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Comment by spicyusername | Hacker News Reader

Bringing house prices down either means increasing the supply or decreasing demand.

The FED only has a demand-side lever, and "decreasing demand" is exactly equivalent to "reducing affordability".

It would be nice to see more attention paid to increasing housing supply, but that is a much more complex problem, so I'm not surprised that we see less emphasis on it.

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And, of course, it really doesn't help that many people in urban areas find any excuse they can to reduce new housing supply: "that building is too tall", "it doesn't fit the character of the neigbborhood", "there aren't enough affordable units", etc etc. The ur-example is of course San Francisco, where it seems like the only way for a new building to happen is for people to sue the city to force it to be allowed.

I'm mixed on this, because US cities + towns are already at a significant disadvantage when it comes to their inherent pleasant-ness/beauty when compared to a lot of cities and towns in European countries. If we didn't defend some level of standards it'd be a far worse utilitarian mess.

I do love the US but so many of our cities really are garbage... they stink, buildings are dirty from pollution, roads are littered with potholes and trash, etc. I really don't get why people love NYC that much unless you grew up in the environment and view it as normal.

The NIMBYism is one of the reasons US cities suck. The primary aim of NIMBY is to lower density because less supply=higher prices. All these efforts to block new construction and multi-use development yield sprawl and car culture.

> The primary aim of NIMBY is to lower density because less supply=higher prices

I don't think this is actually true. If you spend enough time on Nextdoor and read what nimby's complain about, the chief concerns are traffic, parking, and congestion (after crime and safety). Obviously, there are nimby's who are concerned with their property values, but the average 75 year old nimby isn't interested in selling/moving their property.

Lowering supply is an instrumental goal[0], not a final goal.

If you hate traffic, want more parking, or the like; the easiest way to do that is to just stop building housing, throw up your hands, and say the city's full.

But because doing that also makes your own property more valuable, both complaints are intermingled: people who want more money in their pocket can concern-troll about traffic to sound prosocial. In fact, this commingling has happened for so long that it is difficult to separate out the two concerns.

[0] AI ethicist jargon for "prerequisite you have to do to accomplish a lot of disparate or conflicting goals".

I don't really have any evidence for this, but I always imagined the nimby's who care most about property values would concern-troll about housing projects being "affordable", or their "environmental impact".

You don't need to be selling immediately to be interested in property values. HELOCs are popular, refinancing is popular, and there's the estate to think about. People may not explicitly say "I'm propping up my property value", but actions speak louder than words.

Exactly, and plenty of people like the ego boost of an unrealized gain going up and up, even if they plan to never realize it. The homeowners I know only talk about their property values every chance they get and every other breath.

> I do love the US but so many of our cities really are garbage.

Indeed. The reason it feels so different in many European cities (and feels much better IMO) is that they are human scale instead of automobile scale.

See James Howard Kunstler's The Geography of Nowhere https://www.goodreads.com/book/show/125313.The_Geography_of_...

Sure, some old cities in Europe look great, but a lot of what was rebuilt after WWII looks like shit.

NYC is actually a really pleasant place to live in a lot of respects, and I've lived in several other places. The real problem here is that housing is so expensive. You could drop a bunch of 8-10 story buildings on corners near trains here and you wouldn't really even notice at street level but it would add a lot of housing.

I'm waiting for the next 1906 earthquake and fire to move there.

That will really encourage development!

Yet the supply of office buildings continues to increase, exacerbating the imbalance.

The supply of commercial buildings rise precisely because they're exempt from many of the nonsense that residential construction is subject to. Moreover, a lot of the labor and material inputs to commercial construction is the same as that of residential construction, so residential construction gets even more expensive as those factors are bid away to commercial.

There's also increasing a lot of supply. Without building.

The biggest problem in the country is that investment capital is swooping in any buying any valuable property up and re-selling it for a lot more OR renting it out for a lot.

Because investment is just buying everything for cash, they don't really care.

We need a massive tax on investment property, something that'll require the house to become completely unaffordable to re-sell, so investing will have negative returns due to taxation.

Then suddenly a ton of houses will fly back on the market because investors will be trying to dump inventory.

ALSO property taxes can help: If you live in a house, your property tax is identical to today. If you don't, your property tax is say 10x'd.

Being a real-estate investor won't be very lucrative. Meanwhile this won't affect regular homebuyers since they won't have this tax.

On the face of it, this makes no sense. Vacancy rates are incredibly low everywhere in the US, and what you're describing would push prices down as much as up.

