Social Mobility May Suffer as Income Fails to Keep Pace with Housing Costs | Hacker News Reader

Social Mobility May Suffer as Income Fails to Keep Pace with Housing Costs

zillow.com

58 pointsuptown69 comments

Housing, Education and Health Care are all insanely unaffordable for the middle class. Eventually the home equity of their parents that has been floating the millennial generation will run out and what happens then?

wouldn't that be transferred to the kids ?

There is a growing theory that the majority of working middle class retirees will reverse mortgage their homes in retirement in order to supplement their cost of living (and pay inflated nursing home, health care, and end of life costs), leaving their kids with much less than expected inheritance. This would also exacerbate the inequality gap as wealthier families would have no need to go into debt and would rather continue to accumulate assets. Watch for Wall Street and associated marketing channels to put out financial products that make it ''stupid simple'' to qualify for and execute on a reverse mortgage as the start of this trend.

They will also live 10+ more years than projected government estimates, further exhausting Social Security and other benefit programs. It's been well acknowledged in the financial planning world that many will run out of their nest egg halfway through retirement, and die in debt.

Easy reverse mortgages are already advertised on TV.

Yeah I remember seeing them on TV in Canada over 10 years ago.

Yeah The Fonz started hawking them about 5 years ago.

Tapping in to a homes equity requires a loan, and yes, those loans will be transferred to their children.

EDIT: Yes I meant the loans stay with the estate which services the debtors. The house that is typically handed down to the next generation is now sold to make whole the debt.

Your debts do not pass to your children when you die. The worst that happens is that the debts are paid out of the child's inheritance.

Not always the case.

Pennsylvania for example does have filial responsibility laws where under very specific circumstances debt incurred by the parents can be transferred to the children. One example is nursing home/end of life care, regardless of whether or not the child had any role in it.

Source: I live in PA. My elderly parents live in PA.

I looked into this because I thought it was a little odd. The only precedence I can find of this is a single lawsuit, the PDF of which is here:

http://www.pacourts.us/assets/opinions/Superior/out/A36025_1...

This really doesn't have anything to do with inheritance, especially so since his mother wasn't (and presumably still isn't) deceased. It has to do with some states having laws requiring parents/children, who have the means to do so, to support their child/parent who is poor or otherwise incapable of supporting themselves.

In this court case, the child was found to be financially capable and also legally liable for supporting his mother. Because of this, he was found responsible for paying off the debt, but only as he was capable of doing so.

If the son in this case only made the national median income, had a large family to support, and didn't have any wiggle room in his budget, he very likely would not have been found liable for this debt.

I think he meant a loan secured by property that the kids would otherwise expect to inherit free and clear.

Unless the contracts are dumb, the house will be the security for the loan, so it 'transfers to the kids' in the sense that they don't get the house, but it would be really stupid to allow reverse mortgages or home equity loans to be attached to anything other than the house.

What other asset do most middle-class retirees have? Social security and pensions aren't inheritable, and much of what liquid assets they have will go to medical care.

I dunno, I just felt like the phrasing was unclear.

That the parents are in a situation where they decide to sell their house to support their lifestyle is perhaps worth examining, but that's the problem, not that the contract they enter into has to be settled.

FWIW, there are definitely people hawking full-recourse refis.

Are they though? Defining middle-class might be good as well. A decent home in some parts of Utah is 150-200K. Granted some parts are more expensive. And for a college, BYU runs at about 2.5-3.5K a semester, not all that bad. I managed to work my way through most of college.

But Utah is not on the coast, therefore "nothing happens there" and you can't advance your career (supposedly).

The mega-prestige city where you "must be" phenomenon is a major driver here. It's really exploded since roughly 2000.

Edit: I think the best way of seeing it is to look at where early PCs came from:

MITS Altair: Albuquerque, NM

Commodore 64: Philadelphia (metro), PA

IBM PC: Miami / Boca Raton, FL

CompuColor II (first color home PC): Norcross, GA

TRS-80: Fort Worth, TX

Apple II: Cupertino, CA

Today every single one of those would be from San Francisco or Silicon Valley, because that's where You Have To Be. Seattle I suppose gets an honorary mention, but the rest of the world doesn't exist.

The same thing has happened to varying degrees in other industries. Everything has super-concentrated in a handful of super-expensive mostly coastal cities. The rest of the country is a backwater falling into permanent depression.

