The US Housing Market Has Become an Impossible Mess
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For 2, the purchaser will likely improve the neighborhood and schools. For 3 they improve the housing stock. For 4 they bring desirable skills to employers who cannot otherwise afford to pay for such skills.
Proverbially "Go west, young [person]!" and all that.
If we still had a culture of formal coming-of-age rites, building your own small house on a little gifted land would be a good one.
California is at least trying to fix their broken housing policy. No clue if they'll succeed but I think it's realistically possible.
Everyone with exposure to tech stocks got extremely rich, including hedge funds. So all home owners are either those that had houses before the bust, those that had money before the housing bust and bought houses during the bust, or those that became very wealthy from tech stocks and bought houses. That raised the price of houses to unaffordable levels, and now hedge funds with all their tech wealth are buying homes to turn most people into renters. There's no room for the Have Nots to buy houses anymore. If you don't currently have a house, and you don't make millions on the stock market, there's no way you're ever going to be able to afford a house.
We need a housing crash, but the Fed will never allow it, and hedge funds know this. That's why supply remains tight. Only rich people are currently buying houses, and it won't change regardless of interest rates. Hedge funds have to suffer catastrophic losses in order for supply to reenter the market.
"Nice place!" I said to many of my professors. "How'd you afford this part of town?"
"Oh, housing crashes happen periodically" said the professors. "Find where you want to be, save money outside the markets, and just wait."
So I rented too small a place for over 5 years, saved, and waited. Sure enough, Covid tanked prices and interest rates yet my down payment was fine because I had kept it outside of the markets.
This approach is not hard. It just can take a decade.
Realtors in the US, when compared to those in pretty much any other first world country, are definitely overcharging for their services, and, according to at least one judge, they colluded to keep commissions artificially high [0]
> It seems to me like so many people are chasing the dream Disney sold them on the world rather than realizing they might have to compromise.
And why is that?
It maddens me that, generation after generation, people have been told to aim high, get a job, work hard, get a degree, move out, see the world, etc. Turns out, now people in their thirties have to "compromise" or "settle" on buying their first homes at half the size, twice the price, and ten years later than their parents, likely earning a relative third less as well.
[0] https://www.cbsnews.com/news/realtors-liable-for-1-8-billion...
Well, it's the generation after Reagan came in with the whole monetarist trickle-down thing, but yes.
Sometimes I think the toxicity of this situation (and it's not just the US) fuels in large part the tendency for people to believe in conspiracy theories about secretive cabals keeping them down. And in a way, it's kinda true too when it comes to housing. You're told you're living in a land of democratic opportunity, wealth and justice. Yet somehow...
A typical starter home in the 70's and 80's was 1200 square feet. I don't think people today are buying 600 square foot houses.
I'll just focus on your first point: patience. You might be right there but as you pointed out the last four years have been rough for buyers and patience can only last so long. Gotta understand a buyer getting traumatized by having to bid on a house they haven't even toured, buyers given only 15 minutes to view a house, 20+ offers on a house, offering $20k over asking and still not getting it. With no end in sight.
The world isn’t quite as black or white.
What is up for debate and highly contested is whether the commissions collected are commensurate with that value.
The old pre-internet world had deep informational asymmetry via the MLS. Realtors were magical in that they could bring forth magical houses at magical price points and the commissions “felt” like value. And more than being a facilitator, the realtor also played part as pseudo-therapist and mind reader reading situational cues to find good fits for their clients.
However, I’d argue that several things have sullied the relationship over time.
1. The low-ish barrier to entry to become a realtor. Made for a lot of professionals that could coast on value adding activities. So the client who feels that they would have never found or sold their dream property or deal has become less and less so.
2. The democratization of information via the internet has pushed the labor of searching for properties to the client.
3. The democratization of loan broker services via the internet have reduced what a seasoned buyer would have to go through to obtain financing.
So this has reduced the realtor from value adder along the whole process to merely door opening facilitator.
Now that the genie is out of the bottle, it’s not going back, but the question is, is the value offered today, still commensurate with percentages charged as Realestate prices continually go up?