The weird part is, in New York vacancy is because the rent is so high or the price is so high that investment firms are unwilling to let people live there for fear that it'll drive down prices. They rather make 300% gains on 70% of their properties and let 30% go vacant, than let those 30% get sold/rented and let all prices drop to normal rates.

NYC vacancy rate is 4.5% against all time lows of around 3%. There is not a vacancy crisis there.

> and re-selling it for a lot more OR renting it out for a lot

See, you're almost at the real problem: why is that a good investment in the first place? Because there isn't enough housing stock. If there was, investors wouldn't be able to leverage it like that.

Soooooort of. Space is finite. Sure we have a ton of unused space, but space near harbors, is a premium. New York City cannot expand, not without a massive rail infrastructure.

Anything that "brings in more space" in any shape or form requires a really solid investment in rail. But unfortunately this is not something the US can do effectively.

Look at the neighborhoods outside of Manhattan and you'll see plenty of places already near transit stations that could easily double or triple capacity just by putting in townhouses or triplexes.

New York City, even Manhattan, is not terribly dense compared to other major world cities. You can see in this map[0] that vast swathes of Manhattan are occupied by buildings 10 stories or less.

[0]: https://mangomap.com/mango-chris/maps/11955/The-Buildings-of...

most of Paris is less than 10 stories, yet it's a dense city as well.

Paris is the best example of how you can get very high density without actually needing very large buildings, just by being extremely consistent about having apartments and condos be the default mode of urban construction.

How dense do we want it to be? Density becomes misery after a certain point. Manhattan isn't dense enough, we're showing, but do you enjoy taking a crowded train during rush hour? Have you ever been to a supermarket where the entire inside is one long line of people pulling items into their baskets as they go, ending up in another line where numbers are called to registers.

How about a big apartment building with 10 apartments on the floor, with at least one neighbor per weekend having a party, and half the people letting their doors slam whenever they come and go at night or early morning?

Folks, good news for you - one unit will be available soon, I'm happy to add a vacancy to this delightful city as I age out of it.

Density is not one size fits all. A walkable city guy my whole life, my mental health has taken a real beating. Density is for the young, that's the bottom line. Anyone who is a light sleeper or doesn't enjoy going out a lot at night is just taking one for the team.

>We need a massive tax on investment property, something that'll require the house to become completely unaffordable to re-sell, so investing will have negative returns due to taxation.

Or far easier, just eliminate the Section 1031 like-kind exchange (U.S. tax provision that allows tax on realized gains on investment property to be deferred indefinitely). There's really no policy justification for it since long term capital gains already have a favorable tax rate, and in fact like kind exchanges for personal (non-real-estate) property have already been recently eliminated.

The big banks & investment funds will figure a way around it, meanwhile individuals and small businesses trying to grow will struggle. I know people who've used a 1031 exchange to sell a smaller location and move to a bigger/better version of the same. How about limiting 1031 exchanges to small business(es) (for some definition of small businesses that's actually meaningful).

> The big banks & investment funds will figure a way around it

What does this mean? How would they be able to postpone paying capital gains tax if the government said they had to pay capital gains tax at time of sale?

How about eliminating it, removing an avenue for corruption and extra costs for auditing said avenues for corruption, and giving cash to someone if the goal is for the government to help someone?

The same way that Trump, Bezos et. al. seem to be able to avoid paying taxes on most of their wealth, in that they generally find a way to recover profits without it being considered "income".

https://www.propublica.org/article/billionaires-tax-avoidanc...

All I'm saying is that by eliminating the 1031 exchange, I suspect it'll hurt far more individuals and small businesses (resulting in stifled growth) and the "big boys" will simply use some other vehicle to continue avoid the taxes.

There is currently no tax on wealth in the United States, so there is no tax to avoid on wealth.

> Or far easier, just eliminate the Section 1031 like-kind exchange

I don't agree this is the best way. Section 1031 benefits the usual homeowners as well as the investors. Do you own a primary home and want to upgrade? Too bad because when you sell, you will have less money to buy a bigger house. Most people will opt to upgrade when they can and rent out their old home, which won't solve the supply issue.

Section 1031 does not apply to primary residences, there's the primary residence exemption ($250K per person / $500K per couple) for that. So it would not affect the usual homeowners.

So the interesting question is how much of this private equity money is investing on the hope that house prices continue to rise?

so when house prices flat-line, their investment thesis is fried.

Obviously the clever PE funds have a way to deal with this. But not all of them are clever, and the question is which one(s) are going to blow up?

