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Home Price to Income Ratio

longtermtrends.net

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A more relevant metric to consider - monthly mortgage payment to monthly income ratio.

Average interest rates in 2007 were 6.34% vs ~2.80% today. [1]

* 6.34% / $2,000 monthly payment / 20% down (~$65k) >> $328,319 price of home

* 2.80% / $2,000 monthly payment / 20% down (~$98k) >> $489,794 price of home

Homebuyers will make purchasing decision based on their monthly mortgage payments, instead of the home price.

When interest rates fall, the home's price goes up but the monthly payment can stay the same. Therefore, increases in home (and other asset, since lower bowering costs can drive institutional investment in assets higher and non-linearly) prices can be driven higher without any change in supply / demand dynamics.

Some hypotheticals to consider:

* as rates approach and touch 0, what will drive up home prices then?

* what happens when rates go up?

[1] http://www.freddiemac.com/pmms/pmms30.html

> Homebuyers will make purchasing decision based on their monthly mortgage payments, instead of the home price.

Which is crazy, right? People max out their "borrowing power" at low interest rates and take on huge loans, without considering that the declining interest rates that fueled past appreciation don't have much room left to move down, and that they'll be underwater on that huge loan if interest rates go up* and the value of the property declines.

*EDIT: To be clear, I mean interest rates on new loans being higher than they were before, not that the loan is variable-rate.

I don’t know how it works in US but can’t you just opt for fixed interest rates ?

Yes, most people do, it's just that increases in rates have a tendency to cause decreases in homes values because a larger proportion of monthly payments will now have to go towards paying the interest.

Yeah, you can. A random example I found from Rocket Mortgage is a 3.25% fixed interest rate for a $200,000 house.

https://www.rocketmortgage.com/learn/30-year-fixed-mortgage-...

2.1% if you but ~$5k in points right now.

The standard mortgage in the US is a fixed rate 30 year mortgage. You can get lower rates for 10, 15, or 20 year mortgages. Also generally you pay an extra fee (PMI) monthly if you put less than 20% down. Adjustable rate loans and interest-only loans are still available but those are really not a good option unless you are not planning on staying in the home long.

There are some other options out there for veterans or first time buyers, but those are the normal options.

Yes, you can, but it doesn't address the problem mentioned above.

>> the declining interest rates that fueled past appreciation don't have much room left to move down, and that they'll be underwater on that huge loan if interest rates go up* and the value of the property declines.

The price you can charge for something is related to how much other people can pay for it. If houses are usually bought with loans (which they are), then the availability of loan funding is a major influence on the price of a house. When funding is plentiful -- another way to say this is that interest rates are low -- the price of a house will be high. When funding is hard to find -- or interest rates are high -- the price of a house must drop to compensate for that.

In practice, when interest rates went sky high in 1980 the price of home didn't actually drop very much. Instead, liquidity dried up. Nobody bought homes; nobody sold homes. The few people who had to sell their homes got screwed, but in general people rarely have to sell their homes unless they get transferred to a new office and don't have enough to buy a house there in cash (which is very attractive when interest rates are high; when borrowed money is expensive, houses get cheap to match what you can borrow, and if you happen to have money, you just don't borrow and take advantage of the cheap prices to pay cash).

It is common for people that can afford to pay the mortgage/house keep it even in a down market. IT makes housing crisis a lot longer to weather out because the vast amount of capital gets locked in an asset that does not yield its prices.

The bleeding ends up being slow, a decades wait to see any returns while maybe the stock market soars.

I am not very optimistic on homeowners in a downturn, UNLESS the government bails them out.

> Which is crazy, right?

No, because this is not accurate:

> Homebuyers will make purchasing decision based on their monthly mortgage payments, instead of the home price.

Homebuyers make their purchasing decisions based on the options available to them. They are not paying $x because they can afford $x+1, they are paying $x because that is how much they are willing to spend on that specific house in that specific location. The latter portion of that statement is important because implicit in it is the competitive nature of humans, and so it manifests as people competing to purchase land and being willing to pay as much as they can afford in exchange for the utility from that specific house in that specific location.

That utility can be in the form of access to income opportunities to lower future volatility of income, access to other people of similar or higher income so your kids can go to school with their kids, access to airports, downtowns, outdoor recreation, etc.

If you are projecting increased demand during your entire lifetime for the piece of land you are purchasing, then it makes sense to pay as much as you can afford, as it will only get more expensive. If you are projecting a receding economy and/or decreased demand for the land you are buying, then it does not make sense to pay as much as you can afford, but rather scale it to some measure of what utility you will get out of it.

> If you are projecting a receding economy and/or decreased demand for the land you are buying, then it does not make sense to pay as much as you can afford...

I think this is the above commenter's concern; homebuyers are not adequately pricing the risk of rising interest rates. If interest rates go up, demand falls and you're left in a highly leveraged position that amplifies your losses. Monthly mortgage payments don't make the leverage apparent. Sticker price does.

But if you go one move deeper central bankers will factor the high leverage in and therefore won’t increase rates.

In order for central banks to mitigate future recessions, they need be able to make rates go down too, not just not increase them. And when rates increasingly approach zero, there won’t be much they can do, except buy the assets - which they have done and are not supposed to.

Bingo.

> If interest rates go up, demand falls and you're left in a highly leveraged position that amplifies your losses.

There is a reason why debt is called “leverage” - it leveraged investment returns up when your the exit works out.

But it also leverages return losses down when the exit doesn’t work out.

This is a way bigger problem in Canada, where fixed term mortgages are unavailable (and where price to income ratio is even more absurd than in the US).

If anyone in the US thinks "housing costs can't keep rising, the market will correct itself", then just look at Canada. The average sale price of a home in the US is roughly $375k. In Canada, it is about $700k, and property values continue to rise.

I guarantee that housing in Toronto will continue to climb at 10%-15 % per year. Housing is the only thing keeping the Canadian economy afloat. The BoC has no choice anymore, they will pay your mortgage if necessary. I dare them to raise rates to just 5%, there will be a collapse that will leave half the country in the streets. If you can afford to buy, buy with both hands. You will double your money in the next 5 years, a house in Toronto will be over 5 million in the next decade.

Well, it better keep going for another five years after that, and then another five years after that, and so on, because anyone buying a $5 million 4-bed-2-bath house for their family is only more dependent on that trend continuing than the one who paid $2 million. The price tag is only justified when there's no end in sight to the appreciation. Nobody would pay $5 million for that house if its value stops rising, let alone starts dropping.

The government can't guarantee real estate, because any 99.9% risk-free investment with 10% annual growth can be levered into a 99% risk-free investment with 100% annual growth, and that's going to absorb all available capital like a black hole. The more the government acts to reduce risk without offsetting that by reducing returns or increasing the cost of debt, the bigger that black hole will grow.

At some point, it might be worth biting the bullet and incentivizing investments into sectors of the Canadian economy that aren't housing. If workers can see housing appreciating by multiples of the median salary, and entrepreneurs clue in to the fact that they'd earn more as a real estate agent than by building a tech company, "the Canadian economy depends on housing" becomes a self-fulfilling property. A few more doublings and then there's no point bothering to do anything else like growing food and assembling cars. Then you end up with a Zimbabwe situation where, yes, your house is worth a trillion dollars and rising, but it's not... good.

But maybe if we keep pouring enough gasoline on it, we'll be able to put out this fire?

"The price tag is only justified when there's no end in sight to the appreciation." Isn't that pretty much the definition of an asset bubble. Prices have decoupled from underlying asset utility (eg. rent) and it has become speculation on future price growth. As no return to justify the price all of this seems to hang on optimism/pessimism of future buyers. And availability of easy credit of course.

I know you weren't saying this at all but that first sentence is dangerously close to "we've reached a permanently high plateau".

https://en.wikipedia.org/wiki/Irving_Fisher

As long as most people in the U.S. buy houses with 30-year fixed mortgages, the total cost of a house will be 30 * 12 * monthly mortgage payment. When interest rates are low but home prices are high, they don't pay any more over the life of the loan. (Someone who buys when rates are high but prices are low does have the option to refinance, though, which is not available to someone who buys when prices are high.) The change in interest rates effectively shifts which portion of the buyer's income goes to the lender vs. the seller.

This is similar to how increases in local incomes are actually captured by landlords rather than workers. If housing is scarce and people need it to live, owners of that housing have the bargaining power to raise prices to capture available income.

It's true that a homeowner who pays a higher principal and a lower rate isn't really at a disadvantage if they stay in the home for 30 years (with a 30 year loan). But if rates go up a bit as soon as they need to sell they're going to find far fewer buyers.

And their neighbors will have already found out they had to sell for lower amounts, resulting in some others walking away instead of bringing money to the table at a sale. At thus begins the downward cycle.

The point is that interest rates don't affect the cost of housing which is determined by monthly payment * 360 months, they affect the resale value of housing. If interest rates go up the resale value of your house goes down.

If people bet on the resale value of housing to go up they also necessarily bet on lower interest rates.

Do you really have 30 year fixed rates? They must be ridiculous?

That’s the standard in the US. Current rates are about 2.75%, although they went below 2.5% for a bit earlier this year.

Those rates are for 20% down, good credit primary residences purchases. Rates for investment or vacation properties are generally about 1-2 percentage points higher.

Mortgage rates in the US are indirectly and directly subsidized by the government across a huge spectrum of programs- See FHA loans, VA loans, etc. However one of the biggest contributors to low 30 year prices are the government backed corporations like Fannie Mae and Freddie Mac that purchase mortgage debt and repackage it into mortgage backed securities. Way too much the go into here, but a lot of the 2008 financial crisis has its roots in the policies that created Fannie Mae and Freddy Mac. Regardless, they have proven a fairly effective way to keep mortgage rates low.

Interesting. Higher than here currently of course - I was recently quoted 1.16% for a five year fix - but I've never heard of being able to lock in something pretty reasonable for the full term/30y like that.

But are lower shorter term fixes also available? Presumably the 30y fix is a pretty stable rate, and just acts as an upper bound? So why not go with anything available that's lower, with that as a worst case fallback that's unlikely to be materially different after x years?

Yes, you can get a shorter term loan and have a lower interest rate- 15 years is also reasonably common, and fixed rate products exist at 20 and 10 years respectively. Adjustable rate and 5/1 or 7/1 products exist as well, but they aren’t as popular or encouraged by regulators, as they played a role in the 2008 financial crisis.

As to why go for a 30 year loan instead of a lower interest rate 15 year the answer is basically cash flow and opportunity cost. A 15 year loan may result in paying less interest, but the monthly interest + principal payments are more. Your average borrower will qualify for a larger 30 year loan because the analysis is based on their ability to afford the monthly payments based on their current income.

Even people who can easily afford a 15 year loan will choose a 30 year because the 0.5-1% interest rate is lower than the expected returns of something like stocks, so it makes sense to stay leveraged. There are also tax benefits to paying interest (but not principal) on loans, but these are way less important since the trump tax reforms.

And I just reread your question, and I think you are asking about 5/1 loans. The reason there is that a) interest rates so fluctuate, a lot- they were above 9% in 1991. With a 30 year, you can choose when you refinance (there is no penalty to paying off a home loan early in the US) whereas with a 5/1 you might find yourself getting forced into a higher interest rate- potentially much higher to the point it’s unaffordable. 5/1s also actually have a higher interest rate than 15 years currently, as they aren’t considered “conforming” to various US government programs.

> Even people who can easily afford a 15 year loan will choose a 30 year because the 0.5-1% interest rate is lower than the expected returns of something like stocks, so it makes sense to stay leveraged. There are also tax benefits to paying interest (but not principal) on loans, but these are way less important since the trump tax reforms.

On the other hand, it probably reduces risk to take the 15 year loan if you can afford the payments, in order to more aggressively build home equity and shield yourself from a sudden shock/downturn. If rates shoot up after, say, 5 years (and home values drop 20%), someone who's made 5 years of payments on a 30 year loan will be way underwater, whereas someone who's made 5 years of payments on a 15 year loan still has positive equity.

Homes are massive, illiquid assets with high transaction costs and (unless you have many of them) are poorly diversified. I'd even argue it makes more sense to look at a primary home as a forced savings plan rather than as an investment.

I disagree. It’s too big a chunk of people’s net worth to not analyze like a financial investment, if only to make one stop and think about them opportunity cost of buying at various price points and how much you are really spending to consume living in a nicer house (because there is definitely a consumption angle.)

A primary residence even makes a good component of diversified portfolio so long as it is not the sole or dominant aspect of that portfolio.

I understand your point about it being a "forced savings plan", but with 5-10x leverage on most loans even a housing market that appreciates at inflation can provide significant returns (or losses) in the long run.

Don’t discount how rare 20% price drops in housing are historically - a nationwide 20% price decline has only happened once since 1951 (where I could find statistics start) and even then would only have applied for purchases in a 1 year window. House prices are historically high across almost any metric you choose right now, so we could see another incident of that, but it’s also possible we could see real house prices depreciate with inflation while holding nominal value.

I didn't mean shorter term loan, just shorter fix. I think the answer is it just works surprisingly differently here (UK) vs. there (US).

Here a normal thing to do is something like 30 year loan on a 1/2/3/5 year fixed rate, after which it would be some relatively horrendous variable rate [^] - but you don't pay that, you just switch to a new fixed rate at the same or other provider (technically remortgaging).

So you're leveraged for the full 30 (or whatever) year term regardless, but you make some decision about how 'good' you think the rates are at the moment and what direction they're moving in (and pretend your adversary isn't a massive bank with a lot more information and smart people behind it) and fix for accordingly many years (more costing a slightly worse rate of course).

[^] - you could also just choose a variable rate to begin with, but that's not really relevant here, I just mean I think typically the rate you'd drop to after the end of the fixed rate would be worse than that, as in you're going to pay more spread over whatever it's tracking.

Europe has them. They're not ridiculous. 1.5% fixed for 25 years is somewhat common.

Where?!

According to the ECB, https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2322~0ed0879d... :

"FRMs are dominant in Belgium, France, Germany and the Netherlands, while ARMs are prevailing in Austria, Greece, Italy, Portugal and Spain"

UK is also ARM but not included as not in euro zone.

Note that at least in the NL market which is the only one I know personally, lots of people do get shorter term fixes compared to the US where almost every mortgage is fixed for its lifetime.

> without considering that the declining interest rates that fueled past appreciation don't have much room left to move down

Negative is inevitable, imo

If the value of your home rises, you've effectively taken out a hugely profitable leveraged loan, which is historically pretty common. Which is far from guaranteed of course, but broadly speaking it was an amazingly lucrative move for many many people.

Why would I lend you a million dollars only to be paid back over 30 years and have less than I started with at the end of the 30 years? I'd be better off doing nothing with the money.

You wouldn't, but the government might - to keep the economy propped up. I think this is what parent meant, anyway.

Not sure that's a healthy point for the government or the economy to get to, but with politics the way they are these days it doesn't sound that farfetched of an outcome...

If things get to that point, the government might as well just buy all the housing.

It has already been done.

https://www.investopedia.com/articles/personal-finance/05141...

Because you don't want to keep 1 million dollars under your mattress.

Maybe I do if my other options are this bad.

Although if the reason the government is doing negative interest rates is to prop up home prices forever and ever, I guess I better put my money into housing.

Your home is not special. If the value of your home rises, the value of other homes also rises, which means for most homeowners an increase in the value of their home can't be turned into a profit.

If Alice buys a home for $100k and it appreciates $1M over ten years, and Bob rents for ten years for $100k, total. Alice has $1M more than Bob does. That isn't nullified if Alice chooses to buy a $1M home next. She can also go buy another $100k home instead and pocket the $900k. Bob, obviously, cannot pocket anything.

> She can also go buy another $100k home instead and pocket the $900k

No, that's my point. A home that cost $100k when Alice bought hers, now costs $1M, therefore if Alice sells her home for $1M and buys another one for $1M, she makes a profit of $0.

Bob, with a net worth $1M lower than Alice, would probably disagree that she has not profited.

Only if you do fraudulent accounting. Mark-to-market is limited to assets held for trading, as far as I can tell, and for a good reason.

If you sell your home for $1M more than you bought it, it would be fraud if you didn't consider it a gain.

If you sell it and become homeless, yeah. Otherwise you'll be buying a $100k home for $1M, which cancels out all the profits that you made from the sale.

That's not how profits work. Or accounting in general. If you sell for +1M and then buy a different home for $1M, you've recorded a gain of $1M. It doesn't matter if you spend it on another house or don't. Your balance of cash may stay the same, but you've still profited. And the gain is taxable.

That's the accounting profit. Suppose you keep the house, your accounting profit would be zero. If instead you sell the house, and buy it back immediately for the same price, now you have an accounting profit. From this example, it's obvious that the accounting profit can be misleading. What matters is not the accounting profit but the economic profit (aka actual profit).

This assumes you continue to own a home, and own a home in the same market.

You can downsize, rent, or relocate to realize profit.

There is a reason why they must go negative...

Inflation is going up because of a mix of supply shocks and fiscal stimulus. Not necessarily a bad thing but it's out of the realm of monetary stimulus.

Low interest rates in Japan failed to drive inflation. Ask any Austrian economist and they would tell you that low interest rates are guaranteed lead to malinvestment, an artificial business boom and high inflation. You know, if it was that easy then central banks would have raised interest rates a long time ago. Probably shortly after 2008. Whatever is going on is way beyond what monetary policy can do.

At 0%, monetary policy simply stops. Game over for monetary policy. Central banks do not matter anymore.

>You know, if it was that easy then central banks would have raised interest rates a long time ago. Probably shortly after 2008.

The Fed attempted to raise rates in 2011 which lead to the so-called "Taper Tantrum" where stocks plunged. The Fed either got scared, or received a phonecall, and promptly held off on increasing rates.

This is my worry too. I just sold, with the intention of buying back into the market (in a different city). I'm terrified by the amount of people maxing out their abilities to handle the mortgage even at today's incredibly low interest rate. I'm making sure I can handle a quadrupling comfortably – but also those of us acting like that suffer (or will suffer, when there's a crash) the consequences of the reckless ones.

I don't like the feeling of a market where trying to be a rational actor barely helps.

Yeah, this is how I bought. I looked at what sort of loan terms I qualified for (very favorable), and then figured out what price home resulted in a payment I was comfortable with.

I'm pretty debt averse, so that resulted in me buying "less" house than the banks were willing to fund, but it was in the area I wanted, relatively new, styled to my taste, and from a reputable local builder, so from my POV I couldn't figure out why I'd buy MORE house.

I still live there, 21 years later.

If you focus on mortgage payment instead of home price, you also need to take mortgage term length into account for a generational study. 30 year mortgages only came about in the 1950's. Before then the choices were typically 15 and 20 years.

And in Europe they have 100 year mortgages. US still have plenty of options to make monthly payments affordable.

Isn't this a uniquely Dutch thing?

I think Sweden and Switzerland also do this

While this is accurate, a more concerning secondary impact is the increased deposit. In Australia specifically, house prices are soaring. The most in-demand markets increases are currently ~$1200 per day [1]. For many people their home is a more 'productive' than they are, greatly outpacing their own earning potential. Those who already have wealth can buy in, or continue to buy in and leverage themselves into the market as it skyrockets. Anyone not in this position is left to watch as the ladder disappears into the clouds.

Shelter has changed from a base need to a commodity that's traded in a rigged system and the societal implications of this are frankly terrifying.

[1] https://www.abc.net.au/news/2021-08-26/fact-check-are-house-...

Raw land is cheap. Housing codes are what keep people like myself out of the housing market. If I could just dump a yurt on the land, or a cabin like our forefathers, then housing prices would be a total non issue. But a bunch of selfish NIMBYs are so scared of the poors building a yurt instead of a 2000 sq ft brick house for two people and a dog, they'll never allow it.

There are plenty of trailer parks all over the country that will let you plop your yurt down and even plumb it in to local utilities. You may not enjoy your neighbors very much.

Increasingly those trailer parks are being bought by private equity and institutional investors.

What do they do with them? Doesn’t seem like something you renovate and resell?

They extract the maximum amount of rent they can.

https://www.newyorker.com/magazine/2021/03/15/what-happens-w...

... and then kick the residents out when they finally get zoning approval to redevelop for luxury housing: from politicians whose votes are surprisingly cheap (most elected municipal officials have ties to the real estate industry, or are themselves in the business).

This is happening right now, here in North Carolina. The worst part? Who do you think makes up the largest part of trailer park residents here? Yep. That's right. Separated or retired military veterans, retail workers and domestic servants. They don't need to watch Masterpiece Theater to experience the wealth inequality and exploitation of the Gilded Age: they're living it every day (although our popular culture won't allow them to question it).

Oh, and one more thing: although some elitist s.o.b.'s may disagree, trailer park people are no more unlikable that McMansion neighborhood residents. In fact, I usually find the former a lot more pleasant to deal with.

Yes I have been to actual shanty towns including in a very poor latin american country and the middle east. I don't know why people here have such a hard on for there being something wrong with the people in trailer homes and shanty towns. They seemed like people who were just in different housing than some of the rest of us to me and I'm very glad their shanty town / trailer was available to them, because otherwise they'd be completely without shelter.

You might also not like your neighbours in an expensive gated community.

Does the trailer park get to overrule local building codes? Will I dislike them because they're poor or because people who live in trailers are just bad people?

Well as someone who lived in a trailer park for a few years, don't... Its not the neighbors, they are mostly fine, if generally lower income. But there _IS_ a large social stigma with living in a mobile home/trailer. The real problems are financial.

Definitely don't get a mortgage to buy a home in a trailer park. Its the worst abuses of both the mortgage and rental markets. No matter what your at the mercy of the landlord raising prices (and selling to someone who raises prices to drive everyone off), while frequently ending up underwater in the trailer itself. For people who are this low on the income ladder the ability to _move_ the trailer is mostly non-existent since it generally starts at a few thousand $$, and goes from there. So, people lose the trailers, and their investment when they can't pay the rent. Then there is the problem that even the worst built house is better quality than what you find from any of the mobile home builders which have to basically use plastic/vinyl/particleboard glued together to keep weight down with the occasional staple to hold things together while the glue is drying. Most of the homes cannot be moved after a couple years because they would fall apart when presented with road speed winds and vibration. So, often not only to they lose the home, they end up owning the trailer park mgmt for removing the trailer.

So, its bad. When people put mobile homes on land they own, they tend to build houses around them over time by adding covered decks, screen rooms, additions, new roofs, etc. Basically turning them into prefab cores of frequently reasonably nice houses/cabins after they rip out the crummy plastic bathrooms and put in actual porcelain toilets, real stoves, fridges, tile, countertops, etc. None of that really happens in your average mobile home community because people maintain the fiction that they can move the trailer even when its rotting in place.

Bottom line, I would live in a car/truck before I considered living in a trailer in a trailer park. People with children are probably better just finding another family to share a rental with and packing bunk beds in.

I think what you’re looking for is a “shanty town”. Plenty in third world countries especially by dumping sites. Enjoy your life.

Please explain how the people in these shanty towns would be better off if the only house they can afford (a shack) is demolished for failure to meet code and they end up homeless. You paint a perfect picture of people who would be ruined by our building codes.

the problem is not really that, since you could just move out to the sticks and do that if you really wanted to. heck, some places in the Rust Belt literally give away homes.

the problem is that in our desirable cities, where people want to live (as evidenced by high prices per sq ft) we have more or less stopped the natural progression of single family houses into low-rise buildings, low-rise into mid-rise, and mid into high-rise.

I'm not arguing against the progression of housing. I'm arguing to be able to build a house I can afford on land I own. Building codes serve to lock property owners out of the means to actually live on their own property. And even if these high rises become more legalized, it's a long time from that happening and institutional investors and large construction and architecture firms executing and them finally being sold, in the meantime I have to live somewhere. It's also worth noting condos are a depreciating asset, unlike land, and you are beholden to the covenants and agreements of the condo including maintenance and other mandatory assessments.

I know some guy in Manhattan is going to tell me "but it cost 0.5M for a 1000 sq ft plot here, and only 0.4M for a condo" Which may be correct, but for the many of us living in lower density cities that still have tons of jobs like Kansas City, Dallas, or Omaha there's still a huge delta between the value of a small plot of land + 10k to build yurt/cabin and the price of a condo. That reflects the economic efficiency of the owner built small structure vs the condo in these areas.

Living out in the sticks has the same economic problem as you either have to be rich, retired, or score a very rare lucrative job to come out ahead. The economic cost is as high or higher than the new high-rise condo, it's just hidden behind opportunity cost.

I really challenge you to find the percent of population living in an area where raw land enough for a small structure is more expensive than a condo. It's a very small percent.

> Building codes serve to lock property owners out of the means to actually live on their own property.

Building codes, or zoning requirements? Building codes typically cover things like fire protection, means of egress, ventilation, sanitary plumbing requirements, etc. While the requirement for indoor plumbing adds a small amount of cost to a dwelling, the zoning requirements (min, max square footage, setbacks, parking requirements, etc) are a substantially larger impact I think.

