Homes in 97% of U.S. cities are overvalued, Moody's says
cbsnews.com
cbsnews.com
Practically that means paying to build and maintain housing stocks, changing tax incentives so developers are incentivized to build more housing and less luxury housing, charging a premium for unused land in desirable areas (parking lots don't house people), abolish mandatory minimum parking, and upzone neighborhoods (eliminating the "single family home" neighborhoods as a zoning type.)
I'm also of the much more radical opinion that we should protect tenants over landlords in nearly every case, that we should protect the rights of people to live where they've historically lived (eg, one shouldn't be "priced out" of the home they've lived in for 20 years), and we should offer extensive public housing (built as many geographically distributed small apartment buildings and 5 over 1s, not giant tenements or projects.)
Living where one has historically lived is interesting, take London - you're implying it should be a birth right for natives - what about the immigrant flow into such cities, how would you reconcile the "right of natives" with human capital?
As for tenants v landlords, I believe it should be difficult to evict tenants except in cases where the tenant is clearly a danger to others or to the home itself. If they are vandalizing the property, that should be an eviction. Likewise if they are cooking meth. But I think tenants should be protected if, eg, their income drops due to a layoff or unforseen medical expense.
They should stay if they can't pay? Who takes the loss? It would be sensible to have a government program to help people in such circumstances. But if you'd be asking for the landlord to just take the loss, that's not sensible. The owner is probably barely breaking even on rent vs. costs, so they can't afford it.
This also assumes good faith on behalf of the renters.
Landlords always say that they should be compensated for the risk of homeownership. If that's true, then some landlords need to lose money.
The system you purpose is not a loss some times, it is a system that can be abused all the time.
Who says landlords aren't losing money?
I am currently taking a loss. Two units are rent control at 600 per month, the third at 2300 hasn't paid in ten months with an eviction trial next week, I am in the last unit. I will be shutting down the property and using it as a single family home due to this loss. If you remove the incentive you remove housing or prices rise to cover the risk.
I see rent control as privatizing the cost of a social problem. You create restrictive zoning then say random landlords will subsidize people's rents. The single family home owners should share in the cost, and to a lesser degree, so should the renters who benefit.
Now you purpose an expansion on that same idea. Just remove zoning so housing can be built. Don't add more impediments like relocation fees and guaranteed housing in new construction for old residents and price controls. Then you will just have legacy units and luxury housing, an exacerbation of the current system.
1. https://www.newsweek.com/fact-check-are-pharmaceutical-compa...
That seems like a statement that feels good, but what should be the desired outcome for the benefit of society?
If you make taking a loss being the norm for a landlord, the outcome won't be having landlords grin and bear it and a city full of happy renters.
No, the outcome will be landlords will stop renting out since it doesn't make sense to take a loss. So the availability of rental units will dry up.
We can choose to pay for housing for everyone, we just have to adjust the formulas we use to decide who benefits.
That's just a loopback to where you started. When government pays, you pay.
Today, if I cannot pay, I get no housing. Taxes allow us, as a community, to decide that we should all chip in a little bit extra (commensurate to our means) to make sure everyone has a roof over their heads.
Also, government operated facilities do not have a profit motive, so there's less incentive to maximize the cost of housing.
Great, so the shit-show we have now, except without any incentive to efficiently spend. Sure that will go over swimmingly. Everyone knows that government construction projects are known for coming on-time and on-budget, and for the best value.
But I specifically believe in building more, smaller units. Places with eg 20 apartments. By building smaller scoped projects, costs are better understood up front, maintenance costs are lower, and you need less specialized construction expertise.
Building 50 20-unit complexes to house a thousand families is going to serve everyone better than building one mega project to house a thousand families.
[0] "Light-rail cost soars $1 billion" https://archive.seattletimes.com/archive/?date=20001213&slug...
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Edit: here's another one
"Sound Transit’s light-rail system, called Link, has also had its share of challenges. The 25 miles of light rail that voters were told would be completed by 2006 at a cost of $1.7 billion, have resulted in 23 miles of track which, when completed, will end up costing $5.2 billion."
"The $2.6 billion spent so far on the starter light-rail line takes the rider from Westlake Station downtown to an airport station 0.4 mile from the terminal in 37 minutes. "
https://seattlebusinessmag.com/article/why-sound-transits-pr....
This is the project I'm describing: https://mynorthwest.com/24890/university-link-light-rail-to-...
Zoning is your problem, not who is building.
Developers and landlords are working in the insanity that are municipal governments. Do you understand why we write people off when they say they want more of their involvement?
Loosen zoning and I'll take advantage of it. We don't need to pay some bureaucrat who has no incentive to do their job efficiently to sit in the middle of this. Zoning office budgets should be tied to number of permits approved or units built. Right now they get the same money for being impediments.
Oh, I almost forgot, I also need to have 14+ parking spaces if I build out fully. Again, zoning problem. Developers don't just love parking lots.
Additionally, there are numerous governmental restrictions on minimum square footage, sometimes onerous building codes, impact fees, and zoning restrictions to name a few.
Yes, there are many artificial constructs that prevent true free market, but I still do not believe that capital accumulation by capital overs is not an property of this idealistic system. Do You have any real example of invisible hand working (by which I mean not ending with the top dogs holding all the bones) ?
I do not believe that this is it - there have to be other better constrains combinations. It just that there is so much vested interest in current system that no one will dare to contest it enough to really try something different.
Is this a rebuttal to turtledove for introducing the notion of 'profit motive?' His introduction is the source of our discussion on 'profit motive.'
>(https://en.wikipedia.org/wiki/Charging_Bull).
The beautiful thing about art is you can interpret it however you want. You interpret it as a "golden idol" of the profit motive. I could interpret it as an angry bull sick of the ways of capitalism; a bull that wants to inspire free health care for all.
The advantage of a market in this context is two-fold 1) Private-losses, mispent investments should have the investors bear the cost of losses. Granted, we often bail out investors or banks, but that isn't a market phenomena, it is a political one. 2) Where there is more profit to be had (high prices) there is more incentive for more investment.
Now, one could argue that a market system is more likely to be corrupted such that the connected get bailed out or other advantages. But if you don't trust the political system to regulate the market, why would you expect it to better regulate a bureaucracy that more directly controls the relevant resources?
I think You are underselling it - that's just the mechanic through which it works. But at the same time too mamy people treat it as idealogy and sell it as a silver bullet and not merly a tool which it should be.
My main point is that we should not see markets as an end game - this is just a primitive human made system that should be evolved.
Private enterprise is good at projects where the project owner can (directly) capture the majority of the value created and is responsible for the majority of the costs involved in that creation. The mis-alignment is that this creates strong incentive to shift the costs outside the organization.
Government is better at projects where the majority of value created is diffused across a large share of the population and/or over a long time frame. They do have a strong incentive to keep costs down, because costs are paid by taxes and taxes are unpopular and lead to revolution.
This is simple economics.
There are numerous examples of government projects which may or may not have been under budget, but which created 10x or 100x or 1000x returns. Things like "public roads", "internet", "education" spring to mind.
>This is simple economics.
I'm sorry, but simple economics from where? By what authority is that some immutable 'simple economics?' I reject your thesis. Regarding 'costs' being 'taxes' and them going 'down', I invite you to study the change in federal taxes as a proportion of GDP in the past say 130 years.
>There are numerous examples of government projects which may or may not have been under budget, but which created 10x or 100x or 1000x returns. Things like "public roads", "internet", "education" spring to mind.
Yes now think about how much better return, and many other projects may have emerged, had the government not sucked that money out of the economy. "Muh roads" sounds nice but you can privately build a road without taking money at gunpoint from peoeple, and also get good returns. If I take $20 from you and buy you a $1 pen, I don't get to brag that because I bought you the pen you wrote a multimillion dollar book (even then it is true in some perverted sense the pen [road] had 1000x+ returns).
You’re basically taking a market that has an artificially constrained supply and trying to replace it with an entirely planned system.
Why?
And to be clear, I've proposed a system of adjusted incentives followed by but not necessarily required to be followed by a more planned system.
It's like rent control in SF or public housing in Singapore. Design a new system and you'll create loopholes to be exploited. Fix those and new loopholes are created. And on and on.
Easier to just remove government restrictions to supply and build until prices come down.
Which is a huge success.
Singapore is unique in that they have a massive well (proportionally much bigger than US) of workers paying taxes who are ineligible for much of the fruits of those taxes. Only the 2/3 with Citizenship or PR can meaningfully get public housing.
I'm sure about any nation could have more affordable housing if they have endless wells of guest workers who can shoulder the cost without yielding that benefit for themselves.
If you're talking about providing housing in a country that had little quality housing 70 years ago, then yes, it's successful.
If it's providing affordable housing for young people, then I'd challenge that. You can't even apply for public housing unless you are married (otherwise wait until after you are 35). The government overbuilt before, so now it's a 4-5 year wait after you win a lottery to get a house. People are still pumping real estate like crazy and the average home in the resale market is >$1M now (which is a 3 bedroom, 100 sq m apartment with a 99 year lease).
Singapore is stuck in the exact same situation as every other developed country - housing is an asset that the middle class expects a healthy return on, yet increasing costs are a barrier to new owners.
Haha.
But memes aside, no, there are many, many examples of public and social housing that are not concrete slums. Look at Singapore, Paris, the Marxhof in Vienna. Quayside Village in Vancouver.
If you'd like, I can provide links to many examples from many countries around the world of successful public housing that isn't Soviet bloc housing.
But I suspect you most likely just glean all of your political opinions from memes, which could explain some things.
There's a lot of people building straw men in the comments, and then pointing out how flimsy those straw men are, I'll grant you that.
We’ve also seen, during this pandemic, what happens to rental prices when landlords are powerless over tenants. They go up. And landlords discriminate harder against tenants who look like they’ll be bad tenants if they can’t easily evict.
And just as my ability to get sued is what allows me to enter contracts, my ability to get evicted is what lets me pay cheap rent.
We can make incremental progress here by just tweaking incentives. We can go further by reducing profits. It's not some binary all or nothing affair.
Oh, and to add to the utter inanity of what you're proposing, make sure that you sell it at your purchase cost and not the 200%ish extra that they tack on to a 30 year loan at 4% interest.
Go ahead. Chalk it up to a personal experiment and let us know how it turns out in 30 years.
And I've done what you describe. I was a landlord for a decade.
I paid back each of my tenants all the profit I made from them, thousands and thousands of dollars per tenant. Adjusted upwards by the amount the property had appreciated.
I now rent in a sliding scale, capped at the cost of the unit.
Granted, it's only been ten years, not the thirty you suggest, but it's worked out great. Nearly every tenant has used their time with me to build a nest egg or savings that enabled them to move into a house they owned.
You are discussing an entirely different issue.
This also means deadbeat tenants get kicked out, but I think that is intrinsically a good thing. Occupying somebody else’s home and not moving someplace you can afford is just immoral.
Manipulating people to buy stuff they don't need (advertising, marketing, hollywood) is immoral in so many ways. Weapons are very questionable, massive markups on basic stuff (cosmetics) etc etc if you go on about 80% of our economy is actually immoral. Even foods which are a basic good, are generally bottom dollar hollowed out poisons compared to what they could be if health was the primary concern. Don't get me started on the corruptions of profit to the medical process.
I don't know what your problem is about housing but it seems out of perspective if you're not going to campaign against profit from just about everything.
And yes it’s possible to be capitalist and agree with sensible regulations. I’d rather we focus on building amazing companies and utilizing labor effectively.
Mixed economies are not capitalism.
You can say you're a bit capitalist - that's an easy one, we have plenty of data to show that positive economic effect for everyone are linked to free markets - but still believe fairy tales about the government being moral and caring about something which is not being re-elected and stealing money from people.
These are not zero sum games, and people that think they are probably have no skin in the game. Even the people with lots of wealth and resources worry about losing them, and in order to maintain it you need to make concessions when necessary and be pragmatic.
But "homes have costs" does not axiomatically lead to "housing must therefore be a market."
I think you'll find if you increase housing supply and density you're likely to end up with more natural spaces, not less.
Cars are bad, you see, and therefore, let's pick some irrelevant problem (parking lots), and conflate it with housing issues.
First, most places have zero housing issues. Mostly, certain tiny areas(with large populations) of California do, but the rest of North America has no shortage of land to build on.
And unlike California, most of the world doesn't seem to have issues with zoning for new builds.
In fact, in most of NA housing is quite affordable, with the exception of a current bubble, which exists due to COVID issues, a once in a century event.
This has only been going on for a year or so, and is already starting to cool.
Californians: a note. Your issues are not nation wide.
Others: stop trying to solve other pet peeves, by conflating issues. I assure you, you just end up sounding uninformed.
It has nothing to do with "cars bad", and everything to do with "why are we letting all this precious resource go so poorly utilized?"
You also act as if there is a land shortage. There is not, with exceptions stated above.
If my objective is "maximize housing" then step one is too evaluate the space and find areas where housing does not exist in quantity.
Those are places like parking lots, parks, commerical only buildings, single family homes, hospitals, schools, etc.
To increase supply, we must tear down existing sites. Parking lots have the most limited positive upsides.
Where would you build a new, 1000 unit apartment building downtown?
There’s no need to micromanage tenant-landlord relationships or setup governmental panels on who historically deserves to live where, if the government can just make sure there is an oversupply of decent housing at all affordability levels.
The rest really takes care of itself at that point.
However no matter what, no landlord can maintain all aspects of the house alone. You think a single person can be a master of all trades and have all equipment on hand all of the time in an apartment, for instance?
Why does it even matter if someone pays others to maintain the house? Do you think there are people who build modern houses alone with no machinery?
Overpriced or not, people still buy.
