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Comment by a1pulley | Hacker News Reader

> It's honestly quite scary how I'm in the top 2% of income earners in my generation and yet I could barely afford to buy a small place in a semi-desirable area. I can easily see myself not being able to compete in algorithmically dominated markets flush with venture cash in the future and I earn more than just about everybody I know today.

A thought exercise: suppose that no new houses are ever built and that housing turnover is nearly zero. What happens to the price of housing in that limit? Market forces do not necessarily entitle the top n% of the income distribution to housing.

I was a bit cynical about this too: I live in Los Angeles, where a "small place in semi-desirable area" gets listed for 1.5M and goes for nearly 2M. I'm somewhere in the top 5% of earners in California, but that $2M 1950s tract housing would be >50% of my post-tax income.

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> A thought exercise: suppose that no new houses are ever built and that housing turnover is nearly zero. What happens to the price of housing in that limit? Market forces do not necessarily entitle the top n% of the income distribution to housing.

I don't think it's disturbing because "clearly the top 2% of income earners should be entitled to housing," but because clearly everyone needs housing, and if the top 2% of earners can't even afford it, that means it's even worse for everyone else.

Owning and having are not the same thing: you can have housing while renting it, receiving it as a gift from parents or your spouse, etc.

The reality that almost never gets brought up is that the other side of the coin is that these are natural pressures that are probably healthy.

We know that any given habitat, like the Earth, has finite resources and has some upper bound to supporting life. This is how those pressures manifest. We can’t just keep growing the population and have everything be affordable. Surging food, energy and housing prices are the first feedback mechanism in this process.

If everybody can afford everything forever, we get infinite population growth.

People not being able to own homes is not "healthy". Having to pay 50% of your salary to landlords is not "healthy". It is concentration of wealth, it is the very definition of precarity. Unless your hope is to see a collapse of societies, things go really bad when people can't afford fundamental needs.

You replied without understanding my comment. Let me pose the question back to you: if everyone can comfortably afford food, housing and basic necessities, what is going to cause population growth to level off?

Your characterization of bad things happening is exactly my point - you’re just failing to understand that I’m saying that’s the healthy part.

if everyone can comfortably afford food, housing and basic necessities, what is going to cause population growth to level off?

This is exactly backwards; both across and within countries, richer people have fewer children.

The world cannot support 10 billion rich people (by current standards). High prices are one of a number of expected natural feedback mechanisms.

You’re pointing to a correlation which has no bearing on the future.

As the other response to you shows, you're the one missing the point. Population growth massively slows down the more your basic needs are met. Countries that have high children counts are countries where the solution to actually reaching wealth is multiplying until few of them die, or one of them ends up making a lot of money (relative to the country they live in).

> Population growth massively slows down the more your basic needs are met.

No, this is the point you’re missing: your presumption is predicated on being able to meet everyone’s basic needs cheaply. What I’m saying is that this is not possible, and that high prices are the feedback mechanism.

> > It's honestly quite scary how I'm in the top 2% of income earners in my generation and yet I could barely afford to buy a small place

> I live in Los Angeles, where a "small place in semi-desirable area" gets listed for 1.5M and goes for nearly 2M. I'm somewhere in the top 5% of earners in California, but that $2M 1950s tract housing would be >50% of my post-tax income.

I think the obvious answer here is that people in the top 2% or top 5% are not buying houses... It's the people in the top 0.1%. Last time I was home shopping, we were regularly outbid by all-cash offers of 50%-100% over asking price, no contingencies. These competing bidders are not teachers and nurses. They're not even high-paid tech employees. Do you really think a Senior Software Engineer at Microsoft has $2.5M in cash sitting in his checking account to buy a home? No way. These are all businesses, investors, serial landlords buying their 60th house, hedge funds, 0.1% wealthy people--that's who's buying all these houses. Not us.

I'm under the impression that 'cash offer' just means that whoever is buying has already secured their financing. That means there's almost no risk of the deal falling through and the sale can go from contingent to pending immediately. This is better for the buyer because they sell faster. Senior software eng at microsoft can pull this off no problem (no one is buying a house with cash in their bank, not even rich people).

No, there's still a distinction. Secured financing can still fall through.

