can only afford the older units don't need to compete as much with wealthier buyers.
>That means the buyer does not have choices in their preferred price range and must buy above what they actually want
But we don't see this happening though. Even in this scenario, there would still be downward price pressure. The market should (or would, rather) reach some equilibrium here.
Instead what we see is UPWARD price pressure and vacancy despite legitimate market forces and environment.
I've kind of already laid it out in the previous post but the next question anyone should have is "why is that happening?"
And it's not because the units don't exist or need to be built.
I know in California there are so many requirements and fees on home construction that companies are incentivized to build larger expensive homes to dilute those costs.
These aren't incompatible. Household sizes are falling and number of homes is an input to population, so you can have residents moving out on net while prices increase due to the remaining residents being more wealthy. California is an entire state of ~40 million people where this happens: low and middle income families move out; high income families move in.
You're confusing increases in household formation with increases in homebuying.
You can create a new household without buying a house. For example, if you live with your parents as a 22yo, you and your parents count as one household. If you then move out and into an apartment by yourself, you are now your own household. But you haven't bought a house. As millennials age, more of them will obviously move out from living with their parents, which means increasing household formation.
In addition, you can expect homebuying to increase within a generation as that generation matures and earns more money. Of course millennials will be buying more houses when they're in their 30s than when they were in their 20s. That's to be expected. Something would be seriously wrong if that were not the case. But this doesn't automatically mean that housing is not expensive.
I don't think anyone said anything about solving homelessness. I read this in the context of outrageous home purchase prices. Those can be related but are certainly not the same thing.
Im ok with people owning multiple homes. I might not want to buy something in a place where I’ll live for 1 year. Or many other reasons to not want to own.
HOWEVER, make it an inconvenience to have the place sit empty. No tax because they’ll just raise rent to cover the offset, but make it a law or just very bureaucratic and people will either choose to rent it out or sell it to someone that will use it.
If all second home owners were forced to sell, that'd still only add 500k properties, and it would displace in other ways seeing as many of those are used as holiday lets. Given the Gov reckons 500k is the number of households needed to be built per year is 500k it'd be helpful but not a panacea.
People buying multiple hones is a blessing - it makes building home cheaper (economy of scale) the problem is obly in the tweasted reality of abosolutly rampant regulation, the only problem is government and local regulation if you artificially restrict supply you don't have enough homes.
It's a bit like when a big chain goes bankrupt - the profitable restaurants don't close another buyer comes in and takes over. Like Red Lobster and the staff in the profitable restaurants stay the same the renters stay in the same apartments or houses paying the same rent.
That sure seems like an article written to rile people up who want to be riled up.
Let’s use simple reason here…
If there isn’t enough supply, rates will go up, coordination or not.
If there is no supply issue, landlords who conspire to raise rents will be immediately undercut by those that do not.
Article makes allegations, and nothing came of them. It’s not illegal to call and ask prices. Prices that they’re “agreeing on” were all what people were paying.
Is the FTC unbiased enough for you?[0]. This is a real problem. Many landlords use the same software to determine how much to charge, this software is intended to maximize rent by fixing the price.
Is it communism to not allow people to buy up all the water supplies and sell it back to you at an extortionate rate?
The truth about the housing market is that it's not a free market anyway it's controlled by special interests, bad laws, zoning, local nimbys and councils the list goes on.
Shelter is a necessity but lots of people think they’re entitled to live wherever they want at a price they can afford. They go to SF or NY and complain about rents when there is a whole country they can live in.
I don’t think communities have to allow higher density and the lower quality of life that comes with it. Desirable places are going to be expensive and that’s okay.
Personally I think if we have better rail, people can live in a wider range of places but still access jobs. You see this in Europe, and it lets smaller communities keep their way of life.
Lots of employers think they're entitled to in-office days when remote work suffices. Argument would be stronger if there were a whole country to do all work in.
There is available work in many places. But I do think many want to only do certain kinds of jobs, get paid a certain amount, and live wherever they want. That feels more like entitlement to me. For example many college educated adults look down on trade jobs and want a desk job in whatever field they studied in a coastal urban city. But that’s not reasonable.
Non sequitur. Read carefully, there isn't all work in all places. It's not about how much it pays. It's the demand to come to an office in "a coastal urban city" to work when the work can be completed elsewhere. It seems you not only want to deter people from living in desirable places, but also want to deter people from working in jobs they were trained for for no reason at all.
Why is the problem always rich people? They're going to do what they're going to do.
The poors need to hold themselves accountable and stop working for unsustainable wages that can't get them even a small, run-down home. They continue to drive their own wages further and further down and make it that much harder for those that come after them.
It's ridiculous that they expect other people to sacrifice when they won't sacrifice (unionize, strike, or just opt out) to make the world a better, more equal place.
The wealthy will always try to squeeze everything out of the lower classes. If you accept unsustainable wages for your labor, you are part of the problem in devaluing labor (ie you are traffic). The working classes need to hold themselves accountable for the exploitation of their labor.
Exactly. It's insane how there are "landlords" (companies or even hedge funds) with dozens of flats in Airbnb in Spanish cities.
All the people and companies with some money in this country are buying those flats to rent them to tourists, and it's the most lucrative business someone can have as the expenses are minimum in comparison to the earnings.
If they taxed heavily having more than 10 homes they weren't whole neighbourhoods of tourists in our cities, and those who born there would have some opportunity to rent or buy something there, instead of having to having really far and losing most direct social relations they had
Inequality is another issue. Even with enough homes, if they are all owned by minority of the population who extract rents from the rest the situation remains pretty dire.
Yes, it is bad. The distribution of wealth determines the distribution of resources. The housing stock is limited. It ends up being mainly owned by those with a lot of money, in the process putting prices up beyond even what the middle class can afford. Building new houses won't fix this as the new houses will end up being owned by the rich as well.
If we define 'healthy market' as one in which there are abundant buyers and sellers, and in which prices on the lower end are consistently within the middle class's grasp, is inequality still bad in and of itself?
Yes. As an analogy, inequality has been linked to lower average adult height. Silent, small deficits in nutrition and health lead to lower height attainment among most of the population; the wealthy tend to be quite tall, but there's only so much environmental optimization can push even people with genes that predispose them to a high final height.
In housing, you have many people struggling to afford to buy anything at all, while investors buy up multiple properties or drive prices for even modest residences into the 7-figure range in some areas.
Essentially, unequal societies bifurcate, and while the vast majority of people have to go without the resources they need to lead fulfilled and dignified lives, a small minority of elites put more and more resources towards trying to eke out smaller and smaller advantages against each other.
The building does appreciate sometimes, at least here in Germany because the increasing absurdity of bureaucracy and regulations make the same class of house more and more expensive to build. At the same time, "lower classes" of houses become outright illegal to erect, leaving only the luxury segment for new buildings. Old buildings have grandfather privilege and thus become more expensive than an equivalent new build would be, simply because you aren't allowed to build new.
Right, I'd figured there are exceptions to my assessment, and my view is only from the US. Many homes in the US are are seemingly being built with lower quality/faster timelines, and I personally would not want to see what they look like in 30 years...
There is also the consideration that "lifestyle" appreciation can also happen. If an area gets really built up, more things are happening in the neighborhood that make it a more appealing place to live in, the allure of that lifestyle will push people to buy homes that are probably not worth much in another location.
My (UK) house is worth 3x the total rebuild value my mortgage provider wanted me to insure it for. This implies the land it’s built on (and the planning permission to build the house) is worth twice what the structure is worth.
In desired areas land is about 80% of the house price, that's why if you add zoning you obly get exyremely expansive single family houses where you could get cheat multi family high rises
I bought in 2022, and while it was new construction, it's a pretty mid-range house. No premium finishes, in a growing but small city northwest of Houston.
If you told me 10 years ago how much I paid for it, I'd ask what the name of my butler is.
Indeed. My home "value" has roughly doubled in the last five years.
Sounds nice, but land/home values in the area I'd like to move to has nearly tripled in the same timespan.
I feel bad for renters priced out of the market, but many of us who have "enjoyed" the upside are actually deeply underwater relative to our preferences, to say nothing of the doubling of insurance premiums, and ~25% property tax hikes in the last five years.
Rising prices are great for people who want to downsize and terrible for people who want to upsize. Many millennials are “better off” than their peers having bought an apartment but can’t afford to move to a modest family home. The traditional housing ladder no longer applies.
What he said makes zero sense. Of course a more desirable area is going to appreciate faster. He’s acting like he should be able to trade his less desirable property for a more desirable one 1:1.
They bought a starter home for say 100k which is now 200k. But the family home they now want tripled in the same time from 200k to 600k. So even though they now have 100k more, they need 400k more for their desired house, while only 200k before (Numbers obvioulsy chosen randomly)
This still doesn't make sense because why would only homes on the low-end appreciate? If anything homes on the high-end should be appreciating faster because the people who live in them can afford to do more improvements.
I don't think you understood logic of original statement, although its clearly explained with matching numbers.
Btw those disproportional numbers can be easily real anywhere in the world even in much bigger ratios, I can confirm them from Europe - if you want to invest in properties, location is absolute top priority as we all know that. Those properties appreciate faster than average market, don't suffer much drops in crises, and of course are at most desirable locations for whatever reason.
It makes sense because both the starter homes and the larger homes appreciated. I'm not sure why you say "why would only homes on the low-end appreciate" when the example talks about two different classes of homes.
Yes, that's what I'm saying. The idea that you can trade up your starter home without getting lucky and having your starter home appreciate much faster relative to other homes is daft -- especially when home prices appreciate by percentages the gap is always going to get wider over time. I don't think there's ever been a time where this "starter home" pipeline has ever worked in general.
I think they were lamenting the fact that the classes did not appreciate at the same rate, and that the more desirable homes appreciated faster. Didn’t claim not to understand it either.
Property tax shouldn’t be going up with this tbh. If everyone’s housing and land is becoming more expensive, then you need to tax smaller %s to get the same budget.
To me this sounds like your city/state is just ballooning their budgets.
You don't need the same budget. You have to pay employees more to keep up with the rising cost of housing and land (or they all quit), so the budget has to go up too.
And... Look at California's prop 13 for what happens when property taxes can't rise with the market. People just keep their homes forever because they don't want to sell and buy a new place where the tax rate will ratchet up from the sale. We have multi-million dollar homes that are taxed as if they were $50,000 homes, starving the local area's schools and infrastructure of funding.
The local governments and school districts are hardly starving. School spending per student in California is above the national average. Property taxes aren't the only source of government revenue: we also have income tax, sales tax, and a wide range of other fees.
Proposition 13 did cause some distortions and needs reform. But it has at least been effective in stopping the former unchecked growth in local government spending and limiting the corrosive effect of public employee unions.
I bought in 2021, a massive place but a complete refurbishment project.
I am not done. I have no more money and no more willpower to invest more into this. I totally regret the purchase.
To efficiently live in cities, many large public works have historically been completed, for example:
- Cities across the world built thorough sewage systems, preventing the need for private citizens to empty their litter buckets out the window – a large river in Chicago was even reversed!
- Cities across the world built mass transit networks, enabling citizens to move around efficiently without relying solely on private vehicles.
- Cities across the world should build affordable housing networks, as Vienna did. This way, citizens don't have to fall victim to the exploitation of speculators and distortions of the supposedly fair market.
Public affordable housing is a necessary infrastructure, just like sewers and transit, to create livable cities for all residents.
If you’re renting, you would stop spending such a large part of your income in rent.
If you’re a resident that already owns their home, and has absolutely no unfulfilled housing needs, you will benefit from a more prosperous society with less people struggling and more equality - and that’s a positive on its own right.
(along with its positive knock-on effects)
In fact, it’s the very goal this measure aims to achieve.
The UK made renting property a lot less lucrative a few years ago. Something about the tax position of letting mortgaged property. That meant landlords sold their houses - which I believe was broadly the point - and thus there are fewer places to rent and the cost of renting has increased to the new point of stability.
I think this probably has decreased house prices to some extent, but people are really insanely reluctant to sell a house for less than they bought it for so lots will wait for years before accepting the change.
It's probably good times to be buying an ex-rental to live in and getting better as mortgage rates fall.
A similar thing has happened in France, where the government has restricted the rental of less energy efficient dwellings[0]. This is generally a good thing for the environment, but it has already had an effect on rental prices as those apartments are now taken off the market.
The exact impact is a little hard to work out, because, at least in Paris, it's also coincided with apartment owners wanting to hold on to empty apartments to rent them for the Olympics rather than to locals.
That's also happened in the UK at the same time, but it's actually very difficult to bring many of the UK's pre-1930s households up to the minimum level without gutting the property and having it vacant for a period.
I'm not sure it's something the government wants to or can fix.
Many apartments that are being rented are those that house people otherwise, Paris being very well known for emptying out in July/August. For those that are being held back to rent, it can probably be hard to know what's the truth, "we didn't find a tenant" versus "we didn't want to find a tenant."
Also, I think there's also a benefit to the government, as they want to have this empty short-term housing stock available for tourists coming in. A lot of money is being invested in the games, it's important to get the tourism money to make it profitable.
Why would people violently protest against taxing empty real-estate that's not occupied by locals?
I'm not French but IMHO, Airbnb style short term renting for tourst purposes should come with hefty taxes because housing should always prioritize the locals who live, work, have families and pay taxes there, not wealthy foreigners on vacation.
Because it's the locals who own it, even if they live elsewhere in the city. It's probably their pension income. Flats are usually owned personally by small scale owners in Europe, it's not like the huge funds and corporations in US. They are not poor but also not rich, it's work even if it's rented long term, and a lot of work if short term.
It's quite likely not ex-locals who own it, and in any case if they no longer live locally, they're not paying local taxes, or supporting local business.
I agree, income from property should be heavily taxed, it's essentially private profit from the land value, and that value derives directly from it's location and the strength of the local economy, rather than any effort or contribution from the owner.
I am not French but I live a country or two over. Here it's mostly people who own 1-5 apartments in the city they live in, they definitely pay taxes there. And short term rentals are definitely not as simple as "profiting from land value".
Anyways I don't have an opinion about this, just wanted to answer why would people protest - because it's not some faceless corporation but them directly you're taxing.
>it's mostly people who own 1-5 apartments in the city they live in
Owning 1 apartment is completely different than owing 5 apartments in the same city. You can live in 1 apartment but you can't live in 5 at the same time. You're profiting off the other 4 ,so you should pay tax for it.
Yeah, sure. As I said, I don't agree nor disagree. As far as I know, rental income is taxed everywhere in EU. I just answered why the people would revolt or vote against it - because they're probably still right there in that same city or nearby, and you're touching their personal assets, not some faceless corporation/fund.
Sucks for them I guess. Maybe they should have diversified and invested in stocks or bonds instead of going all-in in housing-for-rent "investment" and complaining it doesn't turn up to be a huge profit making scheme like they expected, and expect the government to cover their losses.
Someone's housing shouldn't be someone else's for-profit side-hustle gamble. It's why housing is such a mess in the first place.
You can't have housing be affordable AND provide hefty profit returns in private pockets at the same time. Those will always be in contradiction at odds with each other in capitalism.
Honestly, I expected better from the socialist French, that they would have solved affordable housing for the masses.
BTW one more point... Publicly traded companies in Europe are not as usual as in the US. It's mostly private equity here. You can't just buy stocks or bonds, it's either very high risk or very low yield.
Your mistake is assuming France is socialist just because of its relatively generous welfare. It's actually neoliberal capitalism with strong preference for large corporations. And that's why this would lead to a protest or at least voting preference shift - it'd be taking one of the last remaining assets in the hands of the middle class.
Something about the tax position of letting mortgaged property.
EDIT: I had misremembered. Landlords can still get a tax deduction for mortgage interest, but only at the 20% rate, not at their marginal tax rate. For most landlords with mortgages, this probably halves the tax credit.
In the UK, if a private landlord receives £1000 in rent, and pays £800 in mortgage interest, they pay tax on the whole £1000, not just on the money they made.
There are reasonable arguments on both sides:
A) Why should a landlord be able to deduct mortgage interest from their income, for tax purposes, when owner-occupiers cannot?
B) Why should a landlord be unable to deduct business expenses from revenue before calculating taxable profit, when all other businesses can?
> Why should a landlord be unable to deduct business expenses from revenue before calculating taxable profit, when all other businesses can?
I think you nailed it. This is effectively the government saying "renting is not a business".
Think about it. The ability to "deduct expenses" is one of the characteristics of businesses. Individuals also can't deduct rent, food etc from their taxes.
This is effectively the government saying "renting is not a business".
Yes, but only if you're an individual landlord. If you register a company and buy the property through that, the normal rules apply and all interest expense is deductible. Of course, the mortgage might be harder to get or more expensive, as it's no longer secured on an individual's assets and future income.
In the USA, most mortgages are non-recourse loans, i.e. if the bank forecloses and sells the property for less than the outstanding loan balance, they can't go after the borrower for the difference.
In the UK, the borrower is on the hook for the full amount of the loan.
This just makes it easier for investors to outbid homebuyers. If you allow deductions on interest payments, why not for occupiers too? Of course that could open up a whole can of worms and potential loopholes for avoiding income taxes.
Wouldn't a reasonable resolution to the conflict between A and B be to instead allow owner-occupiers to deduct mortgage interest from their income for tax purposes?
Rents have been climbing for the same steady rate they have for years now. Shrinking supply meets increasing demand.
Nothing about that has changed recently.
The recent reforms did swap out some landlords for homeowners. It didnt undo the war on affordable housing it just prevented landlords from profiting as much from it.
Which is a good thing, even if some media outlets owned by landlords do like to pretend that euthanizing the buy to let landlord is bad renters.
> I think this probably has decreased house prices to some extent, but people are really insanely reluctant to sell a house for less than they bought it for
If a mortgage is recourse, and your home price has fallen enough - yeah, you have a pretty big reason not to sell.
Especially if your alternative is to pay more monthly for a worse rental (often the case).
First of all, agreed that housing prices are insane, even two-income households struggle to buy in my city.
But taking a more long-term view, in the US the owner-occupied housing rate about 65%, which has not changed a ton in the last 50-60 years (high was 69% in 2005 and low was 63% in 1965). Granted the market has changed a lot, we have much bigger houses, and more two-income families to pay for those more expensive houses.
Worth keeping in mind that the typical measure of the home ownership rate is really a measure of the proportion of people living in a home with the owner. So a 25 year old living with parents counts towards and not against this. Likewise anyone else sharing the house (boarders, etc). I suspect that the number of people in this situation has increased in the past couple of decades due to housing affordability.
The numerator is some multiplication of people and houses and people per houses though, with the houses and people counted differently on each multiplier though, so it still matters
Not only has the owner-occupied rate stayed near constant, but that rate itself is an average of all income levels. If one just looks at the rate of homeownership among those making more than the median income (family/individual) ~$74K for a family (~55K individual), that number jumps up to 79%.
Given that this number doesn't take preferences into account, I think it's pretty reasonable that almost everyone (>80%) making at least the average (median) salary owns their home.
