The global housing market is heading for a brutal downturn
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Last time we had food troubles (2007) we saw the housing market crash as investment dollars started gambling on futures contracts, but it wasn't long before people started paying big bucks for the farmland around settlements to try and profit on the production side, making it more costly to build new housing, thereby impacting housing supply and soon bringing all housing back up in price. We're already starting to see insane farmland offers showing up.
Maybe this time, especially with increased WFH, we'll start to see more growth away from historical settlements built on prime farmland, but with the high cost of fuel and shipping in general that isn't going to be the easiest transition either.
Also, some places disproportionately attract more people. (Just like attractive people are disproportionately attracting more attention than “uglies”)
And logically it should also be a hedge against inflation. I am not sure that our modern economies have the stomach for what it takes to rein in inflation (too leveraged).
The city of San Francisco is a prime example. The city makes is utterly impossible to build anything. From 2012 to 2016, SF metro added 373,000 jobs and only 58,000 new houses. The entire western half the city is hard-capped at 4 stories for no reason. There's a whole wikipedia page on it. [1]
If you let supply meet demand, the cost of housing converges around the cost of construction give or take, just like in Japan which has seen ~0% inflation-adjusted housing price growth since the mid-90s. [2]
This is a simple problem to solve. Allow construction, invest in transit.
SF is so obstinate that it's short 82,000 units in its submission of a conforming housing element to the state. [3] The fun part is if they fail to produce a conforming element, the builder's remedy kicks in and the city loses its ability to deny housing (and new builds don't have to go through CEQA). [4]
Really in my opinion the Builder's Remedy should the default state. We should do what Japan did and federalize zoning. The federal government does have precedent. At least according to the "trillion-dollar coin" guy, Carlos Mucha. [5]
[1] https://en.wikipedia.org/wiki/San_Francisco_housing_shortage
[2] https://fred.stlouisfed.org/series/JPNCPIHOUAINMEI
[3] https://www.sfchronicle.com/sf/article/housing-California-co...
[4] https://www.hklaw.com/en/insights/publications/2022/10/build...
[5] https://twitter.com/mucha_carlos/status/1420815462342959105?...
I have a lot of sympathy for deregulation and think it should be the primary tool, though many cities also have a character and you can't replace every construction with a high rise building without destroying the city. Think of Paris or London.
I don't know why this is everyone's immediate reaction. I'm saying housing is governed by supply and demand. If you want to drop prices you can either increase supply or decrease demand. They allowed supply to meet demand by increasing supply into flat... ish demand. ([edit] SF and Tokyo both grew ~10% from the mid 90s). So the system works :)
> I have a lot of sympathy for deregulation and think it should be the primary tool.
Great me too.
> ... though many cities also have a character and you can't replace every construction with a high rise building without destroying the city. Think of Paris or London.
Think of Hong Kong. A wonderful city. It's very different from the 50s when it was basically the same height as SF. I don't think anyone misses that. ([1] before, [2] after - I'd hardly call that ruined).
Yes, construction will change the character. But so what? Look at SOMA. Do you miss the old warehouses? I don't. And I certainly wouldn't miss the mishmash of almost identical 4 story buildings in the Sunset. They ain't no painted ladies is all I'm saying. Or much of the Mission. Honestly the entire SF affordability crisis would disappear if the Sunset was zoned 6 story instead of 4.
Embrace change!
[1] https://www.mardep.gov.hk/theme/port_hk/en/p1ch6_1.html#
[2] https://en.wikipedia.org/wiki/Victoria_Peak#/media/File:Hong...
What we need to continue to strive for is medium density, where you have a mix of housing types and transit options, and also work options.
In this mode you have a good density level that is in harmony with the surrounding environment, but you can also do things like fix your own house or make changes or improvements. These types of neighborhoods also offer multi-generational living and better social interactions.
2021 is showing about 4.37 metric tons per capita, and if you assume the rough contribution of power remained constant after 2011 ([1]) the overwhelming majority of that continues to be simply their almost complete reliance on coal, natural gas and oil power. If you exclude power, the per-capita CO2 emissions are around 1.6T
For comparison the lowest CO2 footprint city in the USA is New York at 5.38 and second-highest is San Francisco at 7.12 [2].
The HK figure is from 2021 while the US figures are from 2019 so that's not entirely fair. In 2019, HK had roughly 6T per capita CO2 emissions, putting it directly between NYC and SF - the two lowest emitting cities in the US.
With respect, I do want that! I want that very much.
[1] https://www.worldometers.info/co2-emissions/china-hong-kong-...
[2] https://www.magnifymoney.com/news/cities-with-largest-co2-fo...
Certainly if we wanted to minimize carbon footprint, something like Hong Kong is probably the best we can do right now, but at the same time residential homes have more capacity to add solar and to do things like repair their own home or open the windows to let a breeze in. I guess what I see is the fossil fuel based infrastructure that’s required to build and maintain these large skyscrapers that is of concern. Skyscrapers are monolith.
