Pretty much every mainstream economist put the blame for this squarely on the massively increased regulation of the housing market since the 70s causing a massive decrease in the amount of new construction, not wealth itself.
Countries could build new housing faster than the population grows, but as long as it can be scooped up by the wealthy for renting out, the scarcity would prevail.
(It would be different if the wealthy were buying these houses to live in them or to leave them empty, as that would increase demand and constrain supply. Happening in London, Vancouver and a bunch of other places, I think. Also sort of like what happened with the quinoa fad: https://en.wikipedia.org/wiki/Quinoa#Effects_of_rising_deman...)
Buying a house is not that easy. You need a bank to approve your mortgage, plus pay upfront money (plus pay for furniture and such) that people might not have because high rent prices stop them from saving money. More renters and less buyers might cause more wealthy people entering the market for speculation, compensating the decrease of people that want to buy to live. And on the other hand, given that housing is a necessity and not something that people can live without, landlords can still push prices up even with increased offer.
In general, I see a lot of takes on the housing market that focus too much on the theory and forgets the reality: people need houses, moving is not easy nor cheap, speculators and realtors can push prices up without that much pressure, and a lot of people don't have enough to face the expenses of buying a house.
This might be true if one could get as cheap and deep leverage on alternative investments as a house mortgage.
Side note: It's heartening that the HN community has evolved in the last 10 years -- the current top comments wouldn't have been at the top 10 years ago, or even 5 years ago. While I think there is still a long way to go, it has come far from almost unbridled worship of PG, libertarianism and "meritocracy".
Running an economy on feelings is a sure way to ruin an economy. People who buy multiple dwellings would be more than happy to rent them. Renting is good. It provides a liquid market to access housing. If the market is efficient, rent or buy should be a preference rather than a financial decision: The financial impact should be the same.
If people refuse to rent, or sell their property then you have something wrong with your economy (too much regulations, people are afraid of devaluation, etc...). You don't fix a structural problem of an economy by implementing a per-person limit to buy houses.
[House] renting is only "good" for the people making a profit off it. For the actual renters it's patently absurd.
"Rent-seeking" is a term with negative connotations for a reason.
"Rent" in an economic context refers to "any payment to an owner or factor of production in excess of the costs needed to bring that factor into production" (https://en.wikipedia.org/wiki/Economic_rent) as opposed to profits or wages: without a profit nobody would invest in anything and without wages nobody would work so these are both necessary costs. In a well-functioning market the monthly payment to your landlord is primarily a compensation for the cost of capital (profit) as well as administration and maintenance (wage), though of course if there's a bubble in the housing market, landlords will be happy to take advantage of that too (rent).
- the hotel model is a poor one for general, large-scale provision of shelter, and - the arrangement is heavily biased in favour of the hotel owner.
I always ask people who rent to take some time - whether now, or in the next ten or twenty years - to calculate how much they have spent on rent so far and how much they are still projected to spend for the rest of their lives. And then consider that they get no tangible asset for the often mind-boggling amounts the total comes to; that, in fact, they may have actually paid for other people's houses several times over with nothing to show for it. The situation is somewhat tenable when the landlords actually own their properties outright, but in the modern real estate world they are more often just middlemen that shuffle money between the renter and the bank.
I wish more people would question why the provision of shelter has become such a runaway profit-making machine, but I'm not holding my breath.
We recently bought the house we used to rent. If we would have continued to rent for 25 years, then, adjusting for inflation, that would cost us maybe 300K. That's a lot of money and you have nada at the end, you're absolutely right. But our loan plus interest plus insurance plus the leaky roof that is now up to us to fix plus 1% of your house's value for maintenance every year plus property taxes... napkin math puts it at 600K after 25 years. At that point it's ours, but meanwhile it will be harder for us to move if we have to, our monthly payment is twice what our rent was, and all of our savings are in the house so we have no money to invest in stock, less to save for retirement (tax-free) and less money if we decide we want to do something crazy like start a business. Psychologically it's a mixed bag as well: it's really nice to know something is yours, but you also start noticing a lot of things you don't like that previously you just didn't care about, and we're on the hook whenever something breaks down. We're happy with our choice, but surely you see that it's not a slam dunk in favor of one option or the other?
