I honestly don't know. I'm not trying to imply any particular thing. I honestly wonder. These sorts of things can stack up through the layers of companies that make things.
And where does this money go? What does it end up doing?
• As a few people have pointed out, people often buy sunglasses for fashion and social signaling rather than on price. Wearing Tom Ford glasses means you're getting very good quality glasses, but mostly you are paying to wear Tom Ford glasses, in the same way that a Rolls Royce and a mid level BMW are functionally very similar, even though there is a 5x difference in price (if not a higher change). You're paying for the styling and the brand name.
• Where the money goes: for a lot of consumer brands, huge sums go into brand advertising. B2B companies spend this money on salespeople and tradeshows. I like to give the example of a Rolex. A new Rolex is worth $10-15k (if not more) because they spend tens of millions of dollars every year telling us all that that's why they're worth so much. Compare that to a lesser advertised brand - say Tag Heuer, and you'll see there's a pretty big difference in their pricing. Traditionally this money has gone into magazines / billboards / tv commercials / sports sponsorship - so this money is subsidizing middle class entertainment. On the B2B side, if you engage with a company like SAP, you'll get a professional sales team walking you through the buying process (they'll probably even spot you a few nice dinners along the way).
• "Rent seeking" is an interesting term, and while I agree with it in the context of sunglasses, it's a bit hard to nail down in a lot of the economy. Price is funny because lots of the things we produce now (particularly software, pharmaceuticals & entertainment) have revenue models that don't see much of an increase in marginal cost once you've covered the initial investment (10k people see your movie in cinemas vs 1m - provided you've got the infrastructure in place, it's not like the price of producing the movie goes up 100x).
• The culprits for the "middle class burden" is often pointed at healthcare and higher education for the simple reason that they have dramatically increased administrative costs which ultimately haven't added much (if any) value to the consumer (people argue my first point with regards to higher education - perhaps a Harvard education is worth $60k a year, although it's hard to see many other colleges worth that much for the brand alone).
But your original point might still be true, regardless.
So after a while the utility is things like social status and wealth signaling.
Apply this to things like buying a car, or a home and it makes a whole lot of sense. If you need that expensive carpet just to show off while a cheaper one could keep your feet equally warm, then at that point in time you are spending for status and wealth, not utility.
In case of a watch, can your phone tell time? If so you are all set.
What I'm mostly saying is that I don't see this as rent seeking, it's just people willing to spend large amounts of money for fashion.
Sunglass Hut doesn't sell them, but Serengeti makes some great lenses. Maui Jim might even not make lenses that are both photochromic and polarized, but Serengeti does.
If you include the unwillingness to respond to demand by building enough new homes in the popular urban areas, probably a lot.
A 1000 sq.ft. home (house or condo) should not cost more than $200,000 to build. Anything above that, someone is making profit.
I am a single person trying to find a house that is not four or five bedrooms (I only need one or two) and doesn't cost 1/2 mil minimum and it's difficult. This used to be called "the starter house" but it doesn't seem to exist anymore with new construction.
If the margins are paper thin, the risk is too large, so the only way to mitigate that risk is to make more expensive homes so that even if things go terribly wrong you can still pay your costs and your employees and make some profit.
My experience renting some warehouse space in SF. One building three units. Used to be occupied by three roofing companies. And some meth heads living in the old offices. One of the roofing companies bought it, kicked out one of the other roofing companies and the methheads and rented to us.
Change of ownership and new owner kicked out another roofing company. And rented out to a pot grow. Fast forward 5 years we got kicked out along with the remaining roofers and all three units are now growing pot.
So went from three roofing companies circa 1998 to three pot grows circa 2012. My feeling is stuff like this is happening in every urban area in the US. Which means your roofer is either paying very high rents or commuting in from 2-3 hours away.
Really easy for me to see that driving costs up by 100%. That's born out by what my insurance agent says. Rebuilding costs in SF are $600-1000 sqft. Get out to Vallejo drops to $300-500 sqft.
