The Housing Theory of Everything
worksinprogress.co
worksinprogress.co
In particular, the video in this article sums up the problem https://www.vox.com/videos/2021/8/17/22628750/how-the-us-mad...
Mortgage interest rates were 14% in 1980, they are less than 3% now. This explains much (but not all) of the rise in the nominal cost of housing compared to wages. When people bought $50,000 houses in the nicest parts of Palo Alto in 1975, other people thought they were crazy because of the interest rates.
These days it's hard to imagine not borrowing as much as possible because prices are so high and rates are below inflation. But back then why wouldn't someone, say, live with their parents until they can buy that $50,000 house in Palo Alto entirely from their savings? No doubt that seemed like a lot of money back then. But regardless, at some point, interest rates get high enough and principal low enough that you might actually choose not to borrow money.
Are they just subtracting here? Because that's not how percentages should work.
I think the housing prices are high because the market can get away with it. If I'm selling a house, new or old, I'm gonna price it at what the market values it at, even if it cost less to produce or if I didn't pay that much for it. And the value of it will keep going up as long as there appear to be buyers for it, and most cities in the country aren't losing value as long as the economy grows.
There was outright fraud happening in the years leading up to 2008, with people writing down false incomes and assets, and underwriters looking the other way on verifying them.
As for the underwriters and the executives who instructed underwriters to look the other way? I also do not remember them going to prison, but I also do not know if there was any evidence of their intent.
The beauty of many white collar crimes, where you can always claim you made an unintentional mistake and you are not dumb enough to write an email incriminating yourself, but rather talk it out over lunch in an all party recording law jurisdiction.
$100k house, 14% interest, 30yr fixed: monthly payment of $1,427
$235.3k house, 3% interest, 30yr fixed: monthly payment of $1,427
Now that house now costs $706k in NYC and $932k in SF... the problem is supply.
Nationwide, it takes a higher income to buy a home than it use to (median sales price / median income): https://fred.stlouisfed.org/graph/?g=FYMk The problem is even worse in prosperous cities.
Most people don't pay the median sales price outright. They pay it in 360 installments.
Low interest rates have doubled housing prices but they didn't double financing costs. Speculators merely predict the fundamentals: A market with little supply and huge demand.
If you're interested in those topics, you'd probably enjoy reading Strong Towns (strongtowns.org), and if you're _really_ motivated you should consider becoming a member. At present, Strong Towns is the most influential group in the broader "YIMBY"-sphere, and is starting to have a real impact on the way municipal leaders operate cities.
Ultimately it's going to be a very long journey to change the culture so that we can change the laws (to permit incremental development and return to more scalable transportation patterns). Every additional supporting member makes a big impact.
(disclaimer, I'm a member)
Strong Towns is great, and if you have the money, definitely send some their way. But YIMBY Action has more actionable advice, more tools to run campaigns, and get people involved, and in general feels like it's getting more done. I happily share a lot of Strong Towns articles, because they're very applicable to the city I live in, and am a member, but if you want to go beyond sharing articles, I think YIMBY Action is where it's at.
In the city I live in, the government turns a blind eye to secondary suites. If I buy a house, renovate a secondary suites and then rent it out with a special condition: if the renter buys a house I will give them 50% of the rent paid if they setup the same arrangement.
Depending on the local conditions, the doubling time can be like 3 years.
It'll be tricky to make the contracts enforceable, but I suspect it's possible. It'd be nice to live in a world where housing wasn't scarce.
The FHA guarantees on home loans have made FHA insured loans much more attractive to banks, and the limits pretty much limit loans to single family homes in high cost areas. This and the mortgage deduction are probably the three biggest distortions of the market today with zoning.
https://www.theurbanist.org/2021/06/25/conventional-conformi...
What we are experiencing is an inevitable decline in a late stage of an empire.
Land and real estate market under current laws doesn't clear, so leaves too many city lots vacant or unused. Lots don't come back to market and new properties are promptly snatched up by speculation on even less availability. This forms a monopoly in housing and land markets. Orders of magnitude larger than any big tech, oil or railroads that we've ever experienced. In effect, most of disposable income of orninary people is eaten away by the monopoly. Everyone pays a "rent" tax which is impossible to avoid. This is well described by Georgist economists.
What is not described yet and what the article touches on is important. The real estate monopoly, sucking away all incomes, doesn't allow for many winners in the economy. In the 50s every man could have been a "winner" in an environment of half of the world destroyed after ww2. Nowadays there are only a few winners at the top. Women only mate with winners and would rather hold out than having to reproduce with losers. You witness rise of feminism, break down of family units and rock bottom birth rates. Beginning in Japan which suffered from the mega real estate crash first, now the same scenario spreading to the rest of the world.
The land monopoly won't be dismantled because both parties benefit and most importantly, population is invested in this pyramid scheme of ever increasing house prices. You can't expect people to vote away their ponzi life savings stored in crumbling houses.