However when we settled down with kids priorities changed, living close to a train station with good connections for work was less important, school catchment areas were, and the main importance is stability. The longest rental contract you can take in the UK is 3 years, after that who knows what will happen - maybe the owner will sell up, maybe they'll double the rent. A 5 year or even 10 year fixed mortgage gives certainty.
But the key thing is we wouldn't be able to rent if nobody owned properties they didn't live in.
Ban renting of single family dwellings, but allow and encourage it where increased density is achieved (apartments, condos, multiplexes, etc). Owners of single family dwellings will scramble to convert their rentals to duplexes / multiplexes and create the additional inventory while companies acquire multiple properties to convert into apartment complexes.
In the UK the equivalent of 'zoning' regulations keeps M low. Government 'help to buy' here exacerbates the problem as it directly increases N without directly increasing M.
The fundamental model here is musical chairs.
The problem with the council house sell off was not replacing them on a 1:1 ratio -- for every house sold, a new one was built.
It also reduces the number of people renting, which lowers rental prices, which is also good.
It may increase the price of new houses for cash buyers. I have little sympathy for people that wealthy.
If you want to get more houses built, institute a land value tax. Taylor Wimpy owns 6,000 heactares of land. With just 25 houses per hectare, that's 150,000 unbuilt houses across the country. Assuming that a land value tax would replace council tax that would be about £1500 a year tax, or £225m a year in tax, maybe that would encourage them to speed up construction rather than building them at a rate that maximises profits.
At least you agree that there is a problem with supply.
> It also reduces the number of people renting, which lowers rental prices, which is also good.
Converting renters into buyers without building more housing reduces both the demand for and the supply of rental housing. This will not reduce rental prices.
> It may increase the price of new houses for cash buyers. I have little sympathy for people that wealthy.
Your sympathy is not required, but you should at least see how landlords paying higher prices for housing leads to higher rents for tenants.
HTB is only available on new homes so not removing any stock
> Your sympathy is not required, but you should at least see how landlords paying higher prices for housing leads to higher rents for tenants.
Why? Someone is either willing to pay £1k a month for renting a place or not, they care not for the cost of the house they are renting.
> you should at least see how landlords paying higher prices for housing leads to higher rents for tenants
I owned a flat, I rented it out for the maximum amount of money I could get for it (balanced against other things like reliablity of tennant etc). It doesn't matter how much the flat sells for.
https://www.rightmove.co.uk/properties/75180448#/ sold in November 2006 for £150k, it's now worth about £320k, it's being rented out for £1k a month because people will pay £1k a month, it has nothing to do with how much it was bought for, only what people will pay.
Okay, increasing the supply of housing will lower prices regardless of whether they are rented out or bought.
> Someone is either willing to pay £1k a month for renting a place or not, they care not for the cost of the house they are renting.
Sure, but landlords do care and won't buy property to make it available for renting if they don't expect to be able to cover the cost. This decreases the supply of rental housing, which means fewer options and higher prices for tenants. If they already own the property and can't manage to get tenants paying rent which represents a competitive return on their capital (i.e. the current market value of the property) then they'll sell to someone looking to either own the property outright or demolish it and redevelop some other form of property. Either way it removes the housing from the rental market.
> … now worth about £320k, it's being rented out for £1k a month because people will pay £1k a month …
So the owner is only getting a 3.75% return on their £320k investment. That's not completely terrible, but it still essentially has negative value compared to the opportunity cost of selling the property and investing the proceeds. This is not a sustainable situation.
> … it has nothing to do with how much it was bought for, only what people will pay.
That much is true. The original purchase price doesn't matter in hindsight. (Obviously it does matter when deciding whether the property is worth purchasing to begin with.) Aside from calculating capital gains/loss for taxes, what counts after the purchase is only what the property would sell for now, not the amount that was originally paid.
They will charge what they can. If they aren't happy with the return, they can sell the house and invest the money in DOGE or whatever, that means more houses for people to buy, higher supply leads to lower prices, which is good (with very limited exceptions - mainly of those in negative equity looking to move or remortgage)
Or libertarians, because government subsidies distort the market and all that.
> Taylor Wimpy owns 6,000 heactares of land.
