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Comment by bottlepalm | Hacker News Reader

Just like health care and tuition costs, government backed insurance and loans are the root cause for prices spiraling out of control.

"The mortgage finance market has leaned heavily on government support over the past few years. More than 90 percent of mortgages originated in 2011 were securitized by government entities using taxpayer funds to guarantee investors against default risk. This support cannot continue forever. The status quo perpetuates many of the policies that contributed to the housing bubble and consequently promotes an unstable mortgage market. In order to avoid another crisis, the government must exit mortgage finance and private capital must shoulder mortgage default risk. "

https://reason.org/wp-content/uploads/files/study_restoring_...

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A useful test — which shows this isn't true — is to compare similar goods/services that have dissimilar amounts of regulation.

For example — healthcare is heavily regulated, but veterinary care is lightly regulated. Both have experienced similar amounts of inflation over the past decade.

Or, to give an example from the article — houses that are eligible for government guarantees (those below $750K-$1M) have appreciated similar amounts in the past decade to those that's aren't eligible.

> For example — healthcare is heavily regulated, but veterinary care is lightly regulated. Both have experienced similar amounts of inflation over the past decade.

You forget indirect regulation. Veterinary drugs, veterinary education, and similar are quite regulated and expensive. So much so, that the average cost of vet school for in-state residents is over $200,000. Out-of-state, make it closer to $300K. The average cost of acquiring FDA approval of a new animal drug is $100 million and takes seven years.

If you call that "lightly regulated" I don't know what "heavy regulation" is. So, to be honest, I don't believe your comparison is accurate.

EDIT: This does depend on the estimate used (my first one was from https://www.veterinarypracticenews.com/efficacy-vs-cost/). Others say it is closer to $30 million for livestock and 9 years, but costs crossed $62 million in some cases (https://ahi.org/approval-and-regulation-of-animal-medicines/). It seems to depend on how broadly "animal" is defined and the type of drug in question, but it's all under FDA purview. Regardless of how it is defined, it doesn't fall in my view as being nearly as "lightly regulated" as implied.

I think this is completely irrelevant given the much more pertinent example given:

> Or, to give an example from the article — houses that are eligible for government guarantees (those below $750K-$1M) have appreciated similar amounts in the past decade to those that's aren't eligible.

I don't think you can reasonably claim that the market for houses above 750K-1M is independent of the market for houses below.....

Maybe, but what's the mechanism for government guarantees below a certain range increasing demand above that range? Someone who can only qualify for a mortgage because it's guaranteed by the government isn't going to be able to make the jump into a non-guaranteed mortgage easily.

Veterinary spending has increased (as a result of higher disposable incomes leading to higher consumption), but it's not true that the cost of veterinary healthcare has increased.

> The researchers track a “basket” of the most commonly-utilized procedures to see how the typical veterinary visit has changed in price over time. According to their research, these ordinary expenses declined by 6 percent from January 2009 to December 2017 after adjusting for inflation.

[1]https://catalyst.independent.org/2019/09/06/why-cats-pay-a-l...

To be fair, they target a very different market. When you buy at 1M, you usually have assets and are required to put 15-20% down and have significant reserves.

> When you buy at 1M, you usually have assets and are required to put 15-20% down and have significant reserves.

I don't think it's that different. The banks are still mainly concerned with the income-to-debt ratio, just like with conventional loans. The difference is that often people applying for jumbo mortgage loans will use assets and reserves to try to get the bank to worry less about the income-to-debt ratio.

Also 20% down is the standard for a primary-home mortgage loan, regardless of amount. Sometimes that goes to 30% for non-primary-home investment properties, especially if the buyer is not a citizen or green card holder. Lower than 20% is possible, though more difficult to get since 2008, and you usually have to do unfortunate, costly things like obtain mortgage insurance.

(We're talking US market here, since this article is about the US. Other markets presumably differ.)

You can’t lump all regulation together.

Neither human nor animal healthcare has any sort of price regulation. Hence both have seen inflation.

