Will real estate ever be normal again?
nytimes.com
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1. Raise interest rates and stop printing. Crazy inflation stops, but asset prices crash and we enter a major recession or depression. The end result will likely be unrest and blood in the streets.
2. Do nothing, keep printing. Inflation picks up massively. The economy keeps humming along but young people, including myself, are permanently priced out of home ownership and many other things. We enter a new era of cyberfeudalism, which probably involves some blood in the streets.
It seems like they are going with option 2. I am 24 years old and I can't say I'm particularly excited. It doesn't even really seem like any of the high paying jobs are enough to keep up with this insane market. All I can do at this point is raise my fist to the sky and say fuck the fed, fuck the financial system, fuck the greedy rich, fuck BlackRock, and fuck you.
The real problem as always is zoning. Houses cost roughly the same on a $/sqft basis, adjusted for inflation, as they did in the 1970s. They're more expensive now because outside of town they're twice as big on average [1] - in part due to zoning rules. In town, zoning rules preclude densification necessary for supply to meet demand [2]. And, families are smaller.
Check out Japan housing CPI - a market where supply meets demand thanks to federal zoning rules, and is also centrally banked. Dead ass flat. [3] This chart alone basically debunks the theory the Fed is solely responsible for lower housing affordability.
Zoning is the issue, not the Fed.
[edit] Yes, the fed contributes a little - monthly affordability of a more expensive house is the same when interest rates are lower, but down payments are not. However, if you want to solve the affordability crisis build more houses. Any houses. Now. Compare the Japan housing CPI in [3] to the US housing CPI in [4] and weep. Housing in the US is driving inflation, not responding to it.
[1] https://fee.org/articles/new-homes-today-have-twice-the-squa...
[2] https://en.wikipedia.org/wiki/San_Francisco_housing_shortage
> Houses cost roughly the same on a $/sqft basis, adjusted for inflation, as they did in the 1970s.
Sorry, but no. My parents bought their first home for $72/sq ft. real¹. They sold it for $99/sq ft. The same house last sold for $208 sq ft., and is Zestimated today at $302/sq ft. The value of the home has averaged >7% gains YoY, well outpacing published inflation.
Their current home, built significantly later, and like you say, significantly larger, was $149/sq ft. at purchase, and is $182/sq ft. today.
Every house I look at sings this same tune. Accounting for inflation, where my parents got a large house ready to move into, for the same amount to day I'm looking at what I call a "contractor's paradise", and that will require significantly more than the sticker price to make it habitable.
¹all dollar figures in this comment will be in 2021 real dollars, not nominal ones. I.e., adjusted for inflation.
One caveat is it does reflect only new construction.
[1] https://infogram.com/1pqdpn20vkmlelcq6qx7jzwz9pf00g9xnq5
And in cities, the lot cost is very prohibitive too, before even getting into building a very basic house.
This is like saying that Toyota would rather sell Lexuses than Camrys.
Yes, it's true, but they sell Camrys anyway. Why? Because the market for luxury is only so big. They can make more money total addressing other parts of the market.
So why doesn't this apply to housing? Land + zoning. Imagine if Toyota was only allowed to produce 10,000 cars a year. What kind of models would they choose to make?
[edit] and btw, I think builders aren't tripping over their shoelaces to service the low end of the market because they know the city is so aggressively capping how much they can build. This means they will only build the most profitable units, the high end today. But once the high end is saturated, the low end ones will be the profitable ones anyways.
If the real problem was always zoning, wouldn't dense cities like NYC and Shanghai be cheaper than average, not way over average?
> Check out Japan housing CPI - a market where supply meets demand thanks to federal zoning rules, and is also centrally banked.
Japan went through a huge bubble in the 1980s. Also, housing (the structures at least) rapidly depreciates in Japan, which prevents them from being used a speculative asset as in countries (even then they still went through a huge bubble in the 80s). It is definitely an alternative model to our own, but I'm not sure how many people will want to experiment with that. Japan also much more strictly restricts immigration than other countries, which makes it, for example, a bad place for Wenzhou house wife real estate speculation.
It's not about supply by itself, it's supply vs demand.
Big cities have big populations and economies, which means a lot of demand.
But as far as zoning goes, note that like other metros, NYC has actually effectively downzoned areas over time; in fact, a huge proportion of buildings there would now be illegal due to different types of density restrictions: https://www.nytimes.com/interactive/2016/05/19/upshot/forty-...
A lot of NIMBY's tend to go, "well, there's still some areas where it's possible to build more, so there's no real issue there". This is approximately like restricting car manufacturing to one state, and then when car prices go through the roof, saying "well, there's still more land to build car factories there, so I don't see the problem, it couldn't possibly be this rule".
Have you looked at Japan's population, its "dead ass flat" while US population keeps going up.
https://datacommons.org/tools/timeline#place=country%2FJPN%2...
Investors have too much access to property. It's a system of greed that benefits those who entered the market early (typically boomers).
Just stop blaming zoning already.
> Zoning issues/lack of supply would imply that there are lots of homeless people without a roof over their head.
The price of housing only matters to people who don't already have homes they own. 65% of Americans own homes, so that cuts down your working set dramatically.
There are a lot of homeless people, yes - 0.2% of the population - but lack of affordable housing tends to be roughly equivalent to "perma-renting" as renting has a lower barrier to entry.
To buy a home you have to come up with a lump sum of money to make a down payment. If you can't do that, you're forced to rent or split accommodation or live with your parents. Lack of affordable housing doesn't mean homelessness. There's a lot of elasticity there.
> Investors have too much access to property. It's a system of greed that benefits those who entered the market early (typically boomers).
Investors buy property to rent because home ownership is unaffordable. Blackrock buying up property is a symptom of the market, not a cause. They don't see houses becoming cheaper because they don't see zoning reform on the horizon, so they believe there will be long-standing demand for their rental units.
If housing were to become affordable, due to a large increase in supply, these investors would get bowled over twice - once due to lower real property value and once more due to lack of demand for rental units as folks buy instead.
Even foreigners parking capital abroad, more supply makes that (a) a bad idea and (b) kind of irrelevant. I'm not saying that shouldn't be tackled too, but once again, zoning would solve the problem.