Reality is landlords are in all different situations, some have spare money above costs of interest, rates, insurances, rental agent fees, etc etc and can use that to pay for maintenance. Many are putting in their own money to pay for maintenance, the same way they put in their own money to afford the deposit and purchase costs.
And when there's a problem a landlord can't just ring the first inflate-a-quote contractor and open up the unlimited checkbook you seem to be ascribing to them, they will be bankrupt very quickly if they did. Instead, they have to assess the issue, try to find a economical solution, get multiple quote and spend time finding a contractor who can do it reasonably well the first time at an affordable cost. That is not the same work as a farmer, but it sure is work. If it's not done the house quickly becomes unlivable with a broken toilet or whatever and being unlivable is also unrentable and produces no value to anyone. It's work, and it's important to keep the house functioning.
Really as you seem to think landlords do nothing but profit, similar to gnomes and underpants, perhaps you should give it a try yourself. If nothing else it will be quite a learning opportunity!
Living in a teepee is looking more attractive by the day haha.
Markets and competition work really well on frontiers in a situation where basic things are covered, because like this more people can participate freely.
There are many things that we have figured out to a pretty high degree and that benefit from collaboration and (very) long term thinking. I think housing, transport, basic medicine/treatment and perhaps to some degree food and water belong to that category. You can always have the luxury/explorative version on top with markets and that model works pretty well where it is applied.
To contrast, if your under such financial stress so you constantly worry whether some big bill is coming your way or you cannot even afford the very basics, then your stuck in a perpetual loop. Landlords, collectors and even police come knocking. It takes a lot of courage, discipline and enough luck and stamina to get out of this. In my opinion this is a a monumental task and effort _wasted_ on a inefficient and short sighted system of power relations.
The labor that the farmer puts in should absolutely be rewarded. But the labor of a farmer is absolutely nothing like a landlord who makes money purely because they had enough money to buy housing. Plenty of landlords hire property management firms, and do little to no labor at all, but still make a profit.
That modality doesn't exist in farming and food the same way it does in housing today.
I wouldn't have called you a hypocrite even if you didn't pay back anything. Living in the real world™ doesn't mean you can't criticise it. If we can't challenge things we take part in, how do we improve anything?
People mischaracterize the ease in which landlords make money. Take the past two years and eviction moratoriums for example. Landlords in the United States in many areas had to allow tenants to rent without being able to remove them for non-payment.
Landlords inherently have to be well capitalized in order to properly maintain the house as most individuals are not experts in all trades.
whence did the money originate? from loot or labor?
The nominal assumption is that they must have earned that by providing someone with something of value to them. The money they receive is a formal/cultural recognition of their indebtedness -- that they have provided something useful but have not receive anything of material value in return. Money is a way of claiming something useful in return for something they had provided, but separated in time and place.
Of course this is the theoretical and intended mechanism. It does get subverted in many ways when one earns money without providing anyone with anything materially useful. Inheritance can be interpreted as one such. Although it can be interpreted charitably too -- dont compensate me for the goods and services I provided , I am dead, compensate Saul instead.
If he wrote "immoral", then you could ask why he thinks that.
But good point, immoral is probably more correct.
Government 10 bedroom, 9000 sqft seaside mansions? Not just no, but hell no!
I do not support government assurance nor ownership for the high-end or luxury levels of affordability.
The problem is, that is outright impossible in urban areas where almost all space is already built out, not to mention it is immensely wasteful (8% of all CO2 emissions is caused by the manufacturing of concrete!).
Governments should rather look into making rural areas livable again (by subsidizing basic infrastructure such as internet, grocery stores, doctors and public transport).
And schools, churches, youth soccer leagues, parks, and playgrounds
If you have a pastoralist dream, feel free to build rural housing units. But for the government to spread out the country and then try to connect it using extractive transportation technologies (gas, batteries etc) just seems like roundabout / inefficient way to achieve the same goal.
Yes, we can and should regulate markets, and we probably all agree that the purpose of the housing is for people to have a roof over their head, as opposed to use housing as an (speculative) investment market. This can easily be regulated via taxes (on ownership and transactions), but it comes with a caveat: if something is over-regulated to benefit the user, then there is less incentive for investor/landlord to build housing, which makes housing scarcer and drives prices up.
There are some commodities we choose to operate as natural monopolies because competition and profit seeking leads to bad outcomes for society. My argument is fundamentally that housing is the same.
You could reward developers for lots that have long wait lists and lots of interest, incentivizing developers who build places people want to live.
Yes.
Start from a position of "everyone gets a home" and then ask "in that case, how do we make sure folks who end up in less desirable homes are compensated?"
I suppose you could frame it in the language of prices, but in this case the price is paid to the tenant.
I would also hope that we would tend to build fewer mansions in favor of more multi family complexes, cohousing, coops, and small community oriented housing on the beach.
We can improve things, we can do social good, and never slide to authoritarianism. (I assume you are talking about authoritarian communism vs, eg, council communism.)
I think it's easy (well reasonably) to do if resources are plentiful, but what do you do if there are more people than resources available to support them, who starts making the hard choices?
And now they are “clawing back” future price appreciation because it’s literally like winning the lottery if you get a place in a prime location as public housing is heavily subsidized.
If you get selected for a prime area apartment it’s a huge financial win 5 years down the road when you sell at market prices.
And oh yes, Singaporeans game the hell out of the system. From carefully falling under household income limits, to bidding on a new public housing unit despite owning one now.
The government is constantly trying to keep up with all the new incentives each new rule creates.
You can have a regulated market that still has prices. OP only proposed incentives to build and disincentives to hoard. Homes would still have prices, there would just be less scarcity.
On the basis of geography alone, housing can not be a commodity.
When you take the other things, like job and where you want to send your kids to school it becomes a hell of a lot more fungible.
Given that commoditization is a scale, I would say it could be toward that end of the spectrum if we wanted it to be.
Commoditization is only a scale inasmuch as the underlying goods are fungible. Corn is a commodity because nobody cares about differences between individual kernels, but if some process came around that only worked with super-specific kernels, then you'd be reducing the commoditization of corn.
I can, however, think of nothing that would make housing even close to fungible. Views, neighborhoods, neighbors, noise, history, location -- the list of things which are entirely unique per property is higher than basically any other market I can think of.
If you're without a home, one house is very much like another. It's only once you have money and ambition that you might want a better view, better schools.
You might say "your right to choose between houses is a privilege", but literally every culture in the world is going to observe differences between two houses, regardless of how they're allocated.
Even considering buildings where every unit has an identical layout, and all residents have access to the exact same amenities, one unit might be closer to the elevator and one unit might be closer to the garbage chute. These are fundamental differences between these units which make them not interchangeable.
> Endless rows of apartment buildings, each identical, supplying everything you could need.
"Providing everything you could need" is not how we define commodities. Fungibility is how we define commodities. One can argue that we should just be thankful with whatever home we get, but trying to act as if they're equivalent is just wrong.
Particularly if you're poor, location matters a lot.
The very rich will build a mansion in a beautiful but inaccessible area and commute to work by helicopter. The merely rich have the nice cars to get to work. But the poor have no car so need to be either very close or within public transport (mostly nonexistent in the US) to get to that job.
Fungibility is the absolute incontrovertible likeness of two separate units to the point where they are entirely interchangeable across all parties in the economy.
US dollar bills are fungible. Even BTC are not entirely fungible anymore. Houses are not even remotely fungible.
That's why houses a priced individually. When you go to the grocery store, they don't individually price each cob of corn. There might be two different buckets with a differentiator (organic vs non organic), but within the bucket each cob is fungible. It doesn't matter which one you grab.
Each house gets its own bucket.
Similarly, one unit of electricity from solar is the same as a unit of electricity because a kilowatt hour is a kilowatt hour. You could say well my unit of electricity is better because Elon Musk sold it but for the most part they do the same thing.
Housing is not that very interchangeable. For example, in the Denver area in Colorado apparently the Cherry Creek area commands a higher sticker price because of the school district.
Some homes are just more desirable than others. For me, I desire:
* Excellent public transit
* Excellent symmetric high speed fiber optic Internet connection to the home
* Costco or Sam's Club within half an hour or inexpensive grocery stores within walkable distance
And there are unspoken assumptions like somewhere an ambulance can get to me in time if I am dying and take me to a hospital so good roads and proximity to a good hospital.
No, not at all. We don’t choose natural monopolies. We recognize them. The whole point is they are naturally occurring whether we want them or not. Housing shares nothing in common with the other services you mention which are anything but commodities!
The natural monopoly of the electrical company isn’t electricity, it’s distribution. Power is a commodity, and delivery is anything but.
Your argument that housing is the same is not well informed.
Public services are not a "natural monopoly". They are a deliberate political choice (that was paid in blood by the lower classes, see also Haymarket Affair for example). We could very easily make housing free for all, or just affordable (see also HLM program in France).
As you note, there are other ways to pay for things than money. Whether it's "paid in blood" or other barter system, there is always a cost to pay.
> We could very easily make housing free for all, or just affordable (see also HLM program in France).
Would love to hear your very easy solutions. Affordability is relative. If you have more demand than supply (as we do with housing) the only way to increase affordability in real terms is to shift the supply curve. This shift is not free, and somebody has to pay for it. This is where the "omg it's so easy" arguments typically fall apart.
I meant the social rights/protections had to be paid in blood. But nothing in itself requires payment. We just happen to live in a society which commoditizes everything. If everyone worked some field they're passionate about (and people are passionate about many things) and we evenly shared the work for undesirable jobs (eg. cleaning) we could have everything for free.
> If you have more demand than supply (as we do with housing)
This is highly uninformed. In many countries around the planet, empty dwellings easily outnumber homeless people so we don't need to build anything at all to house everyone. Moreover, if we just stopped tearing down housing and started renovating them, that's also much less work/resources. Finally, if you really want/need more housing, a government run program (such as the HLM i mentioned before) shows you can build affordable housing for 10-30k€/appartment and rent them for a final user cost (after government help for housing) of under 100€/month.
It's a shame like all public services across France the HLM system is being corrupted and coopted into money-making machine. The buildings in popular neighborhoods go unmaintained while administrators pocket all the money, and the little that's left goes into developing higher-classes "HLM" housing which we popular classes can't afford.
Nothing is free. As you say yourself, everything requires work. This is just physics.
> This is highly uninformed.
Ok sure, I'll bite. Your understanding of supply and demand is extremely naive. An empty dwelling does not mean excess supply. If I own two houses, it's because I want two houses. It's not because we have too many houses. In fact, hoarding is a classic sign that we don't have enough of something.
I think you ought to step back and understand why the things you mention exist. You will find out more by doing that than you will shouting into the void on HN. If it were as easy as you proclaim, we would be doing it. The world is not stupid.
Those payments are the equivalent of rent in the housing market. The thing that isn't a market and isn't being bought and sold is the right to provide those services, it's the power grid and generation plants, or the garbage infrastructure. The monopoly on those is what is anti-market and is the equivalent of not being able to buy and sell property.
I'm not making a political point there, I happen to thing some thing are natural monopolies and that markets have their limit. Housing is a complex issue in this respect. Flats in big city blocks are much like a commodity and limited urban building space naturally reduces competition, while nice houses in the suburbs or country are very much a market with lots of options suiting different needs.
It's not a market for you, but it is to your provider. And it naturally impacts the cost that's layed upon you, whether directly through electricity bills or through taxes if it's subsidised.
This doesn't ring true, it just moves the incentive to people to build housing to live in them selves, and with less competition in the market it would drive prices down.
It's helped a lot here.
I don't think that social housing is a good solution. It's a complete disaster here in Sweden, with 12+ year waiting times, and massive inequality between those who have those rent-fixed privileged first hand contracts and those stuck in the unregulated wild west of second hand renting. Often resulting in the working poor effectively subsidising wealthier, older people to keep their very cheap flats in the city centre, etc.
To expand on this point, and a similar system in Finland called asumisoikeus:
Municipalities have a pool of housing units. The tenants do not buy the house itself, they buy a right to live in that house, which usually costs about 10% of the price of the house, reimbursed when they move out. They also pay a rent that takes care of the energies and depreciation of the house. Socio-economic status is taken into account when figuring out who's eligible
Now, there are some criticisms of the system, mainly that the rents aren't that much lower than commercial properties. However, it does keep house prices in check. 100m^2 (~1100 sqft) house in the capital region is about 9 years of average take-home income - or 5 years for a couple
In the BRF system, you literally do not "buy the place you live in", you instead buy the right to live there. The actual ownership of the property is with the BRF.
The word is "bostadsrättsförening" [1] which roughly translates to "living rights association" or something (Wikipedia uses "housing cooperative" so I guess that's the best).
The word "förening" is hard to translate, the closest seems to be "voluntary association" [1], it is a formal collection of people with some common purpose (like managing a house). There are legally various types with varying requirements, and so on.
Edit: spelling, more linkage.
We ended up paying the same price for relatively similar flats, but in BCN that's much harder to achieve, and they are older and need renovation - and there are thousands of AirBnB slumlords buying up everything.
So yeah, the price increases have been a problem (and hit me badly combined with the interest rate increases) but it's still better than most of Western Europe.
Heavy taxation on NPD (non-primary domicile) housing solves this by itself. It's just that convincing people this is in their best interest will take a lot of effort - not to mention that there's a fairly ubiquitous problem of local politicians being in the pockets of property developers in the areas where these problems are at their worst.
People still believe that their home is a good investment, without any thought given to who's going to buy it from them later or where that person will be getting the financing.
It would have been a massive financial burden and personal inconvenience if I had to buy/sell every one of those times.
I swear some of the policies people on here come up with are so poorly thought out.
One solution to this would be to guarantee a unit in any multi family or apartment building to the current resident, and pay for their relocation while the new unit is being built.
Alternatively, buy units from people who are leaving or who have passed away.