Other thought as well is that typically you get better margin on luxury goods than basic ones. because it's easier to slip more profit into high cost goods, like granite countertops vs laminate. Prices double, your margin doubles but your expenses only go up 50%. So as long as the luxo market isn't tapped out that will be serviced at the expense of basic goods.
All in all, frictional losses/expenses building in a city are probably very high in aggregate. The few builders I know sure seems to spend a long time waiting. Meanwhile, when I lived in CT, a round trip to the hardware store usually took about 30 minutes max.
I wonder if/when those frictional losses/problems building in dense cities actually balance out with the gains in reduced commutes and greater efficiency of urban life once those buildings are occupied.
Overall, I'm struggling to justify paying 2x or 2.5x for a home here over just moving somewhere much cheaper and sticking to remote work / consulting where I can find it.
There is a lot that I like about city living (being able to walk everywhere), but I'm having a harder time justifying the cost of it now. And the job market is pretty solid around Colorado right now.
If you want a 2 BR, you need to look in old neighborhoods or buy a condo.
So one can't even just "move to the 'burbs" to save money instead of living right in town. It's all the same price.
So you basically need to find a mid-sized city with houses from the mid-late 20th century when sizes were more reasonable.
I've been browsing Zillow and Redfin lately, trying to plan a few years into the future, and the architectural landscape is just horrific. My ideal is a modern, minimalist, fairly flat-roofed 1- or 2-story (think Rummer [1], Gropius, Eichler, the Eames case study house, Mies van der Rohe's Farnsworth house, etc.). I wouldn't mind oodles of raw concrete and exposed steel. Nothing ostentatious or expensive, mind you; just good design and modern materials.
I'm not that hopeful that anything close to this style appears in the areas I'm looking or in the price range. Instead, what you get are column-infested McMansions or hideously old-fashioned shingle monstrosities. The average home in the US seems to look like this [2]. The kitchen is always dark and brown. Random hideous reactionary baubles from Colonial Revival architecture abound. Beveled wood paneling is everywhere.
Now and then a rare (very rare) mid-century modern house come up that might be within my price range, but of course it doesn't have modern insulation, electrics, heating, moisture barriers, air flow, etc., so what you've got is a beautiful but cold, damp, technologically outdated and energy-inefficient box.
Ultimately, it seems good, modern design in the US is for rich people, which makes me sad.
[1] https://www.curbed.com/2018/8/27/17773540/midcentury-home-to...
[2] https://www.redfin.com/NY/Orchard-Park/30-Knoche-Way-14127/h...
Thing I realized is these things are basically lowest common denominator residential construction meets Mr Potato Head.
You're unlikely to get something how you want it, unless it's built for you (and even then). You're probably going to need to find something with the outside you want, and budget to put the inside you want too.
But more specifically, an Eichler simply isn't going to have insulation and continue to be an Eichler. They're designed for a climate which doesn't need insulation, and as such, there is no room for insulation (at least for the ceiling). Try to find one with a big tree on the south side, shading the house (but make sure the tree is in good shape).
Go out two counties and a 1.5 hour commute, and land is only $5k/acre. Plenty of $200k starter homes in that area. No one wants to move out there though.
Disclaimer - I work in the residential construction business
From a bit of online searching, I imagine it's between 0.75 and 1.25 man hours per square foot of house to build in labor costs (that number may differ depending on size of team/expertise, I imagine).[1][2] Depending on average pay rate for building involved, which varies widely based on area and cost of living, you might be looking at $50k to $100k in labor costs. That's before land cost, materials, permitting, power/sewer hookups, etc.
> but they will sell you a poorly made condo for $400,000 and $600/mo HOA fees.
In some places the lot cost is $200k, or more. It's hard to build a $200k house when your margin is negative before you've started building.
And in places where the lot cost is more like $100k, do you want to build a $300k house with low margin, or do you want to build a $400k-$600k house or condo with much higher margin? The problem perpetuates itself, as high density and high housing costs lead to high land cost, which leads to maximizing profit for area strategies that say to build higher end houses.
