House prices will remain up because any gain from sale will be plowed into the next home. It's a ratchet upward. Higher mortgage rates are somewhat irrelevant in this dynamic, because the home itself is not an asset to get capital gain from, but a claim to shelter a family for an _indefinite_ period of time in a chosen location.
USA was inoculated for a very long time, because horizontal expansion over cheap land allowed for expansion of supply. That era is over. Car and highway technology is no longer adequate to expand cheaply and still remain within viable commuting distance.
There really is no limit on how high home prices relative to income can be. When meemaw dies, her inheritance will fund the downpayment of little Sally. That's the perpetuum mobile in Europe, which the US is now cranking up as well.
Rents may still remain affordable, but home prices will detach.
As a European living over here for the last two decades, I agree that European houses are generally sturdier (my parents house pre-dates the USA, I don’t expect mine to last that long), but when you’re spending 6 figures on something, looking after it is a good policy. Catching problems early is the key - as soon as you notice something, fix it and fix the cause…
In the US, we own the land, and that is usually the real value. I’m the proud owner of a 0.125-acre New York postage stamp. It’s in a fairly affluent area, so is fairly valuable. In Wyoming, they’d laugh at it.
I think Japan is similar.
You're right that most of the value of the property is in the land and not the building though.
I think they also used to charge tax for significant-value property, like computers.
How much do you really own?
Sure, there's courts and laws, but they pick the judges and can choose to change the laws. They could pass a constitutional amendment tomorrow giving themselves the right to harvest your kidneys, the same way local counties can pass a law at any time raising your property taxes.
And, even if you argue that you have rights under the current government, empires don't last forever. 300 years from now, who's to say barbarians won't be ransacking the house you left to your kids? In that sense, your rights are only contingent on the barbarians being too scared to attack, and not absolute.
So if your argument is, "You can't own a house because the government could take it away", it seems like you have no hope and no possible policy change would give you any "true rights" to anything.
While you have governments that can legally steal everything from you just because they can, you'll never really be free.
That said, there are degrees of freedom.
Property taxes in the US are very high so I consider it an inferior degree of freedom compared to owning a house in a country where I don't have property taxes. The more corporation / income tax I have to pay the less free I am, hence why I'll move to a country which charge less corporation / income tax.
Sure, I'm still owned by the government because they have soldiers and guns and I have none - but at least I can live my life as close as possible to how I'd like to live it.
It is possible to fix this situation once and for all: abolish the government and its idea of legitimacy, let people organise their own defence from the goons of other countries by paying voluntarily.
You won't end up with a much different system, you'll still have some people not paying anything and some people paying more to defend their community - but at least I would pay voluntarily what's needed for my defence without enriching the politicians, fake intermediaries with empty promises, and it wouldn't be coerced out of me under threat of fines and imprisonment.
But ultimately your negative outlook on the human condition is your own, 99% of daily life proceeds under conditions of total anarchy, authority and security are entirely illusory and we pay incredible costs to maintain those illusions, not in terms of liberty alone, but in toil and life itself. It leaves little left to live for, read the Death of Ivan Illyich if you want a better understanding of what I mean.
Those costs are totally worth it. I'd rather live in a nation with liberal democracy and property laws, than whatever more "pure" or original model you seem to have in mind.
In any case, what I'm talking about is democratic and does not forego property rights, in fact it could give you stronger property rights. But you didn't read the grandparent.
I've never heard this before. Is this actually true? Is this some background technical legal truth that isn't noticed in practice?
I'm sure Roman Abramovich's mansion is freehold as are all those semidetached houses on the outskirts with a 55 minute commute to the centre.
In the UK, there is a concept of Freehold and Leasehold. In the former case you own the land under and everything built on it. In most of the country you buy the Freehold.
The Leasehold gives you ownership of the building but not the land under it. You lease the land from the owner. I've personally considered this form of "ownership" a trap. It has become more common in recent years as a way for sellers to screw buyers. Particular in the London area where demand is always extra high.
Technically, I guess I don’t “own” my own land, either, but I pay (significant) taxes on it (because I “own” it, according to the taxing authorities. They don’t tax the bank; they tax me). The taxes are assessed on the total value of the land and the building, and location^3 is a fairly significant coefficient.
Land is a weird (but frequently lucrative) investment. You can’t lock it in a safe, and, if your neighbors start a hog farm, you can’t just pick it up and move away.
This isn't quite right.
