The Rise of the Forever Renter Class | Hacker News Reader

The Rise of the Forever Renter Class

ofdollarsanddata.com

154 pointsembeng4096260 comments

In the developed world (including but not exclusively US and EU), the problem is people flocking to big cities which grow way past their housing capabilities while small towns and villages become depopulated with mostly old people living there.

I seen this in Romania (where I live), it's the same in France, Germany, etc. Whole houses with terrain and garden in the countryside cost a fraction of an apartment in a big city and yet they become derelict because noone buys them.

The work from home "revolution" only touches a very thin layer of people, most people with jobs still need to show up physically every day. And it's only in big cities that jobs get concentrated.

I think overall it's a problem going back at least a century, the move from rural economy where 90-95% of the people were working in agriculture, to urban economy. In the rural days, people were spread relatively uniformly. In fact cities were a small fraction of the whole population so no wonder houses were aplenty.

Therefore as long as the trend of jobs concentrating in the big cities won't stop or revert, the raise in house prices is inevitable.

It's not a trend, it's just plainly more efficient to have dense population centers. For both living and for business. One of the downsides of course is limited land, but there are tons of other upsides.

So then the question is whether we should just remove barriers that stop urban spread

> So then the question is whether we should just remove barriers that stop urban spread

Depends what barriers

Increasing desnisty? Sure, remove them

Increasing area? Nope

Why not both? If you constrain area, you only have one dimension to expand in to maintain density: height.

Not that I have anything against high rises, but they aren’t suitable for every person or geography.

Because when you don't maintain a given density then you lose all the benefits of a city and just have suburban sprawl

If we just removed the arbitrary legal barriers which stop urban areas from densifying according to demand, they might never need to spread any further, given the global fertility slowdown.

We need to remove the incentives to erecting those barriers by taxing land.

Otherwise property owners will rally together to declare even an ugly launderette as historic, just to inhibit supply in their area:

https://missionlocal.org/2018/06/the-strange-and-terrible-sa...

A bit of rent control wouldnt hurt either - it helps keep a lid on property values and hence keeps NIMBYism down. The average economist's salary is, of course, dependent upon them not understanding this.

> taxing land

Absolutely. One can only dream of a future where LVT covers almost all of a nation's tax needs...

> A bit of rent control wouldnt hurt either

> The average economist's salary is, of course, dependent upon them not understanding this

Huh? If there's one thing that is in almost universal agreement among economists of all political bents, it's that price controls, including rent control, result in worse outcomes for those that they are ostensibly designed to help.

They were in almost universal agreement that raising the minimum wage caused unemployment until the mid 90s too. Where the interests of capital are at stake their vision of reality is distorted.

They're one of the few types of scientists who are essentially paid to be wrong by people who benefit from the policy decisions that result as a side effect of them being wrong.

The strictest rent controls in NYC in the last 80 years were in the 1950s. The fastest rate of home building in NYC was also in the 1950s. It didn't hurt then, it won't hurt now.

> it's just plainly more efficient to have dense population centers.

Sure, if we put on blinders so we only look at economic effects.

Socially I estimate the value of me not living too close to anyone else at somewhere between $500,000 - $2,000,000 USD.

More efficient yes, clearly so.

I wonder though if it is more fragile than the alternative. Are social and economic systems more robust when they're distributed across smaller urban and rural areas?

Are megalopolis settings susceptible to long tail risks that smaller urbs don't face?

Susceptible? The whole system is a house of cards.

You don’t need anything exotic like a terrorist attack or a war, you can simply have a power outage and the whole system would collapse if it wasn’t rectified in a couple hours. I like cities but I’m not willingly putting myself into a mouse trap.

> It's not a trend, it's just plainly more efficient to have dense population centers.

This is the perfect example of min/maxing society while completely missing the point. We’re not insects, we’re humans. Most people are happier when they have space, space for a family, space for pets, somewhere to grow a garden, a sense of ownership.

Sometimes, efficiency be damned, maybe we should prioritize happiness and well being over trying to stuff the most amount of humans in the smallest space.

On the other hand, most people are happier when they don't have to spend hours every day in a car for basic things like going to work, picking up the kids from school, or buying groceries. Most people are also happier when they live close to their friends and family, when there are resources like libraries and universities nearby, or when they can choose between multiple restaurants in town.

There are plenty of people who are actually happier in cities, believe it or not. We're social animals, after all.

People also need transportation, healthcare, entertainment, shopping and restaurants, their children need schools, universities etc. Automated delivery may solve some of these problems in 5-15 years, but not all.

Also during industrial revolution there were lot more population centres. Lot of large factories were not near existing cities, but instead communities got build around them. Thus population started to concentrate, but was still more spread out. Now due to globalisation those factories are gone and thus the smaller towns around them have no more single big employer with all the downstream activity.

Issue is not so much moving from rural to urban, but hyper-urbanisation. Where we have not taken early enough action to build enough housing.

Local multinational has its UK headquarters in a nearby town here in England. It's considering moving its HQ to a city 40 miles away, despite the extra cost, because it can't get trained staff.

Doesn't help that the town is in a train desert.

Rural England (which is not exactly Rural by US or even France standards) suffers from a self-perpetuating brain drain. Unless you're on a commuter line into a city.

I was once offered a job by Dyson, at their Malmesbury HQ, but I wasn't going to move to a town with a single major employer (and very limited job prospects for my then-partner were she to accompany me) so I turned them down.

Turned out to be the right decision, because shortly after they moved their HQ to Singapore.

A major factor causing increased demand for housing that's rarely discussed is the dramatic drop in the number of people per household.

Consider a hypothetical city with a population of 100,000:

1960: average household size: 3.63 persons

1960 housing units needed at 3.63 persons/household: 27,548 units

2020: average household size: 2.28 persons

2020 housing units needed at 2.28 persons/household: 43,860 units

So even with zero population growth, the city would need 59% more housing units.

That increase in demand drives up the price per housing unit.

At the same time, the decrease in the number of people per unit reduces each household's earning power, and makes it much more difficult for that household to afford the cost of housing.

No wonder few can afford to buy their own place.

That is interesting. Is this discussed anywhere, more formally? I guess the simple reason is that people had more children previously. But then, what about the second order effect that households with fewer children also need less space and would be happy to have an apartment rather than a four bedroom house?

Less children? We have more singles than ever.

I have seen some discussion about this. It's usually in the context of a divorce, converting one household into two households.

To answer your question about households with smaller numbers of people, it all depends on what you do outside of work and what's important to your life. For me, having a home office, home computer lab, gardening, astronomy, hiking, casual birdwatching, and turning pieces of wood and metal into sawdust and metal chips are all important and completely incompatible with apartment living. For my partner, having an art studio is incredibly important. Again, it is incompatible with apartment living.

Traffic and city noise are not good for me (they raise my blood pressure), which is kind of why I am okay with losing my hearing. I can't hear it as much as my partner can, and I'm not sure I want to get hearing aids. I would've moved farther away from the city, but my partner works deep in Cambridge, Mass., and we went as far as she could stand the commute.

> For me, having a home office, home computer lab, gardening, astronomy, hiking, casual birdwatching, and turning pieces of wood and metal into sawdust and metal chips are all important and completely incompatible with apartment living.

Why is hiking incompatible with apartment living?

Probably has a stick collection.

Good question. Of all my interests, hiking is the most compatible with apartment living. :-) When I was living in an apartment, the usual problem was finding a place to store equipment. I eventually gave up and found a way to semi-permanently stage my kit in my car. This made it easier to have a grumpy moment and flee to a trailhead.

It's primarily just higher expectations. People are richer than ever and expect more space.

It's a network effect. The jobs, dating scenes, and opportunities for career advancement are in big cities. This has always been true to some extent but the trend seems to have accelerated in the 21st century.

There is plenty of land and housing in most places outside these cities.

There are two solutions. The individual solution is to go to these cities, get what you want, then leave and settle somewhere more reasonably priced. In some cases you might be able to skip this step if you're in a field that allows telework. I would personally recommend: once you career is established enough that you can get a good job in lots of places, don't stay in these cities unless you can comfortably afford housing. Comfortably means ideally 30% of your income goes to housing. If you stretch and spend absurd percentages of your income on housing you'll be house-poor and will never be able to accumulate wealth. It's even worse if you are renting or on a variable rate mortgage.

The collective/societal solution is that we need to massively increase the density of these cities and improve their infrastructure, but that will in many places require going to war against the NIMBY obstructionists.

> The collective/societal solution is that we need to massively increase the density of these cities and improve their infrastructure, but that will in many places require going to war against the NIMBY obstructionists.

The Tokyo solution which we should all follow. It's the only way out of this mess

I am a steadfast exurban/ruralist at heart, but I agree that we need to increase city density and not expand the land footprint with urban sprawl. I prefer the Helsinki social housing solution. I think it is more intellectually honest to make it clear that the state takes the financial loss to bring housing costs down instead of completely forcing it onto the builder or the property owner.

I know this is an unpopular opinion, but cities don't change because it is too costly to rip and replace in terms of dollars, disruption to parts of the city, transportation, etc. However, I do think that rip-and-replace is an important strategy for improving housing density in the city and correcting past mistakes.

I do worry about the impact of higher-density living. I think people will lose touch with the natural world. Being outdoors in wilder spaces will become a tourist experience rather than an appreciation and understanding of the wilder parts of the world.

Only considering the cost of housing ignores how expensive transportation can be. See https://htaindex.cnt.org/compare-affordability/ for a comparison of affordability between housing costs below 30% of median regional income and housing and transportation costs below 45% of median regional income. When I moved to New York and got rid of my car it ended up being significantly cheaper than the Bay Area overall despite the higher rent.

It's not just for work. I fully work from home and could live in a bigger place in the country. I just want to live where there's culture - access to restaurants, nightlife, etc etc.