I think it is a mistake to write an entire article without talking about supply and demand. Demographics are one of the lest surprising things in statistics, they can sometimes be predicted decades out from an effect arriving. Housing construction is similarly easy to observe.
I'd personally bet that there is a gentle imbalance appearing between how much energy the average person can lay claim to vs. how much they need to build and service a house and this is a symptom of the energy squeeze. But it might not be and this article isn't doing much to prove or disprove what the actual problems are because we need more information to make useful observations.
Unfortunately, there is excess demand generated by non-human corporate entities. There is not a supply/demand problem among humans-who-need-a-place-to-live.
But there is investor demand for an investment vehicle that has the tax and asset benefits that homes offer.
The consequence is that the buying power in the market by humans-who-need-a-place-to-live is relatively weak when they compete against financial investment corporate entities.
If we have 100 houses and 99 people, it is just unlikely that anyone will have a problem finding somewhere to live. These non-human corporate entities don't have a real incentive to leave the houses empty. There is always a win-win deal to be had renting the house out.
It is certainly possible to have situations where someone chooses to leave a house empty. If it is happening at scale then that suggests either tax or rental law is doing an unacceptable level of damage. Otherwise, why leave the house empty? It is giving up free money.
> These non-human corporate entities don't have a real incentive to leave the houses empty.
They may have such an incentive. In an idealized market where everyone has perfect information, they wouldn't, but we don't live in such a market. In practice, it may be more profitable to leave a house empty to drive up rent on your other properties, and to save the maintenance costs that tenants would bring, especially if you can indirectly coordinate with other large property owners: https://www.propublica.org/article/yieldstar-rent-increase-r...
> In practice, it may be more profitable to leave a house empty to drive up rent on your other properties
I'm not seeing it, rent is usually far in excess of maintenance costs. Run me through how this works. Say I have an empty house, maintenance costs for tenanting it are $5,000 and I have Dan the Desparate who will rent it for $10k/annum, and for the sake of argument his next best alternative is homelessness.
What external circumstances exist here where I'm going to be better off not letting him use the house? Something like not being able to evict him on demand I can see being a factor, which is specific to the deal. But I don't see how what I do here could affect the rent any other properties I might have. I'm don't see how Dan being homeless can serve my interests here.
There was a factual statement buried in there: that there is an equal amount of extra supply to match the demand growth from people who need to live somewhere. This is simply not true — population growth is outstripping meager supply growth in most cities in the US in most other western countries. If you disagree with this statement of fact, please provide citations.
I am not an economist but if we would treat house ownership something that is beneficial for the whole society (less traffic from commuters, less homeless etc) and remove the speculations/foreign investments around housing?
Why not apply the following:
- every house not used for primary living place is highly taxed (removing all speculative ownership)
- charge foreign investors heavily (australia will do this soon)
- tax reduction for renting places for lower than median per square meter price - incentivising affordable homes
None of that addresses the fundamental problem which is that there's just not enough housing. Greater Dallas builds more housing than the entire state of California.[1] Until that changes California's housing costs cannot be fixed.
Renters in CA should be ready to tell owners resistant to new development to go fuck themselves. Oh, you put all of your eggs in one basket (real estate)? Seems like a bad decision.
This is extremely unlikely to happen because the people who own multiple houses have more political power than those who don’t, and they don’t want to give them up. And even if it did, there would be ways to pay experts to get around it, just like the tax system.
Are speculators the problem is it the fact that housing prices are always expected to go up due to such limited supply? Instead of targeting a symptom, like speculative investment, why not target the root problem of prices always going up so that people can afford housing?
But then what is your description of the root of the problem?
At least in cities or places with a trainstation here the demand versus supply is out of band. What do you want to do against growing population and limited space?
Don't expect in a country like US where basic stuff like good education and healthcare are heavily charged and privatized to just move housing into basic human right category.
Other places, with surprisingly little success, can do and actually do it, but it magically doesn't solve underlying issues, so results don't move needle as much as expected.
This is partially implemented in the Netherlands, most new houses are move-in only, a second mortgage requires 40% downpayment. Rules were updated recently to include an extra 300k homes in the rent control scheme. People I know who are landlords are trying to sell.
And yet, supply is so constrained that house prices continue to rise. Either cities need to stop growing, or build a lot more housing.
Interesting but I don’t think having 40% downpayment solving the issue because banks, speculators and foreign investors will have the money to exclude normal buyers.
I am in Switzerland an 20% downpayment is a must. Secondly you can only take money out of your retirement scheme for a move-in house. But still supply is highly limited making prices explode. Most people I know have about 500k to 1 Mio in debt (about the same in Euro).
As rent prices seem to go up as well the problem aggravates for low income people.
I find it a bit strange that the article (and also a lot of the discussion here) does not discuss the size of these houses (in square meters per person), or alternatively the distribution of the sizes/areas.
I grew up in a 20 square meter per person apartment (with multiple person living there, for a total size of 60 square meters) - and it was definitely not pleasant. But I feel that nowadays people also expect a lot - for example in The Netherlands the reported average of 65 square meter per person https://longreads.cbs.nl/trends19-eng/economy/figures/constr....
Not discussing what it should be ideal, but if (some) people now want 2x or 3x what they wanted 40 years ago for example (without actually needing it due to a larger family), it's no wonder that there are issues (with prices/availability etc.).
The people buying up their 5th investment property are taking up a lot more that 65 square meters. This feels like the usual "you should all just get used to living in poverty so that the few can exploit you more." If everyone got used to 20 square meters, pretty soon the rich would buy the rest and then we'd hear "your standards are too high; you should be happy with 10!"
I grew up in a 20 square meter room, with multiple persons living in that same room, and multiple families living in the other rooms of the apartment ... I built private quarters for myself on top of a wardrobe, where my parents couldn't easily reach.
I think part of the problem is there aren't 3rd places nearby in the suburbs, because that is the point, so people want more room to have to accommodate their needs.
I don’t get articles like this. It’s arguably a better financial decision to NOT buy a home, and park your downpayment in a broad based index fund. I get that there are arguments for or against, but there doesn’t seem to be a clear financial advantage to home ownership. So, what’s the big fuss about? Just pay rent and carry on? Surely, there are better things to focus on?
No-one can kick you out of your own home because they want to rent to someone they can charge more. No-one can tell you you can’t change the wallpaper in your own home, or remodel the bathroom, or get a dog.
Not everything is a purely financial decision. A home is primarily a place to live, not an investment opportunity.
> Not everything is a purely financial decision. A home is primarily a place to live, not an investment opportunity.
I am always shocked at how many people simply don't understand this.
For example: no matter how many index funds I buy, I will still have to find a landlord who allows pets in their home if the current landlord decides to kick me out for a better tenant (whatever that means for them).
I don't have to deal with that in my own home. My home, my rules. And this is worth more to me than knowing I optimized my investment portfolio.
Human dignity has value. Shelter security has value. Knowing that you won't be moving in the next few months has value. But the value of these things cannot be measured in dollars.
A very US-centered view for sure, I see just tons of insecurity and other negative emotions. Europeans don't have this with such ferocious intensity.
One of happiest countries in the world - Switzerland, has minimal home ownership, people simply focus on more important matters in life (and rules and their actual enforcement are on next 10 levels compared to general US, yet nobody does biggest financial move in their lives based on those).
In this thread, I mostly see young folks frustrated that their easy investment chance evaporated, although it was never actually easy but people owned and desired to own radically less in the past. A bit of greed, a bit of FOMO, a bit of emotions described above. And an intense sense that a big, well-located house (not an apartment, hell no) is not everybody's right, but their basic human right enforced by some Geneva convention and UN forces. They will happily accept brutal communism with whatever else it brings just that they can get it too.
Or its one of those few topics where HN really isn't the best place to look for balanced opinions. I get it, I would maybe feel the same if I was in such situation bound with such mindset.
No, it's the other way round. Wanting a place you can call your own is a basic fundamental human desire. It's the insanity of the world today that such a basic thing is viewed as a luxury and people engage in semantic gymnastics to justify permanent renting.
Sure desire but not right, and then almost everybody engages in exactly same desire, in exactly same self-centered perspective (I want best possible location, biggest house, ideally biggish land around, convenient to work and fun and schools etc.).
Its physically impossible to satisfy everybody who wants that, we don't (yet) build cities in 3D with this in mind. Such demand will literally every single time outstrip supply unless given society is in deep demographic spiral.
There used to be times when people thought about buying houses when they reached cca 40. Worked their way to it, patiently. These days, 30 year old will complain to you how world is unfair since he already doesn't have it all since he wants to retire at 50. Or how they are priced out of some great place since almost everybody wants to live there too, including boss of his boss of his boss. Working class was priced out places like Manhattan maybe 50 years ago in much higher numbers, and nobody bat an eye.
> Such demand will literally every single time outstrip supply unless given society is in deep demographic spiral.
I am not sure that is the case. Or at least there is no natural law that would mandate this. And why is it less of a problem in say, India? In India, big cities see massive growth in terms of number of livable units built. They don't have the NIMBY culture of the US or the oppressive zoning restrictions, and many more people can aspire to own a flat by the time they are in the late 30s or 40s.
I think most people people would be fine if they knew they would be afford to buy in their 40s. But I don't see that happening for a lot more of the Zoomer generation.
> No-one can kick you out of your own home because they want to rent to someone they can charge more
Property tax isn’t voluntary and as exogenous as a landlord. (Also eminent domain, to say nothing of most peoples’ mortgages.)
> Not everything is a purely financial decision
Making the largest leveraged purchase of your life for an emotional comfort object is irrational. That doesn’t make it wrong. But it ceases to be a policy concern. (I might feel secure having a Fabergé egg in my possession, that doesn’t mean the public needs to give a shit about it.)
The reason home ownership is a public priority is various and I agree with it as a goal. But it’s a bad financial decision for many people, and there is legitimacy to questioning if we can duplicate the forced-saving and civic engagement benefits more simply.
You pay property tax either way, it just might be rolled into your rent. You probably have years to pay missing property taxes, while landlords will wait nowhere near that long. Eminent domain is only exercised rarely, and doesn’t even compare to how often rents are increased, or how often people are evicted.
That’s misleading and mostly irrelevant. My sampling of states so far yields an answer in years, looks like around 2-5 years depending on state. Rental evictions are measured in months, typically perhaps 1-3.
This entire discussion is as it's ignoring mortgages, where the entire security argument for homeownership breaks down beyond being an emotional comfort object.
Homeownership is statistically more secure because home owners are richer. The home doesn't make a homeowner more secure, their wealth does. Remove the wealth effect and homeowners are about as precariously perched as renters. In the past decades, home-price appreciation contributed significantly to that wealth. Someone making the smae purchase today is less likely to similarly benefit. Particularly if they're conceding they're making a bad financial decision for emotional reasons.
> Remove the wealth effect and homeowners are about as precariously perched as renters.
How so? I just showed that’s not true for evictions due to non-payment, at least for the property taxes issue you raised. When it comes to mortgages vs rent, maybe they’re similar risk, but in that case, the mortgage is not riskier, so the benefits of a house seem worth it, especially considering that as long as you keep up the payments, you are highly likely to eventually get your money back with a house, and 100% guaranteed to lose all your rent.
> In the past decades, home-price appreciation contributed significantly to that wealth.
Right, home ownership has historically been a vehicle for wealth building.
> Someone making the smae purchase today is less likely to similarly benefit.
Why’s that? Are you assuming that real estate inflation might slow down, but the market won’t?
A house is a leveraged loan until you pay it off. If the price goes up, you get the leveraged return. People who paid $200k down payment on a $1M house in 2019 can sell today for $1.5M and walk away with more than double their money, or around 4x the profit that someone who invested the $200k in the stock market and got the same (incredibly good) returns.
I don’t agree that buying a house is a bad financial decision, how do you justify that claim? There is certainly a distribution of outcomes, but on average I think most people profit from buying a house… especially when you compare it to paying rent.
We’re at record price to income levels amidst a stable versus growing population. (Note: I own a home.)
> house is a leveraged loan until you pay it off. If the price goes up, you get the leveraged return
Crazy how 2006 this pitch is. (Together with the “you are highly likely to eventually get your money back with a house.” Maybe we need a housing recession, both so people can buy in and others reminded there is no free lunch.)
> Maybe we need a housing recession, both so people can buy in and other reminded there is no free lunch.
Jesus, that’s a bit dark. Getting your money back from the sale of something you owned isn’t a free lunch. It’s just 100% better than dropping most of your money into a hole called rent, and never owning anything, and being beholden to landlords.
If my argument is too old and hasn’t adapted to the 2024 economy, which is entirely possible, then show me what it takes to do better than buying $420k a house on a $75 income with $84k in savings. (I’m just picking the “median” numbers from the article.) A 2-bedroom apartment where I live is anywhere from $2500 to $4k, so let’s say $36k/year in rent. Rent is much higher than this in SF or NYC of course. How long do you have to rent for the interest on $84k in ETFs to cover $36k/year in rent, assuming your rent doesn’t go up?
Edit: I’m not certain that did the calculation correctly, but it looks to me like on a 5% market return it would take 69 years for an $84k investment to break even against $36k in rent.
> It’s just 100% better than dropping most of your money into a hole called rent
You take the difference between rent and ownership costs, not just the down payment, leverage that (2x max), and calculate the difference. The Times has a good tool for this [1]. (It doesn’t lever. Securities-based loans are almost always cheaper than mortgages.)
The sucker in the present math is the individual, aspirational, emotionally-motivated buyer. The winner, the sellers and first-lien lenders.
> assuming your rent doesn’t go up?
I’d actually argue this is what most people pay for with homeownership. You may become a bit poorer, but your future is more certain. If you’re savvy you can use that certainty to take more risk in other parts of your life. Buying a home, for most Americans, is buying insurance. The problem is few see it that way, which is pretty great for the real estate industry.
The times tool says I’m better off buying to the tune of $100k over 10 years given the example I used above. I don’t know if that’s a reasonable assumption, however in order to break even I need to reduce the rent to $2300. In my locale, the difference between $2300 in rent and a $420k house is not emotional, the house is a tangible and significant space and standard of living increase.
I don’t know why it would be any other way; the landlord has to pay a mortgage or purchase price, and the rent must be higher than that. The mortgage and TCO costs of the property plus some profit for the landlord are what renters pay.
> don’t know why it would be any other way; the landlord has to pay a mortgage or purchase price, and the rent must be higher than that
Landlord is locked in. (They also have search, turnover and collection costs.) Tenant has flexibility. Sometimes the landlord makes money, sometimes they don't. Nothing guarantees them a return. (Ask a real-estate agent about buying an investment property. The pitch almost always turns on price appreciation.)
I’m not saying buying never works for the buyer. (It looks like it might work where you are.) Just that most people buying today are transferring wealth away from themselves in exchange for emotional comfort.
The notion that leasing is pissing money away is a deeply-flawed and probably-wrong theory. It’s also somewhat uniquely American (and British) middle class, which makes me suspicious about its origins.
Renting is short-term flexibility and lower barrier to entry. It can have some advantages if used carefully. In the long term, it gets questionable. (The Times calculator says so too).
The thing that would stop me from buying right now isn’t the price, it’s the interest rate. Also one method for dramatically reducing TCO of a house without increasing the monthly payments by that much is to finance with a shorter term loan. It’s harder to get rent to win when financing with a 15 year loan.
And it’s way harder to get rent to win without the opportunity cost, especially when comparing apples to apples on space. I feel like you’re mostly talking about what’s possible but not what’s likely. You might be able to come out ahead renting but I think most people won’t. Most people at the edge of buying a house aren’t going to invest if they decide to rent instead. The choice doesn’t seem to play out as buy vs rent+invest, but more often just buy vs rent. When the choice is buy vs rent, and renting isn’t offset by investing, then it really is pissing money away, transferring wealth away faster than if they bought a house.
> Most people at the edge of buying a house aren’t going to invest if they decide to rent instead
Sure. In the same way self insuring is generally a mistake, even if you're wealthy, because most of us don't have the discipline to hold that liquidity hostage continuously. The forced-saving benefit of homeownership is real. I simply ponder whether it (and the increased civic engagement ownership brings) can be replicated some other way.
That’s an interesting question, it would be great if there were good alternatives.
So FWIW after sleeping and thinking about it, I might be coming around to what you were saying, that buying at high prices and high interest might not be a great financial decision right now. My today thinking is that this whole discussion was perhaps not really about buying vs renting, it was mostly about financing and the often obscured total cost of a loan. I guess if we were talking about paying cash for a house, the calculus vs renting is completely different. I’ve been lucky with my houses and I shouldn’t assume everyone will be as lucky. I did realize a couple of funny ways to frame things. Buying a house might let you leverage your down payment, but a loan is also bank leverage against you, since you will eventually pay back 2x-3x the loan amount. Or another way of putting it is that when I buy a house with a loan, I’m renting the money to buy the house. :P
Right. Property taxes are paid by landlords, who then charge it back to you in rent. Your example article indirectly says the same thing: tax cuts were not passed on, landlords kept them.
Landlords not cutting the rent supports my claim that renters are effectively paying the property tax. You can argue that not all taxes are passed on, but the reality is that landlords have a set of costs, one of which is taxes, and they have a set of incomes from renters, and the income rent will always be higher than the costs, unless we’re talking about rent control or something like that. If the costs exceed the rents, then landlord goes out of business.
I edited before you replied, and just clarified. I didn’t change my point at all.
Rents are certainly not always higher than costs. Plenty of "investor" landlords buying properties that return less in rent than the mortgage expenses of said property (or the cost of capital).
Making 4% in rent isn't great when the mortgage interest is 6%. The difference is made up out of the landlord's pocket, and they gamble on capital gains to make up the shortfall (or rising rents vs a mostly fixed mortgage expenses)
> rents can be temporarily lower than costs in the short term. In the long term if that happens, the landlord ceases to be a landlord
In the very long run, yes. In the medium term, as in decades, home-price appreciation has let landlords in several markets run at a loss and rely entirely on capital gains for profits.
Home ownership is effectively enshrined as a value in most economies. The emotion is part of society’s design. Conforming to this incentive or belief is not unusually irrational,
> Property tax isn’t voluntary and as exogenous as a landlord
I live in the UK. I have to pay the same rate of council tax for the property whether I own it or rent it.
However that’s completely beside the point: my council tax isn’t suddenly going to double overnight because a single person decided they can extract more money.
> Making the largest leveraged purchase of your life for an emotional comfort object is irrational
You are completely missing the point. A place to live that is truly your own is not like buying some luxury good.
I could buy your argument were it about buying a mansion vs a small family home, but the article is about people being unable to buy any home.
> No-one can tell you you can’t change the wallpaper in your own home, or remodel the bathroom, or get a dog.
Yes, the housing association absolutely can tell you not to remodel your bathroom. Unless you literally own a house rather than an appartment, you really don't have a lot more rights than a renter would have.
Firstly I am legitimately surprised that Finland has HOAs. I had always assumed they were a largely American construct (I’m British).
Secondly I was absolutely talking about owning a house rather than an apartment. I feel an apartment is a slightly different situation by virtue of being an inherently shared space.