There's something kinda like that called leasehold, where you basically own an extremely long lease on a property (typically 70+ years, often up to 999 years), with the freehold (outright ownership) sitting beneath it. Generally it's used on apartment blocks and certain new-builds in specific areas (e.g. they're more common in London, but outright banned in Scotland outside of some pre-existing edge cases). There's a good chance the whole thing will be functionally reformed out of existence in the near future (see here https://commonslibrary.parliament.uk/leasehold-reform-in-eng...).
But in any case, the vast majority of UK property is sold freehold, or as you put it "we own the land, and that is usually the real value".
The only reference I had, was my grandparents’ “named” house, in Liverpool (It was actually a pretty nice place, near the beach, for what that’s worth, in Liverpool).
I remember my grandmother, explaining it to me, and that was what I got from it.
I was too young to have a decent frame of reference, though.
Here for example is a 1000+ years old church in Vienna: https://en.wikipedia.org/wiki/St._Rupert%27s_Church,_Vienna
1. there is housing that is >100 years old all over the US, some of it the most expensive in the country.
2. Brick and cement houses are certainly not maintenance free and crumble apart over time
3. Most of the value is the land, not the house
My wood frame house in Oakland was built in 1896. Clearly it lasted longer than 70 years. Brick is a terrible building material in California, due to earthquakes.
My brick house in Amsterdam was built in 1886. However, the piles it sat on were wood, which decayed, and the house sank 8 cm.
Both needed new foundations, both were gutted and remodeled on the inside to update them to modern standards.
True.
> Car and highway technology is no longer adequate to expand cheaply and still remain within viable commuting distance.
False. The US has mind-boggling amounts of land available. What's changed is the ability and desire to build on it. Used to be, the government would pay you (in land, anyway) to build a house. We gave railroads untold amounts of land to develop it.
These days, to build a house you pay the government for all manner of permits, studies, etc. -- and that's if they even let you build in the first place! Zoning laws prohibit new construction in overwhelming amounts of the country, especially in the most expensive areas. In NYC and SF, most existing buildings would be illegal to build under current zoning rules.
What makes building housing expensive is policy, not a lack of "cheap land".
I don't know if the same applies in Europe, perhaps not. In both Europe and the US land has long been the primary vehicle for intergenerational wealth transfer (think estates and productive land, not housing, though -- middle-class homeownership is an extremely recent phenomenon).
Times have changed and most people don't want to live in marginal lands that are available in mind boggling quantities. In addition, the reason that a lot of cities were built a few generations ago in the hinterlands was because manpower was needed for resource extraction industries, which have since either become highly automated or fallen into secular decline. We are no longer a nation of farmers and miners.
That's not "times have changed" -- people have never wanted to live on marginal lands, that's why the government paid people to move there.
> a lot of cities were built a few generations ago in the hinterlands
Few cities are built in the hinterlands for the purposes of resource extraction; cities grow where trade is, but yes there are definitely towns that have vanished because we don't as many farmers and miners.
The SF Bay Area is dominated by single family homes on large lots. Yes, SF proper has a high density, but the surrounding areas really don't, and not for lack of demand: developers who would build more housing are literally stymied at every turn, and this is not an accident, it is an intentional plan to reduce the availability of housing and keep it expensive, to avoid "traffic", "crowding", and "changing the character of the neighborhood".
I am flummoxed every time the discussion of housing prices shows up. Seems like 95% of everyone who comments is completely clueless to the most basic aspects of it.
In the vast majority of Western regions, high home prices are caused by a deliberate decision not to allow building enough homes to match demand, in the places where people want to live. It's really that simple.
In itself, this is a state of affairs we could accept as the current democratic consensus, but it's really stupid when most discussion of the problem pretends that the root cause is something else.
It's very possible I'm wrong. We'll see what the rate hikes will do to home prices in the next 2-4 years, and already we're seeing relaxing of zoning in many metros, so we'll see the effect of that in 5-10.
> I don't think it will meaningfully reduce cost of home ownership.
More housing would absolutely meaningfully reduce the cost of home ownership. Just look at cities like Detroit and Pittsburgh that, for a time, had a surplus of housing and a declining population: houses became super super cheap.
What's happening now is that housing stock is increasing 0.5% per year, while city population is increasing 5% per year, and then policymakers are turning around and saying "look, we're building more housing, and prices keep rising, it's not working!" -- of course, because cities need to build enough housing to satisfy demand, not just "more housing". Each year we have a new housing deficit, the housing "debt" goes up. To reduce prices, you need to build more than the demand is, which we are so far from doing it is laughable.