I'm pretty far on the personal liberty scale, but I don't think it's reasonable to allow outhouses or permanent portajohns in a high population density area.

The negative impact of zoning requirements don't negate the negative impact of building codes, they just add more fuel to the fire. However zoning requirements are far less egregious; you wouldn't put a daycare next to a massive toxic waste handling plant. Comparing that to me building a tin shack isn't even in the same ballpark, and I think pretty disingenuous.

>Building codes typically cover things like fire protection, means of egress, ventilation, sanitary plumbing requirements, etc.

Yes these things are all should be tossed out. If I'm a 60 pound midget I don't need the same means of egress as you; if I haul in water I may not need plumbing at all and maybe I only clean out the cat litter box with the water that is plumbed in . Maybe I don't cook inside the house; that reduces the risk of fire by half so maybe my risk of fire looks as good or better than my up to code neighbor who has a standard up to code house but cooks with grease all day, falls asleep with a cigarette in their mouth, and leaves their lighters out for their toddler to play with. These are all neat requirements "in the name of safety" that could of course save lives, but at the expense of massive loss of life for people working years (lost life) and possible homelessness to avoid the insane requirements. If my option is to absolutely slave away for 7 years to buy a house to code, or build my own shack in one year, then the opportunity cost is about 1/12th of a life lost to build the house. Is there a 1/12 chance somebody is gonna die in my tin shack? Remember I'm still criminally negligible if they do, there isn't some gotcha that you get to do something that kills someone else because the code doesn't mention it.

Outhouses and portajohns are what appear when the alternative is public urination/defecation. If the poor are zoned and coded out of a home, they're going to be urinating and deficating in your park rather than in an outhouse, sound better? Visit San Francisco to see the excellent results! By the way, the city has installed long term portajohns in a number of high density cities. I've seen them in Minneapolis and Seattle, as well as absolutely permanent ones in a certain city in Ohio.

Raw land in most denser US urban areas is not cheap. There’s also huge incentives to build additional units. I’m Berkeley where I live it’s becoming more common to see developers buy a run down single family home and raze it and the city will allow you to build a 3 or 4 unit townhome in the space. Much of this forced by state laws, particularly if a unit or two is reserved for low income families.

The cheapest land on which you could build a yurt or small cabin (illegally) in Berkeley I found on realtor is 60k (it is pending sale). The cheapest house is well north of 200k. You could build your own yurt or cabin for only 10 grand. You're joking yourself if that isn't very cheap by comparison.

[1] https://www.realtor.com/realestateandhomes-detail/55-Panoram...

If you are talking of hypotheticals, there are a substantial number of ex-hippies who'd let ten people set up ten yurts in the back/unused parts of their property. Which is to say that you are correct that zoning is a force that keeps the cost of housing high.

Great, will I be able to register my kid for public school there after doing so? I'll put the yurt down as my primary residence; I hear Berkeley has good public schools. If so give me their contact information and I will take a serious look at getting set up.

That land is at about a 60 degree slope, doesn’t have street parking nor off street parking nor any utilities and crappy cell service.

Raw land is not cheap in many parts of Australia.

Even in Adelaide metro and suburban areas, land is not cheap anymore!

Land is cheap within, I don't know, 50 miles of anywhere you live. But not necessarily where you (want to) live.

It has been proposed that since land doesn't respond to supply and demand, but housing does, that property taxes should apply only to land and be increased to remove most of its value. Keyword: Georgism.

FWIW: I sell real estate in two western states. If you can find cheap land, it's generally for the following reasons:

1) It's tiny

2) There's no water

3) It's not buildable given current zoning

4) Utilities are miles away / cost to attain utilities is prohibitive

Even in my area, where we still have lots of open acreage, the cost of bare land has jumped considerably in part due to zoning - yes we have land, but local authorities aren't going to let you start carving up farm land for subdivisions. There's a middle ground here and I'm glad that's the case rather than it being 100% preserve or 100% build.

1) is no barrier at all to a residence. Maybe 30x30ft is all you need at most for a small family sized structure.

2) Is only a barrier in rural areas, otherwise hauling in water into a tank is still a lot better than being homeless / having all your wealth extracted by a landlord.

3) is merely an artificial restriction created by the government. We shouldn't be restricting property owners from building a residence.

4) If you're already ok with living far from anything you can already find a few counties in the US with virtually unrestricted building codes and zoning, so this is a non issue.

I have found some land that only suffers from (1) and (2) and (4), that is close to a city, and has no building codes in a western state. It's been a long haul getting there because there are so few places in the US that allows it, and this is the only county in the country next to jobs I've been able to find it. Believe me, I understand, and truly lament how much we hate for people to freely build their homes here. We'll probably move there within the next 5 years, but it would have been a hell of a lot easier if everywhere was like that so I didn't have to slowly acquire jobs and contacts closer and closer to the one area like this. And now that I've _finally_ acquired the contacts in this area, and a job reasonably close, and my partner has obtained all the credentials to work in the area, they are talking about closing off the option of self certification of meeting code here! So we will be back to square one. This is how people get locked out of every owning a home, because frankly my family can scarcely afford to even rent a badly run down home in a bad part of town where we live currently.

You watch property prices rise and rise, the number of places allow bypassing codes dwindle. And then some asshole comes around saying "Well the codes and zoning are there to keep you safe!" What about all the years lost working to buy that "safe" house? It's better to risk a 1/20 death in a horrible house fire than it is the certainty I'll lose 1/10th of my life completely if I slave away to buy a slightly safer house. And these people also don't seem to realize I have an incentive to not kill myself or anyone else, code or no code.

Yes, that's the accurate horror of the situation here in Australia!

Even a slight economic advantage is being multiplied if you take advantage of housing and stock markets.

Just having comparable incomes and earning power is no longer enough to give you economic parity with your friends and neighbours. Which is not a good for overall social harmony :-/

Wage stagnation has meant that if you don't have real estate, investments and additional contributions into your super you are going to be in an entirely different wealth class to your peers once you hit your 50s and 60s.

This may not be a fun ride for many over the next 20 years...

This is something that has been keeping me wondering for years. Since the financial crisis the European Central Bank has basically fixed base rate at negative (since 2012), leaving the market flooded with desperate investment money (due to all old school investment options becoming a negative) Now also of course since it's "cheap" the real estate prices have almost doubled in that timespan, having previously hovered around the same mark for the ten years before that.

What I wonder is - is there any way out of this curse of growth with all the money spent into those inflated prices at this point that does not mean complete economic collapse?

Japan like stagflation ?

In theory, a fall in nominal interest rates below the real rate of return of capital should spur investment, since entrepreneurs can borrow funds at a low rate to expand production capacity or start new businesses and obtain a higher rate of return. The reality is we don't see much investment going on, and at some point the ECB will have to face up to the fact that the low interest policy doesn't work.

The reality is that people invest abroad. After all, there is no rule that they must invest in their own country.

> at some point the ECB will have to face up to the fact that the low interest policy doesn't work.

And repeal the zero lower bound or what? Face up to what? Interest rates will be low as long as supply of labor outstrips demand for labor.

Low ingerest rate resulting in economical growth is a dogma recognized across economic schools, which fails to materialize empirically. Look up Richard Werner on this.

The only growth that is observed is businesses which are serving the bubble. Eg. construction industry having a boom as well as cryptocurrency startups.

That assumes that people want to stay in debt forever. Decades ago you could quickly pay off your house but this is much harder now.

Replacing affordable price and decent wages with cheap credit makes banks and companies happy but is a very bad deal for the little guy.

Interest rates are irrelevant when you can only borrow 4.5x income but home prices are at 8-9x

Interest rates are irrelevant when you need 20% down and it will take you a decade to save that up while renting, because of said multiple.

Why do people think you need 20% down? You don't need 20% down on a mortgage. There are first-time home buyer loans where you can put down as little as 0% and for conventional loans you just have to buy personal mortgage insurance if you're below 20% down.

This is such a weird home buying myth and I don't understand how it sticks around.

For some countries, there are legal requirements about maximum LTV. e.g. in Ireland the limit is 90% for a first time buyer of a personal home, and 70% otherwise.

Fair enough, I made the US-centric mistake but 10% is vastly different than 20%.

> you just have to buy personal mortgage insurance if you're below 20% down.

You end up paying more in the long run when you add on PMI. I think they are internally conflating "should be avoided" with "can't." I do that with personal things all the time when I tell myself I can't do something that I shouldn't, but actually can do.

PMI for me is $71 a month. Which meant I could save money and use it towards home improvement to make my house better for me (and also increase its value).

Putting down 20% doesn't make sense in my case, since home prices continuing to increase and me adding home improvements that increase the value of my home I will be able to refinance my loan in a little over 2 years to get rid of the PMI, and still have spent way less than the 20% down would have cost me.

In general, I think it's a good tradeoff to pay PMI in order to get into a house earlier, or keep a larger down payment invested. PMI is generally <10% of the total mortgage payment and can be eliminated through appreciation, if one is willing to pay for an appraisal.

I waited in order to save the traditional 20% down payment, and, in hindsight, that was a dumb financial move. Investment returns would have outpaced what I was paying in PMI by 10x each year, and the place appreciated enough in two years that I could have refinanced with no PMI without putting any additional money in.

Isn't pmi pretty significant?

Not compared to everything else. Move was $60 with 10% down on a $350k condo. Total monthly payment was amosr $2100 per month including the HOA

I just bought a house, and put 10% down on the house. What I learned:

- PMI is really not as expensive as you might think. I pay ~$150/mo extra and all told my mortgage is just over $2k/mo

- PMI rate depends on a LOT of factors, including your lender's terms, your own credit history, and even the amount you put down. Your PMI gets re-evaluated yearly and the closer you are to the 20% equity on the house, the less PMI you pay. You can actually even get PMI waived as early as 18% sometimes, if you remember to ask them.

I've not seen it above $100/month. More commonly ~$60-$90. I suppose it depends on what your definition of "significant" is.

In the UK less than 50% of mortgages are fixed for terms of longer than 5 years.

...and less than 1% of recent mortgage completions are with 5% deposits (the minimum here)[0]

There is one big reason deposit size matters: affordability and risk. PMI doesn't exist in the UK, it's built in to the rate. When you're stretching what you're borrowing to the maximum (thanks to these high price/income multiples) every 1% on a mortgage can be the difference between relative comfort, and being 'House Poor' and living with constant anxiety about rates rising before you can refinance.

At the moment with 10% down:

- 25 year fix: 4.64%

- 5 year fix: 2.50%

- 2 year fix: 2.10%

With 20% down:

- 25 year fix: 3.80%

- 5 year fix: 1.70%

- 2 year fix: 1.40%

The other thing, that some other commenters have mentioned is that most lenders won't lend at high LTVs on high value properties, or on certain property types, like flats (minimum deposits of 20% on flats are common, which is particularly problematic given that they tend to be the most affordable properties).

[0] https://www.financialreporter.co.uk/mortgages/95-ltv-mortgag...

Also, if you want to avoid paying PMI you can get a second mortgage to cover most of the down payment. With current low rates even if the APR for a second mortgage is 1% higher, one can save a lot by paying this high rate on a much smaller portion of the ballance.

I thought most lenders stopped allowing that after the last housing bubble. Are they doing it again? Hmm.

Is this true everywhere? Not that I think it’s a great idea to buy in the Bay Area, but a $3M 1800sq foot home for a family of 3 who works from home in a good school district… is that really available with 0% down?

Bay Area homes often don't qualify for FHA stuff due to price.

Other major metropolitan areas do OK, though. I put 5% down on my first house just outside of Boston and 10% at my current home (voluntarily, my mortgage broker asked for 6.5%).

0% down is impossible for FHA or Fannie/Freddy, but it may be possible as a private loan or through grants that give you the 3-5% down required.

I agree. However, not putting 20% does typically result in less-than-the-best interest rate as well as PMI, thus adding more to your monthly costs. Also, less than 20% also results in a larger mortgage payment regardless than compared to putting more down.

This is not accurate. The average down payment is currently 5% per the latest Urban Institute Research.

https://www.calculatedriskblog.com/2021/09/urban-institute-m...

FHA loans require as little as 3% down. Payments are higher due to PMI, etc., but not a showstopper.

Interest rates are extremely relevant when institutional investors are such large players in the real estate market.

Also, the original submission noted that median homes cost 7x median income right now. That does not equate to 10 years of savings from responsible people.

Also, 5:1 leverage is extremely generous, and in a free market they would never happen because it’s insanely risky to the lender. That’s ignoring the fact that 20:1 is pretty common these days anyway. The only reason you can get such a generous loan is because the US government is responsible for it, and they’re the most inept financial institution on Earth.

Yes, you're absolutely right.

People with big piles of capital have a great time during times of low rates, whereas the cash poor working class (even those on high incomes) still get squeezed out by lending criteria and price inflation.

> That does not equate to 10 years of savings from responsible people.

I don't agree with this. If you're putting 40% of your take home in to rent and property taxes then saving only 20% of your take home (say 12% of your gross) per year is a reasonable approximation. Saving a whole gross income (the 20% deposit if the remaining 80% equates to 4x income) is going to take you ~8 years. And most people suck at saving. And in 8 years property prices can easy go up 50-70%.

Only homeowners pay property taxes.

Depending on your income and where you live, saving 50% is totally doable. And since you’re into fanatical scenarios where home prices go up 50-70%, you should also apply the appreciation of the stock market to your savings (usually double or triple real estate).

You're out of touch if you think most, or even typical people, can save 50% of their take home pay.

> Only homeowners pay property taxes.

I pay almost $300 USD/mo in local taxes (for local services) here in the UK. This amount is linked directly to the value and occupancy of the home that I rent from my landlord.

> since you’re into fanatical scenarios where home prices go up 50-70%

The fantasy that just happened?

The national average house price index in the UK is currently at 450. In 2013 it was ~280. That's a 60% increase over 8 years, which is exactly what I said.

Regionally it's worse. London property prices have essentially matched the total return of the global stock market over the last 20 years.

And the UK is NOT special. Property is up 150% over the last 10 years in the US as well:

https://www.thisismoney.co.uk/money/mortgageshome/article-10...

The US is not up 150% in the last 10 years. Look at real data, not clickfarm articles. From Sep 2011, it's up 85%.

https://fred.stlouisfed.org/series/csushpinsa

So, sure during the greatest bull run in home price history, prices have gone up significantly over 10 years. But it is fanatical to quote the largest bull run in history as a thing that will likely happen in the future.

And I said if you wanted to quote the fanatical scenario, then you needed to apply the equally fanatical scenario that your saving will appreciate with the market appreciation of said fanatical scenario. On Sep 1 2011, the SPY ETF adjusted for dividends was 92.69. Right now, it is 444. That's a 379% increase. 17% annually. That compares to the 6% annual appreciation of homes.

https://finance.yahoo.com/quote/SPY/history?period1=72826560...

Now, I don't know about the UK for property taxes. In the US, it's charged to the owner. Fine. But you can always choose to live inexpensively. I know people who earn six figures and spend $700/mo on rent because they live with roommates in unfashionable areas. These people save upwards of 75% of their take home. But if you insist it's impossible to save 50% of take home, then I don't know what to tell you. My friends must not exist.

But I'll give you some benefit of the doubt and assume 30% is the absolute most you can save. Then if you earn 100k and want to buy a 700k house, if you put away 30k each year, it will appreciate to 154k in 4 years. The house that increases at 6% will now be 833k, and you damn near have a down payment (18.5%) in 4 years.

This scales to any income, so don't tell me I'm out of touch with my income assumptions.

Regardless of the cause, I wish we could have nice trustworthy graphs that start the y axis at 0

This. Here's research to back this statement up:

Today's House Prices Are Over 40 Percent More Affordable Than The Housing Boom Peak:

https://blog.firstam.com/economics/todays-house-prices-are-o...

Awesome, thanks for sharing. Bookmarked.

And to balance that out, also from your link:

>"The affordability gain from increased house-buying power, however, was offset by the third component of the RHPI, nominal house price appreciation, which reached a record 19 percent compared with a year ago, eclipsing the record for price appreciation of 17.5 percent set in 2005."

Whatever the case, what you end up with is an asset whose actual value is tied to the interest rate (interest goes down, people can afford larger loans with the same repayments, therefore houses are worth more). This is a highly leveraged situation: if you take out a $1m loan and then interest rates go up, you're still liable for the whole $1m even though your actual asset might only be worth $900k now. I think this is one of the big dangers of having an essential need like housing cost such a large multiple of income.

Agreed

Home ownership is not an essential need. People aren't excluded from housing because of that risk. They can just rent from a landlord who's taking that risk themselves.

True. Renting has other risks though. The Landlord can increase the price dramatically at least as often as you renew your contract (usually a year in the US), or force you to move out because they sold the property, or really almost any reason. And because moving has such a high transaction cost, landlords can often get away with treating tenants pretty badly, because putting up with a bad landlord is often less bad than having to relocate your home.

It's almost as if playing in the rat race isn't easy or fair. Moving to a rural area or living on social welfare is usually also an option but you have to quit the rat-race to do that and miss out on all the wealth and social status.

If you move to a rural area you still have to buy or rent, the prices are just lower, and there are a lot less options to rent.

Not if you get a fixed rate.

When I checked out a 5/1 arm at around 2.25%, even the maximum interest rate was 7.5%, which is pretty good historically.

If you try to sell your asset, buyers will be stuck with a higher interest rate, which pushes up the effective price of your home (and the extr money doesn’t go to you.)

I think you misunderstood the parent comment.

Even with a fixed interest rate, you still owe the entirety of your borrowed amount on the $1m purchase to the lender, but your property value may drop if the interest rates go up because, assuming the market value is tied to the interest rate, new buyers won't be able or willing to borrow $1m to buy your place at a rate higher than what you borrowed your $1m at. For the same monthly payment as you have now, a new buyer may only be able to borrow enough to afford a $900k home.

Someone with the same income and monthly expense limit as you wouldn't be able to afford your home, assuming rates went up, which is why the value might drop - fewer buyers.

True. But that’s nonetheless likely to be transient over a reasonable time horizon for home ownership, e.g. 10 years.

It affects things like refinancing, pmi removal, and helocs as well when appraisals come in lower.

> if you take out a $1m loan and then interest rates go up, you're still liable for the whole $1m even though your actual asset might only be worth $900k now. I think this is one of the big dangers of having an essential need like housing cost such a large multiple of income.

You could always walk away. Better to be under water on a mortgage than own it outright. This is called a strategic default. Lenders know this which is why they require a substantial down payment (typically 20% in the US)

Most people wouldn't do it if they're slightly under water. But eventually many people would consider walking away and taking a hit on their credit score, which get totally wiped out after 7 years anyway.

This is only true in states with non-recourse loans. Many states have full recourse home loans that would require the homeowners declare bankruptcy to "walk away"

Yeah, and I don’t think bankruptcy disappears from your credit report after 7 years like other items. Does it?

Bankruptcy does eventually disappear I think, or if it doesn't there are legal requirements not to hold it against you after X years without a problem on your end. It's been a while since I've looked into it.

The irony, of course, is that the US Bankruptcy Code provides you can't declare bankruptcy again until 7 years have passed. So creditors theoretically have less risk during the period they generally refuse credit to the newly bankrupt. Of course none of that applies to business bankruptcy, where the old company is often dissolved but you're often looking to the same former principal(s) for personal guarantees of the new company's obligations.

There are a number of lenders who are willing to extend credit to those with a discharged bankruptcy (on terms far worse than someone with an 810 credit score, of course).

7 years (Chapter 13) or 10 years (Chapter 7).[1]

[1] https://www.lexingtonlaw.com/education/how-to-remove-bankrup...

Being underwater is only a problem if you want/need to sell. Choosing foreclosure is a bad move, not having a choice is different.

Kinda. If I buy a 1M home at 2.5% interest, I have a $4,000 monthly payment. If rates go to 6%:

- Housing prices plummet to $600,000, assuming people are willing to spend the same per month.

- My monthly payments are identical to had I bought at $600k at 6%. If I stay there, I'm not much worse off. It's harder to pay off the home quickly.

- If I move out, and I rent out my home, it covers monthly payments approximately exactly.

The only time the owner is in danger is if:

1) They need to move.

2) They can't rent out the original property.

Rent works out since while the home is a liability, with 6% interest rates, the 2.5% loan is an asset.

As a footnote, what I expect is actually happening here is people are anticipating high inflation. If that happens, this isn't a bubble. Real housing prices might be fixed, at least looking out a few years.

Not sure about the US but fixed-rate term in Australia is about 5 years. Nobody would give you a 30 year fixed rate.

You'd eventually have to pay 6% on the $1M.

30 year fixed rate is actually the “normal”/common mortgage in the US.

I moved to the US from the UK, where mortgages look more like Australia’s, and I still find it amazing you can fix such a low rate for so long here.

The weird thing is that 5 year adjustable rates are higher then 30yr. fixed. That only makes sense if interest rates will go down over the next 5 years, which seems unlikely to me.

Fixed-rate mortgages are government-subsidized by a range of mechanisms (Fannie, Freddie, FHA, etc)

Adjustable-rate mortgages are not.

As a banker I am perfectly indifferent whether I make a fixed rate loan or a an adjustable rate loan to the borrower.

I look my cost of funds, tack on my spread and that is the price you pay.

If you look at it from the bank's perspective it makes more sense. I got a 5 year and paid it off early. The bank got about 8% of my home value. My friend has a 30 year and the bank will get ~110% of his home value.

This is for 30 year 5/1 ARMs the term is the same, but the rate is not locked

The Macs drove subsidising the moral hazard of fixed rate loans into the public conscious, a subsidy for home owners, political suicide to take away. Better (politically) to rob from a generation or two to pay for reckless low interest rates.

Fixed rate mortgages are subsidized by the US government, that's why. The mechanism of the subsidy is extremely complicated, but it is not a small effect.

Before the creation of the enormous state-owned insurance corporations and government programs to drive down those fixed rate mortgage costs, American mortgages were usually short-term, with giant balloon payments. Those short-term, balloon-payment mortgages went bust in huge numbers during the Great Depression, creating pressure on the government to "do something."

Say what you will about American housing policy, but those 15- and 30-year mortgage arrangements are very stable.

Ya, the US has fixed 30 year rates. Interest rates are higher going from a 15 year to a 30 year to price in some of the risk to the bank.

The difference every time I bought a house was about 1%

The difference between a 15- and 30-year mortgage is around one percentage point, or a 30% difference.

I have a 30 year fixed rate mortgage of 2.375%. In the US, 30 year fixed is common.

@moosedev

Ya, my dad in Canada keeps encouraging me to buy property given the mortgages. Has its downsides, but over all its brilliant.

Damn, I would assume houses must be much cheaper in Australia than in the US? Or only the very very rich can afford to buy their own home? (Or is it amortized over more than 5 years, you just have a balloon you need to refinance?)

In the US, where 30-year mortgages are standard, the LARGE majority of homeowners would not be able to afford payments on their home amortized over only 5 years.

I dont have information that can compare Apples to Apples as such, as in US vs AU values.

But I can say that prices are rising rapidly here in Australia.

The already expensive Sydney market rose on average ~$1200 a day over the last quarter!

Melbourne isn't far behind!

We too have low interest rates!

Whats not clear is how people are paying for the houses. Where is the money for deposits coming from, and how are they servicing such huge loans?

Dual incomes and parents assisting would account for a lot of it. But what happens if/when the parents need the money back and the DINKies decide to have children and either lose the dual income or get slugged with child care fees!

https://www.theguardian.com/business/grogonomics/2021/sep/16...

I don't know about Australia, but it sounds like the comment you responded is saying that mortgages there are something like a US 5/1 ARM, not that they are paid off in five years.

That is, the interest rate is guaranteed for five years and then it periodically adjusts.

Yes, this.

>Damn, I would assume houses must be much cheaper in Australia than in the US?

The median home price in Australia is about US$725k. So no.

I looked for some official statistics, and while I'm not sure if I'm in the right place, it paints a rather different picture from yours. The figure for housing costs implies a typical home value of more like 300K USD or 400K AUD.

Also, if this is accurate, Australia is more of a nation of homeowners than of renters.

https://www.abs.gov.au/statistics/people/housing/housing-occ...

"66% of Australian households owned their own home with or without a mortgage.

32% of households rented their home.

Average weekly housing costs were: $484 for owners with a mortgage; $53 for owners without a mortgage; and $366 for renters."

484 AUD/week = 1500 USD/month 366 AUD/week = 1150 USD/month

It also says housing costs for renters have increased 51% in 20 years (to 2018) which is an average of 2% annually.

"housing costs are defined as the sum of rent payments; rate payments (water and general); and mortgage or unsecured loan payments (if the initial purpose of the loan was primarily to buy, add, or alter the dwelling)"

Nice data but that it's from 2018 before the covid boom...

> The nation's median property price lifted by 1.5 per cent last month (to $666,514)

https://www.abc.net.au/news/2021-09-01/property-housing-core...

That's a >50% increase over ~3 years and from the article 20% over the last year.

'according to the latest CoreLogic data.'