It means that they aren't using a mortgage to buy it. If there's a mortgage involved, then the offer becomes contingent on the bank's due diligence which can cause the deal to fall through in a variety of ways.

For example: the bank will only loan you money up to the appraised value of the home, which is done after the deal is signed (banks won't send an appraiser to every house you make an offer on). If the appraiser says the house is worth 500K and you bid 800K, you need to find 300K some other way (usually cash) or the deal falls through.

While it is true cash offers in the strict sense mean real cash, it may also mean no-contingency offers. You can go through mortgage underwriting first and commit to pay the gap between appraised value and deal value, and can make a no-contingency offer with minimum risk. Or, if you are willing to lose your deposit (usually 3-5%) you can also make a no-contingency offer to be more attractive.

> You can go through mortgage underwriting first and commit to pay the gap between appraised value and deal value, and can make a no-contingency offer with minimum risk.

Of course, but unless the amount you commit to bridge is unbounded, you're still contingent in appraisal price. And if you did commit to that, you're just making a cash offer with extra steps.

Deposits in my experience are token (around 2%). And usually sellers will verify that you have the cash on hand for no-contingency offers, since 2% is not worth waiting and then redoing the house selling process.

At least in the SF market what matters is a financing contingency, not all cash vs mortgage. As long as you go through underwriting first and get full approval (not pre-approval) an offer with a mortgage and no financing contingency is 99% as good as an all-cash offer. Sellers are not impressed by cash offers anymore unless they're the high bidder... in which case it is the high offer not the cash nature that matters.

And lenders that work in SF understand how this works and indeed can go through full underwriting without a property having been selected. Appraisal is the only thing that might matter which is why it is a good idea to hold back some cash.

Your impression is wrong. "Cash offer" means there is no 3rd party loan involved. Obviously, if someone's aunt is lending the buyer money, nobody is going to catch that. But "cash offer" absolutely does not mean "secured financing".

It means they have cash in a bank account ready to go. Maybe they took out a loan against other assets to obtain the cash, but a "cash offer" is literally the person is handing over a cashier's check at closing.

This means there is 0% chance of the deal falling through. Not almost no risk, none at all. Failure to follow through with the deal would be breach of contract and the buyer is liable for damages, up-to-and-including, being forced to hand over the money for the house.

No, cash offer means actually pay it cash. If there's any kind of financing involved, the bank will need to approve the purchase, slowing down the process, which is what a cash offer bypasses.

> no one is buying a house with cash in their bank, not even rich people

They most certainly are. Tons of real estate sales here (Silicon Valley) are all-cash because the other people making offers are also all-cash, so the only way to make a competitive offer is if it is all-cash.

So regular people who need a mortgage are completely shut out of the market.

> If there's any kind of financing involved, the bank will need to approve the purchase, slowing down the process, which is what a cash offer bypasses.

That's not "already secured" then, is it?

Correct. But the point was that if you're getting financing from an institution, there is no such thing as secured, before they evalute the house and the offer.

As I noted above this is not really true anymore. My agent told me flat out that sellers (read: seller's agents) are not impressed with all-cash offers anymore. As long as you make a no-contingencies offer that's plenty good enough. They might ask if you have a 5-10% reserve just in case the appraisal comes in a bit low but in the three offers we made that never came up, even against other buyers offering all cash.

Getting a mortgage approved was also easier than I expected; when you move into Jumbo territory and have more than 20% cash to put down the bank seems to assume if you were industrious enough, lucky enough, or connected enough to come up with $500k, $1m, or whatever cash then you're probably good for the loan.

They also counted unvested RSUs as assets at a slight discount to the average stock price (I think it was the previous 90 day average?).

> no one is buying a house with cash in their bank, not even rich people

That's how I bought my house, and I earn less as a solopreneur than many FAANG employees in this community. My "cash offer" came with the standard proof of funds: a piece of paper the local Wells Fargo branch printed for me on their letterhead that said I have an $X balance as of that date, where $X was greater than the price I was offering for the house. I walked into the same branch and wired that cash to an escrow company a few days before closing.

> Do you really think a Senior Software Engineer at Microsoft has $2.5M in cash sitting in his checking account to buy a home? No way.

It's not common, but definitely possible. E.g. if you were part of an acquihire. Or just got lucky somehow. I know a senior with a crypto portfolio worth more than that because he dropped a few thousand into bitcoin in the very early days.