That said, I still it baffling that someone would try to exert control over what you do with the inside of your own home.
> Firstly I am legitimately surprised that Finland has HOAs. I had always assumed they were a largely American construc
The Finnish HOAs are a uniquely Finnish construct. They are in many ways different from the American HOAs, even though the name is the same.
> That said, I still it baffling that someone would try to exert control over what you do with the inside of your own home.
In the Finnish system, as a "homeowner" in a HOA, you actually don't own things such as... the walls inside your apartment. The HOA owns the walls. You own a piece of the HOA and the right to live inside the walls. But if you want to fix damage inside the walls, for example, you need the HOA to do that, because they own the walls.
Strange they call it an HOA when it sounds like the basic concept of “home ownership” doesn’t actually exist.
First thing I did when I bought a house was smash a nail in the wall and hang a picture. Well I guess the second, I ripped down walls and painted first.
I don't know if I'm translating to English correctly. I mean, technically it does not have an English translation, since the construct does not exist in countries where English is a native language.
The direct translation would be "house company", but that sounds wrong.
Not sure how long the parent has rented for but there is definitely a point, especially if you have children, where you realize having your own home is really important so you can express yourself without fear of eviction.
I always wanted to build a home gym and have a workshop, I have these things now, I never could before, I'm happier now than I was before, it was something I really wanted to do with my life, rent doesn't allow you to do those things, most of the time anyway.
The parent commenter spoke explicitly about it as a financial decision. Your counter comment directly contradicts their assumptions (financial decision), which makes it inappropriate.
People just want a house to live in. That's it. They don't want a "broad based index fund" or investments or anything else. They just want a house to live in. With all the stability that comes with it. And then spend their free time doing more useful things. Also it doesn't scale; we can't all be investing all the time.
This kind of reductionism where everything boils down to financials is exactly how we ended up in this mess to start with. Maybe we shouldn't have structured everything around that because ... people just want a house to live in.
I have rented for the past 20 years, the vast majority of my adult life. We are buying soon.
Could I make more in an index fund? Sure, probably. But I can’t make a rental into what I want it to be, you are often not even allowed to paint the walls.
Home ownership isn't a good financial option for everyone, but for most consumers who aren't accredited investors it's the only way to make highly leveraged trades. You can't buy an index fund with 20:1 leverage. Of course this occasionally blows up, but even then the downside is limited.
Even if ownership doesn't make sense from a financial standpoint it's still somewhat essential for parents of school age children. Renters can be forced to move on short notice if the landlord declines to renew the lease, like if they're planning to sell or redevelop the property. This instability has a cost that goes beyond financial concerns.
People always talk about how buying a home is the only way for the common person to obtain leverage. Please excuse my ignorance, but how does the common person use that leverage, exactly?
Leverage in finance is the concept of buying an asset with money that's not yours (i.e. a loan).
So suppose you have $100, and you believe a stock will increase by 10% in value, then borrowing $900 and buying $1000 of the stock, will leave you with $1100 if your prediction is true. When you pay off the loan, you'll be left with $200, and you will have doubled your money.
The loan thereby acts as a leverage multiplying the 10% return on investment to in this case a 100% return on investment.
Now imagine that instead of having $100, you have $50k, and instead of borrowing $900, you borrow $450k, and instead of buying stock, you buy a home with the 50k deposit and 450k mortgage. The same applies, the home appreciates 10% to 550k, but your equity increases from $50k to $100k. Again, the mortgage loan acts as a lever.
The difference is that most consumers do not have large and cheap capital available to them, say to borrow $450k to invest in the stock market. But most people do have such opportunities to invest in the real estate market with a mortgage.
Anyway, wether it's a good investment really depends on many factors. The NYT buy or rent calculator is still one of the best sources to get an intuition on what is best for your circumstance. https://www.nytimes.com/interactive/2024/upshot/buy-rent-cal...
Right, my question is more about how the average person can actually use that leverage. So you've got $80k in leverage, it grows (presumably), but how do you actually use it?
You have to sell the house, right? So you can only cash in on that leverage when you reverse mortgage or otherwise downsize, right?
Yes, but thanks to leverage you have effectively created higher returns for your retirement portfolio than you would have been able to without the leverage.
Higher returns than what though? It sure sounds like the only financial advantage to owning a home vs other investments is the leverage. Yet the S&P will return far more even considering the 80% leverage in most cases.
If you take all the money that you have spent on a down payment, closing and selling costs, taxes, and maintenance, subtract rent, and put the remainder in a market index fund, for the vast majority of situations you will have FAR more money by retirement. Like it's not even close.
I guess I'm just a bit tired of the messaging that real estate is such a great financial investment. Historically it's better than a lot of options but not even close to the best investment vehicle. Houses are homes first, not money makers, and if we continue to emphasize the latter, we will never solve the housing affordability crisis.
Let me put it to you another way: if homebuyers didn't have access to cheap leverage, then a stock market index fund would appear much more appealing than house as an investment. But when homebuyers have access to cheap leverage (and stock investors don't), the balance tips more in favor of home buying. And when I say "more in favor", I mean when compared to no leverage.
Perhaps you're making an argument that even with leverage, most people would be better off investing in the stock market rather than real estate. And perhaps that is true. But leverage does tip the balance in favor of real estate.
I'm saying even with leverage you would make far more money investing in index funds. The math is very clear. In the best real estate decades (which may be behind us), index funds may not win. But on average, over multiple decades it's not even close.
Can you show the calculations you made? I would expect the result to depend a lot on the assumptions you put in, particularly regarding leverage ratio, interest rates, stock market returns, and real estate returns.
It does depend on a lot, but the majority of scenarios you’ll put into rent vs buy calculators, for various places across the country, come out in favor of renting. In expensive areas, dramatically so. When interest rates are high, even moreso.
Let's take a quick look at my current situation as an example. Right now my family spends $2650/mth renting a nice home in the Denver metro area, with an excess of $2-3k/mth that goes into market investments at ~11% annual historical average. An equivalent house would cost us $600,000. Let's ignore the currently bleak housing market (where house prices have fallen ~10% in real dollars over the last 2.5 yrs), and assume your RE returns is a historical +4% annually (past 50 years).
Equation for compound interest at a fixed rate with initial sum:
P = P_o * e^ (rt)
After 30 years we would have the following equity in our home:
P = 600000*e^(.04*30)
= 1.99 million
This is with a total monthly mortgage payment of ~$4200 (including taxes and PMI), to have 1.99m at retirement.
Now let’s compare to renting and continuing to invest the money we would have spent on the house into market index funds.
Equation for previous month’s interest added to $2k/mth (use excel):
P_monthly =[previous month balance]*e^(r*t)+[monthly savings]
After 30 years we would have the following equity in our investment account:
P_monthly =[previous month balance]*e^(0.11/12*1)+2000 (use excel)
= 5.73 million
So I'm paying almost the same (2650 rent + 2k/month), but have more than 3 MILLION DOLLARS MORE at retirement.
This is to say nothing of all the other costs of a mortgage besides loan interest (essentially the cost to get you to the point of buying a home). Throw out $12k in closing costs. Throw out the 10 yrs of opportunity costs putting our savings in a secure HYSA (4.5%) rather than index funds (11%) to afford a $100k down payment. Throw out maintenance ($5-8k annually) and all the time spent maintaining the home (thousands of hours).
You would be more than 3 MILLION DOLLARS wealthier if you continued to rent. The leverage helps you, but that 7% differential in average returns makes it inconsequential. The power of compound interest - it's literally the only way average people have any dream of becoming wealthy.
Homes are terrible investments, relatively speaking. It’s not even close.
You have an error in this calculation where you make the assumption that real estate prices keep rising over 30 years but rent prices remain stagnant. Both of these things can't obviously be true at the same time. A more realistic calculation would have both real estate and rent prices increasing over the 30 years.
Your calculation also obscures what is the interest rate on the loan, which is the most significant component affecting the result. Sure, if you assume a high interest rate (currently baked into the $4200 number I presume), then your result will be that home ownership will look very bad. Whereas if you assume a lower interest rate, you will get a result in the other direction.
I'm not claiming that homes are great investments. And I know that renting is currently cheaper than buying a home (with current interest rates). But I am saying that your calculation isn't making a fair comparison.
Valid-ish points. My calculation is my situation right now, and I don't claim it is going to be true for everyone across all time and eternity. But over the course of someone's working life, renting will net you far more money than buying in the vast majority of cases.
It's a basic power law situation. The only real question is WHEN the 11% return will overtake the 4% return. The interest on the 4%-returning loan is a factor, but it's secondary.
> The only real question is WHEN the 11% return will overtake the 4% return. The interest on the 4%-returning loan is a factor, but it's secondary.
If we ignore the interest rate on the loan and simply assume stock market always makes 11% and real estate market always makes 4%, then the situation becomes really simple and is in favor of real estate investing.
Suppose a person has $20k to invest and they are considering putting it as down payment on a house, or investing in the stock market. (Let's ignore future cash flows and how those are invested, just consider the initial investment of $20k.)
Stock market option: $20k with no leverage -> 11% ROI on a $20k investment
Real estate option: $20k of your own money + $80k of the bank's money -> 4% ROI on $100k investment (counting both your money and the loan) -> 20% ROI on $20k investment (counting only your own money)
20% is better than 11%, so if you could get a zero interest loan, then the real estate investment would be much better.
Now, if we assume the interest rate is not 0%, but is instead 4% (same as our expected return), then of course the situation looks bleak.
So the interest on the loan is not a "secondary" factor. It's the most important factor.
I think the main point grandparent in this thread was trying to say that it's very easy to get cheap leverage on a mortgage, and basically impossible to get cheap leverage on stock market investments, and when you put the math on the back of the napkin like this, it becomes clear that the access to leverage can make real estate investing more appealing than stock market investing.
>Let's ignore future cash flows and how those are invested, just consider the initial investment of $20k.
But that's only a tiny piece of the money you will spend on the house and ignoring this will obviously lead you to a false conclusion.
Anyway, you don't have to agree with the numbers. I can link you to articles where Warren Buffet also points out the same thing, but you don't have to believe him either. Or you can Google rent vs buy calculators and do the full picture math yourself, if you're really that interested.
An 11% return will always beat a 4% return eventually, no matter what the initial conditions are. The question is just when.
> An 11% return will always beat a 4% return eventually, no matter what the initial conditions are.
No, it won't. I already gave you a very simple and easily verifiable scenario where that 4% return will beat that 11% return because of leverage. If you don't even accept that hypothetical, then you must be arguing just for the sake of arguing.
> But that's only a tiny piece of the money you will spend on the house and ignoring this will obviously lead you to a false conclusion.
That simple example was not supposed to be a realistic model of the world. I'm fine expanding the simple example step by step into a fully realistic model of the world. But there's no point going there if you refuse to accept very basic arithmetic facts in the simple example.
Hey, I don't view this as arguing at all. I'm sorry you do. I find it valuable as a check on my own thinking and assumptions. If you are feeling negative emotions with this exchange, please walk away!
>if you refuse to accept very basic arithmetic facts in the simple example
I refuse to accept your assertions because they're simply incorrect. Basic power law math - a higher value exponent will always win, eventually.
>Stock market option: $20k with no leverage -> 11% ROI on a $20k investment
P = P_o * e^(r*t)
P = 20,000 * e^(0.11*t)
>Real estate option: $20k of your own money + $80k of the bank's money -> 4% ROI on $100k investment (counting both your money and the loan)
P = 100,000 * e^(0.04*t)
Set these two equations equal to each other and solve for t. This will give you the number of years the 4% return with a 100k initial investment will beat the 11% return with a 20k initial investment.
20,000 * e^(.04*t) = 100,000 * e^(0.11*t)
t = 23 years. After 40 years, the 11% return has beaten the 4% return by 3.3x
If I'm misinterpreting your "very simple and easily verifiable scenario," please let me know. But I don't think so. Your error is in this statement. I'll leave it to you to figure out why, let me know if you need help! ;P
>(counting both your money and the loan) -> 20% ROI on $20k investment (counting only your own money) 20% is better than 11%,*
Oh crap, you're right. Sorry about my tone earlier. What I didn't consider properly is that the leverage ratio goes down over time as your equity in the house increases. So even though you start off with a leverage ratio which allows you to beat the returns from the non leveraged stock market investment, after some point the leverage ratio goes down below that point.
I tried to do the math now (independently from your calculations) and I ended up with the number 16 as "years after which the stock market 11% return has beaten the leveraged 4% return". I think your calculation result 23 is different from 16 because it assumes the loan can be kept as "free money" instead of paying it back.
However, the flaw in this is that most people don't have the discipline to put excess cash they would have spent on a home into index funds and forego touching that money until retirement.
So a mortgage is a very compelling enforcement mechanism to get average people to save for retirement.
If we're being honest that's a much more powerful reason to buy a home than "leverage."
Not only that, it has better terms than a leveraged loan, since you can't get margin called! As long as you are making your mortgage payments you can't be foreclosed even if the value of the underlying property has plummeted.
Even aside from the many places where there has been a clear financial advantage to home ownership, a core value that drives desire of home ownership is stability of tenure. The control over ones destiny and the nigh impossibility that one could be forced to move has strong value.
That "control" is mostly a fantasy. I own an appartment and when I found mold damage I wasn't able to just fix it, I had to take the housing association to court and fought with them for 2 years. It's now fixed and I'm trying to sell the appartment and nobody wants to buy it. Then I read articles like this and it just makes me laugh at the absurdity of it.
In the U.S., only about 30% of homeowners are subject to housing associations.
I get how that seems odd if you live in a big city, a multifamily building, etc. -- associations and their problems are ubiquitous there. But it's not the experience of most American homeowners.
No, that's not how it works. The housing market is not like the stock market. Houses are not fungible assets. I could list my house for $1 today and by tomorrow no one would have even made a single phone call to enquire about it. A house is not sold until a motivated buyer is found, no matter how low you drop the price.
I explained to you pretty clearly why you are wrong. If you want to believe in this fantasy that housing market is just like any other market, I can't really stop you.
That definitely wasn't the case in the 1990s through to about 2020. House prices doubled about every 10 years in some areas while interest rates were about 2% on average. Housing has been by far the best small investment open to most people.
The problem now is that property buying at scale for the long term is a model private funds are trying, interest rates are going up, and housing supply at the lower end of the scale is constricted because there's no profit building those houses. All of which means people who want to buy a house rather than pay a landlord are basically screwed.
Not disagreeing with the general assessment however let's stick with facts... mortgage rates decreased during much of that period but were still above 6 through most of the 90s and even at the lowest, didn't get all the way down to 2.0%
I didn't say mortgage rates. I wasn't saying it was cheap to buy a house. I was saying that buying a house was a better investment compared to interest rates eg putting the money in the bank. I could have made that clearer.
It really depends what the rent-to-mortgage ratio is, which apparently varies a lot by area.
Where I live, rents are often about equivalent to the mortgage + property taxes, plus a little more. In other words, in the house I live in right now, my mortgage + property tax is about $2,500/month. If I were to rent it out, I could likely get $2,600/month for it, possibly up to $3,000.
In this scenario, if you plan on living somewhere permanently, there's not a single way to do the math that it works out that renting ends up being the better choice. Not only do you pay more now, but rent nearly always goes up.
> but there doesn’t seem to be a clear financial advantage to home ownership
Just the simple fact that money paid to rent goes into a black hole whereas money paid towards a mortgage that builds equity should be a clear financial advantage to home ownership.
Opting to rent is insanely short-sighted. Like, even if I could rent the house I'm in right now for $2,000/month ($500 less than the monthly cost of buying), over the next 10+ years, rent will very likely go up over time. And again, that money is just being burnt. When you buy, eventually, you don't have a mortgage anymore.
I think the only way renting ends up working out better is if you live in some crazy place where a mortage+tax is double the monthly cost of renting.
This is a creation of the US federal government — a 30 year fixed makes no sense without government intervention, since that is an absurd level of interest rate risk the bank would need to take. I don't know of any other country with 30 year fixed mortgages — most have something similar to the 5/1 ARM as the main option.
edit: Seems like Germany has fixed mortgages but makes it hard to refinance.
The fixed prepayment is what makes them insane. Fixed interest instruments are common, at least at the institutional level, but no penalty prepayment option is the crazy part, because it exposes the lender to all the downside if rates go up and none of the upside if they go down.
Belgium and The Netherlands have it too, though it's optional. Most mortgages have a 30 year runtime with a 10 year fixed rate. The longer your fixed rate, the higher the rate becomes.
For the Netherlands: While it differs per bank, legally you're allowed to pay up to 10% of your mortgage extra per year (some banks offer higher rates, I can do 20% for example) without extra costs. When the rate changes (due to going from fixed to variable, or variable with a large change in a year) you're allowed to pay back as much as you want, without extra costs.
If you want to pay back more/faster, the bank calculates a fee ("loss of income due to lost interest payments") that you have to pay, which is still cheaper than just doing your regular payments.
The above statement also applies if you want to refinance if, for example, your home went up in value. They can and will drop your rate but you have to pay a fine. That being said, in the past, when rate drops were really large, you could go to a different bank, have them take over your mortgage pay the fine for you just so they can get you to come to them (though I'm assuming they're no longer so keen on that).
I’ve heard this argument a lot on HN, and yes it can be argued, there are valid points, but personally I think it ignores some realities. First, the article is pointing out that housing prices are high enough that a growing number of people can’t afford the down payment. Second, for people who barely have the down payment, it takes a lot of discipline (and faith) to park all your money in the stock market and not spend it. It’s one thing when you invest disposable income, and another entirely to gamble your life savings. Plus index funds aren’t always outperforming real-estate, so you can’t base the argument on only the last 5 years. Usually this argument has come in the form of suggesting that the best stock market returns out there exceed real estate inflation, and so you have to be a savvy investor and stay on top of your stocks day-to-day, which is a very tall order for the bottom half of the population.
Okay on top of all that, a down payment is 20% of the cost of a house. Buying the house is perhaps a little more like a leveraged loan. If the stock market and real-estate were to both inflate by the same amount, your investment in a house gets you 5x the return that your down payment investment makes. In the mean time, all the money you pay in rent goes down the drain, whereas all the money you pay into the house above the down payment comes back to you when you sell the house. From my point of view, a house seems like a far better investment, when you factor in the rent you lose. And historically home ownership has been the single most important wealth-building tool for the average US citizen.
It is legitimately concerning that the median house price is so high, and the trend is continuing upwards. Some of the fuss is concern over the future potential of a crashing economy, and yes that certainly will give us bigger things to worry about.
Every person should be able to have a right to say "This is me. This is where I live. I belong here." It's all fun and games until you've lived in one place for 15 years and your landlord decides to sell the place out from under your feet because a developer wants to build a high rise.
I had the exact same thoughts as you when reading the article. It seems that many people are irrationaly fixated on home ownership as some kind of magical pathway for wealth. When you ask these people to put some numbers on paper, that magic goes POOF pretty fast.
If it was a universally better financial decision to not buy a home, then who would you rent a home from? Someone who made a bad financial decision?