> Infill development is more expensive
This, too, is per policy. The sweet spot price-wise for construction costs alone is 4-5 story apartment buildings; outside parts of SF, Manhattan, and a few other inner cities, we aren't there yet. But the cost of infill development these days also includes (1) drafting environmental impact reports; (2) multiple sets of meetings with neighbors to convince them not to oppose your plans; (3) delay and stalling tactics from well-heeled neighbors who oppose your plans anyway (see: CEQA); (4) extensive requirements on insulation, window area, solar panel inclusion, etc. that push costs upwards; and finally (5) years of paying property taxes while you attempt all of the above to get your plans approved. That's leaving out (6) extremely high labor costs for construction, because construction workers need housing too, and their rent is also super high.
We are not going to see meaningful change until we remove at least some of the constraints on housing construction and new supply can begin to exceed new demand. In California, lawmakers are starting to wake up to the problems, but solutions are slow to come.
The NYC number is 40%, according to the NYT. But close enough and here are some nice maps breaking my down why those buildings couldn’t go up today.
https://www.nytimes.com/interactive/2016/05/19/upshot/forty-...
I think you're underestimating buyer sentiment. In Canada all it took was a couple rate increases in April for housing prices in the 'burbs of Toronto to drop ~20%.
Housing can go from "hot" to "not" really damn quick when prices start their downhill trajectory. What was suddenly a "must have, hot asset" becomes a "fool's game" when people get burned badly.
And based on social media posts, people are getting burned badly in Canada right now.
US will likely continue to see rate increases in the next couple years. We'll see if that is going to affect home prices here. Let's check back in 2025 :)
Unfortunately, directly comparable, prepared numbers are difficult to come by. The 3 most memorable sources I've found are:
* https://theconversation.com/think-your-country-is-crowded-th... - Discusses (introduces?) the concept of "lived density" and provides graphs for Europe. I'm not sure how well the author was familiar with related work regarding population-weight density, which seems to be the more correct term.
* https://ssrn.com/abstract=3119965 - A low-level analytical discussion regarding population-weighted density as a metric.
* https://arxiv.org/abs/2005.01167 - A COVID-19 pandemic-related paper which incidentally includes comparable population-weighted density metrics for both Western Europe and the United States.
I haven't looked into things since 2018 (excepting taking note of the 2020 COVID-19 paper), but IIRC census.gov has some population-weighted density numbers somewhere based on MSA and census block (tract?) proximity. It's not easily comparable to available European statistics, but it might be a good place to start if you want to play around with U.S. density numbers.
Maybe there have been better resources published since the above.
Specific breakdowns are harder to find, but top of line numbers are pretty easy to find in a minute on Google: https://datacommons.org/tools/timeline#place=country%2FUSA%2...
In which case the two are comparable: there are few if any middle-class families in the bay area that own their homes except by inheritance or some other luck (gift, lottery). Even condos and other high-density housing are all but completely out of reach for all but the top 10% of income earners. And those condos are almost all studios or 1- or 2-bedroom units that are very tiny.
Plenty of middle class people bought nice homes they could afford in the bay area in the 90s. Although I suppose you could consider this "luck".
I suppose you could consider this "bad luck".
This is a ridiculous statement.
There are plenty of middle class (by Bay Area standards) folks who have bought houses in Fremont and San Pablo and San Leandro and Hayward.
In fact, even in Marin there are parts of Novato and weird pockets of West Marin (Forest Knolls ?) where this was, and continues to be, done.
They are boring places and middle class folks working boring jobs have purchased homes there year in and year out for the past 25 years. Yes, they had to make choices and sacrifice some things for other things in order to do this.
Perhaps the ability to do that is comparable to a lottery win ?
Adjusting for inflation, it's doubled in real value over 25 years, which works out to <3% APR. It's a decent return, but we've also ignored 25 years of property tax and maintenance. (on the other hand, we've also ignored 25 years of effective rent)
I guess the point I'm trying to make is that $1.3M isn't worth what it used to be but it sounds big in our head because we remember a time when a dollar went a lot further than it does today.
I Googled for about 10 seconds to find some statistics about Bay Area homeownership.