Half the economy is based on real estate… people building buildings to avoid taxation (if you have $) and borrowing against equity (joe homeowner). You cannot break equity values without breaking the economy.
The people who are getting screwed are the same people who have been getting screwed since the Vietnam era. Go watch “clerks” and read early 90s op/ed pieces - it’s the same cycle.
It's actually funny how the efficient market hypothesis makes no sense once you consider the role that land has played in human history. It's the biggest unsolved problem in economics that no politician really acknowledges.
Even anti government or extreme free market ideologues still insisted that land should be heavily taxed or regulated in the name of efficiency.
They definitely did not. [1]
The bailouts were largely loans, ones that were repaid to the US government for a pretty substantial profit, not less. And assets the Fed took on were literally that, assets, which the Fed was profitably unwinding before COVID hit.
[1] https://en.wikipedia.org/wiki/Federal_Reserve_responses_to_t...
And yeah, the real enemy is zoning. It’s fun to blame Blackrock, and they deserve it, but it’s regular homeowners trying to restrict more housing that is the cause.
I think graduating into the 2008 mess gives us peculiar point of view. Two years older, we might have already had burgeoning careers. Two years younger, we might have avoided it altogether.
I remember so much impending doom from those years. Pretty different than the current sentiment.
Forcing young people to take more and more debts to buy assets at now over-inflated prices has no happy ending.
You realize the amount of young people who have this option is very low and getting lower by the year? So ... what?
And nothing will save you if your salary doesn't keep up with inflation
Housing is also not a great comparison metric because it was so perturbed by 2008. New unit starts dropped precipitously and still have not fully recovered: https://fred.stlouisfed.org/series/HOUST
We know how to build housing quickly and now it's clear there is demand. If the current trend continues it looks like we will again have a housing surplus within the decade.
Cite?
Also who died and made Adam Smith's word synonymous with fact?
Last I checked the true price of anything is the price I have to pay to acquire it, which is incidentally more in line with Adam Smith's actual quote which was: "The real price of everything, what everything really costs to the man who wants to acquire it, is the toil and trouble of acquiring it.". The price I have to pay to acquire something translates to money, that I gained through "toil and trouble" so to speak. Quite far from the true price of everything being human labour.
though Smith really didn't make much use of the labour theory of value, as he thought it would be less relevant in an advanced economy. Riccardo and especially Marx developed and used it much more. (For Marx see the first part of Capital)
It seems to me many bubbles are the result of speculation with easy credit and I’m not sure 2008 can be considered a “perturbation” instead of a correction.
The foreclosured realty has been selling pretty quickly.
In the case of asset inflation, it is literally the opposite.
You gotta look at the derivative.
Rising interest rates are really, really bad. Anyone who relies on revolving business debt, credit card debt, or other non-fixed-rate debt goes bankrupt.
I kinda wish I entered the economy when we still had 12% interest rates. Each time a recession hits, we level it off by lowering them a bit, and we've kinda hit the floor.
I don't think we can get back to 12% interest within my lifetime without some kind of economic collapse or cataclysmic event.
This is hyperbole. Rising interest rates aren't fun, but they aren't cataclysmic. Rates have gone up and down for decades. Further, if you signal that you're taking the option to raise rates off the table, risk tolerance and asset prices will explode (some would say this has already happened due to Fed signaling).
There is a reason major religions regulated debt in general, because that is how societal slavery develops. Of course we, the modern people of technology, 'know better' than our primitive ancient ancestors.
This sounded so strange that I had to look it up and found this article https://www.federalreservehistory.org/essays/anti-inflation-...
The people who bought in the 80s and 90s refinanced as rates fell and saw massive appreciation in the value of their homes.
People buying today will see the opposite
Also, there's quite a bit of cash in savings accounts now, and rates are still low by historical standards. We'll see what happens when mortgages are above 5% again.
If you buy a house 10x your income and put 20% down, your monthly payments are 40-45% of your income before tax. That's a lot
And even if by some miracle you save 2x for a 20% deposit, what bank will lend you 8x income for the rest ?
Complete fantasy
If FIRE followers scale the strategy of investing and renting multiple homes, are they not limiting housing supply for other potential homeowners or exacerbating homelessness?
It is not just that houses are not being built, but that a shortage of supply is caused by the FIRE generation: buying houses as investments rather places to live, with the goal of living off on other people's rents or Airbnb, not paying taxes and leeching on society for the rest of their lives.
https://www.youtube.com/watch?v=j5zndjPZ2Is
Does anyone see the potential problem of this movement or are we just equally blinded by social media?
Would these houses even be built if someone is not paying for them. They are not leeching but investing. May be we could call it leeching when they form a cartel and start raising rent prices in unison (which only biggies like black rock can do).
Whether it goes down in a gradient to common people like FIRE folks, or is strictly restricted to the higher classes, someone will position themselves to profit from the Fed policies. I don't see how they can be blamed. Blame the people that create these economic conditions, because they and their friends certainly aren't benevolently leaving profits on the table, they're grabbing everything they can.
Buying additional houses and then not renting them out would contribute to homelessness as that unit would be housing 0 people.
No, it doesn't. Congress has a lot more control than the Fed (in fact, a strict superset of the Fed’s powers), and definitely much finer, more targetable control, but they have a little more problems coordinating on action.
> and they have two options
They have a near infinite spectrum of options between two poles.
> Raise interest rates and stop printing
Well, the first. “Printing” is just metaphor.
> Crazy inflation stops, but asset prices crash and we enter a major recession or depression.
There is no real reason (though its a popular unsupported idea from some quarters) to believe that there is no distance between the tight monetary policy sufficient to acheive the first effect and that which will cause the second effect.
> Do nothing, keep printing. Inflation picks up massively. The economy keeps humming along but young people, including myself, are permanently priced out of home ownership and many other things
Again, very little reason to thibk the last thing is at all true. We had high inflation with a weak economy with stagflation in the 70s, and young people then weren't permanently priced out of hone ownership. More normal, strong-economy inflation isn't going to do that.
> It seems like they are going with option 2.
Tapering QE is not “doing nothing”, its taking the foot off the accelerator.
If the growth stops being exponential, it moves away from the target in an exponential way. If the growth just becomes an exponential with a smaller exponent, it moves away from the target in an exponential way.
