Solving the housing crisis requires fighting monopolies in construction (2020)
minneapolisfed.org
minneapolisfed.org
- Modular home construction is an $11 billion industry, growing at 8.5% per year
- The cost of modular/factory vs. stick built construction is about a 10-20% savings. On a $500k home, that’s going to be less than $25k difference in price. That’s not the problem.
Additionally from this source (https://blog.lotnetwork.com/lot-and-land-loans-financing-you...):
- Banks, which are tied to the Fed, are loathe to provide lot/construction loans. Ironically, this creates supply shortage and makes it necessary to purchase existing homes or from tract home builders that the author is criticizing.
- The size of the cash downpayment can be as much as 50% of the cost of the home.
Bottom line: the cost of housing is a systemic problem, and the Fed along with local government zoning boards are at the root of both the financial and regulatory sides of the problem.
The history of housing busts dates back hundreds of years and is older than the United States. Banks are not wild to extend lot or construction loans because, until we achieve AI singularity, there's always another bust coming around the corner- and banks know they'll take it on the chin. Especially to the average home builder, who will simply walk away from their loans in a recession, close their company, declare bankruptcy, etc. etc.
Isn't 10-20% of $500k actually $50k-$100k? (Could buy some really nice appliances...)
I think the OP's core point is sound -- (total) home prices are like 50% over historically reasonable levels, so it's daft to explain it by even 20% overpricing for construction (which, again, applies to only a portion of the total sale price).
[1] And the typical home does not cost $500k to build.
Or is the Fed trying to draw attention away from the catastrophic impact of its zero interest and other policies on the massive increase in asset prices?
What about it do you find unconvincing?
The paper essentially argues that construction costs can be lowered significantly using factory production methods, especially for small-modular homes. I have no problem with that part. The title has no basis in the paper, though.
It is unrelated to the massive increase in housing (and other asset) prices in recent years which are the cause of the current housing crisis.
Houses are already as close to factory-built as is possible to do with today's tastes. Everything is pre-engineered and merely assembled on site.
Elsewhere here I asked why factory-built housing doesn't seem to be popular world-wide, which is what you would expect if it's only US Federal policy which prevents it from being popular in the US.
I'll add that I saw no discussion of how local housing policies were designed to prevent "Large numbers of low-income, city residents [from moving] to these areas", in order to keep property values high. Or the classism that caused people to look down on mobile homes.
The author rhetorically asks "But what stops public transportation from expanding upon the arrival of new residents?", when I've heard so many New Urbanist videos answering that question.
I didn't understand how "a uniform building code across the country would be a great benefit to factory producers" is a meaningful goal, given that the needs for Florida, Arizona, and Alaska are quite different, making me question his understanding.
I read "There is a literature that asks why the poor live in cities." and counter with the observation that the poverty rate is higher in rural areas - https://en.wikipedia.org/wiki/Rural_poverty#Rural_versus_Urb... says "rural poverty rates are higher and more persistent than in urban areas, rural workers are disadvantaged by lower wages and less access to better paying labor markets" - note that housing prices aren't part of it.
And I didn't see mention that "stick housing" has moved towards factory methods. As https://priceonomics.com/in-defense-of-mobile-homes/ points out:
> Windows, doors, and other parts arrive prefabricated, Rybczynski writes, so labor costs have actually halved since 1949. Levitt and Sons spent $4 to $5 per square foot building Levittowners, and, adjusted for inflation, builders today spend the same amount.
> Instead the problem is almost wholly that land is too expensive. Reduce the size of a new, modern house by 50%, Rybczynski notes, and houses in metropolitan areas will still cost over $200,000.
> That’s the secret to the extreme affordability of a mobile home—take land out of the equation.
We aren't really using "traditional methods" - engineered wood is not traditional and is very common. "As of 2005, approximately half of all wood light framed floors were framed using I-joists" says https://en.wikipedia.org/wiki/Engineered_wood#Beams . These were made in a factory, and not "on-site" as the author describes the house-building process.
The actual data is very clear on this (FRED), despite the word of mouth "shortage" narrative.
Now that the narrative is turning, inventory is skyrocketing as you would expect, and we will be in a glut within 6 months. Look at the "all time low inventory" of the 2000s as another example. How quickly did the inventory narrative collapse back then? A few months
Show me the stats for housing units per household. Hint, it's the same as the year 2000 and in line with historically normal levels. 1.1 housing units per household
Show me the stat for rate of construction relative to population growth. Hint, it's at an all time high.
Show me the demographic trends? Hint, it's towards flat or negative population growth, with most boomers dying over the next 10y, and each successive generation being smaller than the last.
Where are your stats? Inventory, which has nothing to do with actual supply? What happened after the generationally low inventory of the 2000s?
Anyone holding to that peg as confirmation of anything is in for a rude awakening
The relevant stats are people reaching FTHB age (roughly 25-35), minus deaths, plus new construction. And that picture looks pretty bleak:
https://countryeconomy.com/demography/population-structure/u...