Aside from that though I also think mega cities are a little bit fragile in their centralization versus something more akin to Europe (and similarly elsewhere) where you have towns and villages and farms with local producers. They also IMO are not as psychologically healthy as compared to smaller towns or smaller, less ominous cities landscape.
[1] https://www.wsj.com/articles/wooden-skyscrapers-are-on-the-r...
Typically I'd say maxing out at 3-4 stories would get us to where we need to be, although certainly something like a hospital or special use building would/could be taller.
Same!
> Typically I'd say maxing out at 3-4 stories would get us to where we need to be, although certainly something like a hospital or special use building would/could be taller.
I think that will always exist. It may not (should not?) be a hard cap in the core of major metros in my opinion. I think folks who want to live in 3-4 story max. houses should live in smaller towns (with high-speed rail access to major metros) rather than artificially constraining the development of major metros where the demand for more density exists.
A good example would be Paris and Riems. 45m away by TGV from downtown Paris but a completely different approach to development. Or similarly Hong Kong / Kowloon vs. the New Territories.
There's a living example of that: Stockholm. They destroyed the center of the city in the 50s-60s and replaced it with high-rise buildings and a highway [1] [2]
They botched it so badly that you can't even properly see the city hall the way its architect intended.
It's funny, especially considering all the 800K people who already live in San Francisco are the beneficiaries of previous liberal zoning rules - who are now pulling up the ladder behind them. The city was like 300K people in 1900. If they'd stopped building houses then, that would be the population now. I wouldn't be here, and assuming you live in SF, neither would you.
Folks just out here picking an arbitrary point in time and saying, whelp, I'm here, that's good enough for me. No new buildings! No up-zoning. No densification. No duplexes until the state forced it through with S.B. 9.
Without even stopping to consider the benefits of density: diversity, like actual diversity ala New York. Transit. Infrastructure. A tax base. Stuff we can use to have nice things.
But I guess my real question is, I own the land, who are you to stop me from developing it as I see fit?
More people => more infrastructure => more/expanded highways
What does help people get where they're going is transit which is something that gets exponentially better and more realistic with density. Hong Kong has trains every 1.9 minutes on the Island Line. Their worst case is every 10 minutes to Disneyland and 15 minutes to the airport during weekdays. [1]
Frankly, more infrastructure should never mean more highways.
But while I'm here let me answer the rest of your questions directly:
> So, you are arguing that the existing population should want to have their lives upended...
Why? If they own the land they decide what happens to it. If they don't it wasn't really their decision in the first place.
> ... real estate taxes raised ...
Absolutely, prop 13 is silly. I say this as an SF downtown homeowner.
> ... schools over-crowded ...
Nope, we'd build more.
> ... family and friends priced out of their homes ...
No, that's what's happening right now thanks to not building homes. Anyone who owns their home would see affordability remain the same and anyone who rents would see it improve.
> ... quaint neighborhoods turned into skyscraper projects ...
Some of them for sure! If you don't want a plot of land used to maximize utility, buy it. The fundamental ideal of property rights in the United States is that each can do what they want with their own property. If you want to live in a city where nobody wants anything other than low-rise development, move to a city with other like-minded folks or buy them out. Don't boat anchor development in one of the highest demand areas on earth to suit the minority opinion.
> ... and endless highway ...
Definitely not see above.
> ... and infrastructure projects to accommodate the employees of new industry ...
100% yes. And the existing residents.
> ... when they are happy with the status quo?
Status quo is 26% of people are happy. [2]
[1] https://www.mtr.com.hk/en/customer/services/train_service_in...
[2] https://www.sfchronicle.com/sf/article/sfnext-poll-housing-c...
So far the state of California has been the one to allow duplexes, California has been the one to require new construction in SF, California has been the one to allow density near transit etc, all while the local councils fight tooth and nail. Atherton even shut down their Caltrain station so they didn't have to comply!
I want less control so I want to pull that up to a higher level where all but the most egregious abuses will be completely ignored. The Feds couldn't care less about a shadow over a park. An "already overextended federal government" running this is a feature! :)
The traditional model is that parent governments offer benefits which embedded governments can access by adhering to certain mandates. This is the exact situation now where cities in California are already ignoring housing regulations.
Moving zoning responsibilities up the chain of command won't fix this, unless your plan is to send in the National Guard. We need to fix the broken relationship between state and city. I don't understand where federal government comes into this.
Housing is interstate commerce, and the federal government has overruled local zoning rules in the past (satellite dishes in Chicago of all things). It appears to be quite legal, constitutional and precedented.
> Moving zoning responsibilities up the chain of command won't fix this, unless your plan is to send in the National Guard. We need to fix the broken relationship between state and city. I don't understand where federal government comes into this.
The ideal law would be similar to Japan's model: the federal government says housing is permitted in all zones and sets some consistent rules about what you can build and where. This framework would remove the silly arbitrary rules set up by councils to preclude reasonable land use in lieu of clear, consistent federal rules. Federal government sets the framework, municipalities execute.
Worth a read if you're curious what I'd like to see. [1]
[1] http://urbankchoze.blogspot.com/2014/04/japanese-zoning.html
Real estate is a thing the government can’t print. When its value goes down, it becomes more affordable to people with savings in fiat.
