Comment by onion2k | Hacker News Reader

Comment by onion2k | Hacker News Reader

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As dual-income households have become more the norm, it's really the household income, rather than an individual's income, that's a better measure of richness.

That depends on how the income is spent. If people spend their extra income on leisure activities, luxury goods, etc then it'll absolutely mean that a high household income will be a good measure of richness. That's obvious.

However, if dual income households decide to spend their income on investing in a better house, what will happen is that it'll push house prices up - a finite supply of housing stock means there'll be competition for the best homes, so people will have to pay more for them. That demand side pressure will filter down the housing ladder and pull all the prices up. After thirty or forty years this will have had the effect on house prices that single income families just can't afford to buy. Further, it'll mean that dual income families have to retain two incomes, so parents wanting to stay at home when they have children simply won't be able to afford to.

This has already happened in the UK. Lots of pundits are predicting a crash because the first-time buyers can't afford to buy, meaning no one is buying the lower price houses, and that's going to pull the whole thing down.

Mind you, the pundits have been saying as much for about twenty years.

This has already happened in almost every major city in the United States. My anecdotal observation is that townhomes in major cities are affordable to single folks with one (low six figure) income and single family homes require two such incomes. And that actually does make a bit of sense, as a married couple has a higher probability of making good use of a SFH than a single person does.

I don't predict a crash (at least not based on this phenomenon alone) precisely due to the abundance of townhomes that are being built in the US. In Houston, for instance, even though the townhomes are sort of hated since they're replacing old, historic bungalows in many cases, they are the one thing keeping the city somewhat affordable. Cities which have extreme zoning laws preventing this sort of development might be more susceptible to a crash.

Housing supply isn't fixed. When house prices go up, people build more houses.

Zoning laws can pose a lot of restrictions on where those houses can be built, so it depends heavily on the city. Basic physical obstructions and topology also play a role. Adding more homes onto far out suburbs isn't going to do much to massage the problem of unaffordable housing near downtown office districts if it means that homeowners have to commute an untenable distance.

The availability of usable land is fixed. There's a limited amount of single-family homes you can build in a given area.

In the UK when house prices go up people tend to build more houses at the top end of the market where there's the most profit. No one builds cheap houses that people on a single income could afford. I don't know if the US is similar.

But surely once the top end is satisfied the prices will have to come down or the homes will be left vacant which no developer is going to want.

There is "rent seeking" (a microeconomics term for a market inefficiency using politics for wealth creation instead of true wealth creation) by having zoning laws which keep land use density artificially reduced as well as over-using "historic landmark" laws. The zoning restrictions on land use and the overuse of historic landmark laws effectively make very wealthy landlords and other landowners wealthier still at the cost to others. See writings of Harvard economist Edward Glaeser for more details.

This is something that can be fixed by reducing the market inefficiency of "rent seeking" through state law which overrides the desires of wealthy landowners at the city level.

Which makes substantial profits for the home builders but very little in the way of more affordable housing.

The price of a barrel of oil is determined by supply and demand. As the price goes up, more production is brought online which is now economically feasible. So at $100/barrel you've got the Canadian tar sands projects which make oil for something like $80 a barrel worth of cost so the company can make $20 a barrel.

But there are still tons of wells out in west Texas that are producing oil for $20 a barrel in cost. The people that own those wells are making $80 a barrel in profits.

If housing prices are high home builders might be able to build less expensive houses but they have no incentive to. They can sell the houses they build at market rather than below market prices. It might increase the supply but that doesn't necessarily translate into reduced prices in any kind of a reasonable timeframe.

The increased housing prices are caused by "rent seeking" by wealthy landlords (think people who own hundreds of rental units for example) that want to increase the value of their property. They do this through zoning ordinances that artificially restrict zoning density and also through overuse of "historic preservation" laws. See Harvard economist Edward Glaeser's writings for more details. He very clearly demonstrates the increasing cost of land and as distinct from the cost of construction.

It is important to understand this reason, "rent seeking" in microeconomics makes for market inefficiencies. It is a means for people to enrich themselves through politics by making people pay more for rent or for buying a house instead of through actual wealth creation. The solution to the ever increasing housing prices is to reverse the "rent seeking" by fixing zoning laws so that there are not unfair zoning density restrictions and restricting the overuse of "historic landmark" laws.

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