There are about 45M Americans ages 25-35. There are about 21-22M Americans in peak die-off age (75+). There are about 1.2M annual housing starts:
https://www.census.gov/construction/nrc/pdf/newresconst.pdf
Sure, by 2035 or so, when baby boomers reach peak die-off age, we're going to have a housing bust. But over the next decade? Most Millennials are screwed, and it doesn't get better until today's middle-schoolers come of age.
Household growth was flat prepandemic https://fred.stlouisfed.org/series/TTLHH
The likely explanation for current RE market is households temporarily expanded due to the various stimulus and forbearances giving many higher disposable income, but we'll likely see this contract again as the effect of inflation takes hold.
(Expanding/contracting can be through roommates splitting/joining, kids moving out etc).
Housing is fungible. Rental units draw from buy demand and vice versa. Substitutable goods work this way on a macro scale.
The millenials who buy, move out of rentals, which drives rents down (or less growth), increasing the spread between carrying cost to rent/own. There's a limit to how far this spread can widen nationally. You can't look at these markets independently.
Number of households show the actual number of housing units demanded, everything else is an input to number of households.
If the question is "Can I maintain the same standard of living as I grew up with?" or "Can I form a family?" or "What are housing prices going to do now?", this isn't an interesting statistic. The number you want to know is "How many people would like to form households but can't because there are no houses to be had?" And that's what I'm citing with the demographic numbers. If there are twice as many people desiring houses as houses available for them, only half the population is going to get a home, and the price that the median home sells for will be what the 75th percentile of the income distribution can support.
To extrapolate out permanent conclusions from a point in time inventory metric is completely flawed analysis.
I'll refer you to the generationally low inventory in the 2000s, coupled with similar widespread shortage narratives. It won't end via the same mechanism, but each bubble is unique.
Inventory will continue to rapidly increase as rates stay over 5%
And again, rate of construction relative to population growth is at an all time high. Every narrative around a supply shortage focused on inventory is clearly and obviously flawed/wrong
The simplistic view is that residences are either rented out or occupied by the owner. In reality a speculative boom creates excessive demand which increases the number of residences that are second homes, Airbnb's, undergoing renovation, on the market, land-banked, etc. Most of this is made possible as capital gains become more significant relative to yields.
It's counterintuitive but a speculative boom can lead to both higher prices and a higher proportion of underutilised residences.
I still have not seen a convincing response to the demographic argument I put forth. The generation entering the housing market now is the large Millennial generation; the generation dying is the small Silent generation. For everyone who wants a house to get one, we need to be building the delta in size between these, and we're short by several million.
Well, implicit in this argument is that a non-trivial percentage of the Millennial generation is actually able to enter this market. Is that actually true? I'm not really convinced that is it, as there's been a lot of chatter about this generation putting off important life milestones like family formation, which would precipitate home buying. To be fair, and to potentially anticipate the counter argument, when the boomers were at this same stage in their life interest rates were much higher. But ... family formation was a much stronger cultural imperative at that time. It very much is not so today.
>For everyone who wants a house to get one, we need to be building the delta in size between these, and we're short by several million.
I agree with this, but for philosophical reasons and not structural ones. If I'm some jerkoff investor, trying to maximize profits, yeah I'd only build high rise lux condos and squeeeeeze that yield because, let's be honest, building family homes doesn't really do that.
The number of households is significantly constrained by the supply of housing units, so that seems like a less relevant number.
Looking just at the past two years ignores them past 14 years since the 2008 crisis, from which housing construction is just barely beginning to recover. And houses under construction is not completed house construction rate; each individual build is taking far longer because of supply chain issues, so it looks like there are far more houses in the pipeline, but there isn't actually an oversupply of housing by any means.
If there was an oversupply, we'd see flatter prices, or maybe even declines. Housing prices are quite sticky, but we aren't seeing either massive vacancy rates or falling prices.
There is an element of changing preferences, but city centers also up greatly in price. Can't be the whole story
You can tie LCOL price increases to them. But if that's the case, you would expect HCOL/central places to decline in price via the flip side of the same effect. Yet instead we see massive price increase in LCOL and smaller yet still big price increases in central/HCOL.
Obviously a many variable system, but stating that remote work should lead to a national 20% increase in prices is nonsensical
In 2008 we found out there was a massive housing bubble.
https://static.seekingalpha.com/uploads/2022/3/29/50377332-1...
On mobile now, but you can confirm the stats on FRED
The person posting that graph has a bridge to sell
Ergo building in FL or TX can reduce prices in CA. Why do you think the northeast and CA are losing population?
Aside from the snark, I'll make it clear. If you have 100 people and even just 5 of them prioritize LCOL to their current locale, those 5 moving away will reduce demand for the area, regardless if the other 95 would never move to Gary, IN in a million years. Housing is not a closed system, and building nice developments in Raleigh or Denver will take population from higher COL places in the aggregate. Which is exactly why we see population loss in HCOL areas.
Very small brained thinking in the residential real estate world unfortunately.
Nationwide stats hide a lot of regional realities.