With housing, where lending is a major part of purchasing, price inflation is directly linked to ease of lending.

> Both have experienced similar amounts of inflation over the past decade.

No way. A pet surgery and care is a 4-to-5 digit sum of dollars, while surgery and care for humans is in the 5-to-7 digit sum range.

They have experienced inflation from a different base price but both have experienced enormous inflation. My guess is that pet surgery will soon reach the point where a lot of people aren't willing to pay the price whereas for human surgery they will accept higher prices.

"For example — healthcare is heavily regulated, but veterinary care is lightly regulated. Both have experienced similar amounts of inflation over the past decade."

The US has a lot of regulation in some areas but there is no regulation as far as pricing goes. Most (all?) countries with universal healthcare regulate pricing. There is simply no way around that. That's why my vote is for Medicare for All.

This isn't about 'regulation', this is about industry using the government as a money piñata.

Once cheap money starts flowing into a system, it spreads and makes everything else more expensive.

Think of the flood of cash from the Corona Stimulus Bill, $8 trillion dollars rained down on the economy which eventually worked it's way through the system resulting in a massive flood of unprecedented inflation affecting all sectors.

I don’t see it that way. A lot of folks paid down debt with that money. Some paid rent because they couldn’t work b/c of COVID.

Stimulus is short term gain, long term pain. The inflation from the stimulus is now permanent and people are back in debt trying to afford things.

https://www.cnbc.com/amp/2022/11/16/credit-card-balances-jum...

Is the impact different when different mechanisms are used? E.g., Covid stimulus correlates with recent inflation, but quantitative easing more than a decade prior seemed to have little impact.

yes. QE was through the banks, they filter loan applications.

stimulus was direct.

but the important thing is that the supply chain issues were already in full force. COVID shifted consumption from services to products, put a lot of logistics people out of work in an already stressed sector, plus China's zero covid plus their financial problems decimated products supply.

then demand shifted back. wages started to rise

millions are missing from the labor force (died, early retirement, low immigration numbers)

and this all combined with the fucking war (which led to an energy market shock, which absolutely rocked everything)

well, it's just not the same game at this point. 2008 recovery was too little both fiscal (ARRA) and monetary (QE was new)

this was okay, then Trump wanted one more check... and it was not means-tested.

>wages started to rise

I think everything you said made sense. But just to balance it out, there was a recent Planet Money podcast that explained that wage inflation is not the primary cause and that 55% of inflation is attributed to increased profit margin. The rebuttal from another Econ is this is just temporary anomaly and we’ll see wages rise to erode those profits.

wages will definitely (okay, very very likely) rise, because there is just such a huge gap in jobs and workers.

graph here: https://twitter.com/jasonfurman/status/1598042298717155329

https://www.federalreserve.gov/newsevents/speech/powell20221...

I think the larger point I was getting at is that current inflation may not be attributed to wage inflation.

I’m not discounting that future inflation may come from increased wages, just that it doesn’t seem to be the whole story in the current scenario.

it's not unprecedented, and don't forget the supply side issues.

inflation started to really blow up when the energy prices did

arguably the effects of the stimulus were masked by the big unemployment due to COVID, and when it decreased enough for the wage rises to start to get felt the spiral started, and the Fed acted late (because in the post 2008 recovery they acted too fast)

The monopoly sovereign currency issuer, in this case the US Congress[1], absolutely has upward pricing power for prices denominated in the currency it issues. By upward I mean they can set prices in anything as high as they like, but not necessarily as low as they like. Imagine if Congress passed a First Time Homebuyer act that would allow any first time buyer to have the government write a check on their behalf for up to a million dollars. All of the marginally desirable housing stock would instantly be priced up to a million dollars. Using loans instead of outright spending money into existence adds hysteresis, but the transmission mechanism remains intact.

Edit: Incidentally that's why I oppose every proposed form of Universal Basic Income I've heard of. I like the idea of creating a demand backstop[2], but really it's just going to cause rents to increase by the amount of the subsidy.

