The cities that have had less crushing affordability problems are the ones that have been able to continue expanding outward - the outskirts land that used to be empty now has housing (and got more valuable as a result of this development) and the inner areas (slowly) has been getting denser, especially as old industrial property gets redeveloped and such. But many of those cities have just as much zoning and restrictions around density as NY or SF (usually more!). The difference is that they were able to go outward to better keep up with demand increases. I don't think any US city has been able to address rapidly rising demand through upzoning and density alone - redevelopment of existing residential will always be much harder and slower than of empty perimeter land. Density, on the other hand, has seemed to ultimately cause demand increases in NYC and SF greater than the supply increases it has provided.
If population growth stops, though... all this changes. Or even if just the net migration to various cities shifts around!
Listening to people that have owned land you hear things like:
- A creek was at one edge of our property right outside of it, and the state required us to build a bridge, getting the license for the bridge was costly and time consuming
- The creek changed course and cut across our property, the federal government had new requirements that had costs and approvals necessary
- We lost money on the property, despite land being a finite resource and all the dreamers being perma-bulls on land ownership, there was no way we could turn this into an income generating property that would be profitable.
You really don't. Dirt lots coated in rusty chainlink, gang tags, weeds, and tents are traded hands all the time, even in Downtown Los Angeles, for top dollar. Maybe you hire a crew to weed wack once a month if that. Even land zoned for a single bedroom bungalow goes for a lot of bread, because one day in the future that zoning can change and there is always demand in a big city with a lot of jobs near a major harbor and airport for more units, and parcels in big cities are finite.
That's why there are big development companies. The advantages of scale apply here as much as anywhere. Lose money on one, make money on others to offset the risk. What you call a "simplistic fantasy" is a century-long phenomenon in the US at this point of increased population in major urban areas leading to rising land values and the conversion of empty fields into developed areas.
There's no guarantee that population growth will continue to increase demand, or even that demand in developed areas will stay high - there have been a lot of cycles in that time as well, with extreme examples like Detroit to balance out the SFs of the world - but that's a very different argument than "we need to increase development so that we make housing less of a good investment," which I'm claiming is a blatant contradiction when it comes to the value of the land that is being developed. A shitty house in NYC is worth more than a nice house in Austin not for the building, but for the value of the slice of land it sits on, because the area has been developed more which has resulted in more demand.
The point is that you have to be as discerning as a homeowner or even more, and this can limit the supply of decent land to own or highlight how impractical it is or how it isnt a solution to anything
Even the other sister replies shifted the goal post, this is a thread about housing supply and people talk about squatting on land in urban environments as a rebuttal to just owning land in the vast expanse of space available, which further reduces the possibility of alleviating the housing supply
A portion of a constructed apartment building on your lot may be more valuable than your current house is there, but...
A) There's no guarantee that the value of your land to the apartment developer exceeds the value of your current use... after all, they have to pay to demolish and then improve it, and...
B) You and your neighbors may have put down roots, that have a substantial value, if difficult to directly economically measure.
C) Moving, itself, has substantial economic costs.
D) If an apartment building built next-door decreases the value of your single family home by 20%... there's no guarantee that there's demand or the possibility to build another one on your lot... and even if there is, the apartment-builder's estimate of your land value will be 20% less. You'll meet in the middle between (0.8 x your previous home value) and (the apartment-builder's estimate of the value of your land to him before improvement).
For (D), though, I think this is generally overblown. There are no guarantees, and situations vary, of course, but trend-wise, I don't believe "partial" in-transition up-zoning has been a value-killer overall. In parts of the US that are densifying, these sorts of things are generally radiate outward from high-demand areas. But the single family homes in the high-demand city core areas still have more value than the ones further away, and if you look at the appraisal reports, it's because of the land value, not the structure. In the long run, that development cycle creates the demand that pushes up your own land value even if yesterday vs today, it was more attractive in isolation as a single family home next to another single family home. "Location, location, location" is a cliche but a valid one.
As long as your location stays in demand - and in our current city planning paradigm that's not been something that's been threatened before potential post-COVID reorganization - you're more likely to hit a virtuous cycle for property value here than a vicious one. The types of developments/apartments that are gonna be put up are gonna be determined in part by how much it cost to get the land, so if it was already valuable land, building a slum next door won't make any sense to the developer.
So unless land is generating revenue to offsets the ongoing costs like taxes and operating/maintenance costs, it's a loser, operationally speaking: it has a negative cash flow.