To be fair, it's doable as a senior or staff engineer at a big company earning 300 to 500k/yr. I'm (lucky enough to be) in that range and qualified for a $1.5M loan. Combined with 500k for a down payment, you can see how those $2M houses are technically affordable. For now.

Income data always lags reality by a couple of years: in my experience, a lot of people have a lot more money than you'd think. The winners of the eight purchases I've attempted have been young dual income professional families.

I'm a senior staff engineer with 20+ years of c++ experience and I make less than 200k even after stocks and bonuses. But I live in a part of the US where that gets me an almost 4000 square foot home within walking distance to nightlife and a short bike to a downtown with highrises and art museums and orchestras and operas. The weather is horrible swinging over 115 degrees over the course of a year, but right now it's wonderful out. Redefine what semi-desirable means. Yes I'd love to walk out my back door and dig clams or pull in a haul of crabs to cook on the beach, but putting all of us on a coast won't work. Also with a couple of exceptions in the Pacific Northwest climate change will hit the coasts hard. Cramming us all into condos on those few stretches of protected beach is even less feasible. Mountains will be somewhat less impacted, ski resort areas will expand and continue their price growth. But everyone moving there isn't really any more feasible long term.

Agreed with your analysis, and add previous homeowners who can sell quickly and are making the cash from the equity.

You don’t need a lot of there is only one decent house a week for an entire metro of 2-3m people somebody has a rich uncle, a heloc or some windfall earnings they can lean on to make it happen

but what about all-cash mortgage lending services and margin loans?

> What happens to the price of housing in that limit?

The price continues to reflect the supply and demand of the houses. You’re either lucky to inherit the land, or you earn enough to outbid others for it. It might even be impossible to outbid those who are bringing inherited wealth to the table.

It might become a transient community, where you work and save and then leave to settle somewhere else.

> suppose that no new houses are ever built

Why would you suppose that? I don't really see what you're getting at, that's a very unintuitive assumption; it shouldn't happen if market forces are allowed to run their course.

New afordable housing isn't built. Everything is "luxury" so that developers can maximize profit. When someone tries to build affordable duplexes the NIMBYs say not in my town.

Even luxury units add supply to the middle and affordable parts of the housing stock. Today's luxury units are often bought and moved into by someone moving up from a mid-market place, the buyer of which is likely moving up from a 25 year old now affordable place.

(Alternately, if no luxury unit is built, many of those buyers will be forced to buy the best-of-the-rest if they want to move in, putting more pressure on the middle, which in turn puts pressure on the affordable.)

I think many things are intentionally mislabeled as “luxury”. One can buy a simple refrigerator from Best Buy and claim that it’s stainless. I’ve seen listings brag about how the place has a Nest thermostat.

One trick they use in my country is adding a pool to apartment buildings.

The pools are unused most of the time, but having a pool in the building increases the value estimated by property appraisals' checklists.

Isn’t luxury the only thing that’s even allowed to be built in most NIMBY cities? Try building large “market-rate” housing in Palo Alto and see what happens (even within the confines of their already ridiculous zoning laws).

It's luxury almost everywhere.

The only place cheaper housing is being built are in developments on the far outer suburbs of flyover cities. But even those builders are having trouble with supplies and labor.

I was trying to draw attention to the fact that "I'm in the top 2% of earners but I can't afford a house" isn't surprising when legislative factors make it hard to add housing stock, when turnover is low, and when there's net population inflow.

My supposition was intentionally exaggerated to clarify what happens when you don't build enough housing: not to be pedantic, but understanding what happens in "extreme cases" is a common technique in math and physics to understand what happens in more common ones.

>> it shouldn't happen if market forces are allowed to run their course.

Apparently you haven't met my neighbors.

Likewise, why would you suppose that market forces are running their course?

Sounds like the logical thing to do is start desiring a different place with sounder housing/zoning policy. Voting with your feet is a thing when you can’t win at the ballot box.

I think this is another large flaw in our voting system, where things are too local (like zoning). You get a small community of rich people in Berkeley block any new housing, and you want to live there but have no influence on the zoning laws.

Japan's zoning is national and doesn't have this problem. Thus Tokyo is far more affordable than San Francisco, Mountain View, etc.

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