In theory you could have an exponential that grows in a very slow, controlled way. On practice, it will get out of control, because nobody has any idea what the target actually is, so you either always correct towards it, or deviate.
This is why I think inflation is not as big a deal as it historically once was. It’s never been easier to convert cash to inflation-sensitive assets and back again. We could very well transition to a world where cash simply becomes a short-term medium of exchange and loses all purpose as a store of value. All your wealth could kept in hard assets until the very moment you need to spend it.
If a large enough percentage of people rented from property management companies, there would be more impetus to have strong tenant's rights laws to protect residents, and people would have more flexibility to move around. Moreover everyone would have an interest in increasing supply to keep their own rent down, pushing prices down toward cost-of-materials and upkeep.
As it is people willingly submit to homeowners associations that are in many ways worse than the laziest landlord. I don't see what gets worse by just becoming a nation of renters.
Not to mention the freedom to do whatever you want to your home / house without having to ask for permission, or being in a position of putting money into an asset that you don't own.
And greater housing security in old age is very appealing. That people will need a place to live even after they stop working is something even the financially illiterate can understand and plan for with home ownership. For my parents who are retired on a fixed income, having a paid off home is the difference between a comfortable enough retirement lifestyle and being stressed a landlord is going to claim an even greater share of their meager income with every passing year. As owners they still have exposure to property tax increases, but that's modest compared to escalating market rents.
I can't tell you how nice it is to not have to worry about rent. How nice it is to feel like if I want to change something about my home, I can and I'm not just improving someone else's capex. How nice it feels to know that I can travel and leave the place empty for a year without worrying about subletting it.
You seem jaded.
It makes you more money than you earn. Imagine if when you paid rent you got a cheque for twice what you paid in rent. I’m $12,000 in “rent” on my current place and it’s returned $123K, I moved in in May didn’t start paying rent til July.
When you’re done with it you can rent it and have someone else buy it for you.
The market might return slightly higher but with leverage (mortgages) the returns are unbeatable.
In Canada selling your primary residence is exempt from cap gains.
When you combine all of these factors with modern zoning and rent control laws you basically can’t lose money.
If you buy presale by the time the unit is built it rents for more than the mortgage.
2) Home owners are more likely to maintain homes well (and efficiently).
3) We have a nesting instinct. I'm more likely to customize my own home. One I rent is a throw-away.
Home ownership is a sensible part of retirement planning
Also moving sucks, when your landlord wants to sell you have zero say and a timeline.
Homeownership gives you way more control over your life. Control comes with responsibilities, sure.
Besides, when you live in a place, you don’t want it falling to shit. A landlord is never going to care about your quality of life the way you do.
There's zero historical indication that this would happen based on interest rates from the past. In '74 the interest rate was 12%, in '81 it was 19.8%, in 1990 it was 9%. Even going as high as 6% nobody is getting out their seats. If you want to incite violence you need to race bait and then dress it up as "economic anxiety".
Here I'll save you the search https://fred.stlouisfed.org/series/GFDEBTN
And the last relevant number is the WAM (Weighted-Average Maturity) and it's around 5 years for that.
Now imagine how the numbers change when you go back to 12% interest rates and that debt gets rolled over at the new rate? Starting to see why no one thinks rates are going back there?
The way I see it (and the way you put it) the free market has failed to provide housing to people, to an extend that there is no free market solution going forward. If the government (federal/state/county/municipal/etc.) provides and alternative to free market housing, they will directly be competing with private housing speculators. Prices on the free market will likely go down as a result (why pay $1,000,000 for a house from a speculator when you can buy a better house from the county for $400,000). These speculators will get angry, (and some bootlickers/sympathetic middle class) but they will not have the masses behind them to generate blood on the street.
This is not an alien solution, it is battle tested as it has been done multiple times in most countries several times in history, as recently as the 1960s. The only reason not to go for it (given your two other scenarios) would be that the government is so sympathetic to the few rich that it is willing to let everything else crash and burn in just to cater to the interests of the rich.
Is it really a free market in places like the Bay Area where zoning is so restrictive and NIMBYs can show up to planning meetings to basically block any new construction?
It's been pointed out elsewhere in this thread that Japan also had a free market but less restrictive zoning and housing is much more affordable there.
The main argument for government efficiency would be if the government could override the NIMBYs more easily than private developers can.
Was there way less gov debt in the early 80s when they massively raised rates?
We no longer have a surplus there, and the issues around it were kicked down the road 39 years, when we had a Senate run by adults instead of the current pack of dull knives.
The military stuff will just get cut. We separately run 4 of the top ten air forces.
I’m going to start calling this “generational red-lining”.
no, blood and unrest is an unlikely end result of this scenario, though vested interests would really like us to think that. the more likely outcome is a redistribution of wealth toward the lower 99% (concomitantly with a shrunken pie), since the wealthy and powerful have the most, and the most inflated, assets in the first place. that's what they're protecting as if our lives depended on it. that's what the infrastructure+extra spending bills are about, not us little folks. this is why the deflation approach is so threateningly disfavored, because it would flatten the wealth curve.
Yes, I understand the implications and entailment, but don't care about the risks. The cure has side-effects, yes... we get it, but low interest rates is cancer that cannot be allowed to become systemic new-normal nonsense. 10 or 20 years from now is when we see the lagging effects, and of course the problem we have now is short-term thinking.
That said, your generation is digital native, you don't need to live in an expensive city, you can collectively decide to work remote from cheaper (and perhaps more beautiful locations). Our generation will eventually start dying. You need to be creative. I'm sorry. Tell me what to do...
I'm in the top 1.4% of income in the country, yet I cannot buy a house, because I don't have the savings required to overbid by 100k. There's a lot of things causing this overbidding, my parents for example sold their house because they wanted something smaller, but because they now had 475k in the bank, they were able to overbid by 80k on a house listed at 250k which ruins any chances for younger people to buy them. There's no way I can match this, let alone less fortunate people of my generation. I'm currently renting for 1600 a month, my landlord rented the place out to pay for his new house's mortgage. They're unwilling to sell it to me, because they plan to retire here in the next 10 years. The house is worth 300k in the current market, it's a very small starter home, but I literally had no other option because there's absolutely nothing available. And this is in a small town in the east of the country, my commute is over an hour as I work in the west.