We do need to knock down some houses to build more housing, but we can do it in a way that is minimally disruptive.
You are just increasing the cost of the building's rent with this stuff. You'll have a few birthright units and everything else will be luxury to cover costs. This is the same problem we currently have with affordable units, huge missing middle.
It is a mess.
If you like your house and your neighborhood, you probably don’t want demolitions and construction, even if it’s not your house. It’s noisy, it brings uncertainty, and maybe when your neighborhood won’t be the same after buildings get replaced. Maybe the new buildings are too ugly or the residents undesirable or the infrastructure unable to keep up. Or maybe none of those are true but you personally are anxious from the thought of change so you don’t want to risk it.
In any case, the no-change crowd holds all the power except when those pursuing change have a lot of money. This further reinforces negative impressions of what it means to allow change in your neighborhood.
How do you or we decide it's not a market?
If people are paying money for housing, it's a market. And it's not just money, but the largest lifetime expense by an order of magnitude and more.
> I'm also of the much more radical opinion that we should protect tenants over landlords in nearly every case
That's already the case, at least in many places (I know not all). If you take it too far the result is no landlords, thus no rentals. Perhaps that's ok if everyone wants to buy, but if there is anyone who wants to rent, it's useful to have rentals.
This is not a technical problem but a policy problem. The solution is changing the policy. The current policy is to drive up housing prices by creating completely artificial scarcity. All the land is owned and earmarked. Just not for housing. This problem exists in most wealthy nations. There is no shortage of space. Just of access to that space. Mostly that's completely intentional and reinforced by generations of politicians acting on the will of the people they represent to ensure that can never change.
You have NIMBYs and vested financial interests basically. Nobody wants their property devalued. So, social housing always is unpopular with the locals. Places like San Francisco where the homeless take dumps on Market Street are of course a bit extreme. But same principle. No shortage of space there.
But it's all reserved and off limits. So, the homeless are camping out there. In the middle of a city full of some of the richest NIMBYs on this planet. That's not a temporary solution. That's a slum and it is growing. Complete with people just shitting all over the place. Slums are what happens when you let things escalate.
This is true but not in the way that you mean. As you said there is no shortage of space. But it's important to point out that on a global scale there is no housing shortage either. Vacant dwellings outnumber homeless people by far in most industrialized countries where homelessness is rampant (for example: 3 million empty dwellings here in France).
You seem to imply the problem is housing regulations and NIMBY preventing new constructions, but who cares when the houses are already there. I agree with you the problem is that of policy, but i would say the policy responsible for that immense suffering is "private property", the religious belief that land should be owned and that a piece of paper should dictate whether you can sleep under a roof or not and/or have access to food/healthcare/education.
We can eradicate homelessness in under 48h: it's just that no politician cares at all about poverty from their ivory tower! Just give the police instruction not to intervene for "breaking and entering" in *vacant* housing (or even better, abolish police entirely) and we can rehouse every homeless person in the next two days. Of course it would take a few weeks to rehabilitate some of the housing unit and make them real decent, but even in the meantime old housing would be much better than no housing.
There’s a massive housing shortage in the United States and it’s acting like a vacuum, sucking up wealth and diverting it to landowners.
Good point, although i would like data to back that claim. For example in France, 200k empty dwellings are in Paris alone: this does not account for vacant industrial/office space which could also be converted to housing. In all cases, *proposing* (without coercion) homeless people a house somewhere does not sound inhumane at all.
> there are far more people living in overcrowded housing
Good point, too. Although as i said i would like to see data suggesting that the current real estate market (accounting for all vacant units) can't house everyone decently.
> There’s a massive housing shortage in the United States and it’s acting like a vacuum, sucking up wealth and diverting it to landowners.
To be clear, i'm not saying we should stop building houses entirely. But as long as you allow housing to remain vacant, prices are driven by speculation not by actual supply. I believe we should both rehouse homeless people immediately and keep investing in eco-friendly collective, affordable housing.
Source? A quick search only turns a figure half of that: https://www.statista.com/statistics/1290578/number-homes-par...
Also, just because it's "vacant" doesn't mean it can actually be used to house homeless people. It could be undergoing renovations, or on the rental market.
> Parkmerced is a neighborhood in San Francisco, California, designed by architects Leonard Schultze and Thomas Dolliver Church in the early 1940s. Parkmerced is the second-largest single-owner neighborhood of apartment blocks west of the Mississippi River after Park La Brea in Los Angeles. It was a planned neighborhood of high-rise apartment towers and low-rise garden apartments in southwestern San Francisco for middle-income tenants. It contains 3,221 residences (after sale of five blocks to San Francisco State University (SFSU)) and over 9,000 residents, and is one of four remaining privately owned large-scale garden apartment complexes in the United States.
https://en.wikipedia.org/wiki/Park_Merced
On my block, just on my street, there are over a dozen empty garden apartments, 2- and 3-bedrooms, that have been empty since (more-or-less) the beginning of the pandemic lockdowns. Folks started leaving and no one has moved back in. Next to my house there are three empty apt.'s to the left, one to the right, and four across the street.
The owners haven't lowered rents though.
The theory is that they would rather keep the rents high and the apartments empty than lower the rents because if they do that it affects their ability to raise rents later on (rent control is the only way I afford to still live here. For better or worse my family pays less than half the market rate. However, as I am describing, the market rate is not "clearing the demand" or whatever the economic jargon would be. No one is renting at "market" rate right now.) The other problem is that rents going down affect the valuation of the property, something like that. IANAEconomist.
Anyway... There are literally hundreds of perfectly fine apartments ready to rent here in Park Merced, with the M line light rail going directly to downtown SF in about 20-30 minutes and a BART station in walking distance.
- - - -
Get this.
Some folks moved in to the place across the street on Monday, but then Wednesday the staff was here kicking them out: they were squatters. I spoke to one of the staff who told me that this was a group of people who were breaking in and squatting in units all over the property, that they had changed the locks on the house they tried to squat in, and that he had called the police, who asked if anyone was being violent (no) and then still hadn't shown up an hour later! They never did show up. The squatters moved all their stuff and their two dogs back into their vehicles and left.
Anyway, the OP's point stands: there are perfectly good homes going empty. They aren't out in the woods. They are right here in SF.
The bottom line (no pun intended) is that the corporation that owns Park Merced has (presumably) done the math and they expect to make more money by keeping the apartments empty and eating the losses now (and paying the overhead of evicting gangs of squatters) so they can rent them later at the "correct" market rate (a pretty likely speculation, I'll grant them) than by renting them at a market rate that fills them up again now and getting locked in to rent control at the new, lower rates later on.
So, in other words, the poor people can't live there because someday soon the rich people will almost certainly want to live there again.
What you suggest would instead let the poor people stay in the apartments until the rich people wanted back in, so I guess that's an improvement?
But I don't follow how getting rid of rent control would incentivize supply increases?
Leaving units empty, or locked into lower-than-market rates are going to reduce the average profitability of investments. Investment in new units is in part a function of how profitable they will be sell, or to rent out.
But honestly the incentive for bay area real-estate is there, what really is needed is the ability to build with fewer encumbrances.
> That seems like it would make for a pretty precarious living situation for people who can't find ways to pay the correct market rate, eh?
Yes, this is generally referred to as gentrification. But, renting, even to poorer people, nevertheless is still usually profitable, albeit with more risk requiring a larger portfolio.
Isolating price controls as some kind of glaring inefficiency in an otherwise rational system sounds like ideology, not reason.
It should be manifestly clear that an unregulated market has not served us well for the issue of housing, not just for the indigent but for all non-wealthy individuals and families who spend well over 50% of their income now on rent or mortgage payments.
Attacking rent control in isolation is irrational. Yes it can create a bad situation for landlords in the absence of any other policies designed to mitigate the disaster we are in. But saying that "market efficiency" is the answer is just sticking your head in the sand.
We need to make it easy to use the the housing we have, build more housing (of any kind) and subsidize those who need assistance.
I always wonder about public transportation. It never really took off in the US, but it IS way more efficient. If we had very fast subways / trains, we could theoretically stretch housing way out away from the city. Then there is more equal opportunity for jobs / attending universities without living on campus.
I know this is a bit off topic, but it always seems to me like having QUALITY public transportation is efficient, but I can't quite defend it.
Not even to the exclusion of cars. For example I know a lot of workers who drive their car to the subway station in Toronto (and other cities) and then spare themselves the traffic and gas cost of sitting on the highway for 2 hours. And this is the ONLY solution for a big city, since most can't afford to live by the jobs/colleges (even suburban single-bathroom costs are over a million 40 mins out from downtown).
EDIT: I can see residents downtown paying the most taxes being against it though - all it does for them in personal terms is erode their power. Makes their real estate cheaper (removes exclusivity of quick access to offices / educational facilities) and makes the downtown areas accessible to people who can't live there.
> I can see residents downtown paying the most taxes being against it though - all it does for them in personal terms is erode their power.
It could also help subsidize their taxes to some extent since commuters are occupying offices and spending money in the city without occupying housing. Depends how things are set up. I don't think the people living in Manhattan resent people commuting from Jersey or Queens for work.
I spent some time in the Soviet Union before the wall fell. It sucked. Idealistic ideas like this destroy housing for everyone.
That's not the problem either, the scarcity is (with the exception of foreign - i.e. Chinese and Russian - money laundering) natural and not artificial. The true problem is that following mechanization in agriculture many people emigrated from rural areas, resulting in a lack of infrastructure because it was unsustainably expensive for the low population density - particularly high speed internet and accessible (=walkable or within reach with a bicycle) basic infrastructure such as a grocery store, a GP and pharmacy and schools. That lack drives more people away, it's a vicious cycle that will need enormous amounts of money to break through.
If you want to work a modern service-oriented job or even a manufacturing/industry type job, you have to move to an urban or suburban area, and even if you have money and want to provide gainful employment you simply can't because there is no high-speed Internet for your business.
What needs to be done is that the government aggressively invests into "flyover" states to provide perspectives for the people living there and considering moving to a better place - but unfortunately I don't see that happening, not in the US and not in Europe where we have similar problems.
That happened at the latest 40 years ago (in fact it happened more than a century ago), while house prices went crazy roughly after 2000.
It began earlier, the problem (why the situation in urban areas exploded) was that after ~2000-2005 it simply became apparent that the future was the Internet and there was no way government or much less the private companies would ever put up the money to provide actual high speed Internet to rural areas - and so all the new "digital" companies set up shop in urban areas, and people flocked to where the new jobs were.
Had the US government taken care to make sure that the companies not pocket literal billions of funds without providing the service that the government funded [1] you would not be in the mess you are now.
[1] https://eu.jsonline.com/in-depth/news/2021/07/14/weve-spent-...
Fix the policy and house prices will drop. That creates a new problem of course for those who then end up with a Mortage that is under water. That's the real reason the policy does not get fixed.
Thanks but no thanks. I'd rather like if people can move towards rural areas where possible.
That's counterproductive. Infrastructure for rural areas costs way, way more.
I think that in order to protect it's ability to offer a first world living by it's communities, the US needs to fatten up it's middle class with better wages. There could be a number of ways to do that, but the basic goal is to get more money into the hands of the average American so they can spend it in the community and make the whole country better.
A better way would be to protect people by not making policy decisions that reward bad behavior and punish those who avoid debt and save. Rewarding terrible behavior may get you elected but it’s bad for society. Like giving candy to pacify a cranky baby.
But such opinions have become verboten now, and actually censored.
Essentially, a big corporation could buy cheap rural land close to a big city, develop a small city there and reap the "overpricing" benefits.
But it's very expensive to build the basic infra. And even more expensive to convince enough people to move there and create minimum network effects for it to become a "real" community and livable space.
I'm far from right wing, but let's not pretend the issue here is a market not working. It's that we rigged the whole system and then blame "the market" for the results...
That necessarily means having more money than everyone else. If you don't, the people who do can and probably will make things very uncomfortable for you.
I now rent at cost, choosing to believe that it's better to help the people who live with me establish themselves and build financial safety.
are you saying you and them live under the same roof? i.e. they're your roommates?
I tend to be broader about community then many folks in the States. Imo, you live with the people in your local area, whether that's house, apartment building, or block.
Be very careful. If you are in the US, you might want to speak to a tax attorney.
The IRS treats property rented out at less than fair market value as a personal residence.
Your tenants may have to treat the difference as income, and you are not eligible for many of the usual deductions for investment property.
If you are going to make that business unprofitable then no one will do it. People won't sign up for the risk, cost, effort and frustrations of being a landlord with no upside.
While we're on the topic, why not prevent programmers from putting their salary up? After all software is essential to society these days?
Maybe you should take a trip to Eastern Europe one of these days to see the final result of what you're advocating. Pros: everyone is given an apartment to live in. Cons: your city's skyline looks like this: https://i.imgur.com/5X1sIeP.jpg
"We collectively decide" just means you decide for me. You think you know better than everyone else and want to impose your values on others.
The parent's position is "housing shouldn't be a market", and I am showing an example of what soviet-style state control over housing looks like in practice.
It's impossible to get an apartment in Stockholm unless you have a 20-year waiting time, buy an illegal third-hand contract or have the wealth to buy an apartment. The housing crisis in Sweden is extreme.
>Due to excellent renters rights meaning the majority of people rent long term
This backfires spectacularly once you realize landlords continue to hold the reigns and put up huge demands to avoid "bad renters". As long as the rights don't cover the entirety, landlords will continue to pressure renters in different, more obscene ways.
And in today's society, renting long term also isn't as great as people make it out to be, when your long term rent is a glorified broom closet and there's a great job opportunity a few cities over.