People have basically come to understanding that house prices only go up, they use exotic financing and stupid leverage (BRRR method) to keep buying "assets" and jacking up their rental yield which then re-prices the asset so they can take an even bigger loan to buy more "assets".
Recently someone in the group asked how they could afford a house in Seattle and most answers resonated around buying houses in midwest/lcol areas and jacking up rent/renovating to take out further financing and keep buying properties till you can afford to buy a house in the hcol area.
This has to end, with FED inflicting pain on the stupid leveraged folks.
Homes should be for people to live in, not to purely speculate and grow their money.
Wait, if those speculating investors have “rental yield” then doesn’t that imply people are living in those homes?
Housing can’t both be a good investment and be affordable.
You can't make economic decisions on the basis that real estate will always grow more than income or even real gdp forever. Which is what these group of investors are doing.
This gets repeated a ton, but isn’t true unless you assume density never increases.
Buying a SFH and replacing it with a 4-plex would be profitable in almost every market — were it allowed, which it almost never is in the US. In that alternate universe, the SFH owner makes money, the developer makes money, and the new units in the new building can be affordable.
American new construction has doubled in size (in terms of sqft/unit) over the past 50 years. If “oppressively small” were the problem, things should have gotten better, not worse?
The demand you’re talking about in the SF Bay Area is not necessarily driven by ‘butts in seats’ (aka actual people needing a roof and willing to pay a concrete price for it), but also by the cheap money narrative the FED has been feeding for a very long time. Which is what they are referring to in their post as having changed.
I’m not sure why so many people believe that housing prices in high-demand markets are dominated by things like interest rates — there is certainly an effect, sure — but by far the predmoinant reason a 2br house on a small lot with a small yard costs $2m+ in Palo Alto is that there are thousands if not tens of thousands of well-off workers for nearby tech companies who would like to live there, there is not enough housing to go around, and $2m is the market clearing price.
The idea that the “demand” is being “driven” by some “cheap money narrative” is missing the forest for the trees. Low interest rates might be why that house is $2m and not $1.8m. But the narrative is definitely not the reason the median home price across the Bay Area is many multiples higher than the national average of $350k.
That’s pure supply and demand.
Secondly, the Bay Area is one of the markets subject to some of the more severe headwinds if remote work becomes the new normal, for the reasons you stated.
SF population declined ~7% over the past two years. https://www.sfgate.com/bayarea/article/San-Francisco-populat...
The concept of being forced to live in a hyper local area for work may be a thing of the past, which doesn't bode well for employment driven locales. NYC being another example.
Bay area is one of the last places in the country I'd want to own a home right now
I don't know much about SF as I haven't lived there as an adult, but New York is an incredible place to live for lifestyle reasons too.
It has great food, a very high concentration of smart and highly educated people, great museums, great performance arts, etc. It's also an incredibly walkable city, which is rare in the US.
Hands down it would be my choice of city if I was a remote worker.
It's subject to debate which locales would stand to net gain/lose from WFH, but I'd pick NYC as a net loser. You gain some who enjoy the city life and amenities, but you lose more to lower COL locales.
Price will always be a factor weighed alongside amenities, even if one area is objectively nicer from an amenities perspective
Everything else pales compared to NYC.
This is far from an universal view - I live there (well, East Bay) and I think the weather isn't that great: too cold in summer, no nice evenings, never nice to hang out by the water. And I like cold winters as a contrast.
October to December are nicer though.
If demand plummets, of course prices will follow.
That’s the point folks are trying to make.
It doesn’t just magically appear.
It’s not driven by Fed policies around interest rates. It’s not driven by speculation.
It’s driven by people wanting to own homes. Period. The other factors are small.
That doesn’t create real demand on it’s own (as in anything that will impact a market). As any experienced realtor will tell you, every house is always ‘in demand’ by a near infinite amount of people that can’t afford it.
They have to be able to do something about that desire in a concrete way - high salaries count of course, but it’s always modulated by interest rates unless they are buying cash outright. Then it’s usually moderated less directly by other things they can be doing with that cash that are more interesting, and relative rents in the area.
But if it was "interest rates" driving everything -- then every area would be very expensive, not just the areas where there are high salaries and lots of inflow and basically zero new construction.
The Bay Area population grew 7.4% from 2010 to 2020 -- that's 614,901 residents according to census. New construction in that same time period was under 200,000 units.
So: where are all those people living? Many of them are living with roommates, etc., and because of the scarcity of housing, having your own place has become a luxury that costs extra money. If 600k people are complying for 200k units, prices will go up regardless of what interest rates do. Then, salaries rise in response where they can, because tech companies need to pay enough for people to be able to move here (always more expensive, thanks to rent control and Prop. 13, than already living here) -- which then pushes home prices even higher, because there still isn't enough housing to go around, and the 30% of people who can bid the most are the ones who clear the market. (And then, of course, everyone else who isn't pulling in tech salaries is just shut out of the market.)
Interest rates matter on the margin, yes, of course -- but the cost of capital is still low compared with availability. A couple making $400k combined is going to be able to bid more on a house at 3% interest than at 5% interest, but the only reason they're bidding so much at all is that there aren't enough homes to go around and they want one.