[1] Both the Federal Reserve and the Department of the Treasury are creatures of Congress and use delegated authority.

[2] Well, I like it in an economy with strong productivity. If production can't stay ahead of the increased demand, you'll just get inflation until the UBI is more or less cancelled out in inflation adjusted terms.

Just tax land and pay a citizen's dividend.

My understanding is that veterinary care has pretty much been taken over by private equity in the last 10 years or so. They saw that it wasn't experiencing the same amount of inflation as other health care fields, they considered that to be an exploitable bug in the marketplace, and they've been investing accordingly.

So it may not be the best basis for illustrating your larger point.

Especially places like Florida, Louisiana and Texas that continue to lose to hurricanes and continue to get bailed out despite being rebuilt in high risk neighborhoods.

Climate change denialism is expensive.

For blue states. I wonder if you could calculate how much federal relief a patch of land has received over the last 50 years?

>For blue states

You mean "NY, NJ, CT, and MA". They are the states that provide the vast majority of the surplus in federal taxes paid by its people versus expenditures to them and their states.[1] Four other states also have substantial surpluses, of which two voted for Clinton and Biden, and two voted for Trump both times. Every other state either breaks even (CA among them) or receives more than their people pay in taxes. Of the ten states that get back the most, five and a half (of Maine) voted for Clinton/Biden and four and a half voted for Trump/Trump. Source: Rockefeller Institute's annual studies on the subject.

[1] Yes, they are all Democratic states today, but this was exactly the same a century ago, when MA and CT were solidly Republican and NJ and NY were swing states.

ok inland cities, build up your housing stock and job market so people can move to you

Most of Texas is pretty far inland.

hey. i live in texas

current data don't seem to be available, but pre-pandemic, texas had a housing shortage of over 300k units, the shortage having nearly tripled in less than a decade. that's likely to be worse now. it sure feels worse

a good many of the people immigrating from coastal cities are in a group privileged to remote into coastal jobs. experience corroborates that as well

There are now places in California where the only fire insurance you can buy is through the state, because private insurers bailed out.

That’s because the state banned insurers from using up-to-date risk models: https://www.ecologylawquarterly.org/currents/californias-ban...

A bad policy, to be sure, but that doesn’t mean the homes are inherently uninsurable.

These places have had hurricanes for centuries at least. If humans didn’t exist at all. It would still be getting hurricanes.

Remember, risk is most often measured across the dimensions of probability and severity. So even if probability is the same, total risk can be higher is severity increases.

Risk is the currency of insurance.

Sure, but look at the frequency and severity of them more recently, and it starts to get a little scary.

Florida is going to get interesting when the state won’t be able to purchase reinsurance for their state ran insurance company. Insurance companies have been running at a loss even during non hurricanes years and Ian will make them all pull out.

You can’t get loans if you don’t have insurance.

i bet they will vote in someone to pass federal legislation with which they receive subsidies that gets spent on making insurance companies whole (aka, take on the losses). Then they will perpetuate the situation, until the coast line sinks.

If you want to live in a Hurricane-prone area you should build to hurricane-resistant standards.

Yet what does every single new home in Florida have? A composite shingle roof, no built-in 100mph+ storm shutters, etc. No requirement for built-in backup power.

This is one instance where insurance should be free to properly price risk. Make classifications of storm resistance and price each home based on what standard it meets.

Frankly California has the same problem with earthquake insurance even though it's all sold by the state created (but supposedly not backed) authority. The rates mostly don't reflect any earthquake-proofing nor what standard the home was built to. If you retrofit a 1930s home to the best modern standard you still pay the same rate as your neighbor who did not.

There are composite shingles rated for hurricane winds. Although for that rating nail placement is critical. Sadly the most common screwed up thing on roof installs is nail placement. This can lead to leaks in 5+ years generally. However, in the case high winds if the nail is not on the common bond the nail can pop through the shingle. Also most manufactures require a ring shanked nail for the hurricane rating. Again most roofers use only a smooth electro-galvanized nail because it's cheap.