That's where everything went wrong. At 0-1% interest you can get insane mortgages for 90-95% of the value of the property, pushing the price up to where people spend every last cent they can on mortgages, but at $xxxx per month you can easily afford hundreds of thousands of dollars in mortgages.
Raise interest rates (happening), go into recession, crash the market, stop people getting mortgages, house prices will drop insanely fast and hard.
Of course no government wants to do this because it will panic the home owning class. Well - you have to chose at this point. Make it impossible for young people to buy a home, or piss off homeowners.
All the forfeited houses from the people who cannot serve their mortgages will flood the market and drive down prices.
Additionally, all the surplus construction infrastructure will be there, fighting for every project, which will make new houses cheap.
I used to think this.
How does your model change if there is a large pool of private equity, ready to buy properties for cash, and turn them into rental units?
Assuming this pool can easily handle the flood (which it looks like it can).
Private equity can only make a profit if they corner the market and hold back units until prices massively increase.
This is possible to some extend but at its core it is most likely illegal because it requires collusion or a monopoly. So if that's an option, then there is a bigger problem than just housing prices.
But even in an entirely corrupt market, private equity cannot beat the market after Covid. Home office has become fully acceptable so huge fractions of the population are not bound to a specific city. People are free to choose where they live. There will be some municipalities that offer an abundance of housing so that prices will stay down.
Then, once people move there, companies will be founded there or move there, too. Wages will be lower because costs are lower, which will be a huge problem for the companies that didn't move.
So if the established municipalities allow the private equity companies to profit, they risk their own demise.
However, this depends on the willingness of the people to move. It is also contradicted by silicon valley being able to maintain its large housing prices.
My guess is that prices will rise for a while but some Asian city will crack the code and offer cheap housing despite being a cultural center which would make it the technological capital of the world.
If we are talking about a recession caused by fed tightening, PE won’t have any money. Especially as higher interest rates will mean they also can’t borrow lots to finance purchases or anything
1 and a half year later, we had decided we were going to buy a house in the new city and stay there. I wrote the tenant to inform them, I had decided to sell the apartment, come the 2 year date.
"OK", replied the tenant, "it's just that, I've decided I don't want to leave this nice cheap apartment anyway, and prefer to stay.."
So I start to read up on the law in my country regarding these things. It turned out, in my country it is nearly impossible to make a pre-determined time-limited rental. In fact, there are only 4 scenarios where it is possible. It turns out, our contract should have had the specific wording "I rent out this apartment for a period of 2 years, because after 2 years I am going to move back to it myself, on this date, because I have the following specified timelimited activity I'm doing at location X". Because my contract only stipulated the duration, but not specified the exact legal grounding for the limitation, it was not valid. TL;DR. I ended up having to 'bribe' the tenant with a huge sum of money, to get their written consent to leave the apartment by the originally agreed-upon date. I also ended up losing a significant amount of money on the sale, because the presence of the previous tenants hurt the price I could negotiate on the sale.
In fact, I would have made 5x more money on the sale,So if I had let the appartment stay empty for 2 years instead of renting it out, I would have made 300k instead of 20-50k. Apart from the fact, that those 50k ended up being what I had to pay in "bribe money" to get the tenants to leave. So I basically let two strangers live for free for 2 years in my apartment, in return for them making it very difficult for me to sell my own apartment. A final caveat is, that technically it's even illegal to leave the apartment empty in my country - if it's empty for a prolonged period of time, you have to register it for "public rental", at a reasonable rent price.. So, yes, I definitely want the rights of tenants in place and protected, but it is possible to protect them so much, you actually make the life of people who have bought a single property miserable.
A postscript: I know many won't buy my arguments about "losing money" here, since the money I would potentially earn or lose here, are exactly the sort of 'board game monopoly money' we are arguing about whether anybody should have or be entitled to. IE the money I would make back on the sale of the apartment I have owned for 20 years, are exactly those 'the game is rigged' money, that appear out of thin air, for not exactly doing anything (apart from maintaining my apartment against wear and tear.)
Rent-seeking isn't the same as collecting rent as part of being a landlord.
It's a pretty fleshed out concept:
In an actual market, margins are competed away and prices drop over time, there's elasticity in supply and demand, and people don't view their 15-year old cars or whatever as "investments", they trade them up for a newer model and pass down the older stuff to people who can't afford them as much.
In housing, we artificially constrain supply with zoning laws and building codes, and we stimulate demand with subsidized mortgages and rent control laws. It's pretty much the opposite of what you want to do if you want there to be more affordable housing.
Also odd is how these HN threads on housing often devolve into redesigning a socialist utopia from scratch in America, as if such a radical revolution has any chance, when Californians can't even organize enough to get Prop 13 repealed. Removing red tape and zoning to get to a more efficient market is much more achievable.
ad. "not a market" - When you do that are you going to also forgive my crazy large mortgage?
ad. "protect tenants" - In Czechia we protect the tenants more than landlords. If you mean that this should scare people from renting that works quite well. People do not have much leverage here to kick out tenants who are problematic or skip payments.
Housed people need parking lots though. Tons of places are not, and never will be accessible with public transports. I live in a city with a great public transport network but I still need a car, as much as I'd love not needing one: I need to visit friends or family outside the city, I have to make bulk grocery shopping sometimes and bags are not enough, I sometimes buy big housing furniture, I even had to retrieve parcels outside of the city sometimes... Heck, even to go to work, sometimes I'm late, or I missed my bus, or public transports are on strike, or anything can happen that I need my car to save 1 hour.
> abolish mandatory minimum parking
Same as above, that's an awful idea.
Almost all the problems you present can be solved by planning differently. You don't need bulk grocery shopping with a shop open nearby in walking distance, available at least once every 3 day. Big housing furniture is a rare occurrence and can be delivered, or you can rent a car capable of transporting it. Punctuality can be solved socially. The main problem is density, and cities certainly don't have a shortage of population density.
Car ownership is a huge luxury with a giant price tag, and it's finally catching up to society.
Your experience doesn't match mine. I also live in a city with a good public transport network, but I've never had a car, or felt much need to have one, or even to learn how to drive. For your examples (except the parcel one, which hasn't happened to me and I have no idea how it would happen):
> I need to visit friends or family outside the city
The friends or family I have which live outside the city actually live in other nearby cities. To visit them, I'd take a bus to their city, and then a bus or taxi within that city.
> I have to make bulk grocery shopping sometimes and bags are not enough
Every store large enough that I'd do "bulk grocery shopping" in it has a taxi stop next to it, sometimes even within the store's underground parking floor. So whenever I do bulk shopping on one of these stores, I simply take a taxi.
> I sometimes buy big housing furniture
Every store which sells big housing furniture has the option to send the furniture to your home using their own truck. You might have to wait for the next day (since they batch the deliveries - it's a big truck), but for big furniture, you usually aren't in a hurry.
> Heck, even to go to work, sometimes I'm late, or I missed my bus, or public transports are on strike
If I missed my bus, I wait less than 10 minutes for the next one. If I'm late, public transport is still faster than a car (or a taxi). And if there's a strike, it's true that having your own car might help, but when that happens (and it's not common enough to make it worth it to have a car just for that), the traffic slows to a crawl.
Or use a bike?
The problem isn't supply. We have (practically) unlimited supply. People just don't want to live in Pennsyltucky.
Housing is already barely a market. An actual market would be much better.
We artificially restrict the construction of new housing supply by policy and then act all surprised when demand exceeds supply and prices skyrocket.
The same thing is happening in medicine: we artificially constrain the training of new MDs and then act all surprised when demand exceeds supply and prices skyrocket.
Then people come out of the woodwork with "oh look markets aren't working!" -- but in fact the markets are working exactly as designed: those with control over the supply are acting to constrain the supply, in the process enriching themselves at the expense of all others. But instead of recognizing this fact, we look for other reasons. Sure, there are other reasons and interactions, too, but the primary drivers are supply constraints!
Imagine if we explicitly forbade the construction of new grocery stores, forced farms not to use modern agricultural techniques, causing reduced yield, and then bought up a bunch of farmland just to take it out of commission. What would happen? Food prices would, obviously, skyrocket! That's exactly what we're doing with housing.
Your proposed solutions probably won't hurt, but aside from making it easier to build housing, they're noise. In particular:
> upzone neighborhoods
This is the only one that matters -- and it needs to come with other changes too, including construction "by right", that is, without needing to go through a 3-year process of fighting with neighbors who will try whatever they can to prevent new construction because they've been convinced it will destroy their neighborhood and/or property values.
> changing tax incentives so developers are incentivized to build more housing and less luxury housing
We don't need to change tax incentives to get developers to build more housing, we just need to stop preventing them from building more housing. Developers are not sitting around waiting for incentives, they're actively being denied the ability to build. Let's fix that.
At least you understand this is radical. Developers/landlords are the ones providing and maintaining housing, not tenants. The government is incapable of doing this themselves which is why it’s left to the free markets.
The only real issue is that the ‘free markets’ are anything but. Governments overly try to dictate policy which continues to hurt us (a well known feature is state run economies)
Examples of this are zoning restrictions (NIMBY) and rent control.
Broad, idealistic government policies are a disease; they will never be as efficient as entrepreneurs.
Then how would you recommend houses trade ownership?
>so developers are incentivized to build more housing
How do you prevent the development of shitboxes (it's a technical industry term)? Because that's what builders build when they need to hit a particular price point at scale. Houses that are quickly built out of low end materials and will decay over about twenty year period unless a homeowner invests considerably in upgrades.
>one shouldn't be "priced out" of the home they've lived in for 20 years
I'm in full support of the concept, but when you start to look at the causes of this, it gets complicated quickly and many of the causes aren't even directly related to housing. It's not just as simple as property tax moratoriums.
Homes are expensive. Most people just can’t afford a big slice of land and home. They have to accept they will have to make do in an apartment that may be shared. Should the home they deserve just magically appear?
Just under 2/3 of US homes have an owner that lives in it.
Look at the percentage of houses bought by PE vs individuals in 2021.
https://www.redfin.com/news/investor-home-purchases-q3-2021/ Real-Estate Investors Bought a Record 18% of the U.S. Homes That Sold in the Third Quarter
yes, I know 18% < 1/3. But I also know that 18% > 6%, which was the figure in 2000.
the trend is pretty obvious.
They should have the right to purchase one, or have one commissioned, at the fair market value for materials, labor, and land.
I'm assuming "have one commissioned" is suggesting something about supply/zoning, but it's not clear to me what, exactly - if someone could afford to build or buy a house 3 miles from Dallas, should they also have the right to pay the same price to build something in the middle of Dallas?
Ergo I hold that the respective governments and their zoning/construction policies are trampling on the individual right to a fair market and worse are creating grotesque amount of economic inefficiency, and by extension social damage, in the process.
[0]Trivially: adding units to a lot to capitalize on a high price of land relative to materials + labor.
The point is between land, materials, and labor, a lot of people can’t afford what they think they deserve.
It doesn't make sense to me, but whatever.
Stocks? Cars? Forex? IP? Crypto?
Genuinely curious because everything is more expensive than it was before.
If everything is overvalued, then nothing is overvalued [relatively]
Could it be that maybe peoples work is under valued relative to the value they help create?
The argument for overvalued housing is that everyone got antsy during the pandemic and wanted to change houses and change neighborhoods, but that will settle down now that the pandemic is waning.
Tech stocks seem to be falling because the pandemic-driven surge of screen time is fading now that the pandemic is waning.
So: is real estate entirely different from stocks? Or will it see a similar post-pandemic slump but just has more lag?
S&P 3400 in Jan 2020, 4146 today.
Dow 28,600 to almost 33,000 today.
Nasdaq 9000 to 12,300 today.
I agree with the sentiment though, in which case maybe the currency in which the assets are denominated is overvalued.
I don’t think it’s a fluke that the overvalued markets correlate to regions that a lot of tech has moved over the pandemic like Boise, FL, TX and Nashville.
If they’re measuring current house prices to 2020 and 2021 tax data then they may be missing an influx of income in the denominator as well.
The question is less about today than how risky and how profitable an investment it would likely be relative to other investments.
Crazy if you believe most of our nation should be essentially indentured servants for basic housing.
Something like that, I think.
https://river.com/learn/terms/c/cantillon-effect/
Banks will loan some people billions at rates half of which they would give you, if they even gave you a loan. Thus they can buy everything for inflated prices.
We need to end the fed.
Like all real estate calculations though, this is completely local.
San Francisco is currently 52.
In HCOL areas, renting tends to be cheaper than owning because home price reflect not only cash flow, but expected appreciation as well.
https://smartasset.com/mortgage/price-to-rent-ratio-in-us-ci...
No.
Hopefully you aren't using that justification to do something stupid.
just no?
group consensus and participation shapes nearly every human endeavor; why do you think that this round-a-bout consensus (97%) is unrelated?
If there's housing scarcity, then prices will rise far ahead of ability to pay. That's the source of a lot of other types of today's inflation, for example, cars.
Housing costs tend toward people's ability to pay, otherwise folks default. That's why the banks ask you about your income and credit worthiness, they want to know you'll be able to pay the mortgage and not default. If money costs increase faster than income, folks won't be able to afford as much money (as high a price).
That's how housing costs can increase faster than the income of an area, it's the market displacing those with lower incomes, and readjusting to only house the wealthiest.
Add in that housing prices are distinct from the housing costs, and that leases only change rent occasionally, and lots of people are owners and have fixed costs, and prices can rise quite a bit faster than incomes.
And new home construction is at an all time high.
Scarcity of inventory is not at all the same thing as scarcity of housing. This has been a powerful narrative in driving FOMO buyers though.
Your chart is the number of units under construction, but that high number doesn't translate into more new homes than ever before, because completions have been massively delayed. So there's a lot of homes sitting half finished as they wait for supply chain crunch's to resolve. And to compare this to numbers from the 80s means normalizing for length of construction, something which is getting delayed more and more.