This appears to be a data provider oriented towards entities with large real estate portfolios, and they specifically say on their website that their "hedonic" index is not meant for affordability calculations, for what that's worth.

It's difficult for me to tell which index is in the article, but the note about the missing data under the chart implies to me that the article is (inappropriately) using the hedonic index. I wonder how much difference it makes.

'this month's figures from CoreLogic did not include Perth or regional Western Australia "pending the resolution of a divergence from other housing market measures in WA" '

"Rather than relying solely on transacted sale prices to provide a measure of housing market conditions, the CoreLogic Daily Home Value Index is based on a ‘hedonic’ methodology which includes the attributes of properties that are transacting as part of the analysis."

https://www.corelogic.com.au/research/monthly-indices

"The fact that median or other percentile based series cannot be used to track changes in value of a market portfolio does not make them wrong: it is simply that they have different applications than hedonic indices. For example, median price series are useful in answering economic policy questions relating to housing affordability."

https://www.corelogic.com.au/research/types-of-indices

Interesting points RE the hedonic index, I'm not sure what the intended use case is but we can approach it from another angle if you would like.

A more up to date government source has the following;

> Weighted average (mean) of the eight capital cities Residential Property Price Index... rose 16.8% over the last twelve months.

We could go on forever trying to work out the exact numbers. The main thing I want to do is show non-australians how quickly our prices have risen and are rising!

https://www.abs.gov.au/statistics/economy/price-indexes-and-...

https://www.afr.com/property/residential/what-the-national-m....

AUD$955,927 national median and AUD$1.4m Sydney median.

These are home prices, which excludes apartments and units. Some of the other figures quoted aren't.

Australia's housing market, like I'm guessing many others, is quite heterogeneous.

Sydney and to a lesser extent Melbourne are both completely unaffordable (A$1m+) to new home owners on an average income unless you're prepared to live in a unit or commute 2 hours a day to the CBD. Brisbane, Adelaide and Perth on the other hand are significantly cheaper and one could still afford a nice family home.

Also worth noting is that the huge boom in prices only really started in the early 2000s. People who bought prior to that period make up a disproportionate number of owner occupiers.

There's a huge difference between the Sydney/Melbourne markets (nearly 50% of the population) vs the rest of the country

See https://www.google.com/amp/s/amp.abc.net.au/article/10042389...

I think the rate is fixed for 5 years and then readjusted for another 5 years. The terms of the loan is a lot longer

30 year mortgages are standard I Australia too. After your initial fixed interest period expires you will then pay the current floating rates or chose to refix for another period (of up to 5 years) at the current interest rates.

The rate is fixed for 5 years. The mortgage is normally 30 years.

(Australian housing markets in major cities are some of the most expensive in the world.)

> If I move out, and I rent out my home, it covers monthly payments approximately exactly.

That's not actually sustainable. You have repairs you're going to need to do, sometimes unexpectedly large ones. You have tenants that move out, and then marketing expenses and/or vacancies. If you're unlucky you have bad tenants that do damage or don't pay or need to be evicted after not paying.

It can work temporarily (unless you are unlucky), waiting for a better time to sell. But most people who need to move don't really want to be in the landlord business, and it is a business with financial risk and headaches.

I would also add that there's nothing worse than being a landlord of a single unit/property. Pretty much all of the functions that you'll need to fulfill as a landlord take the same amount of time for 2-3+ units as they do for 1, except your potential returns are lower. Setting up a system to collect rent, managing repair requests and vendors, a tenant marketing/screening plan, extended vacancies, etc. are all much more painful to do for a single unit than for a collection of units. I see a lot of people throw the "just rent it out" line without considering any of this.

"If I move out, and I rent out my home, it covers monthly payments approximately exactly."

You cannot borrow for rent, so rents follow income growth more closely. So in some expensive real estate markets, if no income growth, rent might not cover your mortgage repayments.

Although true, for sure, when considering cash flow -- it's a fairly big upside that at the end despite having tenants pay most of the principal you end up owning it. Extra risk, etc, but housing prices falling is exactly the risk you're going into with wide eyes open so it's just a gamble.

But at the end, there's a decent shot you have full ownership of a house worth even more than you paid, and even if it loses most of its value you still own a place you can live in perpetuity paying only maintenance and property taxes. The renters don't get that, so it does kind of seem fair if they do not, in fact, cover your mortgage for you.

This is very true. I have pretty expensive home that I rent out which is in a pretty affluent area. The rent is insanely low relative to the supposed value of the house (3% cap rate).

You make s great point as to the reason for this. Rental rates are completely detached from current interest rates.

Let's say mortgage repayment is $3000, and rent only covers $2500. Let's add another $500 in overhead. I'm paying $12k per year. $36k would break me financially, but $12k is a good investment, since at the same time, two things are happening:

1) I am one year closer to owning the home. Yay!

2) Inflation. Rents next year might be lower, but rents in 10 years will be higher.

<- My monthly payments are identical to had I bought at $600k at 6%. If I stay there, I'm not much worse off. It's harder to pay off the home quickly.

You are a lot worse-off. If you buy at 6%, and then rates go down to 2%, you can refinance and your home is valued at a higher rate. IF you buy at 0%, you bought the house at the peak, and cannot refinance the debt.

But you would have a lower payment because you bought at a lower rate, no?

You would have the same payment as someone at a higher rate because at higher rates, someone would would have purchased the same home at a lower price.

> what I expect is actually happening here is people are anticipating high inflation

That's why price to income is an interesting metric. High inflation without income rise just means people feel worse off and a correction will occur. Housing, along with many other things, are competing for people's wallet. Interestingly, covid is causing a labor shortage and income to rise at the low ends. I suspect stagnating in the "middle income" ranges.

Inflation implies wages rise at the same rate as the price level. Otherwise it's not inflation. Not every price hike is inflation.

I’ve not seen that definition of inflation. I think you’re thinking of some type of equilibrium/market efficiency theory, where to support higher prices there has to be income growth, which is false especially in the short term where prices can rapidly rise faster than income could realistically keep pace and consumer is just worse off.

It's the standard definition, where inflation is a change in the price level, and the nominal GDP is defined as the real GDP times the price level Y×P. Since GDP is a just a sum of income components, of which one is wages, an increase in the price level implies a proportional increase in wages.

At 5% or more interest more than half your money goes to the bank rather than the house. At 0% all your money goes to the house. You can call this inflation if you want but then you are ignoring that you are paying a million dollars for a less than million dollar house because of interest.

The fact that spending and price are decoupled make the inflation idea stupid.

All your money goes to the house seller, remember that.

>- My monthly payments are identical to had I bought at $600k at 6%. If I stay there, I'm not much worse off. It's harder to pay off the home quickly.

>- If I move out, and I rent out my home, it covers monthly payments approximately exactly.

In any situation where interest rates go to 6%, there will probably also be some upheaval that affects your earnings and ability to rent it out at the present rental rate. The risks are correlated.

It’s a lot easier to come up with a down payment on the cheaper house though.

> - My monthly payments are identical to had I bought at $600k at 6%

I'm not sure how it works in the US, but where I live, you have a fixed interest rate for a couple of years max, after that you pay the market rate.

So in your case, if you had a fixed interest rate for 3-5 years, after those years pass, you'd have also a massive increase in mortgage payment, plus your house severely depreciating.

That seems to be the case where I live as well, though I believe there is a way to lock in an interest rate for longer. (Not a homeowner)

If interest rates rise to 6% and you've got 2.5%, the advantage would last that long. However, I know interest is front-loaded to the first few amortization periods, so maybe it would be more significant.

The U.S. is unusual in that rates being fixed for the full 30 year term of the mortgage is normal. They do tend to wind up with somewhat higher interest rates as a result, however.

This is the case in the US because rates are the same for the length of the loan. This is decidedly NOT the case in the UK, where the entire market is composed of teaser-rate loans (2, 5, 10 year), which revert eventually and then need refinanced at the prevailing rate.

That's going to be a nasty wake-up call for a lot of people.

I have a ~million dollar fixed rate mortgage. If rates go up, I’ll be sad that the value of my house went down. On the other hand, I’ll be very happy to have a large fixed rate loan. Let’s call my mortgage rate X%, and let us assume that rates go to X+5. Then I can invest money to earn at (X+5)%, which means my loan is essentially a $50k/year annuity. My only wish would be that I could make the loan even bigger.

On the other hand, if the fed decides to allow inflation instead of raising rates, then the value of my loan will melt away and my home’s price will keep going up (that’s what has happened so far).

The problem is that in a scenario of rates going up, both houses and general stock investments will go down together. They rarely diverge.

If rates go up to X+5, then I ought to be able to find bonds that pay X+5, no?

No. 30 year mortgages and 10 year treasuries move in unison but they are not the same rate. You can see this on the first graph here:

https://www.thebalance.com/treasury-note-and-mortgage-rate-r...

Treasuries are some of the lowest-yielding bonds out there.

Yes and treasures are the only bonds that move in lockstep with 30 year mortgages. When people talk about the correlation between bond yields and mortgages those are exactly the ones they are referring to.

US Treasuries also are considered among the safest, least risky assets out there. This is true globally and has been for a very, very long time.

This is all succinctly explained in the link I posted above.

Lastly bond prices have an inverse relationship with interest rates, which means that as interest rates rise, bond prices go down. So no, when rates go up to x+5 you will never be able to find bonds that pay x+5.

> Lastly bond prices have an inverse relationship with interest rates, which means that as interest rates rise, bond prices go down. So no, when rates go up to x+5 you will never be able to find bonds that pay x+5.

Indeed, interest rates are inversely related to bond prices. And bond prices are inversely related to yields. Yields and rates are highly correlated. In fact, the way banks finance mortgages is by selling bonds. The market rate they can get on those bonds determines the rate they can offer to homeowners. So of course these rates move in tandem.

> So no, when rates go up to x+5 you will never be able to find bonds that pay x+5.

What? If the current rate is x, this means that this is the rate a bond being issued right now is paying. If the rate goes up to whatever, it means that bonds being issued right now are paying whatever.

No, there is an inverse relationship between between interest rates and bond prices. This is an axiom in the bond market. See:

https://www.investopedia.com/ask/answers/why-interest-rates-...

Yes, I know that. We are talking about rates.

Rates on bonds are meaningless without considering yield.

Rate and yield are the same thing. Whenever I’m paying a rate, somebody else is earning a yield. Whenever I’m earning a yield, someone else is paying a rate.

They are related but they are certainly not the same thing.

Yield is a normalised rate of interest, so that bonds of different characteristics can be compared. When people say a bond pays certain interest rate, they mean the normalised rate, i.e. the yield, otherwise they would make clear they're talking about the "nominal rate", which is different. Therefore in most contexts, rate and yield are the same thing.

Anyway, the thing is if the spot rate is x% you will certainly be able to find bonds in the market that pay x% interest (=yield), regardless of the fact that a bond's yield and price are negatively correlated (an irrelevant fact, for the purposes of this discussion).

Yes.

If you had bonds before they went up, your bonds will crash. If you buy them after interest rates are up, it means you were in cash before and uninvested.

Im not sure I see the point in finding higher yielding bonds. Also they will have higher risk, its not "free" to have higher rates.

I don't know why you think home prices will go down if interest rates go up. they might not. especially in cities where everyone wants to go and where offer is low.

One of the things I am wondering about is how I have found housing that is not affordable to a single working adult but once you have two incomes the price is perfectly reasonable.

My hypothesis is that if there is a shortage of housing, then dual income households will bid the price up and this causes the appearance of unaffordable housing when the underlying cause is that there is a shortage. This effect does not happen when there is a housing surplus.

Supply and demand would indicate that higher interest rates would reduce demand. However.. demand is not ONLY driven by average cost. For people to straight-up not want to buy homes anymore would mean they'd need to move, or switch to renting. Prices may fall but I don't think they'd fall in lockstep with interest rates.

The value of all yielding assets is tied to interest rates. The risk free rate is a bench mark for measuring any type of return, so any time you change that you’re going to influence the valuation of everything.

There’s also a very clear distinction between the idea of housing and home ownership. People need a place to live, they don’t need to have a property investment. You and I need healthcare, but neither of us need to own a hospital.

> A more relevant metric to consider - monthly mortgage payment to monthly income ratio.

I find this attitude baffling. If you bought a car or a phone and paid in monthly installments, you would want to know for how long you'll be paying, not just the monthly amount. Why is a mortgage different?

Is it the duration, where your brain sees 20-30 years, and substitutes that with "forever"? How would you feel if, after 30 years, when you thought you finally paid off your mortgage, the bank would say "Oh actually you have to keep paying for another 30 years"?

The point is that you have more purchasing power with lower income rates. In this example you can buy a house worth 25% more.

Pretty much all home buying decisions are normalized on a 30 year fixed mortgage. When figuring out what you can spend its easier to figure out what you can afford per month ans extrapolate your purchase price from there.

For that matter most car buying decisions are done the same way based on a five year loan (maybe seven these days).

The duration of the loan doesn't change based on the interest rate.

In both of OP's examples the hypothetical borrower pays the same amount per month, for the same number of months. A lower interest rate does not affect the duration of the loan. In neither case can the bank simply extend the duration of your loan.

Because the alternative is usually renting, where the monthly expense is similar, but there is no principal down or asset appreciation.

Generally because the point at which you stop requiring shelter is because you're dead - so forever is a good proxy.

You can do this with all your purchases though: anytime you buy anything, don't look at the sticker price - figure out the equivalent monthly cost for the expected lifetime of the item. This can have a dramatic impact on your purchasing habits.

You're confusing two different things:

-The purchase price of an item (that happens to be paid in monthly installments)

-The monthly cost of owning an item, expressed as price/lifetime (looking only at purchase price, and ignoring maintenance etc.)

For example, if you pay for a car in 96 monthly payments, that does not mean the car will last 96 months. And the car definitely won't last longer if the number of payments is increased to 192.

While I completely agree with you that any sane person _should_ want to know the final price and make decisions based on that, a lot of people actually don't and they only look at what they will pay per month/week for something.

I personally know multiple people that do this and like you I can't fathom why but they do. '"Need" a new couch? How much does it cost me per month? Oh yeah I can afford that.' Nevermind that the couch they don't really need (but want) costs them way more and they will very probably need/want a new one before this one is paid off. Same with cars and many many other items. Sellers perpetuate this, especially on bigger ticket items. I suppose it's a "natural progression". People can't afford the item they want. Sellers have no more buyers. But if you sell it to them with a loan and a small monthly payment, suddenly the buyers can afford it. How do you think 96 month car loans came about?

Also relevant is the ability to get interest only loans.

If central banks are GUARANTEEING asset inflation of >2% - that's an 10% return on 5:1 leverage - that beats the S&P.

If you can get an interest only loan, and be cash-flow neutral - as long as central banks keep a mandate for assets to appreciate >2% (spoiler, they have to or irresponsible governments fail) - housing is a good investment.

It sucks that they've manipulated the market so much. But when >50% of the economy is debt and the cost of debt is price fixed, that's a lot of manipulation...

> Homebuyers will make purchasing decision based on their monthly mortgage payments, instead of the home price.

No, because not everybody is so risky to get a mortgage.

The prime majority of rational people don't buy such major life assets with debt.

Currently in Japan, interest rates for home loan are so close to zero. About 1% for fixed rate, 0.5% for 10 year fixed rate, less than 0.4% for variable rate.

New homes are built rapidly and supply is plentiful. When we say home, it almost always mean condominium.

Yet, the house price is rising in Japan.

I can think of a few reasons for that, like mere fact that home loans are available to virtually anyone who is employed and recieve average wage, old homes quickly lose value in Japan or people ditched the countrysides and concentrate to a few major cities.

I think home loan interest rate just reflect the inflation rate of the currency in that country. House price goes up simply because anyone can loan a money for.

So long as the credit is available, house price stays the maximum amount of money average people can loan for and it's increasing.

If rate goes up, it just mean the inflation rate goes up.

The house price goes down when

1. No demand. People don't want to live that place anymore.

2. Loan is not available.

3. The government turns into Communism and give all citizen a same house for free.

Japan is really cool in regards to housing. You have a sort of dichotomy of either really old houses, or brand new. I forget which YouTube video I watched that explained that it's rare to find a house older than a decade or two in a Japanese city because people don't want to live in them. Houses are constantly torn down and replaced with new ones with the latest and greatest features.

I think something like that could work to reduce housing costs in the USA, but it would likely require a brand new city to be the guinea pig to prove the concept here. Something like those self-contained retirement towns that spring up, but maybe when the residents die, they rebuild them? Macabre, but interesting!

You can't just import the foreign culture without the environment that justify the culture.

In Japan, the land is scarce and fragile, humidity weather, constantly facing earth quakes, typhoons. So the house will be damaged faster than the typical western countries.

Each time we face the massive earthquakes, the house building regulation will be updated to mandate new and improved earthquake resistant structure so building built with old regulation lose market values. The same goes for all disasters like tsunami, flooding, land slide and all.

You must also consider the fact that air conditioning wasn't popular 30 years ago. The houses built before that era were optimized for the natural ventilation. it's totally inefficient for the air conditioner.

Old houses also has the Internet issues. Most of the house in Japan are massive condominium. The optical fiber was a thing after 2000s. It takes a lot of money to wire optical cable inside the existing building. So most of the buildings in Tokyo are still using VDSL.

Other infrastructures like power line, water and gas starting to rust so it must be replaced. The cost of doing that to existing house is expensive in Japan and it doesn't increase the value of house that much. Especially for old houses that need replacing because it had gotten so much damage from humidity, earthquakes, typhoons and remember, it was built before the current housing regulation for the resistance for these. So it's more reasonable to just scrap it and rebuild it.

I am living in a standalone old house in Tokyo unlike most of the people. Then, I realized the value of condominium in Tokyo. It works as a gated community, the segregation based on income. We are implicitly achieving the segregation by the condominium.

Add: interest rates for home loan is virtually minus for 10 years, thanks to gov's tax reduction for 1% of loan debt.

see my comment above; the 40 year loan will push home prices up further.

> Homebuyers will make purchasing decision based on their monthly mortgage payments, instead of the home price.

That isn't entirely true. For most people, the amount you need for a down payment is a pretty important consideration as well, especially for a first home where you don't have any equity in an existing home that can be used to purchase your new home.

I've known people who saved up for years to buy a home, then interest rates dropped and prices went up. The mortgage might be roughly the same with the same percentage of down payment, but they don't have enough cash to make the necessary down payment.

What happens when interest rates go up?

That's right, interest rates cannot go up, or else these people will be screwed.

The same for stock market.

Ok, so we bail out these people/investors at the cost of catastrophic failure in the future.

Because money/markets are irrelevant, all that matters is access to cheap money and access to central bank bailouts.

One thing to note is that the difference between 65K down and 98K down is significant, and absent ‘affordability’ mortgage products, pushes many people out of the market.

Then low down payment loans introduce distortions if their own.

Why would you compute only one iteration of interest when a full term will result in 60-100% increase in price. One month is hardly even a freeze-frame.

While it doesn't directly affect the average person's purchasing power, the same dramatic increase is happening in other asset values as well. [0] One interesting thing to note is that 2019 EV / EBITDA values were already "high," before the coronavirus was spreading.

I suspect these two phenomena have different causes overall, but low interest rates are a common factor that cause all asset prices to increase.

On the housing side, I suspect consumers purchase the house that their cashflow can comfortably support, not necessarily the one where they believe it is correctly valued, because the assumption that house values only increase means purchasing a well constructed house is almost never a "bad deal."

I'm not sure what the "solution," is, but knowing that voters hate when their home values fall does not give me confidence that prices will decrease in the long term.

[0] https://www.statista.com/statistics/953641/sandp-500-ev-to-e...

This jibes with my experience of buying a house about 6 months ago.

My reasoning was that we were experiencing rapid asset inflation fueled by low interest rates and COVID stimulus, and our cash was losing its value relative to housing by the month. I figured that this propping up of asset prices is likely to continue, as any administration that lets housing / 401k values collapse will get massacred in elections.

People are working, unemployment has been falling like a stone since 2017. That money is going to go somewhere (and for most that is not 'the bank'). It's going to get spent or put into investments. We're going to continue to see strong commodity prices (and most of these have been rising into the headwind of a stronger dollar) until unemployment creeps up, or real wages falls too far behind inflation rate. I think the increased commodity supply that would normally rebalance pricing before demand does is going to be delayed. Why? Though interest rates are low, loans aren't going into commodity capital projects (because risk and returns ratios don't look good to lenders when compared to inflation rate? not sure).

I think there is an issue with that logic - it doesn't account for the ever accelerating wealth inequality. People are working a ton right now - and creating massive amounts of value. It's so freaking easy to get consumer goods delivered next day that we're all forgetting that this service would likely cost fifty+ dollars in the early 90's - there are similar trends across the economy.

The issue is that a lot of that created value is being isolated out of circulation and is pooling in investors that can, at a moments notice, pull the rug out of a number of great companies if they sense a panic. Wealth inequality creates the opportunity for instability in the form of extreme sudden market rushes alongside reducing the purchasing power of most folks. We're in a rough spot.

Very complex situation, and we likely agree on some of it. I won't rehash that part. Some seldom-described (or taboo) opinions: Part of the dislocation (behavior inconsistent with historical macro economics 101) is caused by dollars exiting the system faster than they used to. Remember the graphics/vids we all saw of people passing dollars around the community and the total supply expands? Now, good portions of those dollars are naturally shunted out of our system to where the manufacturing took place. Worse, some of the money in the graphics that went to Bill's hardware store disappears (because Bill's store is still in town, but he has a subsidiary in a foreign country and captures most of his revenue there).

Then there's income inequality. In addition to the depredations of two generations of greedy bastards, we have to understand that we import (legally or not) way too much unskilled/lowskilled labor, and that this has a negative affect on the entire bottom half (more-or-less) of the wage structure in our nation. It has a salutory affect (though i think one that is smaller than some imagine) on the top half, in that pressure on wages for unskilled to middling skilled workers results in more return on work and investment at the top of corporate structures, and other fields that compete with them for talent.

The US population grows by almost 2M per year - almost 40M since 2000. The workforce since 2000 has only grown by 17M. Workforce participation is down.

Why not invest in the market then?

Two, somewhat hypothetical questions, I'd have to answer first.

What would happen to the if everyone suddenly agreed that there was a hard-cap to how much the global economy can grow; Especially if that cap was somewhat near to where we are today?

How do you solve the core problem of "climate change" (which I'll define here as the unsustainable use of natural resources) without essentially implementing a hard cap of the global economy. This question isn't just about electricity versus oil. It's about trash, disposable (or planned obsolescence) consumer goods, fish/wildlife, forests, ect...

You could interpret the change in climate is just a single symptom of this runaway train. And any effort to pull the brakes is likely to cause the whole train to derail and crash. Maybe we'll make it to mars before then. Or maybe there will be a massive decrease in human life (war or another pandemic) and this whole question will solve itself.

You can do both. But housing has the benefit of high leverage-to-cost ratio.

One can get 20% leverage at ~4% on a stock portfolio.

One can get 2000% leverage (5% down) at 2.9% on a house.

Granted, the leverage on the house requires paying interest and 1/3600th of principle each month. But, unlike the stock portfolio, it's not callable.

The math for this ends up being extremely complex. The leverage is one part, and a big one. You have to account for closing costs (especially when selling), and uncertainty around how long you'll stay. But you could theoretically rent it out. But as we've seen, some cities could keep an eviction moratorium going and that could be costly. Housing in some areas skyrocketed in values, but you could be buying a lemon since "no inspection contingency" is the norm in hot markets. Taxes and HoA fees can go up a fair bit too, and there's maintenance. There's a few psychological factors that don't factor in the math, like how you may do renovations that don't translate 1:1 to home value that you wouldn't do if you're renting. On the other hand, rent does go up, generally faster than property taxes.

It's really a toss up based on a lot of variables, but generally, yeah, home ownership will come up ahead. Not always though. While if you invest in a total market index, you're main risk is the entire country tanking, it's different with a home. You're gambling on that ONE PARTICULAR HOME in one particular place. That's a lot riskier than an index fund.

But you get to make holes in the walls without anyone yelling at you, and that's a big plus.

What would be great are hyper-specific REITs.

e.g. I want to “own land” in Seattle so I’m never priced out, but averaged across the city so there is no single point of risk. With the added benefit that I can add capital in small increments.

If such a REIT were structured as a COOP that would be even even better from my perspective.

Yeah. At the same time, I have a condo in a super hot area of a tech hub, and it still didn't really appreciate any faster than the market (you'd think it did with those crazy leaps, but the market has been pretty crazy for the last couple of years too).

If it wasn't for the leverage, no tax capital gain and rent saving and fringe benefits of owning a home, it wouldn't be that great an investment, so REIT don't really compare.

I suspect that dual income families could be a contributing factor in increased home prices of single-family homes.

Even 'worse' is dual income, no kid families that are delaying and skipping child costs. Thus with "double" the cash flow and shared costs, couples afford higher prices at a lower cost.

I've often wondered about this myself.