It isn't The Big Short, but there is a systemic risk from the PE investment

Investment groups aren’t in it for the resell. They’re incentivized to hold the asset as they’re leveraging against it to buy more homes. Selling assets is pretty uncommon in SFR for this very reason. The game is more about cash flow to service their debt. That means rent rates. Selling the homes has a 2 part effect: reduced your cash flow to service your debt and further forced asset sales that were bought with debt. If you really want to get homes back into the retail market, you have to target the cash flow.

I think I agree, except I think it should explicitly be a vacancy tax. We need investors who buy builds to manage and rent out to residents and businesses. Investors who buy buildings to avoid inflation are a problem. I know many local buildings that have been vacant, but available for rent for over 15 years. That tells me that they are asking for too much. They need an incentive to rent it out cheaper, or sell, or forfeit the land. Most (all?) real estate ownership chains go back to someone just putting down a fence anyway, if you essentially abandon a part of a town you should lose the right to claim it as your own. But I do think the local municipalities should make these rules for themselves instead of being mandated by the state.

These kinds of shenanigans only make sense to me once you have exhausted every other option and given that it's currently illegal to build apartments on the majority of parcels in the United States I'd say that we've mostly been busy foreclosing options, not exhausting them.

This is also complex though; REITs are one of the biggest builders of new housing stock in the US, so you'd reduce creation of supply (and therefore put upward pressure on prices) if you broadly tax this sort of investment. I think you need to do some careful calculations to be sure that this nets out as a positive effect on housing prices.

I think it's clearly problematic for investors to be holding properties vacant as a speculative investment, and we should definitely tax that (probably at the local level) so heavily that the neighbors are happy to have someone contributing so much while not being a drain on services. It's not clear to me what % of housing stock is actually being held back like this though.

In the middle you have the house-flip; buy property, improve it, sell it for a profit. AFAIK most of the time this involves actually doing work on the property, rather than just sitting on it and waiting for the value to appreciate; in that case a real service is being provided, as many families don't want to buy a house and have to wait to improve it themselves. So again, if you don't target your proposed tax well enough, you might actually decrease supply at the mid-/high-end of the market and therefore put upwards not downwards pressure on housing prices.

To be clear I'm not arguing against making any investigation into the policy you propose, just suggesting that it's more nuanced than you appear to be stating.

> FED only has a demand-side lever

Mortgage rates are demand side. But rates also influence all sorts of supply-side inputs, from the cost of developer financing to the cost of holding inventory for suppliers.

Yes, it would actually be so much simpler if the Fed was capable of acting on only one side of the equation but they necessarily touch both.

See a completely plausible causal chain:

Inflation up -> Rates up -> Housing purchases down -> rental demand up -> rental prices up -> inflation up

The difficult part about increasing supply is that it usually involves dialing back state intervention, and there's very little incentive in the political system for anyone to do that.

People do not buy houses based on price but upon payment of a mortgage that fits their relatively fixed income.

People who can afford to pay $2K mortgage to live in a X percentile house will continue to pay exactly $2K to live in the same X percentile house. What does change when the interest rate varies is cap gains/losses for everyone involved. There are also some transactional fee variations, obviously a 3% real estate agent commission will be more on a $500K sale than a $250K sale, but the monthly mortgage payment will remain identical. Also fixed transaction costs (inspections, certain taxes and near-taxes) will be a higher percentage of the sale price.

My prediction would be the transactional fee middlemen will demand higher percentages to maintain their revenue stream as interest rates rise. They're certainly not providing any additional value, so I would imagine there will be more competition among middlemen, opportunity for startups to disrupt the market, etc.

I haven't worked in the home sales/mortgage industry, but I bought a house in 2006 and what I remember was the huge number of people getting into the industry in the boom years and then a mass exodus after the crash. It felt like everyone who didn't already have a good career was getting a realtor's license in 2006. I would expect this go around to be similar, they may want to raise their fees to account for dropping prices, but there are probably too many others trying to compete in the market for a slice of the shrinking pie to let that happen.

I've never seen any policy actions in the US that indicate housing is supposed to be affordable. There's a whole bunch of talk and politicians largely proclaiming how their going to solve things, but I've never seen it play out.

A few areas have rent control, that's about it.

Well, there was the GI bill...

And HUD https://www.hud.gov/topics/rental_assistance/phprog

To be fair, the GI bill was originally passed in 1944 and HUD was created in 1965, so the GP's statement "I've never seen any policy actions in the US that indicate housing is supposed to be affordable" could still hold true for anyone under 57.

Its been a pretty big focus since at least the Reagan era, actually. As the post-WWII boom came to an end, many past presidents viewed home ownership as the primary pathway to being "middle-class" and made it a focus.