That's a very important point. I'm glad you know that living inside or closer to a city gives you access to what's important to your life. I don't know how old you are; I'm not sure that it matters, but I found that as I aged, culture in the form of restaurants, nightlife, etc., became much less important, and I enjoyed being around fewer people.

Yes, I also fully agree here - this is absolutely a personal value judgement and not a universal truth. It's the right tradeoff for me, it might not be for you.

I'm in my early 30s fwiw.

> The work from home "revolution" only touches a very thin layer of people, most people with jobs still need to show up physically every day.

I also think that it's a mistake to think that only jobs drives urbanization. Don't get me wrong, it's a huge factor, probably the biggest, but it's not the only reason.

Most of my peers now work full time remote, but they nearly all still live major metros. Some have moved from one metro to another. Only very few have left for more suburban or rural settings, and in those cases the motivation has almost always been reducing cost of living.

A lot of people live in cities simply because they want to.

A lot of people live in cities because they have no frame of reference of anything else, and (at least in the US) an active fear of being more than 5 minutes away from Starbucks. I am being somewhat facetious on their preference for bad coffee, but the amount of times I've been told that my living arrangements (dead end rural country road with very few neighbors) is to them scary. They can't deal with the lack of city noise, etc. Reminds me of the t-mobile ad with the couple camping in the woods then using their phones to pipe in the sound of Times Square to get to sleep. Sad really.

Personally, I'm in the opposite camp of urbanite types. I grew up rurally and have no desire to go back to hour-long trips to get groceries, no commercial services existing after 8PM and no social events to attend without taking half a day between reaching them and coming home.

Not to mention the degraded infrastructure (be it power, internet, roads or otherwise).

Sub/urban life, although noisy and less peaceful, is just far more convenient for an active adult. I'd be happy to go back to the country when and if I ever get to retire.

I think a better solution is exurbs where we have suburban clusters of low to medium density housing but centered around hubs in the middle of nowhere instead of radiating out of a major metro area.

This is much cheaper but still gives “culture” and community opportunity’s over pure rural life.

Telework makes this much more possible.

I live in such a setup in Norway. Much smaller scales all up than anything in the us, but my little city has about 60k people in the metropolitan area.

Gives great options for food, culture and whatnot, but I am only one hour by train from the million plus capitol (Oslo). I telework and go in for meetings as needed. One and a half hour to drive to measure it in american terms hehe.

Kids love it too. Roam freely around the neighbourhood, buy area is dense enough that they have all the options for after school clubs and sports and we even have an eSport club now :)

One hour by train from the major city is probably the missing link in the United States.

One hour by train from a given major city in the US is "just" a bunch of major suburbs, or by European standards, another major city.

Absolutely!

I currently drive longer than that to get to work in Atlanta.

I would happily live further away in a less densely populated area if there were reasonable commute options.

Gosh I wish we did suburban planning in that way, instead of acres and acres of housing developments served by a single gas station and perhaps a grocery store with a starbucks attached.

I always wonder if fewer new small towns and cities are being created as well. It doesn't get talked about much because it's harder to discuss something that doesn't exist.

People start new businesses all the time. What does is take for people to start new cities?

It's also the same in developing or underdeveloped countries (I live in one). Almost everyone now wants to live in a city, so rents have become sky-high and more so in trendy cities. Even historically affordable suburbs near the cities have become expensive. You can rent a small two-bedroom flat in a city for the same price as a 5-bedroom mansion in a rural area.

Cheap, fast computing can repopulate towns near cities. 45 min as max commute time, with a train going 300kmh an hour gives you revitalized neighborhoods along the whole rail.

The network effects of successful cities are hard to overcome. I wrote about this in a recent blog post:

'Remote Work Cities': A Proposal To Fight Rising Housing Costs

https://davidgorski.substack.com/p/remote-work-cities-a-prop...

>> But rising home prices are just one factor impacting affordability. High interest rates are another.

I believe that statement is in error. Higher interest rates should lower home prices, just like lowering them from 1980 through 2000 contributed to rising prices. There are economists scratching their head right now wondering why the recent rate hikes have not resulted in lower prices in some areas.

IMHO There is definitely something else going on in the real estate market. I'm sure those benefitting most are laughing maniacally as people scurry around trying to figure it out.

It's really not hard to understand... Extreme undersupply due to regulation/bureaucracy and extreme overdemand due to lack of opportunities elsewhere.

I live in the capital city of my country, just checked the situation in my hometown - average jobs pay 1/2 and the job I do would pay 1/5 - while the rental and property prices are just 10-20% lower; schools are terrible, no night life, no interesting restaurants, literally zero startups of any kind, people are (voting for) racists and conservatives... What the hell would I do there? I like my nice cheap (compared to my buying power) apartment in the middle of a nice progressive cosmopolitan city.

I agree with nearly everything you say. I'm of the opinion that regulation/bureaucracy are being scapegoated to an extent. Supply of knowledgeable builders and development finance is not very elastic and does not increase easily even when there is less regulation.

The real reason I feel is the higher risk = higher reward equation is broken. Building fewer units means increasing scarcity, allowing increased prices despite there being lower (due to building less houses). Developers are chasing good profit margins rather than revenue. Less regulation just means even better profit margins for these developers.

Where I live there would be 100 people waiting to buy an apartment you just built, giving you absurd amounts of money for it. There is no reason to build less than the absolute maximum possible. There are many developers and builders who want to do it, could do it and eventually will do it - but getting an approval takes 11 years.

The timeline is a killer, because 11 years (and more) from beginning to end means you could end up with your new building opening just as the area goes into a slump.

When the turnaround time is shorter, the builder is taking much less risk, and so they're more willing to build. (They can still overextend as happened during the last housing bubble, mind you.)

I just spent 10 days in the town I grew up in north of Boston to take care of a family member. Was completely surprised that people are putting homes on the market in my old neighborhood for nearly $1 million. Rents are not even that far off from what you could get in Bushwick, Brooklyn and you would need to own a car. The restaurants were more expensive than my regular spots in Brooklyn, and just way way worse quality. It's not a bad place to live, but it's ridiculous that everything is this expensive everywhere.

My parents always tell me I waste so much money by going to restaurants all the time and that taxis are absurd luxury - yeah but my taxi costs 3x less than in the hometown, my restaurant meal is 1/2 cheaper and much better than anything I could make myself (or buy anywhere in the hometown) - and in this city I can actually spend the time working and making a lot of additional income instead of killing time in a shopping mall and cleaning.

AFAIK the higher interest rates led to less inventory on the market because people who sell and night buy elsewhere would also be getting higher interest rates. So they don't sell. I also bhave friends who actually bought a new home, but are renting out the previous one because the mortgage is so good. That said, I've not seen actual numbers on this.

Demand also can't really go down. What option do people have? Become homeless or move a 4-hourb flight away from work?

Just a couple days ago I was walking behind a couple here in NYC, probably in their mid-50s, talking about how they really couldn't justify moving because they'd have to ditch their 2%-ish interest rate for a much higher one. I definitely have friends in the same situation.

Must have been nice to get all that nearly free money when they were passing it out!

This is also really bad for the economy because it reduces mobility. It drastically raises the barrier for relocating for a better job. It makes our job-to-worker mappings much worse.

There was a sweet spot about 10 years ago when mortgage rates hit bottom but people were still afraid to buy and house prices were affordable. Mortgage rates today are still extremely low by historical standards, but unfortunately at the same time that mortgage rates have been rising, so have house prices (somewhat oddly), so affordability is horrible.

I think the comment you overheard is pretty typical - people are stuck in houses since if they sold and moved elsewhere their monthly payment would be double or more. People retiring and wanting to move from good job locations to cheaper retirement ones are not able to do so.

When you're in a situation where you incur heavy charges for "selling your house and buying it back" (or selling it and buying the identical one next door) beyond the 5-10% you lose in transaction costs, you're basically going to stay put.

There are ways to avoid some of the downsides, but they involve additional risks many are not willing to take. The most common is to rent out the house you're living in (the "good location" one) and use the proceeds from the rental to both pay the mortgage and help with a new purchase elsewhere. Then you're effectively running arbitrage on your low rate loan.

I'm in that situation. We bought a starter home not knowing we'd get priced out of ever upgrading. If I knew then what I know now we would have bought the biggest house we could possible have gotten a mortgage on. But like you said the economy was shaky and we were afraid to overextend.

To upgrade would mean paying more than double what we pay now per month and starting a new 30 year mortgage in my 40's, which I'm just not going to do.

Such a short-sighted comment. In 1995, when these mid-50s people were considering making their first home purchase, mortgage rates were around 7.93%, higher than today.

https://www.bankrate.com/mortgages/historical-mortgage-rates...

I'm not understanding, can you elaborate on your thought here? What makes you think these people were considering buying a home in 1995? They clearly were talking about their 2% interest rate loan they got during the pandemic. Just because they're in their mid-50s doesn't mean they were trying to buy a home in the 90s.

Also, in the 90s in Brooklyn you could get a condo for quite a lot cheaper -- the building I live in in Williamsburg was built a couple years before 1995 and the condos sold for $40k then (about $80k with inflation). Today they go for about $1.2 million. A 7.93% loan on $40k is quite a lot more affordable than on $1.2 million.

What makes you think they weren't trying to buy a home when they were younger? You clearly want to own, why do you think they didn't?

Williamsburg (and most of Brooklyn besides Park Slope and Brooklyn Heights) was cheap because it was pretty much a hellhole in the early 90s. Starbucks? Lol. Quality restaurants or cool nightlife? Train to Manhattan. Professional jobs? None. Murder & crime rates at their peaks. Williamsburg costs a lot because current residents benefit greatly from 30+ years of gentrification, community building and services.

