
2012 vs. 1984: Young adults really do have it harder today - joeyespo
http://www.theglobeandmail.com/globe-investor/personal-finance/2012-vs-1984-young-adults-really-do-have-it-harder-today/article2425558/
======
malandrew
I would bet that the reason housing prices have outpaced inflation is due
almost entirely to the popularization of rent-seeking activities and real
estate speculation (not including the relatively recent distortions due to
late 1990s deregulations that led to CDS and other financial "innovations"
created to derisk the asset class beyond what was rational).

Someone should do a comparison of the number of landlords per capita today
versus back in 1984 and a comparison of the number of people who own a second
home or own real estate investments.

I would speculate that society has by and large re-organized in a way that
permits older generation to extract greater rents from younger generations
beyond just social security.

It's probably possible to write an entire Phd thesis on the myriad ways in
which the baby boomers and to some degree older Gen Xers extract rent from
younger Gen Xers, GenY and millenials.

The world would be a much better placed if the most highly taxed form of
income was rent profits in all its forms. Non-productive income is responsible
for perpetuating a lot of income disparity.

If any government really wants to promote _sustainable_ home ownership for all
their citizens, they'd make homes a financial deadweight for people that
aren't fully utilizing the home _themselves_. This would do more to make homes
affordable for those that will actually live in them. Homes need to stop being
seen as an investment and need to be seen as a utility. Whenever a utility is
perceived as an investment you often seen market manipulation phenomena like
the ones that contributed to the California Electricity Crisis of 2001.

~~~
geebee
It's possible that housing prices are much higher for good, because real
estate was historically undervalued.

I know, I know, hear me out ;)

I remember reading an article during the housing boom that made a very
interesting argument in defense of the high prices. It was wrong, of course,
but it was different from the usual "there's never been a better time to
buy... or sell!" crap you heard from the real estate PR machine. It was a
pretty sober look at the numbers.

The argument boiled down to this - if you're going to compare current prices
to the historical trend, you need to exclude the possibility that real estate
was undervalued before you can conclude that current values are overvalued
purely based on divergence from historical trends.

The paper argued that housing was historically undervalued because
creditworthy people didn't have good access to credit. A house required a 20%
down payment, and banks (back when banks held a loan for the entire life of
the loan) wouldn't allow income to debt ratios to exceed a certain threshold.
They argued that new methods to spread risk across larger pools allowed the
extension of larger amounts of credit without a huge jump in risk.

An example was a loan made to two nurses with excellent credit earning a
combined income of well over $200k, but who only had about 20K in down
payment. In the past, this 10K would have limited their purchase price to
100K. Now, they could bid much higher - without, as the article described, a
massive increase in risk to the lender, especially if that risk could be
spread.

It was a well-reasoned argument, and I think what it missed was the profound
level of corruption and dishonesty going on in the industry at the time. As we
all know now, and as our wise leaders like Greenspan should and could have
learned while they were reassuring everyone things were just peachy, is that
the "two nurses" example was not at all typical of these "higher risk" loans,
and the "spreading of risk" was in fact a way of dividing up and obscuring
risk to make horrendous loans look better (and package them up and sell them,
and then bet against them).

But this phenomenon will probably continue. Yes, housing prices are higher,
but I suspect that once the dust settles, some of these "innovations" (my
disgust with the industry makes it hard to use that word) may actually come
into play.

In short, we may pay more for houses than our elders did, but we may actually
have better, more efficient access to credit _in the long run_ (I want to make
sure nobody thinks I'm defending the antics of the banking sector during the
bubble with this argument).

Oh lastly - I do apologize for no cite. Can't really remember where I read
this...

~~~
dredmorbius
That's an interesting theory.

Comparing purchase to rental prices pretty much blows it out of the water,
however.

~~~
malandrew
I'm interested in hearing more on this point.

~~~
dredmorbius
Briefly, look at a "buy vs. rent" calculator.

If the costs of renting, _inclusive_ of any possible foregone appreciation
gains from real estate, are lower than of buying, then the economically
rational choice is to rent, not buy.