If this was the case, then there would be more and more renters, and less and less tenants, so rent would increase, and make homeowning a better financial decision. There's a stable equilibrium there, even taking into account the various taxes involved.
Surely you can see the difference between giving away a significant portion of your income to your landlord, or paying towards your mortgage.
In one case you can sell your property and get your money back, so you can decide to do whatever you want with it (like index fund if you so chose). And in the other it's your landlord who's either paying their mortgage with your money, or placing it in said index fund...
While true (the landlord is obviously making money, otherwise they wouldn't be doing it), there are other variables worth considering.
If you decide to move, you pay 6% in real estate fees (extortion) to sell / buy. If you rent, the house never changes hands, and hence this fee isn't paid.
At least in many parts of the US, the financial loss of renting is currently less than the financial loss of a mortgage, after subtracting contribution to principal. In Seattle there are places where renting is $2k+/month cheaper than the non-principal carrying costs of the same place. Buying it instead of renting it would literally be lighting $2k/month on fire that you don't need to. A renter can invest that extra $2k/month, so they come out ahead.
The cost structure of landlords is often very different than the cost structure of new homeowners. They can make a tidy profit charging rent that is significantly lower than your mortgage payment.
I have this feeling too and recently started making a calculator which I intend to add a comparison for (housecalculator.co.nz)
Of course reality is nuanced - a friend of mine for example is building out essentially his own apartment in his garage and having his sister pay rent for his house.
I'm still not sure how best to add a "compare buying to renting" feature for the calculator, so any ideas are most welcome!
Depends when. A home is a leveraged investment, plus often exempt from capital gain taxes. If you bought it at the beginning of a large real estate bull market you probably did better than an unleveraged investment in the S&P.
It's not as simple as that. Home ownership can be a lucrative investment long-term, it depends on many factors. When property values appreciate a lot, as they have been recently, home owners have done very well.
The recent rate of appreciation is not typical. Homes generally appreciate at 3-4% per year. Subtract from that taxes, insurance and upkeep. They’re a terrible investment unless you own rental property, at which point your tenants are paying down the loan.
So, the alternative to buying, which is a terrible investment according to you, is renting, where you pay down the loan of the landlord. That’s better, how?
I didn’t say you shouldn’t buy if you need a place to live. I said they’re a terrible investment. Also keep in mind that while you may be paying down the landlord’s loan when renting, you are also paying a massive amount of interest when buying. At today’s rates, you’ll give the bank $565,000 in pure interest over 30 years to borrow $400,000, making your total outlay $965,000. Either way, a large amount of money is going up in smoke.
This opinion doesn't take into account the optionality of the mortgage and the opportunities provided to the borrower. American mortgages generally allow prepayments - if the value of your house increases rapidly, you can sell, pay off the mortgage, and pocket the profit. You can pay additional principal at any time to reduce interest payments. If rates fall, you can refinance. If the economy is great, you're borrowing at 7 percent while your investments are earning 10+.
If the value of your house rises rapidly, you cannot just sell because then you have to buy another house to live somewhere, which has also appreciated. See the other comments about this.
Not if it's an investment property, which is part of the reason real estate isn't, as the OP states, a "terrible investment."
Further, your claim isn't universally true. You could rent for a while, you could downsize to a smaller house, you could move to a location which hasn't experienced as dramatic price growth, or just an overall lower-priced region (i.e. Californians moving to Texas, Nevada, Montana, etc)
It’s not. This trope is repeated on this forum all the time.
Some people prefer the freedom of not being stuck in one place. Super duper. That’s excellent, they prefer renting.
Trying to convince the rest of the world that it is a sound financial decision in lieu of buying a home and establishing equity is where the argument over “renting is better than buying from a financial perspective” falls apart and the absurdities start getting thrown about.
Its heavily market-dependant, but assuming rent expenses = the cost of interest, from a financial perspective they are close to equivalent. If you take the money that would be paying off the mortgage to invest, you should be in a similar financial position at the end.
1-1 compariaons are hard, though, because in practice houses are huge levered bets on a RE market, so they can have huge returns if chosen well. Those are usually the kinds of markets where rents tend to be lower than the mortgage payment, however, so things might net out more even than you'd expect at the end.
Depends on the country I guess. Mortgage interest in AU is not tax deductible unless it's an investment (ie. owner-occupiers don't get a deduction). Consumption is not generally tax deductible, was my understanding (and living in a house is basically consumption)
The issue is that you are approaching this from a financialization perspective. The point of homes is not to be an investment. The point of homes is to provide shelter and a place to live.
Why doesn't the government build and sell housing at a small profit? Here in Dubai, the largest housing construction companies are or were government owned. It's one of the ways the government can have zero income tax despite oil being less than 1% of its economy.
My only thought is that it's political, and some voters don't want their houses to lose value.
The land under UAE doesn’t have dozens or even hundreds of years of plot splitting and ownership claims too, there is just an enormous advantage to how new much of the county is and a government incentivized to grow. It does help that citizens form a smaller part of the population and that it seems like they get advantageous jobs and housing to keep them happy. Hard to compare to western counties.
Blame the nearby countries providing no jobs, no education, and no future for these laborers instead. Also don’t forget the hundreds of thousands of people from the exact same countries who gain respectable middle class, stable jobs in UAE that their home countries don’t provide. I’m not here to defend every decision that UAE has made but they’ve done a lot of good for people who come from countries with unspeakably shitty governments that deserve a lot more condemnation.
In the Roman Empire if you found a child that would otherwise die you could adopt it into your household as a slave since that was certainly better. Your logic is absolutely sound if you dispute the concept of human rights entirely.
The problem is you create a permanent underclass in the country since you take literally almost all rights from them. Including by the way the right to return where they came from.
Right wing activists and government have pushed the idea that government is hopeless, can't do anything and shouldn't try, and aggressively tried to make government as limited and as small as possible. This is often labelled "starve the beast" strategy.
They may well have a point, that government should only do things that only government can do, and that by declining to be involved they're leaving space for private businesses to operate.
But yea that's how we got here.
At this point any attempt for a government to be more intentional and interventionist would result in severe push back from the right.
Some governments are trying. In British Columbia, the government has changed laws to allow the arms length public transit agency to be able to buy and develop land around its transit stations.
That's because the state employs most people, they have an interest in keeping people's costs down. The people depend on the state for their livelihoods.
Because of neoliberal policies. Some governments around the world did incentivise and even footed the bill for building public housing before neoliberalism took hold; for example the Swedish Million Programme [0] built 1 million dwellings between 1965-1974 where the government took the risk on 66% of the building costs to be repaid by tenants over 30 years.
This system of building houses was completely scrapped by neoliberals, letting the "market" take control of supply with the government taking a background stance of mostly zoning out where they'd incentivise building new dwellings.
I can see in a not-so-distant future talks about this kind of program being reignited in politics, the neoliberal approach has absolutely failed us.
> Some governments around the world did incentivise and even footed the bill for building public housing
I am not referring to building public housing. I am saying the government should build housing as if it were a for-profit company. Take those profits, and re-invest into building even _more_ housing. Don't try to sell to those in need, sell to those who are speculating on real estate and increase supply at the same time.
In the US no one trusts the government anymore and instead they want the private sector to do everything. But the private sector only cares about profit.
It’s also a good way to ensure companies can milk the government of money and then the head of those companies can lobby the government to keep things how they are so they continue to get that government money.
I believe the main issue with many US government projects is that they _don't_ care about profit. If they did, maybe we could have public transportation as good as that of Hong Kong[0]. This idea that pursuing profits as a public entity is not productive when it could benefit society as a whole does more harm than good.
Profit is inherently waste. It is value that is taken out of an enterprise and doesn't contribute to improving the product of the enterprise.
If there is surplus value it should stay in the enterprise and be used to improve the enterprise by improving processes or improving the lives of workers. Failing that it should be returned to the customers through lower prices.
One good thing about government services is they're more efficient because they don't have this value being extracted by uninvolved parties. That means they're able to provide better service or lower prices with the value that would've been sucked out by profit takers.
> If there is surplus value it should stay in the enterprise and be used to improve the enterprise
Profit is surplus value. The opposite of waste. Forcing it back into the place it originated versus letting it transport to the most-useful thing it can do is how you get sclerotic feudalism. Had we adhered to this philosophy during the Industrial Revolution, we would have just kept farming.
You seem to be a little confused about the nature of profit. If investors didn't expect to take out future profits then they obviously wouldn't put in the capital necessary to start the enterprise in the first place.
A lot of the value in government services tends to be extracted by public employee unions. Politicians make excessive commitments around wages, pensions, and job security in order to buy union votes and maintain labor peace. Then the politicians move on and future taxpayers are left holding the bag.
I'm afraid you're the one that's confused. Profit is defined economically as revenue minus expenses, and so the grandfather post's first sentence is correct.
What grandfather is suggesting is something like an ESOP, co-op, or etc. There are a long history of these kinds of organizations, and they thrive in free-market economies--unfortunately, nobody really lives in one of those anymore.
It is telling that you say public employee unions "extract value" by demanding the pensions/job protections that should by rights belong to everyone (and often did, in the past). Conversely, private corporations "extract value" from the labor marker by struggling to provide any job security, any retirement, or even anything resembling a living wage.
Just which sector is failing to be profitable, here?
You're welcome to start an employee owned co-op and build homes or whatever. It's completely legal and no one will stop you. There's nothing in our economic system that prevents them from working, but in practice they usually fail due to poor internal decision making. So I don't understand what you're complaining about or what point you're trying to make.
Telling voters that their tax money will be used to build housing to be sold to speculators will absolutely not work. Even if in the long-term that somehow could end up helping people, no one will vote for this absurdity.
You're asking for people to fund the infrastructure speculators thrive on with their money, on top of that you want to depress housing prices which another large cohort of society will vote against, politically your proposal doesn't make sense.
If you cared to read the Wikipedia entry I shared the approach the Swedish government took was to pay 2/3 of the new constructions and sell those houses to people who would pay them back in 30 years, it's not "public housing" as you assumed...
Aside from scale, it's pretty much the same thing but with the assumption that whoever is going to be buying is a friendly neighbor and not an evil speculator.
The housing market has gone through several booms and busts in the U.S. I'll restrict to U.S. viewpoint since it's the only country I am educated on this topic. In every single case, the root cause was unchecked financial speculation.
The most major busts by year:
1837 - caused by land speculation, driven by the gold rush
1873 - caused by land speculation, driven by railroad companies and their investors
1929 - caused by a stock market bubble
2008 - caused by widespread mortgage fraud and speculation on the housing market
Where possible, states should build more tiny house communities, or have land where putting up a tiny house is legal and pain-free. There should also be a law prohibiting a person from owning more than one of them, except for temporary periods of moving out of one and into another. (The same should hold for regular houses, too.) Effectively, land is a different sort of commodity than most others: it is truly finite, and people should not be able to make as much money off it as an investment as they currently do.
>Where possible, states should build more tiny house communities, or have land where putting up a tiny house is legal and pain-free.
But let's just call them what they are: Trailer parks.
I just don't see how trailer parks are going to solve the problem. You may have cheap land but if you put 500 trailers on a plot you're still going to need sewage hookup, power and water for 500 homes.
Sure, it's cheaper to construct utilities on a per-unit basis in dense areas. The problem is that in medium-density areas the utilities were built out decades ago and are near capacity now. So, in order to add more housing units and residents in a neighborhood they have to rip out and replace many of the utilities. This is extremely expensive, and disruptive for existing residents.
They don't have to look like traditional trailer parks -- at least not the kind that I've seen. But besides that, they will be cheaper. That's the point.
How much of the cost of housing is construction vs land costs, utility hookups, developer profit and permits?
Tiny houses are relatively energy inefficient (a lot of wall surface for the living space), inefficient in land usage and very expensive per square meter. And they are not suited for families with children. I wonder if these trade offs are worth it against building a reasonably sized prefab home.
What the US needs is some expectation adjustment. If you make all your houses and lots 2x smaller suddenly you can fit four times as many people in the same space.
If you work this problem long enough you're going to converge on apartments/condos. It solves the problem you care about and all the caveats mentioned.
Urbanization facilitates specialization which is the engine that drives inequality. So, make all your houses and lots 2x smaller and suddenly you can have more density and higher levels of inequality. Yay?
Wait, you’re missing the important linkage. Urbanization facilitates specialization only because it produces excess productivity. Growth it’s very self produces inequality when the benefits of increased productivity are not evenly distributed. This is not a fault of urbanization, and certainly a poor reason to oppose urbanization.
I didn't miss it. Read the entire (tiny) subthread...
Logically I agree that this is a "distribution" or "social" problem, not solely "the fault" of urbanization (that is, the "correct" social policies ought to be able to mitigate the natural downsides).
Unfortunately, however, we have thousands of years of data in which no society has managed to discover what these correct policies are (or at the very least, they've been unable to be deployed at scale). This observation gives me some pause and causes me to re-evaluate some of my prior assumptions.
A poor reason to oppose urbanization, perhaps. But not a poor reason to oppose kneejerk urbanization without critical thought (a prevailing trend as of late).
Whatever the case, this force is a powerful one and should not be casually dismissed, even by those who believe workable solutions are (finally) imminent.
Really? It bears out everywhere I've ever lived and also in the archaelogical record.
Don't make the mistake of equating inequality with poverty. Specialization is certainly a great driver of efficiency and wealth creation. This trade-off can be fine (in a rising tide floats all boats sense) but we have to keep our eye on the levers.
I mean, if your definition of equality is 'everyone is equally poor', then I suppose subsistence farming is what you want to aim for.
If you then urbanize, your inequality increases rapidly. But since we already have an urban, industrialized society, increasing density is not going to move the needle on inequality. It's arguable it'd move backwards because more people can suddenly live in a desirable area.
One must also ask in addition to your pertinent questions, can the market bear putting the same price on a tiny house as it can with a large house? It's about perceived value. It's the same as anything "wedding". The price will go up just because the word "wedding" is there: wedding photography, wedding invitations, wedding catering.
With tiny houses, you're going to get the opposite effect of the price being lower because if of the "tiny" aspect.
In my city they looked at that. My city is not one of the most expensive in the country (upper middle?), but it has been generally near the top of the "biggest YoY increases in home values" over the last decade of so.
All sorts of feasibility studies. Options.
And then out came the NIMBYs. "My grandkids play in the street and I'm scared they won't be able to anymore", "there's going to be cars parked everywhere on the street and we won't be able to find parking" (uh, you have driveways and garages, no?)
"What's this going to do to our property values?" This was the kicker. "Well the most conservative of our studies showed that it looks like we'd go from 11% YoY value increases to 8-9%."
Wow. You would have thought the city was pouring water in everyone's gas tanks, or assaulting their grandmothers.
"HELL NO. I have a right to double digit property value increases!" Even when the lower increases would still be in the top 20% of property markets in the country (and being clear, still an 8%+ ROI), no way in hell were any of those proposals going to pass.
I have lived in an apartment my entire life. I'm in a building with 15 floors and 5 flats on each right now. My direct neighbors have a newborn baby. I don't hear a thing, literally - I wouldn't know there are other people if I wasn't 20 meters above the ground. Don't compromise on build quality like the Spanish do, build it like the Germans, Poles, Czechs and Slovaks do - and you won't have any issues.
People living their whole life in apartments do not create nearly as much nuisance as people who moved into apartments from detached houses, where they grew up. They don't wear hard-soled shoes inside, they don't drop stuff on the floor, they don't blast music and don't even own 1500W subwoofers, or weight racks, or treadmills.
For some reason people believe that a little baby is the most noise possible and it's often used in such discussions as an evidence of complete sound-proofing of their dwellings. While people do instinctively get agitated from a child's screams the power of these screams is very low. This is why parents get baby monitors as the screams don't propagate well even between floors in a single-family house. Even adults, unless trained, can't scream nearly as loud as a 200W Bluetooth speaker. Get your neighbor upstairs to drop an empty barbell bar and see how you won't notice it. And in the US your neighbor can be dropping a 300 pounds barbell while having a party with people dancing with accompaniment of 2.5kW sound system, at 2:30 am.
Rented six apartments in the US. Only once had a noise problem, solved by an email to the leasing office. Though admittedly they were all in the "nice" neighborhoods.
If the percentage of noisy apartments were 90%, the probability of me randomly landing in 6 quiet apartments out of 6 would be 0.1^6, or one in a million. If the percentage of noisy apartments was 10%, that probability would be 0.9^6 = 0.53. So, given my experience, the latter case is 0.53 / 0.000001 = 530,000 times more probable.
Yup. You would think "builder grade" materials and work in a home was a sign of quality, a la "craftsman"... but no, it's "built using the cheapest shit that met code, and put together on deadlines".
And Australian houses are, as I understand it, bigger again. There was a thread somewhere about where to put your washing machine: bathroom or kitchen. And every Australian was in there getting completely confused because the vast majority of houses in Australia have a dedicated laundry room usually with a trough, bench top, washing machine, dryer, etc.
A Land Value Tax is much simpler to enforce, more generally applicable across all housing product types, and a lot less artificially constraining of local decision making.
Agreed land is totally unique and should be handled very differently from other forms of wealth.
Yes, that is true. Though I would argue that we still need some rules on land ownership to begin with that is independent of the prices set by a market.
We used to have housing of last resort, places like SROs that were unpleasant but cheap (and to be fair, they were often firetraps). But then we decided it was inhumane so we banned or greatly restricted them, and surprise, the people that would have been in an SRO now live in cars or tents, definitely not an improvement.
That's not really how it works as far as I understand. Their are economic epicentres, and building near them means greater productivity and economic growth. The further out you get, the lower the ROI. The problem is, many cities in the west, controlled by an aging population of "haves" who bought when houses were the price of a sack of beans, feel that they are entitled to live in the same neighbourhood they purchased in. Incumbent homeowners are blocking new development, which stifles economic growth and creates a supply shortage, driving prices up.
You got one part of it right: building more solves the housing crisis. But if you built outside cities, you're asking new homeowners (read: young people who contribute the most to economic growth) to live increasingly far away from where the economic growth happens.
We are also legally entitled to that as well, this is how voting works. Community boards and local governments are intended to give people democratic control over the areas in which they live.
The problem is that people overwhelming vote for neighborhood stasis, which makes it completely unable to handle long-term changes in growth patterns. People always want to preserve their nice neighborhood, but they never see that a neighborhood that can't change is a neighborhood in permanent decline.
They are entitled to do so, but a neighborhood in perpetual decline is a neighborhood that will eventually die. It's kind of the opposite of people planting trees who's shade they'll never sit in. It's people preserving trees who's shade ONLY THEY will get to sit in. I don't think people are so heartless as to want their community to die after they're gone, they just don't see the long-term impacts of their desire for stability in the moment.