Exactly, we can't speculate on what they did in their 20s. All we can do is go from what they said, which was basically "We can't justify moving because we'd have to get a mortgage at a much higher rate". I don't think that's uncommon. I have plenty of friends that bought with 2% interest rates, and they wouldn't be able to afford the places they got with 7% rates. It's also not uncommon for people to be in their 40s and 50s without owning a place in NYC, I have plenty of friends also in that boat.

And yeah I've been in BK for almost 20 years now, I remember hanging out in Williamsburg in 2000 when I was in college, it wasn't that bad. I actually prefer the old version of it to what it is now. Sure, it wasn't the Los Sures of the 80s by the time I got here, but it was a lot more fun. I only had my life threatened once and we deescalated quickly!

Wait, so you're in your 40s? What was the point of mentioning that the people you overheard were in their 50s?

You've spent your entire adult life, 20 years, living in one of the most "cool, hip, upscale" neighborhoods in the world, obviously that location and lifestyle comes with a high price tag. If somebody repeatedly bought brand-new Ferraris for 20 years, you'd shake your head if they started complaining about money.

Adjusted for inflation, housing was significantly cheaper in 1990 than it is today.

Not the point. OP was jealous of the "nearly free money," i.e the low interest rate, not the amount borrowed.

I'm actually not jealous, I'm happy for my friends that were able to buy. I just think it was a silly, shortsighted policy move. The 2% rate that people are locked into is only part of the problem of course. There's just not much inventory in NYC or in many other cities.

Sure, but in 1995 you could also get a nice house for like 40k. An equivalent home today costs about 400k.

8% interest on 40k is only $63k interest paid (A 1995 home had a total cost of $123k)

8% interest on 400k is $633k (that same home in 2024 has a total cost of $1.2 million dollars)

You wouldn't expect to get a nice house for $40,000 in 1995 in the United States. The median sale price for a house was $133,000 in Q1 1995:

https://fred.stlouisfed.org/series/MSPUS

> in 1995 you could also get a nice house for like 40k

Ummm, where?

And the parent comment was about the low interest rate ("nearly free money") not the amount.

What I do know is that many professional-class students can start their careers, i.e. first-year salary, at $100k and often significantly more. In 1995 nobody earned even $50k straight out of school. Economy-wide inflation numbers are weighed down by low-paying jobs, therefore greatly under-estimate how much professional (i.e. most likely to be home buyers) salaries and early earning potential has grown over the past 30 years.

The subprime crisis is why there is a lack of supply. Home construction cratered for years after the 2007-8 shock. When recovery took hold, we had a enormous deficit in available supply and are nowhere near closing it.

Figure 3 tells the tale: https://cre.moodysanalytics.com/insights/cre-news/one-good-y...

Pretty sure house prices have fallen a bit in most places if you take inflation into account. One reason they haven't come down more is probably that most people think the current interest rate is just a temporary anomaly caused by recent disruptions to global supply chains (Covid+war in Ukraine). Fundamentally little has changed and I guess people are betting once this blows over house prices will continue up like they've done the last three decades.

They have. I have occasionally looked at this site to see what is happening in areas of the UK I am interested in and there are far more real terms drops:

https://houseprices.io/

its lagging data BTW. Based on government data that takes time to be reported.

There are multiple possible explanations, that differ in different places (bearing in mind this affects most developed economies).

1. cash buyers 2. people holding off selling in hope of a recover in prices 3. inflation turning real terms declines into currency terms rises 4. demographic changes (smaller household sizes) increasing demand for the number of units 5. population movements both within and between countries 6. laws and regulations that slow down building.

This is my very American-centric view on the housing prices continuing to rise despite high interest rates:

Large investment companies are beginning to leave the Commercial Real Estate sector due to the consequences of the pandemic. While commercial RE was seen as a stable investment strategy, that is no longer the case. The residential market is the new (somewhat) stable investment. Not everyone needs an office, but everyone needs somewhere to live.

These investment companies are now beginning to purchase newly-built communities of hundreds of single-family homes and turning them into rental-only communities. Removing homes from the sale market and locking them behind rentals.

Rental prices are much more stable during a recession or contraction in a market. When the market is great and homes are "affordable", it's still a competition of wealthier, older generations that can outbid those in their 20s or early 30s, locking the younger generation into rentals. And when the market is bad and everyone is getting foreclosed, rentals become more in demand, increasing those rental prices.

My city has built over 1,000 new homes in various communities in the past 2-3 years but they were all purchased by investment firms before construction was completed and they are now rental-only neighborhoods.

The recent prices aren't being lowered due to the rate hikes because of these investment firms. To sellers, demand is still high (they don't care whether the buyer is a person or a company), so why lower prices?

EDIT: This is specifically noticeable in suburban metro areas due to the higher average income of residents and the high demand for housing.

> These investment companies are now beginning to purchase newly-built communities of hundreds of single-family homes and turning them into rental-only communities. Removing homes from the sale market and locking them behind rentals.

I always see takes about how the only solution out of a housing crisis is "building more housing" and not any sort of control or regulation over the accumulation of housing stock. But yeah, when even new construction is immediately snapped up... I mean, is there anything to do but regulate the buying side?

The problem is the government. Have you not realized that all of the absurdly priced industries also happen to have the most government intervention? The government needs to sit back and just do the basics like preventing collusion and monopolies (which they absolutely fail at) and get rid of regulations that prevent more housing being built.

And then when private equity comes in and buys an entire new development to turn all the units into rentals, what do we do then? Nothing?

Private equity will only benefit if the supply of housing is artificially restricted or they are able to capture a substantial portion of the market. Both these problems can be solved by adjusting the local regulatory levers to make construction easy and collusion/anticompetitive behavior hard.

"Buying an entire development" is arguably anticompetitive behavior and can be prevented by the government.

Unfortunately, many communities and cities restrict home building to ensure that rents and values are artificially inflated.

My city's housing development department is run by the Chairman's (our version of a Mayor) nephew, the husband of a previous member, an owner of the largest property management company in the county, and an owner of a landscaping business. I attempted to join the housing development department but the positions are specifically appointed by the "Mayor". Our "Mayor" is also not elected via public voting, since they are a Chairman they have to be removed by the Board, and the Chairman has held this role since 1975.

Ultimately, until this Chairman passes or is (somehow) removed from their role, there is nothing that anyone in our city can do to rectify this. And I believe this is a common problem across many cities outside of Metro areas (where the housing supply issue is more apparent).

Sounds like a terrible local government. Have you considered moving away? Local governments compete with each other to attract taxpayers, and if enough people leave they'll be forced to change their political structure.

This town has the best school districts in my state, close proximity to interstates since I work in the core of our metro area, and (somewhat) affordable housing prices as it's not the "wealthy" community. Plus I've locked my rent in at pre-pandemic levels and moving away would cause my rent expenses to almost double due to the surging rent prices everywhere else.

It's a terrible local government, but right now I'm not in a position to move anywhere else without ending up driving 3hrs a day to go to work and paying way more than I can afford.

The policies preventing housing being built are immensely popular with the voters who already live there, so it's very much the government representing (some of) the people.

I love it when people blame the government for shit private equity is doing.

The government made housing an absurdly lucrative investment. So yes, I blame the government for making people want to buy houses as investments.

Let me make sure I'm getting this right, your position is that the government somehow forced or guided private institutions to throw every sane guideline for underwriting mortgages out the window and then lever their positions up to lets-tank-the-global-economy levels of exposure? If anything the government is guilty of grotesque inaction in this instance but I don't get the feeling that's what you meant.

Municipalities can require new builds to be own-only or place requirements on rentals. I live in a new development with such a stipulation. The land has a couple different developments, there's townhouses, a set of smaller lot houses, medium lot houses, and then some commercial zoning.

The medium and small lot houses have a no rental stipulation. I forget the exact terms but the houses have to go to individual owners and there's some residency requirements before you can offer it as a rental.

Ironically, "building more housing" still solves this problem.

The corporations are buying and renting because it makes business sense. If we just keep building houses, the market values for rents and home prices will reach an inflection point. Investment companies aren't going to keep buying houses if they have a high vacancy on existing stock, they're going to start selling houses or lowering rent.

The fundamental problem is "too little supply". Regulating the demand side is at best a bandaid. The solution is to change regulations to allow faster, cheaper, easier building until the equilibrium market price of housing is something reasonable.

As long as cheaper lines of credit (or straight-up massive amounts of cash on hand) remain more available to RE corporations than regular people looking for their first home then no, building more housing will never solve the problem.

There are structural problems with the demand side that also need addressing.

> building more housing will never solve the problem.

It only seems that way because in many popular metros around the country, demand has far outstripped supply for decades.

The problem is "solved" in areas that aren't as popular, with zero regulation on who's allowed to purchase homes; ordinary people can buy ordinary homes on ordinary incomes. But aspirational young people don't tend to move to such areas.

> demand has far outstripped supply for decades

Why has this been the case in every area in our country? Because we have a policy at the national level that encourages speculation and hoarding. The problem is not just supply, we have a national aversion to shaping demand.

> The problem is "solved" in areas that aren't as popular,

The problem is absolutely not solved, in any place in our country[1]. You used to be able to maintain a minimum standard of living on a single wage earner's salary. That is not the case, literally anywhere in this nation any more.

1. https://www.vox.com/2015/5/28/8679889/minimum-wage-housing-m...

>> Ironically, "building more housing" still solves this problem.

Raising interest rates may help too. How many of those purchases are financed? I'm guessing a lot. The commercial side got screwed when they needed to refinance underperforming properties at higher interest rates.

Builders rely heavily on financing, so high interest rates hurts the supply side too.

Investment firms have finite purchasing capability, and would certainly stop buying if they expect home prices to drop. In addition, if the houses are expensive to hold, they’ll either be rented out or sold.

Speculation is a symptom of price issues, not a cause.

The 2008 crisis would like a word...

The problem is that "investment firms have a finite purchasing capability" is only true over the long term. (like, "many decades" long) Investment firms have effectively unlimited purchasing capability in the medium term (like, for the next 5 years).