The inevitable stage that follows is a next-gen feudal society with landed aristocracy as we know it from history. You only win in life if you get born into the right family with enough inherited real estate, getting paid rent taxes by serfs.
But I agree, we should instead allow the free market to lead us towards a non-competitive hereditary based future
Then set land value tax when the government sold the land back to the market, or otherwise continue to subside and manage these housing stocks.
Otherwise, the middle class will continue to fight any land reform.
If you want to lower house prices, easier to just tax houses/properties more.
Increase taxation, the middle class homeowners will revolt. Political will is required to build more housing.
You seem to say inflation can sidestep these issues. But why should we even assume house prices wont just grow with inflation, or much faster, as has been the case so far?
Interesting idea about govt buying up all land and then reimposing LVT on then newly privatised land.
I am skeptical, because of
1. government corruption
2. higher chance of experiencing a land market reset through warSomeone could thus have a summer and winter home, but only two.
An additional clause should also disqualify any home rented for value for more than 1/3rd of a year. Letting friends and family stay free thus exempted from the disqualification. (Still must comply with the above qualifier on primary residence.)
There are plenty of possible ways to implement this, and I leave it to actual experts to determine what the best way is. But the plethora of ways makes it quite clear that at least one viable path should be determinable and implementable.
https://www.sfchronicle.com/local/article/Texas-population-g...
Texas grew by 15.9% between 2010 to 2020. Florida by 14.6% , Georgia by 10.6% and North Carolina by 9.5% .
Average house price in Houston is 285K according to Redfin.
Either Zoning will change in CA, NY and other places or they will fade in importance.
Zoning will bever help. Once you make space for more housing, developers will build units to be snatched up for speculation that will be left vacant.
You need the housing market to clear. To release unused units to the market. For that you need land tax or an equivalent.
Enable developers to build skyscrapers of 500 square foot apartments until there are enough of THOSE apartments to house literally 100% of the population. Then people can choose to either pay say $1000/mo to live in one of those small apartments, or whatever it costs to buy a single family home. And if people have the option of renting somewhere cheap, even if it isn't ideal, that'll help balance the market. Right now we have situations where people need to pay $2000+/mo for the smallest of apartments.
When adjusted for population it's even more down.
Or if you are a central planner with the power to evict tenants from parcels. Then it's easy, you just lose credibility as a government.
Or under a system with LVT, the land/housing market clears and unused parcels return to the market, solving the problem by itself with just market design techniques. As you can see, LVT is a necessary component for land/housing market to even function without getting stuck in a feudal monopoly.
Similar to how "salary surveys" are "not collusion" among the big employers, even though they're used to effectively fix the price of employee salaries to certain ranges and treat that as some sort of natural barrier like a mountain range that can't be overcome.
In the United States, quite possibly so. But what about people who already had their wealth literally bombed away? For example, most of Dresden was destroyed. My argument isn't that improved economies are zero-sum, but rather the example of the 1950s was one where many were set up to succeed and others to lose. And if you look further back, the opportunity to have cheap ubiquitous land to carve out suburban areas was enabled by taking land from Native Americans.
The economic pie is ever-growing, but it seems moments of great technical advancement, war, etc segment the growth into new groupings of winners and losers, and for the average person, riding on the coattails of this growth is merely being at the right place at the right time, perhaps being at the right spot on the socioeconomic ladder.
It's true for Germany as well and called the Wirtschaftswunder.
https://en.wikipedia.org/wiki/Wirtschaftswunder
This period of fast growth in Germany happened a bit later than in the US, more like in the 60', 70'.
If I had a steady stream of remote friendly work guaranteed in the same way in person work is I'd move to PA and buy a mini mansion the next week.
Apartments in the east coast and NYC area are very small and overpriced.
I think if we pushed housing prices down, goods and services prices would increase.
That might be a good thing though.
https://www.shareable.net/public-housing-works-lessons-from-...
#include <pointless_japan_comparison.h>
Sure; Japanese city zoning is nice and all. But Japan has a shrinking population and is fairly hard to immigrate to. If you don't look and act Japanese, you're forever a foreigner in Japan. The language is hard to learn, especially to full literacy.
You can still get a cheap fully detached house in Japan, because Japan is resistant to massive immigration.
The article mentions how housing cost has climbed in forty years, yet for all the mentions of the word population throughout the text, it completely neglects to mention how the world population has doubled in that time.
The world population has doubled, and everyone wants to live in the developed countries. That translates to pressure on housing.
> There are 23.7 million residents in North America’s biggest metropolitan area, New York City, and these people are spread over 34,500 square kilometres. Only a small part of this is dense enough to sustain walking, cycling, and transit. By contrast, Tokyo metro area has a far larger population, with 38.1 million people, but they are four times more densely populated, across only 8,500 square kilometres.