Zoomable map to visualise California homeownership (very cool!): https://dig.abclocal.go.com/california/homeownership-maps/BayArea_homeowners_zip_map.html
Homeownership Rate (5-year estimate) for San Francisco: https://fred.stlouisfed.org/series/HOWNRATEACS006075
At a glance on the first link (zoomable map), the Bay Area looks similar to SoCal (LA/OC/SD). Why do people think homeownership is so low in areas of California with lots of good jobs? It isn't. To be clear: I doubt people on this discussion are interested in homeownership rates in extreme suburbs (2+hours away) and rural areas.It’s not possible to afford housing or robust healthcare in the US.
Keep in mind there’s no rule we have to tolerate either.
Imagine being a teenager in the US, having just seen how essential workers are treated, knowing in all likelihood your future is an “essential worker”.
Then watch Congress scapegoat Facebook.
But you’re right, you’ve put me off on the whole idea. Good effort. There’s no way around artificial scarcity.
For people with pre-existing conditions it begins at a younger age and is recommended more frequently, based on the determination of your GP Surgery.
You should get your first invitation to an NHS Health Check around the time of your 40th birthday.
https://www.nhs.uk/conditions/nhs-health-check/what-is-an-nh...
And all that extra time and money got me was people saying “You should be glad it isn’t socialized health care!” Yeah. If it were, I would’ve gotten treated faster and cheaper.
I live in Canada, and recently had appendicitis. My appendix was removed less than 24 hours after symptoms began, and 10-12 hours after I arrived at the hospital. I walked in to the ER (after a very painful car ride), they asked me some questions and gave them my health card, they said how much, I said 7, they did blood tests and I had a CT scan, I waited a few hours, and then I was wheeled up to the operating room, after which I spent the night in the hospital and discharged the following morning. Not once did the question of insurance or payment come up, and I even had a private room after the surgery.
Something ridiculous like 70% of lifetime healthcare spending in the US occurs in the last two years of a person's life (half-remembered number from like 10 years ago). The uncomfortable truth is that we spend way too much on hail-mary treatments for people who are almost certainly going to die, and too much on useless shit like knee replacements for the elderly, and far too little on the earlier stages of their life. But nobody wants to tell the elderly "no" because they vote.
Obamacare had the right idea with "death panels". A lot of treatments that happen near the end aren't medically justified by quality-adjusted years-of-life or similar metrics. And that money comes out of the healthcare of younger people, whom the US treats like shit compared to the elderly. Because they don't vote.
But nobody likes the optics of "pulling the plug on grandma".
It seems like a thread-derailing comment likely to drag down the quality of discussion.
> “ Eschew flamebait. Avoid unrelated controversies and generic tangents.”
Your comment, “Don’t forget to mention they still have full health coverage in the EU.” was doing exactly what the guidelines ask us not to.
My hope was that bringing attention to this would help deflate the impending generic argument about health care and help you improve future conversations on the site.
It was just an attempt to be helpful.
If the HN communities behavior is to point to a TOS I didn’t agree to at sign up, I’ll go ahead and logout and stay away
That’s some bait n switch, end run around norms, patronizer enabling, dark pattern nonsense.
The point of these guidelines is that _generally_ most people follow them and it stops this place going to garbage like every forum before it, and allows it to stay a place for professionals to discuss topics, rather than us vs them flamebaiting and boring jokes.
You're totally welcome to go, but you're also welcome to stay. If you step back and calm down, you might find you like it here :).
Here in the US, if one was asked to define “middle class” from a lifestyle perspective, probably the first thing that comes to mind is “homeowner.” I don’t think it’s possible to separate home ownership from class distinctions in the US social strata.
Case in point, home ownership rate has remained largely stable for decades at around 65% of the population. That’s despite incomes being more varied in relation to actual value over time.
So I’d say if you extended it to incorporate that understanding, it’s pretty accurate.
This isn't really an ownership issue, it is an occupancy issue. Monthly rent needs to cover the expenses of a property including any mortgage, property taxes, etc as well as maintenance, so rents wind up tracking house prices. If you can't house the middle class, a) they're not really middle class and b) you have a societal problem.
Housing prices have been able to balloon because debt has been very, very cheap. Whether or not that will continue remains to be seen.
What’s the smart bet on what will happen?
Are there actually data that say that? I'd only expect data to exist on the first half, but there may also be data (as opposed to a fairly good supposition) from the second.
I'll say from personal experience, it does change your perspective. If a sewage treatment plant moves in next door, I can't move like a renter can. It's a feeling of real vulnerability that I didn't fully understand until I felt it.
I understand the NIMBY-ism. I do wonder how much people care about the value of their house going up if they don't plan to sell soon. There are advantages to your home being less valuable and the only disadvantages come if you want to leverage your home more, refinance (not likely with rates going up) or sell it.
