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Comment by kodah | Hacker News Reader

> The bad news is that we decided that owning a house is a retirement plan instead of giving people proper retirement plans.

I've pondered on this a lot. Houses have been treated as "nest-eggs", which is really a fancy term for a fallback plan, for quite some time. The housing market really only got out of control after the 80's which coincides with when mortgage packages started getting sold on the stock market. To me, that, city zoning, corporate SFH buying, and state governments that have economic policies that embrace/grow inflation seem to be the actual problem.

I still think it's worth while to have house equity as a way to securely store money, but the government has to protect the housing market conservatively to make that work. Just like anything else the market is a system of incentives.

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A big problem is that homeowners understand that for the value of their "nest-egg" to appreciate, this implicitly relies on housing scarcity, and this influences the outcome of elections, which influences the outcome of government housing policy.

As home valuations become more important and critical to the wellbeing of the "middle class", any policy that would even indirectly hinder valuations comes under great criticism.

There were a number of issues in my recent municipal council election, but I cannot help but notice that the candidates suggesting to build rental housing everywhere, which would have empowered renters and hurt homeowning minor landlords that benefit from high rents, lost, and those that won suggested the status quo that would protect detached home areas, with their main housing policy suggestion being around faster renovation permitting, useful of course for those minor home owning landlords wanting to create a secondary suite to get a renter to pay off their massive mortgages.

You could also come at the problem the other way. If incomes were keeping up with productivity and cost-of-living, people wouldn't be relying so heavily on their homes appreciating in order to have enough money to retire.

I agree but there is another factor, that is the ability for income earners to effectively save for retirement. Artificially low interest rates forced savers into the stock market, which caused equities to be artificially high relative to their yields, creating a positive feedback cycle where there was no alternative to 'saving' via stock investments and causing corporations to be able to ride a tidal wave of investment without justifying it via dividends. This is all downstream from cheap credit and a lack of incentive to save money (defer consumption) and now we are faced with the unintended consequences of decades of short-sighted monetary policy.

> If incomes were keeping up with productivity and cost-of-living

Something's got to pay for all that increase in government spending. With all the government spending and government pensions and all the people on the government payroll, sometimes I'm surprised the economy isn't a complete basket case.

Why do you think government spending specifically is the problem? I strongly doubt there is a crowding-out effect going on with the things that the US government has been spending money on lately. And all that spending has been financed by debt; it's not like income taxes have been going up. The big increases to cost of living have come in the form of energy, housing, and healthcare. I'm not sure how government spending would cause that, unless you are arguing that the spending has been misallocated.

> Why do you think government spending specifically is the problem?

There's no such thing as a free lunch. Government spending always gets sucked out of the economy one way or another. Ultimately, everyone pays for it with a lower standard of living, directly or indirectly.

As for the government financed by debt spending, the cost to you is inflation.

No spending is not sucked out of the economy. The government doesn't take your taxes and light the money on fire. They pay for public works that you use every day. They hire people to create such works and maintain them. Those people take their wages and spend it in the economy and support private businesses.

The extra productivity isn’t going to the government via taxes on the common person, it’s going to those who already own most of the capital and can leverage that. Maybe the government also spends too much, but that’s not the root cause of the lack of the common person sharing in productivity gains.

It's going to the government one way or another. Taxing the wealthy reduces the amount the wealthy invest and hence can pay employees.

Now just anticipate the number of private equity firms betting on appreciation of their house portfolios in addition to the rents they charge that fewer and fewer can afford... private equity may be forced to liquidate their sizable home portfolios.

Are they? I am curious what % of private equity holdings are intended for renting, rather than flipping.

If they are intended for flipping and the housing market dips - then they will sell them off even faster.

In the scenario you described, the majority of voters in those areas must be land owners, based on how they voted. Assuming that the elections you are describing are genuinely democratic, why should people vote counter to their own interests?

In general, candidates that promise to do things that benefit people who are not their constituency don't get elected. Personally, I want to live in an area where most of the residents own their own property rather than renting it. Why? Because people who own their own property are more invested (literally) in maintaining it than renters.