These figures smell funny. The 34,500 square kilometers is not "New York City"; it is the size of something called the "New York–Newark, NY–NJ–CT–PA Combined Statistical Area". Whereas 8500 km^2 is some sort of urban landmass figure. The Greater Tokyo Area is actually 14,000 km^2. It includes a lot of sprawling single-family dwellings, and vast tracts of farmland and plenty of wilderness; it's not elbow-to-elbow populated!
It's fairly transparent what stunt the article authors pulled here. They opened these two Wikipedia pages:
https://en.wikipedia.org/wiki/Greater_Tokyo_Area
https://en.wikipedia.org/wiki/New_York_metropolitan_area
and pulled the smallest square km figure they could find in the one, together with the largest one from the other.
Better in what regard? More feature-rich certainly. More durable? Not so. Planned obsolescence is a thing.
When arbiters of economic gain birthright are handed the dividend generating assets of yesterday, without sufficient character-building world experience [0], useful creativity development (naturally possessed by the starving artist) will be stunted, and their blue chip asset portfolio will begin to include the "basic needs of the worker" - economic proxy wars of the free market conducted with existing supplies of citizen prerequisites like housing, education, and healthcare.
This is part of the reason Elon Musk is one of the darlings of the Internet - fresh, unconventional enterprise development, dodging traditional hedge (synonym for protection/security/safety) fund procurement. A portfolio absent of the soybean futures, railroad ownership, hospital shareholder spreads (fueled by things like artificially priced $10 Advil capsules), guaranteed road-tire decay dividends, pipeline infrastructure, et al that make up the core Maslow's hierarchy "operational cost" of the productive worker. He is instead situated on the front-lines of R&D progress which require the aforementioned preliminary basic services & goods to keep employed minds healthy enough to produce or gather high-hanging fruit.
The natural duty that falls into the dividend collecting "hands" of the few million >2nd generation resource commanders dispersed across the planet (whose own base hierarchy needs are equal to everyone else) is meant as hiring/guiding "fuel" to determine which citizens are being allowed access to industrially produced basic goods stored in warehouses, and skilled services of other citizens as described in the article, so that they may carry on with the specialized skill set for which they are selected. This sacred dispatch duty is what drives the discovery of new industries and the continued propagation of civilization.
Adam Smith suggested that the gluttony of the rich serves to feed the poor. (Although symptoms of poorly raised nobility include the perils of pride, envy, wrath, lust, sloth which could trickle down throughout their legions as wasted labor).
"The rich ... consume little more than the poor, and in spite of their natural selfishness and rapacity, though they mean only their own conveniency, though the sole end which they propose from the labours of all the thousands whom they employ, be the gratification of their own vain and insatiable desires, they divide with the poor the produce of all their improvements. They are led by an invisible hand [emphasis added] to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus [unintentionally] ... advance the interest of the society, and afford means to the multiplication of the species. When Providence divided the earth among a few lordly masters, it neither forgot nor abandoned those who seemed to have been left out in the partition. These last too enjoy their share of all that it produces. In what constitutes the real happiness of human life, they are in no respect inferior to those who would seem so much above them. In ease of body and peace of mind, all the different ranks of life are nearly upon a level, and the beggar, who suns himself by the side of the highway, possesses that security which kings are fighting for."[1]
[0] https://youtu.be/TnXwGZuyTZI?t=213
[1] https://en.wikipedia.org/wiki/Invisible_hand#Other_uses_of_t...
https://reventureconsulting.com/the-myth-of-the-us-housing-s...
High prices are not by themselves evidence of a shortage. High prices can, for example, be caused by ultra-loose monetary policies that encourage housing market speculators to soak up supply. This condition can readily unwind, although few prior to 2009 would have considered the possibility.
Someone who knows more about this, please weigh in...
But this increase in pay means the assets tied to those cities must also increase in value, as there are now more cash chasing the same (or similar) amount of assets - exacerbated by zoning, which restricts supply.
Children follow the pension fund of their parents.
High prices prices in conjunction with specific restrictive policies that create shortages are by themselves great evidence of a shortage: https://www.nber.org/papers/w21154.
We see the results of shortage policies all around us: https://jakeseliger.com/2015/12/27/why-did-cities-freeze-in-...
So there will be enough housing... when my parents die? And you say this like it's a good thing?
>High prices are not by themselves evidence of a shortage.
Only if you're treating housing as an investment asset, rather than what it materially is: a durable good.
Not necessarily if the location is in demand such that it is seeing a net inflow of people.
Speculators simply follow the fundamentals. They discover prices earlier than others. That's their job. If prices are 30% higher in 10 years, speculators will make prices 30% higher today. That's all they do. Those who fail to find the correct price (they charge above 30%) will simply be destroyed when the bubble pops.
He/she must take care for sewage him/herself and he/she has no right to claim power supply or water supply to this home.
That said, allowing people to build accessory dwelling units in their yard can be a good way to slowly and evenly density an area (as opposed to plonking down a few bit apartment complexes). Many cities already do this, with some kind of expedited permit process.