If the asset doesn't generate revenue, it has to go up in value to offset costs, as well as to account for inflation, in order to just break even for its owner.
Land is a great cash cow for the state. People are permitted to "own" a parcel of land, but they are really just renting it from the state. Secondary, it's great for landlords.
People have to live somewhere, so if they don't pay for their own maintenance costs and state rent, they have to pay some landlord. Thus they mentally discount those things in order to justify the buying of land. When their property goes up a little bit, they think only of the difference between the new value and original principal, forgetting to looking at how much they sunk into the property, because all that time they had to live somewhere, and they take it for granted that you always have to pay people and cover costs in order to live somewhere.
The only owners who unconditionally profit from landlords. If you own just one property that you live in, that's good for you only in a climate in which properties are appreciating. If you own multiple residential or commercial properties that generate rent, then you're laughing to the bank; you generally don't have to care about whether they go up, or not nearly as much. You are more affected by vacancies, during which you have to cover maintenance, taxes and other costs like mortgage, without any revenue. That's particularly true about commercial properties in a recession.
To be a "good investment" owning housing doesn't have to have a better ROI than the S&P 500, bonds or the interest in a savings account. It just has to burn money more slowly than renting which is the alternative you'd be forced to spend that money on. That's a really low bar. One's primary residence can both be a good investment and affordable.
With that said, there seem to be pretty significant stability and psychological gains to owning a house that may outweigh financial considerations of this kind. That is doubly true if the investment + renting option is within the same ballpark as the ownership option.
Say your home is $100,000(i know, i know lol). Your 20% down payment is $20,000.
You have to factor in the interest that $20,000 would generate in say index funds or whatever you would do with it, when comparing buying to renting--along with all of the other stuff people usually factor like taxes & upkeep.
In some areas this can make renting actually the cheaper option.
Unless you have enough cash to pay for a house, you are either renting money or renting a place to live.
You also need to take into account the opportunity cost of owning land. You can rent and invest the difference in other assets like stocks.
If an asset class has much lower risk-adjusted returns than easily available alternative asset classes, I think it is fair to call it a poor investment.
I don’t disagree with what you say. But affordability can only be solved by increasing supply. Everything else is just shuffling the deck.
I know it’s not super common in the US for various reasons, but it’s certainly possible to build a house that will outlast you, your children, and their children.
A lot of homes and construction in the New England area is brick and I bet it will last quite a long time.
Another interesting tid-bit is that while older houses are much draftier and usually less energy efficient, this "airiness" of the house allows them to dry out and avoid rotting. There have been countless class action lawsuits in the US because builders in the 80s and 90s created situations where exterior wall assemblies trapped water against the studs and didn't allow them to dry out in an effort to make the "air tight" and energy efficient.
The brick cladding on old New England style homes either have an air barrier between the brick and wood framing or weeps holes in the mortar to allow water out from behind the brick. This allows them to last much longer.
And of course, there are a lots of factors which are totally outside of the individual's control— a falling aquifer could make digging a usable well prohibitive, for example, or maybe your land is on the coast of Florida and will be underwater at high tide in another few decades.
2. There’s plenty of reasons land can lose value: people moving away, economic, environmental (climate change), cultural changes. Population growth is projected to peak in 2070.
3. (Land appreciation - inflation) has to be higher then property taxes at least. There’s also opportunity cost of not using that money to buy another investment instead.
Related: https://www.frbsf.org/economic-research/files/wp2017-25.pdf
While you might be correct looking at other markets, you would be surprised how average it is for Canadian Housing prices across Canada. It is impossible to not to earn a minimum of 20 % on any Real Estate transaction withing a year. It is very possible with a little luck to almost double your money on certain purchases in a very short time. I understand how difficult this is for people outside of Canada to understand but I'm not making shit up, it is reality and there is no limit to what the Gov will do to make sure it continues.
I'm pretty sure you can find well over 11.5 million peoples'-worth of regions to pile up into a counterexample for what the post was saying. I think the point is that "across canada" is a broad brush to use for this.
There is no reason to think he isn't talking about Toronto. Two years ago the average price in Toronto was around $800,000. The assertion was that they are increasing in price by $30-50,000 every 10 weeks for the last two years. That would be an increase of $330,000 over those two years. The actual increase, as of the latest figures[1], is only $245,000. And the latest figure shows up as an extreme outlier. One month earlier the two year growth would have only been around $160,000.