One of the solutions to this is to be willing to live in higher density housing, such as a condo. This lets building still target high margin while providing somewhat cheaper housing. Or build up, into more multi-story complexes. But people want homes with yards, which is why this is a discussion about how nobody can find a $200k house (you can, just not in the more populated areas), and not a discussion about "how to achieve housing cheaply".
1: https://www.contractortalk.com/f16/avg-man-hours-build-1800s...
2: https://diy.stackexchange.com/questions/77299/how-many-man-h...
I found some Mennonites that build small 14 * 28 foot cabins with two sleeping lofts. It costs about 8k, and that includes delivery to your land. They come with the exterior/roof finished, but the interior is up to you.
Your personal asceticism modulates the cost. My shower is actuated by a ball valve. I set the temperature at the inline gas water heater to perfection, so I don't need hot and cold! I was surprised to learn how cheap the insulation, carpet, sheetrock, mud and paint were.
Rural land here is about 2k per acre. Many plots already have wells dug, but if not It'll cost about 4-6k to get one drilled, and 500-1000$ for a well pump.
Septic tanks are a few grand. A trenching shovel is cheaper, but that option depends on the topology of your land and your heart.
I get my electricity from solar. If you do that, you need some panels, an inverter, charge controller and batteries. My system is pretty modest. 10 deep cycle batteries. I've lost track of how many panels we've got. Most of them we soldered the cells together so it kind of all blurs together. The whole of it probably cost about 1700$. It's enough to run our super efficient 12 volt fridge, the pump and a few laptops.. except when we go a week without sun during the winter.
Next consulting gig I get, I'll probably get a wind generator as well.
When it's oppressively cloudy, I use a small gasoline generator to power all the stuff. It also will kick on a battery charger that'll top the batteries off.
This winter I used a propane heater. I've come to realize liquid propane is somewhat money inefficient compared to a wood stove. I'll have the wood stove installed by next winter. I'll probably keep using the propane oven.
Leading up to me dropping out of society, I came to resent paying rent.. I resented the thought of office power games having survival consequences for my life. I didn't have to off-grid like I have.. There are power lines. It's just such a great feeling to cut out monthly subscription costs from my life. The serenity it brings is maximum. Mother gaia gives me my water and sol my electrons.
I still do consulting work as it comes to me. Blissfully, I no longer feel desperation and anxiety between contracts.
If paying society's currency for all the solar panels and the batteries and the gas and the generator and the refrigerator and the laptops and the deeded property and all the other stuff that society created is dropping out of society, I wonder what it is like to be a member of society.
I consider 'dropping out of society' to partially be a state of mind thing. Currently, when I'm 'in country', I am very disconnected from the world at large. I have to drive for 30 minutes in order to receive text messages or phone calls. In order to get internet, I have to drive an hour to the lake so I can get some LTE. I don't have a TV, and I don't listen to the radio. America could go to war and I could go a month without knowing about it.
I grew up in suburbia right outside of the densest city in the state. Until last year I had never put a screw into wood, nor had I ever wired up a light or planted a potato. MrLeap's life this year is 180 degrees different than it was every year prior. I think the contrast in my perspective makes the 'drop out' comment more appropriate, but it's a personal thing.
I obliterated most of my savings doing this, and I'm on track this year to make SIGNIFICANTLY less than the poverty line. I think that represents a certain uncoupling from the standard structures of society. I intend to increase that as time goes on, but if I fail, I should still keep on living. I've lived an arduous life, and my re-orienting is in reflection of that.
If I really put my soul into it, I could garden hard, raise animals and cut out the last human survival-y thing that takes me into town. I really like cans of mini-ravioli though so I might not take it that far.
I could get satellite internet, or maybe a cell phone booster and a tower to obviate my connectivity problems. Maybe I will someday. Right now, I'm focused on building a workshop and blacksmithing. The workshop is hexagonal, which I think is cool. Anybody want a forged spatula? ;D
For reference, 90% of people in subsaharan Africa, whatever the country, have a cellphone (with some kind of internet). And around 40% have internet connection (predicted to be 50% 3G in 2020).
