
Falling Home Prices Could Be a Good Thing - prostoalex
https://www.nytimes.com/2017/02/10/upshot/popping-the-housing-bubbles-in-the-american-mind.html?smid=fb-nytimes&smtyp=cur&_r=0
======
techsupporter
At the risk of sounding brusque, don't just read the headline of this article
and then comment because the headline doesn't mean what it reads like on the
surface. It's not "house prices are falling and this could be awesome."
Instead, the article's thesis is:

> So instead of looking at homes as investments, what if we regarded them like
> a TV or a car or any other consumer good? People might expect home prices to
> go down instead of up. Homebuilders would probably spend more time talking
> about technology and design than financing options. Politicians might start
> talking about their plans to lower home prices further, as they often do
> with fuel prices.

The article is going over a paper[0] that asks what would happen to house
prices if houses were treated as disposable consumer goods instead of a means
of storing wealth. It also points out, correctly in my opinion, that such a
shift would be monumental (if only because everyone would have to do it at the
same time).

0 -
[http://realestate.wharton.upenn.edu/research/papers/full/802...](http://realestate.wharton.upenn.edu/research/papers/full/802.pdf)

~~~
branchless
The cost in urban centres is the land, therefore this is a flawed approach.
The land does not erode (unless you live on a cliff).

~~~
chadcmulligan
Is it though? - the reason the land costs more is because of two things -
geography (ocean views, doesn't flood etc) and the infrastructure available.
The second one is what adds to land value in cities - it's a network effect.

Like everything the cost of infrastructure is changing and the rate of change
will increase - self driving cars will be a big factor, telecommuting,
internet shopping etc. Water and electricity are others - electricity is
probably also changing due to Tesla and others.

You could say the cost of land is directly due to the network it is embedded
in. If the cost of network construction decreases then land prices will
decrease.

edit: and of course social relationships are the other network effect - inner
city lifestyles are an example of this

~~~
branchless
Yes land is the main cost. And yes I agree it's the infra that confers the
value.

Yes and because the state builds the network we should tax land. Land
speculators spend nothing when they see their land rise in price, it's all
other people.

So to phrase it differently to hopefully meet in the middle: the land is the
cost, but I'm not talking about how much it costs to buy some mud, wherever
that may be. The cost is the cost per acre at a given location.

You also reference future changes. Perhaps, but we are in the here and now.

~~~
chadcmulligan
I think those future changes are happening now. Personally I live miles from
anywhere and yet have a high tech job and telecommute. Granted I'm in the
minority at the moment, but this will become more common. I suspect we are at
peak land value, however time will tell.

~~~
branchless
You work in IT, this is not "the norm". Neither of us know how quickly remote
work will play out, IMHO not quick. We've seen a concentration in urban areas
since the original days of predictions of this, so prepare to be confounded
again.

We are at peak land value because it was built on credit issuance to the
boomers, who are about to start selling down. This is why we have ever lower
rates and QE, to counteract this force.

~~~
chadcmulligan
> You work in IT, this is not "the norm"

it will be soon - all jobs are becoming IT jobs, and thats why we're on hacker
news for the future not investment advice.

> who are about to start selling down

yes, this is going to be interesting when this happens. Have you heard others
saying this? I've said it a few times and have been met with blank stares.

------
Retric
The average home price in 1950 was ~8,450$ or $84,151 today. Suggesting even
200k as a reasonable median seems excessive.

PS: Medain income was $4,237 in 1950 which works out to $42,195 today. So,
it's not like the average american is all that much better off.

~~~
prostoalex
Definition of an "average home" changed though, which is why real estate
industry uses $/sq.ft.

Beyond square footage there are also expectations on the innards of the
residence - e.g. try to find a new construction listing that does not have
"designer appliances", "hardwood floors", "cat-5/6 wiring" and a ratio of
bathrooms/bedrooms closer to 1.5-2/1 vs 3-4/1 that was common decades ago.

~~~
Shivetya
to further the point, many young couples would never accept the home they grew
up in or their grandparents had with regards to square footage, number of
bathrooms, and such.

then comes the status of living in certain neighborhoods, having a house of
certain style and size, let alone kitchen outfitting.

people have been marketed into the poor house

------
branchless
Land is expensive because the banks will advance huge amounts against your
future income. They have no constraint on this as when they advance credit
they do so by creating it.

When wages go up, mortgage lending goes up (and by a multiple). The banks
hoover up all productivity gains.

NYTimes might want house prices to go down but they have to take on the banks
if they mean it.

Incredible that anyone could disagree with this, really, but downvote away.

~~~
licnep
Really sad you're getting downvoted, as this is one of the smartest answers in
the thread that identifies the main reason for rising house prices.

Anyone denying the effect of banks is missing an important point. I suggest
looking at positivemoney's articles or videos on youtube for an explanation of
this process, it's pretty clear.