I live in an area with recent massive flooding (in areas that are not historically flood zones). Lots of people are outside fixing their own properties but also hiring people to fix the problems, both functional and aesthetic. If they were all rental properties, the motivation of the landowner to fix the aesthetics would not exist until the current renter left.

The problems in real estate are not primarily property ownership vs rental, but the financialization of the real estate market.

This is overly simplistic: people regularly vote against their own interests in all domains, all the time.

There are even semi-rational reasons for doing so: many Americans consider themselves "temporarily embarrassed millionaires," and vote in the interest of their hypothetical, wealthy future self rather than their current self.

On the other hand, it's also perfectly rational to "altruistically" vote in favor of policies that decrease your financial wealth in the short term, but that benefit society as a whole, and/or benefits you in the long term.

It's a race to the bottom, because the costs are concentrated and the benefits are distributed. If we allowed each district to vote their own income tax rate, everyone would vote for 0; what's happening with house-building is the equivalent for that. We need state- or national-level housing policy with no ability to override it locally, or at least to enforce some minimums. (Interestingly California at least already has that law on the books, although so far they're only enforcing it against towns they don't like rather than the general enforcement that we need).

California could vote for a 0% tax rate today via their ballot referendum system and yet it hasn’t happened.

I think people are a bit smarter than we give them credit for n

> California could vote for a 0% tax rate today via their ballot referendum system and yet it hasn’t happened.

For the state as a whole, sure; I think people can see the problem with that. If you let people vote for an 0% tax for just their town, with the rest of the state staying the same, it'd be a different story.

California got into the problem they're currently in by doing exactly that.

https://en.wikipedia.org/wiki/1978_California_Proposition_13

I'm not the person you responded to, but the exact same thing played out where I live (Vancouver) recently. We also have a massive crisis of homelessness here, which has led to more crime, theft, etc. The party's solution? Make the city safer (for the homeowners, interpretation mine) by hiring more police.

The winning party (ABC, which had all of their candidates claim seats) did not have majority support, they were just one of the only parties that wasn't campaigning heavily on building more affordable housing (8 other parties committed to affordable housing likely split the vote)

So the homeowners largely supported them, and that class of people are also more likely to have time to research the confusing election.

ABC's mayoral candidate had the highest voter support of any of their candidates, and it was still only 86,000 of 172,000 voters.

I think the percentage of adults renting vs. owning their home in Vancouver is about 50/50, but I can't imagine how people who didn't already enter wealth through real estate appreciation could afford to buy a home here now. If prices don't fall, I would never be able to buy a home here.

This pretty much describes the political situation where I live (Vancouver) as well

congrats u guessed which municipal campaign I was alluding to! :)

It's worth considering that money that isn't going to mandatory-contribution retirement schemes (as in many union jobs, or government retirement schemes) is freed up to put in one's own retirement account... or to use to buy better housing (in a better school district, say) than one would otherwise be able.

Get a few defectors who choose to do this and suddenly the housing you can get without sacrificing money that should be going into a retirement account is worse than it would have been if no-one had that option, so it gets more and more tempting/necessary to do it.

Perhaps also single family zoning started to make its effects clear in the 80's.

Personally I'd prefer to live in a nice townhouse in a dense neighborhood but that's hard to pull off (location wise not many options, and price wise there's just not enough available to make the nice ones comparable to a single family house)

I suspect a successful city depends on diverse housing availability. Having too much high and medium density brings its own issues, same with too much low density. There's probably also something to how those are arranged within a city. I always wanted to grab something with lots of trees in near-proximity to the city, but I don't want to live near the active hustle and bustle. That usually comes with other trade-offs like a lack of greenery.

City parks solve the problem of greenery reasonably well.

Trees on streets help, too.

While I like going to parks, I really want the greenery in my yard.

Housing price has skyrocketed in most developed countries, not just the USA. So the reasons are likely to be more generic and less America-related.

Inflation adjusted house per square foot has been quite stable for almost 100 years. Houses are now a lot bigger, making the inflation adjusted prices increase. If you factor in shrinking household size, then square foot per person as increased dramatically over the past 50 years. Finally, if you include house quality (fire retardant, electrical improvements, thermal improvements, etc.), then house benefit per dollar has vastly grown over 50 years.