Why do you think the neighborhoods will die without more housing? I've watched wealthy neighborhoods in my city continue relatively unchanged for multiple generations. Once you have a thriving neighborhood, you don't need to continue changing things just to squeeze more people into it. What ends up happening (and I see this in some other neighborhoods, like my own) is that the things that made the neighborhood desirable (restaurants, retail, parks, affordable single family homes) get squeezed out in order to make room for more housing. The rents for the commercial spaces increase beyond what they could possibly earn. Once this is completed, now you have a bunch of housing in an area nobody wants to live in. People leave, then the area becomes blighted and the density gets torn down to build single family homes with yards...
This happened in my neighborhood in the mid-20th century - a huge, thriving, dense neighborhood was abandoned and destroyed as the industry in the area slowly failed. Buildings were turned into suburban-style lots, and over the past 50 years gradually gentrified and those empty spaces turned into more, denser housing. We're currently somewhere between the "local amenities can't keep up with the population" stage and the "housing is replacing commerce" stage.
If you've ever observed the sea of grey hair in a community input meeting you'd know it is not a representative democracy. People across many cities have voted in favour of change to the status quo, only to be met with non-democratic resistance from back channels and other apparatuses established by incumbent homeowners who have infinite time and seemingly infinite resources to fight the will of the people to preserve their fiefdom.
I've gone to those meetings. It was a mix of younger and older people, a diverse crowd. Felt representative of the neighborhood. Maybe it's just my neighborhood.
The primary input isn’t land, it’s tolerable neighbors. That is of course what “good school district,” “location, location, location,” and similar euphemisms actually mean.
If you have a high tolerance for crime and other antisocial behavior there is plenty of extremely affordable housing in major US cities with plenty of amenities like walkability and public transportation.
Or if you venture outside of major cities there is also plenty of affordable housing in unfashionable suburban. Many of those areas also have low crime and decent public schools. Not much public transportation, but plenty of free parking.
Absolute prices are irrelevant. Affordability is reflected in home ownership rates. In some states such as Alabama, Maine, Minnesota, Vermont, South Carolina, etc. the rates are above 70%. Regular people seem to be finding it affordable.
Surely one of us is confused, but I am not lying. Here it is on the Census website. No where does the Homeownership rate depend on people. It depends on housing units.
> Housing Unit. A housing unit is a house, an apartment, a group of rooms, or a single room occupied or intended for occupancy as separate living quarters.
> Homeownership Rates. The proportion of households that are owners is termed the
homeownership rate. It is computed by dividing the number of households that are owners by the total number of occupied households.
When we get to the bottom of this we should edit the Wikipedia article if I am wrong.
> The name "homeownership rate" can be misleading. As defined by the US Census Bureau, it is the percentage of homes that are occupied by the owner. It is not the percentage of adults that own their own home. This latter percentage will be significantly lower than the homeownership rate. Many households that are owner-occupied contain adult relatives (often young adults, descendants of the owner) who do not own their own home. Single building multi-bedroom rental units can contain more than one adult, all of whom do not own a home.
You are confused. The denominator includes the total estimated population. You could at least read the official definition before wasting everyone's time.
Here is the definition, from the first paragraph of the source that you yourself posted[1]:
The United States homeownership rate represents the percentage of occupied housing units where the resident is also the owner. A constantly evolving figure, the United States homeownership rate currently rests at 65.2%, while renter-occupied housing units make up 34.8% of the national stock.
From this definition it trivially follows that a rented property becoming vacant increases the homeownership rate, because the vacant property (and the person who was renting) will both no longer be counted, at all and thus the total percentage of owner occupied units will increase.
At this point I'm not sure if you failed to read your own link, don't understand what "percentage of" means, or are just obstinately wrong, but regardless it doesn't much seem worth continuing does it?
The Census breaks the homeless population into two groups - those whom live in shelters and those who do not. They completely ignore the later. For the former, shelters are not considered housing units.
> "Census Bureau surveys do not collect data on the
population experiencing homelessness and living on the streets"
Hm, I think we may find chickens coming home to roost in the next recession perhaps. Obviously not because of variable rate mortgages, but we’ll find out if people stretched themselves too thin. I’m sure there are metrics about that as well but I think that’d be the best test.
Delinquent debt is at the same levels will into the GFC starting in 2008. More like they are maxing out their debt and then ignoring the calls to repay them and the financial institutions are just delaying collection hoping this all blows over.
Delinquency Rate on Consumer Loans, All Commercial Banks (DRCLACBS)
https://fred.stlouisfed.org/series/DRCLACBS
Taking off like a rocket, people are strapped for cash and have been burning all their credit to survive. Mortgages are low for now, but once people run out of easy credit, which they have, mortgage delinquencies will rise. People are poor.
First, not all land is the same. The US coasts, for example, have much better income and job availability than sparsely populated cities in the middle of the country. In Europe, the size of the city is somewhat "fixed," depending on geography, transportation, etc. The same is true of some US cities, meaning that land is just more valuable that other land. That's why you see houses that are almost free in some cities, but those towns and cities are not the place where most people want to live.
Second is construction cost. A round number for the US is about 150 USD per square foot. So a 2,000 sq. foot house should be in the neighborhood of $300,000. (That does not include land, just the structure). However, in desirable cities this number is higher because labor costs are higher. In sparsely populated cities, that number is (of course) lower. This varies country to country, and in some space constrained cities, vertical is the only direction that you can build. (As one poster noted below, the $150/sq foot is only for single family. Multi-story buildings are significantly more expensive.)
But probably the biggest problem are artificial barriers to construction. The zoning system in the US, for example, prevents the construction of higher density in some areas. For example, a neighborhood can be zoned at 1 per acre. It's illegal to build a duplex, apartment, or to divide the acre into four and build four houses, etc. The zoning is set by a local board elected by homeowners in that locality. Being near high-density housing often lowers the value of existing homes, including making traffic worse and stressing the school system. (Also, to be fair, a sudden, large influx of new people, before the tax base and services catch up, can stress EMS, hospitals, fire, police, public transportation, sewage, water, electrical grid, etc. as well as just schools and roads).
Finally, there are builders, who would rather sell one large unit instead of lots of cheaper units. Building and selling a 1,000,000 USD home is cheaper and easier to manage than 5 200,000 USD homes. If you can only build one house per acre, or the space is constrained by geography, it doesn't make economic sense to build a 200,000 USD house. Even if space isn't constrained, the incentive is to build luxury, high end units as long as you can sell all your inventory.
Yes. Someone or something that man wants, made or desires is destroying the idea of housing for us. Not sure what it is, but there's a reason the largest, most empty countries are suffering the worst real estate problems.
It's absolutely weird to see land go for $1m for a small lot, then 10 minutes drive there are cows grazing on huge acreage. Then if you do a 10 minute flight in any direction you can see thousands of hectares of empty, good, liveable land.
U.K. view here... and I'd guess this applies the the majority of the world too.
I was born in, grew up in and currently live in a location that the HN community never even thinks about. Most people in here have no idea of how the regular 99% live and then base their whole world view on expensive capital cities and hold the strangest views of housing.
I bought my current house in the 2010s, my mortgage is still half the price of renting and I could manage to pay for everything by myself even if I were on a minimum wage. The problem isn't anything to do with housing it's to do with your own warped view on the world.
I don't say this to be contrarian or to necessarily make a point. I want you to look up the minimum wage of your country and think about how literally everyone else happily lives without thinking twice about these things. You all live a massively privileged life yet these things concern you more than they should.
You bought your house in 2010, if today in 2024 you had no house and had to buy one, could you? Haven't the mortgages and house prices increased a lot more than most salaries even in the remote countryside? (Just like the article says)
Also, remote countryside is cheap in most countries, but unless you can do 100% remote, they are very few jobs there.
Maybe for your location, but not in Canada. I live in a rural town in Canada that is several hours of travel away from any big city. You will typically pay at least $1200 USD a month for rent. A mortgage for a cheap house will cost around $2000 USD a month. For reference, minimum wage after tax is around $1700 USD. Home ownership here is simply out of reach for many people now, and even renting is a struggle.
I think many people are missing your point, but I agree with you. I lived in London for 6 years after university. I am a Software Engineer, my wife is a Lawyer. Whilst we could afford to just about rent in the city, we couldn't buy towards the lifestyle we wanted to lead. So we moved to Leeds, 2hrs north by train.
Suddenly, the 1.5 bed flat we could afford in a good area of London became a 5 bed detached in the best area of Leeds - 15 minutes from the centre. We have huge parks, cinemas, waterfalls, cafes, public transport, swimming pools, yoga studios etc. all within 10 minutes of our house. This is the exact same stuff that I would crave and pay a premium for in London (or any other world city). However, I also have neighbours who are on minimum wage, also affording houses a few roads away from mine, getting to live that amazing lifestyle too. I would arguably say they are living better lifestyles than the majority of my peers in London who are finance bros, consultants, techies but stuck in flats or house shares in Peckham or wherever. This was a massive eye opening realisation for me, and I've recently come across the term 'Deano' to describe it.
Anyway - the answer in my opinion to the housing crisis is decentralisation. Make it feasible to continue to achieve at high levels, but in regional areas. Improve public transport to increase the effective population of these cities so businesses have larger talent pools to choose from, and thus it is more viable for them to relocate. STOP centring so much of global media/films/tv/culture on these fantasy worlds set in New York and help people build fantasy imagines of nice lives by setting them in LCOL areas.
Take the pressure off the big cities, share the wealth, the opportunities, and everyone will be better off for it.
Hot take: already own a house and live somewhere with a livable minimum wage. You are the one who sounds like you are completely unaware of your own privilege.
You just said that where you live, if you were on minimum wage, you could "manage to" pay for half the price of renting. Think hard about what you just said here. You are saying that someone on minimum wage can't nearly afford to rent. But their problem is their own warped view of the world. The warped view that someone working full time should not be forced into homelessness? How warped!
I think the warped view is that renting is always cheaper than owning. You jumped straight there yourself, only arguing about cost of renting and not even touching ownership.
For example in Chicago in the US, at least in the early 2010s, it was also flipped like in GP's area: My monthly mortgage payment was around a third of the rent I had been paying, for a far far better place.
None of the measures mentioned in the article — lower interest rates, lower transaction fees, down payment subsidies — will lower costs. Every one of them will raise prices. You can only fix this with supply: build homes.
One of the key factors is the increased migration for China and India. While people did emmigrate before, it was much lower. So effectively they were walled off into their own pocket. Now, most of my co-workers are immigrants from India. It's like the rest of world's population is jumping by 2 billion. That is going to change the value of everything related to populations and living.
There’s another way to fix it. You can regulate financial speculators. In the US 1/4 of all US homes are owned by financial institutions. I doubt it’s very different in Europe unless they are regulated. This situation ensures only the rich can own a home as buyers are competing against hedge funds.
Yep. Homes can either be for shelter or for investment, but not both. We are experiencing this as a global culture.
I dream of a 100% tax rate on second homes, foreign ownership, and corporations owning single family homes and condos. Or even better, make it illegal. But any politician who pushes such a bill would immediately get removed from office and the law repealed.
None that is going to make a lick of difference. Because of longevity, birth rates, and preferences for smaller households, America is short 30 million homes. You can't tweak your way out of this.
Pretty sure that stat is incorrect. There were years in which 1/4 of available supply was bought by investors but that doesn't mean they ever owned 1/4 of homes. And they don't buy and sit on them. They renovated and rented or sold them. That's perfectly fine.
Financial speculation happens because people believe (reasonably) that the price of a home will increase. Why do they hold this belief? Because the demand has increased while the supply is kept artificially constant.
That's what's so frustrating about all of this -- it's a complete own goal. If we all collectively do nothing at all, developers will move in to capture the consumer surplus. It will be profitable to build, not buy and hold.
Yes, the “just build houses” contingent seems unaware that people (and as Mitt Romney famously said, “corporations are people too”) can own more than one house. Supply is certainly an issue, but inequality is as well.
I don’t remember the context that well, so you may be correct about that, but I think I disagree with him then - I think corporations are made of humans, but they are machines (perhaps primitive AIs) and are as uncaring as a lawnmower.
Every time a mob of people get together responsibility becomes diffuse. You may see a corporation do something negative that was the cumulative result of 100 human beings who thought they were doing what they were supposed to. People who saw themselves as not able to directly control the outcome. Same for any large group of people up to and including nations.
The good ol' "subsidize demand" approach to reducing prices. And if prices continue to climb? Well, just subsidize demand harder and in more diverse ways. I assure you, eventually price will fall. You just haven't subsidized the demand side enough yet.
It sounds like you have shifting baseline syndrome. Omaha last year built fewer houses than had built 25 years ago, but the city is a third larger than it was 25 years ago. So in fact it is building slower than it did in the past.
I don't doubt you have the numbers. I've only been here three years. I live on the west end of town where (seemingly) all the new construction is going on.
Make home ownership and renting them back to single families by corporations illegal. Seriously. It's the corporations doing ALL this. The people don't have the money.
> It's the corporations doing ALL this. The people don't have the money.
Maybe it's like that in America. In EU, where the investment 'culture' is different, there are hordes of people not knowing what to do with their money and buying homes only to sell them at a higher price (flippers). Case in point: Poland, where the housing market is quite bonkers - especially in big cities.
If you buy a second home as an investment property and plan to rent it out to a single family, your accountant and lawyer will probably recommend you form a corporation to operate under.
Just having a flat rule against corporations owning property will likely reduce the number of rentals available and a reduced supply will lead to higher prices.
The other reason this is absurd is because after the American press lost interest in making fun of Chinese "ghost cities" Chinese people moved into those cities. It's a case of Americans making fun of another country for planning ahead.
No, it's the value of the dollar in free fall and our purchased economists not talking about it. It's the value of the dollar as reflected by the rest of the planet's confidence in the US, which is dropping faster than Trump can fall asleep and fart.
A utopic solution would be to learn, at last, how to have a thriving economy without increasing megalopolis.
Housing prices are unaffordable in big cities, while abandoned properties are rotting in the countryside everywhere. It's time we start spreading the economy rather than concentrating the people.
Not let the city to hijack the companies to force rto is a good start. I estimate that lots of the companirs didn't really care that much about rto but the cities are forcing their hands because of their commercial buildings and real estates depends on them
we artificially subsidized sprawl for generations. leading to a periphery of, as you say, rotting/abandoned countryside homes, because the economic activity generated by people living that spread out does not cover the cost of modern standard of living infrastructure over that distance.
cities are expensive because they do have the economic network effects of people in proximity, they are simply where the money is, combined with restrictions on building new units.
continuing to pour good money after bad down the sprawl money pit will only make things worse. the only way out is up.
This comment will not go over well on HN but I am in full agreement. I am actually extremely disappointed as I thought tech would enable a more dispersed society. Instead we received the opposite.
Infotech will let you work anywhere, but you still need fixed infrastructure that is only possible to efficiently provide in a centralized way. Even suburbs are a net economic drain given their infrastructure costs, never mind dispersed rural living.
There's nothing efficient about big cities. Hours of commuting by millions of people every day. Tons of excess and waste. You become disconnected from the source of your food which has to be shipped in.
Technology is a lot more than InfoTech. It includes core engineering and infrastructure.
> There's nothing efficient about big cities. Hours of commuting by millions of people every day.
You have it backwards. Density makes mass transit feasible. You want to talk about commute times, spreading everyone out is going to magnify that.
Cities are efficient. At least, they can be. Busses and trains/subways work a hell of a lot better in urban cores than suburbs, and are effectively worthless from an efficient standpoint for moving individual people in a rural environment.
You seem to think that if you spread everyone out, they all need to commute back to the same place. That's not true at all however. With small cities/large towns I don't need to commute to "the big city" because the small city has all I need. My work, food, etc.. is less than a 5 minute drive away. Instead of ultra dense miserable housing, huge commute times, etc... we now have a much simpler lifestyle.
It's moving the need for everyone to commute (via mass transit or w/e) to just a much smaller amount of shipping to happen between cities to move goods.
And you are basing this on what evidence. Cities spread disease either infectious or by pollution. If a job can be done remotely, the company should not only allow it but it should be the only way to do it.
Many jobs can be done remotely today and this will move annex jobs with them. Cities will remain central hubs but this will reduce the pressure and demand.
See cagenut's comment above. Cities are economically robust because they have the economic activity to justify the infrastructure investments. You can have much more rural, spread out areas, but they can't afford to support many of the amenities that modern people would consider necessities, especially tech workers.
And what are these amenities? Because I am typing this from a rural area that has decent food, good medical options nearby and high speed internet as well as I can get a cheap bus to nearby places.
I'm talking about stuff like paved roads to your door, free paved parking lots, and connections to the city's sewer system and electrical grid. We expect the city to pay for maintaining these things, but the taxable economic activity in suburban/rural areas isn't enough to cover these liabilities in the long-term.
I think you’re missing his point that yelling the same ideas into the void (internet) ad nauseam doesn’t really help solve anything or implement these solutions. Each one of the items the poster listed are very difficult to implement and just fixing one thing isn’t going to move the needle noticeably.
My wife and I bought our first house in 2018 and it feels like we jumped on the train a minute before departure, right before it took off like a rocket.
Most of our friends are still running along the platform, desperately trying to grab on but the train just keeps accelerating.
Our first home price increased by 50% in 4 years when we sold and moved into a bigger home in 2022, and we hardly did anything to it. Just the way the market is. The only reason we were able to afford the new house is because of the rapid gains on our first house and the fact that we had a ~2% interest rate for two years that allowed us to quickly build up a savings nest egg, with a mortgage payment that was far below what our friends paid in rent.
I just feel bad for all my fellow millennials that couldn't catch the train before the market went fucking insane in 2020. Because it really does feel like catching up is impossible if you aren't already in the game.
Some other less-cited reasons home ownership may increasingly be considered expensive:
- Increasing density in older cities requires infrastructure upgrades that are much more complex and expensive to retrofit than it was to plan and build the first time when space was abundant.
- Multi-story buildings are more expensive per floor space area than single-story buildings. As cities become denser, the added expense of multi-story buildings is realised.
- Home standards have dramatically increased. We've forgotten how common it used to be for houses to leak during storms, or how hot or cold houses used to be without any insulation or HVAC systems. We've forgotten flash floods caused by inadequate stormwater systems. Where children used to grow up in bunk beds in tiny shared bedrooms, they now are expected to have their own adult-sized room. Where a small kitchen used to suffice, people now expect a huge show kitchen and butlers pantry that is double the size of old smaller kitchens. Or in a country such as China, millions of people have forgotten what living in a cave house was like for their grandparents.
- Complexity of expected amenities and public services have dramatically increased, resulting in people wanting to live inside large cities rather than spread out across small towns. People want to live within an hour of travel to a MRI machine and healthcare specialists. Or instead of shopping at one food store or dining out in one of two restaurants in a small town, people want to be within a few minutes of 20 choices of cuisine in a large city.
- Materials are more expensive because it has been realised that clear-felling old growth forest is not sustainable, nor is digging up the easiest to extract resources, and we're just starting to realise how expensive sustainable resource extraction actually is. As a result of increased quality of housing and infrastructure, materials are enormously more complex and varied.
- Safety standards for construction labour are significantly improved, even if just by worker and public expectation. It's no longer acceptable for labourers to be working in dusty environments or working at heights without scaffolding and harnesses having been planned and setup first.