~~~
branchless
Hacker news cannot exist if one attacks usury.

------
anonu
In the US, homes are the best way for the middle class to create wealth
because the government essentially subsidizes this transfer. The entire
financial system and tax code are designed to support this. There is no other
country in the world where you can just get a loan that leverages you up 10:1
. This is where the cycle begins. Home prices have to go up now, otherwise
these loans go underwater and we get another financial crises like the one we
saw in 2008. Then, the tax code effectively gives you free money to do this
trade. If you don't take advantage of it, you're probably missing out.
Finally, this is why we always like a bit of inflation. Inflation devalues
that loan and pushes the price of your house up. Falling home prices would be
a disaster for America ... we've already seen this scenario less than 10 years
ago...

~~~
pzone
The entire point of the article is that this way of thinking is outdated. Yes,
we have long considered homes as primary investments and as the best way to
grow wealth, and yes, we have had falling home prices bite us in the ass
before. But these things are not set in stone, and a world where houses are
just one of many goods we own and consume would work out just fine too, and
perhaps it would work even better.

We can change the tax code, and home prices don't have to drop suddenly like
they did in 2008 and put people underwater. They could simply plateau.

~~~
namlem
Changing things isn't so simple. Homeowners aren't going to be very keen on
voting for politicians who run on devaluing their homes or making them pay
thousands of dollars of extra taxes every year.

------
Mikeb85
Falling home prices is absolutely a good thing. When home prices are too high,
it prices out regular consumers, only professional investors and landlords can
afford them, they take economic rent, it's a drag on the economy and cost of
living, and hurts the working class.

It's pretty easy to see in places like Vancouver, and while it's not as bad in
many other places, it's still insidious.

------
0xC0DECAFE2020
I'm in the process of researching alternatives to conventional housing. It's a
fascinating area to research. The alternatives, particularly with regard to
new building systems and modes of living, are available at reasonable cost.
The road blocks in the way are breaking with tradition/mindset and filling the
gap with regard to rent seeking revenues both public and private, but mostly
public in the form of property taxes.

I see us being on the cusp of a change in attitudes and the way we value
housing.

~~~
S4M
I had a colleague at a previous job who was living in a boat. He once told me
tnat the costs to rent a place in the harbour, to maintain the boat and the
utilities were about 400 euros/month, which is about the rent he'd pay for a
small studio in Barcelona. The rents arec cheaper there but maybe in New York
or San Francisco one can save lots of money like that.

~~~
kogepathic
> I had a colleague at a previous job who was living in a boat.

Sounds like fun! Do you know what kind of boat (e.g. motor boat, sail boat,
yacht) and how much he paid for the boat?

Looking at sail boats, they're surprisingly expensive for a reasonably sized
one (e.g. seafaring).

~~~
S4M
I _think_ it was a sailboat. He told me it was relatively cheap (10-20k euros)
but maintaining it was costly.

~~~
steveax
There's that old saw about a boat being a hole in that water that you throw
money into.

------
RestlessMind
I read the article and it just glosses over the political difficulties, which
will be extremely hard to overcome. Basically, when the most engaged citizenry
also happens to be homeowners, legislating any measure that reduces home
values will be akin to political suicide.

Even while it acknowledges the hypothetical nature of its arguments, the
article doesn't consider negative factors - like the massive number of middle
class middle-aged homeowners, whose mortgages will be underwater in case home
prices were to drop. Is there going to be bailout of all of them? If not, we
are looking at a repeat of 2008. If yes, who foots the bill?

Maybe, this idea would have been interesting at the beginning before
homeownership was entrenched with the personal wealth. Now? Not so sure.

~~~
Atheros
Prices don't need to actually drop in dollar terms. They can drop slowly in
real terms. That would be sufficient. No 2008-event necessary.

~~~
RestlessMind
You mean, rate of inflation being higher than rate of house price increases?
Sounds good in theory, but how do you pull it off in practice in a somewhat
free market like US?

------
sologoub
> By the paper’s calculations, a home in the San Francisco area should cost
> around $281,000.

This makes very little sense to me - San Francisco is surrounded by water on
three sides and borders other towns/cities on the 4th, so how does one account
for the demand of new housing once the existing housing is built?

In other words, let's say we increase density sufficiently, so that we flood
the market with new homes (apartments for SF) and drive the price down to
281k. As time passes and population increases, with a fixed land supply,
you'll need to build denser. But you have people already living in the homes
you'll need to tear down. How do you force enough of them to move so that you
always maintain enough housing stock to keep prices low?

It has been done with marginal success in non-market economies. For example,
in USSR, when new apartment buildings were to be built where older ones
currently stood, government simply ordered people to relocate to "improved"
new apartments, usually located in undesirable areas of the city. This is
hardly fair.