Least extreme loans: Euro style mortgages (fixed monthly payment, capital repaid over loan duration)
300k house, 0.5% interest rates, 10y: monthly payment of 2563$
270k house, 5% interest rates, 10y: monthly payment of 2865$
Most extreme loans: Interest only loans (note: duration doesn't matter):
300k house, 0.5% interest rates: monthly payment of 125$
270k house, 5% interest rates: monthly payment of 1125$
The whole point of inflation AND of the measures the central bank takes to combat inflation is to reduce usage of goods relative to labor. Meaning the same work will buy less Big Macs, less education, less housing.
More work less pay. Not less pay in money. Less pay in housing, medical care, pizza, ...
I hope you do see WHY the central bank interferes. It does not fundamentally change the situation, that's done by people, the international situation (more COVID in China, which is not over yet, than the situation in Ukraine. Although the situation in Ukraine definitely doesn't help), ... the central bank is protecting the currency, NOT your living standard.
You see the way to win in this system: if there is a housing (or X) downturn ... and you buy with high interest rates, DURING the crisis (which will be scary, of course), is the way to win big. That's the point. We want to limit the damage done to everything backed by loans.
That is fully intentional. The point is to stimulate loaning money to use productively. We want people to buy houses, start new restaurants, build new shopping malls, hospitals, bridges, ...
Feels like a very narrow slice that would be cash-heavy over the last 1-2 years that would benefit from whatever size a house drop ends up being.
It sounds like a goldbug/crypto argument, but gold is down and Bitcoin is down the toilet, so that can’t be it…
If you have an asset worth 100k and a mortgage for 200k, then it isn't very good if you want to move, or change mortgages.
Also, if you're a net seller (downsizing, moving to a care home) you may have been relying on funds locked in the house for other things.
So this is generally good for younger people and bad for older people.
I don't disagree with your broader point though. This (high house prices) is basically a massive transfer of wealth from the young to the old. Unfortunately the old are the ones that tend to vote, so the politicians won't fix it. But until the young as a class do start voting, I don't think it reasonable to blame the old and the politicians for the problem, this is democracy in action.
Plus, no matter how you slice it it's still better to engage, than not.
I've resigned to the fact that I'll probably never own property and eventually move into a camper van.
Anyway interest rates are not going down to 2% anytime soon so don't hold your breath. People who bought/refinanced in 2020-2021 will probably never sell.
US is more flexible than say Europe in this (and other aspects of society) but I have no doubt this applies there too.
Yes it's hard to begin with but compound inflation soon erodes the value of the debt.
No it doesn't. When you buy a house your price is locked in.
It assumes wages track inflation which is generally the case.
I also made no assumption as to whether this is a peak or trough in the housing market. Obviously it's better to buy at the bottom but that requires market timing. But in either scenario, assuming wages track inflation, the value of your mortgage is eroded faster, the higher inflation is.
They may not be able to sell for 10-12 years if prices move down like they did in the last real estate down cycle. There is a reasonable risk that this process has already started.
https://data.sca.isr.umich.edu/get-chart.php?y=2022&m=9&n=41...
Also, a stranger will present an opportunity. Don’t keep your authentic self under wraps. If you can hold your nerve and invest in a friendship, you may realize gains while romance is favored by Mercury.
Okay - great, houses are 50% cheaper than they were in 2021, but now you got laid off your old job and are making only 60% of your previous pay check after 4 months of unemployment, and inflation and interest rates continues to rise
“Two ways,” Mike said. “Gradually and then suddenly.”
I do wonder though, if all this cash in the bank people are hoarding for the downturn will have other effects on the economy, recession ?
I'm in the same boat though, I've saved and invested a shirtload of cash waiting for a downturn.
In theory though, savings are countercyclical. People made unemployed can still maintain their spending. So it helps break the feedback loop of redundancies -> falling spending -> redundancies.
Although we seem to be heading for recession, with high inflation and interest rates, so the normal mechanism of decreasing interest rates to get people spending isn't really available currently.
I’m not sure that’s the case. It may have just declined, but I think it was pretty high, during the COVID years.
I think this is basically what happened in mid/late 2020. There was a short-lived crash across all asset classes, from stocks to Manhattan condos, and people piled in with the Fed and other central banks willingly feeding stimulus money to the frenzy.
The sellers are the ones who will get less money, but the buyers, unless they have huge savings, won't benefit much.
Nevertheless, the worst obstacle in owning a home is actually buying it. Ten or fifteen years downstream, your principal payment likely represents a much smaller fraction of your income than it did when you bought the property, and you can renegotiate the mortgage in better times, as you say - so even the interest can be kept under control.
But the first years of your first mortgage are a real challenge. You need to cough up the downpayment, you might have young kids to take care of, you might still be relatively low on the career ladder etc.
If there is less loan to pay back for the same asset, the loan taker benefits.
Get a variable rate (or short term fixed) loan to leverage the purchase on an asset whose main price driver is interest rates and things can go south quickly.
In the USA there was a law passed past 2008 to deal with CDOs, but banks have found a loop-hole to go around it.