Perhaps most important is to understand that zoning and open ended environmental review has added huge costs and risks to building and has effectively slowed construction. This is the primary reason that there are not enough units and most other problems we see emerge from this. There are important other factors such as the financialization of housing creating a situation where demand is essentially infinite and relates only to investors and not to families or income from labor.
As far as affordable housing goes, the majority of affordable housing is in older buildings. As buildings mature they tend to get paid off and reach a point where operating costs remain low until the structure needs to be rebuilt or replaced. This may be awkward to model, but realistic observation of markets shows that affordability is something that more or less inevitably happens to a property unless it gets removed or rebuilt relatively early in its lifetime because of a hot market.
Property values are traditionally supported by incomes. The current environment where property values grow well beyond incomes has little precedent and there is little reason to think this situation is stable. When people in the past talked about their property not losing value what they meant that there would be both income opportunities and reason to live in the area. When opportunities dried up or communities became undesirable then the housing values would crash. That is entirely different from expecting housing values should increase beyond incomes or inflation.
Yes, homeowners collude to restrict housing supply via regional politics. But the real problem is the centralization of jobs within big cities. This is bound up in the history of manufacturing in the west and the forces of globalization.
Remote work has the chance to reverse or at least slow this trend. In the short term it may lead to an explosion in real estate prices in areas within commuting distance of the big cities. In the long term I hope it leads to people spreading out a lot more and making housing affordable again.
The claim that a house doesn't produce anything seems incorrect to me.
In the same way that a house is often the majority of the network of Americans, a job is often the majority of the income. This fact does not cause most of them to advocate for enforcing immigration laws, even though this choice reduces payrates for all Americans.
But it is true that politicians don't like increasing property taxes and other policies that could draw down the housing market.
Overcoming the psychology of that is politically hard.
Housing is by definition in these circumstances a poor long term infrastructure investment.
The same issue persists irrespective of supposed NIMBYISM.
The primary, most obvious driver is historically low interest rates. How much we can attribute to that is hard to say but it's #1 for sure.
During the 2008 crises, the Fed took toxic housing loans off their books, which 'saved the banks' but it also 'saved millions' from foreclosure i.e. creating a moral dilemma there as well and signalling the Fed won't let home prices crash.
I don't think the problem is low interest writ large, but specifically attempts to prop up the homeownership market with debt.
There's a reason that post-2008 private lenders have basically backed out of the mortgage market and let Fannie Mae & Mac hold the bag, even in the context of so much more money chasing yields.
Demand does.
The notion is ridiculous - housing is extremely affordable in the US.
There absolutely is no affordability crisis.
There is merely 'a lot of people who want to live in SF and NYC'.
You don't have a right to move to a place and demand they tear down their homes so you can jam yourself in with others in a flat.
What is causing prices to increase is either:
a) more people b) interest rates or c) higher wages.
a - isn't happening rapidly (though partly) c - isn't really happening it's b, consistently over time causing greater and greater leverage.
Even with a very generous look at the general price index for homes, it is going up at a much higher rate than inflation. There's a reason that younger generations are buying homes at a much lower rate. The idea that there is no affordability issue just isn't rooted in reality.
> You don't have a right to move to a place and demand they tear down their homes so you can jam yourself in with others in a flat.
I'm not demanding that anyone tear down their homes. I think that if someone voluntarily sells their property to someone new, and that new person wishes to build a new construction on that property, they should be able to. It is a very new historical phenomenon that doing so (voluntarily building on your own land, not demanding that others tear down their homes) is difficult in major urban areas - that has not historically been the case.
It's pretty ridiculous to demand that people who "got there first" get to demand restrictions on how the "newcomers" get to use their legally acquired property.
Now go try and get that to happen in San Francisco in less than a decade.
This doesn't align with the last 20 years of housing prices, which have dramatically risen/fallen/risen while the interest rate has barely budged.
As interest rates stay low - the amount of leverage in housing increases, which creates more volatility.
The economic crises is obviously the primary forcing function during the crises and subsequent recovery. This will cause pressure one way, and then the other.
The amplitude of the swing is a function of the fact interest rates are so low, and leverage is so high.
They have been really low for a long time relative to the return on other assets, ergo, the leverage maintains and increases.
Obviously this is amplified by other aspects of easy monetary policy.
Put inversely: if rates were up 3 or 4 points, I don't think we'd see this kind of bubble in housing, not remotely.
We are living in weird credit bubble, and thanks to COVID it may never let up - i.e. this could be 'the new normal'. It's like Earth's gravity has shifted for good and we're all having to adjust to a new reality. Part of that new reality is crazy home prices.