E.g. it's a lot easier to have two working people in a couple make $300K total vs only one person making $300K. It would be interesting to go back in time and correlate the rise of dual working couples vs housing prices adjusted for other factors e.g. inflation

At least in tech hubs, the "one person making $300k" is marrying up with another person that makes $300k, resulting in a $600k household and $1-3M home prices.

Which then leads to the dual income trap.

Yup. Don't forget the whole "frequently choose not to have a kid" part, and it becomes extremely one sided. Dual income families aren't new, but 2 high earners professionals with no kids aren't just the occasional doctor/dentist/lawyer couples anymore.

I'm a software engineer myself in one of the high paying tech hubs, and married the same. When we went to look for a home and toured open houses, all you saw were pairs of young couples wearing Google, Microsoft and Facebook swags. Sure, I didn't personally ask every single one of them where they worked, but I'd venture that a non-zero amount of these couples were "Tech DINKs", like us.

The average person simply can't compete with that. Add that in the urban areas these folks are less likely to want a big car, some may be happier playing Final Fantasy 14 during vacations than traveling across the world (I know plenty of travelers, but there's certainly a lot of "low cost" vacationers in the industry), and some level of financial literacy (common for people who get compensated with RSUs), and it's absolutely one sided.

With that said, median home prices have only increased a little faster than inflation. When you account for interest rates tanking + inflation, a median home in 2021 is the same price and sometimes cheaper than it was in 2005 (data for the last few months is harder to find, and there's been a unusual spike, so it may not be quite true right now, but it was just a few months ago).

The bigger problem is that everyone wants to live in the same place (usually in urban centers, where the jobs are, and where you don't have to drive an hour and a half to work). So prices where people want to be have increased higher than median.

I'd expect people are more ok with paying a larger portion of their income to live where they want to be. Even as extremely high earner DINKs, housing will eat up a good chunk of our cash flow if we feel like blowing it all to live in Manhattan in a condo that doesn't suck.

What do you think are the best books to recommend to people who don't have enough financial literacy? This is a common theme in this kind of HN thread but I haven't seen many recommendations or lists of books that can help people level up in their financial wisdom.

The bigger problem is that everyone wants to live in the same place (usually in urban centers, where the jobs are, and where you don't have to drive an hour and a half to work).

I'm hoping WFH greatly disrupts this, opening up rural areas to tech workers. It won't work for everybody, but it does work for SWEs and many kinds of technology employees and contractors.

There are a lot more reasons to live somewhere than commuting convenience alone. The reports of the death of the city have been greatly exaggerated. It turns out city dwellers need a lot more infrastructure than just a local brewery. Namely a functional school district and a population that isn’t 97% white and strongly skewed conservative.

Some people want a community that skews conservative, and don't want to live in a shithole hellscape like San Francisco or Portland, with overpriced housing, tent cities under every bridge, drug dealers on every corner, and human feces on the sidewalks. Especially people who have families with children.

WFH only changes things in a small number of professions (hard to wait tables remotely, and sometimes doctors need to see patients in person). A large amount of people in those professions don't want to WFH (thus why a lot of big tech companies are INCREASING their real estate footprint rather than reducing it right now. Google, HubSpot, Spotify. Some of these are very open to WFH, but a lot of folks don't want to).

It will make a difference, but it will be small. During that time, the rest of folks will still flok to cities.

As to financial literacy, books tend to make things much more complicated than they are, and will be too focused. For a beginner, there's a few things that matter.

First, the "flowchart". You can find a bunch of these online, but I like this one:

https://u.cubeupload.com/demonlesondledon/FIREFlowChart.png

This is so you don't fall in the trap of, let say, having a 5% investment while sitting on a 15% debt, or not use your employer 401k matching and invest the money somewhere worse.

Then there's basic investment strategies to get started. Bogglehead gets you pretty far there: https://www.bogleheads.org/wiki/Three-fund_portfolio

The next is understanding how the US market works. It averages 10% a year even if you include the great depression/recession and every other downturn. One day it could do like Japan and never recover/stay flat, but it has never happened in the US so far:

https://advisor.visualcapitalist.com/historical-stock-market...

Even for the great depression, while you'll hear that it took 25 years to recover, but that's based on the Nasdaq, which is a very small sample of stocks. The market in aggregate recovered much faster.

Finally, you want to understand all the variables when comparing cost/return of home ownership vs renting. It's a LOT more complex than people make it sound. The NYT has a calculator that shows it, alongside a paywalled article: https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...

Bonus: a lot of it just comes down to internalizing the average market return and its risk, and comparing it against all the gains and leverage you can make in other ways. For example, with current interest rates, you probably want to pay your mortgage -as slowly as possible-, which is counterintuitive to most people.

This is something that Elizabeth Warren and her daughter Amelia covered in their book "The Two Income Trap." I'm aware that recommending a book by a political figure is fraught, but I'm not aware of any economists who took umbrage with the claim, either. They make the observation in chapter 1 that "Even as millions of mothers marched into the workforce, savings declined, and not, as we will show, because families were frittering away their paychecks on toys for themselves or their children. Instead, families were swept up in a bidding war, competing furiously with one another for their most important possession: a house in a decent school district."

Housing is a great way to establish a level of security for your family and kids; but there's a finite number of houses with proximity to good schools, jobs, and other necessary resources, and so families needed to dedicate larger and larger portions of their income to compete against other dual-income families that were bringing new money to the housing market.

I've thought about this a lot, though if you google around you'll find people who dispute this claim. Still, it makes sense to me.

If you have single income households, and all of a sudden everyone's a double income households, you're not any better off. You'll get inflation, especially in housing. People will point out that stay at home moms weren't THAT pervasive, even decades ago (not as pervasive as us younglins would think), and that may be correct, but double professionals as a common thing is still more recent. We're making some (slow) progress toward wage equity on top of all of it too. That's a good thing, but it doesn't change much when people are bidding against each other.

But all things are not equal: It's not as simple as "back then it was 1 income families against 1 income families and now its 2 vs 2".

Not at all! Now you have 1 income families, 2 income families, 2 income families with no kids, 2 income families where both are software engineers, etc. All of these always existed in some form, but now it's very visible.

If my partner and I (we're DINKs, both in software engineering and highly successful) go to bid on a home, and a single working parent with a partner who stay at home, and 3 kids, try to outbid us... Well, let's hope for them that the single earner is a world famous neurosurgeon, else they're not getting that home.

I'm not going to say that the larger number of women entering the work force has had no effect on home prices, however even if it did it's not necessarily a net negative. A larger workforce leads to more economic output, more innovation (there are countless innovations that have probably failed to be made over the generations due to the impact of women not working) that leads to quality of life improvements, productivity improvements, price drops, and other improvements. Food as a percentage of income has dropped dramatically over the years. Same with technologies like computers and home appliances. Houses are also way bigger than they were decades ago.

I live in a 2 income house with a kid, I'm not sure that the alternative (considering the economy as a whole and not just home prices) is actually preferable.

It's also probably pretty difficult to disentangle the effect on home prices from more women working from the effect on home prices from other things like low interest rates. There's likely not a single cause for this, but rather an outcome of some aggregate of causes. It's entirely possible that more women working does increase home prices some, but that it's only some fraction of the overall increase we've seen, and that families come out ahead on this economically by a wide margin. Especially taking into account the aggregate effect a larger labor force has on output and productivity.

It's definitely not a negative and I'd pick a fight if I met someone face to face who said it was. I 100% agree with all of the benefits you outlined, and totally believe it's worth it.

I'd also not focus too much on the "women entering the work force", because that's only one part of it, and not even the biggest part. More families not having kids, fewer families supporting their parents, more complex family structures in general, etc all impact it.

I also don't think it has a significant impact on home price. After all, when accounting for inflation and interest rates, home price is not up by that much. Depending which periods you compare it to, it may even have gone down.

What it changes, is the dynamics of bidding wars in low supply areas, which is a lot more specific, and is generally what people talk about on social medias. The whole "Omg this home went 100k over asking!" shock factor. Again, adjusted home prices didn't go up that much at the median. It's specific homes in specific areas that are skyrocketing.

There's not many alternatives beyond increasing supply. I always like to contrast it with raising the level cap in an MMORPG. Everyone who quickly maxes their level after an update is back to square 1, all being the same. But the person who just started playing is at a huge disadvantage. It may be specific, but for readers familiar with Final Fantasy 14, if you start the game fresh today, you're in for hundreds of hours of catching up...It's very similar to the economic situation we're discussing.

> A larger workforce leads to more economic output, more innovation (there are countless innovations that have probably failed to be made over the generations due to the impact of women not working) that leads to quality of life improvements, productivity improvements, price drops, and other improvements.

You're thinking too short term. This logic does not work for more than one human generation.

Say you're playing Civilization. I give you a button in the "change civics" category. You click it, and two things happen:

1. You double the number of professionals in all cities, as a factor of your total population.

2. Your population growth rate goes from strongly positive to slightly negative.

Do you click the button?

Let's make the numbers easier: If you don't click the button, you have a 2x growth rate per generation, and if you do click the button you have a 1x growth rate, i.e. perfectly balanced replacement. Well when happens if you click the button? You get ahead for one generation. But your opponent catches up in the next generation. And in the generation after that, they have 4x the population and therefore 2x the professionals. Before long they're outproducing you on every dimension.

> If you have single income households, and all of a sudden everyone's a double income households, you're not any better off. You'll get inflation, especially in housing.

?? The growth in output would offset the increase in dollars bidding for the same goods - ie. more people working would mean more supply and also more $$ bidding for goods.

Seems absurd to say "you're not any better off."

Yes, thats why median home prices didn't really go up that much higher than inflation when adjusted for interest rate decreases.

People don't want "a home". They want THAT home (or at least, a home in THAT area). Yes, there are supply issues because of zoning and NIMBY policies, but even super dense areas like Manhattan have significant supply issues.

So you have income increases that can't be offset by the output, because supply is limited.

It makes constructing high quality housing more affordable but it also makes land more expensive.

> Housing is a great way to establish a level of security for your family and kids; but there's a finite number of houses with proximity to good schools, jobs, and other necessary resources, and so families needed to dedicate larger and larger portions of their income to compete against other dual-income families that were bringing new money to the housing market.

One way out of that is simply to increase the supply of desirable neighborhoods. The number of those are finite, but can be increased. The hard part is how to do it?

Sometimes I like to imagine there existing something like Kickstarter but for cities. You get a few thousand people that want to build a house but can't afford land, a handful of employers, and maybe a University that wants to establish a new branch and they pool their money and buy a couple square miles in the middle of nowhere. They divide it into lots and start building. Property values rise, and as that happens leftover lots get sold to finance construction of infrastructure, schools, fire departments, and so on.

Welcome to the suburbs

>You get a few thousand people that want to build a house but can't afford land,

This exists in a way. "Off the plan" apartment buildings are sold before the building is actually built. If enough people buy it, the construction goes ahead. If not, you get your money back.

Huh, that's interesting. I didn't know that's a thing.

The amount a household can spend on housing scales at a faster rate than income. Say, a family is making $2000 a month with one person working, and spending $800 on housing. If another person goes to work making $2000 -- spending, maybe $300 in work-related expenses, gas and such -- that household now has $800 + $1700 = $2500/mo available to spend on housing, while maintaining an otherwise similar standard of living.

So doubling of income tripled the amount that could be spent on housing.

But wait, there's more. People buy housing with debt, and a doubling of the monthly payment on a mortgage more than doubles the price that can be afforded. So that household paying $800/mo could move from their $195k house into a $600k house with a $2500/mo payment.

So, a doubling of income has the potential to increase the amount of house a household could afford by six. Granted, this ignores things like taxes, and most people don't spend their entire raise on housing. But this fact is probably what helped drive prices in places like California into the stratosphere.

The crux of the problem is probably that income follows a roughly pareto distribution. When housing is limited, the poorest households drop out of the market. And when populations grow but a town doesn't, housing gets bought by people higher up in the income distribution curve. And past median, incomes climb quickly.

If you have 30k houses, in a town with 60k people, then housing will be affordable to a median income. But if the population grows to 120k, but housing doesn't, then only the top 75% of households can afford a house. Median income, to top 75% is a huge jump.

This seems unlikely given that the share of dual income households has been flat for 30 years.

https://www.pewresearch.org/ft_dual-income-households-1960-2...

Seems dumb to be conditioning on married couples. My parents were unmarried dual income earners. I likely will end up being the same.

Given that long-term unmarried couples are both increasing in number and (I believe) more likely to be dual income, this tells the opposite picture.

When it's all assets going up, it's not the assets cost more, it's the dollar is worth less. So for all the help and assistance. Housing is LESS affordable than ever before.

You cannot infuse trillions of extra dollars into the economy without inflation. There's no magic pill - there must be consequences.

I know this is a common belief in the hilarious world of crypto enthusiasts. But, y'know, we measure inflation, and what you're suggesting is just flat out not true. https://tradingeconomics.com/united-states/inflation-cpi

It's more like inflation of asset prices.

I take much less issue with that assertion. That high housing prices are because the dollar is worth less is what I find rather absurd. Inflation is measurable. And you have to embrace some real quacky conspiratorial thinking to go down the rabbit hole that dpweb seems to have gone down.

Inflation is not just about measuring prices. It is a really complicated number synthesized from both price signals(arguably the most objective data), surveys and ... educated opinions. For instance, economists just kinda have to put a number on what new technologies are worth. Modern car maybe costs more dollars, but you're also getting a better product type issues.

Inflation is based both on measurements and on judgement calls by economists responsible for calculating it. It's more objective than LIBOR or some crap, but (way way) less objective than the price of something on the stock market, or some other pure price signal.

'Asset' inflation isn't even part of CPI(like stock, cost of owning a house, tho rental is), is it? It's not even a claim to say that the dollar is devaluing against assets, it's just like tautologically what it means that asset prices are booming.

> It's not even a claim to say that the dollar is devaluing against assets, it's just like tautologically what it means that asset prices are booming.

Yep. This is true. The issue is that the OP seemed to suggest that the price of assets (e.g., housing) was wholly explained by the devaluation of the dollar.

That's CPI, not inflation. CPI has a number of ways that a thumb may be put on the scale, for example hedonic quality adjustments seem to me to be highly subjective.

Right, vs REAL inflation, which is measured by whatever I think happens to be too expensive right now.

I mostly just look at the money supply. Print 10% more money, that's 10% inflation. It may not be uniform throughout the economy, or take effect immediately but that's 10% more money chasing the same assets. It's all has to go somewhere.

Money supply in theory is chasing actual economic effects such as growth, so your view of just one side is not very meaningful. The flaw is in considering assets static.

To some extent sure but were 2020 and 2021 boom years in terms of productivity, because they were certainly boom years in terms of money printing.

What is the actual money supply though - if I earn 1k and put it in a bank and it gets loaned out to someone else is there now 2k in circulation since my money is insured?

Only a teensy tiny portion of "value" in the economy is actually on printed bills - but even the abstract value we can track won't tell the whole story.

One note, is that bank loans are not taken from deposits anymore, that story we were told as children does not reflect modern banking. There's not even "fractional reserve" so much anymore, just "stress tests." So banks really do own a printing press when it comes to money, which is sometime called horizontal money, as opposed to the "vertical" money that comes from a monetary sovereign.

This is just incorrect. Value is added to the economy every day. Take the home you're living in. That probably did not exist 100 years ago (and if it did, it certainly wasn't as nice as it is today). That's new value, and having money in circulation to correspond to that value makes perfect sense.

> Print 10% more money, that's 10% inflation.

No: If you're approved for a $100K loan, you are credited with $100K balance to draw from your account, and the money supply is recorded as going up by $100K.

But if you don't withdraw any money from the account (e.g., a HELOC that you intended only for emergencies), then how can it be inflationary if it's not circulating in the economy? But it is registered as increased money supply.

Do a lot of people take out loans they never use? If you get a loan to buy a house, the seller gets the money immediately and uses it to buy another house. You've just put a whole house's worth of debt into circulation.

> Do a lot of people take out loans they never use?

Many business may have them. As I mentioned, HELOCs are a thing as well.

Neither may be used to the absolute limit, but only on an as-needed basis.

Velocity effects are extremely important.

https://fred.stlouisfed.org/series/M2V

When a couple markets in housing are going up like crazy? Sure. When essentially all asset classes or supply constrained service/goods globally are going up everywhere at record rates? It’s hard to not see the need to at least consider it. Especially after the massive amount of money printing still ongoing.

Cheap TVs but have to rent forever, landlord caused cockroach infestation to get me to leave rent control. But a 720p TV is cheap!

Hedonic quality adjustments are necessary though. If people start buying smartphones instead of dumb flip phones, it's not a sign that there is massive inflation in telecom sector, it's a sign that they're getting a lot of value. The BLS's own example uses TVs [1]. When you went from a $200 20" CRT to a $1000 dollar 42 inch plasma, that 5x increase in price is not because your money was less valuable, it's because you're spending 5x the money and getting 5x the goods.

1: https://www.bls.gov/cpi/quality-adjustment/questions-and-ans...

You can if you're in a liquidity trap. Question is, are we in one now?

I imagine creating cash to solve a liquidity trap is like continuously taking laxitives for a constipation problem... At some point you get a different problem!

On topic: my experience of housing prices in NZ is that people bid up house prices to the point that they can only just afford the mortgage payments.

Creating more housing doesn't "fix" the problem, because the more wealthy buy two or more houses, and are happy to leave one empty. I've left a house vacant in a tight rental market because the hassle of a tenant was not worth the risks for me (possible gain was a very small percentage of my income).

I am in New Zealand, and New Zealanders bid against each other in an almost zero-sum game for the properties that exist... We are borrowing from overseas to pay for it, so most New Zealanders gain nothing and global finance is the real financial winner.

Yet, politically the game is difficult to change... We have a left leaning party strongly in power, and they are struggling to create a more level playing field so that people can afford to get a home (rather than pay rent, which is more expensive than a mortgage).

Edit: also we can only lock in fixed interest rates for up to 5 years and most people only lock in for 1 or 2 years because short term rates are cheap - the 30 year mortgage system is completely foreign to us.

Wrong liquidity.

Eventually people decide they have enough house.

> Creating more housing doesn't "fix" the problem, because the more wealthy buy two or more houses, and are happy to leave one empty

This surely can't go on forever though. People's ability and desire to consume housing is not infinite, particular in a given locale. If they're buying them to rent out, then a flood of other wealthy people looking for tenants reduces the landlords' bargaining power in the market, which means rents have to drop eventually. If this isn't happening yet, it's most likely because the amount of housing being produced is still too small.

You can't purely demand-side subsidy your way out of housing being expensive. You have to build.

You do have to build, but low interest rates drive capital to seek investments with lower average returns. Private equity used to stay out of housing, but now there are funds to buy up trailer parks. I hypothesize this is driving some of the insatiable demand. Higher real interest rates, or more productivity growth so there's better places to park the ocean of money, or taxation would do wonders.

yeah on those cheap short term rates, they aren't cheap.

https://www.interest.co.nz/borrowing

kiwi dollar is the original bitcoin.. small usage, wild volatility, widely traded.

Even when the world ran on the gold standard not all value was actually backed by anything - now we're not even close. You can pick a stick up off the ground and whittle it into a boat - you have, by doing so[1], made the dollar worth slightly more since, for all the dollars in existence, there are now more goods to purchase. Inflation is spurred to increase over time for a variety of reasons - but asset accrual is not one - in actuality all the houses people own are constantly depreciating while the land they're built on continues to gain value from age - they gain value from the increased shortage of supply - and they gain value from the constantly increasing cost of building houses (labour and materials - the material increase mostly also due to labour).

There are some incredibly complex feedback loops in the economy - especially in the housing market - but inflation isn't the issue for most first home buyers. Inflation does, however, hit people with savings harder - every dollar you have in a savings account is slowly losing value. That, however, is quite intended since savings accounts are poor tools for economic growth (banks can leverage the value for loans but there are more efficient investment methods - and that leaves us with all our eggs in one basket which might be a quite irresponsible bank that's pumping out subprime mortgages).

1. In a very very infinitesimally unmeasurably minor manner.

> 1. In a very very infinitesimally unmeasurably minor manner.

Great point. And to explicit what you're alluding to: we live in a world where factories around the world are running 24/7 producing trillions of items with infinitesimally small values relative to global wealth. But none-the-less, these goods at up to real value.

Meanwhile entropy is eroding the value of many of the made and manufactured things in the world. Termites are eating houses, cars are wearing out, children are breaking toys, clothes get holes in them...

If you're interested in the scenario where that depreciation outpaces all else I might suggest reading the Foundation by Asimov series which includes an empire in its sunset and suffering from systems collapse. If we were in such a situation it'd be pretty clear to everyone as maintenance costs would prevent any sort of productive activity. I personally think that, short of a sudden disaster that causes extreme knowledge loss, a systems collapse is infeasible in the modern world since we've invested so much of our ongoing maintenance into detecting these sorts of insidious critical failures.

But, in short, those depreciations are far outweighed by value creation right now.

Lots of money supply in Japan, and are their asset prices going up?

* https://fred.stlouisfed.org/series/MYAGM2JPM189S

Their central rate has been <1% since 1995.

Stocks and equities in the US have been going up for 10+ and the infusion of "trillions of extra dollars" wasn't present for all of those years. Canada has had increasing home prices, barely slowing down in 2008, and it hasn't had QE.

Japanese asset prices would otherwise be deflating, so the "infusion" has absolutely had an effect.

The CAD has tracked the USD pretty closely in terms of value so even if there wasn't explicit QE there was definitely sufficient inflation to devalue the Canadian dollar.

Lyn covers this topic fairly well in her article on Japan[0]. In short, private debt in Japan has shrunk by 300 trillion yen over the past 25 years. The growth of the money supply is all coming from public debt.

It matters who gets the new money and what they spend it on.

[0]: https://www.lynalden.com/economic-japanification/

Yes they are - https://www.bloomberg.com/news/articles/2021-09-03/japanese-...

Do you mean fiscal policy? You absolutely can infuse trillions of dollars into the economy without causing inflation after the economy takes a $4T hit from a pandemic; the government spending will be what prevents disastrous deflation.

People worry about inflation, but forget how awful deflation is.

(And on a side-rant, it’s really bizarre how the hyperinflation of Weimar Germany is cited as enabling the rise of the Nazi party. The timing doesn’t work. They came to power during the depression-era deflation.)

I've never understood how deflation could ever be a concern in countries that print their own money. Can you not just print your way out of it every time?

Not if you need to import anything, since you can inflate your currency all you want, but the world will deflate it relative to other currencies.

Political constraints around central bank policy.

Or really strong deflationary market expectations, for whatever reason.

I know of two examples from the Depression. In Germany, it was a deliberate policy. In France, it was a zealous adherence to the gold standard.

I am also bewildered. So many bad effects of deflation.

The problem is that you can get both at the same time: deflation of asset prices and inflation of goods prices.

Politicians don't give a damn about deflation. They will tell you how governments must be responsible with their budgets and do debt ceilings and austerity, while simultaneously promising income tax cuts for the rich which they finance by cutting public investment. It'll trickle down.

I'm not really sure the "dollar worth less" framing is super helpful, but maybe I'm wrong. I think it's a little better to specify in what context we're talking about.

Actual inflation is generally low aside from short-term issues, but "asset inflation" if you want to call it that is high. I think the most important thing in terms of day-to-day existence is CPI-type measures that reflect your ability to consume things with money. If you can't do that anymore, then it becomes a real problem for everyday life, as people are unable to afford things they need. But that's not that situation we're in.

The situation we're in is that assets are over-valued across the board, including in the stock market and housing. I think the risk here is that once you're in this situation, getting out of it is really hard. If we allow housing prices to fall (by raising rates, for example), what happens to all the people who are now underwater on their mortgages? If value is erased from the stock market, a lot of people are going to be left holding the bag. Is there a plausible way we can get out of this situation?

> Is there a plausible way we can get out of this situation?

Yes, tax the hell out of the wealthy in order to reduce their total share of the money supply (which is driving asset inflation), shield the middle class, and provide better housing, social services and benefits to the working poor. Home prices would settle because supply would go up and the range of bids on a given property would be more egalitarian.

If we are responsible with the new revenues (we won't be) we would also destroy about $5-7T of what's collected to remove it from the overall supply to prevent reoccurrence.

This was linked in this submission: https://blog.firstam.com/economics/todays-house-prices-are-o...

Housing has become more affordable.

> On the housing side, I suspect consumers purchase the house that their cashflow can comfortably support, not necessarily the one where they believe it is correctly valued, because the assumption that house values only increase means purchasing a well constructed house is almost never a "bad deal."

I'd agree with this. I think housing in my area is wildly overpriced, but I still bought a 100 year old condo for a solid million. Compared to renting, I got double the space, plus parking, plus a private garden, plus an outdoor patio, and my monthly costs went up about 25%.

Is there a difference in the property tax there for multifamily vs single family dwellings? Around here people pay almost double their mortgage in property taxes for a single family dwelling, but landlords have managed to get much lower taxes for multifamily dwellings.