Combined with the fact that, for certain demographics, if you can't walk out of your apartment to a hipster coffee shop, life is basically not worth living.

(SF pricing issues admittedly extend to the entire Bay, but for many thriving cities, very high prices are mostly a near-in urban phenomenon.)

The minicomputer industry was more concentrated, especially around Boston (though also Silicon Valley with HP, Rochester MN for IBM and others I'm sure I'm forgetting) but, even then, they were pretty spread out over a fairly large greater metropolitan area and beyond.

There are still a lot of tech companies outside of the Valley, including startups. But there's certainly a tendency to concentrate.

So how do we fix this?

I think it's concentration of capital more than anything else. You can do engineering or write code anywhere, but raising money is much easier in SF/SV than anywhere else.

And why is raising money so important? Can't a lot of software businesses be bootstrapped?

Bootstrapped companies are at a huge disadvantage vs. funded companies. Funded companies can afford deeper longer-sighted investments and kamikaze growth-at-all-costs free/freemium strategies that bootstrappers cannot.

The only huge growth companies to emerge as startups that I can think of that started with a paid product were companies with an unavoidable physical dimension like Uber and AirBnB.

We BYU alumni have the advantage of an education that was massively subsidized, down to the point where you can actually afford to work your way through. State schools are supposed to do that too, but they don't anymore. That's why BYU is now near the top of the Forbes list of "Best Value Colleges" or whatever it is.

Right, but UVU is also not that expensive, ~3.5k a semester. I guess my point is class is still affordable if you are willing to get away a bit.

Edit: These are meant to be example of cheapness in an area where I live. I don't think it's completely unique to this area. College does require planning ahead, and a year of living in a state and applying for residency can reduce the cost of college a great deal.

Out of state tuition is much more expensive.

Some states aren't spending as much on higher ed as Utah. In Washington, where I live, in-state tuition averages ~$10k.

Well, I do stand corrected then. Thanks :)

For healthcare I think the circulation definition applies; that is, if you can't afford healthcare, you probably aren't middle class.

That's a completely ridiculous and uneducated statement. Let's say you make $70k in a 3-person family (no subsidies), you pay $1,400 a month mortgage, $12,000 a year in health care premiums, and you have a $500 a month car loan. After taxes you have around $50,000. After mortgage you have roughly $33,000. After car payment you have $27,000. That gives you about $500 a week. Then you have cell phone, electricity, water, trash removal (some places), and then maybe cable. So...now you are down from $2k extra a month to $1,200 a month. If you want to eat, let's say $150 a week in groceries..you are now down to $600 a month...or $150 a week extra. Please tell me how the middle class can save any money, but a home, pay off debt, pay for college, go on vacation...etc. On just $150 a week extra, you could easy blow your monthly budget on buying everyone in the house shoes and then going out to eat 2 times a month.

Could you explain what you think I meant?

Either laundered foreign money continues to flow into the country and the bubble sustains itself, or the spigot is closed and there is a correction.

Housing costs are easy to fix.....it's just a matter of building more housing. Current residents don't want to do that though, so it's just a typical case of entrenched interests against newcomers: story as old as time.

No need to build more housing. Everybody who is priced out of their favourite market, move to Detroit!

I'm moving to live on a sailboat. You can keep your overly expensive first world land! :D

This seems naive. There's only so much land in urban areas, and everyone wants to live there.

As population expands, isn't there some kind of mathematical constraint on total possible hoising within a circular area? City centres radiate outwards roughly circularly.

More NYC like areas would help, but we can't seem to build those anymore. When existing cities grow they just sort of spread outwards.

Edit: Per my comment below, my argument is that as long as we build the way we do, we can't really build our way out of this. Even our "dense" construction isn't really dense once you consider total land use including businesses, offices, etc

> More NYC like areas would help, but we can't seem to build those anymore.

That seems like a policy problem. I don't think we're nearly at the point where physics or math is a constraint on how densely we can build.

I agree, actually. But it's a deep policy problem. Since cars, we've built no cities that are both dense and desirable. And very few areas dense, period, especially when you consider that stores + offices are usually separate from dense residential towers. So those separate areas need to be accounted for in the total footprint.

The pre car areas tend to be dense and also have shops in the areas. I live in such an area in Montreal. Low rise but very dense.