And once one shingle pops loose suddenly it's much easier for the wind to get under the other shingles near by and the failure can cascade like dominoes in a hurricane situation. Going from a simple repair to replacement of a section or to a whole roof replacement.

Also an other aspect is double checking the shingles are properly placed otherwise the seal strip won't adhere in the correct spot on the shingle below making it easier for the adhesive to come loose and again same problem.

The thing is if you have seen how fast most roofing companies put a roof on a house do you think they are going to do this right?

Also sadly if the roof fails during a hurricane it just means more work for them in the future which means more money paid by insurance. So their incentives are not there. Like there are some roofing companies that will go door to door after a major storm looking for houses basically that have storm damage and get the homeowner to file claim. Looking for things like an out of production shingle so instead of a repair insurance has to buy a whole new roof since replacement shingles don't exist. It's really scummy. The sad thing is this scummy behavior had lead to insurance companies way more likely to deny claims that are valid. I remember seeing a video of roofer with an insurance adjuster acting like what the roofer said was not true or not comment or document it. It was kinda insane and sad at the same time.

Last note: Although shingles without a hurricane rating in my opinion should not be installed in places like Florida.

I’d be curious to quantify the subsidy from hurricanes to the higher mortgage subsidies from higher mortgage limits in states that choose to make housing expensive.

One reason why people talk about “hurricane insurance subsidies” in the first place is that it is hard to quantify, so it’s hard to call people on their bullshit.

This is similar to introducing arcane metrics like for example “federal dependency” (https://sipanews.fiu.edu/2021/03/24/2021s-most-least-federal...) with nonobvious methodology, and then pretending that the states that are high in “federal dependency” ranking are actually more meaningfully “dependent” on federal government, which doesn’t actually pass muster if you look at the methodology (for example, according to their methodology, a state that collects $1k in taxes per capita, and gets $4k from federal government, while spending $5k per capita, is more dependent on federal government than a state that collects $10k in taxes, gets $10k from feds and spends $20k, which is absurd).

Basically, there is a lot of attempts at hoodwinking audience by giving impression that there is some deep quantitative analysis behind the claims, when in fact it’s all just partisan shenanigans.

Yeah. Maryland and Virginia are never at the top of these lists, even though though their economies are totally built around adjacency to the federal government.

These methodologies always seem to count a retiree drawing social security in Florida as federal dependency, but don’t count the northern Virginia employees of a DC lobbying firm as federal dependency.

Don't forget AirBnB which has helped take a significant amount of housing stock off the market: https://comptroller.nyc.gov/reports/the-impact-of-airbnb-on-...

or did it make it more malleable for customers who wanted sub 12month leases? (And not absurdly priced like some apartment companies who will charge 3x the monthly rent for 1 month leases)

When i Moved to the US AirBnb was my best option to get a 2 week home while I hunted for where I would lease for 12 months. A hotel would have easily cost me double because i got a good week or 2 week rate (i forget which) .

Yes, AirBnB brought down the cost of short term rentals by removing stock from the long term rental market. I think this is a net-negative for society and consumers. It's great that you saved money for a 2 week rental. That was more than made up by someone else who has had to pay more for housing for years.

If AirBnb truly made the market prices go up, then beyond short term shocks it's more of city hall's (and NIMBYism) fault that new supply couldn't come to market (such as rezoning) .

America has a massive zoning issue that is causing all kinds of pain and suffering to lower middle class and below.

https://www.youtube.com/watch?v=SfsCniN7Nsc

https://www.youtube.com/watch?v=7pq-UvE1j1Q

But Airbnb's are housing!

That's on the market!

AirBnBs are way more expensive that "traditional" long-term housing. They compete in the same market as Hotels and BnBs, not rentals you would live in for 1+ year.

So yes, they're on the market. A different market than long term rentals.