Which is why "just build more housing" isn't really working, because you can't just overbuild human demand (we already do that in lots of cities, especially in the midwest), you'd also have to also outbuild the entire public and private investment appetite for housing, which is effectively unlimited at the moment.

I don't have well-defined reasoning for this, so maybe somebody else can expand on it: But it feels fundamentally wrong that detached, single-family (zoning restricted) homes are allowed to be purchased by investment firms & exclusively used as rentals.

> But it feels fundamentally wrong that detached, single-family (zoning restricted) homes are allowed to be purchased by investment firms & exclusively used as rentals.

I know what you're saying, and I agree, but playing devil's advocate here, you could imagine a society where there are no owner occupied dwellings at all, everyone rents. In theory, it would actually be a great equaliser because anyone could invest in the property owning corporations for a return of that income, and you wouldn't have some people becoming stupidly rich for no reason other than sitting in a house that happens to increase massively in price.

(I am of course speaking of an imaginary world where tenants rights were at the top and they couldn't just be removed from a home at the whim of the landlord).

> an imaginary world where tenants rights were at the top and they couldn't just be removed from a home at the whim of the landlord

On the contrary, strong tenants' rights are correlated with higher rents and worse availability of rentals; or it is at least in the real world, where neither tenants nor landlords are angels.

It's funny how that feels wrong for undefined reasons, but it doesn't feel wrong when that happens to apartment buildings, isn't it? We associate houses with property ownership and apartments with renting, even though owning an apartment or renting a house aren't in any way inherently less reasonable.

    > There are economists scratching their head right now wondering why the recent rate hikes have not resulted in lower prices in some areas

House prices were not stagnant before, they were rising YoY and higher interest rates might just slower the rise but not revert it due to the existing pressures which probably have a much larger impact than the interest rate at the moment.

In the USA there is a lack of inventory due to those people who locked in 30 year fixed rates in the 2-3% range. Those folk might want to move but they're not moving when rates are currently 7%+. The supply won't improve until rates come under 5%.

Presumably, this will eventually even out as people have to move for one reason or another and 7% mortgages become more normal (and historically, they aren't unusual).

But, yeah, right now, the number of people I know who have paused plans to move? A lot. Both within the area and others who were contemplating relocation.

We were considering a move to a smaller city, but prices there have gone up just as fast as our current area (DC metro). Along with the interest increases, it's not viable any more (would require wife to find new employment, probably at the lower prevailing wage for that area).

It also doesn't help that there are now taxes to pay on house appreciation whenever you sell, so you can't sell and take the proceeds to buy elsewhere since the taxman will take a large chunk of it.

It used to be that if you sold one house and bought another for same price then there would be no appreciation taxes, but that stopped a few(?) years ago.

Until something changes, many people are stuck in their homes, unless they are willing to accept the huge downgrade in what they can afford if they moved.

You can still build 500k$ of equity for a married couple in the USA.

> It used to be that if you sold one house and bought another for same price then there would be no appreciation taxes, but that stopped a few(?) years ago.

The IRS's 121 Home Sale Exclusion still applies which allows you to exclude $250,000 ($500,000 if married) of capital gains on the sale of your primary residence. For an investment property, you can also do a like-kind exchange to defer taxes.

If you really need to, there is a tricky path via that to avoid some tax.

You convert the current appreciated house into a rental (this is a non-taxable event).

You rent for whatever the required timeline is, and then 1031 exchange it to a more manageable rental in the area you desire (going from overvalued house in the Bay Area to triple-net commercial elsewhere, for example).

Then you die and pass it on to heirs.

> It used to be that if you sold one house and bought another for same price then there would be no appreciation taxes, but that stopped a few(?) years ago.

If you're referring to Section 1031 exchanges in the US, that never applied to houses you actually live in, only investment properties (and it still does).

> It used to be that if you sold one house and bought another for same price then there would be no appreciation taxes, but that stopped a few(?) years ago.

In the US from 1964 to 1997 you could upgrade your home (i.e., buy one equal or more expensive) and avoid capital gains taxes and after age 55, you could downsize once and not pay capital gains taxes.

From 1997, we've had the current regime of $250K/single, $500K/couple exclusion if you lived there 2 of the previous 5 years from the sale.

The problem is government intervention on behalf of home owners. The cost of housing is the #1 highest impact thing that is affecting all non-property owning Americans and politicians are not talking about it. I don't understand how the cost of living crisis is not the #1 conversation topic in presidential debates.

The reason why is because the older home owners are the most important voters so campaigning on lowering property prices by eg building homes and getting rid of regulation is perceived as political suicide.

I perfectly understand it. The reality is that the USA has quite an large middle class. It's not just the ultra wealthy that have privileges, due to housing.

While I don't understand everyone's financial situation, in the USA a TON of people own homes. It's not just them, but some of their friends and family influenced by

In the USA, owning a home is considered a status symbol and a sign of competency. The culture is such bullshit. I've seen so many people buy a home and suddenly turn into scrooges. It creeps me out.

It's gotten to the point that I've just figured: "Buying a home and starting a family turn you into a bad person." I'm sick of watching people change and treat their homes as proof of their value in society.

I was reading something about oxytocin ("the love chemical") being tied to racism. I'm not at all surprised by this anymore. Especially when you see how much "bonding" can be tied to territorialism and selfishness. When it's "us against the world", that's a big fuck you to the whole entire world.

"Affordability" usually refers to cost of ownership, generally as a proportion to some sort of income metric, not the full value of the home.

If home prices don't fall in unison with increased rates sufficiently then of course monthly mortgage payments (or imputed rent) goes up and affordability metrics worsen.

I don't think this is making economists scratch their head so much, if so it's like how "experts don't know how the pyramids were made" -- we know many ways it could happen, we just can't prove which one. Even in the simplest model of valuation, it's not the current interest rate that determines the home prices, it's the full expected rate over the lifetime of the asset. Of course if interest rates are 5% today but expected to be 1% next year, the price will be based mostly on the 1%. The longer term bonds and hence longer term mortgage rates can capture a consensus expectation, but there can still be divergence of expectations by the marginal seller. My dental hygienist on selling her house "The government needs to cut rates back so that people can afford to buy my house" with unsaid portion as I heard it "at my arbitrary zero-interest-rate-phenomenon based expectation of value".

Hopefully economists are not scratching their heads but armchair economists may be. What is said on the news may not always be the large change some may expect and it could be false yet they got someone-anyone on a show to say it was true.

There are real estate investment trusts available to invest in that perform quite well. A recent statistic for a major city: 40% of homes are unoccupied.

We need to look into failed states that diverge from us to see what could happen or may be done to prevent it.

> A recent statistic for a major city: 40% of homes are unoccupied.

[citation needed]

Might be true in Detroit or something. Usually there's a qualifier, like 40% of non-owner-occupied housing is unoccupied, and in the area that's 1% of houses or something.

(As a baseline, rentals are assumed to be unoccupied 10-20% of the time - so the total number of dwelling units in an area would be (number of owner occupied) + (number of remaining families) + (10% of remaining families) or so).

> Might be true in Detroit or something

Not a chance. At least not for habitable housing. And by the way, the population density in metropolitan Detroit is 10th highest in the US. It's hardly the empty wasteland that people imagine.

I think the reality is that there is not yet enough sale pressure. So units are not coming to market. This will likely change when the recession actually hits.

This is most of it, right here. Home sales will be normal when interest rates are stable. If they drop, home sales will stay normal or rise, because you can "get out of your high rate loan AND upgrade" at the same time.

But now, when rates are climbing? You'll be selling your house AND your 3% mortgage to buy a ... 7% one? Since "selling your house and buying it back" would result in a larger monthly payment (swapping the loan from 3% to 7%) the first thing we should expect to see is sales slow down. After they've slowed down for awhile, the prices might begin to drop - if people need to sell.

Interest rates increase the cost of financing. This means that given the same monthly budget, you're still going to spend your whole budget. You get less house for the same amount of money. The difference is that the money goes to the bank instead of the previous owner. At some point housing prices do drop, but the reality is that demand exceeds supply. The problem isn't financing itself. Places with supply exceeding demand massively benefit from cheaper financing as it makes the cost of living smaller.

People who have cashed out equity in their home also have an interest in the price of their home going up.

That's only part of the issue though. The other issue is that inflation is going up from everything going on in Europe (Ukraine/Russia) and Middle East (Israel/Suez Canal pirates/blocks) and then after the great financial recession many of the blue collar workers who were part of the home building industry changed careers, cities/states have increased housing zoning laws and requirements, and inflation on materials has made building a home more expensive. All these factors are pushing prices up.

One thing I have never quite understood is the desire for housing prices to constantly go up.

Even a current homeowner might want to move one day, and if house prices uniformly fell by 50% relative to current earnings, they would find themselves more able to upgrade their house. The only people it would hurt would be people moving from owned accommodation to rented accommodation or cheaper owned accommodation.

What am I misunderstanding here?

EDIT: It seems I was forgetting a key fact: mortgages. When people hold a mortgage and their property value goes down, they can be left holding the bag.

Most homeowners have a mortgage, and that doesn’t go down when the house price goes down. This can result in negative equity and it traps people in their current property until they can pay off the original debt.

the number of mortgage-free residential homes in the USA is at record levels, increasing steadily in the last 20 years. Contrast this to the demographic bulge of middle class born shortly after WW II, and the financial advantages of long-term home ownership with low monthly costs.

The wealth effect of "number go up" is really powerful.

It would hurt people who own property because it would make them relatively less wealthy compared to people who don't own property.

if the emotional reality of humans are "hurt" by others doing "less worse" then they are .. then this signals a powerful downward spiral of the social contract.. It could be said that similar feelings continued long ancient traditions of privileged priesthood, Monarchy and even the institution of slavery

It's not that dramatic. Consider if everyone got a check for $1 million. Except you. Would you like that? Probably not. But not because you're an unkind jealous person. You would not like it because if everyone else suddenly has significantly more money, the money you had before is suddenly worth less in terms of what you can afford to buy for it.