In the US many homeless people have internet access and even laptops.
"Dropping out of society" in a concrete sense and posting on HN are not contradictory. You can do it from a small mobile home in Alaska, your own log cabin somewhere out in Wyoming, or from some hut in the Amazon, all of which qualify to my book.
The wraparound lofted barn cabin is the one I chose.
You're more "on the grid" than you think. Those solar panels were built in China (probably), how did you get them? Where will you go to get replacement parts? Where do you go to get gasoline for your generator? How is that easier than paying a power bill every month? You can't drink straight out of the well, you'll need a filtration system which needs maintenance, why not just pay a water bill with a hookup from a city?
You haven't dropped out of society at all. You're intensely reliant on society right now. If anything in your janky setup breaks and you can't fix it in a few days, you will find yourself at a motel and fully back "on the grid". I'm not saying you need to be a condo living yuppie, but surely there's a happy middle ground.
(AutoCAD with modules for stress analysis and building design libs would cost you $20k or so, but it can probably be rented as cloud license.)
Rigging can be rented, even work clothes and power tools. Even then the tools are not super expensive anyway.
The expensive parts are rental of lifter, crane and mixer machines as well as good operator. Barring that, more people to set up the building and much more wood and metal rigging.
Building is cheap compared to prime land and marketing or sales markup, as well as paying off credit. (Most buildings are built with financial leverage.)
I'd have to think about this more to decide whether or not it's true, my life is more sustainable than it ever has been before. In pure watt hour accounting, I wager I'm energy-cheaper than most city people who deeply care about things like that.
You're mistaken about wells requiring filtration.
> If anything in your janky setup breaks and you can't fix it in a few days, you will find yourself at a motel and fully back "on the grid".
This, like much of your reply, is rather presumptuous and ungenerous. There are some good discussion points in your reply. Unfortunately you've also stated as incontrovertible fact several things that are simply incorrect. I don't see much room for an actual conversation in your choice of words.
You can build apartment buildings 5, 10, 20 or even 80 floors high. The cost of land per apartment can be made quite small by building higher.
There are some actual numbers in this Fannie Mae commentary:
http://www.fanniemae.com/resources/file/research/emma/pdf/MF...
The average costs to build 1-3 and 4-7 story apartment buildings was $192.0/ft^2 in 2017, compared to $233/ft^2 for 8-24 story buildings. I assume the square footage includes common spaces. I don't know if they attempted to control for sample biases (e.g. if taller buildings tend to be build in areas with higher labor costs).
And is approximately the scale of central Paris.
I’m not sure what your point is, prices are set by what the market is willing to pay. Anything else is not sustainable.
You are not entitled to buy houses wherever you want for whatever price you think is good. Certainly not in the Bay Area.
https://fred.stlouisfed.org/series/HOUST
We're in a market in which housing prices have been soaring for a very long time, but for most of this we've been building less housing than even the 90's (and starts have actually FALLEN recently).
There's something broken in the market. Material costs are part of it, but government regulation is certainly part of it as well.
Land is not a normal good so it does not work that way even in theory. A simple example: Flint MI has falling demand and rising prices.
In addition, land is used both for speculation and retirement savings, further inflating the price beyond just being a place to live.
>Anything else is not sustainable
Correct. An ever growing percentage of wealth will go to land owners and rent seeking rather than productive enterprise. The price of doing business in the Bay Area (and similar cities) will drive out industry until there is nothing but the top most classes and their house cleaners, gardeners, waiters and store clerks. A situation perfectly satisfactory for land vendors.
It has happen countless times in the past but apparently were not going to let facts interfere with economic theory.
>God forbid anyone make a profit?
For producing something profit is great. For an exorbitant toll both in the path of job seekers, it is a net harm.
You are right in essence, but using the wrong terminology.