The average home is ~$425k and a commission is 5%.
I've never met any Realtor that brought $22k in value to a simple single family home transaction.
From
https://www.forbes.com/advisor/mortgages/can-you-transfer-a-...
"Loans backed by the Federal Housing Administration (FHA), U.S. Department of Agriculture (USDA) and Department of Veterans Affairs (VA) are typically assumable. Conventional mortgages, on the other hand, usually aren’t assumable. Instead, conventional mortgages typically come with a due-on-sale clause—meaning the loan must be paid off if you want to transfer the property title."
I'll take you up on that. Is there a way to post a specific price I want to pay, and then pay the realtor x% of the difference between what I set and what I actually pay? For example, if I set $400,000 and they find me a place at $300,000, maybe I could pay them $25,000 at a 25% difference.
Not in my area. Very few people are selling because no one wants to trade a 3% mortgage for a 7% mortgage.
Existing small houses are priced as high (or higher) than new-build McMansions.
See also: "missing middle"
Then you're just contributing to the sprawl problem, because infrastructure has to extend to you somehow.
The options are:
- bring all the infrastructure with you (be rich)
- do without (live in squalor)
The third option we need:
- small dense affordable housing
Yes, we're in agreement that density is sorely missing, due to effectively being made illegal - whether SROs, lot size requirements, building codes prohibiting new triple deckers, etc.
I just don't know why your first comment had this:
> The only alternative is to buy rural land and try to get creative with the law (e.g. your tiny home on an existing rusted old trailer frame is considered a "remodel", etc) or simply build a small cabin and hope no one from the government comes to bulldoze it.
Because that isn't an alternative. Rather it just strikes me as regular rural living in a small house.
I'm surprised there haven't been more private corporate attempts to take ruralish land and bootstrap higher density walkable proto-cities with bus (or even train) service to a larger city, especially with the recent trend of remote work making attracting industry less necessary.
It was more of a suggestion to do something quasi-legal like a multi-tenant tiny house village. I know a few folks who did this in the PNW, along with one who bought a disused kids' camp facility with small A-frame cabins and turned it into a permaculture farm & community, and then had all their friends move in.
You're right in that it's not an answer either, because it's essentially a tiny breakaway society.
Or is it just perfectly comfortable and what non US housing should strive for, instead of the cramped quarters that are available elsewhere? (hint: yes, it is) (And of course, there is comfortable housing available everywhere, and cramped housing available in the US, but OP mentioned US specifically, so I specifically used it in my answer.)
In terms of housing affordability, the dominance of mcmansions with small yards (but big enough for a swimming pool in the back) and large houses certainly reduces supply for first home buyers.
And, cities suffer because supplying utilities (light, gas, water, roads, trash, sewer, etc) all cost more because of the large horizontal footprint.
Height restrictions, floor area ratio, lot coverage, setbacks, parking minimums, square footage minimums, lot size minimums, and lots of other zone requirements all contribute to a floor on the price of housing.
There are plenty of really good requirements like firebreaks and egress points, but not everything should to be enforced by zoning. Many of these things should be allowed to be controlled by the market. If people truly want 2 car garages and 1/2 acre lots they can pay for it. Making it the legal minimum to construct massively distorts the market.
Zoning massively benefits the existing occupants of a location and when there is a housing crisis just makes matters so much worse.
All the flats I've lived in outside of the USA (Tokyo, Berlin, Oslo, Brest, Utrecht) were super walkable, had landlords that treated me like a person, and was not made out of cardboard.
I guess my point is either get a flat outside of the USA or get one with a bad ass owl.
There are nice apartments in the USA, I'm in Seattle, everyone of my friends live in apartments and they are nice. I live in an old building from the 60s, but the apartment is great.
The problem is that there aren't enough apartments.
Not the designed-to-fail model that the US has historically implemented, however. There are other, very successful, public housing systems that show how it can be done successfully. We can basically copy Singapore and Vienna's homework.
Can’t wait to see whether and how well it works, or where it evolves, but some places are trying!
We need a mix of housing, including multiple classes of housing that more reflects the diversity of incomes, not more gigantic corporate owned apartment blocks.