Not sure where you get the "out of control in the 80s" unless you ignore all other relevant variables (like size, quality, efficiency) that also changed.

To read this stuff and see Census data (and others) demonstrating it, google for historical house price per square foot inflation adjusted, and read articles and look at data.

The cake of my house has gone up 5x in twenty years. Ignoring the last year, inflation didn't quite double in that time period. So, for at least me, my house per square foot wasn't stable

Outliers don't invalidate the stats, in the same way someone getting outstanding value does not mean everyone got outstanding value.

Also, how did your mortgage cost go up 5x? That sounds almost nonsensical, unless there's some really rare thing you chose.

> Inflation adjusted house per square foot

To build or to buy?

Only rich people build new houses, typically selling older house to the poors. Lately tho they keep old one to rent out, hence no actual new supply.

> I've pondered on this a lot. Houses have been treated as "nest-eggs"

There is a nasty policy trap here, in that reducing the investment value of houses can mean (as a federal government) you are expecting pain down the road caring for people with insufficient retirement savings.

A crash back to where we'd be with a following-inflation rate of increase in house prices since, say, 1995, would absolutely wipe out a terrifying proportion of the working-age population's on-paper wealth.

IDK what the solution is that doesn't completely fuck a generation or three, one way or another. Of course the best answer would have been to never get into this situation in the first place, but here we are.

If we just started building enough housing now, things would be fine IMO. No need to bring prices down to a reasonable level and wipe out all the NIMBYs

I would settle for prices simply flattening, which at least would cut off the cycle of homeowners expecting property to continue appreciating.

We also need to start building different kinds of homes. More "starter homes", fewer McMansions in the suburbs and luxury condo apartments in the cities.

The fixed costs basically make it impossible to build anything but high margin. It’s disgustingly.

> More "starter homes", fewer McMansions

Sadly, investors that own the undeveloped property, construction companies — they want the big margins and so build expensive homes. (Which the rest of us buy because that's what's available — a bit like a car dealership lot these days where their entire inventory are the expensive, top-of-the-line models.)

There are a couple misconceptions with this. There is no such thing as “inflation”, inflation exists in different categories and inflates differently based on supply or demand for different products. It wouldn’t make any sense for housing to inflate at the rate that consumer electronics inflated, they are totally separate markets.

If you want a real answer, look at the population now vs. the population in 1995, and the number of housing units now vs. 1995, you’ll see that housing has not kept pace. The prices are a form of equilibrium. Because increasing supply in many locations is physically impossible, prices are unlikely to drop much. Another input people don’t want to talk about much is the price of energy, and the cost of skilled labor which has skyrocketed. The cost of building things is simply more expensive.

Something else happened about that time and it boggles my mind that it’s practically never mentioned when it comes to home prices: https://cis.org/node/11952

We’re letting in far more immigrants than homes being built - of course home prices are going to soar.

Technically you are correct. But practically I'm not sure effect is directly correlated - immigrants typically have nowhere near funds to buy property, so instead rent from rent seekers (which itself is huge problem). Some of them also live in much denser arrangements - think someone sleeping in living room, 4-8 people per bedroom in bunk beds.

As person who migrated couple of times it really hurts to come help local economy, pay significantly more taxes and then get accused. For one - my parents will never be able to lend me $100-300k for a deposit. Tons of migrants also have to support extended families back home.

Right, but those apartments are still off of the market. Demand goes up with supply staying the same.

I will say it's a bit more complicated in the US considering how many immigrants are involved in actually building homes, but I very much doubt it makes up for the literal millions of people coming in every year. Are there any (first world) countries that have housing costs going up at a large rate that doesn't have large population growth from immigration?

Is supply staying the same? I doubt it, but low supply is the main problem indeed.

One could even say - you get migrants in and then force them in conditions equal to prison cells...

https://www.statista.com/statistics/240267/number-of-housing...

It's not hard to see that if we're adding a little more than 1 million housing units a year and our population is going up significantly more than that due to immigrants and their children that we're going to have an issue.

The boom in housing prices starting in the 70s was the result of the baby boomers coming of age and buying prices.

> when mortgage packages started getting sold on the stock market

That doesn't cause prices to go up. What it does do is make prices more accurate by reducing transaction friction.

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