This tracks prices nationwide [https://fred.stlouisfed.org/series/CSUSHPINSA]
Everything else you’re talking about is from side effects.
But not every area is very expensive.
The fact that a house in SF that costs $2m would go for $500k elsewhere is not a result of federal monetary policy, and it is not a result of construction costs. It is a result of supply and demand.
If the house in the sticks is $500k and the ‘same’ house is $2m in SF, my point is that without the fed pump, that house in the sticks may be $200k, and the house in SF $800k.
Mortgage rates have been dropping pretty consistently since the late 80s but price growth isn’t super consistent: https://fred.stlouisfed.org/series/MORTGAGE30US
Money was super cheap 2008-2013 too but prices were down on that period.
They had started to raise rates in late ‘06 and ‘07, which ‘pulled the string’ and led to the explosion. (The tide went out, and it turns out a great many people were swimming naked, to abuse a Buffett quote).
[https://images.app.goo.gl/RXGY22drR2pfCXX68]
Real estate is highly illiquid and often highly leveraged. It often takes years for market changes to be visible in the data, and sometimes pricing signals get hidden entirely in many markets (you’ll see a backlog that can be years long, but no price drops - just no sales).
It’s also market dependent, but influenced by the larger market (so think of each specific market as a ship, floating on the overall tide which is ‘cost of money/debt’).
Agents tend to always be selling, and tend to hide bad numbers. The Economists working for realtors are especially bad for this.
Sellers tend to not want to admit they’re desperate, and can often hold out for years. Buyers always complain that things aren’t cheap enough, but
It makes for noisy data and sudden surprises.
The short sale I bought in ‘09 for instance, closed for 50% less than the initial offer AT THE BANKS INSISTENCE because of steady shifts in underwriting and appraisal standards in the approx. 5 months it took to close. It took another 6 months before that price signal got disclosed publicly.
Still, since we're talking about "solving the housing crisis", it's not clear how raising rates to reduce pricing solves anything, since this argument is somewhat circular: prices drop only because people can afford less, and if people can afford less, that price drop doesn't actually make housing any more affordable?
Again, am I missing something? If not I stand by my original "there's not enough supply to meet demand" observation and that "increase supply" might be an actual solution.
1) building more units/houses does increase capacity, of course. But unless capacity in a location exceeds the population of residents AND everyone who would want to move there (doesn’t happen in a desirable place), ‘empty’ units will be rare. That is assuming price based backpressure doesn’t exist of course.
It’s a bit like the freeway capacity fallacy. Adding more lanes to a freeway, until you exceed the capacity of anyone who would ever want or be able to use it, just makes traffic worse, as it becomes a more and more known artery and additional businesses/people start using it, which increases traffic.
NYC housing prices are still astronomical, for instance, despite them being on a housing building binge for at least a century.
2) since a ‘limited’ (non infinite supply, supply < available demand) housing location will generally have more than 1 person interested in every house for sale, and will always have a point where housing costs money, the gating factor for if someone wins a pricing competition for a house is their ability to pay more than everyone else.
That means more leverage allows people to push prices higher.
It isn’t just interest rates of course - underwriting standards play a part too. Someone who can’t document employment history can’t get a mortgage, for instance.
If you consider the ability to leverage a force multiplier - say 30x for someone who can get a 30 year loan, but It’s actually more, depending on downpayment requirements - then those able to use the leverage will outcompete those who can’t.
those who can’t meet underwriting have a leverage factor of 1x - they can only offer the cash they have on hand. No leverage.
If we wanted to make housing more affordable (but didn’t mind throwing the US and world economy into a black hole), we could for instance make it illegal to issue mortgages. Then as long as you could save money, even if you were a drug dealer with no documented income, you’d be one the same playing field as someone with the high tech salary. You might lose still of course.
When people had to pay cash for a house, the typical house was around 1-3x the typical personal yearly income at the time. The reality is that a ton of people still rented and were homeless though, but that is a different discussion.
As to why this means ‘cheap money’ vs ‘expensive money’ means there is a good/bad affordability impact, even when the funds rate should (in theory) just change some multipliers in a calculation, but not if someone can actually buy or not.
The part you’re missing is speculation, time, and cycles, which hasn’t come up yet.
When money is cheap, underwriting gets looser (but not loose! No one is writing a mortgage for someone homeless, even at the top of the boom without going to jail.). They do this because the loan originators need to compete for buyers.
When prices of an asset go up, and money is cheaper, there is an initial lag - people don’t think of the asset as a ‘sure thing’ because it hasn’t been growing year over year yet. They won’t lever as high. Underwriting standards are often still tight. They’ll be conservative.
This is when things tend to be more affordable/in reach.
If someone is stretching to pay at 15% interest, historically interest is lower than that too. So when rates drop, they can upgrade, and prices go up, so they get money off it too. They can get a bigger and better place. Or move somewhere nicer.
This starts raising prices, but it takes time.
As this starts happening, underwriting standards start loosening. After all, if prices have done nothing but go up the last 10 years, of course they’ll keep going up, right?