- Increasingly affluent populations are aging and naturally reducing in size. In such a demographic shift, workers can prefer safer and easier jobs that don't risk life-long back and joint injuries and all the other types of health risks common to the construction industry.
>Increasing density in older cities requires infrastructure upgrades that are much more complex and expensive to retrofit than it was to plan and build the first time when space was abundant.
>Multi-story buildings are more expensive per floor space area than single-story buildings. As cities become denser, the added expense of multi-story buildings is realised.
A lot of that is parking. Parking minimum laws basically hollow out intermediate-density development. In order to meet parking requirements, the only legal and economically viable types of buildings are low-density with cheap surface parking, or high-density with expensive underground parking.
I saw a recent "podcast" on Portugal reality from a business side perspective about this, the calculations are simple (numbers inaccurate but up to scale)
- Around 2005, you could build "up-to-code" houses for around 1000€/m2
- Now, you build "up-to-code" houses for around 2500€/m2
The purchasing power has not increased 2.5X so housing now it's less affordable.
His overall comment is that now we have "Nordic" (richer) construction standards but we still earn Portuguese (poorer) standards.
New Zealand too. I totally agree. There is something utterly rotten with the seniorage abilities of commercial banks and the multigenerational distortions it has created by virtue of leveraged (mortgage) lending.
Regular people own the overwhelming majority of homes, and they love every dollar of increase.
The finger pointing at corporations or politicians is totally misguided. It's the locals who collectively are invested in their homes and collectively (through the votes they cast) create the disastrous situation we are in.
Even the most bleeding heart liberal is all about "protecting the character of our neighborhood". Just look at San Francisco.
> Even the most bleeding heart liberal is all about "protecting the character of our neighborhood". Just look at San Francisco.
I love those green and saffron signs about welcoming refugees that they put in the neighborhoods where you can't touch property for under $2M. I want stickers I can slap on those signs that say "...if you can afford this neighborhood, lol."
I'd agree with this. In Australia, it is too financially attractive to own investment property and enough of the population makes it a political gamble (at the bare minimum) to change that.
tbh I am so angry about this I dont even know with whom to be angry with in the first place. we just "got" here and everyone is just waving hands, especially politicians, that promise to fix housing crisis since 2000 and nothing happens, it just gets worse.
I think some heads need to fly, french revolution style and that needs to be this violent in order for elites to be afraid again, idk what else can help.
The leaders of violent revolutions aren't especially likely to govern with more skill or empathy than those they overthrew. The selection criteria of charismatic and violent isn't very well aligned with benevolent rule afterwards.
Be angry at the currently retiring generation. This was consciously and deliberately engineered for their benefit. They even had the wisdom to carve out property tax exemptions for themselves. Perhaps they did not bother to consider what the long term consequences would be, but that is to be expected. The politicians merely did their bidding.
Housing is naturally a valuable thing. From birds with nests, to dogs and lions marking their territory. it’s something valuable that you self custody.
2008 was low of the low for home values. In my view a few things have happened since:
1.hyperconsolidation in lenders
2. Real estate orgs have worked together to eliminate downward price pressures.
3. NIMBYs and generally “home ownership associations “ have created so many barriers to building & reaped the profits in their own home values.
Some good news is that most populations are slowing or declining on the globe, and that ought to be a substantial risk to mass ownership, but that will take 20years to manifest.
Every time I hear someone predict the next housing crash I always ask them if they have looked at Canada and Australia. Seems to get more and more absurd but it keeps on trucking along.
I keep wondering who the hell buys the housing on my city.
The time for selling is on the 2 digit months, but the price of any small apartment is out of the reach of 95% of the people that live here if they save for their entire life. Anything that isn't small is out of reach of more than 99%.
-Cheap credit with ever-decreasing lending standards (not like 2006 though, not yet)
-Population growth (whether immigration or births — does not make a difference, though babies can't buy houses)
-"Pent up" demand, people who wanted to move during COVID but did not because of COVID (somehow), who now do want to move
Factors restricting supply
-Building
-Zoning
-Most of all: nobody wants to leave their 3% rate, and there is about 11T of outstanding mortgage debt, most of which at the 2020-2022 low rates
Factors inflating prices
-(Mostly) obsolete realtors charging 6% in a world with Zillow
-Orgy of money-printing
Same here in the Netherlands.
I currently rent a 130m3 house for 2500 euros. 500 energy. 2500 euros daycare (4 kids). I think I spend around 6000, 7000 euros after taxes on fixed costs. I wont complain. My life is good, but for most peope here impossible to pay those amounts. Result is that lots of my friends with "normal" jobs end up living in small apartments far outside the cities or even move to a completely different part of the country. Its very hard now to start a life now. Unless you make a shitton of money. Everything became so expensive these days. Its unsustainable imho.
I was just explaining this to my mom today. Our generation has a lot of luxuries cheaper but also a lot higher fixed costs (housing, education, childcare, healthcare, etc). Even adjusting for inflation my college and rent were a few times what she paid when she was in her 20s so my experience is that people now who are doing well are doing really well but people who are struggling are really struggling.
Situation in Europe is often reported in misleading ways. Everybody calls it "housing crisis" - but we do not have millions of homeless roaming the street. It is actually a "moving crisis" - people want to move to nicer places but can't afford it. I.e. here in Germany, we have close to 1M perfectly habitable empty flats/houses - but they are in rural areas or the countryside. Indeed there is high demand for urban areas and cities, at the same time rural villages struggle to find and retain their population because everybody (especially younger people) move to the city. You might have heard of those italian villages offering houses for 1€, just to attract families and keep those villages alive.
If you can't get a job in arschfick nowhere then it doesn't matter there are a million houses there, because you can't afford them because you need a job for that. Never mind people have family, friends, children (with friends, school, etc.) and things like that.
"Need to live near jobs" is a good point. People forget how mobile our society has become compared to our grand-parents generation. Nowadays you have the possibility to get your "dream job" and move for it wherever you want. Your grand-parents most likely took the first best job and career available in the area, not thinking about "self fulfilment" in their careers. In a lot of cases you do not need to move to have a job, but we rather want to be a software engineer in a Hotshot Company in a "culture rich city" rather than a farmer in your rural home town.
That's because a house 100km away from the nearest job is not cheap. Even rural area houses are very expensive compared to what jobs in those rural areas pay.
This makes them even more of a trap. The rents will go up. And yet, even more jobs will leave those places. And then you haven't saved up, because the amounts were tiny
In brief, too many USD printed since 2008 (especially the Covid money printer), that percolated into certain jobs/professions – and lead to highly inflated asset prices.
These things are worth what they always were, FIAT currencies have lost value.
The strange thing is that while I definitely see it happening in many places around the world, not all the causes are the same. I think @moralestapia has it right: massive inflation is likely a root cause.
I recall a thread from someone from South America in the Slovenia subreddit, where they said they wanted to move to Europe because it's impossible to afford a home where they currently live. The response was basically "yeah, welcome to the club pal".
It's definitely a global issue, rising population mixed with late stage capitalism.
> The growing outcry has raised pressure on the US central bank to cut interest rates to bring relief, a move Federal Reserve chairman Jerome Powell has said is likely at some point.
I don't think the solution is as simple as just "cutting rates". Low rates lead to incredibly fierce bidding wars that can drive up the price by tens of thousands of dollars. An acquaintance of mine and his wife bid $50,000 over the asking price on a house in the Boston area a few years ago. They were outbid by an additional $60,000 (total of $110,000 over the asking price). Another acquaintance narrowly defeated 30+ other bidders (!) to get his house.
My wife and I bought a house last year during a time when rates were _highest_. Ironically, I believe this was actually a fairly great time to buy. Competition from other buyers was low, and sellers were more willing to negotiate because they didn't know if they would be able to sell anytime soon. And yes, we now have a higher interest rate, but that can be refinanced down the road.
It's a complex situation. I do hope for lower interest rates, but I don't think that alone is going to solve the issue.
For those interested, Gary Stevenson has an interesting take on what is causing this, even though his view is focused on the UK market: https://www.youtube.com/watch?v=kNUNR2NZvFM
Something about Gary Stevenson doesn't feel right. Although what he says generally sounds good, all of his videos contain the exact same rhetoric about blaming problems on wealthy people. And yes, he says he's an inequality economist so it makes sense that he would say this, so why not show the numbers and data to back up his claims? He talks for 10-20 mins seemingly pulling his theories out of thin air. In that very video you linked he claims he saw house prices rising as a result of COVID while all the other economists were blind to it... uh no? He doesn't use the kind of vocabulary I would expect from somebody who has deep knowledge of the subject either.
What is he getting out of making these videos other than playing the populist game? Has he actually been verified to ever have been "Citi's top trader"?
I have lived with housemates since I started Uni in 2013, 11 years now.
Now for the last 3 or so years I have been earning a decent salary in a 7 year long career and saving a significant deposit, but my capacity has diminished significantly.
A house I lived in to rent in 2019 sold for $550k in 2019, that house is now worth $780k.
That’s not my experience at all: me, my friends, everyone I know that lives in a city lives with housemates. I don’t know anyone lucky or well-off-enough who can possibly afford a place to themselves that isn’t a minuscule studio.
That was my experience as well. But who is paying $2,500 for a room? These stories always seem to feature folks who are trying to live alone while saving for a home in a Tier 1 city.
Why are 30yr fixed rate mortgages 7% and up so massively from just a few years ago? Shouldn't the interest on the mortgage be about the expectation of average interbank rates for the coming years, plus some margin? Sure interest rates shot up recently, but did banks go from believing we'd have 3% long term average to 7%?
My mortgage (not UK) are just fixed in various parts on various semi-short terms (3 months, 1year, 3 years etc). The shortest ones are basically the current interbank rate plus 1%. The 3 year one is the banks expectation of interest over 3 years, plus a small margin and so on. For 10 year or longer the current rates are 4%.
Why are interest rates so much higher for mortgages in the UK, despite often demanding longer fixed terms? Is the risk massively higher? (My loan uses the home as collateral but also future income, meaning if the home becomes worthless I'm still on the line for repaying the lone for as long as it takes, I can't just leave the keys and let the bank eat the risk).
Ok. Weird that there is such a lot of talk about the 30yr mortgages if no one has them.
I'd also be completely unable to afford the deposit for the home I own now (£500k loans at 80% LTV or so). The key was of course buying a small flat, selling that, buying a larger flat with the profit from the first as deposit on the next, selling that. The "income" in terms of property value increase from these month over month for 20 years was almost constantly higher than what I made working each month. If I didn't have the past trades behind me, I'd be renting to my grave. There is zero chance I'd even begin saving for a £100k deposit. It would be 100% of my fun/vacation money for ten years at least.
- Properties in world-class cities are in demand globally
- NIMBYism means it's hard to build new housing or increase density
- Resource costs and wages are high in world-class cities
The first one is a demand-side driver, the last two are supply-side drivers. There aren't any palatable solutions to reduce the impact of these drivers, at least not ones that do not negatively impact other sectors of the economy.
We all want more housing but zoning laws and NIMBYs prevent us from building proper urban housing. Yet there’s nothing stopping someone from building a 6bd/4ba house in my neighborhood and renting the whole thing out for $1600/rm.
> In recent months, the White House has tried to address concerns about affordability head on, offering proposals such as rules to limit closing costs and a $10,000 tax credit for first time homebuyers.
I am sure people are priced out of "desirable" places. I don't think this can be fixed by oversupplying homes in specific areas. You need to incentivize people to move into low dense areas.
Why would we want a public policy that spreads people out? There are great economies of scale in dense urban areas, not to mention climate and other environmental factors.
The reason no one else lives there are the same reasons I don’t want to live there. Not everyone will be happy living in the middle of nowhere. I’d wager most wouldn’t.
Sure, but that is what public policy is about. Incentivizing citizens through a democratic process that alleviates resource constraints so we can plan for the future.
I think people already are going to less desirable places. People priced out of higher income first tier cities are coming into 2nd tier cities, which then makes the 2nd tier places unaffordable for the current population.
Younger people need to join the YIMBY movement in droves. Your economic future depends on removing the crushing restrictions on building new homes, especially homes in high wage cities. The older Boomer generation will never change its NIMBY views. Never.
In addition to others point out the timing issue, in many cases you'd end up buying a home that has been lived in for 40 years and is likely well due for expensive updates. Sure its a house and that's not nothing, but it may not really help with the "affordable" part that's missing today.
1.8M/year (55+ cohort) is potentially not fast enough to bring about housing policy change in a timely manner from this alone. Non market housing is also a necessary component besides YIMBY. Housing locked up from market forces is housing that can remain affordable.
Only if those multi family units are sold at a reasonable price, or rented at a sustainable rent. There is no guarantee this happens if I sell to a developer. It is guaranteed if I develop the property.
It doesn’t matter a whit what price the developer tries to sell them at or what a landlord tries to charge for rent. There is something called ‘supply and demand’ and it applies to housing as it does to everything else. More units expand the supply and put downward price pressure on existing units.
The reason housing costs are so high is that there are too few homes and thus landlords and homeowners charge outlandish prices because people have little recourse but to pay since they are so few options.
yeah but you have to move to realize the value. put the money into the stock market instead and you can sell off the stock to realize the gains without having to move. except for the hottest areas (eg you bought in san Francisco in 2009), the sp500 beats real estate.
housing _is_, unfortunately, considered an investment for many people that cannot make relatively-significant money otherwise. (note: i am also against the housing-as-an-investment school of thought.)
The federal government through various tax mechanisms encourages home to be viewed as investments: 1. Mortgage tax deduction. 2. Sales tax exclusion on the first $500,000 3. Capital gains tax rate on the remainder.
Local government through zoning codes act as cartel limit the supply of homes which work to increase prices.
The financialization of homes is a direct result of government programs.
If you allow private ownership, it's gonna be a significant financial asset that people work to optimize (which is not very distinguishable from an investment).
Personally, I like the problems you end up with in market system that has sufficient supply (which we don't particularly have).
Expansion of housing vouchers at the US federal level would significantly address the needs of those who can’t afford market rate housing. Vouchers are more flexible, time-limited, and face less political opposition than local subsidized housing options.
New market rate housing gives wealthier people something to buy so they stop bidding up the price of older homes. This immediately relieves price pressure on the older housing stock.
Leftist dreams of a government funded social housing utopia in the United States and the UK are just that: dreams. Reforming zoning on the other hand will strongly encourage developers to quickly add higher density housing in job rich urban areas.
House prices are supply and demand. More units, lower price. Imagine 1000 homebuyers for 950 houses. Capitalism says the houses go to the top bidders. Communists might use social credit or something. Technocrats might score on IQ. But there is no system that could possibly result in fewer than 50 people being homeless.
Are mortage rates that high everywhere in the US? 7%, or 6.625% sound ridiculous to me in norther europe. I pay 4.54% now with roling 3 month-fixed rates, but its going down now, and I could get it for 3.55% if I fixed it for 5 years. 30 years fixed is pretty much impossible here in Sweden. But you get ~30% of your interest back as tax deduction, so effectively I am borrowing at ~3% (in SEK). Which, again, is cheaper than 4.5% in the US in 2019!!!, a time when my parents could borrow 20 years fixed at ~2.2% (in the euro zone).
The majority of mortgages in the US are fixed rate with a 30 year term.
Mortgages originating now will have a rate in the 7% ballpark. In 2021 you could get mortgages with a 2.5% fixed rate.
However, it's common for people to refinance down to a lower rate when they come available, so lots of American homeowners have rates in the 2-3% range.
Makes sense, thank you! Actually that would go in line with my suspicion that 'the market' predicts/trends towards a 2 USD = 1 EUR rate within one or two decades.
Maybe I am wrong, but at least in some contexts one can get a mortgage in a foreign currency. In which case it would be beneficial to use the more inflating one if they were the same rate, wouldn't it?
Sydney has the capacity to build a highrise crown casino at the city centre then why can't they hire the same builders to continue building residential 3BDR-4BDR homes in the suburbs which will also allow locals to have children. I believe the pricing of various things involved is insane and not where it should be to allow this to materialise. The rents, insurance, wage bills and capital cost seems to be the major bottlenecks.
In my opinion the problem is the ability of people to write some percentage of owned homes as tax losses as depracation to a ridiculous degree. Its often possible to buy a home, write off its entire value as a loss due to depracation, and then sell it for more then you bought it for, without ever once renting or using it. This is also true for some other asset classes, like ships
I always assumed when the baby boomers retired there would be a flood of big family houses coming up for sale.
I see it in my parents that they're pretty comfortable staying in the family house as long as possible, I'm happy with this. It is made a lot easier by the fact that prices keep going up so staying in a house that is oversized financially is rewarding.
I'd like to think it'll all come to and end one day as the spiral reverses, but I've been wrong for so long now I'm losing faith.
Variable rate mortgages have varying lengths, and we will see the entire unfold in roughly 3 years.
Which is probably a mix of stagnant house prices and severe salary increases (for the ordinary person).
We are in a wealth dispersion period now (I think) - The ordinary people will catch up with tech workers, and high-salary epople (as in: reducing the number of multiples in the salary)
> I always assumed when the baby boomers retired there would be a flood of big family houses coming up for sale.
Here in Munich, they indeed are... and wherever possible, they and their often beautiful gardens get torn down, and the entire plot gets "densified" by creating as much indoor space as possible. What was one house for one family is now at least 6-8 apartments for DINKs, often built in shoddy quality with corners cut everywhere but priced and sold at record amounts (that still get paid because all the tech and car bros massively distort the wage market).
On one side, it's positive because the lack of housing is absurd.
On the other side, none of the surrounding infrastructure was built with that density in mind. Parking overflows everywhere because you physically (slope angle vs lot size) can't create enough garage spaces, traffic itself is getting more and more dangerous as the small streets have been built as tiny veins but now have to carry 2-3x the traffic load, public transport can't handle it as well, doctors/kindergartens/schools are on the verge of collapse, the grid operator doesn't allow PV or EV installation because all the density increase would first require a complete overhaul of the last mile distribution grid. And on top of that, biodiversity has taken a visible hit as all the trees and bushes getting ripped out and replaced by steel eyesores and yards being replaced by gravel so that the hipsters don't have to bother with mowing a lawn don't support insect life, so the birds vanish as well. No free-roaming cats any more either thanks to traffic.
Seriously, screw urbanization and gentrification. We absolutely need to revitalize rural areas again.
The problem is rural flight. We have insane housing pressure in the largest cities (Munich, Berlin, Hamburg, Frankfurt), but a loooot of vacant housing in the rural areas - over 10% of units [1], in extreme cases in Eastern Germany 15-18% [2]. Turns out young people flee in droves as soon as they can, when they don't even get ADSL at their home, where they don't have any chance at employment, or where neo-Nazis have been taking over.
Same everywhere. 100 years ago my great grandparents all lived on farms, now we're all in big cities. I always assumed I'd go somewhere quiet after retirement but that isn't looking possible anymore.
Of course they did want space. Turns out most people can't stand being locked up like chicken in too small coops too long. Domestic violence exploded for example - and that's only from those who were actually able to call police [1].