In my municipality I'm not aware of a difference between multifamily vs single family, but there aren't many single families anyways. Property tax is absurdly low, with a very nice deduction for owner-occupied units. My effective tax rate is around 0.3%

(Municipality: Cambridge, MA)

Cambridge is atypical: it has tons of biotech, FAANG offices, etc to tax, so the city ends up having one of the lowest residential property tax rates in the state. In fact, Cambridge's residential rate is almost 2x less than those of each of its neighbors (Arlington, Belmont, Boston, Somerville, Watertown. https://joeshimkus.com/MA-Tax-Rates.aspx)

yep, and to GP's point when i was looking for housing, my budget was higher in cambridge for precisely this reason

It depends where, as cities have some level of freedom in the shenanigan they implement in their tax structure.

Normally though, taxation is just a matter of the property value. Often, cities with lower housing cost have higher tax rates (because the people working the sewers aren't any cheaper and they need to get paid).

Many cities also have owner occupant or primary residence abatements, so the landlords pay more in taxes than the resident owners. Some cities though split homes in one of several categories, and single families may be taxed differently from multi family or condos. Sometimes multi family and condos are taxed less to encourage higher density construction, but it wouldn't change anything if you're a landlord or not (aside for the tax abatement). Landlords can deduct some of their expenses from their business' taxes though, and I think (don't quote me) their property taxes are part of that. Your millage may vary.

> Normally though, taxation is just a matter of the property value.

Total tax burdens are a function of government expenditures. Property tax is a rough attempt at scaling the tax burden to a person’s wealth, but it has many caveats varying in many jurisdictions. However, government debt is a big part of expenses, and each city and state’s debt can vary greatly than from another.

Here is a good website ranking the big cities and all the states:

https://www.truthinaccounting.org/news/detail/financial-stat...

I would expect cities and states where the per taxpayer debt burden is a standard deviation or more from the mean to have measurably higher taxes and/or fewer government services/investments.

yes, though I'm not sure what it has to do with the original question. Someone is comparing 2 types of property in a given area. The city's tax burden is a constant between the two in that scenario, so the only variable will be how the tax burden is implemented by that city, which is usually property value with some abatements based on residency status and type of properties.

Oh yes, I misunderstood the chain of comments. My bad!

Home prices are a function of monthly costs. As much as people want to compare the value of a home from year to year, in every instance, I've seen values reflect to monthly spending power.

I would love to see some estimate that takes more into account like household income, tax breaks, and interest rates. If I have a interest deduction, my relative taxes are lower. If I have children, my taxes are lower. If I have historic property, my taxes are lower. If I have solar, my monthly bill is lower. All these things make owning a home easier and allows people to buy more home.

Education is another example, prices largely mirror federal subsidized loan values. I'm not arguing that government should get out of housing, people should realize that the value of something is relative to the demand especially when the supply is largely fixed or has linear growth.

I agree with your comment, and just want to add that interest rate changes alone can explain a lot of the appreciation.

If you have the exact same income and rates are at today's 3% vs 2008's 6%, the payments on a $1.0MM home mortgage would be $4.2K vs $6.0k. The difference between those two payments is about $40k/year of gross income difference.

A person in 2021 with the exact same income as 2008 would be paying the same for a $1.4M mortgage per month as the person in 2008 at a $1.0M mortgage.

I don't own a home, so I'm not saying this to justify my purchase, but if I just take the info in the graph, I actually wonder whether there is a lot more room to go in the market. I wonder if we are looking at another 20-30% appreciation before the top?

I have no idea.

https://fred.stlouisfed.org/series/MORTGAGE30US

I don't have all of the math for all the scenarios you describe, but still, overall you're completely correct.

If you account for inflation and interest rates, and look at median home price, a home earlier this year was CHEAPER than home in 2005. Roughly the same monthly payments before accounting for inflation, because of the interest rates (6.X% vs 2.5-2.8%ish). That alone makes a huge difference.

People are also becoming more financially literate. Once folks are able to crunch all of the numbers on their own, start calculating how much rent costs, how much money they will make from asset valuation, how much they can save from using HELOCs instead of credit or other types of loans, they're willing to spend more, too. There's the tax deductions, but that got gutted, so it's not that big anymore.

one can say the down payment increases, but it increased slower than the market did, so if you just sat on investments since 2005, you can make a BIGGER down payment now than then, proportionally. At current interest rates, even with PMI, you're potentially better off doing a 3% + PMI than putting a large down payment (unless you're expecting a market apocalypse the likes of which the US has never seen).

We could crank up the interest rates to 10% and home values would tank. It wouldn't reduce monthly home costs any though.

I never learn anything in these threads. It seems like everyone is just talking past each other with their pet theories and no particular way to tell which if any are correct or useful.

Economics is a weird subject, even economists get predictions wrong all the time. It is easier to talk about logical subjects like Math or programming, vs something like social issues or economics.

I don't know how to have a useful conversation about such topics, I understand your frustration. I suppose everyone has good intentions and is trying to help at the same time by sharing their theories - which could be bad or good, but definitely hard to digest, as a reader

I think of economics as having the classic two sides of theory and practice, but with the quirk that the practice is grossly inefficient because it's a dynamic feedback system based on itself.

Engineering takes theoretical principles and pits them into practice. Here's what the free body diagram of a structure might be, but how do you ensure it stays up with abnormal conditions and a client who's going the extra mile to cut costs?

Imagine if in engineering, constants changed the more precisely they were measured. pi is different in the USA because China measured it more precisely yesterday. Or if weather patterns changed to exploit the weaknesses of a building to maximize damage.

I don't think econ is theoretically irrational, it's just that the application in the public eye is seldom isolated to simple, static systems. When applied to simple systems, I think econ is quite reasonable and makes accurate predictions.

> Economics is a weird subject, even economists get predictions wrong all the time.

It's because economics is seen as a science but ignores (not completely) human behavior. You can't test economic theories with the scientific method because there is simply no way to create a market vacuum to test.

This is why behavioral economics is so interesting IMO. It's not definitive but it at least it provides explanations.

> It's because economics is seen as a science but ignores (not completely) human behavior.

That does not describe what economics has looked like for a few decades already. These days, it’s all about human behavior. Just look at the sample of newest papers collected at NBER:

https://www.nber.org/papers?page=1&perPage=50&sortBy=public_...

If you look at these, it should be clear that most of published economics these days is basically social science done using quantitative methods. The homo economicus has always been a straw man, but these days it is laughably so.

> You can't test economic theories with the scientific method because there is simply no way to create a market vacuum to test.

The scientific method doesn't require laboratory controls; statistically controlled experiments are just as consistent with the scientific method.

Now, there are branches of economics which are, more of less overtly, not empirical science but essentially theology, the Austrian school being the most well-known, overt example, and they and their practitioners tend not to be distinguished from those of empirical economics when covered by the mainstream media...

What do you want to learn? Modern economics is mostly a guessing game of what actions governments and central banks implement. Will they print money and how much, will they bail out the banks or let them fall, will they lower or raise the interest rates, is there more stimulus coming, what kind of subsidies and social policies they implement etc. Some economists think that it's good that they have so much power and other economists think that they shouldn't intervene at all and let free market solve everything.

It's all mixed with politics, and generally policies are implemented to keep people short term happy, but long term not so happy.

...and what actual effect any of those actions has! That's the part that's mysterious to me and would be particularly interesting to learn.

And more to the point, what can or should I do on an individual level?

The OP was about home price to income ratio, and just like in one of the threads, I basically shopped based on monthly payment, not total price. I don't have any anchoring on the value of a particular structure or lot. Should I have made different choices?

I don't know. These policies either increase or decrease economic activity. If economy is accelerated too much it tends to create bubbles and then a big crash. Most people think that we're in a huge bubble right now. No one knows if it will pop or if they will just keep propping it up.

This video explains the basic mechanisms pretty well: https://www.youtube.com/watch?v=PHe0bXAIuk0

Economics isn't a solved problem. People fill in the gaps with whatever fits with their preexisting ideology.

I also tend to think we software "engineers"(haha) confuse our high salaries and prowess in one domain with a general level of intelligence that lets us outsmart experts in other fields.

Really though, this is a very difficult problem, and it very likely won't be solved on an anonymous discussion forum tailored to techno-news.

THIS.

Some very clever and influential people better start finding and implementing real solutions to housing prices right now. If they don't, expect overwhelming support from Millennials for massive expansions to public housing and rent control, if not even more draconian measures.

Why do you consider the 2 examples you gave “draconian”?

Draconian is a strong word (but cool-sounding) and what I really mean is "antiquated". But they are also somewhat blunt instruments and have historically lead to unwanted consequence. We already have more modern, market-oriented solutions, like vouchers and tax-credit housing, but those have problems too. My bigger point was, Millennials tend to react big when specific issues rise to the forefront, and if there aren't better solution than what is already on the table, we risk people clinging to whatever ideas do exist, which in the realm of housing, are mostly shit ideas.

Its interesting how often on HN the main problem always ends up being how people will "feel" about the next crisis, and the danger of that feeling itself. It's a weird kind of proxy self-consciousness older generations have on behalf of the economy. Always and forever: "no no, it's not that bad, really!"

meanwhile people are very much homeless, whether they are millenials or not, whether they react strongly or not.

Rent control really doesn’t make sense. If we could make things cheaper by passing a law we’d do it for everything.

Rent control won’t work for the same reason a price control for food or cars won’t work.

https://freakonomics.com/podcast/rent-control/

Some forms of rent stabilization make perfect sense. But most of the policies implemented in big cities are far too restrictive. There is a lot of policy to be explored between "your rent never goes up forever" and "you can't be immediately evicted for no reason". No one wants the latter, but there are better ways to address that, like much longer notices for rent increases, or requiring multi-year lease options.

Sounds feasible. I don’t normally think of that as rent control.

San Jose limits annual rent increases to 5%. That seems reasonable (unless inflation gets out of control). Tenants aren't immediately forced out of their homes if the market rate jumps 20% in one year. But landlords can still eventually raise rents to market rates spread out over several years. There's no absolute limit on maximum rent.

If it was inflation + 5%, I'd be fine with that - but a flat 5% limit only works so long as inflation stays low.

Technically, it only works if the (notional, I’m not sure this is an actual tracked category) PPI for rental housing is low, general (CPI) inflation may loosely correlate with that, but its not directly relevant.

Inflation may not be out of control yet, but certainly things like insurance, parts and labor for repairs and maintenance, and HOA dues are already increasing more than 5%/year. And property taxes alone are guaranteed to increase 2%/year in California. Not saying we should feel sorry for landlords, but when some parts of a market have price controls and other parts don't, distortions are inevitable.

> And property taxes alone are guaranteed to increase 2%/year in California

No, they aren't. Assuming no increase in property tax rate (which is a good assumption, since your local taxing jurisdiction almost certainly already charges the maximum nominal rate of 1% allowed under Prop. 13), your property taxes will increase only by the amount your assessed value for taxation increases, which is capped to the lower of 2% or the actual annual (trailing) rate of inflation.

For 2021/2022 the actual cap is 1.036%, based on the actual California CPI for October 2019 through October 2020.

> If we could make things cheaper by passing a law we’d do it for everything.

Price controls for medicine are proven to work, based on single payer European systems. They cost cheaper and provide better outcomes than the US system.

Yet here we are.

That’s a little different because we’re dealing with a monopoly which can raise prices above the market rate.

But you are correct that in those cases it can work well. Same with other monopolies like utilities.

That’s different. The drugs are invented and produced all over the world and can be imported to Europe. So low European drug prices will harm overall pharma innovation a bit without killing the entire market.

Housing, OTOH, is always local. Low rents will discourage development which will make the real, underlying problem worse.

That is an example of what economists call the free rider problem. European countries get cheap drugs only because they are effectively being subsidized by Americans.

https://www.investopedia.com/terms/f/free_rider_problem.asp

Outcome differences are due more to public health and social factors like obesity. Expensive drugs or lack thereof have only a tiny impact at the population level.

US pharma spends an outsized amount on sales and marketing, expenses that could be eliminated if public funding was spent directly on R&D.

Europeans aren’t free riding; they’re paying a reasonable rate for these goods while Americans are shouldered with extraction of revenue for pharma profits and those inefficient (and arguably unnecessary) sales and marketing expenses.

Only two countries in the world permit marketing directly to consumers to promote pharmaceuticals: the United States and New Zealand.

There is already a lot of public funding for basic biomedical research. Actual drug development is another thing entirely. If this were publicly funded then funding would be allocated based on political priorities rather than realistic scientific and economic assessments. That misallocation of resources would overwhelm any savings from reducing sales and marketing expenses.

But in general the traditional drug development approach of finding small molecule drugs to treat specific diseases is running out of steam. Most of the low-hanging fruit has already been picked.

A ban on marketing prescription-only drugs directly to the public existed in the US until recent decades. The amount spent on marketing skyrocketed when that ban was removed.

Since there's no way to reinstate the marketing ban short of a Constitutional amendment (basically impossible) that point is moot.

An outright ban would be very difficult now that the genie is out of the bottle. The FDA can regulate what goes in the ads, like requiring disclosure of the expected benefit, how prevalent some of those side effect them mention are, how common the condition it's meant for actually is, and of the list price of the medication. Many of these drugs are for rare conditions and the drugs, though approved, help a smaller percentage of patients than the ads portray and to a lesser extent.

It's not like profit motive is a great allocation method either though. There are massive perverse incentives to favor expensive ongoing treatments over cures or prevention.

But, because healthcare is public in NZ you wouldn't bother with the brand names as you'll have to pay for them (generics are funded by the taxpayer through Pharmac, which is the crown entity that is responsible for buying all publicly funded medication for NZ).

It's like Private hospitals, we have them, but very few people use them as the public system is better equipped and paid for by the tax payer.

The way price controls affect supply is people build less of the thing who's price your controlling.

Since medicine is mostly a technological good, it lets the rest of the world freeride off America paying for much of medical R&D.

As described by Freakonomics and general economic education, this is more or less right.

However keep in mind there's two kinds of rent. You can rent a house, or you can rent money and buy a house.

Historically and across countries there's been some willingness to restrict mortgage LTVs and interest-to-income ratios. At least in some European countries the interest ratio depends on a fixed interest rate (eg 5%) rather than the current interest rate.

We can create and destroy money more easily than we can create and destroy homes, maybe that's a worthwhile lever to try.

Not the OP, but I'll guess that it's because both of them strongly erode property rights. Another, more freedom-preserving, approach is to make it easier to build build build. Planet Money had a decent introduction a couple years ago.[0]

In the current NIMBY climate, my neighbor is struggling with the red tape to repave her driveway. Building a new home around here seems about as improbable as a hobbyist making the first human Mars landing.

[0] https://www.npr.org/sections/money/2019/03/05/700432258/the-...

Are property rights freedom-preserving? One of the most infuriating bits of my visit to the US West coast was driving up from LA to SF and a lot of the really nice bits of coast not being accessible to the public. There's compromises like germanic Jedermansrecht [0], but overall I think limiting property rights is often a net gain of freedom.

I do agree on the problem of NYMBYism though. There's a funny-if-not-so-sad dispute here in Berlin at the moment, where the leftist state government is desperately trying to build public housing while the leftist local government in the district of Lichtenberg is blocking a major developing due to local concern. Sadly I can't find an article in English, but I am sure there are dozens if not hundreds of examples for that.

[0]https://en.wikipedia.org/wiki/Freedom_to_roam

All of the California coastline is public.

California coast is public up to mean high tide. This is appreciably different from, for example, Oregon where it is public further in (typically to the vegetation line, details are slightly complex). It makes it significantly easier for California property owners to de facto remove public access to beaches, which is very common in some areas. On top of this, CA courts have often been reluctant to enforce public rights to beaches.

Those coast lines are most likely either inaccessible due to environmental protection concerns, or just straight up not easily accessible — lots of cliffs on the West Coast.

Or just not very fun to be on. The beach cities of Southern California are blessed with having some of the most accessible beaches.

> Are property rights freedom-preserving?

You’ll find that historically speaking “freedom” and “property rights” are treated as synonymous for some political theorists, including the ones that founded the United States. This is one of the foundational aspects[0] of liberalism that has come to rule the western world; the idea that property rights are sacred and must have an exceptionally high bar for the collective to intercede on.

Whether or not that equivalence is true is a debatable matter. One of the unfortunate outcomes is the ability for the individual to withdraw their property from public use, often to the detriment of the whole (such as the beach example you provided).

Also, the fact that the founding thinkers of liberalism and America itself tended to own slaves or trade in them doesn’t necessarily disprove the basic argument, but it’s a pretty strong counter point at least.

0 - There are of course other tenants to liberalism that I’ve not included here, due to their irrelevance for the subject at hand.

How does public housing abridge property rights?

Sorry, I think I conflated "public" with "low-income" housing in reading the comment. They're clearly different, though often uttered together.

How does low income housing abridge property rights?

You're forced to rent or sell at certain prices for a certain number of units as a condition for your permit to build. So you're not building what you want to build, nor are you pricing it at market rates.

Econ 101 says that rent control (in effect a price ceiling) just results in scarcity (people are unable to get ANY housing), rather than actually reducing the cost of housing.

I'm not sure why you're being downvoted. This is the theoretical prediction based on simple microeconomics. By example, I believe NY rent controls were ineffective to the point where rents outside of controlled areas went higher than they otherwise would have and within rent control areas there was (and is) scarcity of housing.

It also exacerbates other problems that go hand in hand with urban areas, such as traffic. Most people would rather stay in their rent controlled apartment and drive an hour to work instead of having to move and pay the current market value

That's gonna happen anyway, so as the millennials said, YOLO.

Simple solution would be to put a property and sales tax ramp on additional homes. Make landlords who own N homes pay 1.5^N the normal rate.

The issue then becomes silly games with shell corporations hiding how many homes people own, which pushes homes into the hands of larger landlords who can afford to pay someone to play those silly games.

Make it pass through to the shareholders.

Don't allow corps to own housing.

This is what pisses me off the most. America's housing is being sold to the wealthy, who then just turn around and siphon the rest of the wealth out of the middle-class and younger generations by forcing them into renting because the barrier to break into homeownership simply eclipses them.

There's a whole cottage industry of house hackers now thanks to biggerpockets who specialize in BRRRing, as in buying, doing minor renovations, raising rents and then cash out refinancing to have money for the next downpayment.

What other ideas do you have for drastically raising the price of rent?

I'd expect this policy to tank the real estate market, causing rents to fall along with it.

Since you asked, another idea would be to slap a vacancy tax on top of this.

The simple solution is to build more.

As long as landlords can use equity to buy up new buildings driving up property values and rents they will continue to do so.

It's the same equation as crypto mining, as long as there's a return on investment they will continue to buy up GPUs.

Millenial homeownership is almost at 50% this year. The people priced out are the loudest, but it's not overwhelmingly common in most parts of the US.

That's still way lower then older generations.

Of course it is, Millennials are as young as 25 this year. Its doubtful many can afford a house just a few years out of college (and even more doubtful if they didnt go to college). Even those that can may not be ready to settle down and commit to such a large purchase.

Yeah, but it's still also lower then it was for the older generations when they were at the same age.

citation?

https://www.apartmentlist.com/research/homeownership-by-gene...

Older generations also went to college less frequently, so had less student debt and were able to start buying houses sooner.

I don't know if this is a problem? I am perfectly happy focusing on my career and my hobbies and not worrying about home repairs, insurance, taxes, natural disasters, etc.

It is more financially and emotionally rewarding for me to prep leetcode, solve software problems, etc. than it is to deal with home renovations, plumbing repair, etc. on a home.

Plus the flexibility of location is huge. I can follow the job market much easier if I am not locked into an address.

Not everyone has the same goals or mobility as you. What you described is especially tough for families with kids.

the mobility will be less valuable, but I'd imagine if I had children, renting would give me more time to spend with them since I won't have to maintain a home.

Older generations consumed resources at far higher than sustainable rates. I don't think older generations is an acceptable benchmark.

Indeed. Canadian home ownership is a decades long high yet housing affordability is a hot topic.

It's not so much that they're the loudest as it is that the other 50% of us are busy living in affordable parts of the country and getting on with our lives.

1. Residential homes are no longer allowed to be 'investment properties' aka every person(or married couple) can own exactly one house. Corporate entities except for Banks(even then can only own it for the time it takes to sell it in the case of foreclosure) can't either.

2. Only actual Americans can own property in America. Single-fam, multi-fam, land,etc. doesn't matter.

Exactly no one needs to rent houses if mulit-fam exists and actual houses aren't speculative instruments or places where foreign nationals hide their money.

1. Just bans people from renting houses to other people. This reduces the supply of rentable houses to 0. Reduces the supply of rentable stock in general. And very slightly marginally reduces the price of houses.

2. Can corporations still own commercial property? And can foreigners own corporations ?

Even "simple" solutions like those you've proposed so often wind up having unintended consequences.

For your first proposal, I wonder about folks buying a house through an LLC or trust as folks often do to protect their privacy. Are we banning that? I also wonder about inheritance - if I own a house and my parents die, leaving me their house, how long do I have to sell one to be "in compliance?". Maybe their house needs work and I'd like to spend a few months or a year fixing it up to maximize what it'll sell for. Is that ok? And speaking of timing - I remember during the wave of foreclosures after the last housing bubble, banks kept a lot of houses off the market for a while to moderate prices, rather than listing everything at once and panicking the market further. Seems like banks ought to have some leeway to maximize their return (e.g. if a house has a pool and is foreclosed on in the late fall, maybe they judge that waiting until spring would get a better response from buyers).

Where do you expect rental housing stock to come from in this scenario?

Doesn't that sound insane from a mile away? By the time you are done making exceptions, you'll have infinity carve outs. This is not a solution so much as a way to squish the problem into a different, weirder shape.

1. Everyone is forced to sell their lakehouses, cabins, ADUs? Detached mother-in-laws? (wtf is "Exactly one house?")

No one is ever able to rent a single family home ever again? Right now 14.5 million households / 44 million residents rent single-family homes in the United States. They're... out of luck? On the street? Gotta save for a down payment? If those houses are force-sold, don't you think people-other-than-the-current-inhabitants will come in and buy them?

Actually, can anyone ever rent ever again? Or is it a buy-vs-homeless dichotomy here? Or do towns have to become miniature companies and play landlord? Or states?

2. Timber companies are forced to give up their land, bankrupting all of them and driving the cost of wood sky high. Mobile home land must now be sold, except no one can buy it. Farms except for sole proprietors are forced to give up their land (sorry partnerships, amish, people with discontiguous lots, and everyone who wants to eat this year, you're out of luck)

IMO you should focus on laws that let people build more (eg, ADUs, duplexing) rather than getting out the stick and hoping there won't be huge side effects.

You know public housing is a thing right? You don't need to rent from the private market, that's just how it is right now

> Exactly no one needs to rent houses if mulit-fam exists and actual houses aren't speculative instruments or places where foreign nationals hide their money.

okay, but what if I have (an opportunity for) positive cashflow, minimal savings, and want to move away from my parents' house? does it just suck to be me or what?

There are good reasons to be a renter, it’s hard enough getting an apartment in the time between accepting a job offer and your start date, I couldn’t imagine hunting for a house/condo in that time.

Who builds new homes if builders can't own them pre-sale? I imagine you have a carve out for that, but who qualifies as a builder?

What about people who want to live in cities? How do they come together to build say a small condo building? Do we only allow co-ops? How is that financed?

When you say "Americans", do you only mean citizens or permanent residents? Where do temporary residents live?

How do people move to new cities/states? Where will the new housing come from?

California "small house" duplexes are being built at this moment, by the thousands.. maybe permits, maybe not.. just saying what I see

The solution is to build more housing. California has historically been terrible about that but SB9 and 10 are significant steps in the right direction.

It consistently shocks me how rarely this is brought up as a solution. Price of something too high? Increase the supply.

It's been so frustrating watching people celebrating UK governments who have repeatedly failed to really tackle the supply side issues while propping up the demand side with tweaks that just increase the prices.

The most amazing example of this was the stamp-duty holiday to help stimulate the market for a few months during covid. The maximum you could save was £15k. The average house price increased during that time by about £16k...

They were still likely benefiting to be fair. Remember stamp duty is paid externally to the mortgage so it effectively comes off your deposit, not your loan.

This is brought up all the time. There is frequently huge opposition from locals anywhere regarding increasing housing supply.

And many times rightly so, living next door to a long construction project is a mistake I will only make once in my life. Utter insanity to be woken up by literal bombs going off in the bedrock.

Yeah, this is why SB9/10 work - they override the problem of that vocal minority of locals.

Me too! I think the average American thinks "increase supply" means skyscrapers with apartments, rather than lower impact multiunit, mixed-use apartments/street shops that are more common in Europe.

Another issue with increasing supply/density: where is every household going to park its 2-3 cars?!

(Disclaimer: I've been watching tons of City Beautiful and Not Just Bikes on Youtube)

The issue is that those kinds of mixed use neighborhoods are literally illegal in most American Suburbs. Strong Towns goes over this, but our zoning laws are basically designed to create and exacerbate this problem long run

people are arguing here that housing in Europe is even less affordable than in the US, so what is even the point?