A US version of that could use eminent domain powers, but I somehow doubt the
people of the city would support that.

Another question is whether people will want to live in that level of density.
Eventually, you'll have price stratification based on height and access to
sunlight. In NYC, you already see sunlight or lack of it as a significant
pricing factor. Street noise is another factor.

That said, it doesn't mean there isn't some sort of sane middle ground. SF
could use more development, just like the westside of LA, but it won't result
in $281k price point.

~~~
rtpg
"The people of the city"

It depends on what proportion of the city owns their home. If most people are
renters, of course they want the price of housing to go down! If there's one
good rallying cry against capitalism as an effective means of societal
advance, it's rent seeking and the conflicts it causes.

I bring it up every time this topic comes up, but NYC is not the only way to
make a "big city". Tokyo is nice, high density, but there are trees all over
the place. All for 1/5th the rent of SF.

A well designed big city is not one that just has taller buildings. It has
better service distribution, so there are, overall, less cars. There aren't
just a grid of avenues (that's too convenient for cars!), but many roads that
are smaller.

Building development is not allowed to block out sunlight from other
buildings. Street noise is handled by making only a couple large avenues, with
most streets being extremely small and low-traffic. Yes, it makes traffic
worse for some people. Don't have as many people driving all over.

~~~
mcguire
[http://www.economist.com/node/13415153](http://www.economist.com/node/13415153)
[2009]

[http://www.economist.com/blogs/freeexchange/2012/08/lost-
dec...](http://www.economist.com/blogs/freeexchange/2012/08/lost-decades)
[2012]

[https://en.m.wikipedia.org/wiki/Lost_Decade_%28Japan%29?wpro...](https://en.m.wikipedia.org/wiki/Lost_Decade_%28Japan%29?wprov=sfla1)

~~~
mcguire
So, the fact that Japan spent two decades in an economic flatline after the
collapse of an asset (specifically, property) bubble has no influence on the
current price of property?

------
dalbasal
I wonder how much of the "shrinking middle class" is attributable to rising
house prices in the desirable areas that these people live.

~~~
ArkyBeagle
The number of desirable places with good wages has declined.

We're struggling with this. Dean Baker has at least the start of a theory. His
BookTv is here, soon ( it was on air yesterday, so they haven't posted it yet
):

[https://www.c-span.org/video/?421857-2/dean-baker-
discusses-...](https://www.c-span.org/video/?421857-2/dean-baker-discusses-
rigged)

~~~
kqr2
His books are freely available online. His latest book is _Rigged: How
Globalization and the Rules of the Modern Economy Were Structured to Make the
Rich Richer_

[http://deanbaker.net/books/rigged.htm](http://deanbaker.net/books/rigged.htm)

------
pfarnsworth
The real solution is to entice global companies like Google and Facebook to
start building employment centers in areas like the Midwest. Having so many
rich engineers competing for the same houses is what is causing prices to
skyrocket. There's no excuse for contemporary companies to keep pouring more
and more money into the Bay Area, when they could easily work remote.

Divert the demand to other geographic locations, and then you'll see the
supply loosen and prices soften.

~~~
twblalock
> The real solution is to entice global companies like Google and Facebook to
> start building employment centers in areas like the Midwest.

Why should they do that when the best engineers want to live in the Bay Area?
The talent can come to them.

~~~
brutus1213
I know many engineers at those companies. After a baby or two, everyone starts
complaining about crazy home prices.

~~~
twblalock
Everyone complains, but few actually leave, and there are many more willing to
move to the Bay Area to replace those who do leave.

The major tech companies aren't stupid. If they could benefit significantly by
opening offices in the midwest or anywhere else they don't currently have
offices, they would have done it by now.

~~~
brutus1213
"aren't stupid" .. agreed to some extent. But I don't buy the no talent
outside the bay area theory. Wonder if something else is afoot.

I'll give you an anecdote .. Google has an engineering office in Waterloo and
Amazon has one in Toronto. Both have quite a few former expats who wanted to
be closer to their Canadian families. There is demand.

------
mcguire
It is somewhat difficult to take seriously a paper that includes a statement
like

" _Vacant land sales are rarely observed in the United States,..._ "

I haven't gone through the economic model described in the paper, but it
appears to be a traditional, static, linear thing that has a few issues.

If you want to live somewhere with fewer regulations, there are plenty of
opportunities. Just avoid these things:

[http://kotv.images.worldnow.com/images/6723723_G.jpg](http://kotv.images.worldnow.com/images/6723723_G.jpg)

And probably:

[http://www.precisebuildings.com/images/uploads/build/400/dsc...](http://www.precisebuildings.com/images/uploads/build/400/dsc_0017__large.jpg)

And keep in mind these may be your neighbors:

[http://worldonline.media.clients.ellingtoncms.com/img/croppe...](http://worldonline.media.clients.ellingtoncms.com/img/croppedphotos/2016/04/01/trash_house310_2-lead_t240.jpg?9b075e176a263354460210e5f64f6db9d4623575)