In part (but only in part), I'd argue this is because--sort of by definition--post-car cities have tended to be built in areas where there is room to spread out. And, for better or worse, the natural evolutionary path seems to be to spread out. (And, where there has been a conscious effort to build density in an area, it's tended to be housing project style.)

It's very much a policy problem. 'Dense' is not allowed in huge swaths of the US. Some people don't want dense, and that's fine, but for those who do favor it, it's simply not an option in many places, and that needs fixing.

San Francisco is not as dense as Paris, France - and Paris is not constrained by water, so that probably includes some fairly large tracts of low-density suburbs.

So find one of the places that does favor dense. There are clearly issues of public policy where majority shouldn't rule. However, I'm mostly uncomfortable with arguments along the lines of: the residents/voters in an area have a different opinion from me, I can't seem to get them to change their minds, so someone ought to take actions that ignores those preferences.

Clearly, in a democracy, you need to get people on board with things, and that will take time, but I don't think it's impossible.

Naturally, the 'marginal' (in the economic sense) people who are being excluded don't get a voice in the matter, which is sad, because they're already being screwed by being pushed away from highly productive areas.

You also need to balance what voters can and can't dictate with property rights. It's pretty common in the US to have laws like "houses must have a 2 car driveway", which seems excessive to me.

Central Paris was built quite a while ago :-) Paris is actually almost uniquely dense among large cities in developed countries. https://en.wikipedia.org/wiki/List_of_cities_by_population_d...

Which I knew but wouldn't have guessed. Looking at a population density map https://en.wikipedia.org/wiki/Demographics_of_Paris I think the reason may be that the City of Paris is a very small chunk of the total area.

The density list seems to be missing a number of places - New York, for instance. Most European cities are denser than SF, but it can be kind of hard to gauge as the line where the city ends can be somewhat arbitrary.

Density doesn't need to be skyscrapers, it often works well if it's just a few extra stories.

If you built apartments without parking in SF, people would live in them.

> More NYC like areas would help, but we can't seem to build those anymore.

Yes, but the whole reason we can't build them anymore is because of NIMBY landowners stopping us, not because of any inherent limit.

>it's just a matter of building more housing

Not really. It's a matter of building more housing, more schools, more infrastructure to move people around (by whatever combination of public transit and cars), etc. You can't just pop a few big towers of apartment buildings down and call it a day.

If you live in the middle of NY or San Francisco maybe, but if you actually look at the map it is the Midwest and south that are having issues. The problem isn't housing..there are enough houses. The problem is that people don't have blue-collar jobs and the housing that is being built is geared towards higher wealth brackets. The carolinas for example: with limits on zoning permits and fees, it's more cost effective to build high-end homes. No one wants to build low end homes...it all really comes down to income inequality. If anyone actually read the article, it's not about homes but about the blue collar work force not having enough income to live where they live.

I can't speak for the midwest or south, but in rural California, the problem is the same: housing prices rise because there is no zoning for new houses. There is no zoning for new houses, because people don't want their town to change and grow.

The carolinas for example: with limits on zoning permits and fees

Exactly.

If you can't buy a house for less than $100k, then you can be sure it's a problem that can be solved by building more houses (ie, allowing it to happen through zoning and permits).

My health care costs were almost 50% of what my rent was recently. Seriously.. rent was $590/mo, my ACA plan (with fairly lousy coverage and few doctors that would take it - I lost my original doc) was $290/mo.

You're absolutely right. Those three things are spiraling out of control in price. The place I moved out of is now renting for $700.

I would say that basic economics should have predicted this. I mean, if there's an area where your children can escape poverty with a higher chance, isn't that area more desireable to live? And if so, wouldn't you pay a premium to allow your children the opportunity?

I would. My parents did. I'm a child of the lowest 25% who now am a developer living in the highest 25%.

I think by definition if you live in poverty you probably don't have the luxury of "paying a premium" to live in a different school district.

A certain amount of price increase for a desirable area is expected, of course. It's just gotten out of control in certain areas due to highly restrictive regulations around building more.

Like, the bay area should be more expensive than normal because of the booming economy. But should housing in otherwise-normal suburbs like Sunnyvale or Santa Clara cost 3-4x as much as normal? No; that's the result of onerous regulations.