In urban economics, the value of housing is largely dictated by the potential
income one can acquire by virtue of holding it. That is: housing reflects the
local prevailing wage.

It makes zero sense to rent a property (as a wage earner) for more than one
can make in income living in the area. Hence, rents tend to be much more
responsive to wage inflation/deflation than housing prices (student and
retirement housing would be exceptions, but they're constrained by similar
functions ultimately).

With real estate, there is the potential for appreciation gains. This
presumes, however, that there's someone willing to buy at the appreciated
property later. Housing prices cannot inflate indefinitely over other assets.
And the long-term historical return on housing (since the 1880s or so in the
US -- period for which data are available) are in fact lower than most forms
of investment. Housing carries heavy costs: taxes, maintenance, improvements,
etc. And it's largely an illiquid asset, particularly for the small investor
(I may have many of a smaller investment to sell, I generally only transact in
a single house at a time).

There are other tweaks on this: rental/owner-occupied housing aren't perfectly
substitutable (covenants, HOA restrictions, etc.), there are non-financial
returns to housing (or at least longer-term returns), notably school district
access and crime/safety rates. In markets with low vacancy rates, rental
values may fluctuate more broadly. Bank lending practices may make buying
easier (2000s) or harder (2010s) at any given time.

But the upshot is still: rental prices in a given market tend to be a better
guide to local economic conditions than real estate prices.

------
solson
Yes college was more affordable and for many it is unaffordable today. Young
people and parents need to seriously consider forgoing college entirely, that
will be the only thing that will force the price down. These parents and
students freely choose to pay these absurd tuition fees. Until you stop paying
them, they will keep raising them.

Cars in 1984 are not comparable to cars in 2012. There are many emissions and
safety requirements on modern cars that have forced the price up. Also the
reliability and quality of most modern cars far exceeds 1984 models. Most
young people would not want anything like a 1984 car. Ford Pintos were cheap,
problem is they exploded when they were rear ended.

Housing is expensive, but it depends where you choose to live. Hip areas have
always been expensive. Toronto wasn't hip in 1984 and nor was silicon valley.
In Mpls I rented a decent 2 bedroom apartment in 1986 for $550 per month, the
same apartment today rents for $850. if you want to live near the "cool"
people it will cost you.

~~~
firefoxman1
> _Young people and parents need to seriously consider forgoing college
> entirely, that will be the only thing that will force the price down._

That's definitely a problem I've seen with my peers. They go just because
their parents expect it of them. I can't find the article (it was on HN maybe
6 months ago) that compared college majors in the mid 80's to 2011. While
useful stuff like CS stayed relatively flat, the majors that skyrocketed were
things like Liberal Arts. Those are the people making college expensive for
all of us.

One real way to bring prices down would be to attend community college for 1-2
years. It's extremely cost effective, easily transferable, and designed for
working adults so the schedules are often more flexible than traditional
college.

~~~
eshrews
This is the source you are looking for -
[http://marginalrevolution.com/marginalrevolution/2011/11/col...](http://marginalrevolution.com/marginalrevolution/2011/11/college-
has-been-oversold.html)

~~~
firefoxman1
That's it! Much appreciated.

------
captobvious
It's funny how most comments here are dancing around the issue trying to point
out factual errors and counterexamples.

Bottom line: Young adults today have it way worse than their parents.

In most developed countries in the world. How should this issue be dealt with?

In my opinion you can't just call it bad luck, and tell people to deal with it
and adapt.

Personally I think the biggest motivation of all is the sense of change for
the better, and a future to look forward to. I simply can't accept that my
generation got the bad future, and all the good future was used up by our
parents.

Looking at my parents generation I think they lived pretty subservient lives,
which were also quite stressful, with lots of stress related disease, heart
attacks, blood pressure issues etc..

And if I work _really_ hard and study, best case scenario is that I get the
same jobs as my parents, only twice the workload and half the pay.