There's nothing your generation can do, apart from just owning one home. It's not your fault, it's horrible policy making (such as getting rid of the VROM ministry) among other things.
Recently we finally got to view a nice property with some land (more rural, 545k) and someone overbid by 105k without and further reservations on the contract. So we are also pretty stuck.
Still it baffled me that when I talked to my bank I can probably sell my 2012 bought house (195k, modernized for 50k) for 330k! And then, I can repurpose my old mortgage to make it repayment-free ("overgangsregeling"), bla bla bla, and I can move to a 600k property with an increase of only 250 euro net per month. It's crazy!!! Yeah your generation doesn't pay transfer-tax but that's a drop in the bucket. Add to that that increasing a bid by 20k only costs you about 60 euro net per month (low rent, 30 years mortgage) and you get into a crazy bidding race really easily.
I feel like we need to build many more affordable houses ("starterswoningen", 200-300k). But I guess that 400-700k properties are where the money is at.
I'm now thinking about buying land and putting a prefab or standard house on it. Still, land is also not easy to find.
Edit: Oh a nice fact about my house: The woman living in it before us bought it for 19500 Guilders (~9k euro's) in the sixties...
Which is what gets said almost routinely, yet companies are still calling employees back to the office and we're not centralized enough to fight this without some heavy repercussions. Or worse, the majority just doesn't care enough to fight it and continues to invest into this ratrace.
This is even worse considering half these companies love to market their environmental campaigns, social responsibility and whatever, and then they conveniently forget or sidestep the obvious solution.
Now my house is worth nearly 2x what I bought it, I pay less in mortgage than I would in rent for an equivalent house.
I imagine we'll have the same discussion again in 10 years.
This sort of idea is often posted but rarely do anyone explain why. Asset prices do not have this effect on the brick-and-mortar economy that most people live in.
Also, housing-to-income ratio in the USA is (used to be?) one of the lowest in the developed world. Housing is relatively cheap, including in many non-depressing places with jobs (e.g. Chicago, SLC or San Antonio, of the ones I know thru someone who lives/moved there)
Those systems then keep to one extreme until things break, and as you say, blood on the streets.
But it's worth bearing in mind that there are solutions that'll work for everyone, just that history shows you don't (usually) get to have nice things until things have gone catastrophically wrong and the old system been swept away.
That should be a strong signal that the supply of housing is not increasing according to demand and that money is not the problem.
This is the one in which the rich lose out. I welcome it. I hope ANZ pray for it.
I hope fervently didn’t very high inflation to smash the real estate market to nothing.
Compared to two years ago, it’s much more likely that you can get paid a coastal tech salary yet live in an affordable city. These still exist in America. Here’s one that I just pulled out of a hat: Ames, Iowa. College town. Median house price $265k, which you can have for less than $1k/month with a 30 year mortgage at todays ridiculously low rates. There are hundreds of places like this across the country. You don’t need to live in the Bay Area, Seattle, NYC or Austin anymore.
Just the asset price rise could rival a full wage in certain areas/times.
So the cities were actively pulling people into them because of their stupidly high property prices and so worsening the problem in a bubble like spiral.
On the other hand, if this bubble does pop, it'll be the people who just recently bought in that will carry the brunt of it, so maybe now is a good time to not relocate and wait for the pop. Could have said that 10 years ago though.
Unfortunately for you 24 year olds have no power.
The baby boomers will all die off during your lifetime. There aren’t enough people left to absorb all of their houses. I assume at some point there will be a tremendous glut of empty houses on the market which should dramatically lower prices.
Predicting future demographics is hard through, because there are so many variables. Current birthrates in America are down but immigration is compensating. However, if the economy starts faltering we could see the desire to move to America go down as well.
https://notoriousrob.com/2021/11/ivy-zelman-demographics-and...
If there are no shocks in the housing market, there will be more than enough investor funds to soak up all boomer housing stock. Rentals and AirBnB will be dominant in a self-perpetuating way, as far as I can tell.
Just don't store your savings in cash ever. Ideally, get paid in one of the tools I listed.
You can try to fight the market, complain about the market, or position yourself to take advantage of it (using the best info available at the time). When everyone was doom-saying the Fed in 2009 and complaining that everything was fake valuation, a new crash was coming soon, etc. I got fed up and ignored them. Piled my retirement account into stocks. That has paid off quite well.
Also if you find an opportunity you believe in make a bet. I bet $7k on Tesla's IPO. Last week I sold less than half my holdings for $100,000 and plan to keep the remainder. Lots of people had negative things to say but I took a closer look and put my nickel down. Years ago after Apple hit me 700 it fell by around half. I bought the dips at 450, 400, 350, etc. That also did extremely well for me.
Find opportunities and make moves. Fighting the fed and the market means you'll miss huge upside - often so much upside that even when your negative prediction eventually comes true you'd have been better off holding through the downturn when all is said and done.
> All I can do at this point is raise my fist to the sky and say fuck the fed, fuck the financial system, fuck the greedy rich, fuck BlackRock, and fuck you.
Polish your resume, practice stupid useless whiteboard problems, move to the Bay Area, and work for a FAANG company. Keep the same lifestyle you have now. If you work moderately harder than average you can easily have $2m cash in the bank within 10 years or less - even after paying Bay Area cost of living.
Then start writing $20k checks to your house rep's re-election campaign. Guess what? They'll take your calls. Write $50-100k checks and your senator will too. It is surprisingly cheap (in the grand scheme of things) to buy access to political power. That's how the current system got where it is: those hedge fund managers have been writing campaign checks since they were junior associates at a big bank. As a result Congress hears from them and cares about their concerns more than the average rabble.
Anyone in Congress who doesn't do that and isn't independently wealthy either fails to get re-elected (no money to spend on events, travel, ads, ground game) or has no actual power because the party won't give them committee assignments since they aren't bringing any money in for the party's own election efforts (this is how parties enforce discipline).
Unlike most working Americans it is within the grasp of many HN readers to do this sort of thing and make an actual difference. Do you care enough to move? To change jobs?
Full disclosure: I'm just now in a position to start writing checks so I'll let you know how it works out in 10 years.
Which is to say, if you're on this site, chances are you'll be able to afford a house, just not at the price you like. Your income will track inflation much better than that of Joe Autoworker or Jim Farmer.