On positiver notes, you had stuff like urban gardening increase in popularity [2], or sales of (e-)bikes towards people who went and biked to the rural areas.
And finally, WFH made it possible for a lot of people to give up their expensive city housing and move out into the suburbs... but obviously nowhere near enough to make a serious dent in demand, and RTO policies are creeping up and destroying even that bit of progress.
I don't really see a decrease in population density and the corresponding increase in cars on the road as "progress", otherwise you're about to tell me that American-style giga suburbs are the answer to our problems. Densification is actually the answer as it's a far more efficient use of resources.
Densification only works when designing an area from scratch (like China), when you spend many many billions on retrofits or when it was built with sufficient sprawl to accommodate expansions in infrastructure. You can't just go and tear down other peoples' houses here, it's not the Soviet Union.
Densification works organically when you don't ban it. That's the way cities have always grown. You plan for the future, upzone areas when appropriate, let the property owners determine what's in their best interests, and collaborate with them to ensure that the necessary infrastructure gets built.
> You plan for the future, upzone areas when appropriate
That is a luxury Americans and Asians have, simply because there is/has been just so much unsettled land available.
Here in Europe, our cities are quite literally millennia old, some such as Rome dating back to the earliest days of recorded human civilization. It is incredibly difficult to retrofit anything there, and that's before you take archaeological and landmark protection demands into account.
It's not a luxury only they have, and Asia has lots of ancient cities too, sorry to disappoint you but urbanisation did not begin in Europe. Just down the road from me in the middle of the city we have a huge Kleingartenverein. That area could be flats, boom—city's denser. Your take that it's impossible to make European cities denser just doesn't make any sense at all.
Yeah, and yet another piece of valuable biodiversity, yet another green zone down the drain. "Kleingärten" serve a vital and valuable role in a city's ecology.
Why only reply to the comment about Kleingärten, is it because you realise you're wrong about what you said about only Europe having old cities? Which is actually a fairly comically cringe and ignorant comment to make? I live in Hamburg and it's relatively young at 1200 years old. There are lots of far older cities than that in Asia which apparently somehow have the luxury of space and being built from scratch (lol).
Cities are dense and cities are good for the environment. Your dream of everyone living in the middle of nowhere and driving everywhere in cars would be an ecological disaster, far worse than these shitty Kleingärten that should generally be got rid of anyway, since, there's nothing biodiverse about Kleingärten, they're just monocultures that are privately owned. If we careed about biodiversity then we would rewild them.
It's not densification if it's "from scratch", that's just building something dense. So in short it's apparently impossible to make a city denser than it already is. But this is trivially false. Each city's density varies with time.
People want to have their cake and eat it too. They want the peace and quiet of single family homes with lots of space of rural areas for their garden and kids, with the job opportunities, infrastructure and amenities of modern dense hip vibrant cities where the best schools, jobs and entertainment are within walking distance or short commutes by public transportation.
There's obviously gonna be a shortage of such housing arrangements, and therefore will come at hefty prices everywhere.
Unfortunately, similar to the housing crisis , there’s a retirement home crisis and many people can’t afford long term care without selling the home they wanted to leave to their children.
And then (and I'll admit a cynicism here, from having seen the best of the best to the worst of the worst) retirement homes (ironically often owned by Boomers) chronically underpay their employees so many of the facilities I've seen in my time as a paramedic, I wouldn't send my worst enemy to. There is distinctly a segment of that populace who have on one hand, pissed off their children sufficiently that they don't want them living with the family in retirement, and on the other have studiously applied the "fuck you, got mine" mentality throughout their life such that their retirement or nursing home options are little better than "fade away just on the right side of the line of neglect".
How does this logic work when the next generation/incoming demographic is even bigger? Boomers aren't an isolated bloc of people followed by 20-year-olds. It's a continuous expanding number of X year olds every year.
For specific USA numbers:
There are 18.7 million 65-69 year olds.
There are 21.1 million 60-64 year olds.
There are 22.3 million 55-59 year olds.
Etc... You can't have one demographic retire/die off and everything is cheap again -- because there is always another demographic moving right into their place all the time.
They're probably referring to the Tory's proposed 'national service' thing, which showed up yesterday and is already being walked back; the Tories, facing fairly dramatic defeat in the upcoming elections, are throwing all sorts of nonsense at the wall to see what sticks right now.
I think he is referring to the Tory pledge of reintroducing the National Service, given that probably like 85% of the concerned would be used to keep the NHS afloat and the 15% would go to the army.
The problem is that we've made our housing into a financial product, not housing. We optimize for things like appreciation, maximizing square footage, etc. Not optimizing for the people who live in them, our communities.
Same with startups, anymore many of them are setup as attractive financial products, not attractive businesses.
What's scary is people don't understand how something being unaffordable is not much different from it being prohibited. And prohibition always leads to the rise of organized crime. Living in the Bay Area, I can't help but wonder if the homeless encampments are already under organized crime rule.
Even if you can afford to buy a home it isn't necessarily economical accounting in the opportunity cost of capital. This ofc varies across different times and situations regarding interest rates, regulation on mortgages in your jurisdiction, house prices and rent prices.
As many have noted, the problem is largely Byzantine zoning regulations, NIMBYism, and a "vetocracy" system that makes it extremely hard to build housing in so major metropolitan areas. For example, NYC likely needs at least half a million new homes to keep up with demand.
Canada in particular has a very strange housing affordability issue... artificial growth!
Our population is currently increasing by over 1 million people each year and it is 98% immigration.
I think an odd effect of very very high immigration is that everyone who arrives is presumably of working age and needs to be housed outside of a family unit. This puts immense pressure on a housing supply that is already decades behind where it should be and as a result prices are exploding.
Canada as a country has a population of about ~40 million people. The main country we are getting our immigration from is India with a population of nearly 2 billion. There is no possible world in which Canada can construct enough housing for the nearly infinite supply of people that it seems to be importing
A recent study showed it currently takes on average 10 years to go from acquiring a piece of land to building an apartment. This is clearly problematic but there is a physical limitation on how fast housing can be constructed.
In a lot of ways this is a problem creating itself.
The reason Home Ownership is desirable is that the pricing of houses go up faster then both inflation and depreciation caused by wear decreases the utility value of a dwelling, and the reason that houses are expensive is that the state actors are invested enough in this cycle to make sure it never really breaks.
In a real functional market there would be no real benefit to house ownership over long term leases. but were dealing with a market thats been deliberately broken by policies promoting home ownership for reasons that's fundamentally religious/dogmatic in nature.
You talk about demand for home ownership as if it is entirely induced via economics rather than inherently valuable. I don’t understand why? There are reasons why home ownership is desirable neglecting economics entirely. Owning a home gives you more control over the space you live in, in terms of the ability to customize the space.
That's again a false argument, made a complete lie by the existence of Home Ownership associations and other contract covenants.
Rights come from your contract with whoever hold power not "property ownership"
There is yes some cases where owning is giving you a better deal then leasing in terms of rights and obligations but this is not an universal truth and not the reason house prices consistently rises faster then inflation and average disposable incomes that have nothing to do with the utility value of property as an dwelling.
Ie if we were to go back to an scenario where home properties lost value as the loans were paid off and things got old and worn there would be no crisis, the issue is that the way that currency and banking intersect makes prices keep rising.
And your property rights come from the contract you have with the state. It's all in the formal and informal contract that govern society, and you can(as most suburbanites have) sign away all of the "control" that you seem to argue property gives you to some collective body.
In the same vain the government(and some wery much do) can set pretty strict rules on what restrictions a private landlord can put in rental agreements and that's before you remember that the government itself have historically been the largest owner of rental properties.
In the old days before the idea that owning a house was a ticket into a higher strata in the class system a lot of the problems now caused by unreasonable housing prices was solved by the government acting as the reasonable landlord, essentially curtailing the amount of shenanigans some wannabe aristocrat could get away with before going bankrupt from people not putting up with the abuse.
In a pure "realty don't matter" libertarian mindset your of cause right that property rights are always supreme but in the real world it's always a balance of power and negotiations especially once we deal with urban communities(which is the only ones where property prices are a problem).
> In a real functional market there would be no real benefit to house ownership over long term leases.
More precisely, there would be no net financial benefit to home ownership over long term leases, so people would use the free market as a tool to naturally sort themselves according to their non-financial preferences: people who valued the non-financial benefits of home ownership over the non-financial benefits of renting would own homes, those whose preferences were the reverse would rent. That would not mean nobody would own the homes they live in.
> The reason Home Ownership is desirable is that the pricing of houses go up faster...
No.
No.
The reason it's desirable it that I've lived in three flats in three years because subsequent landlords wanted to sell their property. I don't want to buy because it's a good investment, I want to buy so I can actually settle down in an area, and not be constantly moving.
I'm an expat now but I'm hearing it's even worse back in Australia. [Disclaimer: Some of this may be off because I'm hearing it second-hand, not actively investigating myself, so corrections are welcome]
I hear people who are already in the top 1-2% in income are told their borrowing power is only A$1M (~U$660K) while houses at all worth raising a family in cost A$3-6M. Banks don't seem to want to lend to them because they could instead lend to yet another property investor that already has a portfolio full of equity and collateral. The houses will sell and the mortgages will close, the banks can afford to be picky.
If you work in tech non-remotely, you're looking at the high end of that because you're competing with everyone else working tech, heavily weighted towards Sydney, and the rest of the country's housing supply is largely irrelevant. The cities certainly aren't designed for car commuting, so the supply of locations is further narrowed to places that are either so close they're walkable or have good public transport.
To my US readers I cannot emphasize enough how much this limits people's options both ways. When you have a non-remote job it limits your housing options, and if you're lucky enough to lock in a house, now it's limited your employment options in return. This isn't great for housing or employment markets. I'd like to think remote work has helped some people, but the most career-focused people I know are sticking to in-person connections, competing with everyone else doing the same.
Meanwhile cashed-up investors can buy up several houses and neither live in them nor rent them out. They're taking supply away from both the buying and renting markets, which is their legal right and a smart move on their part, but totally dysfunctional for the market as a whole. Anyone who does buy a house to rent it out is doing their small part to make buying less affordable but make renting more affordable, making it just that little bit less likely that the next person out there is a buyer of any kind.
Of course there's been doomsaying about a housing bubble pop for decades, especially during the world-famous pandemic lockdowns. Nothing popped and the exponential runaway pricing continues. Surely it's getting untenable enough to pop somehow, if my successful friends can't buy houses then I don't know who's left in the market except the real estate investors themselves.
I honestly don't see how I can un-expat now, and I'm just counting myself lucky to own property in the USA. If I want to keep this sweet deal, my options for moving are more limited than they've ever been, but it looks like a lot of people would gladly sacrifice flexibility to have anywhere near a tenable deal on housing.
Australia is always going to be worse as long as we have this weird government/cultural pumping of housing as an investment. Every single bogan here talks like the absolute epitome of life accomplishment is to have a property portfolio to laud over the plebcunt renters. The idea of investing in production or business is laughable, you don't hear it mentioned at all.
Our biggest software employers are banks and real estate companies. Everyone I've worked with in my career has worked for REA or a bank at some point. There's no innovation, just property investing.
As long as every newspaper in the country keeps running stories about some dipshit 20 year old magically buying 6 houses with a paper route, it's impossible for it to ever change.
I’m an Aussie who’s lived in the US for 10+ years - you are spot on. Every time I go back all everyone can talk about is property investment and house prices and buying rentals. It was starting when I left 15 years ago but has reached fever pitch now. Play a little game with yourself - see if you can get through any group social event without the subject of property coming up.
It’s very sad. Australia used to have a somewhat egalitarian mindset, but this is creating such a massive generational wealth and class divide that gets wider and wider every year. No one seems to understand the damage their quest for parasitic income is doing to society.
Aussie with expat career, back temporarily but heading to the US shortly here. Beware - Aussie banks don't lend money to people without local income due to federal "loan serviceability criteria". Like zero dollars available.
The problem is pretty easy to fix. 50-70% of homes (Depends on Area) are owned by people over 58-70 (Baby Boomers). They don't have good senior apartment/living options. Make more senior housing and provide incentives for them to sell their homes. There are so few available affordable senior apartment options. It's really saddening. Most places have 5-10 year waiting lists, if the waiting list is open at all.
Fixing senior living options will create inventory in the market and give seniors better choices with an active community.
unfortunately, since they own the homes, unless you want to take them from them by force, you'll have to give them some sort of incentive to give up their homes so no matter how much you structure it, it will amount to the same thing in order to get them to move.
Senior living centers are often atrocious and still can set people back over $10,000 a month. I think a program could be designed without being a handout.
One option could be if you’re going into a government run senior living center you need to pass that money down to whoever was going to inherit it/receive it through donation. And that has to be a taxable event to cover the cost of the subsidy on senior living.
People would hate that option because no one likes taxes but the private market is not getting us where we need to be. If people don’t like the option, no subsidy for them and they are free to figure out their own senior care. That money goes surprisingly fast.
I'm not talking about just senior living or senior care places. I'm talking about total independent just 55+ or 62+ senior apartments that have affordable rents available. There are very few of these and waiting lists are usually completely closed off and take 10+ years if your name is called at all.
> Senior living centers are often atrocious and still can set people back over $10,000 a month.
For "fun", most states publish nursing home reports. In the county I work in EMS, there are probably only two that have only either minor or no infractions. Every single other one has major / patient/resident risk infractions. Often around minimum staffing levels. Perhaps pay your CNAs above minimum wage, your LPNs above $20/hr, and so...
I bet this isn’t the entire solution but it seems like a really good part of it. I know seniors are snapping up Ranchers in the US, which takes away a starter home option for people just getting into homeownership.
> Make more senior housing and provide incentives for them to sell their homes.
Oftentimes those same Boomers in business own retirement/senior living/nursing homes. And while generalizing, the fuck you, got mine attitude means that nursing staff get paid a pittance, and oftentimes they're abusing the 911 system (multiple homes around here have a "policy" to call 911 for anything worse than requiring a bandaid - they won't let their nursing staff evaluate or treat patients for ... reasons ... - so we (paramedics) get called multiple times a day for little more than first aid, if that. Meanwhile, out front of the nursing home is a big billboard, "Round the clock nursing care!" and they're sending bills to the residents/families that reflect that, while you have CNAs and an LPN or two barely meeting staffing mandates, if they even are, who are unable to do anything).
In my opinion, there can only be one solution to this that will come sooner or later. A great correction following simplified zoning & building legislation. Federal governments across the west need to take control of building and zoning. Planning can remain a city/state/provincial affair, but it must be done under standardized and simplified building and zoning legislation. We are wasting unfathomable economic potential on rising housing costs, rent seeking, and artificially limiting economic development in urban centres.
It is probably exceptionally challenging to manage the economic fallout from such a correction, but I believe it has to happen. I would also support draconian measures which would forcibly and retroactively destroy accrued home value to ensure we haven't extracted wealth from the younger generations. I realize this is unprecedented and probably unconstitutional, but that's my emotional response to the problem. It is plain as day: Boomers extracted the wealth out of the country and now they're extracting the wealth out of their kids. It has to be stopped.
We had a response like this in New Zealand a few years ago, with the central government putting in place MDRS rules that forced councils to approve medium density housing pretty much anywhere a developer wanted to put it. For context, NZ is pretty heavily weighted towards single family dwellings, and our house prices are amoung the highest in the world.
It has been extremely effective. Of course you can never determine the actual effect of a policy like this in such a noisy environment, but everyone agrees it has contributed towards increased supply and falling prices, especially in Auckland. In the city I live in townhouses were almost unheard of, and now they're popping up everywhere.
Federal would require constitutional change, so it'll never happen.
But it's the right idea -- move it up the chain so that it's not a hyper-local issue. IOW, at the state level rather than city/county. This has seen some success in California: https://cayimby.org/legislation/
The Canadian government is currently facing this problem. Provinces have constitutional authority over building and zoning. One way they're trying to get around it (though in my opinion, no party is taking this seriously and all efforts thus far have fallen laughably short of where they need to), is by incentivizing the adoption of federal policy by conditioning federal housing grants on the adoption of new federally guided policy.
This is the way for the west, if we're being serious. Once we've taken a few breaths and accepted that we don't want to be authoritative, we can see that incentivizing provinces is the right move.
In my opinion, the federal government should be designing simplified building and zoning guidelines and offering unprecedented grants (on the order of tens of billions) to provinces in a first come first serve manner. Have provinces compete on urgency to receive the most funds, tapering off the offer the longer provinces hold out.
The BC government has been relatively successful at this. Housing prices in Vancouver used to be ~2X those of Toronto; now Toronto is more expensive than Vancouver.
The Ontario Housing Affordability Task Force released a list of 55 things to do to reduce housing prices. BC has implemented a far larger share of that 55 than Ontario has.
> In my opinion, the federal government should be designing simplified building and zoning guidelines and offering unprecedented grants (on the order of tens of billions) to provinces in a first come first serve manner. Have provinces compete on urgency to receive the most funds, tapering off the offer the longer provinces hold out.
That's basically what they're doing. They can't change zoning without changing the constitution, but they are giving out tens of billions of dollars conditional on appropriate zoning changes. BC has received lots of money that way, Toronto has bypassed the province to get theirs and Alberta has made it illegal for Calgary & Edmonton to access theirs.
I’ll keep shouting this from the rooftops: while it may contribute in some areas, zoning laws are not the primary cause of home prices increasing like they have. For proof, look at any rural (and I mean actual rural) area and how their home prices have also been skyrocketing.
It’s supply and demand, with other things being small factors. We either need to vastly increase supply across the entire country somehow, or cut down on demand. The latter is a hell of a lot easier than the former. For some reason it’s ok to talk about this in the context of Canada and how their mass immigration has increased home prices, but that applies to almost everywhere. Japan literally has homes they’re trying to give away.
> For proof, look at any rural area and how their home prices have also been skyrocketing.
Yes, it is supply and demand. And zoning is the largest component of the supply function. If you fix zoning, you fix supply, approximately. Outdated fire code, etc. are also important factors.
> or cut down on demand
This is called degrowth and it's how you destroy an economy.
> Japan literally has homes they’re trying to give away.
I'm not sure what point you were trying to make by invoking Japan -- Japan notoriously solved their housing crisis by abolishing the regressive zoning practices at the time and made basically everything one big mixed use zone. The reason why Japan is giving away houses these days is because everyone moved to the cities because that's where the economic opportunity is. And that's where people who contribute to the economy want to be -- where the economic opportunity is.
Zoning is only the largest component of the supply function in major cities. My point is that I could build as much freaking housing as I wanted where I live, of whatever type I wanted. Our local population numbers are relatively stable. Yet prices have still been surging. Why?
I said cut down in demand, not go into full depopulation. That said, at some point we’re going to need to deal with that. We can’t just keep on importing people from the third world forever to offset people making less babies. Just aim for, say - an increase of population of 1% a year. Right now it’s completely uncontrolled and people are somehow shocked that housing prices are out of control.