Bill Clinton, in particular, made increasing home-ownership a primary objective of his presidency [1].

Unfortunately, many of the Clinton-era policies, however well intentioned, ended up making homes less affordable due to greatly increasing demand for homes (by making it easier for more people to get mortgages), without increasing housing supply.

1: http://www.4president.org/issues/clinton1996/clinton1996hous...

Sure, as have many other presidents. But what policy changes actually lead to an increase in home affordability?

Skimming the FRED data [1], we've had lots of ups and downs since the 60's, but are basically flat since 1980. It does look like Clinton's policies had an effect, but mostly to cause a small boom / bust cycle. The entire graph only takes place between 63% and 69%, so not that big of a change.

The Clinton-era policies did seem reverse the trend in the 80s, so that's something. Hard to say if post-pandemic inflation will disrupt that though.

1: https://fred.stlouisfed.org/series/RHORUSQ156N

That chart says "The homeownership rate is the proportion of households that is owner-occupied."

Affordability does not mean "owner occupied". People who mortgage 99% of the value of a home count under that category. Having a mortgage that will take you the rest of your adult life to payoff is not affordable under any real use of the word.

Does anyone know if there are any active organizations/agencies/startups working on solution to match empty nester with young renters?

I have an uneducated hunch that due to houses becoming more of an retirement investment, older people with no dependants are not downsizing, causing downward pressure and not allowing younger people to move into larger houses to raise families.

The "increasing demand" lever also reduces affordability over longer timescales as prices rise faster than wages, so people without a home are priced out of ever buying one.

Removal of mortgage interest deduction could reduce prices without involving (private bank, not government employees) Federal Reserve. I don't expect demand for housing would change much, once prices adjust lower.

Maybe not as much as you'd expect. I assume you are talking only about homeowner mortgage interest deduction, not landlord (investor), so that is a large chunk of the inventory that would not be affected.

Also, with the temporary (TCJA) increase in standard tax deduction, fewer people than ever get any tax benefit for their mortgage interest, not to mention those who don't have mortgages because they've lived there so long.

Housing supply is increasing, just not where you feel entitled to live.

Move somewhere else! Tons of houses are constantly being built where I live, in a flyover state. Not everyone gets to live in San Fran or Chicago.

How are the bagels and the pizza, where you live? Go ahead and call it a feeling of entitlement, but that's a deal breaker.

But do you want to live somewhere where there are no good jobs and where the climate sucks and there is no interesting things to do outside?

> no good jobs

Remote work is definitely a thing now.

> where the climate sucks

Like Boston, Chicago, Seattle, and countless other hellholes that the Urbanite loves nonetheless? The weather sucks, in different ways, pretty much everywhere other than the California coast. Most parts of the Mountain West are much more pleasant than most cities.

> no interesting things to do outside

Good point. A postage-stamp-sized overcrowded city park with human feces and needles is definitely preferable to actual nature.

I'm not sure if you're being sarcastic, but remote work aside, there are many second- and third-tier cities in the US that will pay a comfortable living wage relative to the cost of living and give you outdoor recreation options; pretty much just pick any population center that's not big enough to show up on the map when zoomed far out. Bonus points in areas deemed socially unacceptable to those living in coastal urban areas, because you get a discount on the number of people wanting to live in such places.

Unless your opinion is that it's a human right to be able to take free public transit 20 minutes to breathtaking mountains and 20 minutes the other way to pristine beaches and have it be 75 degrees and sunny every day, and everyone is paid a "living wage" no matter what they do?

I wonder at what point this stops. We have a certain subpopulation saying these things in Europe while companies actively vest in cities.

But hey, apparently the answer is to burn 10 hours of your workday instead of feeling 'entitled' to a modern, average-sized apartment while earning far above median. Next up, stop feeling entitled to a personal toilet and kitchen, middle class plebs.

This is precisely the crux of the issue.

The people screaming the loudest about the need to build are exactly the same people who recoil at the thought of living more than 100 meters from their heckin' microbreweryarinoes.

Life is all about tradeoffs. The United States is extremely large. It's not anyone's fault but your own that you, who can literally write adtech spyware for $300k from anywhere, refuse to entertain the notion of living outside the bugman bubble.

> Not everyone gets to live in San Fran or Chicago.

Chicago is actually cheap because the city has historically allowed buildings. Huge swaths of the city are made of mostly 4 flats and 10+ unit apartment buildings, which means that my rent in one of the hotter neighborhoods is $1500 for a 3 bed.

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