As prices show this upward trend, everyone starts speculating too. If money is still cheap and getting cheaper, they can use leverage effectively too. Why buy one house, when you can buy two after all? Especially when prices keep going up. You don’t want to miss out.
Some folks also start doing things like NOT selling that first starter home, and still buying the second home. And renting out the first one. They were able to refinance the first home at the lower rate after all, and are making more at work, so why not?
This decreases supply of for sale houses of course.
As things get hotter and hotter, the amount of leverage goes up. This prices out more and more people in the market, aka folks with less money and less ability to meet underwriting.
It doesn’t decrease demand though - there are more risk takers buying more, as they continue to escalate as they see their asset valuations ballon.
People start doing their forward projections using the last few years numbers, and holy moly. Let’s double down, we’ll get even richer!
Houses for sale get richer and richer offers, with fewer contingencies, all to beat the other guy and actually close the deal.
At some point though, something happens. It literally can’t go up forever, with ever increasing profits.
When that happens, folks start recalculating their projections using new numbers. Numbers that don’t show exponential forward growth.
And that often means all the deals that were happening only because people DID project that growth become untenable.
But sellers don’t give up that easily, and since they’re still cash flush and they’ll be rich if they can sell at the price they expect, they hold on as long as they can.
Which adds potentially years of ‘stuck’ prices. Depending on how wealthy the area is, it can be held up for 3-5 years, with zero volume closing, but lots of listings.
Poorer neighborhoods it’s usually much faster.
As things sell at less astronomical prices, that is a dip in the curve. If it’s short lived, it won’t change much.
But people after awhile start revising their projections. And a lot of deals stop making sense after that - for people and investors. When someone is going to stretch and be ‘house poor’ when prices are going up, they are very uninterested in doing that when prices are dropping. After all, they’re locked into that mortgage for 30 years, and can only refinance if interest rates are lower.
That pushes demand down a lot.
As mortgages written when money was cheap have issues (due to lax underwriting), and as dealflow shrinks due to overall shrinking number of actually closing deals, underwriting standards tend to tighten too, making it worse for new mortgages, and decreasing available leverage.
This takes years to play out however. ‘07-‘09 were strong contraction years, for instance.
Sellers start being interested in folks who aren’t levered so high (their deals will close). They might entertain contingencies, because they have to. They’ll have to drop the price, not sell, or be repossessed and have the bank take the loss.
All of these are great for sane people who can avoid being taken advantage of.
More supply from existing stock comes on the market, as it’s untenable to just keep it off hoping for gains. People who were previously making crazy living situations work stop doing so, moving people to less dense living arrangements.
Jobs start shifting around too, often to lower cost of living areas, as markets cool and it’s less worthwhile sticking it out in an overheated area.
I’d pick the Bay Area over anywhere else in the US, with or without remote. Judging by real estate prices after remote took off (ignoring condos) I’m guessing a lot of others feel the same way.
And if resale value then where will you live when you sell?
The amount that can be loaned/supported by a given income, and hence a lot of underwriting standards, are based indirectly on the cost to service the loan relative to the income the person has.
The lower the interest rate; the bigger the loan someone can get if they shop around for the same income and assets.
This isn’t perfectly linear, as principal payments vs interest payments have different ratios based on interest rates, but it very much applies.
The market clearing price is also driven by these things.
But let’s be clear: the primary driver of sky-high prices in the Bay Area is (1) people moving here, getting well-paying tech jobs, and wanting to buy housing, and (2) not nearly enough new construction to meet that demand.
See the Case-Schiller index [https://fred.stlouisfed.org/series/CSUSHPINSA]
Changes in interest rates will be quite visible there, unless millions of people get ‘snapped’ and their houses remain intact anyway.
The most recent lull in prices correlated with a lull in rates, which kind of goes against your overall point of higher rates pushing prices down because the cost of capital increases? But maybe I’m misunderstanding your point.
Or more specifically, whether it's a shortage of reasonably available units vs. a shortage of existing units.
Not in my area. Where I live, there are about 4 or 5 housing developments, and every time I drive by them, I never see any progress. Occasionally I may see one truck and maybe 3 or 4 people working, but most of the time, I see no one. In the year I've lived here, I have notices zero progress on all new construction that I know of.
I don't know that people are really aware of the scale of what is going on here. The big finance houses have essentially been handed over ownership and control to corner the whole housing market ... by the captured and corrupt government.
A cheaper manufactured home would of course be nice if looking at costs, but dropping it on a $1.5m acre lot isn’t going to change the math that much.
Post WWII there were an actual housing crisis in the USSR, and those block buildings helped a lot.
A couple things to try to contextualize this claim:
1. Institutional investors are purchasing single-family homes at a greater rate than they used to, but they account for a minority of all purchases: "During the first three months of this [2021], investors bought nearly 15% of U.S. homes, up from about 10% during the previous three quarters."
2. Their overall share of the market remains small: "Yet of the roughly 15 million single-family rental homes in the U.S., institutional investors own only about 2%, according to real estate consulting firm RCLCO."