Real estate, at least the kind we're discussing, residential housing, absolutely is a normal good, normal being defined as having a positive income elasticity of demand. Simply stated, when people make more money, they want more house.
https://en.wikipedia.org/wiki/Normal_good
The supply side of the equation, what you're referring to, is less straightforward. While, the long-run price elasticity is pretty high, the short-run tends to be fairly inelastic, this is due to construction having lots of high, fixed costs, and financing tends to have very long amortization schedules. Do a lot of construction in a real estate market and it might be ten years before prices start to come down, assuming demand hasn't caught up in the interim.
Most real estate markets clear. Failure of the market to clear can have many causes, the one I see happening most often is the aforementioned low price elasticity in visible parts of dense downtowns. Political action at the local level can create an economic incentive to reduce prices to meet demand.
But yeah something like moving zoning decisions to State level and financial incentives for development vs under developed parcels would help.
Most US houses I've seen are not even made with bricks and cement, just wooden construction that shouldn't cost more than say 50-100K.
If you probe further you'll realize the companies with largest margins (basically ripoffs or to use Mr Buffets's lingo 'moats') will be (are?) the ones with most resources to spare on marketing and media. so the inevitable outcome will be massive corruption of public discourse and loss of clarity for common man. sounds familiar?
None of healthcare, education or housing have even as high a concentration as online retail unless you’re going to count government provision of primary and secondary education. I struggle to imagine what other spending categories you could be referring to, certainly not food or clothing.
Anyways, Lets start with housing. Every housing transaction hold about 10% [of sale price] of commissions on both buyer & seller side. [If you dont know] you'll be surprised to learn that the govt taxes & fees are a minimal portion of that. its mostly realor commissions & bank fees. why can they do that, its because they have had a monopoly on MLS listing service forever. to have access to the MLS you need to be a realtor. if anything these commissions should be fixed cost rather than a percentage cost. to give you a sense of the severity of the situation, on an average people stay in a house for 7 years due to labor mobility & other reasons. so over a carries of 30+ years its likely you'd do 4 such transactions. That essentially means you've worked for realtors & bank for about 40% of your carrier (assuming shiller is right in concluding that it takes 30yrs of work to build/own a house).
Now Healthcare, why do you think nothing Martin skerelli had done was illegal? recall that he wasnt indicted for price gouging on the meds. I actually think he did a service to america by exposing the flaws of pricing system. Also regarding medical professionals AMA works hard to maintain control of certification process and not flood the market with doctors. believe me they are not that hard to make. infact they have been fighting efforts to allow RMPs to practice basic healthcare in rural areas just to maintain the scarcity.
there is a reason healthcare and college education sectors are the most inflation heavy sectors in america over last to decades. its by impeding price discovery and free market.
In terms of the impact on middle class, I think most of these markets tend to command a relatively small part of a household budget.
For the most part, price inflation is a result of and/or caused by increased spending. Complimentary optometry at the mall of your choice. Attentive salespeople standing at glass counters. Brand licensing galore. I would imagine there's a substantial corporate layer, social media coordinators... Profit too, of course. It sounds quite lucrative.
It's interesting to note that a lot of economists predicted we'd be working way less by now. Keynes is a famous example. It's interesting because the theories haven't changed much, and the assumptions keynes and others made about growth and efficiency were about right.
Modern economists generally explain this as "people had an unexpected ability to consume more." I get the impression their not entirely satisfied though.
One third of it.
The other third is from advertising: a huge industry using all kinds of manipulation, psychological tricks, constant brain washing, and (nowadays) surveillance, to make us buy all kinds of crap we don't need, and didn't want until yesterday.
And the last third is from jobs that make the middle class so tired and give it so little time and space, that shopping feels like therapy, and giving in to rent-seeking is the only option.
No anti-trust laws of course, because those who benefit are the most loyal voters.
Many things from underwear, glasses, clothes to paper tissues are branded fashion items.