The demand in Europe is just as high as in the US. Density is not the same however... Think about how large European cities would have to be in order to match US population at US density.

We don't have as many skyscrapers here.

Regardless there are plenty of reasons not to want car-centric suburbian neighbourhoods. Unwalkable, outrageously expensive to maintain, encourages car ownership and usage (yay more debt and running costs), etc.

Increasing supply can help some. But when you do that, you increase demand for material and labor, which can negate some of the benefit depending on what markets we're looking at.

The real problem isn't supply at all, it's the distribution of supply and the choices of people to live there.

> The real problem isn't supply at all, it's the distribution of supply and the choices of people to live there.

I’ve said this plenty of times; America has plenty of homes, it just doesn’t have enough homes where people actually want to live.

You can get a home in my parents home town (which they left) for $60-100k right now. The issue is that there are no jobs and even fewer services. It was probably a great place to live 80 years ago when small towns were the norm, but now it’s shrinking, aging, and a long distance from any of the amenities that most Americans now demand.

The same problem of the house price to income ratio shows there is as much of a housing shortage in rural America as well. "Solving" housing by moving all high CoL people to rural America is just going to price out all those with lower CoL area salaries. Our vacancy rate nation wide is low, likely well within the frictional margins that need to exist for a healthy market.

This is certainly happening in small cities right now, as prices skyrocket.

"The same problem of the house price to income ratio shows there is as much of a housing shortage in rural America as well."

Not necessarily. You can't use the overall picture data to make claims about localized or subcategories of data. Especially if the bulk of the people live in suburban and urban areas.

Remote work could solve a lot of this. I would love to live in a more rural area with cheaper housing.

"... a long distance from any of the amenities that most Americans now demand."

Like what? Many amenities and services have been moving to the at-home or online model for decades - arcades, movies, shopping, car buying, telehealth, etc. It seems there should be less reliance on physical amenities now than in the past.

We are starting to movement from HCOL and high tax areas. Companies are moving for tax and regulatory purposes and most people seem happy to follow when the cost of living is significantly lower.

The data seems to imply that remote work is letting high paid workers move from the coasts to smaller cities, not rural towns. The persistent low prices of houses in rural America certainly backs this up. Meanwhile home prices in small cities are skyrocketing.

> Like what? Many amenities and services have been moving to the at-home or online model for decades - arcades, movies, shopping, car buying, telehealth, etc. It seems there should be less reliance on physical amenities now than in the past.

My parents town’s nearest major store is a Walmart 45 minutes away. There is a significant difference between “we need less amenities now” and “we need no amenities”. Committing to an hour and a half drive for anything Amazon can’t deliver is sub ideal.

The price of houses in rural America seems to also be skyrocketing. My house 40 miles outside of the nearest "smaller city" (population ~20k) has gone up in value over 50% since I bought it 3 years ago.

The price of land in the middle of the desert east of San Diego (Ocotillo Wells, Borrego Springs) is skyrocketing.

It would be utterly impractical to live there most of the year. And yet compared to NFT's and some cryptocurrencies it's probably a great investment. There's definitely a bubble going on, I just don't know when it will end or why.

No, vacancy rates are at near all time lows. Any reputable study will show we have a housing shortage. Even in rural America, house prices are skyrocketing. We need to build more, ideally near transit hubs as to minimize the effect on infrastructure, and reduce our environmental impact.

Tons of empty houses in the Appalachian region.

The vacancy rate may be at a low, but it is still about 10%. Sure, we still need to build more houses, but the point here is that distribution is important to both. If you build houses in a HCOL area, the cost will be higher. We should be looking at redistributing to areas with the highest rates of vacancy an LCOL.

Part of why prices are going up is inflation and cost of materials and labor. Prices in rural america are up, but I wouldn't say skyrocketing. There might be places that are skyrocketing, but I'm guessing they are in commute distance of the cities.

Those aren't really useful homes then.

The housing crisis is more accurately an imbalance of houses-to-jobs in a metro area.

Remote work can unbound that, at least within a low percentage situation, like under 10% vacant. Not to mention that some companies are moving out of higher cost areas to lower cost ones (like CA to TX).

Lol, and once you build houses in those new regions, I'd assume those neighbors also block new housing from being built near them? Plus there's still plenty of jobs that cannot be done remotely, I feel generally in the tech world people are highly overestimating the amount of remote jobs proportional to the rest of the population.

Why the companies are moving from California to Texas is exactly because Texas' local zoning laws aren't as stringent allowing for cheaper housing.

The fix really isn't that complicated, it's allow more houses to be built where jobs are demanded. Not quite sure why people always twist and turn justifications for why only 1-story houses should be built.

"The fix really isn't that complicated, it's allow more houses to be built where jobs are demanded."

Or move jobs to areas where housing is cheaper and easier to build. Just allowing more houses to be built doesn't solve it entirely. For example, labor will be more expensive in HCOL areas.

"Why the companies are moving from California to Texas is exactly because Texas' local zoning laws aren't as stringent allowing for cheaper housing."

Not really, although it might be a secondary component. The main part is taxes and regulation.

> Just allowing more houses to be built doesn't solve it entirely. For example, labor will be more expensive in HCOL areas.

Labor increased cost is really nothing compared to the zoning barring new construction. If labor was truly the barrier then when upzoned no construction would take place. Additionally a large reason why labor is so expensive is from the constrained housing in the first place -- again stemming from the zoning.

> Not really, although it might be a secondary component. The main part is taxes and regulation.

Zoning is regulation.

"Zoning is regulation."

Business regulation.

"If labor was truly the barrier then when upzoned no construction would take place."

Not a barrier, but a factor. You seem to be misunderstanding me. It's not that it can't be done in the populated area, but that it's better done in areas not already in a precarious situation.

"Additionally a large reason why labor is so expensive is from the constrained housing in the first place -- again stemming from the zoning."

So we have circular logic here. If the labor is expensive, you aren't going to make it cheaper (at least short term) by building more houses because the labor cost to build those houses will still be high. They have to pay their existing mortgages.

"Zoning is regulation." > Business regulation.

Are you really not aware that when people are mentioning Texas' easy regulation many times they are literally often talking about zoning?

> You seem to be misunderstanding me. It's not that it can't be done in the populated area, but that it's better done in areas not already in a precarious situation.

No I completely understand you, and find the "too many dense already" line of logic ludicrous. Most of these American cities have zoned over 80% of their land at one story buildings only. American cities are already at the lowest density compared to European or other countries density. They can accommodate plenty of housing fine.

> So we have circular logic here. If the labor is expensive, you aren't going to make it cheaper (at least short term) by building more houses because the labor cost to build those houses will still be high.

No there is no circular logic here. As I already noted the larger burden of the cost of housing comes from zoning restricting the amount of buildable land. And yes you will need to build lots of housing -- thats what happens one restricts building housing for decades.

"Are you really not aware that when people are mentioning Texas' easy regulation many times they are literally often talking about zoning?"

Source? The ones I have seen say "business-friendly regulations". They also mention companies moving their headquarters to the state, which means taking advantage of incorporating there, which extends to out of state worker, for which zoning does not apply.

The cheaper housing is why many individuals are moving to TX.

"They can accommodate plenty of housing fine."

If the infrastructure is only set up for single family homes and the land is covered in them, then you would need massive infrastructure updates which the cities can't afford, and you would also have to demolish many existing homes to make room - what a waste.

"No there is no circular logic here. As I already noted the larger burden of the cost of housing comes from zoning restricting the amount of buildable land."

Do you have an economics background? Can you explain how the labor cost suddenly decreases as the demand for labor increase and their costs stay the same?

"... and find the "too many dense already" line of logic ludicrous."

My position is more nuanced than that. It seems you've already made up your mind and dont care to explore my position. Good luck.

> Source? The ones I have seen say "business-friendly regulations".

Zoning also is for businesses too. For example Elon's relatively fast approvals for their new factories

> the infrastructure is only set up for single family homes and the land is covered in them, then you would need massive infrastructure updates which the cities can't afford

Again another ludicrous claim. Seriously every country around the world can build this infrastructure for supporting beyond 1 story tall. America is not some special snowflake here. Yes it'll cost some money to upgrade it -- not it's not rocket science nor some giant cost.

You're just working backwards justifying why American cities couldn't accommodate anything beyond 1 story tall then grabbing any reason to block it.

> Do you have an economics background? Can you explain how the labor cost suddenly decreases as the demand for labor increase and their costs stay the same?

I could ask the same to you do you have an economics background? But in any case yes I do.

Regarding the labor cost, I was responding to why you think labor costs are a barrier to housing and while it's true, the root cause to solve it goes the other way around. Aka even if labor costs were flat it wouldn't solve the housing crisis.

> My position is more nuanced than that. It seems you've already made up your mind and dont care to explore my position. Good luck.

It can be as complicated as you want but as the end of the day if it's stemming from blocking housing it really isn't that special.

Because it doesn't actually work. It helps a tiny little bit, in the places that are actually somewhat constrained (like SF/BayArea specifically). But it's not any kind of significant fix. Housing is an investment asset for stock market folks, it doesn't follow a Econ-101 understanding of "supply" and "demand" in any meaningful way.

The Midwest and the South are both way ahead of California on the whole "just build more housing" thing, for example, and have been for many years. And yeah, it makes us somewhat cheaper than a coastal city if you have California dollars to burn. But our Price-to-Income-Ratio's are still in the high 5-7+ range too, just like everywhere else.

We have basically zero population growth, and every single stray piece of land is getting built on right now (record high construction, record high new housing starts, for the past three years straight) and housing prices still rise 10% to 15% every single year like clockwork, with no end in sight.

"Just build more" sounds really pretty, but that alone will never get housing prices back down to a real-world-affordable figure for most people.

Are you saying that if the housing market has 10 million homes and 7 million people live there, prices will continue to appreciate to stratospheric levels because someone will magically appear to buy the excess 3 million properties and leave them without tenants? That's what it sounds like to me.

That does actually happen; see China, for example.

We don’t build enough - density levels are extremely low compared to much of the world. Most US cities have a small downtown dense area and are surrounded by single family homes. Even the Bay Area is something like 80% single family zoned.

NYC on the other hand is a good example of what you’re talking about - it’s expensive to live there and pretty dense already. But Tokyo for example had 150k housing starts on a recent year, which is more than LA, NYC, Boston, and Houston combined (source: https://www.google.com/amp/s/www.wsj.com/amp/articles/what-h...) - amp link to get around paywall.

I think there’s tons of evidence that we just don’t build enough myself. In bangkok, another market, they’re throwing up more new tall buildings every year than almost the entire USA does.

> Housing is an investment asset for stock market folks, it doesn't follow a Econ-101 understanding of "supply" and "demand" in any meaningful way.

You are partially right that Econ-101 doesn't explain it well, but if you take Econ-201 it does explain how housing supply/demand works. Why it doesn't work as easy as 101 is that the location matters for the 'good' unlike say cars which can be shipped in from anywhere. And also zoning artificially constrains land from being used for housing.

California being terrible is only a recent phenomenom. It used to be common to convert your sfh into an apartment complex. There are 5 story single lot brick apartments on my block that are still illegal to build on a neighboring lot today with SB9 and 10.

Even just straight up rolling back to zoning codes that existed in 1960 without much further change would do a lot for supply. Los Angeles in 2010 had a population of 4 million and was zoned for 4.3 million homes. Los Angeles in 1960 on the other hand had a population of 2.5 million and was actually zoned for 10 million homes.

The solution, like it's been for pretty much all of American history, is to _move_. We're a migrant people; when opportunity calls or the cost of living where you are gets too high, we go west in search of greener, cheaper, less heavily-zoned pastures.

Seems fitting that in the 21st century we flip that on its head. Cost of living in SF or Seattle got you down? Go East, young man! Head down to Texas or east to Ohio, and register to vote when you get there.

Be the change you want to see.

Most of my friends and family live here. I would rather fix the problems here than move.

This is emphatically not the solution, nor is it a viable option for the vast majority of people. Uprooting oneself and losing your personal and professional networks is simply not realistic for most who aren't already very comfortable. Not to mention the damage that does to the communities that people migrate into.

The solution is, and always has been, to increase supply, specifically in the form of increased density.

"better start finding and implementing real solutions to housing prices right now"

They can't. Providing supply will suffer the wrath of BANANA/CAVE/NIMBY anywhere you dream of living. Constraining demand will either get you voted out of office or devastate your political network or both, depending on which policy you attempt. You're competing with a whole planet full of people that want to live here and have more means than you.

Seek property where demand is lower and development isn't effectively outlawed. Forget any livable cities or high population states. For 99% of you that means living far away from your preferred locale among people you probably loath. If that's not acceptable then keep renting or live in a van.

The good news is many of you can work remote. That is an affordance you can leverage to great benefit.

> For 99% of you that means living far away from your preferred locale among people you probably loath.

Parent comment is vitriolic but not actually wrong. Myself, I take great comfort in the idea of huge swaths of liberal, well-educated millennials and xennials migrating out of coastal cities and into small towns across the South and Midwest. Can you work remotely? Want to own your own home on a multi-acre lot for $100k, and live in a place with sunshine and warm weather nine months out of the year?

Sure, you'll end up living in the most conservative parts of deeply red states -- but try it. Live among people you disagree with -- we're all still Americans, it'll be OK -- and if enough of your friends and fellow Ivy alumns make the jump you'd be surprised how easily you could turn Texas or Georgia nicely purple.

We've got to end the big sort, at any cost. And the hilarious difference in cost of living is probably our last, best hope.

I was ready to buy an estate in the Georgia mountains earlier this year - then I saw the internet connection options. Then I looked up how much it would cost me to get a decent wired connection out there.

Totally unviable for tech workers to live in most of the solid red areas of the country strictly due internet capabilities, or lack thereof.

Then keep looking. I'm a liberal, minority techie living on a farm: one of my base requirements for moving here 15 years ago was at least a minimal amount of wired broadband.

This summer the phone company has been pulling fiber all over the place. I was told that it's not going to be put in use until next year, but at least they're planning ahead.

Especially after the last year and a half of distance learning and working from home, there is a big push all over the place to get faster internet connections because the people already living out here are demanding it.

Got mine a month ago! In rural Iowa.

Correct. There is fiber all over non-Asheville Appalachia right now. It’s reflecting in home prices too.

I’m looking at this move myself and the final decision point is state taxes (TN, WA, FL) or fiber/cheap homes (largely Western NC and GA), both paired with some cool nature.

All ears on places with $200k and below homes and fiber, quite candidly.

Extrapolating from 'rural mountainous Georgia' to all red states, including Texas and Florida is a bit of a stretch. I live in a remote mountain town in North Central Washington and there are dozens, if not hundreds, of remote tech workers. I have good internet through a local ISP and starlink is now prevalent in our area as well.

Fair enough. I was looking in the triangle between Asheville, Nashville, and Atlanta. The few homes i was like "I will buy this now if i can get good internets" did not play out for me. I'm looking for an excess of land though, to indulge my many hobbies, so that is certainly constraining my options. It's okay though, I'm in no rush. Once Starlink is rolled out en masse I'm sure the equation will drastically change for me.

Also, FWIW, I meant more rural areas than just "red states". Even in solidly republican states there is a fairly prominent urban/rural divide.

There’s fiber all over that area now because of Morris Broadband

I think there’s plenty of real reasons people don’t do this economically, but don’t downplay the social parts of it - we have very Balkanized communities in the US. Ask a minority what it’s like going on a road trip sometime - I guarantee there’s many places where they won’t want to stop.

Living in a place with no amenities, an extremely regressive/borderline extreme social climate and a lack of economic opportunity for people who don’t have remote tech jobs and it gets depressing really fast. Also when you try to buy healthy food from a dollar general.

>I guarantee there’s many places where they won’t want to stop.

As someone who recently made the jump to a rural area, these problems are almost entirely imaginary. The notion of backwards, ignorant, racist rednecks occupying all the rural lands is nothing but a bigoted stereotype.

Southern hospitality is real; and while rural peoples will be more likely to notice and acknowledge cultural differences, they generally are open minded and just as respectful of nonwhite neighbors as white ones. It's the city folk who don't understand the roles that politeness and respect play in southern living, necessary for the unbelievably high trust society that only really exists outside of cities.

The truth is that urbanites have been hypersensitized to so called racism, and completely mislead as to what rural/conservative culture is actually like. But I don't mind a bit, that means more cheap land for me.

This contradicts with my experience growing up in WV. The last time I went back there (5 years ago) I still saw the same confederate flags and n-words being thrown around casually. The reality is that 'the south', like anywhere, has pockets of diversity and acceptance; but your stereotype of universal 'southern hospitality' is not in line with my experience at all.

Appalachia is very different than the rest of the south, much less rural areas in other parts of the country. It was populated by Scots-Irish herders, versus say German farmers in the rural midwest.

Appalachian culture is extremely insular, even with respect to other white people. I once had a conversation with a (white) guy who had married into a family in Appalachian Kentucky. Folks in town regarded him as an outsider even after a decade of living there.

I'm happy to hear that's your experience. My experience comes from being raised in such a place (not the south, just rural conservative), and fleeing to the nearest metro region as soon as I was able while growing up. That was a while ago though, and this was over LGBT things - a bit less about abject discrimination and more that it was impossible to even think about finding a date, and a fear of being found out with people regaling me of stories of houses of known queers being firebombed in recent years. I don't really speak about the stereotypes of the ignorant rednecks - the most virulent haters were the orderly christian pastors and the true believers who opened up multiple conversion camps in my area. There were 2 black students in my high school of 1500 kids, and both of them got pulled over literally dozens of times in just a few short years, and it wasn't for driving fast.

Culture has changed somewhat since then. I don't presume to speak for anyone's experience but my own, and I go off of the stories that my friends have told me for other things.

That said, Trump flags fly everywhere, and BLM flags get torn down/burned/vandalized. I don't think its really fair to say that its all politeness and mutual respect - in my experience that is how it is until you accidently fall into one of the cultural battlegrounds, and then its more conform or die. Lastly..

> The truth is that urbanites have been hypersensitized to so called racism

I think this can be true while the rest can also be true.

Well, to be fair, my experience is limited to a couple locales and only an hour or so away from major cities. I might have lucked out because I made a solid first impression on the community and don't have to worry too much about having the wrong opinions.

I suppose you could say that ruralites are more tolerant of intolerance in general, even when they individually may be welcoming. No argument about the flags around here...but I get the impression that, at least where I've settled, even if you're a little different, if you stick to your property and don't make waves nobody is likely to mess with you...and to be honest I kind of appreciate that sort of live and let live attitude, even if it requires some degree of conformity.

As far as I can tell, a somewhat rigid common culture is sort of the price of high trust living, where you can leave your doors unlocked and your keys on the porch. That doesn't justify violence against minorities/lgbt of course but... there's always the city for that I suppose. It's definitely a very different non-pc attitude around here. I certainly understand why a guy like Trump is so popular in these parts.

> Ask a minority what it’s like going on a road trip sometime - I guarantee there’s many places where they won’t want to stop.

Certified brown person here. The only thing I think about in terms of deciding where to stop is how far I can get before needing gas, and what the odds of finding decent food are. I've travelled in rural areas all over the country: midwest (my wife grew up in rural iowa), west coast (wife's family is from the rural oregon coast), and south (worked a summer in southern virginia, my best friend lived in south georgia for a decade). I just got back from a road trip through rural Utah, Idaho, and Wyoming with my white wife, mixed kids, and Latina au pair. In all this time nobody has even looked at me sideways.

Hell, the precinct where I live went for Trump 58-34 in 2016 (the year I moved here). The precinct a few minutes away where my parents live was 57-32. Most of the ones around us were 60-30. Again, no problems.

I have to agree with the sibling comment. I have no idea how these folks would perform on an IAT (and I don't care because they're bad science: https://qz.com/1144504/the-world-is-relying-on-a-flawed-psyc...). Southerners are nice to visitors and keep their thoughts to themselves for the most part. I'd rather deal with that than west coast frigidity or NYC aggressiveness.

Thanks for sharing your perspective, its nice to get another view.

This is immaterial. People can be very welcoming to tourists and hostile to the very same people as immigrants. As a brown person who drove extensively through the US both North and South you would mostly see very welcoming people, the same places you would hear horror stories from people like me who actually lived there.

The above comment was in reference to a road trip.

As a brown minority who travels regularly all throughout the US, I believe your statement only rings true for minorities with strong politically left-leaning identities. The only reason that persuades me against stopping in any location is the price of gas is too high or there’s better food options in the next town. Additionally, I find the contrary to be more true — people in major cities generally make me much more nervous.

That's an interesting point and I wonder what's the cause. It's possible that minorities who had bad experiences growing up in rural areas moved to urban areas and developed left-leaning political identities.

I think there's also an element of cultural mismatch. Trevor Noah has a great passage in his autobiography about how he could cross the intense inter-tribal antipathies in South Africa by speaking another tribe's language: https://www.josephineelia.com/power-of-language. Rural places in America are like places everywhere else in the world--you have to "speak the language" of the people in the place where you are. If you go to rural France and conspicuously don't speak French, you'll face hostility. Obviously in America we speak English everywhere, but if your mannerisms and attitudes give you away as an outsider, you might not get the same warm reaction as someone who knows the cultural cues.

If you lived in the types of areas where people 'move to', you'd see it's not the state that turns purple, it's the immigrants. Then they turn reddish (or they quickly leave).

Hey, you can leave US you know. Europe will probably gladly have you.

Please don't. The housing market is fucked in EU urban areas now too. Without an inheritance you can't afford to buy anything decent around a developed city with jobs even on a tech salary.

As selfish as this may sound, the last thing we need is more foreign competition on the housing market with bigger pockets.

It would be fair that if people from the US want to buy property here with their foreign megabucks, we should also get unrestricted visa-free access to the US labor market. Tit for tat. Otherwise it's just unfair to Europeans to be outspent out of their own housing market.

Yes, because nothing would ruin Albania or Georgia more than a few tech workers siphoning profits from US into their local economies.

Of course it wouldn't ruin the countries themselves, the countries would profit somewhat, but it would however hurt the middle class since now they have more competition on the housing market that's much wealthier so you're increasing inequality.

Just because the country is profiting from your megabucks, doesn't mean the average Joe is.

Look at Austria. The most touristic areas are profiting a lot from all that foreign tourist money, but a lot of the locals can't afford to live there anymore as all that tourist money is only going into a few pockets. Those who don't already own something or have an inheritance have been royaly fucked by that tourist money. It increases inequality between the haves and the have-nots.

> it would however hurt the middle class since

If the middle class are the ones buying the properties, then they're the ones selling them. Therefore it actually injects money into the middle class, foreign capital that never existed in that country.

>he most touristic areas are profiting a lot from all that foreign tourist money, but a lot of the locals can't afford to live there anymore as all that tourist money

Those who move to a country to work and live there on anything but a very short term basis on not generally considered tourists. Most of the money flowing into the rich is a function of capitalism, not just tourism. You can examine virtually any industry and make the same statement. Yet, some fraction of money is usually better than nothing for the middle class people benefitting.

The US has your Austrian analogue, it is called Hawaii. In Hawaii most money is made from tourism. The common person there is mostly employed in tourism. Housing prices are high, because lots of people want to live there. The result when it was mostly closed off for coronavirus was that although demand for housing decreased, unemployment skyrocketed without tourism, making the middle class worse off.

>If the middle class are the ones buying the properties, then they're the ones selling them.

Sorry but since you make no distinction between someone owning and selling a house ($500k asset in Austria) and someone who doesn't own a house and call them both middles class is just plain wrong.

The property owner middle classer is significantly better off than than the other and would benefit even more from your intention of buying while the other middle classer is worse off without a property to his name and will suffer more from being in competition with you.

Sure, one guy profits, but you can't possibly tell me with a straight face someone else doesn't get screwed from this wealth driven game of music chairs which is the property market right now.

You just said the middle class was the competition for these houses. If the middle class are the ones who own these houses it follows they are the ones selling them. You seem upset you were caught up in your fallacious logic and fail to understand it's the middle class making the money off these sales.

I think you misunderstood my comment, but whatever. Still, to follow up on your latest example, the classes below those who own the properties you want to buy get screwed since you're still increasing inequality between the asset owners and the non-asset owners by increasing housing demand. Simple.

I don't follow. The total wealth inside country starts out here:

value of house + value of rest of economy.

Now someone foreign comes into the country to live there and work in tech from abroad. They buy a house. Now the wealth inside the country looks like this:

value of house + foreign money paid for house + value of rest of country.

You can see that the wealth inside the country has increased. If it is the middle class owning those houses, then the wealth of middle class has changed by the difference in value between the value of the house and what it was sold for. The middle class then further benefits from whatever money the foreign worker spends in the country, which is a net gain for the middle class, plus the injection into the economy of the foreign money paid for the house. The only way the middle class end up worse off here is if the foreigner doesn't live and work here, and is just a foreign landlord (siphoning money out of the country) -- which is something I think we can both agree is detrimental.