Source: https://www.realtrends.com/articles/institutional-ownership-...
Las Vegas is a city mostly surrounded by public lands. New private parcels are no longer made available as lots appropriate for single family homes. They are carved onto neighborhood sized chunks, sold to developers directly, and locked into HOA's for all eternity.
Only the big boys that can tackle multi-million dollar bids can enrich themselves by the sale of our public lands.
Question was for a shred of evidence for any cause other than FED policies.
There it is an evidence, at least for Las Vegas.
Most interesting is it shows this is not a single variable issue.
There are lots of factors involved and they probably change across geographies.
For the average person, this makes the land and construction costs unobtainable for the average person, effectively creating a monopoly for the builders and the HOA organizations with deep pockets to bid.
The construction industry might be considered a cartel though if they coordinate behind the scenes.
In some areas, maybe more like ‘collection of competing cartels that hate each other’.
Housing prices are sky rocketing and if you want a new one built you practically HAVE to do it through them unless you’re in the upper 10% of wealth.
I call that an unfair advantage at the very least. Based on what they’re saying about Las Vegas, it sounds like a similar arrangement has developed in their zoning and development contracts for their suburbia.
Even if there are 1000 bidding players… that’s 1000 people out of the millions living in Las Vegas. Seems pretty unfair no matter how you spin it. There was a time people just bought land and built a house themselves. That time has largely passed.
Only the big-boys that can tackle multi-million dollar bids and rental building development projects can enrich themselves by the upzoning of our existing neighborhoods, locking residents into a permanent rental class for all eternity.
Condos at least build some equity that you can recover when you sell. Sure there are some risks and maintenance costs that renters don't "pay" but it's all included in the rent, over time.
That equity is only monthly payment - debt, taxes. So the real difference is that you can invest X in your property or X-owner's profit in the investment of your choice.
With a condo, several entities are jointly responsible. If you don't like it, you can sue.
I would rather deal with a landlord than a Surfside Tower like incident.
They’re going to turn it into rentals, and do their best to maximize rent for each unit.
End result is paying an obscene monthly rent for ever-shrinking square footage, while anyone being paid below a living wage sits in the 20+-year-long queue for employer-subsidizing “affordable” apartments.
Interest rate policy is not singularly to blame for the housing crisis, just as it wasn't in 2008.
The issue in 2008 was lack of internal enforcement at banks or by federal regulators of interest rate products.
In the case facing us today it is less to do with Fed policy, more to do with land use policies that have made housing construction literally illegal.
How did you quantify "less"? Low Fed rate made mortgage body 60-70% cheaper, hence prices are higher.
For people always referencing Tokyo -- why aren't you living in Tokyo then?
The idea I think you are assuming is that supply causes demand (i.e. demand will always rise to meet supply), and that the supply-demand curve is flat to maintain price regardless of supply.
It may not be physically possible for the entire world to live in NYC, but we surely could double in population without breaking any real physical constraints. Besides the political constraints that make it absurdly expensive (in time, capital and social power) to build for more growth.
I'm sure you could also house a few extra people in need in your living room!
1. interest rates rise
2. peoples' stock porfolios have tanked
There is a literature that asks why the poor live in cities. One answer provided is that transportation options are much better in cities than rural areas and small towns. But what stops public transportation from expanding upon the arrival of new residents?
A more important reason for why the poor live in cities, it seems, is that many low-income households are “trapped” in cities by the high cost of constructing housing in rural areas and small towns.
Farmers in most industries are basically price-takers.
Obviously not everyone could afford, and not everyone wants to, and that transition process would be dramatically inefficient. (For example, inspectors could charge a fortune with so many people trying to buy so many homes)
It's ridiculous to suggest outlawing 50% of a state's living arrangement.
Good solutions consider the current state, they don't skip past it entirely
Plus, even if you are putting 50% more capacity on the market, you are also putting multiples of that in demand on the market, since renters who don't know each other often live in the same house.
That would be a good start.
Take a look at something like the BC Energy Step Code https://energystepcode.ca/ and its guidelines on thermal bridging: https://www.bchousing.org/research-centre/library/residentia...
It produces better buildings, but this is all new and expensive. Expand this sort of thing all out to all the other components (electrical, plumbing, foundation, etc) of modern, compliant buildings and you get the idea.
source: four years in construction trades, my own two eyes
So, a permanent crisis?
Anyhow: the shortage of housing has a lot to do with zoning restrictions, building codes, NIMBY-ism, credit availability, and lots of other factors, and very little to do with HUD and NAHB. Manufactured homes have a low social status, unfortunately, and forcing municipalities to accept them would be a very hard slog.
It’s clear why these homes are a threat to those constructing stick-built homes, especially in the lower-priced home market, and why monopolies in traditional construction have invested so heavily in blocking these small-modular homes. The homes are of high-quality, built to a strict national building code. They are manufactured at a cost per square foot that is one-third to one-half less than the cost per square foot to construct homes with traditional methods.4 Not only can factory production methods produce houses at a fraction of the cost per square foot of traditional methods, factory methods are also able to “go small.” That is, factory methods are able to economically produce homes of small sizes.5 The average size of these homes (in square feet) is less than one-half that of homes constructed with traditional methods.