Same goes for other assets like houses. If houses are suddenly worth more your savings are worth less.

Then they would not be able to leave because they wouldn't be allowed to sell. If they foreclosed, they would be losing not only the money they paid in but also their down payment and on top of that, they would have a dark mark on their credit preventing them from buying again.

The best case is increasing at inflation for a long period of time, encouraging living in your house but discouraging it as a form of wealth accumulation. As long as wage growth matches inflation, you're golden. Now, I think that to correct, you'd need to have a decade or two where price growth is below inflation or flat, but the equilibrium is ideal.

Homeowners are typically going to be leveraged with a mortgage on their homes. This amplifies prices going up or down.

IE: I buy a house for 100 by using 20 of my own money and 80 of the bank's with a mortgage. If the house prices goes up to 120 and I sell, I now have 40 (doubled what I initially put in) after paying off the mortgage. If the price goes down to 50, I now owe the bank 30 (wiped out my initial 20 first then another 10 I'd have to come up with) if I want to sell.

At the classical 20% down 80% mortgage ratio you're in that 5x leveraged bucket for a long time (longer than you think due to amortization).

Others have mentioned a few of the (huge) problems of falling prices on mortgaged houses.

But on the "upside" - for most people, the idea that they are quickly getting richer and richer, because they have a house - that has a massive emotional appeal.

Aside from investors, the people who benefit from high housing prices are property owners who are downgrading, specifically moving to a smaller home or cheaper area, which is what older folks whose kids have moved out do.

As an oversimplified example, let's say in one world you're a senior who moves from your family home worth $200,000 to a condo worth $100,000; that's $100k in profit. If housing prices are uniformly 4x that, you're moving from a home worth $800k to $400k; your profit is also 4x. So it's in your best interest for housing prices to be uniformly high.

You're right that for those looking to upgrade it's not beneficial, but as with everything, the 50+ age bracket are the voters and politicians, so the policies that benefit them are what get put into place.

Doesn't higher housing processes allows owners to leverage this asset to refinance the house, thus allowing them to purchase a second property whilst they can rent/AirBnb their existing one? Once they have two properties, they can rinse and repeat at infinitum.

There is a tax exemption on your first 250k of capital gains when you sell your house. The interest on your mortgage is tax deductible. If home prices increase 10% each year, then you can maximize earnings by moving to a more expensove house every few years.

In this way, your home is like a leveraged tax sheltered investment, and the limits are much higher than an IRA.

So if you buy a house for 200k, keep it for 30 years and sell for 700k, you have to pay tax

But buy a house for 200k, sell after 15 years for 450k, buy a new one for 450k, then sell that after 15 years for 700k, you pay no tax?

In the U.S., yeah that’s how it works.

In the US most people file taxes with the standard deduction since 2017. I’ve been homeowner with a mortgage since 2005 but haven’t gotten a mortgage deduction in like 6 years.

https://www.cnet.com/personal-finance/taxes/should-you-itemi...

Ahh, so it seems that mortgage interest payments come off before tax?!

One aspect I've observed is that people have bought into the financialized paradigm so hard that they narrate their personal home as some kind of "investment", instead of the reality that the building is a depreciating capital good that they're depleting. Rather than taking responsibility for renovations as things they're spending money on to make them personally happy and comfortable, they justify new kitchens/baths/etc as objective "investments" that "increase the value of their home". Since the building is still actually a depreciating capital good, and since the value is an illiquid paper figure, land prices have to go up to complete the illusion. And when they don't, homeowners throw a fit because they have already committed an outsized proportion of their wealth/income to that one asset.

Ideally, housing should rise near inflation. You most certainly don't want it to go down significantly, or there will be knock-on effects in the larger economy.

To buy a house, you put money down and sign a mortgage. Over 30 years, you use that mortgage to build equity. If prices crash, new homebuyers potentially get wiped out or even end up "upside down," where they can't sell because they owe more money than their house is now worth. This was a prime contributor to the Great Recession.

Suppose the rules changed so that some authority guarantees your right to sell your house at the price you bought it, but only at that price: when you find your next home, you get back the cost of your old one, which is then auctioned off to its next owner. Individuals are protected from falling house prices and no longer treat their homes as investments. The authority takes on that risk, now distributed across many homes, some of which appreciate. How do you think this would play out?

As shittily as every other "experiment" in human history where someone thought they were smart enough to set all the rules for other people and treat them as if they were too stupid to make decisions for themselves.

I guess you could have it "opt in". But unless the guarantied resale price is adjusted for inflation the deal sounds quite bad.

It would probably inflate prices also.

Sounds great to me. After 2008 my flat in the UK was in negative equity -- dropped 40% in 6 months from when I bought in mid 2007.

I eventually sold it in 2016 for just 2% under what I paid for.

For a large number of Americans, their house is a MASSIVE portion of their total wealth. They likely plan to leverage that into retirement (sell and downsize/move out of the city) and/or leave it to their heirs.

Should housing be viewed as an investment in this way? Possibly not, but between various tax incentives and restrictions on supply, that's what we've decided we want (as a society, for better or worse).

You're missing that homeownership is an emotive issue and a psychological issue. People see being underwater on their mortgage as failing. People see selling for less that their purchase price as failing. People who don't own homes really don't understand that human nature and wellbeing drive house prices.

Losing a few hundred grand is quite a bit more concrete than a “feeling”, it is a devastating failure and may derail someone’s life. Suicide level failure, drug abuse type failure.

Just to put a finer point on it

A home is usually the single largest investment people will ever make in their life. Why wouldn't they want returns on it?

I think the problem is seeing it as an investment. Most people won't say a car is an investment but rather a cost - the investment is transportation and its value is gained external to the sell price of the car. The home itself really ought to be considered a cost, while the land and property as a whole may (but not necessarily) be an investment.

It produces a dividend of shelter for the owner. Assuming labor and material prices are fixed, the asset should be depreciating in value from wear and use which would all point to flat or lowering value.

Assuming that it must make returns, one or more of the following must be true:

* Labor price increases

* Material price increases

* Land value increases

The market is what determines how it is viewed, not the homeowner.

When auto market hit supply constraints during the pandemic, the used car market got bought up and people started investing in cars to flip. There is no escaping "viewed as an investment" in a supply constrained market.

This is true, except we've allowed homeowners to control the supply.

Imagine used car dealers lobbied to make new cars impossible to build/sell. Of course their prices would go up! Homeowners happily lobby and vote for policies that make it difficult to build new supply, to protect their own investments. We need to break that loop and allow the market to actually build supply and rein in prices.

Interesting fact about the mortgages - some states (California for example) still have anti-usury laws on the books that mean that purchase mortgages for real estate are non-recourse.

What this means is that in a big housing downturn, you just send the keys to the bank and walk away; they get the (now underwater house) but you don't owe anything additional, though your credit may take a hit for awhile.

Rising housing prices in the US is basically how a lot of people are able to retire - and if they're lucky, provide some gift to their children/grand-children to start off.

This causes people near retirement age to fiercely oppose anything that would devalue their house. It represents their life's savings.

It's pretty easy to understand. It's great for the rich and most of the middle class and "lucky enough poors" have an enormous percentage of their wealth tied to homes.

For them rising prices are often tied to the ability to get a nicer home. You have more money, and this incredibly stressful, risky investment that is less worrisome. There's tons of incentives in place.

I'm seeing a lot of average people (still probably top third tho to be fair) that view homes as an accomplishment and sign of their worth. They DESERVE to be treated better. Their investment must always go up.

there is a huge difference between owning an apartment and owning a property with your own house.

in an apartment you own the right to live and are responsible for your own maintenance. but if you do not own the building, do you really own the apartment? you are still beholden to the demands of the building owners. you still have to pay for building maintenance. any serious renovation needs permission because it could affect the building structure.

in germany and other countries tenant protection is so strong that as a tenant i have practically the same rights as if i were an owner. the only difference is the form of payment. and with building maintenance fees i would still never reach the point where i am free of monthly payments (ignoring utilities which are always the same for both).

and as an owner i carry a risk that the apartment becomes worthless because it somehow becomes unsellable.

so unless i can get my own ground to build on, why own?

my family has been renting the same apartment in the city of vienna for 150 years now. any money that we could have saved in rent we would have had to invest into renovations

And except for a few people who grabbed Allodial Title (New Mexico had it for a bit) you still pay property tax even when you own the land, and that can get moderately significantly high.

Generally when you own a condo you own the building and the land collectively with the other unit owners, and there is no other outside owner that you are beholden to. The building is managed either directly by the owners or else in larger buildings there is a democratically elected board that oversees outside management.

in that situation you would still be beholden to the owners collective, and depending on the circumstances and the people, that can be better or worse.

all housing posts have the following discussions

1. housing shouldn't be an investment

2. 'local democracy' always turns into nimby

3. something about gentrification

4. something about govt incentives/disincentives: don't give tax breaks for homeowners, tax second home ownership ect .

5. something about airbnb

6. some comparisons with europe/denmark

did i miss anything

don't forget they all have the same solutions too:

1. Get a better job and start working weekends. A house isn't worth it if you're alive to enjoy it.

2. Move to a poor area and gentrify the shit out of it. Everyone will love and appreciate you.

3. Maybe don't buy a house "yet". Keep paying your ever increasing rent, you'll get there someday.

> Get a better job and start working weekends. A house isn't worth it if you're alive to enjoy it

Literally never seen this argument be made.

> Move to a poor area and gentrify the shit out of it. Everyone will love and appreciate you.

The last thing I think of when choosing a place to live are the societal implications of it. I really don't care if everyone "loves and appreciates me" because of my apartment choice.