The big downside for you is going to be that most tax brackets aren't revised upward with inflation, so you might find yourself paying nutty effective tax rates that you're voting for right now. :-)
i wish i were so imaginative!
Will real estate ever be normal again? I think that what's happening in real estate is perfectly normal from an economics point of view. Mortgage rates are extremely low, more people are moving because of remote work opportunities, and the younger folks wanting to buy homes now outnumber the baby boomers, all of which has created high demand for houses. Zoning regulations seem to have limited the construction of denser, multi-family home options like townhomes, duplexes, etc. And construction of new homes was likely affected by supply problems with labor and materials during the height of the pandemic.
Right, it's that Pandemic guy who is ruining everything. He's the one who prints money, closes cities, organizes supply shortages, exacerbates poverty. Someone must arrest him already.
I was curious about that claim and had a look in Berkeley; there are _a lot_ of R2 zoned plots, and while I didn't do the math, just eyeballing the colors I'd guess there are actually more R2 than R1 plots https://www.cityofberkeley.info/gisportal/
The SF map is objectively harder to use, but seems to have a similar "majority is RH-2 zoned" story: https://sfplanning.org/sites/default/files/resources/2019-02...
Does anybody have any guess on when that high demand will come down and match more closely to the supply? I don't see anything that will push residential real estate prices down in the next few years.
Interest rates and property values are linked. Selling agents help buyers target a monthly price figure, all relative to interest rates + property values. Rates low? Raise asking price. Rates high? Lower. In the end, same $x/mo payment they target that they know families can afford/shop by.
I got priced out of my hometown of Seattle. So I moved to a small town in rural Oregon and I couldn't be happier. The combination of spending comparatively little on housing + a tech salary is hard to beat. I have my own shop!
It feels like freedom, even if it comes at the cost of being near my extended family.
Idk. I grew up in rural Oregon. And I hate Seattle with a passion. But I don’t know if having meth heads for neighbors is really the way I’d go.
Going for more rural/less-expensive regions might be beneficial for some but there are some serious downsides and costs for people with children, people who like to be around educated people, for those who care about diversity, and for those who aren’t aligned with “conservative” or religious people.
It’s not really the same at all and it’s why I don’t move out to BFE. I hate dealing with meth heads and I think it’s one of the worst regions to raise children. But that’s my experience - native rural Oregonian having lived in Seattle and now living in SV.
Would not recommend. Simplest way to put it - it’s like regressing back in time 30 years culturally. Also total shit opportunities for those who aren’t working remotely. (This means opportunities for children too - the schools are real bad because they’re so culturally behind)
Why do you hate Seattle? I've never been there, but just had a friend move there and she's telling me how great it is.
Speak for yourself. That sounds more desirable to me, not less
I think some people moving away from the urbs are going to get a shock when they see what incentives will arise because of global warming. Rising energy costs may force you back to a city in the next decade or two.
That said, I'm jealous. I can't wait to leave the Bay Area in another year or two.
I'm not sure that energy costs are necessarily higher in the country, but I suppose it depends on the climate and the house itself. In my case, I'm going down the solar/hydro route and plan to be off-grid at some point.
Climate change is a huge issue, though. Drought and wildfire are existential threats to my current way of life.
The main reason this is likely to be bad financially is that your house won’t appreciate like a house in Seattle. I’ve been doing tech for a long time at this point, and have seen people make both choices and how it plays out over the long run. Those that stayed in the big city are basically financially independent at this point, and those that moved are not. The difference in net worth after 20 years is very significant.
Only works if you want to make 20% down instead of 3%[0]
[0] https://www.knowyouroptions.com/buy-overview/affordable-mort...
In retrospect, the best thing I could have done with my money would have been to buy the most expensive house in the best neighborhood I could possibly manage. Put it all on the table.
But I didn't want to play that game, and neither did my partner (We have bad memories of the 2009 recession and both hate the idea of debt). So I suppose I traded the future riches for present flexibility.
Usually the best thing to do is to buy the worst house in the best neighbourhood. That way you are in for less cash, but are anchored to the higher prices around you.
So the only solution then is endless appreciation of house prices and salaries?
There is no doubt that this stuff can work. If you become a very savvy investor, you can start seeing net positive on your housing as an investment.
However, what doesn't get written up is the horrible downsides of this, e.g. not being able to find tenants because of a market miscalculation and then being financially screwed for years to come, or having a crappy contractor try to fix your house only to have to deal with their faulty stuff for a year or more while getting another contractor to fix it.
I decided that I don't want to become a "real estate guru" just to avoid paying rent, so I just found a small apartment that was well within my salary and leveraged my existing CS skillset to almost quadruple my compensation within about 3-4 years of studying my ass off and making the right career hops. I am still paying miniscule rent on a small place, but I spend almost no time in my apartment; I'm either at work, or climbing a mountain somewhere. Perhaps I "should" buy a house, but as there is a huge surplus of ADUs as everyone else is trying to house hack (i.e. supply is large!), I can spend a teensy tiny portion of my income "wasted" on rent while spending none of my time worrying about housing issues or avoiding financial ruin in a risky bet.
Basically, this house hacking stuff is about leveraging your time to hopefully produce a monetary gain. You have to learn how to not get absolutely screwed over in some of the largest financial outflows you'll ever make in your life, and it's easy to get screwed when much larger fish (e.g. black rock) are way more savvy than you.
This obviously doesn't apply if a 1br/1ba is not for you (e.g. you have a family) or you want to have a home for sentimental reasons.
edit: Basically, what I'm trying to say is that there is a huge, life-altering downside to failing at the real estate game, but there is almost no downside to mastering a new, valuable skill that can lead towards a better job (and more pay).
* leverage existing property to get new loan (sometimes at mere 20%)
* rent goes up because "market adjustment"
* first home buyer dreams inches further way since less disposable income & higher initial deposit
* property owners accumulate equity even quicker
At least in NZ, PM Jacinda Ardern said multiple times no one's equity should go negative essentially offering protection to property investors (whose main risk is over-leverage).
So you might have a 30-year mortgage fixed at 3.5%, but if interest rates go up, then in year five you might start paying 5%, and maybe you can't afford it anymore. I suspect the banks require a bigger buffer between payments and income than they do in the US to allow for potential interest rate increases, but that only works up to a point.