~~~
jdminhbg
> best case scenario is that I get the same jobs as my parents, only twice the
> workload and half the pay

Unless you're way out of the target demographic for HN, this is preposterous.
Even semi-competent programmers are way under-supplied; you can name your
price, location, and working conditions.

~~~
captobvious
Ok I'll name my working conditions: A work environment with peace and quiet to
be able to concentrate. Have enough time to be able to deliver though-out
quality work. Having reasonably specified tasks, and if not, have the decision
power to fill in the blanks as I see fit. Not being constantly interrupted.

Not being under constant stress and pressure to the point where I feel that my
health might be suffering.

From my experience these (common sense?) demands on working conditions would
rule out pretty much most programming jobs.

~~~
jlgreco
Do you think low stress heart surgeon jobs exist?

Work conditions in tech have more to do with what those jobs are than economic
conditions. Companies are desperate to fill positions and you see many going
out of their way to create as low stress office environments as possible but
after a certain point you just have to come to grips with that's just what the
job is.

That said, low stress programming jobs _do_ exist, but in my experience they
tend to exist in companies you would not normally look at for programming
jobs. Damn near every sizeable company has programmers but we tend to only
look for jobs "in industry" at the Googles, Microsofts, Facebooks, etc. Think
east coast, foundations of the company not in tech, non-glamorous. Basically
the equivalent of your heart surgeon working in some sort of research instead
of in a hospital on live patients.

~~~
marshray
Most surgeons spend the great majority of their time in a regular doctor's
office or making the rounds in a hospital. I've worked for surgeons and have
spent hundreds of hours in the operating room. Tense moments happen but on the
whole keeping a busy webserver up and running is probably more stressful for
the staff.

~~~
jlgreco
Fair enough, I was under the impression that surgeons had particularly
stressful jobs. I'm sure there are plenty of other examples of inherently
stressful jobs though. Maybe table waiting, depending on levels of business.

Stress in the workplace seems to be to be a function of responsibility and
activity. Speaking from experiance, lifeguard jobs have very high
responsibility but (you hope) very very low activity; meanwhile jobs like
being a farmhand are high activity but usually very low responsibility. Both
of these were the lowest stress jobs I've ever had. Stress seems to go up when
both of those factors are up, jobs with neither activity nor responsibility
probably don't really exist (or at least pay well).

------
protomyth
Truthfully, a young adult shouldn't be buying a house anyway. Owning a home in
a depressed market will increase the length of unemployment for a young adult.
Since you cannot unload the home, you need to find a job within commute range
of your home. This limits the job prospects.

We need to make renting or other alternatives more attractive.

~~~
krschultz
I agree with you whole-heartedly. In your 20s, the best investment you can
make is in your career. These days, that often means moving. Staying light on
your feet and going for the best job for your career is more important than
optimizing cashflow. A couple good experiences in the first 2-10 years of your
career really can set you apart, especially when other people are floundering
in this economy.

------
bearmf
I am sorry, but this guy is an idiot.

He is referring this study: [http://www.conferenceboard.ca/hcp/hot-
topics/caninequality.a...](http://www.conferenceboard.ca/hcp/hot-
topics/caninequality.aspx)

It has a chart of INFLATION-ADJUSTED median after-tax income in 2009 dollars,
from 1976 to 2009. He then takes a figure for 1984 from this chart, around
$48500, and proceeds to compare it to prices in 1984 dollars, without
converting them to 2009 dollars.

So from a house price of 100k in 1984, he infers it was only 2x times median
income then. While in fact, he needs to convert 100k in 2009 dollars and get
around 200k and 4x times median income.

~~~
liber8
Not only that but his other example (cars) is ludicrous. Cars are by far,
without a doubt, cheaper, safer, better made, more reliable, and more feature-
laden than at any point, ever. For $12k (roughly 1/4 the median income), you
can get a brand new, pretty decent car.

Also, just about everything else (save maybe gas) is much cheaper and more
plentiful today than 30 years ago. The Russian athletes and dancers who came
here to compete/perform in the 70's and 80's told many tales of being awed by
common supermarkets. I think if you took Americans from the 80's and brought
them to a Costco, they might not be awed, but they'd be pretty surprised.

~~~
JamisonM
Although he opens mentioning buying a car in 1986 what he actually says is
that cars have pretty much matched the rate of inflation. Seems to me he is
saying cars are about as good a deal today as they were back then. I do not
find that ludicrous. The other point to be made about cars is that all those
improvements do not really matter that much in terms of the value you are
getting out of them, cars in the '80s got you from point A to point B just
like a brand new one does today.

(To be completely off topic I would add that computerization in the modern
cars has always been a concern for me, when a 2012 car's computer starts
acting up in 2032 what are we going to do with them? I have a late-ninties
highway tractor and every time I have a wiring problem with it I am pretty
worried it will become more expensive to fix than it is worth despite being
mechanically sound.)