Is factory-built housing common in other countries?
If not, then it would strongly suggest there are other reasons than federal control.
Wikipedia at https://en.wikipedia.org/wiki/Modular_building#Market_accept... says "In the UK and Australia, modular homes have become accepted in some regional areas; however, they are not commonly built in major cities. Modular homes are becoming increasingly common in Japanese urban areas ...", suggesting it isn't all that common world-wide.
In Australia you can't get a loan on a mobile home in a 'manufactured home park'
https://www.homeloanexperts.com.au/forum/viewtopic.php?t=580....
Also building codes often make it hard to build mobile homes on residential land.
> They also mean the homes are financed as automobiles (with personal loans, or chattell loans) and not real estate loans. ...
> One famous program, the so called “Section 235,” provided mortgages at interest rates as low as one percent for buyers purchasing a home built on-site. Buyers of factory-built homes, in particular, manufactured-homes, were not eligible.
Long story short: how can housing be stable in a changing society in a changing world? If a mass of people want (and/or need) to relocate because of increasing bad climate and extreme events (floods, fires, too-hot-in-too-long-summers, ...), if there is a crossing between some who need to go to cities because can't afford anymore living outside and some who want freedom outside, if properties prices keep floating due to such moves how can a stable housing exists?
What really matters to people are monthly payments relative to paycheck. Of course, if people also believe that inflation is underestimated, then the current housing situation is perfectly fine.
I hear this repeated often, fail to see how it's true. Let's say I'm 50, just starting a 30 year mortgage. Monthly payments relative to paycheck? Sure that's important. So is the fact that I'll have to be paying until I'm 80..?
2. It is largely illegal to discriminate by age when lending, I know plenty of people in their 60s or 70s who have taken out 30 years.
https://foxbaltimore.com/amp/news/local/national-guard-naacp...
There is a large stock of existing single family houses that cost as much as buying a car - $50,000. In theory, anyone with $5K down and can afford a $200/month mortgage can get a single family house in quite a number of cities.
In practice, the problem with the housing market goes way beyond the economic basics of land, construction, ZIRP.
Part of the trade off I make personally for affordable housing is not really wanting to go outside from November to March because the weather sucks.
If you live in an area that has perfect weather you are always going to have a demand problem and high prices from people wanting to move to those areas.
The unaffordability of monthly payments is the housing crisis, and that stems from inadequate supply.
The industrialized construction (or offsite construction) improvements more like hindered than helped by this fragmantation. Inventing and introducing new techniques (including workforce training, software and hardware) is infinitely harder with fragmanted organization involvement. Having few dominant organizations that could dictate work methods actually helps.
Furthermore the finances of the construction organizations are of project focused. Need to find money and time in long running single construction projects for research and development and somehow connect those accross production projects, in parallel, while trying to keep up prompt and cheap delivery as clients (paying a lot for each one off product, each product different unlike in manufacturing industry using mass production or at least mass customization) demand quick and cheap delivery. They may go to one does not spend on R&D and can work cheaper (eve 1% difference can mean millions on this scale). Need to change the engine while flying kind of thing, cannot stop alone, or even together for a while (clients demands delivery) to reform the practices.
Even with industrialized construction the housing crisis remains. Look at very advanced countries like Sweden where factory based construction is norm but (despite municipality and government backed effort) getting a home is still hard. Not enough supply of the very expensive stock and even the councious and heavy regulations just shift the problem elsewhere (life long waiting lines for affordable rentals).
I believe the housing crisis is almost pure financial problem. Housing is used for investments too. And having affordable (reliably cheap) and high profit yielding (rapid cost increasing) housing at the same time is impossible. Seems like the ball is more like at the economists and regulatory side than construction technology.
Not to mention places where the cost of land and associated taxes are further worsening the situation (e.g. UK), where construction cost is actually lower portion in the overall price.
The construction industry can do quite a bit in improving mass production, but not that much that would solve housing crisis in high value locations where the space is limited, costly, and prices fuelled by investment efforts as well (where else would you invest than in places with high demand?). State bodies could help more.
I'm not going to read a 49 page pdf today.
There are two things that really affect supply.
1. Government regulations is number one by a huge margin. We all know what that includes; zoning, persnickety council members who literally debate where a window is placed, the wood or stucco you can use, down to hedges, and even the color of your home. Look at what Bill Mahar had to go through in order to build a shack in his backyard.
(Gavin Neusome made some great changes these last few years. They arn't being used though. Why? It's still dam expensive to build anything. I've noticed a a few well off wealthy guys in my county using ADA units to increase the sq. footage of their homes. But most folks don't have the money to build.
2. The cost of constructing is high. Every-time a new code goes into building it just adds up. And I know how most of you love these safety codes.
The problem with over coding is the law is the law.
My father once got a failed final permit on the electrical Service installation. The law states you need 30" of space around the panel. The Service was in a concrete hallway. He was failed because the panel was 29". The inspector was a childhood friend of my father. Yes--it says something about my father too?