Also, when you apply for mortgage your income is tested against something like 5-7% interest rate.
Not that interest is as significant in the United States considering it can be deducted from your taxes.
In the case of renters, many with savings are facing homelessness - once those savings are burned up on hotels. This isn't a dramatization or overstatement. It's what I'm witnessing personally and very nearly happened to us. We were one of the few to beat long odds and score a place to live.
It doesn't really seem like there are many winners in this current scenario. Unless you're selling to "downsize" or move somewhere cheaper. Or an investor...
Yes remote might fix that, eventually. But I strongly doubt that, especially as humans are social animals.[1]
However The UK is a more extreme version of this. People move to london because it has the most concentration of high paying jobs, and as a side effect culture (what that is I leave up to you. I don't just mean music, cinema and posh people shit.)
Now, I could move back to bumblefuck rural england, but I would have to exchange an underserved IT job market, with a median wage of >£60k to a once/two company town with a median wage of £38k. Combine that with houses only being 30% cheaper, and higher transport costs, no nurseries or comprehensive child care, the countryside can be a real pain in the tits.
Costs are higher in the countryside, as there are less public amenities.
So no, people can't just move, otherwise they would have done already.
[1] there are two classes of remote "influencers" the first ones seem to be happy working alone, permanently. The second appears to be the ones that are "jet setting" where they work in a new country every other month. Both of these groups represent a tiny minority. I strongly doubt that we should be optimising for these two noisy classes of people. I suspect, and me, my team and wider company data backs this us (even though its shallow evidence) that they more popular route is hybrid.
This is simply not true. There are a record number of job openings. I would go on to say that there has never been a time in history where finding a job was this easy.
https://www.bls.gov/news.release/pdf/jolts.pdf
https://fred.stlouisfed.org/series/JTSJOL
"The number of job openings was little changed at 10.4 million on the last business day of September, the U.S. Bureau of Labor Statistics reported today"
The centralisation of computer related jobs in the UK is sad. I had to move to Cambridge as it seems to be the only option that wasn't too far away and wasn't London. House prices are ridiculously inflated here and you don't even really get anything for your money. All the "culture" here is posh people shit (ie. only for Cambridge University people) or just regular stuff for the plebs that you can find anywhere. I'd have much rather moved somewhere like Bristol, but there just doesn't seem to be enough work there any more.
I personally would prefer moving to homelessness, many times over, even though I wouldn't say it was fair/desirable/justice that I needed to.
If working 60 hour weeks or reskilling isn’t your cup of tea, that’s fine but we can’t keep everything the same forever.
The best part is that if things go upside down in a few years we get to bail them out.
Why do you feel entitled to live at any particular location (that was not actually inherited)?
I've never felt it was my "right" to be able to afford any particular location and/or living standard at that location, and always noticed that it was a trade-off between costs, location, commute/travel times. Same whether it is in a resort town vs out in the styx, or in a major city downtown vs the suburbs/exurbs.
As long as I can remember, it's been that way - the workers in the fancy town couldn't afford to live there, unless a big crew got together to rent a house in town. Or, you were looking for a rent-controlled apt or sublet.
Just because you or I have done no wrong, does not mean that we are entitled to do what we want, where we want, when we want.
"... You can't always get what you want / But if you try sometime you just might find / You just might find / That you get what you need "
Welcome to the real world.
Capitalism. The market giveth and the market taketh away.
What is the alternative? Nativism? And at what point does a claim to a particular place start? Because I have bad news for most Americans...
With regard to moving to a smaller town. The median income in the county in CA I live in is ~40k/year. The average house price has essentially doubled in the last 5ish years. Income, hasn't changed so much. I bought my place ~5.5 years ago and it's basically doubled and is a condo. Same issues around a lack of affordable housing in this rural mountain red county is mirrored by some of the bay area counties I moved from.
Moving to another city where savings have to be firehosed until enough jobs are secured (us:3-4) can easily burn thru ten/tens of thousands of dollars. A pretty big chunk of America doesn't have that much cash sitting around.
Wouldn't rich people just create multiple companies each holding 20 properties?
Any ways... yeah the market is in a sad state of affairs. Doesn't help that the mentioned interviewees are also doing a cash grab for themselves by opening up private real estate firms and AirBnb's. Though it's not all over America, you can't point to Austin to generalize the entire small market. I'm pretty sure houses in Iowa are as cheap as ever.
As a percentage, they actually aren't [0] if you look at the history of sales on most of them, although maybe the total change is more easily tolerated
[0] https://www.zillow.com/homedetails/1236-46th-St-Des-Moines-I...
There are three ways to fix this: incentivize builders to build more places to live, have the government build housing, or penalize investors. Or any combination of the three.
Single family homes have been financialized for decades, well before corporations started investing in them. And corporations own less than 1% of the single family housing, so not enough to make a difference.
> they will buy politicians and get the politicians to pass laws to keep home prices up
Politicians aren't listening to corporations when they pass laws to keep home prices up and keep supply down; they're listening to the "average homeowner", because that's the much bigger political bloc (> 50% in many cities), compared to a few corporations. If corporations had much influence, we'd have a lot more construction years ago when corporations didn't own many SFH, since many (like developers) do want more construction.
The option of "growing to meet exponential need" rarely, if ever, actually works in the end. By works i mean "leads to an equilibrium that actually is any good"
Usually what happens is people push on creating housing, and think once they've done it, the rest will take care of itself. This is the easy part. The rest is much worse - now you have more people! The density and scale of population will increase until the local governments/etc fail hard enough at providing services, which often happens quicker than one would expect. Being effective at providing public transportation/police/fire/schools/health/etc in a dense, populous area is much harder and more expensive than often seems thought. Especially if you haven't been planning to do it for 50 years and setting yourself up for it. It also requires ever more careful planning as it grows (in how land is laid out, etc), and you will hit tons of problems anyway. For a random example: When your police/fire grows large enough, it ends up with lots of political power of its own.
It's also much harder for governments to stay efficient in spending at all as they grow, making services/etc even more expensive to provide. The places that i knew that were successful at becoming denser were willing to admit this. The ones that were not, often pretend they will make it back in increased taxes on their own, but they never did (and often end up in cycles of tax increase/drops/etc until the infrastructure fails)
Once you are forced to raise taxes/bonds/etc, you end up with a whole host of practical problems (politicians winning on short-term-lower-taxes-long-term-destruction platforms)
This is just a sampling. Overall, it's like scaling anything human. Having a team of 10 works really well. Having a team of 1000 is really hard.