~~~
learc83
>The other point to be made about cars is that all those improvements do not
really matter that much in terms of the value you are getting out of them.

Cars today on average run much longer than cars did 30 years ago, the get
better gas mileage on average, and go longer between scheduled maintenance.
How is that not added value?

~~~
JamisonM
For one thing the better gas mileage is not much of an improvement from the
mid-eighties, gas was much cheaper then ('78-'84 prices were high, inflation-
adjusted still not as high as right now though except maybe in 1981). If you
buy a new car and your issue is capital or cash-flow how long the car lasts
will not be a significant factor in your purchase. Don't get me started on car
maintenance! You can hardly touch a modern car anymore yourself, you pretty
much have to pay someone to do anything. But I will concede that a modern car
needs a lot less work.

------
aeturnum
I think part of this is that young adults have a harder time doing what our
parents did at the same age.

When I was trying to rent my first post-college place with my girlfriend, my
parents didn't think we would need a co-signer. They had gotten all their
apartments, years ago, with a handshake and an understanding they had word.
After they realized things had changed, they were happy to help, but it took a
while.

I think there are many people, who are divorced from the experience of being a
young adult, who think "kids today" aren't achieving like their parents did.
They're right - we aren't living in the post-war prosperity - but I think
young people are also achieving differently. Even if the things our parents
did were the same price, how many of us would do them?

------
moocow01
We should be burning the financial system to the ground... well maybe not
literally but pretty damned close.

The despicable thing is that the insanely rising cost of education is just
plain class warfare under a veil of financial hocus pocus and it takes aim at
what I see as developed society's achilles heel. Education is the root of
everything that underpins our current and future society. You kill that and
you are tinkering with killing just about everything of social value in X
years. Look at any country that has a weak education system and the
correlation is extremely clear.

Our current education system is/was a very very good one that now is largely
unaffordable and increasingly inaccessible. Complaints about the impractical
value of certain degrees has merit but on the whole the US education system
has provided an environment that has fostered a class that by enlarge has been
one of the most creative, productive, and compassionate of this past century.

I really fear that our current trajectory in the opportunities for one to
receive rich educational experiences is going to inevitably lead to our
society being stagnant at best.

~~~
fennecfoxen
The financial system has tons of problems, but it's a hell of a lot better and
more democratic than a world where there is no avenue for the wealthy and the
middle-class to share in ventures. You and I and our neighbors can buy stocks
in big companies and earn returns to save for retirement; we can (at our
discretion) have rich jerks fund our little startup and launch businesses we
couldn't otherwise. We can borrow money to buy a house, and enjoy the
stability and independence that such a purchase provides for the next couple
of decades while we pay it off, instead of saving up while we're renting and
enjoying none of that.