I've been trying to buy a place for awhile now. On Zillow, as a matter of fact. I can attest to the fact that it seems bloody impossible to find a place. I've had people in my neighborhood tell me that they bought their townhouse for $200k or so ten years ago and putting it up for sale now at rates of $350k or higher.

The nice thing about Zillow is being able to see the pricing history. The vast majority of houses I have looked at are approaching their 2005/2006 prices, before the last bubble popped.

I'd say we're due for another one soon. I will begrudgingly bide my time until then.

Same here. Zillow made me realize I should wait too.

I've been following the development of a new area that's going to open up later in the year, but the surrounding neighborhoods are priced at least in the $500k. The likelihood of getting into the new area is not looking good for me. There's affordable housing, but I definitely don't qualify.

What I find interesting in my area is that many houses are being sold for a high price above the listed tax assessment from the previous year. Then once it gets appraised during the sale process it is valued close to the tax assessment, which is much less than the agreed upon price. Which means the new owner will have to pay much of that difference out of pocket since a mortgage may not be allowed to go that high above appraisal. The current owner likely won't renegotiate because they know they can put back up on the market and somebody else will make an offer.

I looked at buying a house during the last bubble in Vegas and once I heard the overly obvious BS from everyone involved I decided not to bother. Once again we are looking at houses in a new state and hearing much the same BS as before. Unless we see a deal, we'll likely wait again.

This is area-specific. For example, in Florida (where I've bought/sold 4 houses over the years) property taxes tend to be reassessed to very close to purchase price upon sale, because due to homestead exemptions the taxes haven't kept up with home price inflation. I believe similar happens in California.

Could be, but based on the tax assessment history we can see on Zillow I would hope it's not going to be reassessed to 50k or more above last year's assessment.

I think it depends on the location. During the last bubble-burst(?) housing in Santa Monica didn't really fall. Activity just kind of slowed down. Also, the last bubble was partially fueled by bad loans to unworthy borrowers. They were leveraged to the hilt, and when their rates reset on their teaser loans, foreclosures went up. This is happening less now because easy mortgages aren't as rampant. I bought a house in LA as a 20 year old with 0 downpayment and 'stated income' in 2002! That doesn't happen anymore.

Much of the Boston area didn't really drop much either. Certainly a much different situation from, say, Las Vegas where there was a huge amount of speculative building and bad loans going on.

I was there, it was an interesting thing to see that's for sure.

While supply and demand affect Santa Monica as much as anywhere else, there are probably a _lot_ of people in the LA area who would like to be in SM but instead are living elsewhere, so if prices ever drop they will be sure to swoop in and grab a spot.

Santa Monica also has rent control, which increases pricing friction and raises prices (fewer people willingly moving = fewer vacancies = more competition for the few places that do come on the market = higher prices). This means that if housing drops at all people will be enticed to become buyers instead of renters.

I was lucky to get a spot in Santa Monica, but mostly because the landlord wasn't too concerned about maximizing rent, and we were the very first people to show up and look at the place. It was listed on a Sunday night and we were signing papers Monday at 9 AM. And this was in 2011!

Things have to get really bad for Santa Monica prices to fall. It's probably one of the most desirable places to live in the US so there will always be people willing to move in as soon as prices fall even a little.

Here's a hypothetical: housing prices stagnate at 30% higher than they are now and don't move much for decades once they reach that. You'll spend quite a bit of money waiting for a correction that never comes.

Timing the market is a losing strategy. So is banking on the cost of housing appreciating during the period of time you own a home.

Buy a house when you want to buy a house. Anything more complicated than that is a waste of time.

Timing the market is usually but not always a losing strategy. The best variables to watch are the cost of renting versus the cost of owning. I remember by 2006 these costs had diverged in certain markets to the point where CAP rates were negative (you couldn't make money buying and renting 80% LTV property out). That was a pretty definitive sign that there was turmoil in the market. If renting is or becomes much cheaper than owning, then don't be afraid to keep renting and don't panic buy just to feel like an owner.

Figure 1's concentration of orange and yellow areas looks moderately correlated with the Bible Belt (https://en.wikipedia.org/wiki/Bible_Belt), in which socially conservative evangelical Protestantism plays a strong role in society and politics, and Christian church attendance across the denominations is generally higher than the nation's average. It would be interesting to explore this relationship further.

...in the US

... and in Sweden

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