Overall, construction has massively constructed since 2008, and even before that it had been trending down for a long time.
I suppose it makes sense. They say not to spend more than 1/4 (or 1/3) of your income on housing but if a house costs 2/5 of your income you're probably not going to set up a tent and wait for interest rates to come down.
Unfortunately, directly comparable, prepared numbers are difficult to come by. The 3 most memorable sources I've found are:
* https://theconversation.com/think-your-country-is-crowded-th... - Discusses (introduces?) the concept of "lived density" and provides graphs for Europe. I'm not sure how well the author was familiar with related work regarding population-weight density, which seems to be the more correct term.
* https://ssrn.com/abstract=3119965 - A low-level analytical discussion regarding population-weighted density as a metric.
* https://arxiv.org/abs/2005.01167 - A COVID-19 pandemic-related paper which incidentally includes comparable population-weighted density metrics for both Western Europe and the United States.
I haven't looked into things since 2018 (excepting taking note of the 2020 COVID-19 paper), but IIRC census.gov has some population-weighted density numbers somewhere based on MSA and census block (tract?) proximity. It's not easily comparable to available European statistics, but it might be a good place to start if you want to play around with U.S. density numbers.
Maybe there have been better resources published since the above.
Specific breakdowns are harder to find, but top of line numbers are pretty easy to find in a minute on Google: https://datacommons.org/tools/timeline#place=country%2FUSA%2...
In which case the two are comparable: there are few if any middle-class families in the bay area that own their homes except by inheritance or some other luck (gift, lottery). Even condos and other high-density housing are all but completely out of reach for all but the top 10% of income earners. And those condos are almost all studios or 1- or 2-bedroom units that are very tiny.
Plenty of middle class people bought nice homes they could afford in the bay area in the 90s. Although I suppose you could consider this "luck".
I suppose you could consider this "bad luck".
This is a ridiculous statement.
There are plenty of middle class (by Bay Area standards) folks who have bought houses in Fremont and San Pablo and San Leandro and Hayward.
In fact, even in Marin there are parts of Novato and weird pockets of West Marin (Forest Knolls ?) where this was, and continues to be, done.
They are boring places and middle class folks working boring jobs have purchased homes there year in and year out for the past 25 years. Yes, they had to make choices and sacrifice some things for other things in order to do this.
Perhaps the ability to do that is comparable to a lottery win ?
Adjusting for inflation, it's doubled in real value over 25 years, which works out to <3% APR. It's a decent return, but we've also ignored 25 years of property tax and maintenance. (on the other hand, we've also ignored 25 years of effective rent)
I guess the point I'm trying to make is that $1.3M isn't worth what it used to be but it sounds big in our head because we remember a time when a dollar went a lot further than it does today.
I Googled for about 10 seconds to find some statistics about Bay Area homeownership.
Zoomable map to visualise California homeownership (very cool!): https://dig.abclocal.go.com/california/homeownership-maps/BayArea_homeowners_zip_map.html
Homeownership Rate (5-year estimate) for San Francisco: https://fred.stlouisfed.org/series/HOWNRATEACS006075
It’s not possible to afford housing or robust healthcare in the US.
Keep in mind there’s no rule we have to tolerate either.
Imagine being a teenager in the US, having just seen how essential workers are treated, knowing in all likelihood your future is an “essential worker”.
Then watch Congress scapegoat Facebook.
But you’re right, you’ve put me off on the whole idea. Good effort. There’s no way around artificial scarcity.
For people with pre-existing conditions it begins at a younger age and is recommended more frequently, based on the determination of your GP Surgery.
You should get your first invitation to an NHS Health Check around the time of your 40th birthday.
https://www.nhs.uk/conditions/nhs-health-check/what-is-an-nh...
And all that extra time and money got me was people saying “You should be glad it isn’t socialized health care!” Yeah. If it were, I would’ve gotten treated faster and cheaper.
I live in Canada, and recently had appendicitis. My appendix was removed less than 24 hours after symptoms began, and 10-12 hours after I arrived at the hospital. I walked in to the ER (after a very painful car ride), they asked me some questions and gave them my health card, they said how much, I said 7, they did blood tests and I had a CT scan, I waited a few hours, and then I was wheeled up to the operating room, after which I spent the night in the hospital and discharged the following morning. Not once did the question of insurance or payment come up, and I even had a private room after the surgery.
Something ridiculous like 70% of lifetime healthcare spending in the US occurs in the last two years of a person's life (half-remembered number from like 10 years ago). The uncomfortable truth is that we spend way too much on hail-mary treatments for people who are almost certainly going to die, and too much on useless shit like knee replacements for the elderly, and far too little on the earlier stages of their life. But nobody wants to tell the elderly "no" because they vote.
Obamacare had the right idea with "death panels". A lot of treatments that happen near the end aren't medically justified by quality-adjusted years-of-life or similar metrics. And that money comes out of the healthcare of younger people, whom the US treats like shit compared to the elderly. Because they don't vote.
But nobody likes the optics of "pulling the plug on grandma".
It seems like a thread-derailing comment likely to drag down the quality of discussion.
> “ Eschew flamebait. Avoid unrelated controversies and generic tangents.”
Your comment, “Don’t forget to mention they still have full health coverage in the EU.” was doing exactly what the guidelines ask us not to.
My hope was that bringing attention to this would help deflate the impending generic argument about health care and help you improve future conversations on the site.
It was just an attempt to be helpful.
If the HN communities behavior is to point to a TOS I didn’t agree to at sign up, I’ll go ahead and logout and stay away
That’s some bait n switch, end run around norms, patronizer enabling, dark pattern nonsense.
The point of these guidelines is that _generally_ most people follow them and it stops this place going to garbage like every forum before it, and allows it to stay a place for professionals to discuss topics, rather than us vs them flamebaiting and boring jokes.
You're totally welcome to go, but you're also welcome to stay. If you step back and calm down, you might find you like it here :).
Here in the US, if one was asked to define “middle class” from a lifestyle perspective, probably the first thing that comes to mind is “homeowner.” I don’t think it’s possible to separate home ownership from class distinctions in the US social strata.
Case in point, home ownership rate has remained largely stable for decades at around 65% of the population. That’s despite incomes being more varied in relation to actual value over time.
So I’d say if you extended it to incorporate that understanding, it’s pretty accurate.
This isn't really an ownership issue, it is an occupancy issue. Monthly rent needs to cover the expenses of a property including any mortgage, property taxes, etc as well as maintenance, so rents wind up tracking house prices. If you can't house the middle class, a) they're not really middle class and b) you have a societal problem.
https://www.longtermtrends.net/home-price-median-annual-inco...
Housing prices have been able to balloon because debt has been very, very cheap. Whether or not that will continue remains to be seen.
What’s the smart bet on what will happen?
Are there actually data that say that? I'd only expect data to exist on the first half, but there may also be data (as opposed to a fairly good supposition) from the second.
I'll say from personal experience, it does change your perspective. If a sewage treatment plant moves in next door, I can't move like a renter can. It's a feeling of real vulnerability that I didn't fully understand until I felt it.
I understand the NIMBY-ism. I do wonder how much people care about the value of their house going up if they don't plan to sell soon. There are advantages to your home being less valuable and the only disadvantages come if you want to leverage your home more, refinance (not likely with rates going up) or sell it.
I think this idea of wanting your house price to be low to avoid property taxes then suddenly increase the value when it's time to sell is like the idea of having your employer pay a trust so you can collect food stamps 11 months of the year then the trust pays you all your money in December.
It might be possible and it wouldn't shock me if a few people do it but it's not the normal approach.
No one wants to live next to a dump. That's why it affects property values. Because it also effects living conditions.
Meanwhile, a lot of people never plan to sell their home. Yes, if you plan on moving soon, you care about property values going up. If your horizon is 10 years, 20 years, or your kids selling the place? Less so.
That's the real reason California has Prop 13
They definitely don't want it to go down, especially below the loan amount; but tools like Zillow make it way too easy to book "paper profits".
If you bought for $100k and later noticed Zillow say your house as $250k, and now it's saying $200k you can feel like you lost out even though you're still "up" - something that was more difficult before as you'd have to try to compare similar homes for sale.
So while I understand your argument I'm reticent to accept it on the basis of the concerns mentioned above. Settling down permanently is not the same proposition it was fifty years ago. My grandma grew up in Denver, the rapidity that it grew with was apparently astounding and that growth drastically altered the culture and the landscape, what were once dirt roads are now median-divided 3-lanes with cookie cut houses lining them as far as the eye can see. If you can imagine not wanting to live there with the rapidly accelerating growth and the headaches that come with it, you're not alone.
There are also economic concerns, which can be highly unpredictable, and these are considerations I'm sensitive to. I've watched commodity fluxuations result in massive layoffs time and time again. When given the requisite information to make a decision on whether or not to sell, it's plain to see that it's a benefit to have pricing steadily increasing, whether it's to avoid the wave of sells when an industry reels back or shutters, or when one is intent on moving to greener pastures, or at least a better home in a more agreeable neighborhood.
I'd pay taxes which, given the parent statements terms, would roughly equivocate them with asset price insurance before I stuck my neck out to get burned or blown up.
This is the argument that homes are currently overvalued.
Or, as an alternative, market is going to freeze.
Given that we've rediscovered fiscal stimulus and inflation as a result, I have a feeling that era is dead. You can't have low rates in an inflationary environment.
https://fred.stlouisfed.org/series/CSUSHPINSA
Case-Shiller Index?
https://www.spglobal.com/spdji/en/index-family/indicators/sp...
You’re looking for this:
[0] https://en.wikipedia.org/wiki/Case%E2%80%93Shiller_index
How so? Large, luxurious, houses get counted just the same way as small houses. If you mean that new houses that have not been resold aren't a factor in the index and that this biases it against the latest housing, OK. But even new houses tend to be priced in line with comparable sales, linking them to history in a way compatible with how the index is calculated.
Can attitudes and norms on what % income spent on housing change? As people attain a higher standard of living, can this trend up?
House prices will remain up because any gain from sale will be plowed into the next home. It's a ratchet upward. Higher mortgage rates are somewhat irrelevant in this dynamic, because the home itself is not an asset to get capital gain from, but a claim to shelter a family for an _indefinite_ period of time in a chosen location.
USA was inoculated for a very long time, because horizontal expansion over cheap land allowed for expansion of supply. That era is over. Car and highway technology is no longer adequate to expand cheaply and still remain within viable commuting distance.
There really is no limit on how high home prices relative to income can be. When meemaw dies, her inheritance will fund the downpayment of little Sally. That's the perpetuum mobile in Europe, which the US is now cranking up as well.
Rents may still remain affordable, but home prices will detach.
As a European living over here for the last two decades, I agree that European houses are generally sturdier (my parents house pre-dates the USA, I don’t expect mine to last that long), but when you’re spending 6 figures on something, looking after it is a good policy. Catching problems early is the key - as soon as you notice something, fix it and fix the cause…
In the US, we own the land, and that is usually the real value. I’m the proud owner of a 0.125-acre New York postage stamp. It’s in a fairly affluent area, so is fairly valuable. In Wyoming, they’d laugh at it.
I think Japan is similar.
You're right that most of the value of the property is in the land and not the building though.
I think they also used to charge tax for significant-value property, like computers.
How much do you really own?
Sure, there's courts and laws, but they pick the judges and can choose to change the laws. They could pass a constitutional amendment tomorrow giving themselves the right to harvest your kidneys, the same way local counties can pass a law at any time raising your property taxes.
And, even if you argue that you have rights under the current government, empires don't last forever. 300 years from now, who's to say barbarians won't be ransacking the house you left to your kids? In that sense, your rights are only contingent on the barbarians being too scared to attack, and not absolute.
So if your argument is, "You can't own a house because the government could take it away", it seems like you have no hope and no possible policy change would give you any "true rights" to anything.
While you have governments that can legally steal everything from you just because they can, you'll never really be free.
That said, there are degrees of freedom.
Property taxes in the US are very high so I consider it an inferior degree of freedom compared to owning a house in a country where I don't have property taxes. The more corporation / income tax I have to pay the less free I am, hence why I'll move to a country which charge less corporation / income tax.
Sure, I'm still owned by the government because they have soldiers and guns and I have none - but at least I can live my life as close as possible to how I'd like to live it.
It is possible to fix this situation once and for all: abolish the government and its idea of legitimacy, let people organise their own defence from the goons of other countries by paying voluntarily.
You won't end up with a much different system, you'll still have some people not paying anything and some people paying more to defend their community - but at least I would pay voluntarily what's needed for my defence without enriching the politicians, fake intermediaries with empty promises, and it wouldn't be coerced out of me under threat of fines and imprisonment.
But ultimately your negative outlook on the human condition is your own, 99% of daily life proceeds under conditions of total anarchy, authority and security are entirely illusory and we pay incredible costs to maintain those illusions, not in terms of liberty alone, but in toil and life itself. It leaves little left to live for, read the Death of Ivan Illyich if you want a better understanding of what I mean.
Those costs are totally worth it. I'd rather live in a nation with liberal democracy and property laws, than whatever more "pure" or original model you seem to have in mind.
In any case, what I'm talking about is democratic and does not forego property rights, in fact it could give you stronger property rights. But you didn't read the grandparent.
I've never heard this before. Is this actually true? Is this some background technical legal truth that isn't noticed in practice?
I'm sure Roman Abramovich's mansion is freehold as are all those semidetached houses on the outskirts with a 55 minute commute to the centre.
In the UK, there is a concept of Freehold and Leasehold. In the former case you own the land under and everything built on it. In most of the country you buy the Freehold.