But of course no one who's been through an introductory economics course
should be surprised that subsidizing the purchasers of a good or service (like
education) makes the price rise. :)

~~~
moocow01
What you describe is also my definition of a healthy financial system but IMHO
we are increasingly moving away from that description and I think the fact
that socio-economic mobility has been decreasing in the US somewhat verifies
this.

Just about everyone can "share" in economic growth in the US. That is
positive. But the problem is that the financial vehicles accessible to most
are increasingly weighted to capture less of the percentage of capital gains.

------
DanielBMarkham
_But other comments reflected a view that today’s young adults should just
grow up._

Hmmmm. Bullshit alert going off.

Every generation needs to come of age, get their education, look around in the
world, and fit in. Many times this involves a lot of protesting and asking for
change, complaining about the way things currently are, and experimenting with
various alternative lifestyles. This is good for everybody.

What some observers see -- probably because of the way the press reports it --
is a lot of kids who are ass-deep in debt, lack the education (even though
they've graduated from a nice college) to be employable, and instead of
adapting to the world as they see it, are stuck in a mode of complaining and
waiting around until something comes their way. This is by no means all of
them, but kids like that make for a good newspaper story: "Still living in his
parent's basement at 35, Joe Smith emails out 100 resumes per day before going
to the Starbucks and playing MMORPGs all day. 'I'm just not sure where the
management jobs are,' the Art History major says...."

To a story like that, sure, people will say something like "perhaps instead of
insisting the world conform to your ideas, you should learn to like the world
as it is and adapt. Many have found that this leads to a happier life." or the
shorter form, "grow the hell up, kid!"

People who offer this advice are not trying to be callous, cruel, or
insensitive to the plight of the young. Nobody is saying to give up on your
dreams. It's just that big goals like being an astronaut often begin with
flipping burgers down at the Mickey D's, even for people with 4-year degrees.

Like I said, I blame the press for setting up this "fight". If you ask me,
most college grads already have this figured out.

~~~
rprasad
Flipping burgers at McDonalds is a good way to get your foot in the door if
you work at it. Shift managers can make $50-75k, and location managers
frequently top $100k. Given the high rates of turnover, such positions can be
earned in 2-3 years (for college graduates).

Moreover, McDonalds has an extremely generous education assistance program,
including full-ride scholarships to business schools for employees who qualify
for its executive training program. A high percentage of McDonald's executives
are promoted from within. And like Dominos, a vast majority of McDonald's
franchises (which clear >$1 million/year, on average) are owned by former
employees. (Don't remember what the % is for McDs, but for Dominos, their
pizza box claims >95% of their franchises are owned by former employees.)

~~~
impendia
When I worked at Hardees (mid-90s, but inflation hasn't been so high since
then), I happened to see my shift manager's paycheck. She was making like
$20k/year.

Perhaps shift managers _can_ make $50-75k, but I'd be surprised if it's
common. If you have a reference that shows otherwise, I would be very curious
to see it.

~~~
rprasad
I did specify "McDonalds" for a reason. McDonalds has always had great
employee relations. In-n-out is even better than McD's in this regard, but the
total opportunity for growth is limited because of the smaller footprint.

Hardees (Carl's Junior in the west) is almost the polar opposite of McDonalds.
Its founder was a vocal opponent of labor laws, and for a while in the 1990s
was one of the principal financial backers of the effort to repeal the minimum
wage and overtime laws.

------
larrys
Cars are a bargain relatively. An example low end of the Mercedes line in 85
was a 190E about 30k. That's $58k in today's dollars. Current low end is MB
C-Class MSRP about 34,800 (so you are probably talking a few thousand more
with options but less a discount brings you back to that amount approx.).

A much better car for only a little more.

~~~
afterburner
Mercedes prices actually did go down relative to standard car prices. Pointing
at Mercedes alone doesn't really show much.

------
medell
Similar tone to an excellent article about last year's hockey riots in
Vancouver from an angle most of the media did not take. It's by no means an
excuse, but I agree most of the troublemakers were youth from the suburbs
disenchanted by many of the same economic reasons: "What does the future look
like for the average 20 year old? It's a depressing, empty place where they
can't get decent-paying (let alone secure) jobs or ever have a hope of owning
property."
[http://www.straight.com/article-399635/vancouver/vancouver-h...](http://www.straight.com/article-399635/vancouver/vancouver-
hockey-riot-symptom-larger-problem)

------
tosseraccount
He's picking on a couple of numbers: cost of education and cost of housing.

Both have outpaced inflation. Canada's had the same commodities boom as
Australia, Chile and Russia. Housing bubble obviously hadn't hit. yet. ( I
hear they balance their budget and don't give away tax deductions for going
into debt so maybe they won't have as bad a one).

Other obvious question is : have houses improved over almost 30 years making
the question of average priced house then vs average prices house now a bit
cloudy.

$6000 for tuition??? Not a bad deal. Canadian government must be subsidizing
it. Maybe it was higher subsidies back then.

Bottom line cherry picking your comparisons are hard.

Unemployment was worse then:
[http://research.stlouisfed.org/fred2/graph/fredgraph.png?...](http://research.stlouisfed.org/fred2/graph/fredgraph.png?&id=UNRATE&scale=Left&range=Max&cosd=1948-01-01&coed=2012-04-01&line_color=%230000ff&link_values=false&line_style=Solid&mark_type=NONE&mw=4&lw=1&ost=-99999&oet=99999&mma=0&fml=a&fq=Monthly&fam=avg&fgst=lin&transformation=lin&vintage_date=2012-05-11&revision_date=2012-05-11)

But duration was better :
[http://research.stlouisfed.org/fred2/graph/fredgraph.png?...](http://research.stlouisfed.org/fred2/graph/fredgraph.png?&id=UEMPMEAN&scale=Left&range=Max&cosd=1948-01-01&coed=2012-04-01&line_color=%230000ff&link_values=false&line_style=Solid&mark_type=NONE&mw=4&lw=1&ost=-99999&oet=99999&mma=0&fml=a&fq=Monthly&fam=avg&fgst=lin&transformation=lin&vintage_date=2012-05-11&revision_date=2012-05-11)