None of these items are expensive to make, we just don't buy the cheapest.. probably you can find cheap glasses somewhere online, if not there's probably a business opportunity in that :)
Question: do people want to buy cheap glasses, clothes, underwear? Or do they want to buy branded Kleenex tissues?
Absolutely, so long as they function. What do I care if the microprint logo on the frame is a recognizable brand? Especially if I'm buying frameless glasses where there just isn't much material work with for fashionable design. Just give me good lenses and a minimalist frame that won't fall apart. I don't want to pay $200 for $5.00 worth of titanium that people can barely even see on my face.
Yes, I grew up with my Mom taking me to an expensive glasses store and the salesman's sales pitch was, "My stuff is the best because it's expensive". I didn't know anything because I was age 7 or 8. I was sort of indoctrinated into shopping there, but a few years ago an online store called Googles4u had a $10.00 for glasses and frames deal. It was likely as a loss-leader, but I realized that I didn't see any better out of the expensive Elissor / Hoya glasses with all of the top-of-the-line coatings than I did the no-name cheap glasses. They also made me feel a lot more relaxed. Before I was so worried about dropping them or losing them in the water but now I had a carefree attitude.
Nintendo did the same thing, minus the buyout, in the eighties when video game manufacturers tried to subvert Nintendo's control in that market.
You don't need a full fledged monopoly to upset market forces. Even the existence of a single large entity that can make unified decisions destroy a healthy market
I bet what often happens instead is that the higher margin company just buys out the cheaper guy, and... it's back to the higher prices!
Not an ad
There have been a few good HN threads on the topic previously. Here are a couple I had bookmarked:
I might not be able to get whatever pair I want right now, but I'd find a decent one. The quality from a fashion perspective would be miles ahead, I don't even care about brand name; just how they look. Sunglasses for me are something that I actively wear 1-5 pairs of at a time.
Frankly I could afford to pay $100-300, but don't need to. Most people care more about the brand and status aspect, but I don't, just how they look. $50-150 for something like a pair of shoes is a reality most people can and do deal with. If they (Zenni) looked like glasses I'd want to wear, I'd jump at them. American optical have aviators in that price range, and aren't owned by luxottica
Nobody is asking for the eyewear industry to stop existing. We're talking about a single monopoly controlling the majority and driving up prices.
How does an artificially high price and artificially low competition generate more jobs?
Basically the administrative overhead of all the layers is what is taking the bulk of that money.
I agree that those jobs can be redistributed elsewhere instead.
Some of it goes to providing jobs to those same middle class people.
What is being claimed is that the majority of those employees are not seeing an increased benefit (wages) proportional to the increased profits of the company they work for, whereas shareholders and executives do.
That isn't an argument for not breaking up a monopoly. Only an argument that the market may be big enough to support actual competition.
Why? Because the market is fragmenting to smaller operations who employ more people per unit of beer produced.
You can argue that from both sides, that it's less efficient vs generates more jobs, of course.
If it were multiple competing companies, the same output would probably require MORE employees. One of the ways it is so profitable is to implement economies of scale not possible in a less monolithic industry.
You are failing to see that extractive business models such as monopolies do not add value, they extract value and concentrate it in the hands of the execs/owners. This removes capital from the socio-economic system/society and reduces the capabilities of the whole system to grow (the occasional purchase of a yacht does not rebalance things).
http://www.luxottica.com/en/record-2017-net-profits-and-free...
Using a monopolistic position to overcharge doesn't generate more jobs, just profits.
I'm genuinely asking as I'm to busy/lazy to look it.
I looked at their 2017 financials, and they have revenue/ expenses broken out for many many brands and regions. There are huge variations in margins due to what it seems like to be growth expenses. Some of what i'd think to be more mature lines at first glance to have crazy good margins.
Is there any data to show that these excessive eyewear profits are being used to create new jobs?
We perceive this to be unfair and wonder if we should risk reorganizing society a bit to remedy this.
[1] https://en.wikipedia.org/wiki/Parable_of_the_broken_window