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> Housing is another red herring, of course, because the average new American home is 2x bigger now than it was in the 70s. Roughly speaking 1 square foot of the average home costs exactly the same as it used to in the 1970s. [1] And the average family has become smaller. So yes, housing is more expensive in big cities but that's because of zoning as Mr. Andreessen will tell you.

Just because houses have gotten bigger and families have gotten smaller, doesn’t mean you can buy an average 1970s house in major cities for the same inflation adjusted price. A lot of those old homes are either gone, extremely expensive, or situated in different metro areas than younger generations live in today.

I have long advocated for Japanese-style federal zoning rules which would stop local municipalities from playing these games. I agree that housing is more expensive, but of course, housing is priced into inflation numbers - and wages have kept pace. Housing is a major driver of inflation.

Part of the discrepancy here - and housing needs its own entire article - is how low interest rates factor into affordability. In the 80's, a 30-year fixed cost 18%. Last year it was 2.5%.

On a monthly basis (which is how many calculate affordability) a $166K loan at 18% APR is $2500/mth. A $635K loan at 2.5% APR is $2500/mth. These houses are equally affordable on a monthly basis. Even though one home is $200K and the other is $800K. The only delta is the down payment.

Isn't the down payment delta pretty significant? Having to save 160k instead of 40k for a 20% down payment significantly delays the point at which a millennial household could start accruing home equity, feel confident about starting a family, etc.

First-time homebuyers can get a FHA loan, which allow a 3% downpayment.

Allow for a 3% down payment, but add in a requirement for PMI until you’ve hit a sufficient amount of equity, raising the cost of the front end of the loan.

Yes, it does mean folks can generally only buy a home later than they would have before - but that's not what we're measuring. We're measuring how well off they are. Over this period, the 1970s to present, equities have way outperformed real estate. So folks rented, and saved in the equity markets instead until they could make their down payments - without diminishing their quality of life.

In a very real way, the 'starter home' became a 60/40 equity/bond portfolio plus a rental unit.

Between that and FHA as a peer comment pointed out, folks could actually be quite a bit better off today in spite of the bigger sticker - and yes, in spite of PMI (generally only 0.5% to 1%) which can be waived once you reach 20% LTV. (2.5% + 1%) is still way - way - lower than the 18% rates we saw in the 80s.

That's why I said housing deserves its own post, rather than letting it get lumped into with the chart crimes.

Owning is not always better than renting (although it can be). The biggest driver of the delta between owning and renting is actually the opportunity cost associated with not investing the down payment into the equity markets. The point at which folks buy has shifted older, yes. That isn't always a bad thing. A higher down payment is still your own capital. You get it back when you sell.

There are a lot of other benefits of buying with high interest rates - namely that the U.S. 30-year mortgage allows you to refinance if rates drop. So that 18% headline rate quickly became ~10% or less after refinancing a few years down the road (not to mention paying for houses with depreciating dollars because of the 70s inflation).

You don't get the same optionality if you buy with interest rates at an all time low.

Housing affordability is actually at an all-time low right now, close to 1982 levels, after the interest rate rise.

https://www.atlantafed.org/center-for-housing-and-policy/dat...

The down payment is probably more significant than what your comment lets on. While I haven’t experienced this, it’s not uncommon to hear young people complain that their rent is more expensive than a lease and there’s nothing to be done about it because they can’t afford the down payment.

My understanding is that inflation is based on the monthly payment number, not on the sticker price of the house (though I’m not all that confident in that assertion). It’s meant to reflect actual consumer spending baskets.

>As usual, there's a few chart crimes in here. Chart 1 shows CPI and inflation adjusted wages on the same graph? Why? Inflation adjusted wages already take into account CPI. There's no sensible reason to plot these two on the same graph.

That's absolutely right - it's a gibberish chart.

There's literally nothing more recent than something built in the early 70s without going 1h30 outside the city that I can currently afford, and we're a two-income household with a single child. My parents could afford their - much bigger than I'll ever own - house on a single income (in the same ballpark as my current individual salary, adjusted for inflation) in their early 20s, 30min from downtown. My current freaking rent for a 1200sqft flat is higher than the mortgage they paid on the 2200ft house they bought in the mid-90s after selling the first one. The latest inflation, especially on food and transportation, has been eating in my savings/investing budget so less opportunites to make that money work for me.

I guess the numbers you're pointing at do seem to point towards that I'm supposedly faced with provided with opportunities as they were, but I can't help but feel like I'm getting shafted somewhere along the way cause I'm pretty damn far from feeling like it does.

Maybe my timing is just horrible, I don't know - I did get out of school right after 2008, and wasn't financially ready to buy a home before mid-2020... But I just cannot subjectively recognize my situation in those numbers.

> If you really slice it quintile, the bottom quintile of millenials is much worse off - that's what it looks like when you massacre the social safety net. But millenials as a whole are just as well off as previous generations.

This I think warrants more than a footnote. A return to extreme class stratification is really quite bad, not just for those individuals affected but for society overall.

I completely agree. That's also why I think it's important to paint a picture that's as accurate and faithful as possible.

> Housing is another red herring, of course, because the average new American home is 2x bigger now than it was in the 70s

My spouse and I ran into this when we were looking for our current home 5 years ago in Los Angeles. Even though we're older, it's just the 2 of us, so we didn't need something huge. It was really hard to find a reasonably-sized house for 2 people (plus a little room to have a guest stay over). It was really hard to find something because people who want huge houses kept buying small ones for more than asking price, then tearing them down and building a much bigger house on the same lot. The one we did eventually buy had even been enlarged sometime between the 50s when it was built and today.