> Maybe don't buy a house "yet". Keep paying your ever increasing rent, you'll get there someday

>> Get a better job and start working weekends. A house isn't worth it if you're alive to enjoy it

>Literally never seen this argument be made.

From TFA:

"Earn more: If you feel like you will be forever priced out of the housing market, start finding ways to earn more. I know this won’t help in the short run, but raising your income is the best thing you can do to improve your financial situation in the long run. If you have both Saturday and Sunday off every single week, then there is no excuse to get started on something that can eventually increase your earnings."

To be fair, the single best thing you can do from a budget perspective is get better pay.

But a big portion of house price appreciation can be tied to single earner households moving to two earners, so eventually "work harder" becomes "pay more".

> The last thing I think of when choosing a place to live are the societal implications of it.

I think this is part of the issue of rising housing costs. People not considering how their decisions impact their wider world. And paradoxically, I suspect many people buy property in cities because (a) others are doing it and (b) the fear of not doing it early enough (the costs are "only going to continue to rise"). Two reasons that are societally driven.

> People not considering how their decisions impact their wider world

This is absurd. You do not hold yourself to this same standard. Even this entire gentrification argument has an implicit bias that because these people were there first they deserve to be there more than others.

If I were to come in and state tautologically "actually gentrification is good". You would not have any real response because your argument is also based on a tautology "gentrification is bad".

Other people have to move out because they can't afford it is bad? Why isn't it an equally valid argument that it's bad that other people can't live there because people are already there?

Probably that when somebody buys a home then they will do everything to protect their investment. New owners quickly change their tune from when they were socialist renters.

Witnessing the ideology shift of people from college to mid-30's made me realize that overwhelmingly people don't have unshakeable core beliefs (despite outwardly having such conviction), they just have beliefs that suit them in their current situation best.

It also finally illuminates the naivety of young people, which I had myself in spades but was totally unable to see.

Good insight

7. something about the relatively low cost of housing in tokyo

Having lived through a housing crash, and long before that a time of much cheaper houses.. I would say wait and see.

One of the reasons why people freak out about the prices of homes is there is often pressure to get one right now. I am moving, I got married, I had a(nother) kid. These are reasons I bought a house in my life and in retrospect I can tell you I did not need to buy a house.

In your life it's hard to make a decision on the time frame of house prices (or even market cycles). I am not sure how to tell someone maybe they should wait five years. But clearly sometimes that is the best thing to do.

It does not make a lot of sense for homes to sell for so much more then they can rent for. It happens all the time but it is not sustainable. It also happens that their are housing shortages but they don't last forever. People build.

> I would say wait and see

How long to wait? Asking in Canadian.

Three years? No one can time the market perfectly.

The time frame for house prices is much longer than the time frame of opinion piece writers. So you will see pieces in 2006 saying prices will never go down. If you waited 3-4 years they were half off. It happens.

Best thing is not to have a fixed plan but to be opportunistic.

Prices never went down in Canada for any substantial amount. Even 10% means we replay back to 1-2 years. Government of Canada actively intervene and change the immigration rate and the discount rate to keep prices from falling.

Instead of waiting, build a calculator in Excel or similar that shows various options, and update the numbers now and then. You'll start to get a "feel" for your options (which include renting, owning, building, moving, etc) and you will be more comfortable acting when the time is right.

You can't perfectly time the market but you can at least notice it.

In Canada big metro cities (Toronto, Vancouver, Montreal), the spreadsheet will most likely tell you that you should have bought on sight instead of making a spreadsheet.

> It does not make a lot of sense for homes to sell for so much more then they can rent for.

Isn't rent also remarkably high in any areas where there's decent levels of employment?

You can either rent a house, or rent the money to buy one. Usually the price of renting a house is the price of renting the money plus a margin for maintenance and profit.

But since homeownership is pretty much the only situation in which normal people can make a huge leveraged investment - you can't borrow $100k to invest in stocks, they won't let you - it's a very advantageous form of investment.

The only way I can see this changing is the forever renters starting to acquire enough political power to overrule anti-building NIMBYs. Birth rates aren't falling fast enough to reduce demand to meet supply.

Rent is high in places with good employment, but the penalty you pay for buying (price to rent ratio) is higher their.

https://smartasset.com/data-studies/price-to-rent-ratio-in-t...

In other words, rent is high in San Jose but renting is cheaper than buying in places like that.

In other words, rental yields are low in those places. Probably because the prices are expected to increase, so the owners benefit from capital gains rather than rent. Definitely should be a temporary phenomenon though. Prices are falling in a lot of high-priced urban locations, eg. London.

Is building more really the solution? (sure it's one solution)

I think the main issue is the one you formulated so succinctly, the question why people are able to access such huge amounts of credit so cheaply. Why are interest rates for house buyers so low?

Interest rates everywhere have been low for a long time; the US whacked them up to 5.5% to combat inflation, but that's expected to decline.

In general the rates for house buying are so good because the loan is secured on the house, whose value is very stable.

The loan is secured by the house, but it is against your income (try to get anything but a reverse mortgage on a owned outright home when you have no income).

What is strange about the US is that the government takes on the interest rate risk for 30 year fixed uncallable loans since the Great Depression. This is an intentional subsidy of housing (prices or availability, whichever you want to allocate it to) because US policy for decades has been that home ownership by citizens is a good to be worked toward.

In counties where this doesn't exist, you should expect to see the housing market warm back up (and prices drop) when the ARMs start resetting, and that's really all they have.

Interest Rate Risk basically comes about from the pricing changes when rates change, a $100k bond paying at 2% becomes worth less than $100k when rates rise, because people won't buy it when new bonds are paying 5%, so you have to make the effective yield become 5%. Holding to maturity can partially but not completely offset it.

https://www.fdic.gov/regulations/resources/director/technica... has some examples of how it can affect banks, especially with "mark to market" laws.

The house prices are not stable, they're increasing.

I was 19 in 2008, and I don't know if something like that will ever happen again now that the government has shown their willingness to dumping money to prop up any weakening asset.

Look at the pandemic, everything kept going up.

In 2008 the government opened the floodgates because it was desperately needed, and even then there was a long languishing period afterwards.

In 2020 the government opened the floodgates again, but it far beyond overkill for the actual damage done. Most people kept on working and still got tons of economic stimulus (largely in the form of low interest loans and debt moratoriums, not really the checks).

While agreeing with where you're coming from, one of the big things that makes it hard for me to see relief coming is that construction prices remain quite high. Of course they could be high because the industry is busy building many new construction spec homes. But from what I've seen it feels like there's just too many accumulated layers of administrative workers/overhead, instead of increased wages that would encourage more people to do this work.

We had a community of 10 million extremely talented and hardworking people illegally building houses for $4 an hour. It's beyond me to comprehend the moral valence of our decision, starting in 2016, to remove this group from the labor force- it was definitely unethical to deport them, it was definitely unethical to exploit them. Practically speaking though, I don't know why anyone's shocked that afterwards the price to build a home skyrocketed.

From my experience, illegals weren't making $4/hr building houses, at least not in the areas I knew. You'd pull down $15 minimum and often in cash, in California in the boom times that are now 20 years ago.

That's still only one third to one half of a fully loaded system legible worker though. And when illegible labor goes away, it's not like there's a supply of legible workers that have been just sitting around waiting to take over the work. This also ties in to the seeming overabundance of management layers, as there are now drastically fewer people to be managed.

And it’s something people miss - illegal labor does suppress wages somewhat but definitely defrauds the government and any other things that depend on correctly reported income.

> People build.

If they are allowed to.

Most major cities are now permit backlogged. Could be years until you get to build.

The number of home builders in US are falling down like dominoes. When there is less competition, we get higher prices.

A lot of this can be explained by just supply and demand. In central New Jersey, the number of people who need to get a home is always increasing, but number of houses being built is extremely low, and even those houses start from 900k-1M.

Relevant article with way more details, also highlights that problem in other developed countries

https://www.bloomberg.com/news/features/2024-05-05/global-ho...

Developed world is in denial of the rapid population growth. Developed countries just don't build enough.

The population of the US grew by 0.4% last year, not an amount I would describe as "rapid".

It's rapid because it's exponential. Add there decay of the existing housing, add the fact that a lot of folks living alone. All that translates to the higher demand for units.

Yeah, significant portion of the developed world is shrinking not growing.

Regardless, housing demand is more directly influenced (and influences) net household formation, and it is very regional and dependent on regional economies. There are rust belt communities in the US which suffered decades of net negative household formation even as the US population ticked up. Detroit and Baltimore had peak populations in 1950. While many would consider portions of them blighted and undesirable, that was more the result of and less the cause of the population decline.

> Yeah, significant portion of the developed world is shrinking not growing.

That's absolutely not true. Otherwise cite reputable statistic sources. I'm looking at https://www.cia.gov/the-world-factbook/field/population-grow...

While it's true that Japan and Italy are the only two major developed countries suffering actual decline, basically all of the big wealthy countries are experiencing fertility below replacement.

https://data.worldbank.org/indicator/SP.DYN.TFRT.IN?location...

Fertility, total births per woman 2021

Australia 1.7

EU 1.5

UK 1.6

Japan 1.3

Korea 0.8

US 1.7

Replacement fertility is estimated at 2.1. Countries with below replacement fertility are growing based on immigration.

You are shifting goals, from the population growth to the fertility rate. Indeed some countries more that others are growing because of the migration and not fertility. Also that's not a new phenomena at all. All that doesn't negate the fact of the population growth. As a consequence of that growth we need more housing, and that's not happening in a needed rate.

What exactly do you mean by "rapid population growth" in the developed world?

Most developed nations are quite close to zero growth, and often just barely positive thanks to immigration...

That's close to zero (0.4%) means for USA one has to build city like Phoenix every year to accommodate that.

damn that just blew my mind

I don't know why so many people look down on renting.

There are a lot of hidden costs and time sinks (time is also money) in owning a home that most people vastly overlook when they are trying to compare the true and final cost.