The Leasehold gives you ownership of the building but not the land under it. You lease the land from the owner. I've personally considered this form of "ownership" a trap. It has become more common in recent years as a way for sellers to screw buyers. Particular in the London area where demand is always extra high.
Technically, I guess I don’t “own” my own land, either, but I pay (significant) taxes on it (because I “own” it, according to the taxing authorities. They don’t tax the bank; they tax me). The taxes are assessed on the total value of the land and the building, and location^3 is a fairly significant coefficient.
Land is a weird (but frequently lucrative) investment. You can’t lock it in a safe, and, if your neighbors start a hog farm, you can’t just pick it up and move away.
This isn't quite right.
There's something kinda like that called leasehold, where you basically own an extremely long lease on a property (typically 70+ years, often up to 999 years), with the freehold (outright ownership) sitting beneath it. Generally it's used on apartment blocks and certain new-builds in specific areas (e.g. they're more common in London, but outright banned in Scotland outside of some pre-existing edge cases). There's a good chance the whole thing will be functionally reformed out of existence in the near future (see here https://commonslibrary.parliament.uk/leasehold-reform-in-eng...).
But in any case, the vast majority of UK property is sold freehold, or as you put it "we own the land, and that is usually the real value".
The only reference I had, was my grandparents’ “named” house, in Liverpool (It was actually a pretty nice place, near the beach, for what that’s worth, in Liverpool).
I remember my grandmother, explaining it to me, and that was what I got from it.
I was too young to have a decent frame of reference, though.
Here for example is a 1000+ years old church in Vienna: https://en.wikipedia.org/wiki/St._Rupert%27s_Church,_Vienna
1. there is housing that is >100 years old all over the US, some of it the most expensive in the country.
2. Brick and cement houses are certainly not maintenance free and crumble apart over time
3. Most of the value is the land, not the house
My wood frame house in Oakland was built in 1896. Clearly it lasted longer than 70 years. Brick is a terrible building material in California, due to earthquakes.
My brick house in Amsterdam was built in 1886. However, the piles it sat on were wood, which decayed, and the house sank 8 cm.
Both needed new foundations, both were gutted and remodeled on the inside to update them to modern standards.
True.
> Car and highway technology is no longer adequate to expand cheaply and still remain within viable commuting distance.
False. The US has mind-boggling amounts of land available. What's changed is the ability and desire to build on it. Used to be, the government would pay you (in land, anyway) to build a house. We gave railroads untold amounts of land to develop it.
These days, to build a house you pay the government for all manner of permits, studies, etc. -- and that's if they even let you build in the first place! Zoning laws prohibit new construction in overwhelming amounts of the country, especially in the most expensive areas. In NYC and SF, most existing buildings would be illegal to build under current zoning rules.
What makes building housing expensive is policy, not a lack of "cheap land".
I don't know if the same applies in Europe, perhaps not. In both Europe and the US land has long been the primary vehicle for intergenerational wealth transfer (think estates and productive land, not housing, though -- middle-class homeownership is an extremely recent phenomenon).
Times have changed and most people don't want to live in marginal lands that are available in mind boggling quantities. In addition, the reason that a lot of cities were built a few generations ago in the hinterlands was because manpower was needed for resource extraction industries, which have since either become highly automated or fallen into secular decline. We are no longer a nation of farmers and miners.
That's not "times have changed" -- people have never wanted to live on marginal lands, that's why the government paid people to move there.
> a lot of cities were built a few generations ago in the hinterlands
Few cities are built in the hinterlands for the purposes of resource extraction; cities grow where trade is, but yes there are definitely towns that have vanished because we don't as many farmers and miners.
The SF Bay Area is dominated by single family homes on large lots. Yes, SF proper has a high density, but the surrounding areas really don't, and not for lack of demand: developers who would build more housing are literally stymied at every turn, and this is not an accident, it is an intentional plan to reduce the availability of housing and keep it expensive, to avoid "traffic", "crowding", and "changing the character of the neighborhood".
I am flummoxed every time the discussion of housing prices shows up. Seems like 95% of everyone who comments is completely clueless to the most basic aspects of it.
In the vast majority of Western regions, high home prices are caused by a deliberate decision not to allow building enough homes to match demand, in the places where people want to live. It's really that simple.
In itself, this is a state of affairs we could accept as the current democratic consensus, but it's really stupid when most discussion of the problem pretends that the root cause is something else.
It's very possible I'm wrong. We'll see what the rate hikes will do to home prices in the next 2-4 years, and already we're seeing relaxing of zoning in many metros, so we'll see the effect of that in 5-10.
> I don't think it will meaningfully reduce cost of home ownership.
More housing would absolutely meaningfully reduce the cost of home ownership. Just look at cities like Detroit and Pittsburgh that, for a time, had a surplus of housing and a declining population: houses became super super cheap.
What's happening now is that housing stock is increasing 0.5% per year, while city population is increasing 5% per year, and then policymakers are turning around and saying "look, we're building more housing, and prices keep rising, it's not working!" -- of course, because cities need to build enough housing to satisfy demand, not just "more housing". Each year we have a new housing deficit, the housing "debt" goes up. To reduce prices, you need to build more than the demand is, which we are so far from doing it is laughable.
> Infill development is more expensive
This, too, is per policy. The sweet spot price-wise for construction costs alone is 4-5 story apartment buildings; outside parts of SF, Manhattan, and a few other inner cities, we aren't there yet. But the cost of infill development these days also includes (1) drafting environmental impact reports; (2) multiple sets of meetings with neighbors to convince them not to oppose your plans; (3) delay and stalling tactics from well-heeled neighbors who oppose your plans anyway (see: CEQA); (4) extensive requirements on insulation, window area, solar panel inclusion, etc. that push costs upwards; and finally (5) years of paying property taxes while you attempt all of the above to get your plans approved. That's leaving out (6) extremely high labor costs for construction, because construction workers need housing too, and their rent is also super high.
We are not going to see meaningful change until we remove at least some of the constraints on housing construction and new supply can begin to exceed new demand. In California, lawmakers are starting to wake up to the problems, but solutions are slow to come.
The NYC number is 40%, according to the NYT. But close enough and here are some nice maps breaking my down why those buildings couldn’t go up today.
https://www.nytimes.com/interactive/2016/05/19/upshot/forty-...
I think you're underestimating buyer sentiment. In Canada all it took was a couple rate increases in April for housing prices in the 'burbs of Toronto to drop ~20%.
Housing can go from "hot" to "not" really damn quick when prices start their downhill trajectory. What was suddenly a "must have, hot asset" becomes a "fool's game" when people get burned badly.
And based on social media posts, people are getting burned badly in Canada right now.
US will likely continue to see rate increases in the next couple years. We'll see if that is going to affect home prices here. Let's check back in 2025 :)
So it could also be that 97% (or close) of wage earners in the U.S are underpaid?
Or I guess it could be a combination of some underpaid, some overpriced.
20 years from how as a renter your ongoing costs will be high.
20 years from now as a home owner with the mortgage lower and inflation on everything higher, your ongoing costs will be low.
Owning a house is an exercise in deferred gratification, similar to owning most businesses.
With interest rates rising, as buyers who haven't locked in lower rates begin looking at the current payments on offer, they will have to look at lower priced homes or drop out of the market. If this boom has been driven primarily by buyers flush with cash, foreign or domestic, then prices should remain high. Payments are largely irrelevant to cash buyers. Any buyer using debt will be forced into lowering their ceiling of properties they can afford. Home prices should then fall.
We had savings galore but they wouldn't count it for a variety of reasons (withdrawn from biz account in last 90 days, biz account showed slight decrease because of covid), then calcs with old place and new together are hard.
Sometimes if you just leverage equity in old place you will be moving from + hard money + savings, you can do a cash offer, then sell off old place (we had a preemptive offer 4 days in well over asking - bay area).
Now you only have to be underwritten for one property (before selling old property they included both in calculations which made it hard). We got a 3% rate, then used that to settle up everything back to the way it was.
California also have firms like Reali (https://reali.com/how-to-guide-cash-offer/) that do a cash offer on new place, then you sell old place and buy from them.
This might be unique to the insanity of the CA market in last 2 years. I think it is cooling down thankfully?
It seems like home equity is actually a pretty safe and efficient form of cash flow. Even with a cheap mortgage, the payments I need to make each year are about 5% of the principal, which is of course more than the standard 3-4% safe withdrawal rate for investment. The mortgage interest deduction is relevant, but the mortgage is also the reason I would need to realize so much taxable income in the first place. There are no taxes on imputed rent or home equity. Living in a paid off home, you can appear to the income tax system and even some means-tested programs (those that consider income not wealth) as a pauper.
Because housing so dwarfs all other expenses, it is not clear to me why growing my principal at the expense of housing-sized cash flow would be a good tradeoff.
At a N-year fixed interest rate, it's smarter to shop by payment without regard to total price. All the more if you can avoid a large downpayment. After all, that's what matters, right?
Isn't this how everyone has always shopped for housing? House prices are just a Present Value calculation. For example, if you can afford $3,000/mo over the next 25 years and you have a copy of Excel or OpenOffice calc handy:
Affordable house price at a 5% mortgage rate: =PV(0.05/12,25*12,-3000,0) => $513K + [your down payment]
Affordable house price at a 2.5% mortgage rate: =PV(0.025/12,25*12,-3000,0) => $668K (30% higher) + [your down payment]
Atm, here in the UK interest rates are basically back to where they were in late 2019, but housing is still priced 20% higher. This is due to the chronic lack of housing stock and shifting buying patterns
https://www.propertyinvestmentproject.co.uk/property-statist...
I have no idea where interest rates are going to end up however I wouldn't assume that the relevant reference point is late 2019 to now.
When tightening, there arent enough dollars in circulation to do that.
But the bankers get the actual value (homes, collateral, liens on income) regardless. Lenders dont keep seized collateral on their balance sheet, so they sell it at the best price (and they dont need the max price because they already made so much on interest payments). So they push prices down in their firesales.
For the tightening money supplt and people trying to find dollars, think of it like the poison map closing in on Call of Duty Warzone.
So you can base housing prices on that outcome.
So I don't consider articles like that a bell ringing "sell sell sell". Until we are overwhelmed with new constructions coming up everywhere, there will be more people willing to buy, than to sell.
Anecdotally, we decided with wife to pull a trigger on $380k house in Florida (decent ZIP code) just a month before COVID hit, in March 2019. We had 90 days to cancel with $2,500 penalty, pandemic scared us with possibility of builder being lawfully able to be stuck on a construction site for up to 3 years. But eventually we decided to go on because we got tired of renting. By end of 2021 I got offer for $475k, cash, and someone "stole" our plans and our builder built exactly same house next street for $450k (we went inside everything was the same so same options were selected). Then "correction" should come and everyone expected Jan-April 2022 to be a 25% cool off since market rose so much. Well, our "correction" was that prices stopped going up, that's it. Now just few days ago I got an offer by mail (they find your address and mass-mail you) for "amazing amount, just to call". Out of curiosity, I called and was told upon doing title and lean research, an Executive Manager can show up overnight with $525,000 check.
Weird times...
If we reach debt saturation due to higher interest rates or some other economic shock then capital gains are not so certain. In that situation it would be a wondrous trick for prices to somehow 'levitate' and not fall.
With investors and home buyers no longer anticipating capital gains - even anticipating falls - what sets the price?
I would say two things. For investors, the income potential of the asset - in this case rent. For home buyers, the cost of servicing a loan relative to the cost of renting (with a markup to account for the additional benefits of ownership over renting).
What are interest rates now? What were they two years ago (pre-covid)? Price falls are likely to take us back to where we were when we had similar interest rates, perhaps further if sentiment shifts enough.
In NZ this is playing out now. 20% down in Auckland city already. That happened within a few months of the peak. 30% would take us to pre-covid prices, but interest rates are likely to reach higher levels than they were then. How long they stay elevated is the million dollar question. Regardless, I think we'll see falls somewhere between 30-50% in NZ in an astonishingly short amount of time. Ireland saw -50% over five years, but that was with the support of global QE and falling rates.
EDIT: Of course we just don't know what central banks and politicians will cook up to try to kick this one down the road again. Thankfully, the correction looks almost inevitable this time. Perhaps inflation is the answer - as unpalatable as it is?
Plenty of people are on the sidelines in this situation too, either in waiting in a rent controlled apartment perhaps, or opting to add another roommate and keep rent low in the face of an increase which also removes this new roommate from entering the market for themselves and contracts further the number of renters who are out shopping for apartments on the market at these prices.
I imagine a lot of buyers can afford this by selling their existing homes. Or perhaps they socked away a huge nest egg during after an IPO or over the duration of the stock market run up.
But new homebuyers would need to earn about $750k+/year for the foreseeable future for this to make financial sense. That could be a risky wager over the next few years.
It has always seemed wildly inefficient to me. Especially the “buyer agent” who gets a couple percent entirely for escorting the buyer through homes and submitting an offer.
My seller’s agent, on the other hand, was super useful and irreplaceable except by another smart human. I felt like he got us top dollar for the house based on how he renovated, staged, photographed… much more money than we expected.
Also, my experience was I set a budget, put my stuff in truck, left my house a dirty mess, handed the agent my keys, and left town. Then he did all the renovating/etc, posted it, collected offers, and we got paid.
You either believe the market is efficient or you don't.
is it not typically the case that, before the price of something goes off a cliff, most people think it's worth the going price?
your first sentence is quippy, but i don't think it's saying anything.
We're seeing people moving, and supply limits are influencing both rental prices and purchase prices. It's a weird housing market.
The question of the rationality of the valuation is:
1. Do you expect these migration patterns to continue? 2. If so, when do you expect new construction to pick up the slack for demand? 3. How bad of a recession is the Fed going to cause to break inflation?
> housing that should depreciate over time.
