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Comment by Animats | Hacker News Reader

This is progress for affordable housing.

Except the higher interest rates actually makes the mortgage much less affordable.

Monthly repayments over 25y:

    £300k mortgage at 2% = £1271
    £250k mortgage at 5% = £1461

This loan would have to drop to £218k before the monthly payments became the same. That's a 27% drop before affordability even reaches the same level as before.

The notion that lower interests rates make it more affordable to own homes is a pernicious way to subsidize a specific class a people: those who can afford housing.

When rates are lower, more people can "afford" to buy a house because the repayments are lower.

Lower rates also (all thing being equal) means lower rents.

What does lower interest rates have to do with lower rents?

Taxpayer subsidized interest rates simply transfer future taxpayer money to existing land owners, similar to how taxpayer subsidized educations loans transfer money from future taxpayers to educational institutions and their staff, via excessive tuition prices.

If the government wanted to help someone buy a house, it could do one or more of the following:

1) build more houses

2) pay someone to build more houses

3) give people cash so that they can buy houses.

Houses can be abodes of any kind, including apartment, condo, townhouse, detached house, etc.

> What does lower interest rates have to do with lower rents?

Interest rates affect repayments. Higher repayments mean that the rent an owner is willing to accept will be higher (or, they won't enter the market).

Your whole model seems a little strange to me. Keeping rates low/stable is not a housing subsidy; it's about keeping the entire economy growing at a sustainable rate.

Keeping rates artificially low/stable is a subsidy, to keep asset prices growing at a rate that matches people’s expectations so there is not any political unrest when people’s 401k and pension and house price does not end up where they think it should.

My model is about helping people acquire a home they can live in. Which means having a home available for them to live in, and giving them cash to obtain it.

Using taxpayer funded loans is wholly unnecessary to accomplish that, and is a wealth transfer from non land owners to land owners in the long run.

Why not simply provide a subsidy directly to that subgroup that can now afford houses because of lower interest rates instead of providing massive benefits to those who can already afford? Not to mention second homes, etc.

We are subsidizing the well-off to allow some subgroup to afford owning homes while excluding the poorest from getting any benefits.

Interest rate control is not a subsidy.

And lower food prices is a way to subsidize those who can afford food?

Lower interest rates are categorically not lower prices. A rich person can make low interest rates go exponentially further than a poor one; lending and borrowing is the game of the wealthy.

Whenever I hear 'lower interest rates' this and 'lower interest rates' that my scam radar goes off. It's a dogwhistle for "I want to take out $200K loans again for free."

People need higher interest rates, but more than that they need them over a sustained period of time, not reactive hikes that just screw everyone over. ECON 101: you lower them in bad times, not when selling pictures on your phone is one of the most profitable endeavors (i.e. the market is stupid hot). A cushion is useless if it's deflated before the fall.

Right.

Historic average interest rates in the US are around 4%, with around 6% being about the average over the past 40 years or so. We can do fine with non-zero rates. https://advisor.visualcapitalist.com/us-interest-rates/

In the US interest payments are tax deductible (it’s a bit complicated because there are cliffs and limits involved) which lessens this.

For me personally I max out the SALT deduction which is barely less than the standard deduction, so most interest payments would be “discounted” by my highest marginal tax rate, which is a lot. Basically you end up with a 30-50% discount on mortgage interest in some cases

The mortgage interest tax deduction requires itemizing (foregoing the standard deduction), and only 10% of US tax filers itemize.

Yeah, and those are probably all homeowners, and will be skewed more towards those with higher incomes and larger home prices (ie those who are buying in the current market). So basically people on this website who are looking to purchase a home are much more likely to be itemizers/would itemize once they buy a house.

7% interest rates and home prices still WAY above 2020 costs with much lower interest rates.... gonna need a lot more progress than this.

It never is, last time a lot of the housing supply ended up concentrated in Blackrock-esque kinds of companies, I don't expect anything different from a next crash.

The difference is, with the risk free rate so high, investors buying up housing might not be as attractive as when rates are 0.

We’ll need to check back in after the next three hikes and Powell applies max pain by holding the rate up as long as possible (driving down asset prices).

This article does a pretty good job of addressing the big companies investing in housing. They're not helping, for sure, but not the root cause of the shortage, either.

https://www.theatlantic.com/ideas/archive/2023/01/housing-cr...

Exactly. Crashes are just sale season for the very rich.

Not really. Lower values, essentially reduce the incentive for builders for build new housing. This was a big reason why post 2008 building rates were so low.

Right. Part of the inflation in housing is driven by core inflation in housing inputs: materials, labor, etc. In most of the US market (outside of Cali), housing costs roughly track building prices. Some of this has cooled, hence the market cooled off. But fundamentally, we are very far from a "housing crash" because the market is far from saturated with inventory like it was 2008.

Oft forgotten fact of 2006 is that people were buying multiple new builds in their subdivision for speculative purposes. Because they thought they could flip them in six months for a 30-40% profit. To have a crash, someone needs to buy at inflated prices and lose their asses.

Not really, it's a drop after a large rise. There is still a net rise.

For affordable housing people are moving out of cities, to me that's a bigger story.

Progress toward affordable housing looks more like every boomer who did buy a house early dying and transferring their wealth to numerous gen x kids, and subsequently having marginally less political influence.

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