~~~
mattmiller
I hear the argument about how products have improved over time and how that
justifies their increased price and I don't buy it. It makes sense if people
still have the option of buying the 1980s house in which case purchasing a
2012 house would be an expensive luxury. But people can't get the 1980s house
for the 1980s price so we must conclude that housing prices have inflated.

------
joshuahedlund
But... but... today's young adults have the Internet!

I'm being slightly facetious, but technological advance has gotta count for
something, right? (ex. new cars may be expensive, but is it easier to find
used cars these days with Craigslist, etc?)

~~~
mattmiller
If you look at the numbers as percentage of income instead of dollars then we
can see the percentage of income that an item costs go up if the item has
advanced (ie better cars, better refrigerators, better houses). If the
percentage of income for one item goes up it must go down for another. Since
no technologies get worse over time which expenditure is suppose to become
less of a percentage of income over time?

------
gpapilion
the author highlights the higher interest rate, but neglects to give a
mortgage payment as a percentage of monthly income. current rates are as
sometimes a third of what they were in the 80s.

------
sparknlaunch12
Generations will always have their differences. Generation X v Generation Y
etc etc

It is easy to compare income/costs however what about non-financial value?

Health and life expectancy

Globalization and travel

Academic and learning

Technology

etc

At least these can apply in the first world [1] and even second world. Maybe
these are all correlated to money?

[1] <http://www.reddit.com/r/firstworldproblems/>

------
planetguy
Article rather specific to the Canadian big cities, in which prices are
currently rather high. Some of this house price growth is transient, some is
permanent.

How much does land cost? In a place like Toronto or Vancouver, it costs _as
much as it possibly can_. That is to say, since desirable land in these cities
is so much more desirable than undesirable land, people will pay _as much as
they can possibly afford_ in order to get a good piece of land rather than a
lousy one.

What this means in practice for most people is: take all the money you're ever
likely to earn, deduct the money you need to spend on other stuff, and what's
left over is the amount of money you're going to wind up spending on a house.
Sure, you can spend less if you want, but you're going to wind up living in a
much worse place, and since (as I just said) the desirable places are much
more desirable than the undesirable places, people are willing to give up,
say, a fancier car, for the benefit of living in The Beaches rather than Outer
Missisauga.

The good news is that things don't actually get _worse_ for people just
because they have to engage in this cut-throat competition for desirable land.
Like I said, house prices merely soak up all the money that's left over once
the necessities are paid for, and if house prices go up considerably in real
terms it just means that the prices of necessities have, in real terms,
dropped.

~~~
michaelochurch
There is an obvious solution to the housing problem, which is to fix
transportation and take pressure off the market. There's one reason urban
housing is so expensive, and it's this: commuting sucks, and finding parking
is horrible, and people will pay immense amounts of money not to deal with
that shit. Obvious simple and right solution: tax the hell out of the
landlords and the very rich, and build the best public transit system the
world has seen.