I will say here in the US people have a lot of problems with foreign landlords and people who buy property here and don't live here. But only the most backwards rednecks have serious issue with an honest foreigner who buys a normal middle class house to live their lives, especially if they are injecting foreign capital into our economy.

I know in Berlin they consider themselves to be having a housing crisis but last I checked apartments in desirable districts of Berlin were like a quarter of Bay Area housing prices, for example < €1000/mo for a 2 bedroom / 50 m^2 apartment.

When was that? Prices are higher now for something decent. Also I was taking about buying property not renting.

>districts of Berlin were like a quarter of Bay Area housing

So what? Nothing touches Bay Area prices, even in the US. And then there's the income difference as well.

Try comparing to something more similar like Texas. Last I checked average dev wages in Austin are easily 2x more than average dev wages in Berlin while buying a house there costs the same. So who's buying power is stronger then?

Buying something decent in Germany now, in the current market is nearly impossible without an inheritance.

Before COVID-19, when I was still allowed to travel :-/

Prices are higher now. And please don't compare Berlin to SF it's apples and oranges.

So are the wages. Or maybe not exactly that bad, but they are no where close.

You've basically described the sentiment and current situation with the US midwest and south.

Yeah you might wanna look up housing prices there. Most young people don't own and the average size of the places they live in is much smaller.

I have no idea why I have been downvoted. There are many comments on HN recommending immigration to US, whereas people can remote work from Europe too. There are plenty of places where you can live well as English-speaking person. It does not have to be a capital of an EU state, there is plenty to choose from, esp. when working remotely.

OK but this is not actually happening. Young, well-educated people with high incomes are the only types of people who continue to flow into California. They are driving out poorer and generally less-well-educated people, because of course that is how it will work in a competitive housing price market.

See this report for details: https://lao.ca.gov/LAOEconTax/Article/Detail/675

The source just shows a net outmigration of taxpayers from California.

It doesn't say that rich young people are replacing old.

It just says that wealthy & older people are leaving in big enough numbers that there's a sizeable ourmigration.

It's important to note that natural born residents have been fleeing California for a long time, and a substantial portion of the young, high paid workers are on H1B - so non-permanent.

Doesn't sound like you scrolled down. The heat maps clearly show net in-migration of younger high-earners.

> Live among people you disagree with -- we're all still Americans, it'll be OK

I grew up in the American south, and migrated to California as an adult. As a Black person I can say this doesn’t work as well in practice. It’s better than the old days (when my mom was growing up segregation was still legal and the military warned her parents to be back on base before sunset.) But I’d much rather live in a welcoming area.

That is...a very fair qualification. I grew up white in the South, where my mom used to tell me stories about school integration. Knowing that my otherwise-welcoming neighbors/family/peers might randomly turn out to be racist assholes when confronted by someone of slightly different skin tone was and remains my least favorite thing about the place, by a margin that's wider than Texas.

There's "be the change you want to see", and then there's "move to a place where you're likely to murdered in the street for pointless, intractable reasons." I can't say I blame you for getting the hell out; I just hope that in our lifetime you feel comfortable going back to where you grew up.

The weather's great (except for the hurricanes) and the barbecue is amazing (except in the Carolinas). Maybe one day you can get back here and we can all work together on fixing whatever the hell is wrong with (some of) the people.

> the barbecue is amazing (except in the Carolinas)

how dare you

I grew up in West Virginia. I'm not going back to 'the south'; people there would slash someone's tires if they found out they're gay. In contradiction to the history of the state, confederate flags fly over every half dozen trailer parks on the 30 mile one-way trip to Walmart (the only supermarket). Multiple bomb and shooter threats every semester at a school with 900 students. My high school graduating class had 1 non-white student to give you an idea of the cultural diversity your child might be exposed to. The jobs are leaving and not coming back. I personally know someone who died of prescription opioid abuse. Would you want to raise a family there?

(By the way, the county where I grew up is considered 'progressive' due to its proximity to the NOVA area)

I think it's already a foregone conclusion at this point with respect to the migration. Places like Boise Idaho have already been smacked with the SV stick and their housing market has been a horror show ever sense. The problem won't be the personal politics of the migrants but rather the effects that come from them eating up more resources which the governments in those red states haven't accounted for, especially housing and schools. There's already a strong anti-migrant (or rather anti-Californian migrant) sentiment in places like Colorado and Idaho last time I read up on it. I expect this to get worse and probably cause some strange events (not like personal violence but more political upsets in the coming decades).

And yet no one is promoting vasectomies. I know exactly how to reduce demand without increasing supply, but it'll take about 30 years.

The birth rate is already dropping in the US....

And yet the population is not. Ergo, you're competing not just with your fellow citizens, but the whole planet.

The OP suggested vasectomies to bring down population, the result is the same.

Are you suggesting we kill off part of the current population? What's your point with this comment?

> Providing supply will suffer the wrath of BANANA/CAVE/NIMBY anywhere you dream of living

TBH I would have said the same thing 5-10 years ago, but I think this notion is outdated now.

I live in a famously NIMBY city (Seattle) and things have changed a lot in the last 5 years. I would guess that single-family zoning will be gone within 5 years.

Although I don't buy it, some people even argue that SFH zoning is already gone in Seattle due to ADU/DADU reforms.

State level reform is important. Here in Oregon, we have HB2001 that allows for up to 4-plexes everywhere. City council's can't stop it. A local NIMBY lady ginned up a bunch of opposition to its local implementation and even put a full page ad in the newspaper. It went through anyway.

The folks at YIMBY Action are a great resource if you're serious about making progress on this kind of thing.

The solutions are political not technical. Housing needs to be something that isn't used primarily to make money. Cooperatives, Vienna-style PPPs, and a society where if your house price doesn't constantly increase you can afford to retire.

The solution is to leave cities that aren't affordable. Sorry, but you may not get to live beach-side or be in walking distance from your hipster coffee joint in downtown SF.

I really think a lot of the problem is our generation grew up watching too many movies and they just think it's normal to live in some high end condo in Manhattan while working for Enterprise Rent-A-Car. That's not realistic.

Yeah a lot of older millennials grew up on shows like Friends. We were disappointed in our mid-20s when we discovered our entry-level job wouldn't afford that large condo in downtown SF or Manhattan.

But it has got out of hand. I earn 90% more than most full time workers. And like 50%+ of "households" out there, it's just me, so no dual income. And I don't think it's appropriate to expect 40 year olds to still live with a bunch of roommates like they did when they're 22.

Forget the 2K ft^2 apartment in Manhattan or Mission District, I can't even afford the starter home out in Jersey or East Bay or Beltway DC. These aren't the mythical "McMansions" that everybody always uses to deflect from the affordability crisis - these are the exact same properties on tiny lots that a single-earning non-college-educated factory worker or postman or paper pusher could easily afford for his family in previous generations.

And if I - earning 2x-3x more than most workers - can't afford these basic homes, how the hell does everyone else who earns the median income of $60K do it?

>And if I - earning 2x-3x more than most workers - can't afford these basic homes, how the hell does everyone else who earns the median income of $60K do it?

By living in a rural area or not on the coasts.

>And I don't think it's appropriate to expect 40 year olds to still live with a bunch of roommates like they did when they're 22.

I guess that depends on your culture. It's pretty normal to have multiple families or roommates in other countries.

The only legit way I can see to fixing some of these issues is to ensure you do not let investors outside of your country buy up property. China is notorious for this. Secondly maybe you limit companies like Blackrock as well. I really dislike the idea of rent control. I don't think people that own a few properties should be punished and pushed out of the market. This just leads to larger corporations owning everything.

Copying a link from a mysteriously dead comment below: https://www.corelogic.com/intelligence/comparing-two-home-pr...

You have to take interest rates into account. The amount you pay, monthly, for a mortgage of the same size is very different at different interest levels.

What people care about is their monthly mortgage payment - that's what makes a home affordable or not.

(Which isn't to discount that downpayments are a percentage of home cost, and that's pricing people out of being able to buy anything at all, even something they can easily make repayments on.)

Does this mean that when interest rates go up, home values may drop, leaving people underwater?

Absolutely.

Although it's more likely that they'll just remain stagnant, which would be just fine.

People being underwater happens to mean that the banks have bad loans. We have seen that movie before.

Interest rates will not be allowed to increase faster than the property market can absorb. You can count on that; the political imperative could not be more clear. The next crisis will probably be some novel flavor of financial recklessness.

Exactly and the market is confident the the government would intervene to prevent another housing market collapse which just compounds the effect further.

How much of this is a result of our "don't tax the rich" policies that created a staggering amount of wealth at the top that has nowhere else to go? So many ultra rich investors are looking for something, anything, to invest in. Plus there is the feedback loop of massive growth you get as the bubble inflates.

Is this a direct result of our fiscal policy? Have we destabilize the economy in order to create the richest muilti-billionaires?

I fully expect that as we tax investment income more and more, we'll see this trend in real estate worsening as it becomes an even more attractive investment vehicle.

This is happening outside of the USA, in countries with more progressive taxation too. Canada, UK, Israel - all with much worse house price to income ratio compared to the USA.

These homes are not owned by billionaires either. It’s an asset class that’s very broadly distributed by its definition; most people own their homes.

I think it’s mostly driven by macroeconomics. Near zero interest, population growth (organic or through immigration) and historical real estate appreciation all fuel this trend.

It doesn't matter so much if a country is taxing their own rich if they allow rich people from other countries to buy real estate.

I’ve never seen any data showing that housing bubbles are attributed to “the rich”. The housing market is made of tens of millions of individual home owners, not some moguls cornering the market.

The term you want to look for is "investment properties", or in some cases "foreign investment".

“Rich people” investment properties are a negligible share of the total housing market so this theory most often used as a scapegoat by the “eat the rich” crowd.

If anything, more real estate investment would create more housing stock. Someone’s not building enough.

I don't actually think new housing developments are a really high RoR and building your own house has a high barrier of being able to support and house yourself while floating the full value of the house you're trying to build - for that reason new home owners almost never buy their own house. Additionally arguably the most valuable part of owning a home is the appreciating value of land - and land most steadily appreciates in stable communities (where a plant closure won't suddenly tank the market) and the best of these are urban centers where the market is extremely stable. All that is a long way to say that investors specifically want to buy that condo that's right next to your office and they're much less interested in investing in some development out in the boonies that will only gradually accrue value (and be impossible to exit for the year or so that the units are actually under construction).

Lastly, we've got NIMBY - this is the source of nearly all our housing woes because if you could buy up all those single homes in SF and convert them to condo towers we'd solve the housing crisis overnight - but that would "ruin the neighborhood" and, more importantly, depreciate the value of all those inflated house prices - and that's why all the neighborhood councils will continuously vote to perpetuate the shortage of housing.

People do want to build more housing - but people who own the land are stubborn assholes. When it happens that an investor manages to secure a full block of single family homes in a downtown core they'll almost always try and convert it to condos - but then they've got to fight against the NIMBYism and they'll usually lose because as every 80's movie ever taught us: "The evil developer is trying to tear down the community center - we've got to stick up for the neighborhood and win that tournament!"

Leveraged asset buyers have an influence when inventory is so low.

Agreed, but the fundamental problem is that inventory is so low. Super low inventory and vacancy rates cause far more problems in addition to prices being set by a wealthier percentile.

Ironically the inventory would have been higher if more rich people invested in real estate projects, instead of stocks and bonds.

I don't think the bottleneck for new housing is investment capital, it's mostly about getting permitted to build, and also getting enough labor. There's a fairly big shortage in the trades, as the boom-bust-cycle has forced more experienced people out, and there hasn't been many new people getting trained.

Also, a lot of the opportunity for large scale projects is gone; building a large tract of homes in the Bay Area means building super-exurban in places like Tracy. Projects like the Vallco mall replacement in Cupertino take a decade+, and what ends up getting permitted will not usually look anything like the initial plans, or what's technically allowed by law. (This is changing slightly in California in that by adding enough below-market-rate deed restricted units, you can build according to code and zoning without greedy neighbors vetoing the project. )

It might be helpful to take a deeper look at the housing markets of Toronto and Vancouver - both are urban centers with a lot of employment opportunities and homes owned by regular folks - but they've also both been ravaged by a plethora of investment properties which, in a self-fulfilling manner, are driving demand through the roof thus justifying more investment.

If you asked me what keeps NYC real estate prices up, I'd say "rich people", but the dynamics of distinctive urban centers such as Toronto, London, San Francisco and others don't apply at all on a country level. It's not the same types of assets, buyers or price levels.

So yes Toronto might have been influenced by rich Chinese buying properties, but does that extend to Canada as a whole?

It happens in countries which don't allow that too.

The amount of private equity in housing is really underreported I think - still the vast majority of people owning second homes or additional property are doing it for investments, but there is nothing stopping an “uber for housing” where they use VC money to buy up massive amounts of properties and influence pricing. I believe this is one of Zillow’s primary models.

My take is that we need to treat housing as an actual human need, and there should be penalties for buying houses to rent or for investment purposes outside of ones primary residence. That sort of exists in the mortgage interest tax deduction but with rates near 0 that’s become far far less effective.

I think the problem is as much in the ownership as it is in anything else.

In China, where housing costs are skyrocketing as well, there are protests when enough housing is built to start to make it affordable again.

Putting the majority of a person's life savings into their house is, in the end, a pretty bad idea.

> there should be penalties for buying houses to rent or for investment purposes outside of ones primary residence.

There are lots of people who don't want to own a home (e.g. who value the mobility/flexibility of renting), and people who are unable to afford the fully loaded homeownership costs. In these rent-vs-mortgage discussions people often overlook the non-mortgage homeownership costs which can be very significant and hard to predict. I say this as a person who found myself needing an unexpected $25k+ roof replacement in my first year of homeownership.

I suspect living standards for the bottom quintile would actually fall if they had to maintain their own homes. E.g. how are the people who can't put together $400 in an emergency, the minimum wage employees living hand to mouth, etc going to be able to afford to replace an unexpected leaking roof (a $10k+ problem) or a broken water heater (a $5k problem) or refrigerator (a $500+ problem)? A lot of basic amenities are legally mandated for landlords to provide that I think low-income tenants would not be able to maintain on their own. A landlord with a larger net worth is better able to absorb these cashflow problems and keep the property in a healthy state.

Anecdotally, I live in rapidly growing, tech-friendly metro and track housing data in the area. The county assessor's office exposes homeowner's names and you can easily spot the "private equity" owners. They are very few and far between.

> The amount of private equity in housing

I think this issue is, at least at the moment, overstated. Could be a problem in the future though.

I think nationally it just approached 1% of all purchases being done by "e-buyers", with much heavier concentrations in certain areas they're targeting.

Interesting. Where are you getting that 1% figure from? I'd like to learn more.

> That sort of exists in the mortgage interest tax deduction but with rates near 0 that’s become far far less effective.

FYI, mortgage interest on an investment property is also tax deductible. In fact, there's no limit on it like there is on your own personal-use home. It's basically treated like a business expense (which, arguably, it is).

It's fun to blame the super rich but I'd say it's fundamentally due to a combination of population shift from rural to urban areas

https://ourworldindata.org/grapher/urban-and-rural-populatio...

and normal homeowners stopping densification out of fear of reducing the value of their own home or just not wanting the riff-raff living near them. These people are really the ones doing a directly harmful thing for pure selfish greed. They're not super-rich, they're just people's parents. But they're trying to make money by excluding others instead of doing anything useful.

Agree! It's also the densification of urban areas. Where once each occupant had a private office, now 5-6 SW engineers occupy the same office space footprint. That has implications for already dense urban office and associated housing needs.

The long-term trend in urban housing is diffusion, not densification. One hundred years ago a family of five lived in an apartment now occupied by a couple.

I was surprised to learn that the population (and density) of Manhattan was higher 100 years ago than it is today. It's been falling pretty steadily throughout the entire 1900s.

What "don't tax the rich" policies? 61% of Americans pay zero income tax.

Why are the rich getting tremendously rich? Because the Federal Reserve has printed money at an astonishing rate, which inflates asset prices. Who owns the most assets? The rich do.

People are so focused on taxation (because it's something the average poor or middle class understands) when the real issue is the Fed (something most Americans aren't even aware of).

That income tax statistic is misleading. Most Americans do pay social security payroll taxes, which are income taxes, they’re just not called “income tax.”

Even though social security is administered as a pay-go program, the amount of social security you can withdraw is based on how much you put in. This makes it much more like a forced savings account than a tax.

Social security is more of a forced 401k. You will get back the money (in theory), but yes, it's not progressive and impact the poor more than the rich. It's a bit of an iffy one. If the social security system rolled up into federal income tax, it would be much more progressive, but it would likely receive significant pushback in the political space (not knowing its history, I assume it was structured as a separate thing exactly for that reason. I should read up).

Still, the point still stand: federal income taxes are quite progressive, and would surprise most people who wave their angry fist asking for the rich to be taxed more. The problem is mostly at the state and local level.

The top 50% pays 97% of federal income tax.

If you include most types of taxes, including social security, you end up with something a little less polarized: the top 1% have an effective tax rate of a little under 34%, while the poors are around 20%. One could easily argue it's not progressive enough, but it's still not the usual narrative of "I pay more taxes than millionaires".

A a handful of ultra rich abuse loopholes to death to pay very little, and these people are averaged in the statistics (so the average rich person actually pays more than the stats show, if only a little). It's a minority though.

> Social security is more of a forced 401k. You will get back the money (in theory)

Don't you get the value of the money back for all taxation, according to any theory that approves of taxation?

Not nearly as directly though. Social security is basically money in -> money back. A glorified forced 401k, or at worse a kind of retirement insurance. It's a bit more separated. When I pay taxes, I don't get a direct return for it, I get (in theory) a fully functioning society.

Social security would be a little closer to a sewer and water bill from the city (which you have to pay if you're a owner, but you get a sewer in exchange. Whether you like it or not). It's still not a great analogy because Social security is more deferred. It's really its own thing. Still, it doesn't work quite like a tax either.

I personally wouldn't mind if it did though. It's one of those things where we'll pay for it one way or another. If there's an entire generation of people who can't properly retire and pay medical bill, we will pay for them through taxes anyway. May as well do it preemptively and efficiently.

It's not quite a forced-401k though. Social security could technically be abolished (or payments diluted, etc) via an act of congress (even though politically unfeasible right now) - then you don't get anything out of your "investment". It's much harder to "abolish" a diversified 401k plan unless you abolish all private property (i.e. Russia 1917).

Yup, like I mentioned, it's really its own beast, and all analogies will be flawed in some ways. But it also doesn't work quite like other taxes, at least in practice.

> Don't you get the value of the money back for all taxation, according to any theory that approves of taxation?

Roughly speaking, anyone paying more in taxes than the per capita spending is probably not receiving the full value of their taxes. We see this where most welfare (Pell Grants, SNAP benefits, Obamacare, etc) and tax credit schemes (CTC, electric car credit, etc) phase out as people pay more taxes.

Tax is the solution, though, because we should treat owner-occupied homes differently than investment homes. Owning a home to live in it should be more accessible than owning it for capital gains. The market doesn't and can't price in this externality any other way.

Analyzing taxation by headcount doesn't provide much insight.

The top 10% of Americans own about 85% of the wealth in America, and the entire bottom 90% only own around 15% of it.

> Why are the rich getting tremendously rich? Because the Federal Reserve has printed money at an astonishing rate, which inflates asset prices. Who owns the most assets? The rich do.

This is exacerbated by capital gains and dividends being taxed at a lower rate; if the gains due to asset inflation were being taxed at 37% instead of 15%, then at least all this money printing would help balance the budget a bit...

> 61% of Americans pay zero income tax.

This was just last year. The norm is far lower, but was inflated by stimulus checks.

Segueing from “rich” to “multi-billionaires” is a neat trick by rich professionals to divert attention from themselves.

Five years ago, we moved into a 3,000 square foot house in the Annapolis suburbs. We are right on the water so it cost a princely $485,000. But it was easy to get a house in the neighborhood for $300,000 or so, or just 4 times the county’s median income. As a result, the neighborhood has lots of young families (many without college degrees!), retirees, etc. Today, the house next door is under contract for double the price, and is smaller than ours. As far as I can tell, there’s no billionaires or even centi-millionaires anywhere near us. Just upper middle class people whose 401ks have done really well thanks to the Fed printing money like crazy, not to mention upper middle class welfare like more than a year of deferred student loan payments. (Lower income folks with student loans were already eligible for income based repayment.)

Reaganism has won so completely in America that even AOC doesn’t want to tax upper middle class people. But these are the people directly competing with the middle class for fixed resources. They’re the people driving residents out of gentrifying neighborhoods, driving up the price of coffee, etc. There’s not enough 0.01%-ers out there to move the needle on these assets and services.

Well, and most people have fucked up views on what defines "upper middle class". There was a topic on reddit the other night where the most popular posts were saying, without jest, that upper middle class starts at $10 million bucks in liquid savings (and ends around $50MM).

That seems to be a typical view on income and wealth in this country: people's opinions are wealth are out or proportion with reality by factors of like 100. For reference, upper middle class technically starts at around $120k/yr, so $10MM could pay 80 years of an upper middle class income. So there's no conceivable way an actual upper middle class family could actually save enough to be consider what the public thinks of as upper middle class.

I think a bigger factor is that wealth is almost entirely defined by where you live. 120k/yr would be a lot in Iowa but not so much in SF.

Indeed, in San Francisco the low income threshold for a family of four is $117,400 / yr. [1]

[1]: https://sfgov.org/scorecards/safety-net/poverty-san-francisc...

In my mental model, I’ve always considered upper middle class to be people who still do their own grocery shopping, but don’t really look too closely at the prices.

In my experience the kind of people this heuristic selects for is around the same monetary threshold you’ve noted in the low 6 figures.

Yes! My wife and my families both crossed that boundary (on opposite sides of the country) around when we were in high school and we both remember grocery shopping as a key difference.

For comparison: Sydney has a median house price of AUD $1.4M right now, and a house on the water is $2M-$6M easily.

Median income is $56K for Australians in general, and about $90-$110K for areas of Sydney that have water views.

Recently the federal deputy treasurer made a speech that younger residents of the city should consider moving to the country to afford a home. The not so minor issue with this statement was that you have to go very far down the list of towns by size in the state to get to a place where he himself could afford a home on his government salary of well over $200K a year!

I’d be interested in seeing the total cost after accounting for interest in the loans, or monthly cost compared to monthly income. Most people don’t pay cash, and they pay more than the asking price due to interest. So high interest rate periods look artificially lower because they ignore a substantial amount of the price

Very true. The 2008 housing bubble did not have low interest rates. 30 year average was around 6%. Now it's under 3%. That 3% makes a HUGE difference in purchasing power.

Exactly. https://awealthofcommonsense.com/wp-content/uploads/2021/03/...

That said, it doesn't do much for down payment.

This is very interesting but I wonder if the housing crisis is not reflected in that chart because it's an average of presumably average American mortgage rates. What about California mortgage rates? I'd love to see that last chart restricted to California where the prices have skyrocketed.

https://www.corelogic.com/wp-content/uploads/sites/4/2021/06...

Here is the same chart but for California regions

Interesting, but that chart appears to end in 2016?

Corresponding post:

* https://awealthofcommonsense.com/2021/03/what-if-housing-pri...

To me it feels like home prices are the single most important bug in the economy.

If we filter out skilled IT professionals (and other high-paid jobs), fundamentally rich people and also extremely poor (homeless in developed countries and those living in stick/garbage huts in the "3-rd world"), the rest mostly spend almost all their income on paying for their home.

We invent new technologies but average homes become neither more affordable nor more perdurable.

The fact most of the ordinary people can never afford buying/building a home without taking a loan they will have to pay for decades to come seems outrageously absurd to me.

Seems to me that there are two problems.

As jobs and facilities are becoming more centralized. Cities are expanding and rural towns are shrinking. So even without any population growth, houses that people actually want become more expensive.

And the second problem is the expectation that a piece of land near a city will always be more in demand tomorrow than it is today. This is almost certainly true based on the first point and doubled by the fact that populations are still expanding. This expectation means you can buy a house for way more than you believe it is worth since you know it will be worth even more later.

The only solution I can possibly see is moving more people from single family houses in to apartment buildings which allows virtually infinite supply within close range to jobs and facilities that people demand.

The main problem with that solution is that most young-ish people know that if they ever want to own a house, they need to get into the game early so they can build equity.

Besides that, rentals are often way too expensive (matching or exceeding a mortgage payment in big cities) without providing a similar amount of value:

- Can’t do what you like to the interior, like painting walls.

- Not built with the same sort of layout homes have. For examples, loads of three bed/three bath rentals meant to be split by roommates, but not many with a nice room for a home office.

- Often does not provide an important amenity (like AC).

- Almost definitely less space.

- Likely less peaceful, especially if noise insulation between units is poor. (Getting bothered by a neighbor is a lot easier.)

If we want to attract the type of people who want to buy a home to instead rent for the long term, those aspects need to become better. Apartments need to be more desirable than houses.