Lots of cities that go down this path end up as basically tax revenue Ponzi schemes - they have to keep growing because they need to keep borrowing against the ever-more-expensive future
In the end, it simply isn't unreasonable for cities to not want to play the game, and to be happy with sustainable size, services, and tax revenue, even if it makes things unhappy for others who want to join in.
Thankfully population growth is slowing down, and we are below replacement rate right now.
Forcing the government to get in the way and tell people not to go where they want to go is stupid and exclusionary. It's "I'm in, now shut the gates on everyone else".
Like, how is indulging NIMBY attitudes useful or productive at all? It means less freedom for people to live where they want to live, it means higher housing prices that strain people's budgets, it means it's harder for businesses to grow and be productive, and it usually means more suburban sprawl that destroys the environment.
The latter is true, the former is not necessarily. It's like saying "if a company succeeds, they are doing something right". It's never that simple, and lots of things that are not controlled by the company or city (we'll just sum them all up as "luck") play a serious factor.
"Forcing the government to get in the way and tell people not to go where they want to go is stupid and exclusionary. It's "I'm in, now shut the gates on everyone else".
Again, the former is false, the latter is true. You have this backwards - the governments aren't telling anyone anything. They are trying to maintain what they have, at a scale they can do. They are being forced to scale in ways they don't want and don't think they can make work instead.
Keep in mind your latter is applicable to other situations as well. "US/China/etc got big by horribly abusing the environment, but nobody else should be allowed to do it". They are in, now shut the gates on everyone else is literally true there. Nobody argues this is the wrong answer, which is the point. Shutting the gates, often portrayed negatively in this situation, is not necessarily the wrong answer to situations at all!
Beyond that, framing it this way is just odd. Managing and keeping a place of 10,000 in working order, and effectively serving the population, is not at all the same as 100,000. It's not 10 times harder, it's 100 times harder.
Why should cities be forced to do it, just because of the preferences, mainly of people who do not live there now? Why do they have to value future potential citizens over current ones?
The rest of your claims feel like a lack of perspective and judging others. It's a portraying of things as only two possible extremes, and saying one extreme (the denser one) is good. I'm actually suggesting cities and their citizens should decide how far and how fast they want to grow, based on what they want out of life. This will lead to some dense places, some not.
Yes, that means less freedom for people who don't live somewhere to choose to live somewhere. It often means higher housing prices for people who don't already live somewhere to live somewhere. The cost for people already in a given place reaches equilibrium on its own.
It usually trades those things for the happiness of people already there. You can do this if you want, but pretending it's the "obvious right thing to do" makes no sense, and forcing cities to do it, even less.
It also assumes all the things you want succeed at their objectives, which is really rare. Complex systems like this are never that easy to get to behave how you want.
It doesn't at all mean it's harder for businesses to grow (that's just silly), and the suburban sprawl is also sort of silly - there are lots of dense, environment destroying places. It's also orthogonal - you have the same problem either way, because realistically, densifying only works to a point anyway. If you make somewhere 5x as dense, and 5x the people go there, now what? You think you won't end up with the same problems, but with 5x the population?
(As i argue, you will actually end up with 20-100x the problem, and 5x the population)
People have always found ways to be more consumptive, no matter what the density. The faith that density is a solution to overconsumption, under the assumption you will be more efficient in a dense environment (and won't increase the consumption) seems highly misplaced.
I would wager if we really get to the density some folks want, we are pretty screwed as a planet. We will make all of the problems much harder than they are now, and have less will and ability to solve them.
In practice - population growth is the thing that drives housing prices, and the environmental issues you cite.
Raising housing prices lower population growth, and vice versa. See, e.g.:
https://www.cambridge.org/core/journals/journal-of-demograph...
You can see for every 1% of population growth, housing prices go up 1.4%
Notably, it turns out this is true even in dense places, so it's not just "they aren't densifying".
I can cite you similar papers showing the raising housing prices lowers population growth.
You want slower population growth, not higher, if you want to solve environmental issues, most of which stem from having too many people.
In practice, the raising house prices, while painful for freedom to live, helps ensure a sane equilibrium for the cities and the population. There is always pain in that, no matter what you do. Destroying that equilibrium seems unlikely to have the only-positive effects that folks seem to think. We already know this is true of almost all other things in nature (IE destroying the annoying mosquitoes would be bad), and i'm totally stymied why people think it will not happen here.
So there you go, this is why "indulging in NIMBY attitudes" as you call it can be helpful and productive, even if you ignore the actual "happiness of people" issue that pervades the debate. In the end, i'd urge you to see that not everyone who thinks forced densification is a bad thing is an idiot, or doesn't understand the costs/benefits. They may just think you are wrong whether it's going to succeed or be worth it.
If you don't want to pay a million quid for a house in London, refuse the game. Move elsewhere. Find a different way to get by in life, perhaps even a different country.
People won't do that, though. It's more likely, IMO, that the entire world becomes more feudalist again until there are few escape hatches.
But it'll ultimately be because people keep buying in. As long as people, en masse, continue to max bid housing (whether for rent or to buy) this situation will continue.
People did exactly what you suggest. And the country they moved to was England, and the city, London, which now has 38% non-UK born residents:
https://www.ons.gov.uk/peoplepopulationandcommunity/populati...
If I were mentally handicapped and stuck working in a supermarket earning a tenner an hour I'd have long since flipped the table, though - playing when the deck is stacked against you makes no sense.
In the 1960s we had a system that allowed the majority to live in reasonable conditions. Nowadays it's get rich or die trying and no-one seems to really see a problem with this.
Engineers may be disappointed compared to the Bay Area.
Moving house doesn't change the market unless everyone else does it, and even then, the major benefit would come from something like large numbers of people agreeing not to max bid (i'm not suggesting that such a thing would be realistic, but it's an example of unionization)
The publication year is 2021, which is the typical way a story is tagged. I have to wonder why 2007 and not 1913 or 1929? Throwing out a date does not imply a specific context or add to the discussion.