UK has 25 million hectares of land, ~2m in the south east. The problem isn't Taylor Wimpy owning all of the unbuilt ones. The London greenbelt is 500k hectares. That's a more plausible bottleneck. Considering 'London greenbelt' is just one dimension of regulation on housing construction and Taylor Wimpy presumably owns land outside south east.
Everywhere housing prices went way up, I doubt everywhere had the same issues with regulations since the 70s.
Now let's talk about cheap credit...
All the other factors certainly contribute, but cheap credit only affects how much the most desperate buyer is able to pay. This becomes the limiting factor almost everywhere, meaning that prices would be equally unaffordable if credit wasn’t cheap.
Building much more is the only fundamental solution, as this will reduce the proportion of desperate buyers. But of course local democracy prevents that - meaning, the problem persists indefinitely and we’re only wasting time discussing it.
I disagree with this statement, cheap credit allows banks to offer longer term mortgages and buyers able to afford a larger principal with the same per-month cost, pushing the prices upwards due to keeping payments low on a per-month basis, due to low interests and longer term plans.
This definitely pushes the price of all market upwards. It's a similar effect to tuition costs in the US, cheap credit, bankruptcy laws make them pretty safe for banks to take risk, flooding the market and allowing universities to hike prices.
Building is fundamental, but cheap credit has an upwards pressure in price, magnifying the effect.
All in all, I completely agree with your take on the solution. Build fucking more, population and specially cities have grown quite a lot on the past 3-4 decades, we still live with most dwellings built then than now.
The interest rate is the "price" of money. Central banks controlling the interest rate effectively practice price controls for debt. Much has been written about price controls, but fundamentally they create inefficiencies. Unfathomable amounts of debt have been completely misallocated in pursuit of whatever the goal of interest rate control has been.
The point is that cheap credit (mortgage regulation) significantly raises the upper bound on this limit.
Profit margin at the publicly listed UK house builders in around 30%
https://en.wikipedia.org/wiki/Housing_Act_1980
> By 2013, some tenants who had purchased their council flats, sold them later to speculators, investors or property companies. By 2013, a one-bedroom council flat that sold for £50,000 in the early 1990s, for example, had a market price of £250,000.[9] A tight housing market led to increased rent as construction of new homes decreased.[9]
It seems as if high housing prices are an explicit policy of most major powers at this time.
No, not really.
https://www.statista.com/statistics/240991/average-sales-pri...
> Didn't various governments put vast amounts of money into the economy in an effort to ensure house prices returned to their previous levels and continued to rise?
No.
They put lots of money into the economy as Keynesian economic expansion policy, to combat unemployment.
House prices simply weren’t as dramatically effected as you seem to think. Check the statistics on the previous link if you don’t believe me.
That's true in the US and UK.
I'd contend that preventing massive asset depreciation, including housing, was an explicit policy of every major economic power in North America, Europe and China. I don't know, but suspect other major economic powers also participated in that, but I'm not as well versed.
(I should point out that in the 1950s it was just as large a multiplier of household income, but in that time we went from one wagerearner to two.)
https://www.thelocal.es/20140225/spain-worst-in-europe-for-e...
It's not like our government will get EU's permission to let the banks fail or something...
The banks in question are essentially in agreement about prices and work together to keep them inflated. That's essentially cartel formation and needs to be prosecuted.
From a social standpoint, denying folks a roof over their head just because you want some numbers on a paper to look good should already mean that everyone ostracizes you. It's unquestionably evil.
Revolving doors... and all.
Maybe change could be enacted on the local government level which is the power more easily sizeable by real people and not political drones, in order to hijack current zoning laws which as far as I know are heavily concentrated down to local adminstrations like -ayuntamientos-, which in itself seems to be what's making things more complicated as corruption is harder to spot there, even if it's more obviously done than at higher levels... Anyways...
Maybe a return to the ghost villages once a job is not easily found in a city but online, but remote seems hard to implement here locally on a culture level at least until a couple generations of older folks retire from management, where one could get cheap land and construct with fairly advanced and economically minded new construction processes, like 3d printing homes or whatever, maybe...
But at the end of the day, we're still fucked, paying high rents for small jails in highly contaminated city centres... One can only dream to retire on the countryside for now.