I knew a guy whom was failed a final electrical install because he didn't have the right sticker on two of his receptacle. A sticker. He didn't even know buried in the code there was a law over a missing label. The recepticals were standard 15 amp residential recepticals.
This guy said HUD, and NAHB, are not helping the situation. He is probally right. I did look up NAHB lobby monies for 2021, and it was 3.275 million. Which doesn't seem outrageous.
If this guy's thesis is we need to encourage manufactured housing; I'm all for it. Just pay the guys a union wage.
Housing, and the way we treat our Homeless, are my two big hot buttons. If you don't have a place to sleep, and shower, you are fucked. It's not a big problem. Some "Progressive" jack ass running for something in LA wants to not give a homeless person a room. He wants to house them in army barrack style housing, and using the single room as a carrot if the poor slob is a good boy.
If a guy buys some land, let him do whatever (within reason) with it. And yes, that means putting up a tent on it if he wants.
I'm disenfranchised over our lack of homes in the right economic zones, I don't see much ever happening.
One thing Russia did right during their experiment with Communism is they built those huge concrete apartment buildings. Everyone was pretty much guaranteed a room.
We need those big buildings now. We need to have hard building codes (like foundations, roofing, mechanicals, etc. We then need the soft codes. A guy should have to rip out a Service panel over a 1" violation.
If you are ever interested in what it takes to build anything, watch the community station that plays the local town meetings. I guarantee you will want to throw the remote at the tv.
But for everybody else, yes there's a huge housing crisis.
If someone cannot afford to live in the most desirable locations in the world, but they can live almost anywhere else, that is not a crisis.
What you see on this forum is people complaining that housing in SF/LA/NYC is not cheap. However, in your case, I think you have a point.
Here in the UK, if you are willing to accept a commute and downgrade your expectations slightly, you can buy an affordable house or apartment relatively easily. Even commutable to London you could buy say a 1-2 bedroom apartment for £200k, which is achievable for 1 good earner or 2 average earners.
The problem is that people want nice big houses in the best areas of global cities. I understand the aspiration, but that is not a housing crisis. It's just a market.
I acknowledge problems for low earners in low wage areas etc, but maybe I am referring to a different type of person, say young professionals wanting to get on the housing ladder or needing somewhere to live that is commutable to work. I think that too often they just have expectations out of line with their budgets.
Anything that involves mortgages and the govt has to necessarily support unions and work with them. They don’t like modular homes as automation will replace union jobs.
> Many groups were, and still are, opposed to factory production, including building contractors, building craft unions, building code inspectors, architects, materials producers and politicians (who are supported by the traditional industry). While these groups are sometimes at odds with each other, they all join together to fight factory production of homes. They form a mega-monopoly, composed of their individual monopolies.
These are the same people who build roads and bridges and all public utilities. Their power shouldn’t be underestimated.
Teachers and realtors(not developers) each had contributed over 2.5 million each. Prison guard union 3.7 million. Other unions: about 3.5 million
Building industry is about a million but that’s pre 2020 numbers. It has since gone up.
The article explains who gives how much and what they want in return. There are also overlaps.
NIMBY and zoning complaints are smokescreens. Look at campaign donations. It’s all public record.
It seems you've presented evidence that construction unions don't have big say, compared with industry and realtors.
If construction unions have a bigger voice than realtors ($2.3M) and building industry ($1M), and that voice is reflected in "where the money comes from" then ... how much did the construction unions contribute?
All of "Building trades" is $84,165.
The biggest groups under "Other unions" are "Opportunity Pac - A Coalition Of Teachers, Health Care Givers, Faculty Members, School Employees, And Public And Private Employee Organizations" and "Nurses And Educators For Reggie Jones-Sawyer For Assembly 2020, Sponsored By Labor And Consumer Attorneys Organizations". Those don't sound like construction unions.
[..]Anti-worker or pro-worker? Why labor unions are fighting over a housing bill
The bill, which has the support of Assembly Speaker Anthony Rendon, would allow housing that is 100% affordable to low-income households to be built “by right” on areas now zoned for offices, retail and parking. That means skipping many city council meetings that tack on costly delays as well as the state’s premier environmental law many blame for its housing woes. Livable California, a local control group, has already dubbed it “the worst bill of 2022.”
The bill would also allow mixed-income housing, with a minimum of 15% of units affordable to low-income households for rent or 30% of units affordable to moderate-income households for sale, along commercial corridors such as strip malls. [..] The Carpenters and the Trades are at loggerheads over how much unionized labor developers would have to use to take advantage of the streamlining. The Trades are pushing for language requiring a certain amount of the workforce be graduates of an apprenticeship program, which effectively means union members. That’s common for public works, but unusual for residential construction. [..]
Still think ‘NIMBY’ism and Prop 13 is why we have housing shortage. California is controlled by Unions. We just live in it and pay taxes.
That seems like a reasonable clause to me. It sounds like what anyone would want their union to do.
The Bay might be the worst major metro in the US for both NIMBYism AND current zoning in terms of building affordable housing...