Even in Tokyo home prices aren’t bad, and that’s with their culture of tearing down and rebuilding every 30 years. My real point though was that the same is true here - most economic opportunities are in cities. Yet our rural housing isn’t getting cheaper, and it’s increasing in cost almost as much as (most) urban centers.
> zoning laws are not the primary cause of home prices
> We ... need to vastly increase supply across the entire country somehow
Zoning laws reduce available supply by making it illegal or impossible (due to e.g. parking minimums) to build densely in most of the bigger cities in North America
> For some reason it’s ok to talk about this in the context of Canada and how their mass immigration has increased home prices
1. It's not okay to scapegoat immigrants
2. Canada hasn't built enough housing to keep up with a growing population, largely due to exclusionary zoning policies. The vast majority of land in Vancouver is reserved for SFHs, even within walksheds of skytrain stations representing billions of dollars in Provincial investment.
I know it’s hard for people that live in cities, but you all can’t see the forest for the trees. Even when talking about Canada’s issue you say they haven’t been able to make enough housing…in cities.
First off, they can’t make enough housing anywhere. There are only so many home builders, and at least in the US up until the last year they’ve all been absolutely swamped. It takes time for more people to learn trades.
When housing is cheap enough outside of cities people move there instead. We see it happen all the time, and it’d happen even more if rural home prices also weren’t going up like they have been - especially now that working from home is here to stay for plenty of companies.
I wish you could go outside my house right now and look around.
Guess what - there’s basically no zoning here. There’s land. If I wanted to put up a 30 story apartment building I could, though I suppose what few neighbors I have might make a stink about it, and it probably wouldn’t make sense when everyone here lives on at least 5 acres.
Yet - somehow, amazingly, prices are still going up. We have a severe supply/demand mismatch in the country that drives prices up across the board.
The individual States have the power to do this, you don't need to get the Federal government involved (nor would you want to). It is also much simpler at the State level, since the solutions can be tailored to local conditions and you don't need to get nearly as many people living far away to agree with you to get anything done.
Without demonstrating success at the much more achievable State level, there is no way it will work at the Federal level, even ignoring the obvious Constitutional issue.
The hard truth is that all of these potential solutions are just band-aids. Until housing is no longer treated as a viable investment vehicle, we are fucked.
Pff, in Switzerland, the mean age of the first-time home buyer is 48, and the mean age of a homeowner is 58. And those are the luckiest and the richest who could actually afford buying a house; many rent for life.
This is not a useful model; in fact, things are quite bad here. I just wanted to say that US homeownership is absolutely exceptional, has no analogues anywhere else, and exists only by means of extensive government support. In most other countries, buying a house in your thirties is absolutely unimaginable.
What age is reasonable? Okay, maybe not 30s. How about 40s? The way we are headed most GenZs are not going to have enough to be able to afford a house in their 40s or even 50s.
The number of people that think owning property/a house is not only a “right” but “required” is *absurd*. It’s an idea pushed upon the “next” generation to prop up the value of their assets. :eyeroll:
On top of the weird collective delusion, most ignore the huge financial/time burden that is owning a home. It is not cheap, and anyone that tells you otherwise is *literally lying*.
There’s the never-ending maintenance that costs thousands per year in both money and time, small problems can cost thousands of dollars to fix, variable property taxes, variable insurance rates, having an asset worth being sued over, shitty neighbors that you can’t easily move away from, bad school districts, etc etc etc.
Is home ownership right for _some_ people? Sure.
Is it right for the majority of people? Probably not.
Should corporations be allowed to own housing? Hell no.
Yes, and I think there is some truth to the statement that the older generations are stealing from the younger generations, whatever the underlying financial/technical explanation may be.
The game is rigged. But that should be no surprise. People who enter a game of Monopoly after a few rounds have been played know that they will be swimming against a strong current. Our financial systems are unfair and broken.
We're born in a year we didn't choose to parents we didn't pick with talent we didn't earn with intelligence we don't deserve with environmental influences we can't control.
The game is Texas Hold em. Play your cards. Bluff if you must. Press if you can. Go all in when you can leverage.
I recently got to know a gentleman quite like myself. His parents and upbringing are quite the same. His father took risks. Mine did not. He's got a million dollar business that he took over. With respect, I don't think he would be any better than me without his father's risk and resources.
I was briefly jealous. Then I realized I was exactly in his father's position. I'm taking risks and building something for my kids. He's one generation ahead of me.
You can get upset about the game or play it.
I took a risk a week ago. Turned $500 into $11,000 with a little effort. My skills let me analyze stuff quickly. I discovered a pump and dump bot network. It turns out I correctly matched the entry and exit signals to the bots chatter.
If i can validate this next week, I will pay off my house in a few weeks.
Do we want a society that rewards gambling behavior, or do we want to reward honest hard working? Apparently we cannot have both, because we are now observing that increasingly money (and bricks) makes more money than honest work. You can keep playing the game until there are only survivors and losers but ultimately we need people who do real work.
Unless of course you want to turn those hardworking people into the slaves of the surviving gamblers.
Generally, the game is Hard Work will equal Positive Outcome. I was speaking more about the hand we are dealt. We can whine or we can find a way to play - or work - and win.
I "slave" away 50% of my life so that my family can thrive. This sacrifice brings me much happiness.
...there is nothing better than that a man should rejoice in his work, for that is his lot....
The US government printed a bazillion dollars during covid, continues to spend wildly, and engages in practices like transfer of college debt from debtors to tax payers.
It's a complete mystery why inflation has run amuck.
> It's a complete mystery why inflation has run amuck.
The CPI inflation rate is 3.4%, and it's been under 4% for a year.
House price inflation is at almost 6%, and it's been above 4% for more than 10 years. The lowest house price inflation rate during Trump's presidency was 4.4%. Excluding the financial crisis, you have to go back to the mid-90s to find house price inflation under 3%. Pandemic-era fiscal policy and college loan debt cancellation is not helpful as an explanation for the explosion of house prices.
My local grocery store has a “senior discount” of 10% off for anyone over 65. I find that sort of positive discrimination to be a gut punch to young families.
If you leave in some mid EU country, chances are a lot of your current government's policies are based on "sticking it to the man".
The man used to be an upper-ish class dude (p96+), but due to how horribly slow and uneducated governments are at making data-driven decisions, the man is now a working or middle class dude.
As a result, you will see property prices skyrocket in your area while the government takes 50%+ of your 5% pay raise, leaving you only some pocket change richer than before. But the property owners in your area will be richer every year because their great grandad hunted a bunch of whales or some shit, and so called progressive policy makers are clueless about wealth distribution.
As long as people are willing to pay “anything” for their home - prices will always be near the max that they are able to afford.
To be honest I don’t think capitalism is able to fix this problem, the only solution I see if government takes over and subsidizes housing enough from taxes to make it more affordable for salaried employees (needs to come with strings attached so the free market does not turn a quick buck reselling)
I can't imagine there won't be a major crash soon and then Biden will shift from shoveling more printed money to new "homebuyers" (his $10K tax credit and his proposed $400/month grant for the first 4 years) to printing more money to bail out the industry he propped up.
The only solution, of course, is to build more houses! Build until prices fall! (And don't bail out people who are now underwater because prices fell.)
Those problems of unaffordability of homes is a symptomatic effect of an earlier problem. During COVID-19, facing possible catastrophe in the Economy, Trump presidency pumped money into the US economy. The Biden presidency continued this (despite no indicator of recession). There is a 7% gap between Federal income and expenditure, and this drives up the interest rates, making home ownership less affordable. "Across the aisle" there is no appetite to raise taxes or cut spending so the problem will only get worse. Since the dollar is a global reserve currency, any printing of money is diluted across the global demand for dollars. So the reckoning will come quite late (in contrast with Greece who had to be bailed out following a similar trajectory). But the reckoning will come. Unless spectacular success in productivity arises from AI (which cannot be discounted - the US is a leader here), there will be a crunch where savage cuts and bail outs are needed.
Note US GDP looks great until you realise that it is in dollars whose nominal purchasing power is diminishing. There is no better was of seeing this than in the price of housing.
Here is mine. The Boomers, the generation born 1945 - 1965, benefited from affordable housing, and when it grew up, set about making housing an investment.
'Affordable ' and 'investment' are mutually exclusive. That is why supply is not keeping up with demand, and why there are so many unoccupied houses.
In my mind I redefine the housing crisis in Canada as a business clustering problem. I think the percentage of attractive businesses that are concentrated in a few areas is too high. This comes in conflict with the human desire to not live in a sardine can. I would leave my city, but where would I work? My options to have a dignified life feel limited to me, especially in tech. Tech bros like me are pretty constrained to cities, which I really don't like.
That doesn't make any sense to me. Tech bros don't make physical goods. You and I can do everything remotely. There's no reason to live in a big city other than you chose to.
We can do things remotely, but trying to do complex things with lots of expert input and less-than-perfect management is _way_ harder to do remotely than in-person. We evolved to work things out with other people, not via a low-res video and slightly out-of-sync audio.
Our economy is designed to extract wealth from the young to the old and the rich. Home ownership has become a primary method of creating generational wealth and that was a huge policy mistake. Even China has made this mistake. Almost all Western countries have too.
So let me explain somethign that is often misconstrued about leftist sentiment, be in socialism or whatever: leftists generally make the distinction between personal property and private property.
Private property is what we have now. We have wealthy landlords buying up houses to drive up prices. We have single homeowners who think their home value is going up so that's good for them so they vote for these policies. A leftist position is that you're entitled to own your personal residence but there's next to no landlording. Housing is a basic human need. The only way to provide it in a sustainable way is with social housing. For example, the majority of housing in Vienna is social housing.
The UK came really close last century to ending landlording [1] (ie councils simply bought houses from landlords who wanted out).
But if you think about it: there's no way your $200k turns into a $600k house without that money coming from somewhere. You're taking it from the next generation.
Capitalism loves this because a) a bunch of capital owners become even wealthier and b) debt-laden workers and workers who will take any jobs they can get (ie it suppresses wages).
In the 1990s, the average house price in London was ~70k pounds. Now it's over 700k.
Pretty much everything bad about modern society can be traced back to private property, be it intellectual property, housing or whatever.
People need to realize that if your house triples in value, you haven't really gained anything. If you sell it, what now? You still have to live somewhere. That means higher rents or buying an equivalently priced home. Or downsizing or moving overseas. This is why housing is unlike other assets.
we, as a society, have decided to prioritize generational wealth from landlording by literally killing people by denying them housing.
Worth keeping in mind that the UK has quite a lot of social housing, more than most of it's European neighbours and Anglosphere offshoots, yet still struggles more than most with housing. Social housing is not a silver bullet.
Honestly I'd love for some good data, rather than cherry-pick journalism. It's crazy how many news articles will simply parrot a narrative without actually investigating it.
The discussion on housing should start with one fact: the supply of housing has been growing faster than the size of the population, decade after decade, for a very long time.
This is why the number of people per home, has been dropping decade after decade. That is a measure of luxury. We can afford homes with fewer people. People can afford to be single and live alone. We can afford not to take in a roommate. Couples can afford to each have their own home. That's not an indication of a housing crisis or being priced out.
Then there is home size, it has been increasing also, decade after decade. We can afford to live in bigger homes. Again, a measure of luxury.
Anecdotes about 'my (grand)parents lived in XYZ home that's way bigger than mine' are just that, anecdotes. The data shows we live in bigger homes with fewer people, in fact we have double the housing that we had a few decades ago. In other words, the average person's lifestyle with respect to housing has greatly, greatly improved compared to previous generations.
What is often also not mentioned is that affordability is not a function of prices only, but of prices x the cost of money (i.e. interest rates). In the 1980s interest rates were as high as 18%, now it's 1/3rd of that at around 6%. That's the true cost of housing. Taking $1000 and paying off $1000 in debt has no impact on your equity, you're as rich as you were before the transaction. Paying interest however is money you'll never see again. That cost was 3x as high a few decades ago. Prices haven't tripled when adjusted for inflation and salaries, not even close. That's why affordability of housing isn't the disaster that many people think it is.
Here is an old source (2016), which you may think is outdated. But it shows a multi-decade trend that cuts across the same price increases we've seen in recent years:
I'm not even going into how the function of housing has changed. With today's connectivity (netflix, spotify, internet, food delivery, teams/slack, amazon etc), it has become more than ever: an workplace/office, a cinema, a library, a music studio, a game hall, a restaurant, a shopping mall. Its value has increased.
No, I'm not saying finding housing is super easy for anyone and everyone. I recognise many find challenges. But what is simply not true, is that it is any more difficult than the past. In fact it has never been easier. What appears true however is that our lifestyle expectations keep increasing faster than our lifestyles are improving.
I agree with a lot of what you are saying, but to say it is easier to buy a home now than at any time in the past is objectively untrue. Yes, houses today are much better than 50 years ago, but the cost to entry has gone up faster than salaries. When my parents bought their first home, the median salary-to-home cost ratio was roughly 1:1. It is closer to 1:6 today. Yes homes are more valuable today, but they are also objectively more difficult to purchase.
What if the common trend of 'house prices rising totally out of whack' amongst various locales (Canada, USA, Europe, Australia, China) is not.. actually, a common trend? No single explanation suffices; it's just coincidence.
Low interest rates raise house prices. This has to be a 'duh' thing, really, but, governments don't really appear to 'get it', or, play dumb for political reasons. If, after adjusting for inflation and the like, the exact same house costs €500,000 in 1980 but costs €1,000,000 in 2024, BUT, interest rates in 1980 are double what they are in 2024, your mortgage cost to buy that house is __pretty much identical__.
It's oversimplified to say that this means 'real house price has not changed'. It still takes more money to actually buy that house. But, of the money you pay every month for your house, more of it is a weird, not very liquid investment portfolio, and less of it a weird form of rent. It's got all sorts of problems: Not everybody qualifies for a mortgage in the first place, for starters. But _in the end the amount of money you have to burn just to live in a house is identical in this hypothetical scenario_.
One lesson you could learn from it is that everybody is whining and houses are just as affordable as they've always been, but that's not my point, and isn't really true. The point is more: With low interest rates, house prices skyrocket.
This explains _some_ high house prices, but certainly not all.
For example, China's is an utterly different explanation. Due to the way their government is set up, the usual benefits of a free market, namely that the population 'intelligence of the masses' their way to efficient allocation of resources isn't a thing china 'does', in essence. Government decides what happens. And so far, they've decided to build more houses than there will ever be chinese people to live in them. Ever. This is a bit of a problem today and will be far more of a problem tomorrow. But that's it. That's the simple, sufficient, and therefore only required explanation. It has NOTHING to do with how hard to it is to build in China (it is not), nor with population growth (it doesn't, or rather, a sheer and severe drop in house prices looming, that'll be explained by China's population glut). It's just that: They built way too many, and their market system cannot respond in kind to stop that runaway process.
In europe, yes, in large part runaway NIMBYism and being at the forefront of ecological change, putting limits on how much nitrogen/co2 can be 'used up', and building does take quite a bit of that - has put the breaks on building. Especially combined with extremely low unemployment which hurts the building sector. "Too few houses being built" is a factor.
But not the only one. And I think, not even the largest one.
Yet another explanation is lack of efficiency: Fewer people partner up, so, more people live alone. They tend to use space inefficiently: They all want their own kitchen, their own shower, their own living room, their own bed room, their own hallway, and so on. A really cheap and ludicrously efficient solution to _that_ is dorm-style living together. Instead of having a small crappy single-tenant kitchen, why not have a giant luxurious very well stocked kitchen you share with 9 other solo tenants? Yes, there are all sorts of downsides to this (which lout has made a mess of the kitchen?!? - and nobody wants to deal with a cleaning schedule), but in the end it is vastly more efficient, and better for social cohesion.
Society in e.g. europe and the US has not, yet, adapted to it. I hope it will. It'll solve the unaffordability of housing crisis all on its own if society wants to invest in it.
I dunno, spending years giving someone the same price as a mortgage (for me at least, back when i rented and decided to buy) and seeing almost nothing in return but convenience seems a pretty strong argument no?
Yea, renting has some advantages. However in my view many people are simply too poor to spend that kind of money on the convenience of not managing a house. Is it more work and liability to own a home? Yes, definitely. However i was looking at throwing away $168,000 when i was renting over the next ten years (assuming no price fluctuations, which also doesn't happen lol). I couldn't afford to spend that kind of money on convenience.
Plus there's America's (imo bad) idea that home ownership is an investment. Unfortunately, my home has doubled in price. So not only could i not afford to waste the money renting before, but now i've made significant money by simply not renting before. Where as i'd get the privilege to lose even more money by renting if i had stayed where i was before, since the rent has gone up - many times.
Is there another angle i'm missing? I rented for years, and now have owned for ~8 years or something. Renting has upsides, yes - if you've got the money. I don't think most people do, especially these days. Is there an argument i missed?
If your mortgage is the same as your rent, seems reasonable. In some housing markets, just servicing the interest on the mortgage is close to the cost of rent. Buying then becomes the "luxury option".
If you don't mind me asking, how much will borrowing cost you over the same 10 years?
This wasn't bait. Really depends on the country where you are living. In Germany it is totally fair to rent. Has is ups and downs.. To bad it's flagged now. :-(
Low Interest rates, High Immigration, Wage stagnation and not enough building. Demand outweighs supply and higher interest rates make it difficult for buyers and builders. Immigration puts strain on the both Housing and Rentals making it unaffordable for existing pop.
In places like Toronto, huge influx of people where the city doubled in size in a few short years not only putting strain on housing and rentals but everything (hospitals, roads, schools, you name it).
In places like Texas the huge influx of out state people drove up prices where housing in DFW basically doubled in price since 2019. Very much like what Toronto went through. Migration from high tax states to low tax states has now made low tax states high tax states and Texas is becoming very unaffordable quickly.
Don't know what the end game is. In Ontario, Canada what use to cost 200k 10 years ago now is 1 million. What use to cost 1 million is 5 plus million and there is no end to the madness. You have foreigners from Arab countries, China, India paying cash for 2-3 million dollar homes.
Ask yourself, do Canada, Australia, New Zealand, the US, Britain, Ireland, etc, all have the same inability to build or is there maybe some other common cause?
In my view this is symptomatic of a more fundamental issue - global asset price inflation driven by a broken financial system (i.e. a system being artificially pumped up with cheap credit). Housing is just where the rubber hits the road and regular lives are directly effected. Just look at the tight correlation between the increase in the money supply and property prices.
For those who insist that the number of properties is inadequate, take a look at the numbers for each of the countries I mentioned in the first chart here: https://www.oecd.org/els/family/HM1-1-Housing-stock-and-cons... (Total number of dwellings per thousand inhabitants, 2022 and 2011).
This is a problem of underutilisation in my view. Too many properties are being used as investments and not as a primary residence.
Cheap credit causes an increase in demand. This is not demand for homes but additional 'artificial' demand for properties as investments. Think short term rentals, second homes, land banked properties, etc. By definition, only investment properties can be underutilised - owner occupied homes are occupied! So in an environment that encourages property investment you will see more underutilisation.
What will cause prices to fall is higher interest rates. This is what has been happening in NZ.