It does, amusingly. Housing stock ages and units you build now will generally be worth less in 10-20 years. Land is the thing that can appreciate in value.
Sorry but I don't put a lot of stock in what Moody's says about anything.
There's pretty strong evidence that the rise in house values is structural not speculative. This is essentially the constraint of supply. There are multiple causes of this including:
1. The US building very few new homes 2010-2020. There are lots of reasons for this. A big problem is the type of housing being built, particularly in urban center where like NYC where the vast bulk of new housing units are ultra-luxury condos;
2. Permissive policies allowing the rich to park money in real estate. This particularly includes foreign nationals from places like China, India and Russia; and
3. An increase in people owning multiple properties. These include second homes, vacation homes and short-term rentals (most notably for AirBnB). There's strong evidence that AirBnB in particular has huge negative impacts on a lot of metropolitan areas.
A lot of tempted to blame Blackrock and other instituationl investors as constraining suply. this is completely overblown. These account for less than 1% of US homes.
[1]: https://www.ft.com/content/6457f28a-d9fa-11e6-944b-e7eb37a6a...
We here in Canada have been running the interest rate increase experiment ahead of the US. We've also had a much worse run up in housing prices. There are rundown shacks in Oshawa, Ontario selling for more than nice homes in Los Angeles. Where the hell is Oshawa? That's the whole point, it really doesn't matter but it's a former General Motors factory town about 1 hour east of Toronto.
Two months ago the real estate bulls were saying what you were saying now about supply. But the numbers are in for major areas like the greater Toronto area after a single 50 bps increase this past quarter like the one the Fed just dropped down south. Some suburbs of Toronto have already seen median prices drop 10-20% off their January/February 2022 peak prices [1].
The volume of home sales has plunged 41% in Toronto [2] as the market absorbed the 0.5% interest rate hike. And we haven't seen anything yet. A huge chunk of the buyers today have pre-approvals with interest rates from 75 bps ago. Around June 1 these buyers need to commit to a purchase to provide enough time for their lenders to close the deal at the old interest rates before those expire. The Bank of Canada is also expected to make a further 50 bps to 100 bps jump in rates in early June.
Anecdotally, there are already horror stories of over leveraged buyers -- perhaps amateur investors or a family that stretched themselves to the limit to buy -- only for their deal to fall through because the banks won't appraise the home at what they agreed to pay for it.
As a wannabe first time homebuyer myself, I've heard every argument you've said repeated ad nauseum up here in Canada the past half year by real estate bulls -- who I might add, have been totally right in their assessment of our crazy market which could only go up for perhaps the past 15 years -- only for the market sentiment to completely change overnight within a month or two of the 0.5% interest rate hike.
[1]: https://preview.redd.it/w61ns3b7jgx81.jpg?width=1024&auto=we...
[2]: https://www.bnnbloomberg.ca/toronto-home-sales-plunge-41-in-...
In order to stand a chance of working our way out of this, we need to make it easy to build in terms of what happens at city halls to make more supply increasing projects viable in the eyes of lenders. We need to increase the zoned capacity of our job centers so they can actually support the workers they employ versus force the lowest earning workers to far flung commutes or into living multiples per bedroom. It's like a law of physics. Make it possible for developers to build and supply will expand like a gas to fill available zoned capacity until demand incurred by labor are met, and prices should not appreciably rise if there is no need to enter bidding wars far above ask.
1. https://la.curbed.com/2015/4/8/9972362/everything-wrong-with...
Going for the metro area could be even larger.
One huge advantage places like Paris have is that they've been dense for so long that there is older housing available in dense areas; in the US any new density will be new construction, and therefore tend to aim at the luxury/higher-cost buyer.
1. https://i.redd.it/v84al8v4ymp11.png 2. https://i0.wp.com/thesource.metro.net/wp-content/uploads/201...
But the sprawling setup doesn’t help make it easy.
Our housing market is in deep trouble right now. Big falls in the major cities over the past few months (-20% in Auckland city). Listings where I am are up from 1000 this time last year to 3000. Prices are falling. Rentals up significantly too with prices falling.
A speculative boom creates excess demand. Just like Ireland did, we are seeing that the problem was not on the supply side, but the demand side. Speculative vacancies are now being revealed.
Maybe it has something to do with all the money that has been printed, and the insane low interest rates
In situations like this, where demand is for a vital good and supply constrained, the government should be carful about managing the market. From what I can see, US politicians do care about the housing problem but their solutions thus far just exacerbate it by injecting guaranteed loan money and driving up prices.
They’re not though. Thats the whole problem.
Asset bubbles can inflate the paper value and there might still be some trading activity. But if nobody can actually buy the asset, it’s pretty much useless.
But to your point — things change, you aren’t rich enough, it sucks, get over it.
No, for the simple reason that (most) people buy homes with mortgages. Take a look at the 30 year mortgage interest rate over the past few months.
The total cost to own a newly purchased home is what matters, not the actual sale price. That's mostly paid by the bank.
Even if buyers are prepared to absorb the massive increase in total cost of ownership necessary to keep prices moving upward, it probably doesn't matter because many prospective buyers will no longer even satisfy the mortgage DTI qualification at current prices.
You may object that some are buying with cash. While that's true, it's not enough of the market to sustain prices.
Second, the big issues is with houses supply. The high rate basically lock most current sellers which have very low mortgage rate (compared to 5%), hence reducing the supply more.
Too many people seem to think 'cash deals' in real estate equate to a guy showing up with a louis vutton bag full of 100s that's been collecting dust in their shoe closet
It's just an indication of a lack of nuance in the deal-making, lack of contingencies (i.e. I'll give you $XYZ for your house as soon as I get $ABC for my house - agreed?!)
People with large sums of spare money always look for ways to park their money. Interest based products (term deposits, bonds etc.) will now become more attractive, diverting some cash flows away from housing.
Not necessarily. For anyone who's been working at FAANG and amassed certain amount of financial independence, the advice generally ran along the following scenario:
1) Secure a pledged-asset loan against your stock portfolio. That reduces the need to sell anything and trigger capital gains.
2) Shop around for real estate and submit a cash based offer to signal that you can close quickly.
3) Finalize the transaction.
4) Shop around cashout refi loans with fixed rates. Refi. Cashout. Repay the asset-backed loan.
If those 30% who are cash buyers kept their cash locked up in their houses, you wouldn't see household mortgage debt (that includes refi) skyrocket https://www.emarketer.com/newsroom/index.php/us-mortgage-deb...
I am not saying this will be the case, but rather that we're at what is likely the largest inflection point in modern history, and trying to predict where the world will be at in 10 years has become effectively impossible.
[1] - https://www.macrotrends.net/2593/nikkei-225-index-historical...
That's a long way away from predicting a crash or even a significant decline in prices, though. That would require a lot more inventory, and all those folks with 3% mortgages are going to be in no hurry to sell, and the stats on their mortgage amounts vs incomes looks WAY better than it did in 2007.
So my question is, if there is twice as much money in the system, but the same number of assets, why would it be shocking that housing continues to inflate?
People regularly sell stocks, bonds, and other homes in order to produce the down payment for a mortgage and have done so since long before 2020. M1 does not measure any of these.
Crypto, on the other hand, is something I know was sold for a downpayment by several of my acquaintances, which is acting as its own form of "money supply increase" since they spent orders of magnitude less to acquire it. The anti-inflation tool creates its own inflation by turning into "new money." :)
That makes price discovery harder and means that the market price can lag what is a sustainable long-term price.
It is not a prediction on future prices.
If someone buys an asset for $100B that yields one penny per year with no growth - it is safe to say it's overvalued / a speculative investment. It does not mean that someone won't buy it for $200B tomorrow.
A lot of people buying houses unfortunately don't really look at aggregate home ownership cost and focus (incorrectly) on monthly payments. So, because they can afford the monthly payment, they think they can afford the house. This of course works works until the music stops.
- Disallow foreign investment in residential real estate.
- Disallow for-profit corporations to purchase residential real estate.
- Stop subsidizing speculation by bailing out real estate investors
- Invest in infrastructure so that living apart from big cities is more worthwhile. Especially broadband internet and schools.
- Add a tax penalty to vacant residential real estate.
Odd that, build enough homes for the population, is not mentioned however.
If we stopped messing with the market and started using a currency with actual backing in physical resources, maybe we would experience less recessions and crises.
Avoiding all the short term pain is not free just because the government say so, you'll have to pay it sooner or later.
In a market without government actors capable of breaking rules probably owning houses wouldn't be that valuable. There is plenty of unused land in the world and without a government starting a new city or profitable businesses would be way easier than now.
The rest of your list is good, but I don't agree with this at all. American cities need less sprawl, not more. Denser cities need less infrastructure, which means less stuff to maintain and have to rebuild as it ages.
IMO we should strive to make it so that living far from cities is what is expensive, not in them. I know not everyone prefers that, but it's by far more sustainable, economically.
My suggestion is somewhat simple: return to the early 20th century model where if you own the land, you're free to build homes on it. Even if it means the neighbourhood now has reduced parking, you block someone's view of the mountains (Vancouver I'm looking at you), the building casts a shadow in the local playground, etc.
Something is broken. Homes that wound have been listed at $1,000,000 in 2019 are going for $1.750,000 today. Interest rates going up should cool it off but I fear it will break much of the rest of the economy. There was a massive mismatch in executive policy and fed policy and here we are.
They decided to test MMT and it failed so badly.
> They decided to test MMT and it failed so badly.
Not giving either one a pass though because Biden reappointed Powell and failed to give Powell the political direction to raise rates late last year when it was obvious inflation was anything but transitory.
That's the theory anyway.
The fed chair is appointed by the president and still has some accountability to the political machine. It is independent in many ways but it is not truly independent.
> Its mandate is to keep inflation and unemployment in check
Yes and now it is also trying to fight climate change, wealth gaps, and other "ESG" goals.
For anyone interested trillion dollar triage is a great book.
Say it with me:
> “Inflation is always and everywhere a monetary phenomenon...” - Milton Friedman
It turns out years of suppressing rates combined with dumping many trillions of dollars onto a supply constrained economy causes a rise in prices. Huh... You'd think the trained professionals at the fed would know this by now, but they continue to believe they can defy reality.
We are about to pay for 12 years of easy money policies.
I know that MMT is very hated but it seems very compelling.
The market is being completely rational. What "overvalued" here means is "are homes expensive compared to local wages" not "are homes irrationally expensive." Normally this would drive construction but the market is distorted by credit such that new construction is less economical (a result of 2008.)
This also forms a feedback loop: people are giving up on labor since housing consumes more than they make, driving up the price of construction, driving up the price of housing. It's likely the dollar will crash before middle/lower class hosing will.
The supply constraint is old but its not why housing is high - housing prices are high even in places where there is a lot of construction. Monetary policy explains it a lot better, and it predicts that at some point the trend will reverse.
It’s all about supply.
Boise property prices are definitely going up due to SF’s housing dysfunction.
I've hit my quota, here's my reply: illegal immigrants still have to live somewhere So they're going to take housing off the market. They manage to rent houses in various ways (employers, government programs, ngos etc.)
https://fred.stlouisfed.org/series/UNDCONTSA
People keep repeating these statements about underbuilding or lack of supply as if they're backed by data, but it's just he said she said. Number of housing units to households is the same as it was in the year 2000, and in line with historical levels.
Home price gains were driven by a low rate induced speculative frenzy. It's inflationary psychology at work. E.g. people spin narratives about why you need to buy now to avoid being priced out, thus everybody starts to panic buy making the prophecy self fulfilling in the end.
But this never ends well. At the root of every bubble is some collective narrative that "justifies" its existence
But anyway, beyond fungibility, demographic trend is towards population decline. Spread between population growth and rate of new home construction is at an all time high.
And even CA recently passed a law allowing densification on certain SFH plots
Demographic decline is a much bigger problem to solve, not something that should stop us from taking action.
The averages say otherwise and I would bet continue to do so if we check-in, in a decade.
I think the issue is that the United States has been too cheap and finally that era of abundance at a low cost is coming to an end.
Edit: I should say anyone can buy a house for 20% down or less. In much of the world some can do this, but credit is not extended to nearly as many of the population as it is in the US
With government assistance programmes it can be even 5% down but you'd have to qualify for some protected category.
Good luck!
Also, in case there's some confusion, "deposit" and "down payment" are distinct. In American real estate parlance a deposit is earnest money (often 5% of the initial offer) to bind the seller into closing--the process of finalizing contracts among all involved parties, and transferring assets. A deposit might be forfeited if the buyer pulls out. A minimum down payment is the minimum equity a mortgagee (e.g. bank) requires the borrower to hold in the property as a condition of making the loan.
I don't know about "anywhere else in the world" but I can guarantee you that you can buy a property everywhere in EU with a 20%. Also, property taxes in EU are generally lower than US.
I keep saying that americans, pay lots of taxes, they are simply not aware of it.
> The average annual wage in 2019 in the US was $51,916.27, and the median annual wage was $34,248.45. The median wage is the wage “in the middle,” while average refers to the measure of central tendency for all the data.
https://policyadvice.net/insurance/insights/average-american...
[0] https://data.oecd.org/hha/household-disposable-income.htm
In any case, why not just continue the era of abundance? We aren't really running short on space, and there is at least some indication that the lack of housing availability is a policy failure (rather than an expected outcome of some physical process or limit).
Beautiful land too. Forests, creeks, and wildlife.
The biggest affordability issue I see is that nobody builds starter homes for sale. In most areas, you can easily find a small 1br or 2br apartment to rent, but you can't buy a similar apartment. If you have to continue renting for years after you have settled down, because you can't buy anything smaller than 1000 square feet, it's harder to afford buying that 1000+ square foot house.
Essentially, a few hundred rich people moving from SF to some smaller town won't move SF's housing cost but will skyrocket the small town housing cost. However, the few hundred rich won't boost the income significantly.