There is no simply sound byte answer.
Well, there is your problem.
The lack of housing gets solved by, gasp, adding more housing. A house in a city is luxury, the only way to keep rents down is by adding more to the offer, and guess what, apartment buildings add a lot of housing in a small surface.
Corporations are bound by economics, they can't charge out of bounds rents if the average rent price is much lower, and you get that by, you guessed it, building more.
> We need a mix of housing
No, you need a ton more housing, not a mix, you have to aim for efficiency here, specially in cities. Having a SFH in a city is a luxury, townhome I would say is above average, and everyone else should be in apartments. Apartments don't have to be ugly, if I could I would buy a 2/3 bedroom apartment, however there isn't much offer, and everything is from ages ago because the USA doesn't build.
I want to see better lives for people in whatever capacity they want to make it honestly.
I don’t think it’s an OR situation but I don’t think counterpointing is going to help the conversation any. You’re not wrong. I just think we also need to do things like actually build new cities instead of just adding more and more to existing ones. That’s a formula that we used to have that has just stopped completely happening and now it actually worked.
But more housing and better lives for people is the point so I’ll leave it there.
The spice must flow, property valuations must go up or the whole thing collapses. It's why non-SF-esque cities only allow expansion in-line with population growth or a little less because they will immediately be tarred and feathered if they make everyone's mortgage underwater.
To be clear this isn't a good thing, but no one wants to blink first and start another 2008.
You've securitized the cashflow from the property, so if that cashflow dips, the lender has an assurance they can reprice the security in line with your new cashflow story.
Even if you cover the shortfall in cashflow out of pocket, this is better for both you and the bank because you don't have to admit that the market rates at which you got your loan have changed.
Yeah. I can see how that would create perverse incentives downstream.
I could not have afforded the plot of land my first city apartment was on, but I could afford an apartment in the building!
https://www.investopedia.com/terms/l/law-of-supply-demand.as...
To use an anecdote, my mother in law has lived, for many years, on a peaceful dead-end street. Last year, an apartment building was put up at the end of the street more than quadrupling the number of families that lived there.
Since then, there are cars driving by on a regular (many times a day) blaring loud music. Her neighbor's big window in her living room has had rocks thrown through it on several occasions in the first months. My mother in law feels less safe going for walks, because she no longer knows most of her neighbors and this area of the city was already not exactly low crime.
Her perception of her new neighbors, and their behavior (both criminal and otherwise) have completely devalued her experience of living at her house.
Does that make her a NIMBY? Yup. Is her quality of life now lower? Yup.
Is it the fault of higher density? No.
It is the fault of a culture that tolerates disruptive behavior. Higher density has only brought more of it to her doorstep.
And what can the quiet 90% do about it? Socially pressure the anti-social people? This provokes even more disruption in retaliation and stands a non-negligible chance of getting you stabbed. Calling the police with noise complaints is ineffectual, as soon as the police leave the disruption will become even worse just to spite everybody else. NIMBYism is the most proximate and pragmatic solution; stop the problem from occurring in the first place.
California already has something like this: it's determining the state's housing needs at the state level. If regions don't realistically create plans for hitting their allotted target, a 'builder's remedy' is triggered. Developments which check certain boxes, and one of them is a percentage of affordable housing, override local zoning blockades.
All you really need to do is go a step further and offer developers subsidies to increase their percentages of affordable housing in their plan.
The thing that makes other countries' public housing succeed is that it's not a monolith of low income residents - the mixed incomes in the development create a more cohesive community that makes them successful. No reason we can't do it here, and no reason it has to be overtly labeled as public housing.
It's already working[1] in California. This is happening through the California Housing Finance Agency[2]:
> The CalHFA Mixed-Income Program (MIP) provides long-term subordinate financing for the new construction of affordable multifamily developments throughout California that provide housing with units restricted at all income levels between 30% and 120% of the Area Median Income of the county in which the development will be located.
So while it's not outright subsidized, the state is providing the financing for these projects.
[1] https://www.calhfa.ca.gov/multifamily/mixedincome/approved/i...