Renting can easily make more sense in a lot of cases at least in my experience. I can seem to find renting to be significantly cheaper and take the money I save and invest in real investments that return more than a typical house normally would.

Because it's the culture and incentives are in place to help home owners.

Intuitively, something has to put a limit on number of people residing in mega-cities, and everyone wants to live in a mega-city but not everyone can, or should be able to. It is either cost of housing (because buying is pricier than renting, it will be a price to rent), or commute time. I see nothing wrong with it.

Just like "cancer is something that kills you if nothing else does", so high percentage of cancer deaths is an indicator of healthy population because everything that can be treated or prevented, is treated or prevented, housing being a choke point for a large proportion, or majority of people, is a sign of healthy economy - because housing in the age of hyper-urbanisation is a positioning good that can't be abundant - people want to live somewhere where most people can't be and the only reason why they want is exactly that - because most can't be there - so there is less competition for the amazing opportunities they offer. If housing in hyper-centers was somehow "solved", they won't work as hyper-centers anymore, and those opportunities won't exist, as labour markets there will be saturated.

> not everyone can, or should be able to.

Why not? I'm not sure I'm willing to just take that as a given.

If a labor market somewhere is allowed to saturate, opportunities will end and centers of innovation, will be no more: they get this way because of course, to begin with, there are some condensation nuclei like a good uni doing research or a bunch of government contractors, but these are present in many places - and then, it needs some limitation on supply of labor. If it is present, people get to make a lot, raising cost of living and property, which pushes mediocre people out and attracts the best (increasing net benefit for the best and reducing, then making it negative for the mediocre ones), so you get a place where there is a high concentration of good people and thus high S/N ratio.

Remove limitation and you just stay in the mediocriland and these condensation nuclei result in no rain. Increased buying power of the newly forming local industry does not transpire in (sustained) higher wages because enough new people flock in to fill all the space, as a result there is no ripple effect, no higher SNR, and no reason for others to move in there (just because why, you don't get any benefits either as a worker nor as a business). Labour limitation and making people compete to get in the pool of candidates, is the key.

As a simple analogy, imagine a uni with a 100% acceptance rate. Even if it has some initial advantage like a few famous professors, it is bound to be a useless piece of shit and any initial advantage will quickly dissipate.

Filter is the key.

> raising your income is the best thing you can do to improve your financial situation in the long run.

It's such a vacuous statement it's practically a tautology. And it's false: plenty of people who earn modest money over the course of their career end up wealthy. How? They learn to live within their means and budget accordingly.

I graduated during the financial crisis and unemployment rates were brutally high, wages low, and job prospects minimal. I really think millennials got the shit end of the stick--high college costs, high housing costs, weak job opportunities and then just as most of us were getting our careers established the pandemic happened and housing and inflation costs went through the roof. Meanwhile boomers basically did nothing but coast on the hard work of their parents generation.

The graph of "million dollar cities" reveals an interesting story: The SF Bay statistical area has many more "million dollar" cities than the San Jose statistical area to which it is adjacent.

SF is relatively dense, so the high prices reflect the cost of land. SJ is not dense at all (mostly farmland) and land is not as expensive. This is a further argument for higher density housing of course.

And the argument that wages aren't keeping up is hard to reconcile: if wages can't keep up then the price of houses would be falling.

> The vast majority of 20 and 30 somethings can’t afford a home today.

I’m not sure this is true?

Over 50% of millennials, and around 26% of GenZ own a home in the U.S.

https://investors.redfin.com/news-events/press-releases/deta...

Agree, The author of the post said he has been paying $2500/mo in rent, that is similar to the mortgage on a $450k house with 20% down. The problem is all the $450k houses are miles from where most young people want to live. I am not sure why they want to live in large cities and many suburbs have been abandoned. Probably has something to do with loss of manufacturing and other middle class jobs.

You're not sure why young people want to live in large cities?

regarding the stat redfin uses: homeownership" is only counting those that are head of household (which is who is responding when filling out a census), e.g. if there are ~100 genZ's, consisting of 96 that live with their parents, 3 that rent, 1 that owns their own home, the stat just takes those last two numbers, ~1/4, and redfin then reports "26% of GenZs owned their own home".

I know plenty of millennial homeowners that would not be able to afford todays prices at current interest rates. They bought before the covid bump (or earlier) and could barely afford it then. Had they rented instead they would probably be locked out of the housing market, at least until they got a significant pay increase or some sort of windfall.

I sold a house at the beginning of 2019, pre-covid, for $365k.

It's zestimate, not that I think it would ever sell for that much, is currently $570k. It's unfathomable to me that someone would pay anywhere near that for my old 1975 1400sq ft 3/2 in Austin.

And my god it hurts to see that and think of all the money that I missed out on.

I'm back to renting a condo, $3100/month for a 2/3 in Denver.

For the price of an apartment, I can put that money into an interest-bearing account, and pay the rent on a comparably sized apartment (or bigger house outside the city) using just the incoming interest, never losing a dime of the original capital (even growing it if I scrimp on the apartment)

why would i ever buy while this holds true

it's free real estate

Meanwhile I can borrow the money from a bank, buy an apartment, rent it to jareklupinski, gradually raise it over the years, and benefit from the capital appreciation (far greater than interest rates over the past few decades!) as well.

my parents tried that; i got to watch in real-time how landlording is _not_ the 'get comfortable quick' scheme people make it out to be

What were some of the unanticipated challenges they faced?

they lived in NYC and the apartment was in Florida, so even the smallest bumps in the road required a round-trip flight just to start figuring out how to solve the issue

basically if the goal was "to make money", there was never a viable path once the rubber hit the road (if they chose a nearer place, the initial costs would never be realized)

that is a uniquely boneheaded approach to managing a rental property. you can say "there never was a viable path" about anything if you chucklefuck your way through it instead of doing it well.

if "doing it well" means doing what these people are doing: https://news.ycombinator.com/item?id=40254573

it may have been for the best :)

Even when you're not renting remotely (which is the worst possible option in many cases) you still have tons of other things that can come into play:

* Bad tenants (lost rental revenue, eviction costs, property damage, and they're likely judgement proof so that money is just gone)

* No tenants (price too high, nobody wants to move, nobody wants to rent, etc) - rentals should be calculated on 20% vacancy.

* Other property wear and tear and damage (landlords often very badly budget for big ticket items; to be fair, owners are really bad at it too. The IRS depreciation tables are not gifts; you will pay about 1-4% of the value or more a year in repairs, etc.

* Strange legal issues can crop up, not limited to liability, tenant lawsuit defense, etc. But your property can also be eminent domained, declared a superfund site, or more. Sure, it's unlikely, but if you only have one property and it happens, it's going to hurt.

* And the biggest issue from there being a viable path (outside of appreciation gambling) is that you're competing with other single-family landlords who don't account for or care about the issues above, which drives rental prices down to "a bit more than mortgage payment + taxes".

And then if you succeed with the appreciation, unless you relatively constantly churn your property, you're missing out and falling behind what it could do elsewhere. Appreciation when you're 20% down hits 5x harder than appreciation when you're 100% owning it outright, and every payment brings you from one to the other.

There is a reason that professional real estate companies that invest in housing want to invest in multi-family dwellings, because it lets them control for some or all of the risks above. If you want to move from gambling on appreciation to actually being a profitable landlord, you end up imitating them.

Given that both rent and house price inflation rates often significantly outstrip the interest rates available on most savings accounts, it's hard to imagine this being a particularly viable route in even the medium term.

i take each year as it comes; eventually enough people will find this shortcircuit too and things will 'balance'

Rising house prices gives you 10x leverage on your huge mortgage, that's why.

Sotheby's market update seems to suggest home prices are still falling: https://www.elizabethlorenzo.com/market-update (page 5)

Only if you have that capital that generates the rent in the first place.

Say your rent is $1,500/month. That adds up to $18,000 per year. That means you'll need at least $450,000 in the bank, assuming a 4% APY, to earn that $18,000 in interest.

So, you'd need a pretty large amount of capital to start with to make this work.

given that a 2 bedroom apartment in nyc _starts_ at 2 million

you can see how the numbers start evening out :)

I don't see how that changes the fundamental issue. You have to have a huge amount of capital to even get this idea off the ground. Say your rent in nyc is $3500/month, that means you'd need around a million dollars in your savings to get started.

right, but you are unable to even think about buying in nyc without two

once you're in a position to buy, it becomes more convenient to rent until things 'even out'

Except you don't need 2 million or even 1 million upfront to buy. That's what a mortgage is for. To pull off your plan, you would need at least a million upfront.

It gets worse when you factor in that the interest is taxed, whereas Owner's Equivalent Rent is not.

The thing is... rents rise over time while a fixed rate mortgage balance doesn't.

So I think you'd need an additional 2-3% return on that interest-bearing account just to account for inflation.

In most cities the price to rent ratio makes no sense so I'm a renter for life. I do fantasize about a 2.5% fixed 50-year interest-only mortgage and never paying it down. If only those existed. I think Sweden comes close but the rates there are adjustable.

> rents rise over time while a fixed rate mortgage balance doesn't

house prices don't necessarily trend upwards either; it's possible to take out a mortgage for something that ends up being worth less over time

ask me how i know about flood zones :)

A mortgage is a huge loan that uses your house as collateral, you can't get a capital infusion of that size and interest rate otherwise. If you use that loan to purchase a house that appreciates at more than the interest rate you come out ahead, sometimes absurdly so if you buy in the right area.

Additionally your housing costs are fixed. It's not ALWAYS a winner, but it's the primary source of wealth for most people for a reason, especially in the regions that won the globalization game in america (Urban ones).