In 2007 people were panic buying houses because they thought that if they didn't buy right now, they'd never be able to afford to buy a house.
“The last time U.S. housing saw such rampant price growth was in 2005, and the market corrected itself, infamously, in 2008. But the underlying reality today is different. Back then, a geyser of subprime adjustable-rate mortgages sputtered out as borrowers defaulted. (According to Bloomberg News, 60 percent of mortgages during the bubble years were adjustable rate; fewer than 0.1 percent of mortgages are now.) The current boom is better compared to a river, one fed by streams that have long been visible on the horizon: high demand, low supply and a dysfunctional economy in which wages are stagnant while restrictive zoning and poor public policy have turned housing into an artificially scarce commodity. Historically low 30-year fixed mortgage interest rates, hovering between 2.68 and 3.08 for the last year, are narrowing the riverbed, quickening the current.”
Maybe baby boomers downsizing, moving into homes, and dying will do it in the long term.
Maybe there will be runaway inflation and the fed will bring in and crippling interest rates that cause a deep recession in the short term.
But the future market won't be what it is today. The same shortsightedness that wasn't able to foresee the impact of millennials will fail to see what comes next.
The demographic impact of the millennial generation was a big topic of discussion in the late 90s and early 2000s. Since then the discussion has gotten a lot stupider focusing on pop culture stereotypes. A large group of people passing through life stages at the same time are going to have an impact.
This sounds vaguely similar to a point Jim Rogers was making (on the Wealthion interview) recently - that back in 1930's people more or less accepted the screwed up and unfair system and marched onward. But people today (for better or worse) expect more fairness and will be angrier and react worse.
The rental I have was once our main home. When we moved to Berlin we decided to hold on to it and rent it while we were gone in case we needed a place to come back to if our Berlin experiment failed. We bought it with all the savings we had at the time we got married with a <5% downpayment. I had no idea the market would rise like it did. We are still renting it mostly because the rental laws in Portland, Oregon are very much tenant-biased that it would cost us more to sell than to keep renting it. Which is fine. We've a good tenant and we haven't raised rents in 3-years. (We should have but that was mostly because I had bad advice from my management but that's a whole other thread).
For the average worker making less than 100k like me without prospects to make multiples of that number anytime soon (or ever -- I'm not that smart) buying a home -- if one is lucky enough to -- and maybe renting it is a good way to participate in the upside of home values and also to create some long term wealth when one does not have the luxury of joining an early stage start-up on it's path to being the next unicorn or making obscene salaries at a Netflix.
I fully understand that in doing so I add myself to the market of potential buyers and/or bidders for already scarce homes and with a business mindset I participate in the speculation that is raising home prices for would-be owner-occupied homes. I don't know how to balance that with my desire to have a well balanced approach to my finances which would consist of investments in stocks (401k via mutual funds), savings, and real-estate. The world is only getting more expensive and it behooves the rational person to diversify and seek all ways to keep up so as to not be left behind or without ample funds to retire on.
So you might see me as part of the problem but at least maybe now you see where I am coming from.
In other words, legislatures should require themselves to fix the problem of high housing costs, and if they're not capable, the courts should be empowered to solve the issue by cutting through red tape, issuing fines, etc.
The world is ending?
All I know is I love my house, with all of its land, trees, and nice quality living.
I will protect this thing to my death, because it is so much better than living in an apartment. I don't care if it costs me $4,000 a month.
If it involves, for example, lobbying against high-density housing, that might be part of the problem.
My home in the suburbs with 1/2 acre lots is FAR FAR FAR too dense for me... I want less density than that, but newer subdivisions are dropping to 1/4 or 1/5 acre lots, it is terrible
Those 10 families don’t pay nearly enough in taxes to cover the cost of infrastructure maintenance. It relies on grants from state and federal governments, paid for by taxes in dense cities, to cover the expense.
My point: sparse is not objectively better. I think the quality of life we have come to expect in suburbs and rural areas is not possible without the taxes gained from also having dense places.
More info, and a very interesting video series here: https://youtu.be/7IsMeKl-Sv0
I dont think you can objectively say that is true given that road maintenance is one of the least costly things a government does, and the less densely p;populated the less maintenance is done to that road sometimes none at all
That further assumes that the road in those areas is maintained by the government this is also not universally true, there are plenty of housing additions that have HOA's where the HOA is responsible for the road maintenance
Also in almost 100% of cases the developer creating the subdivision is responsible for the infrastructure costs to build said subdivision and also often has to pay to improve infrastructure leading into the new subdivision
You do realize that densifying will not in fact, fix the problem either, it only buys you some time, at the cost of different resources.
This isn’t a knock on you personally so please don’t interpret it as one. But I find a lot of people are in favor of the idea of affordable housing in areas that also have, say, gainful employment but are not in favor of the policies that would actually produce that.
And so we get the equivalent of walled-off communities combined with empty words that just feeds ones identity/ego. At some point people need to live the values they espouse.
Some people want what you want, others are fine with less space if it means less money. Upzoning means they get to choose what to do with what property they own.
> > land, trees, and nice quality living.
I have the feeling they're talking about land in their area that they don't own, that for whatever reason is prevented from being used for new homes, and their worry is that zoning changes allowing it would ruin the quality of life there by removing the greenery and open spaces.
I live in the woods in a rainy location. Everyone has 0.5 acres and lots of trees. The grocery store is 10 mins away and we only have one major road in and out.
For those who want to live a different style of life, please go live it.
But for us who are living here, it seems to me we want to preserve our way of life so that we don't have to deal with the pollution, noise, and safety issues that some larger cities are having trouble with.
https://www.nature.com/scitable/knowledge/library/the-charac...
https://www.oecd.org/env/rethinking-urban-sprawl-97892641898...
- https://www.strongtowns.org/journal/2021/8/4/the-question-ev...
- https://www.strongtowns.org/journal/2020/11/11/poor-neighbor...
This series goes into more detail about the unsustainable aspect specifically: https://www.strongtowns.org/the-growth-ponzi-scheme
https://news.ycombinator.com/item?id=29212851
Here is a link to a relevant article on the zoning part of the problem, posted today:
I've also put that other submission into the second-chance pool (https://news.ycombinator.com/pool, explained at https://news.ycombinator.com/item?id=26998308), so it will get a random placement on HN's front page. Thanks!