This is a data artifact made from the fact that "prices" are determined by what's on the book and "income" is determined as a whole. The difference between what's on the book vs. the whole is best illustrated by San Francisco, where most people pay far less for a 1 br apartment than the "going rate for a 1 br apartment".
Even the repeat-sales method for home pricing is not immune to this data artifact because we don't use a new-job method for income. This causes decoupling of the fundamentals when you get the remote-work revolution.
The money has changed, not the property. I’m now curious how undervalued it really is and what a huge accounting trick it was to play on everyone over the past two years.
>Beginning May 2020, M2 consists of M1 plus (1) small-denomination time deposits (time deposits in amounts of less than $100,000) less IRA and Keogh balances at depository institutions; and (2) balances in retail MMFs less IRA and Keogh balances at MMFs. Seasonally adjusted M2 is constructed by summing savings deposits (before May 2020), small-denomination time deposits, and retail MMFs, each seasonally adjusted separately, and adding this result to seasonally adjusted M1.
The change increased M1 by moving common components of M2 downstream into M1. It's why M2 is all anyone should track. And a "definition change" is not in fact the primary reason for a large increase in the money supply in 2020.
Smart source: https://fredblog.stlouisfed.org/2021/01/whats-behind-the-rec... Gonzo source: https://gonzoecon.com/2021/04/m1-and-m2-have-changed/
You are unbelievably far off base.
I love free markets but they don't exist without laws and regulations, and those laws and regulations must match what is being sold.
I mean think about it, people can't get housing in cities without paying a ridiculous multiple of the costs to create that housing. It's like if restaurants cost 10x or more than the cost of goods for meals. I can make my own steak dinner for like $50 in components, but if I want to eat out at a nice place, even 3x is extreme, and really nice. This is like if all restaurants, even cheap ones, were $500+. It's insane.
No, they've instead raised wages to attract employees, which they have to do because of the labor "shortage".
Volume would go down, and whatever is sold will be done at a much lower market price.
Argentina had a RE bubble in 2017, and property prices dropped 40% since. It has happened, it is happening, and it will happen again.
"Housing" is the market, and renting and buying are two options for people in the market.
For example, I pay $24k a year on a house worth around $1.4m. This gives a return of around 1.7%, which is nothing compared to cap notes (5%) or dividends (~4%).
However, someone buying our house would only need to put down 20% up front, and could reasonably expect to see the price raise by 5-10% a year if trends continue. So that $280k deposit could theoretically return $500k+ over the course of 5 years because of the high leverage. The rental return over that period would only be $120k - not even enough to cover the interest repayments on the loan.
Of course, that's assuming trends continue. If prices started falling by 5-10% per year, that $280k deposit would turn into a $500k+ loss and the investors would be absolutely fucked.
And with low interest rates, low wages(vs house price) for so long the margins for that are tight for a lot of (silly?) people who borrowed "as much as they could".
It seems like:
- house prices up, investors win.
- house prices down, homeowners lose.
It will be interesting to see how it plays out but at this stage either side of political argybargy are doing SweetFA and advertise policies to do more of the same.
If they hold onto the house, short-term fluctuations don't affect the eventual sale price. If they buy a new property in a similar market after selling the old one, then the "losses" on the old house are made up for by the "savings" on the new property.
It's only people who downsize or leave the property market altogether that would be affected by a short-term dip.
(The caveat being, of course, that this completely handwaves away human psychology! Being "underwater" on the mortgage would definitely make a lot of people stressed and anxious.)
Don't let NIMBYs think that that is the problem. We need more housing.
Most RE investors I know who do this make good money only if they buy a significantly undervalued house - often one that is unsellable. They buy it, put in $50K to repair it, and then rent it out.
Those who buy regular houses at 20% down and rent it out have a target of $200/mo net profit. Clearly, they're not buying $600K houses at $120K down to get a measly $200/mo out of it.
RE investing - especially the rental market - is very nice in that it's pretty simple math and very transparent. Anyone can plug in the numbers and see what they'll get. Generally, in places where houses go for $800K, the rent will likely not even cover the loan payments. So then you play the game of taking a long term sustained loss in the hope of appreciation. But as someone else pointed out, this makes sense only if you're paying about 20% down and not with paying full cash.
Buying houses with all cash is almost always a very poor investment.
Random example in my area: Houses in a certain neighborhood are selling for $900K. They rent for $3.5K/mo. Assuming no costs, it would take 21 years to get the money back. Even with rent appreciation, it would take well over 10 years. Over that period, even including appreciation of the house, you're almost guaranteed to get better returns with the S&P500.
If your a millennial who managed to get through the lottery and have assets, then you are likely heavy in housing and stocks. If assets crash, these individuals will lose out - but ultimately be at the same point as their peers who never accumulated assets.
It will add yet another economic catastrophe to the list, as people generally form businesses in their 40s and 50s we likely wont see much in the way of SMB formation.
Anyone younger and buying now would be up against it. I think housing affordability is one of the biggest issues we have.
That doesn't stop social media from flagging a "millennial crisis".
Investors should be forced to legally go fuck themselves. Same with flippers. Same with landlords. All of these just add extra cost and exfiltrate equity for some rich person to get richer. (I've lived with landlords for 40 years. My hatred is deep here. They've taken my money, built their equity, and charged 1.5x more than the housing would have cost. Damn straight I'm angry.)
there's few cases where landlords of a form make sense - dense housing is needed in cities. Treat them like cooperatives, or do like utility companies where this service is guaranteed and here's the cost. But companies should not be able to unduely profit on the fact that people have to live.
This isn’t good.
https://inflationchart.com/m3-in-home/?time=10%20years&zero=...
Neat website btw. Thank you for sharing.
10% drop - yeah, good luck, noone will notice that.
The combo of slightly higher wages, more young people moving out, and low interest rates does mean more people have the opportunity. And that’s not a bad thing. If you cancel any of those factors, you’re blocking access to people who would love to own a home.
I think the factors that should change are supply and investors. It’s not like we live in an era where housing is cheap and bountiful. Clearly it’s severely constrained. The other part is investment. With low interest rates, it’s easy to justify a house as an investment vehicle.
Legislatively, it needs to be easy to build and hard to buy more than one property.
What gains value over time is land. Poeple only think they invest in houses, but they are fooling themselves and overspend on the construction and interiors. They pay for land.
Easy to prove - construction material and labor are highly mobile. Cement, bricks and imported labor costs the same in New York as in middle of nowhere. The price differs only by transportation costs and temporary lodging of workers. The real difference comes from 1. price of land 2. bribes for construction permits of a respective town. In other words - location is what you pay for.
In Japan, this is more explicit. House value drops to zero in 30 years. https://www.theguardian.com/cities/2017/nov/16/japan-reusabl...
Here, the only time I see old homes getting demolished is to make way for a new apartment block.
Hell, the house I am living in appears to have been built some time in the 40s to 50s
I wish this were true legally - my property tax bill on my 40 year old house would be 0, but sadly it increases every year as my home value appreciates.
That means we know what works. High prices are the result of supply and demand not meeting.
There is very strong evidence that just these work in combination.
1. Building enough housing into cities (by compact zoning, with good infrastructure). Japan is main example. Tokyo has no housing crisis. They just kept building houses until everyone had one.
2. Taxing empty apartments extra (nobody registered to live there for over a year). Taxing undeveloped properties in zoned areas extra.
After these two have been implemented. It just works. It does not matter if it's luxury or not as some claim. When luxury house is build, one frees up somewhere (as long as they are permanent residences). One new luxury house starts a chain where only 3-4 hops away someone with low income gets a new house.
I’m always wary of “this time is different.” But sometimes, times are different.
If we assume a house bought by an exiting San Franciscan must be resold to a local, yes, the home value is askew. But if we assume it will be sold to another tech worker forged in New York or the Bay Area before achieving sufficient seniority to go remote only at high pay, the denominator is different.
I don’t think that explains the gap. And code fixes would burst the bubble; while there has been historical opposition to such tweaks, a carpetbagger-longtime local divide is about the best fodder for it. But local deviations from the national premium may be explained by permanent factors.
Forget SF and just follow the money. More dollars created since 2015 than before 2015. https://fred.stlouisfed.org/series/M2SL. Half the money supply came about in the last 7 years!
Tech workers are closer to the money than ever before (maybe closer than quants etc.) because money is looking for yield at any risk. Tech investment provides that promise.
It was listed for a total price of 2.2M NOK / 235k USD. 12 years ago, it was sold for 240k NOK / 25k USD.
Or this: https://www.finn.no/realestate/homes/ad.html?finnkode=254704...
Which was sold for 2.5M NOK / 261k USD. It is 13 m^2 / 140 ft^2, and 11 years ago, the same apartment was sold for 325 NOK / 34k USD.
As you can see, both of these tiny apartments have increased by around %700-%900, or a 11-12 year gross CAGR of around 20%!
As you can imagine, these apartments are not meant for long-time living. These apartments have been bought and sold 3-5 times since 2010, and if I had to guess, they have been bought by the parents of students, and sold as soon as they've graduated. No-one has lost money on these apartments.
At least here in Norway, more so Oslo, real-estate pricing has slowly but steady outpaced the purchasing power of young people. In fact - over half of first buyers in Oslo are backed by parents / family. The ones that don't get help, probably have to rent and save for a longer time.
It is purely anecdotal, but I've seen this divide in a pretty stark way...those that get help from their parents, buy their first apartment straight out of university (sometimes even while being students), so around age 22-24. People that don't get any help, late 20s / early 30s.
While Oslo would be the worst place here for first-time buyers, most mid-sized cities in Norway are trailing these prices and trends.
1950 - $3,300 - $7,354
1960 - $5,600 - $11,900
1970 - $9,870 - $17,000
1980 - $17,709 - $47,200
1990 - $29,943 - $79,100
2000 - $41,989 - $119,600
2010 - $49,276 - $221,800
2020 - $67,521 - $336,900
God it's depressing. I'm jealous of the generation who bought homes for the equivalent of one year's salary, sat on them while their value multiplied 20x, and then had the economy shut down for two years for their safety. And of course, they received healthy pension increases while the minimum wage remains stagnant.
I think it’s a combination of not enough available housing (and pandemic increasing costs for building new homes), fall in the value of the denominator due to central bank action, and people moving often having lots of equity in their existing home they shift to the new one so the increase in mortgage size isn’t huge.
There won’t be a big crash (unless we see a deep recession with rising unemployment and defaults) but central bank tightening and raising rates will definitely curb house price growth in the next couple of years.
Futhermore, attributing this run up to Covid is revisionist history. The Fed has been goosing the economy for too long. Even my dog knows this. And that has assisted those who are investing in residential homes (because office space has been slipping into the shitter).
This is Moody's and its WS family getting out in front of what's coming. Hear it enough times and we'll believe it.
It’s kind of funny thing that interest rates did but the escrow portion of my mortgage payment is bigger than the principal and interest.
Where I live, they have an amount of taxes they need to collect, and then they divide that up based on property values. If the value of everyone's property doubles, they still need to collect the same amount of property taxes, so everyone's property taxes stay the same.
I guess in some places, they just do it based on property value, and when house prices skyrocket, the government just says, "Score!".
Wouldn't want to live in one of those states.
*I'm currently a beneficiary of this, and I hate it. I dont want my HOME to be overvalued.
> The economist said a given housing market is considered overvalued if property costs in the area are "well above" the historical relationship between home prices and incomes, rents and construction costs.
Which, no surprise there, prices are up in a lot of places!
Whether or not that is "overvalued" or suggests a crash coming seems a lot more complicated. Would historical trends hold if historical conditions have changed? Mortgage rates rising are one of those things you'd expect to certainly arrest some of that price acceleration. If everyone who moved to Boise decides to move out of Boise, that's another one. (Though if a bunch of folks moved back from Boise to SF, that's not gonna cool down the also-seen-as-somewhat-overvalued SF market!)
Maybe a bunch of folks are just spending a bunch of crypto winnings, naturally causing inflation but not necessarily leading to a crash. ;)
Prices are up 50% in the last 18 months.
There are zero out of 615 homes on the market and this is supposed to be high season for transactions.
It makes no sense to me.
Why would rents go down? It might go up?
- now: high price but low mortgage?
- later: lower price but higher mortgage? (or simply take this and later refinance at lower rates?)
;)
Maybe 3rd world countries could start opening up their citizenship/PRs for US/Western Europe/Canada/Japan/Korea/1st world citizens. i.e, Give up your origin citizenship, say US, for Indonesia for example (because Indonesia doesn't allow dual citizenship), and gain these benefits for you:
- Extremely cheap cost of living
- You can own a house and a yard as big as you want, with nice cars, and maids, drivers, gardeners
- You can send your kids to international school that are cheaper than your private school, and also of better quality education wise than your local public school
Meanwhile, Indonesia will gain:
- The new citizens/PRs can help create opportunities/businesses in Indonesia and employ locals
- The new citizens/PRs will spend their money in Indonesia, buying local goods and services
For example, a nice area in Serpong (just a bit south of Jakarta, cluster-style 2 story houses, 3 bedrooms, will cost you around $150.000. Complete with security guards.
I'm sure there are other countries that are ok too, like Thailand, Vietnam, Philiphines.
People have jobs where they live, they know the city or at least the country. The language is not a problem, they are familiar with food, laws, standards, processes.
I worked in many different countries before, developed and less developed. It's "fun" for a while, but in my experience people don't want to stay, they only stay temporarily that for career reasons.
Plus, how long will it take until the local folks will get mad because your kids are treated better (in the international school), you have a bigger house, enjoy a better life? There will be the same "those migrants are taking away our stuff!!!" sentiment that we already know here in the WeSt.