> Additionally your housing costs are fixed

even if this is true (boilers / repairs / maintenance costs rise over time), your income is probably not. I've toured a lot of apartments which are unaffordable for its current tenants, who can't sell at a lower price either because it would put them "under water", leading to otherwise bustling neighborhoods looking like ghost towns when the shops close for the day (the current owners live in a much cheaper area and only come in for showings)

Put 20% down on a $450k place. Made over $250k in 5 years and we have still saved the capital for an apartment and more. Plus a family needs space and flexibility.

5 years ago the numbers were very different; in 5 years they may change again?

the only constant seems to be that if you didn't already own land x years ago, you can't win, you can only break even (if you're lucky)

Land value tax fixes this

Is there anything wrong with this? Even ownership isn’t true ownership. You still have to pay property tax. So you’re basically always a renter.

I blame this mostly on the mortgage as an investment trend. Probably goes back to the 1980's savings and loan crash which one of the Bush brothers had a big hand in.

As I have told people in the past, we are heading towards a new serfdom type economy where either you inherit your property or you are a serf paying most of your income to property holders.

Already I have seen articles stating the US Gov is concerned that young people are not moving to other regions of the country as they did 25 - 30 years ago. They articles indicated people moving is in a slow downward spiral. Another indication of a serfdom environment.

This sentiment feels right to me, but the numbers don't appear to support it:

https://en.wikipedia.org/wiki/Homeownership_in_the_United_St...

In the page, seems you see a slight downward trend starting in 2004, 2005 is at 69%, 2015 is at 63.7%. The charts I see end in 2015, which maybe the rate could have increased.

But I wonder how this is calculated. Say if a company/person owns hundreds of homes, would the company be counted as owning just 1 home or multiple homes.

What is needed is a count of real people owning homes. So, if 1 person owns multiple homes, they are counted as 1 home owner with the total of all owned homes used to calculate the % value. That would give us a better comparison.

It's the number of homes occupied by their owner. The number of people/households who own their home is lower, since many homes are occupied by their owner plus others.

Are there jobs in these "other" regions?

In Canada, Newfoundland is cheaper, but theres no jobs. Partly why its cheaper.

As a homeowner I get to deduct mortgage interest in taxes. As a renter I don't.

If a corporation decides to own commercial interest. Principal + interest + taxes. + maintenance. Everything other than profits gets to be deducted. Renters don't.

Trump cutting corporate income tax from 31 to 21% flat made the wealth jump up to the top. Then Biden came and pumped 5 Trillion in the economy with huge PPP payouts to corporations whose owners were already wealthy. Wealth begets wealth. Rich get Richer.

The current 20-30 somethings are the first generate in the entire history of this nation to build less wealth than their parents at the same age.

The only people in Seattle and SF making it at 20-30 is if they work at BigTech getting $500k in total combined comp.

Everyone else is fucked.

Even if Powell holds the interest rates high, congress continues to spend in trillions.

More on it https://www.youtube.com/watch?v=qEJ4hkpQW8E

Canada, UK, Australia, NZ aren't that much better. The housing pressure is very real.

We must really hate our kids. If the economy won't crush them, global warming will slowly crush their grand kids.

I respect every couple who decide not to have kids. It's a sane financial choice in current economic conditions.

> Canada, UK, Australia, NZ aren't that much better

I'd argue Australia is even worse, because at least in the US owner occupiers get mortgage interest deductions, in Australia only landlords can do that. Also, in the US residential mortgages are normally no-recourse (if you default you only lose the house), in Australia they are normally full-recourse (if it sells at foreclosure for less than you owe on the mortgage, you still owe that to the lender)

https://fred.stlouisfed.org/series/RHORUSQ156N

It seems the rate of home ownership has not drastically changed

Wasn't this always the plan? If you combine scarce housing (by law or otherwise) and unrestricted immigration then you can get people to fight for scraps whilst taking 30-60% of their paycheck on average just through renting and also maybe through software subscriptions in the near future. In this way you can extract maximum productivity out of them because each month they're just a few steps away from homelessness. You also depress wages by a lot due to immigration which is doubly beneficial for the owning class AND you force the workers to be more productive because otherwise they'll be replaced by desperate immigrants. Its quite literally perfect from a capitalist point of view. The only thing that can put a stop to this are violent revolts. But if you have automated policing via drones and ubiquitous surveillance it should be easy to subdue the unruly masses.

Really untrue. You’re treating the pools of each as if they’re infinite.

Everyone in a declining population country will implement this strategy to keep asset prices afloat. The pool of people you want to immigrate to your country is not large enough to support that strategy.

Soon the government will have to provide huge incentives have children or immigrate. Then the cost to maintain that asset price is larger and more direct.

"The pool of people you want to immigrate to your country is not large enough to support that strategy."

Is this true though? In Vancouver apartment prices have increased by 600% between 2000 and 2024. And Canada is still taking in between 500k to 1 million immigrants yearly. https://topqualitycanada.ca/2023/05/15/shift-of-two-decades-...

This is because asset pricing in Canada is entirely dependent on increasing populations. Immigration requirements have been relaxing and will continue to relax. Which means that you should expect a higher “miss” rate on immigrants over time.

The problem with immigration this way is that there’s a careful balance of cost vs production. The question is already becoming “is this net positive” and will soon become “what deficit are we okay with running to prop up the asset market”

The US has extremely limited immigration by green card lottery.

The US has extreme amounts of undocumented immigration that nobody really cares much about.

Undocumented immigration probably doesn't have much money to compete for big city rents and raise prices for everyone.

As a "forever renter" here are some of my thoughts on where things are headed (at least in the bay area, although some of this applies nationally).

  1. The housing market is very thinly traded, illiquid market. Additionally there are some mechanisms in place that slow down price discovery on the way up (appraisal contingences based on comps), which slows down price discovery. This means it can take a few years to reach an equilibrium, which in a competitive market is roughly equal to the average mortgage that a pool of buyers can qualify for. This effect can result in a steady stream of year-over-year price gains, which often gets interpreted as "housing only goes up", when in reality, it is just the market adjusting to a small pool of buyers.
  2. The bay area has a large contingency of high earning tech employees, large enough to entirely drive the housing market on their own, at least in the short term. This pool of buyers emerged about a decade ago, and have been increasing in numbers since then, at least until recently.
  3. Incomes are not normally distributed, there is a bimodal distribution with the tech employees occupying one of the modals, and the rest of the population occupying the other[1]. Stats on this are difficult because the census tops out at $250k, but very roughly the top 5% average ~$560k, the top 20% average $315k, and the 80th percentile HH income is $176k. Medians would be preferred here, but I think you get the picture. By the time you get down to the 80th percentile, those folks are largely priced out of the market unless they go for a cheap condo or combine households. It is the top 5-10% of HH income earners that are driving the Bay Area market.
  4. Baby boomers own about 40% of houses and have been the largest cohort of home buyers as of late. Boomers have been hanging onto, and even acquiring more homes abnormally late into their lives. I suspect this is most likely due to the booming housing and stock markets keeping a certain segment of boomers very flush with cash. But father time is going to start reversing this trend soon, and I wouldn't be surprised if a market crash forced a number of boomers to start selling sooner rather than later to keep retirement accounts whole, or even if "higher-for-longer" interest rates entice boomers to start moving assets into safer investments. But the point is, boomers are the largest participants in the market, and they are going to be moving from net buyers to net sellers very soon.
  5. It seems like the tech wave has peaked and we have now entered the era of cost cutting. High salary FAANG jobs are harder to come by, and those same companies seem to be looking to move jobs elsewhere to save money. There will still be plenty of highly paid engineers in the Bay, but I suspect those numbers will slowly decline relative to the rest of the bay area.
  6. Prop 13 has distorted the rental market considerably. A lot of landlords purchased their properties in 70's, 80's and 90's. These properties are have miniscule mortgages (if any) and pay barely any property tax. If you bought in the last ten years or so, you are mostly likely going to negative cash flow if you try to rent your property. Hardly worth it, especially when you can sell and put that money in T-Bills and make ~5%.
  7. Despite the above distortions, median rents are roughly in line with median incomes for an HCOL area. i.e. The median rent is approximately equivalent to 30% AGI of the 60-70th percentile household income. That is not to say that rents are cheap or affordable, or that they can't go higher. It is just that they seem to be inline with what the market can bear. If the median landlord renting the median rental tries to price higher, they will push up against the glut of luxury rentals on the market, and if they price lower, they will probably find a large number of lower income folks living with roommates willing to make the jump to their own place. Barring any sudden major population changes, the rental market will probably track inflation for the near term.
  8. And a bit of curveball here, but a law was recently passed that changes Prop 13 so that the property tax basis is no longer allowed to be passed down to heirs. This is likely going to result in a much larger share of homes getting sold (rather than stay as rentals) in the near future.
  9. At least in the short term, population increases seem to be in the 5k range. Meanwhile ~20k new housing units were created. The +/- population numbers can change pretty quickly, but at least in the short term, we are adding more housing units than we are people. And keep in mind, the population changes are in terms of number of people, not number of households. So if an average household has three people, adding 20k housing units would support a population growth of 60k people.

So taking all of this into account, I am fairly bearish on the bay area housing market. There is probably enough inertia among the FAANG cohort to keep the market chugging along for a few years, but once they get settled in (and assuming the FAANGs don't resume the hiring craziness of a few years ago) we are going to start seeing the market impacts of the boomers unloading property and fully expect prices to drop or at the very least significantly underperform inflation. Meanwhile, rents are reasonably priced for a HCOL area. They will likely track inflation, but there are going to be pressures on both sides so they are unlikely to go up or down much more than where they currently are. For the last few years, my rent has been less than the PITI on an equivalent house. And the down payment that we have saved up over the years in now sitting in a Treasuries, the interest of which covers about half of our rent. I would like to buy someday, but I think I am going to wait until some of the above factors play out. And if not, well, I guess I will go live in a van.

[1] https://statisticalatlas.com/metro-area/California/San-Franc...

Reply on news.ycombinator.com