[2] https://www.calhfa.ca.gov/multifamily/mixedincome/index.htm
As an analogy, the rest of the US should not vote to reduce property prices in NYC at the expense of NYC taxpayers. It would be absurd. But that exactly is what the state-level policies achieve at the state-vs-community level.
If we're talking about California, good news: the new homeowners will pay far more in taxes than the entrenched property owners under the Prop 13 system. Also, the single family residences are more of a burden on finances in terms of infrastructure maintenance costs than high-density residences.
Well-managed towns of single family homes are not an infrastructure burden. Sure, they're not as per capita efficient but recall people move to such towns, and pay taxes accordingly, in part for the density decrease.
Take San Francisco. A huge proportion of the housing stock is rent-controlled (everything pre 1979) to try and make it accessible price-wise to low income renters, effectively forcing a ton of housing stock to lock in artificially low prices the same as public housing. This hasn't fixed it, and may have made it worse due to perverse incentives for landlords / building owners. Meanwhile it remains arguably the most difficult major city in North America to build new housing in, especially infill on existing residential properties.
I moved back to Portland, OR the last few years, and the pace of housing development and policy is dramatically better. Single family zoning is illegal. You have people in rich neighborhoods adding ADUs like crazy, and developers knocking down outdated single family homes to increase density in desirable neighborhoods. New mixed use buildings are springing up all along major transit corridors in walkable/bikeable neighborhoods. Prices for new homes and luxury apartments are inaccessibly high, but all of this takes pressure off the low end of rental stock. There is also public housing being built, but it is monumentally dwarfed by private development.
We don’t have to speculate about how civic control over housing development works or what kind of decisions our communities will make. They are the problem, not the solution.
https://www.youtube.com/watch?v=41VJudBdYXY (Youtube: Vienna's Radical Idea? Affordable Housing For All)
https://www.youtube.com/watch?v=d6DBKoWbtjE (Youtube: Does Vienna Have the World's Best Council Housing?)
Even if someone somewhere else did it well, the odds of anyone in the US doing it well are nearly nil.
Additionally as other comments also suggest, resolving the various supply problems.
I will say however we are hitting record number of new apartment buildings being built, so that’s a good sign for renters.
https://www.nytimes.com/2023/05/23/magazine/vienna-social-ho...
What we should copy from Vienna is mixed use development. A huge portion of American suburbs are zoned as single family only and you end up with a housing shortage, horrible traffic, and pollution. Mixed use development allows density to increase while reducing traffic and encouraging people to be more fit (by walking or biking more). It's such a no-brainer from a whole-system perspective.
The problem is that NIMBYs and existing regulations exist to preserve the status quo and protect the equity long-term homeowners have accumulated. In places like CA there are additional disincentives to reform like Proposition 13 that favor long term owners at the expense of new homebuyers. Obviously a tax-advantaged asset is going to have a higher price than an equivalent non-tax-advantaged asset. And significant property tax revenue that could otherwise fund public transit and additional construction isn't collected as a result.
Eventually enough boomers will die and the demographic forces will shift and create the opportunity for reform, but this will be too little too late for a whole generation. I'd love for a concerted national effort to tackle this problem and reduce barriers to building the kind of housing America needs, but it's hard to see that happening anytime soon.
Part of Vienna's success is building so much public housing there is plenty to go around, so all sorts of people live in public housing. There isn't a stigma associated with public housing since using it doesn't imply any specific trait.
I'm a big fan of building all sorts of non-market housing all over cities to avoid the slum problem. Charge means-tested rent, so someone will low income pays very little rent. Someone with a good job pays closer to market rent (and that extra revenue helps pay for the overall housing program).
One of the huge successes of Vienna's public housing model is mixing people of different socioeconomic backgrounds. People connect with people with all sorts of different backgrounds and experiences resulting in much strong social cohesion.
You're right that public housing doesn't fundamentally require income restrictions. The government could forbid all private construction and take over home development itself, placing price caps as needed. But if you think something like that's going to work in the US when we can't even accomplish much more minor housing reform, you're dreaming. Vienna's model is certainly not that radical.