I think this idea of wanting your house price to be low to avoid property taxes then suddenly increase the value when it's time to sell is like the idea of having your employer pay a trust so you can collect food stamps 11 months of the year then the trust pays you all your money in December.
It might be possible and it wouldn't shock me if a few people do it but it's not the normal approach.
No one wants to live next to a dump. That's why it affects property values. Because it also effects living conditions.
Meanwhile, a lot of people never plan to sell their home. Yes, if you plan on moving soon, you care about property values going up. If your horizon is 10 years, 20 years, or your kids selling the place? Less so.
That's the real reason California has Prop 13
They definitely don't want it to go down, especially below the loan amount; but tools like Zillow make it way too easy to book "paper profits".
If you bought for $100k and later noticed Zillow say your house as $250k, and now it's saying $200k you can feel like you lost out even though you're still "up" - something that was more difficult before as you'd have to try to compare similar homes for sale.
So while I understand your argument I'm reticent to accept it on the basis of the concerns mentioned above. Settling down permanently is not the same proposition it was fifty years ago. My grandma grew up in Denver, the rapidity that it grew with was apparently astounding and that growth drastically altered the culture and the landscape, what were once dirt roads are now median-divided 3-lanes with cookie cut houses lining them as far as the eye can see. If you can imagine not wanting to live there with the rapidly accelerating growth and the headaches that come with it, you're not alone.
There are also economic concerns, which can be highly unpredictable, and these are considerations I'm sensitive to. I've watched commodity fluxuations result in massive layoffs time and time again. When given the requisite information to make a decision on whether or not to sell, it's plain to see that it's a benefit to have pricing steadily increasing, whether it's to avoid the wave of sells when an industry reels back or shutters, or when one is intent on moving to greener pastures, or at least a better home in a more agreeable neighborhood.
I'd pay taxes which, given the parent statements terms, would roughly equivocate them with asset price insurance before I stuck my neck out to get burned or blown up.
This is the argument that homes are currently overvalued.
Or, as an alternative, market is going to freeze.
Given that we've rediscovered fiscal stimulus and inflation as a result, I have a feeling that era is dead. You can't have low rates in an inflationary environment.
If there's housing scarcity, then prices will rise far ahead of ability to pay. That's the source of a lot of other types of today's inflation, for example, cars.
Housing costs tend toward people's ability to pay, otherwise folks default. That's why the banks ask you about your income and credit worthiness, they want to know you'll be able to pay the mortgage and not default. If money costs increase faster than income, folks won't be able to afford as much money (as high a price).
That's how housing costs can increase faster than the income of an area, it's the market displacing those with lower incomes, and readjusting to only house the wealthiest.
Add in that housing prices are distinct from the housing costs, and that leases only change rent occasionally, and lots of people are owners and have fixed costs, and prices can rise quite a bit faster than incomes.
And new home construction is at an all time high.
Scarcity of inventory is not at all the same thing as scarcity of housing. This has been a powerful narrative in driving FOMO buyers though.
Your chart is the number of units under construction, but that high number doesn't translate into more new homes than ever before, because completions have been massively delayed. So there's a lot of homes sitting half finished as they wait for supply chain crunch's to resolve. And to compare this to numbers from the 80s means normalizing for length of construction, something which is getting delayed more and more.
Overall, construction has massively constructed since 2008, and even before that it had been trending down for a long time.
I suppose it makes sense. They say not to spend more than 1/4 (or 1/3) of your income on housing but if a house costs 2/5 of your income you're probably not going to set up a tent and wait for interest rates to come down.
How so? Large, luxurious, houses get counted just the same way as small houses. If you mean that new houses that have not been resold aren't a factor in the index and that this biases it against the latest housing, OK. But even new houses tend to be priced in line with comparable sales, linking them to history in a way compatible with how the index is calculated.
https://www.longtermtrends.net/home-price-median-annual-inco...
So it could also be that 97% (or close) of wage earners in the U.S are underpaid?
Or I guess it could be a combination of some underpaid, some overpriced.
Can attitudes and norms on what % income spent on housing change? As people attain a higher standard of living, can this trend up?
https://fred.stlouisfed.org/series/CSUSHPINSA
Case-Shiller Index?
https://www.spglobal.com/spdji/en/index-family/indicators/sp...
You’re looking for this:
[0] https://en.wikipedia.org/wiki/Case%E2%80%93Shiller_index