The legal framework is different, but they all serve people in need of housing in the area.

With the month long discounts they are offering they aren’t that far off from furnished rentals, but with a lot more flexibility.

Yes, but healthcare is different because society doesn’t accept that people should die on the street when treatment is available.

Economically it’s probably more productive to give someone however many more working years too.

Cash prices on non emergency stuff is often drastically cheaper then insurance.

Nothing like MRI place asking you’ll pay 500 cash. Of 750 copay with balance billed to insurance

yea but that’s immaterial in the broader scheme. How do you transport someone who is incapable of transporting themselves to lifesaving treatment? Who pays for chemo? Etc.

Of course paying for bandaids or ibuprofen is on the table but that isn’t what we are talking about mostly.

2011 was just after the GFC where MBS caused a global financial meltdown. It's unsurprising that non-government MBS were having a hard time finding a market. And ultimately, government guarantees for MBS is just a symptom of a larger problem. Government support, both in Fed market operations and policies like guaranteeing MBS, artificially lowers the cost of capital for home buyers, which drives up prices.

In short, it's priced in.

How do we explain away data that doesn’t fit this model?

For example, post-WW2 saw a massive influx of govt subsidized education in the form of the GI Bill. But the massive rise in education costs is a much more recent phenomenon.

It's funny how you bring up a great example to further my point.

"After the GI Bill was instituted in the 1940s, a number of 'fly-by-night' vocational schools were created. Some of these for-profit colleges still target veterans, who are excluded from the 90-10 rule for federal funding. This loophole encourages for-profit colleges to target and aggressively recruit veterans and their families. Legislative efforts to close the 90-10 loophole have failed. According to the GI Bill Comparison Tool, the largest recipients of GI Bill Funds are

University of Phoenix $190,941,289 ..."

https://en.wikipedia.org/wiki/G.I._Bill#Colleges_that_target...

Does this explain the fact that this pattern didn’t show up in the not-for-profit schools until much later?

I’m not against the idea that govt subsidies raise prices, but it seems like cherry picking to fit a shaky model.[1] If it’s a primary factor, wouldn’t we see that across all schools? Perhaps there’s a different, more foundational cause and we’re being fooled by spurious correlation. If it isn’t applicable elsewhere I fail to see how it can be labeled a root cause.

[1]For example, UofPhoenix was not founded until the late 1970s. This also corresponds to a handful of other societal factors can can be argued contributed to educational costs. If the GI Bill was primarily driving these costs, we should see it in the way the benefits were implemented. Like a high spike post WW2, to waning post Vietnam, to slightly higher with the Montgomery GI bill, to another spike with the post 9/11 GI Bill. But college tuition costs seem to be a fairly steady march higher, including not-for-profit non-vocational schools.

>> massive rise in education costs is a much more recent phenomenon.

Clinton did it by making most student loan debt non-dischargeable in bankruptcy. https://thehill.com/blogs/congress-blog/economy-budget/28362...

because it's a huge source for nation states in calculating/gamifying the GDP. It's a conflict of interest. Example: China.

This assertion should be fairly testable, since the level of government assistance in these fields varies greatly between different countries.

As do most of the factors. One thing we know for sure: subsidies result in more.

I am laughing at your news source https://twitter.com/reason/status/1595878173341847552

Government backed loans aren't the problem. The US has the 5th lowest housing price to income ratio [0].

Perceptions are just massively skewed by wealthy areas with geographical constraints and strict zoning laws which restrict local supply against demand and everyone complaining focuses on those areas.

[0]: https://www.numbeo.com/property-investment/rankings_by_count...

Where are the $million houses of the OP?

SF (median house price 1.9m) for one...

Tight supply and government backed mortgages can both be contributors.

I can't imagine taking out the loan I supposedly qualify for. Meanwhile, people calculate affordability based on a percentage of their income rather than sweating the overall longterm value of a particular property.

The unaffordability of housing is A Tale of 20 Cities.

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