For starters, even Vienna's social housing model has income restrictions. If you and your partner both earn the average 2023 Viennese salary (about €52,000/person) then you don't quality for social housing because your combined income significantly exceeds the annual threshold (€79,490 for two people in 2023).
Even if you do qualify, you are only eligible if you have lived in Vienna for two years already. This system does nothing for new transplants. And once you do qualify, the wait time to be approved for an apartment can be in excess of 5 years. They even have a "bonus period" to move people who have been waiting for more than 5 years up in the line, because the city recognizes how frustrating that must be.
The system is easily gamed too. Vienna only checks your income once as part of the process. If your income increases later on (e.g. because you finished school and got a great job) you don't become ineligible. That part is fine by itself, but you can also transfer the apartment to a qualifying family member if you decide to move out, and they don't need to wait 5 years. This contributes to the reduced supply and long wait times because it reduces inventory and rewards those with family connections in the city.
And of course this whole system is far from free. If you make the average Viennese salary your income tax rate is 42%, whereas it's 25% for the average American worker. The average Vienna home is worth around 1 million euros and the property tax rate on such a home is a whopping 3.5%. Even in expensive coastal places like San Francisco and San Diego, property tax rates are barely above 1%. The tax burden to fund this kind of social housing (and other great things too, to be fair) is definitely heavy. It's fine to point out the positives of such a system, but the costs have to be acknowledged as well. And in the US I don't think the taxpaying population of any city is willing to bear those kinds of costs.
Vienna's system does do a great job mixing different people together, as you note. But not all of this is due to public housing. Quite a bit of it is simply how walkable the city is and how great their public transport options are. Even a moderate amount of public housing for low income individuals scattered throughout a very foot-friendly city would do a great job mixing people together.
Nothing approaching that radical an approach would be required. Just getting funded public housing agencies with a mandate to develop non-market multi-family housing using properties in the city's portfolio would be a massive victory for affordability.
Or generation X becomes the new “boomers”.
While I'm fond of the Austrian school of economics, history has seemingly shown that such true austerity is politically untenable - my above gripes are actually just acts in the larger pattern of post Bretton Woods looting. Modern Monetary Theory seems to be the only attempt at a way out that is actually talking about unbinding us from this martingale of austerity for Main Street plus massive continual handouts for the banks and Wall Street. The government has played these "hands off" interest rate games long enough - it's time to leave rates at the moderate level they are currently at and spend direct stimulus on things our society actually needs (which on this topic is building more housing).
When governments put money into a thing, that thing will have insanely high prices. Why would sellers lower prices when they know that Uncle Sam will pay any price? Didn't you notice that high housing prices are a big part of the problem we already have? And you suggest a solution that will make it worse?
5% interest rates will change things for the better, and maybe we can phase out the mortgage interest tax deduction, too.
Yes, the prices of construction materials will go up. This is called a price signal, indicating that more of a thing is needed. I personally will not be happy about higher prices. But the pain created by this is due to economic damage that has already occurred and needs to be realized, rather than continuing to kick the can down the road as it has been.
I'm ambivalent about the mortgage interest tax deduction. People act like it's some amazing cut-from-whole-cloth subsidy, but from a business context it's just a regular straightforward deduction of a customary expense.
Then why isn’t there a deduction for everything else we buy? It is a handout to real estate owners and lenders, and has zero reason to exist.
If the government wants to help people who do not have enough money, the government should give them cash. Or a home, if that is the goal.
Also keep in mind that interest on a loan is being reported as income elsewhere, so it is being taxed. It's just being taxed one less time.
Politically, I don't see the point of singling out people who aren't short housing (aka they own one home) but still have a mortgage. Remember with rental properties all expenses are straightforwardly deductible (or depreciable), because revenue that pays expenses is distinct from income.
A standard deduction is simply lowering tax rates for everyone.
Government has so many tools to absolutely screw over the incumbent freeloaders. It won't because it consists of and is paid by incumbent real estate freeloaders. Don't you wonder why almost nobody nowadays heard about land value tax despite it being super prominent idea century ago or so?
YMMV.