2000 interest rate - ~8.5%
2020 interest rate - ~2.8%
By December rates were under 4%, setting the stage for all the years that followed.
ref: http://mortgage-x.com/general/national_monthly_average.asp?y...
Is that not when housing prices started continuously increasing?
There are some nuances that supersede this point but I've run out of steam and lost the thread I was following.
Of course since demand outpaced supply the added funding just caused even more inflation. (Sure, it caused some new entrants to the housing market, but since the place where people want to live is still constrained due to zoning and NIMBYism, the prices literally skyrocketed in those areas.)
That is literally the cause.
NIMBYISM cannot be a 'cause' of anything - there is always more demand than supply in SF and in many places (also - people have a right to manage their own communities as they see fit.)
If a million people try move to a village, the price of the houses goes up - the cause is 'zoning'? Or is the 'cause' the the people trying to move into the village? (Propped up with huge leverage due to ever decreasing interest rates?)
Since 1938 US government is backing housing via guaranteed mortgages. These are "money supply-side" policies that boost demand.
I'm saying that just like with healthcare and higher education, since supply is fairly limited dumping more money into those markets just raises the price.
> there is always more demand than supply in SF and in many places
That doesn't mean much. The equilibrium point is what matters. If there were more supply prices would be a lot lower. Of course desirable lots/houses/apartments will be priced higher. The problem is that house prices are going up too much, the barrier to entry (to join the community) is going up, also rents are going up (the price to stay part of the community is going up).
Plus, it's not like the demand is infinite. Let's say 10 million people want to move to SF. That's a very finite number.
And I'm not saying sure, let's build HongKong2.0.
> (also - people have a right to manage their own communities as they see fit.)
I agree with the spirit of self-determination, but alas I'm not well versed enough in the ethical problems with determining which group's interest have primacy when groups' interests overlap. After all if someone commutes every day to SF they are just as part of the community, and they might like to move closer. They want density. But this obviously quickly leads to the tragedy of the anti-commons. Everybody in that "SF community" has a vested interest in living in a nice and healthy city, but they would have to agree on how to manage housing. Usually nobody wants to voluntarily give up their advantageous spot. Nobody wants a big construction and high-rise as their neighbor. The common resource (land) gets under utilized. (NIMBYism. Plus gentrification as people who want money sell their houses to exploit this situation, which then pushes up prices of local services, which puts even more people into financial peril, who then increasingly feel that selling their property and moving is their only option.)
(You might have read this recent story about newcomers and old timers in Austin: https://news.ycombinator.com/item?id=26567350 )
> If a million people try move to a village
That sounds like a disaster or a gold-rush. What's the fair way to manage this? A quota system? First-come first-serve? The current system is rich people only.
Yes you are.
If they removed controls and zoning, SF would go radically vertical, and over 30-50 years, it would be NYC/Hong Kong like.
There is no 'ethical' problem here - there is plenty of land, people can move towards Sac. and other places. Those other places could feasibly chose to build taller builddings and more density as well.
Far away plentiful land is irrelevant. People want to be close to where people want to be. Close to work and amenities. Close to SF proper.
> There is no 'ethical' problem here
Oh, ok. Great. Then maybe I'll just copy-paste my previous comment here to kind of try to indicate my disagreement? :D
The cost to take 4 single family lots and build a 12 story building to fit maybe 100 units.
The actual per unit construction cost is like $100k ($10M for the building), but that is because they are all custom.
Mass producing housing would easily drop prices 50%.
Let's say these 4 lots with houses on them are worth $1M each.
In the mass produced housing model, the price per unit including land is $140k.
This is ballpark a 10x difference. Why is the spread so high? It's not interest rates.
(FYI the cost of the building it not hugely relevant, it's the land.)
Imagine that you can afford some kind of monthly payment for your mortgage - as interest rates go down, the larger the loan you can afford i.e. 'leverage'.
The longer people believe that interest rates will 'stay low', the more confidence they have in taking large loans. The longer the process goes on for, the longer people believe we are in a 'new normal' and feel confident in their purchases.
Ironically, the big swings in prices in real estate are a function of leverage (i.e. low interest rates): if an economic crash hits, fear causes a crash and then upswing commensurate with the leverage in the system.
NIMBYISM does not cause an increase in demand. Only 'more potential buyers' with 'more income' and 'more leverage' can do that. Since cities are not rapidly expanding in size with NIMBYISM, and wages are not radically increasing, it's likely a function of continuing high leverage.