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Comment by aazaa | Hacker News Reader

A theory of everything needs to account for everything. This article doesn't even demonstrate that a housing shortage exists, and it completely ignores the unfavorable demographics of the aging boomers and lack of replacement demand.

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.

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High prices are not by themselves evidence of a shortage

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-...

Right; not an expert in the topic, but it seems to make sense that super low interest rates + the fed actively buying morgtage-backed securities would pump up housing prices. (Indeed, I think propping up asset prices is the idea? Though I'm confused why this is considered a good thing.)

Someone who knows more about this, please weigh in...

I think the asset price inflation is a secondary benefit (and may help if it makes people feel wealthier and more likely to spend/invest). The main goal of the Fed's asset purchases is to lower long term interest rates (they can only directly control short-term rates). This makes borrowing more affordable for everyone.

The main goal is to prevent a recession. They do this by encouraging spending. They encourage spending by making money cheaper. They make money cheaper by buying bonds using their money printer. This makes interest rates cheaper.

A reason I've heard is that small businesses borrow against their home equity usually, so if you're house is worth more then more money to pump into your business, this is a good thing so they say.

You pay $1000 per month for 30 years. At 0% you get to spend all of it ($360k) on the house. At 5% you get to spend most of it on interest.

Ah yes, the fact that the bank is no longer taking 50% of the money I paid (interest) for my house is bad...

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.

>it completely ignores the unfavorable demographics of the aging boomers and lack of replacement demand.

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.

> So there will be enough housing... when my parents die?

Not necessarily if the location is in demand such that it is seeing a net inflow of people.

There may be a housing shortage in the expensive cities, but I doubt there is one nationwide. I’ve come to believe that the real driving phenomenon here is the “you have to be in one of five cities” idea that took hold in the early 2000s.

but it is true (sort of) that to earn the big bucks, you have to be in one of the big cities (very rarely do you have high salaries in the lower tier cities).

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.

Perhaps it would simpler to encourage some companies to leave those cities (tax policy?) rather than to build/subsidize new housing.

But then you don't have to live in a big city to make money, you just have to buy land there.

When people invest internationally their investment money will flow disproportionately into those top 5 cities.

Children follow the pension fund of their parents.

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