~~~
lazyasciiart
What are the first two pictures?

~~~
mcguire
The first is a pen for raising fighting chickens. The roosters are in cages;
you need to keep them separated or they will (obviously) fight. Not all
fighting chickens are raised for cockfights, but in largely-unregulated areas
of the US, many are. The fights are illegal and rather unsavory, and tend to
attract characters who are rather unsavory themselves. Not the kind of thing
you want for neighbors.

The second is a building for raising commercial chickens. In my experience,
they smell worse than cattle feedlots but better than hog packing plants.

The third is an oddity: many people seem to store their wealth in the form of
junk in their yards. Not sure how that's supposed to work, actually. You'll
occasionally hear of someone in a metropolitan area being forced to clean up,
or having the city do it for them. This is not the case in the regulation-free
rural areas.

------
throwawaydbfif
Could be? For anyone outside the boomer generation falling housing prices
would be a godsend.

Millennials are starting to get priced out of entire cities, and it's
generally the ones with the most jobs available.

It's starting to look like "millennial" will become an insult meaning someone
with no job and no money, hilarious given that it applies to an entire
generation.

~~~
autokad
i'm not a boomer and that wouldn't be good for me. it wouldnt be a godsend to
cities either, with plummeting revenues (schools would be especially hit
hard). home prices fell not long ago, and that was bad for nearly everyone.

home prices and jobs kind of come together, not always but mostly. its sort of
like wishing no one would eat at your favorite restaurant so you wouldn't have
to wait in line, only to see it go out of business.

millennials will have to do better than wishing people ahead of them get
dragged down so they can jump ahead.

~~~
monkmartinez
I disagree. One, property taxes didn't go down materially in my jurisdiction
despite housing prices dropping precipitously. Two, schools have already been
hit hard with horrible admin teams and the rise of open-enrollment. Three,
jobs don't have as much of an affect on home prices as they once did. That is,
investors|flippers|NAR shysters| and the government control far more of the
housing market prices than we give credit for.

I am not a boomer, but they have been in charge for a while and have really
messed things up.

~~~
autokad
"One, property taxes didn't go down materially in my jurisdiction despite
housing prices dropping precipitously"

the housing crisis happened and cities were broke.

"Two, schools have already been hit hard with horrible admin teams and the
rise of open-enrollment."

has nothing to do with the fact that schools would be hurt by falling tax
revenue.

"Three, jobs don't have as much of an affect on home prices as they once did."

even if true, doesnt change the fact they are still linked. san francisco
would become a whole lot affordable if the tech industry closed doors
tomorrow. however, those wanting to go to san francisco for a job but couldnt
afford the housing would find themselves with a less compelling need to go to
san francisco.

i agree boomers messed up things quite a bit, but that has little to do with
the fact that falling house prices have been proven to be bad for nearly
everyone.

~~~
manarth

      the housing crisis happened and cities were broke.
    

There's a finance paper from the Federal Reserve which describes exactly this
issue [1].

    
    
      We identify five main channels through which the housing market affects state
      and local tax revenues:  property tax revenues, transfer tax revenues, sales
      tax revenues, and personal income tax revenues.
      
      We find that property tax revenues do not tend to decrease following house
      price declines.
      
      We conclude that the recent contraction in state and local tax revenues has
      been driven primarily by the general economic recession, rather than the
      housing market per-se.
    
    

[1]
[https://www.federalreserve.gov/pubs/feds/2010/201049/201049p...](https://www.federalreserve.gov/pubs/feds/2010/201049/201049pap.pdf)
(PDF)

------
pager86
Houses can basically last an arbitrarily long amount of time and still remain
functional. With most things, like a car, there is some nebulous end of life
where its value is effectively $0, and the value of that thing will steadily
decrease over time until it reaches that point. Because houses hold their
value, people can sell houses when they don't need them, which makes it an
investment. Of course value of housing and land change over time - the fact
that there's a market ensures that - and of course people want to sell
something for more than they bought it for if they are planning on selling.
Housing as an investment is so intrinsic to its nature I don't see how to
avoid it.

~~~
chadcmulligan
I'm not sure if that's true - houses depreciate the same as cars. What does
appreciate is the house on its location, often old houses go for land value,
sometimes less if they haven't been maintained because you have to factor
demolition costs in.

~~~
WillPostForFood
I mostly agree with you, but want to note that there are exceptions to land
appreciating. You can look at neighborhoods in cities like Detroit or Buffalo
where the house and land have depreciated to almost nothing.