And that means the folks building apartments and the apartment management companies need to offer a lot more for less. And since apartment buildings are also investments, that will never happen, because the ultimate goal is profit.

I feel like in both cases, it comes back to the fact that property is an investment. It doesn’t make sense for anyone to loose value on an investment, which means there is an inherent pressure to make prices go up over time

> The only solution I can possibly see is moving more people from single family houses in to apartment buildings which allows virtually infinite supply within close range to jobs

This is convenient in a lot of ways (e.g. apartment-first cities have better public transport and less segregation) but doesn't really solve this particular problem. The apartments still are very expensive and the prices grow rapidly. Again nobody except rich entrepreneurs can afford buying them without a mortgage and the rent still is everyone's single biggest expense. I even suspect even Hongkongers living in "cage homes" still spend the most of their income on these.

Apartments are still expensive but they are affordable. The average person could realistically buy one while house/land prices are rising much faster than savings so if you aren't already able to buy, you become further and further behind.

The HK problem seems to be that they are so overpopulated that even apartments have run out of space. Most of the world does not have this problem and will never have this problem because the enviornment would collapse before the population of Australia or the US fills apartments on every block of land available.

I would add government requirements to the list of problems. You can't just build a house the way you like/can and live there like you could in the past. Today you have to get the authorities approve every detail in your house construction design, hire licensed builders, use certified materials etc. This makes sense in cities but is required in rural areas too, all over the developed world. As a kid I spent some time in a number of houses built by their owners out of scrap and "hobby market" materials with just their hands, simple tools and no serious design and that was great.

It's not a bug, it's a feature.

- How do you keep so big part of the population working all their lives otherwise in jobs they don't like if not by necessity?

- How can you earn as much passive income as possible (landlords, investors)?

> How do you keep so big part of the population working all their lives otherwise in jobs they don't like if not by necessity?

Why do you need this? I always expected working time to keep decreasing but it doesn't. Humanity generally achieved 8x5 work week but doesn't seem progressing any further. If I had more spare time with same income I would continue my education and spend more time on hobbies, side projects, leisure, fitness and family (all these can still keep people busy contributing to the economy).

> How can you earn as much passive income as possible (landlords, investors)?

Why do you need this? As every normal person I would love to have passive income covering all my needs but "as much passive as possible" sounds like a waste of effort. I only want as much as I can reasonably spend without wasting my time on inventing new problems.

I appreciate this effort since this gets closer than reporting on house prices alone. As other's have pointed out there are a lot of significant factors being left out (e.g. interest rates). One of my favorite analysis is the historical chart on how many hours you had to work for an hour of artificial (candle, lamp, electric, etc.) light. I'd love to see this applied to housing, though housing is extra difficult because the quality has also changed immensely (indoor plumbing, electricity, etc.).

>As other's have pointed out there are a lot of significant factors being left out (e.g. interest rates).

>though housing is extra difficult because the quality has also changed immensely (indoor plumbing, electricity, etc.).

This blog goes over both those points. https://awealthofcommonsense.com/2021/03/what-if-housing-pri...

tl;dr:

1. inflation adjusted mortgage payments are actually down

2. houses have gotten much better since a few decades ago.

Great analysis! Thank for sharing that link.

> 2. houses have gotten much better since a few decades ago.

I'm sometimes reminded of this when I see old footage of shows like "Lifestyles of the Rich and Famous". Many mansions from the 1980's kind of look like dumps.

Just wanted to correct that no.2 is irrelevant. Things being much better has only to do with technology and productivity.

If you had told me "Houses have gotten much better, but the cost to manufacture the things that make them much better remains the same" then you'd have a point.

I see this argument over and over. "You're so much better off than your parents, what are you complaining about?! For example in my time we couldn't even fly, and now with your "low wage" you can! Proof that the wage is not so bad!" Well BS argument. For example, now we don't fly in fully manually built airplanes, that were designed on paper, with hand calculators.

I think there's a pretty critical piece of analysis missing here: inflation. An alternative explanation might be that housing prices are being driven up by inflation, and wages haven't caught up yet. There are two ways to lower the home value/income ratio:

1. Decrease housing prices 2. Increase wages

We haven't seen meaningful wage increases for a long time now, so perhaps it is time. Maybe this is just a symptom of wages not tracking with inflation, and the solution is to pay people more.

Add our current low interest rates to the mix as well and the picture changes dramatically

100%. Though, interest rate based appreciation is likely at its apex, presuming zero is the floor. If we find ourselves with negative rates (after taxes and fees; there was one case of negative rates in Europe, but net inclusive of fees, it was still positive) -- then we're in truly uncharted territory.

At this juncture, it seems most appreciation will arise from supply issues, which aren't new to the post-2008 world. And while we do have lots of unoccupied housing nationally, we don't have it stock in areas where it's most needed: e.g, job centers. You can easily find a $10k home in Detroit if you wish.

The graph would be helpful it broke out metro versus rural areas, in addition to factoring interest rates.

I agree that wage growth is stagnant but I think the changes over the last 20 years of real median wages is definitely meaningful. Look at the changes from peaks in 2000, 2007 and also from a deep trough in 2012:

https://fred.stlouisfed.org/series/MEHOINUSA672N

Why pay them more when they're content with what they get now?

I upvoted your comment because it clicked with me, but now I'm thinking about it more.

_I'm_ content with my pay now, perhaps others aren't and there is little they can do about it. How might we even define "content" for a cohort as large as "anyone buying a house"?

No, trust me, people are content with renting a room and living month to month.

There's nothing to worry about.

I'm starting a business selling guillotine insurance...

I don’t think I would characterize most millennials as “content” with their income level.

With increased wages come increased housing prices, as long as there is a supply mismatch to the baseline demand of housing to survive.

An increase in wages (real or nominal) without any increase in housing supply just leads to more money chasing the same supply which means higher rents. We are seeing this play out as we speak in every major city in the U.S.

The solution is not to pay people more, it's to increase the supply of housing to the point that people can pay drastically less for housing. Look at China: apartment towers on every street, each 30+ floors easily. Where is that kind of density in the U.S.?

Why do they use "average" home price (without specifying whether it's mean, median, or modal), with "median" income? It makes these graphs very difficult to interpret.

“Mean” is quite literally the average.

>”Mean” is quite literally the average.”

No, median is the average home, mean is the average of homes, and mode is the most common of the homes. They are all “average home prices”, just different averages.

Also, I would be willing to wager that the spread of housing prices has increased over time. That prices in the cities have grown much much faster.

So nowadays there are many people who want to live in a city but can't afford to, and there are many homeowners in the towns who haven't seen much appreciation of their largest asset.

Meanwhile back in the 50's someone could afford a house in the suburbs on a single income (a laughable concept today) because it wasn't many times more expensive than a house in a small town.

I’d love to see the same charts in terms of monthly payments on a new mortgage, rather than sticker price. The price itself matters in terms of downpayment, but ultra low interest rates are a huge factor. Right now, interest rates are so low that a huge mortgage has the same payments as a small one years ago would have been. Especially when you take inflation into account.

One thing I think people overlook is that there's a hidden cost to buying at low interest rates: if rates go up that will eat into your resale value, and it's less likely you can refinance at a lower rate in the future.

If you bought at a high interest rate and then rates drop you really make out, and that's less likely to happen to people buying now.

Also, artificial low rates are causing increased inflation of prices, which means cash buyers and buyers that would pay off their mortgage quicker are at a disadvantage.

> artificial low rates

What do you mean by artificial here?

For example, Interest rates are so low that the traditional alternatives of stock investments are no longer present. Traditionally, a bond would include a rate that is beyond inflation. Nowadays, government bonds return rates below inflation. This is artificially low and creates a bubble in the stock market (and other assets like real estate) since the traditional option to put money in bonds has been artificially devalued.

Rates depressed by the central bank buying everything deemed "safe".

Very few "natural" investors (as opposed to "artificial" central banks) would accept a 0.25% yearly return on their capital.

https://tradingeconomics.com/united-states/interest-rate

One thing not captured in this chart is that the average house size in the U.S. has nearly tripled since the 1950's.

Not only are the houses much bigger but families are also much smaller.

It also ignores interest rates. Unless you're paying cash, the price of a home doesn't really matter -- what matters is your monthly payment. If you bought a house in the 80s, a huge chunk of change every month went to bankers, not to principle. So the fact that you got a "cheap" house doesn't really matter, because you were still paying an arm-and-a-leg for it.

You are still way better off buying a house during high interest rates. While you can refinance a high interest rate away, the reverse has a lot more risky (overpay during low interest rates and try to recover cost via appreciation).

Came here to upvote anybody who mentioned Henry George and the land value tax. Can't believe I'm the first one in this thread.

Read Progress and Poverty, he predicted it all over 100 years ago, and provided the solution. https://oll.libertyfund.org/title/george-progress-and-povert...

He didn't provide a workable solution for how to value land.

I love George as much as anyone, but valuing land independently from what is on it is very tricky. Yes, yes, i know there are a bunch of suggestions for how to do this, but none of them seem to work well easily in practice.

I discovered Henry George in one of the previous threads on HN. Read the book review that was posted and felt like a light bulb went on in my head.

Over the next 2 months, i awkwardly would try to mention it in conversation to everybody haha. Most people patient enough to listen agree but see that there’s no hope of change because everybody’s lifesavings/nest are tied down to the value of their homes already.

One thing it made me realize is I should probably look into buying land more.

One thing this ignores is interest rates and availability of credit.

The biggest determinant of homes people buy is not the total price, but rather how much cash do they need for down payment, and what will the monthly payment be.

With low interest rates and increased credit availability ( you don’t need 20% down payment in many cases now), people on the same income are actually able to buy a more expensive home.

I think looking at monthly mortgage payments to income ratio over the long term might actually be more informative.

Agreed. As much as any other factor, that anyone with a bit of money can now buy an expensive house feels like the thing making the housing prices go up. (As well as our general inability to build.)

> The biggest determinant of homes people buy is not the total price, but rather how much cash do they need for down payment, and what will the monthly payment be.

I agree this is mostly how people decide, but it's not necessarily a good idea. buying a very expensive home at historically low interest rates is a significant risk. there's a good chance you get upside-down on that loan over a 15-30 year period. better hope you don't get divorced, lose your job, or need to relocate during that period.

Affordability is limited by lending requirements.

Start with home price of $250k for example. If you can manage a 5% down payment (arguable) then the loan is for $237.5k.

With a 30 year loan at 3.5%, the principal and interest is $1,066.48 per month. Gross this up by 0.7 for taxes and insurance to get $1,523.54/month.

Lenders will typically allow your payment to be as much as 28.0% of your gross income. This get us to income of $5,441.23/month or $65,294.76/year.

The multiple now if $65.3k income to $250.0k of house or roughly 3.83X.

I just got a 15yr fixed rate at 2% (!) which made me think a lot about what's behind your comment. In particular, what will happen once rates go back up:

1) Right now we are at zero short term rates, and moreover mortgage rates are propped due to Fed purchases of Agency MBS

2) Say rates go up 2% (not crazy) in parallel. So now your 3.5% becomes 5.5% which is still historically moderate. However, the 5441 required monthly income from your formula is now 6877! 26% increase.

3) What then? Prices go down?

Regarding 3 I would figure either prices would have to come down, financial assistance comes from somewhere, or the house winds up being rented after being purchased by a management group.

House price is inversely correlated to interest rates BECAUSE most buyers are getting a mortgage. So the price of the house "will drop" (hard and fast estimate here not a law) if interest rates rise because people are paying for house+interest = total_cost_able_to_pay.

I watched this play out in real time as I purchased my home. Rates dropped, prices went up to fill the gap. Owner got a bit more money vs the bank instead.

Basically I gave my money to a different person, but the "all in" was about the same.

These charts are not very useful without taking interest rates and inflation into account; in fact you could almost use them to discuss interest rates and inflation, they are so intimately tied to housing prices and income.

If housing interest rates stay low or drop, prices will keep rising. Absent wage inflation that ratio will go up.

If inflation flows through to wages as it seems to be in process of doing, the ratio will stabilize or drop.

I wouldn’t say we’re in a bubble, even though the numbers look like the last bubble. At least in my local market there’s a small number of home sales being distorted by a handful of people at the top of the income distribution.

What we’re seeing is a lack of housing, not middle class people buying up housing they can’t afford.

https://fred.stlouisfed.org/series/PSAVERT

Personal savings rates are at all time highs. So it's very possible the landscape has shifted under our feet. The past is not prologue to the future...

My worry as a potential buyer is that rates might remain low and home prices will roll over. While I don't have a super high conviction that will happen, the potential risk of losing more of the value of something then my net worth greatly offsets the probable benefits of getting in now.

I have in my head the rule of thumb that you can afford a house 3x your annual income (or a mortgage 28% of your monthly[1]).

I don't see the line crossing 3 anywhere on that chart.

[1]Which translates to 4.2 on a 80/20 loan

> I don't see the line crossing 3 anywhere on that chart.

The chart is for the average house, but the median income. Maybe the higher income are skewing the distribution of house prices.

Going of the bank calculators, they all say that they will let me borrow 6x my income.

IMO we are in an inflationary cycle that is being underreported. Everything is becoming more expensive including you. It’s just that housing is becoming expensive faster than you are.

The US has a strong incentive to inflate their way out of debt post Covid. But the optics are catastrophic if they do it overtly. So they’ll keep reporting it low as long as possible. Look around you for reality.

If I’m right, you’ll want to take on as much fixed rate low-interest debt as you can stomach. Which explains why housing is getting expensive faster than you are.

It still boggles my mind. I started working in 2009 when 7.25 became the defacto minimum wage. But since then, I've noticed that the cost of everything has almost doubled faster in just the past 2 years than it did in the preceding 10. It's almost as if limitless government stimulus and inflation is bad for the economy...

This bears repeating: http://www.iedu.com/Documents/Manifesto1892.html

That is a link to the banker's manifesto. The ideal scenario [in the manifesto] is for home prices to far eclipse yearly income, and for houses to be owned by banks instead of occupants. Everything old is new again...

I wonder, is there a similar metric that tracks the average monthly mortgage payment over time instead? I think for most people's purposes that's a more relevant number and won't have the confounding factor of interest rates (except to the extent that interest rates influence home prices, so maybe this would end up mirroring the case shiller index?)

I've heard 3x income as a rule of thumb for how much house one can afford, but it looks like that's never been widely followed. It also doesn't make a whole heck of a lot of sense as interest rates have varied so widely - a better rule of thumb might be a ratio between the total amount of payments over the life of a mortgage and one's income.

The 3x income rule is usually mentioned by your loan officer, and your real estate agent. They will present you with houses costing 3x your income as a baseline of what you can afford.

That's funny, you need to earn 250000/year to be able to afford _something_ in Vancouver by following that rule.

or 600000/year for a starter home

Agree. From experience, people look into how much they would pay monthly and their income.

This then begs the question: what will happen once rates go up even a bit, and houses suddenly require a 50% larger monthly payment.

Most mortgages haves fixed rates

Of course. But buyers still need to be able to afford houses they purchase. With higher rates that might not be true.

Does it matter? From an individual's perspective, if you can make the monthly payment then all is well. Sure, the market may tank but all that does is effect your ability to move.

New mortgages will need that extra 50% driving home values down due to future homebuyers having less "monthly" purchasing power.

Over what time period? I think I’m America you can get a 30 year fixed rate mortgage. In Canada, 5 years is the most you can get even if the amortization period is 25-30 years.

In the US, 10, 15, 20, or 30 years in my experience

IMO the ratio depends entirely on your age. It makes a lot of sense for someone in their 20s to go for a 4x ratio (with caveats, such as fixed mortgage rates). It makes no sense at all for someone in their 60s.

3x income for your debt load or for the overall home cost? Either way it seems like it wouldn't really directly translate to a % of income as monthly payment.

That rule does not work in Australia, Canada or the UK :D

Median salary is about 80k AUD in Western Australia. Median house price is 840k.

Even with 2 full time salaries of 80k your maximum would be 480k.

https://www.numbeo.com/property-investment/

Asian cities are way more expensive than american and european ones. Home price with a multiple of 15x to annual income is surely high.

> Price to Income Ratio is the basic measure for apartment purchase affordability (lower is better). It is generally calculated as the ratio of median apartment prices to median familial disposable income, expressed as years of income (although variations are used also elsewhere).

Hong Kong is having a price to income ratio of 44.69 https://www.numbeo.com/property-investment/country_result.js... with Price per Square Meter to Buy Apartment in City Centre of HK$ 253,655.52 (32k USD)

Side question, is the data highly sought after that the website is fetching US$20 to download?

Probably need a 3rd time series that takes interest rates into account to provide a monthly-cost view.

Given sufficient savings, the price range for home shoppers is controlled by the monthly outlay which is driven by interest rates.

Sub-3% interest rates in 2021 means that the same monthly cost drives the headline house price a lot higher than 6%+ pre-2008.

Pay is not gaussian so comparing median salary to average home price is confused (average salary is 45% more than median salary in the US with wide regional variation). Case Schiller also only looks at single family housing stock so it won’t capture anything higher density (apartment like condos, duplexes, etc).

In order to raise home values further, they'll start offering a 40 year product to everyone. This will lower the monthly cost further. It makes sense, as the bank wants to keep the money train rolling. It's actually "good" for everyone; underwriters (lower payment = lower risk), salespeople (continue to close), C-level execs (keep that money train rolling), home-buyers (heck yeah I can afford that 4 quadrillion dollar home).

I believe the way they're currently handling "lowering payments" in delinquent loans in the United States is by offering 40 year terms on loans as adjustments. Rather than foreclosing, they offer a more palatable monthly rate by extending the loan for 10 years.

Zillow and Open Door are manipulating the home prices in US. https://news.ycombinator.com/item?id=27765536 Cheap Loans, surplus cash, and inventory hoarding.

One important change: Funds and investors are allowed to buy single family homes starting 2012. That's one reason for the crazy housing market and makes the price to income ratio less useful.

(Src: https://www.theatlantic.com/technology/archive/2019/02/singl...)

“ an average single family house in the United States cost more than 7 times the U.S. median annual household income. ”

Why average numerator divided by median denominator?

My eye was drawn to the graphs. Especially the house price / income graphs. There seems to be a trend in the US graph: if you zoom in far enough, you can see a consistent drop in Januari (every year). The UK graph does not show this trend..

Does someone know the origin of this trend? And why the two countries don't show the same trend?

A more accurate measure of affordability change might be home payment to income ratio:

https://www.corelogic.com/intelligence/comparing-two-home-pr...

Home price isn’t technically the right metric. “Mortgage payment to income ratio” is. As mortgage interest rates go down home values go up, but mortgage payments might now.

No doubt housing is expensive and getting more expensive. But I’ve always wanted to see the mortgage payment plot too.

Can anyone explain what the cause of the steep cliff drop in the first graph that occurred between 1953 and 1959 might have been? Would this be the postwar suburban building boom driving down prices? Something else?

> Historically, an average house in the U.S. cost around 5 times the yearly household income.

I just purchased a house in July for 3.7x my yearly household income. The above fact makes me feel better about the purchase ;-)

I wonder if how this can be corrected for the different timing of the numerator and denominator. I assume housing prices are closer to real time while median incomes are lagging by a year.

Just throwing an idea out there: what if we abolished or heavily penalized long term renting?

No more renting a house for years. No more apartments. If you are in a long term contract, you get equity.

I haven't seen this commented on, but I find it really intriguing the button at the bottom to buy the data for $19.95 USD. Pretty interesting form of side business.

NB: The Y axis of the first chart does not start at 0.

I missed seeing your comment (you beat me to it by 4 minutes)!

Given that the median household income trend is (relatively) linear over time, is this ratio telling us much more than median home prices alone?

The most surprising thing here to me is that a home is 5 times annual income. That seems insane to me. That would mean someone making $250k per year would be able to afford a $1.25m home. I don’t see how that’d work, unless that person has almost no other bills and or lives in a state with extremely low income tax. After taxes and other expenses $250k / 12 is not that much. Certainly not enough to buy a $1.25m home.

And people scoff at cryptocurrencies...

I wonder what would happen if we stop financial institutions from “investing” in residential real estate.

Do you mean stop institutions from purchasing residential real estate or are you referring to providing mortgage loan liquidity?

Now it’s good time to mention that ‘The Big Short’ is a good watch.

Our parents really ran this shit into the ground didn’t they?

Seems like there were a few memory leaks in the last century.

Now adjust that chart for interest rates and monthly payments.

Are we close to another housing bubble like in 2008?

We're in an everything bubble that's about to pop. Evergrande is about to take it all down.

How long will you and your Reddit pals keep saying this before you realize how untrue it is?

Last prediction I heard was that everything was going to crash today. Now it's next week. Next week will it be November? 2022? 2024? 2030?

Over and over again, I see newly minted retail investors discover the only hard part about investing; actually knowing when things will happen. If you can't say when the MOASS (or whatever the "bad thing" is this time) will actually happen, it's useless to keep doomsaying about it in the meantime.

I don't hold a single share of public stock nor crypto and have never posted on any investing forums.

Evergrande could end up tanking the Chinese real estate market and a take bunch of banks down in the process unless the CCP steps in and nationalizes it.

It could indeed do that highly unlikely and globally catastrophic thing, or it could be mitigated substantially by the amount of time and resources that "bunch of banks" have now that this has been going on for some weeks.

Ever since Taleb wrote about "Black Swan events", it feels like people are falling over themselves to identify the next one at every opportunity, and when (through random chance) some group or person gets it right, it's going to be paraded about as some kind of indication of their sage wisdom.

Are you shorting any stocks / indexes?

In the US, lending standards in 2005-2008 were openly silly and terrible. Lending standards today are much stricter, though not perfect.

I'd bet on a horizontal. (<-- PERSONAL PREDICTION HERE) The government is in a bind now -- they cannot just allow a housing pop because that affects the middle and upper-middle class voter base. Ending ZIRP would also pop the equity bubble -- again bad for the wealthy and middle-class voter base.

The best they can do is try to contain it. We've already seen the government too scared to reign in monetary policy in 2009-2021 even when things were good -- so thats a good indication of how scared they are to normalize things again.

The best they can do is allow controlled inflation, as they are doing, and allowing real prices to stabalize on an inflation adjusted basis.

Unfortunately, in all this, US fiscal and monetary policy has truly punished the young.

RIP American Dream.

Why does this graph start its y-axis at 3?

half the price of house is still more than i paid for it. market has been goofy

I wonder if it's possible to capture how much money is being made by owning the house. So you'd need to estimate future sales price and then remove that from the monthly mortgage price before comparing to income. I've heard of people in London who's asset appreciation makes them more than their wage each year, but not sure how representative that is.

People who happened to own property in a pre-gentrified area would have negative costs. Just holding the asset as prices rise would be worthwhile. In a socialist scheme that owner would be everyone/the government.

Meanwhile, someone moving into that same area will be paying more for the already baked in price rise assumption which may entirely cancel out the expected future asset price increase. Who pays and who benefits is random and unrelated to any useful economic input, like building homes people want in areas that need people.

But then how do you price in the uncertainty? Maybe the market collapses for several unrelated reasons.

Feels like there should be an insurance/socialist answer to this problem, where the risks and rewards of property investment are shared between people with no control over them.

Land value tax is one element of this.

Normalising renting and having democratic control over the landlord/renter contracts is another.

Singapore seems to do well with this, but not sure how translatable this is. Feels like the kind of thing that needs to go very wrong before the sensible approach gets taken.

Society generally seems to need to touch the fire to believe it's hot.

edit: business idea - private land value tax.

You buy into a corporation, that corporation buys lots of buildings in popular locations. You pay a land value tax to the corporation and a market rate 'rent' for the building.

As the land value tax rises, you might get priced out and be forced to move to one of their cheaper homes (or cash out) but if the land value tax gets too high for anyone, the corporation can sell the building to someone else at market rate, or if the location is great, knock down the existing building and rebuild more compact apartments to spread the land tax over more owners.

Basically the Singapore model, but private. You get to live in cool places, move easily (if the scheme is big enough) and profit from the insane property bubble with hedged risk.

Did I miss the part of the article that mentioned the average size of houses over time? The increasing code requirements over time?

Simple the 50 year or 100 year mortgage.

But really covid was the perfect opportunity to let the housing market collapse and reset buying us an additional decade. Wasted opportunity by bailing out landlords.

How is this true? I think our home was 2x our family income. It’s been paid off for a while.

What’s hard to believe about this? Do you think the analysis is wrong?

Since you’ve given an anecdote, I’ll share mine.

I make more than the median income where I live. The closest place that matches 2x my income is more than 100km away from me and it’s a mobile home.

My current apartment is 3.5 times what I earn, but that’s because I bought it 5 years ago when it was 4.3 times what I earned. If I sold this apartment today, then someone earning the median income would be paying at least 7.5 times their income.

30+ years ago my parents bought a house for less than what I paid for my apartment. They also earned more than 2x what I earn now. So they might have been in a similar situation to you had they not gotten divorced. People buying that same house now have to pay 10-12 times income if they make what my parents did. Closer to 20 times income if they earn a median income.

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