
Home Price-to-Income Ratios - alexhutcheson
https://www.jchs.harvard.edu/home-price-income-ratios
======
thundergolfer
In late 1980s Melbourne, Australia my dad and his best friend were accountants
and bought their houses for ~$40,000AUD, ~3 times their annual income.
According to the best friend, this was considered a lot to pay for a home.

In 2020, those houses are around ~$1.8-2M, so ~22.5-25 times the annual income
of someone that has their job today. In Melbourne and Sydney generally,
housing is 10 and ~13x annual income. Above 6-8 is already considered
_extremely unaffordable_. Sydney is 2nd only to Hong Kong in housing un-
affordability.

It's a profound change across a generation. Among my college-educated friends,
the only one's thinking of buying property are either high income (doctors,
investment bankers) or buying in markedly worse (thus cheaper) areas than they
lived in as children.

~~~
ggm
I'm one of your dad's generation and we like to call this "inter-generational
theft" because it kind-of sums it up: the spending patterns we established,
are predicated on leaving our kids (and grandkids, probably) worse off. Not
because of a debt burden, there is nothing wrong with long term public sector
debt financing.

The problem is the asset bubble in home ownership prices. We should have 10+
year secured residential tenancies and rent controls in place, and put home
ownership back into the 3-5% compounding asset class. Sydney and Melbourne is
insane. Brisbane (where I live) is better, but only just.

I worry about Hobart: the longterm income levels in Tasmania are not going to
keep up, the price of housing there is creating a huge social dislocation
issue.

~~~
gowld
What happens to those houses when you die? Are they mortgaged with no equity?
If you leave an inheritance, you are giving the wealth back/forward.

~~~
sgc
And what happens when people live longer and longer, so that people have lived
a longer percentage of their lives without that influx of assets? It is
perfectly common for 60+ year olds to still have their parents living. That
will stretch to 70 year olds, and so on. There is a demographic concern that
needs to be acknowledged in order to develop societal solutions that provide
even basic opportunities such as home ownership at an age when you are raising
your own family.

One potential contribution to a solution would be to tax investment
properties/second homes at a very different rate than primary dwellings (which
should be taxed at as close to 0% as is practically possible). This would help
reduce compounding the effect of demographics with investment portfolio
concerns. If governments are to be at the service of their citizens first and
foremost, it makes sense to me that they also have a specific tax rate or
other restrictions on property ownership by foreign investors. If those things
are not legal, then laws should be changed. They exist in some form in many
countries, but not all. I doubt those opinions are popular, but at least they
are worth thinking about.

~~~
leetcrew
> One potential contribution to a solution would be to tax investment
> properties/second homes at a very different rate than primary dwellings
> (which should be taxed at as close to 0% as is practically possible).

as a renter, that doesn't sound like a good solution to me. my landlord would
just pass through the "investment property" tax to me, while homeowners in my
income bracket would be getting a fat tax break.

people should be assessed a property tax that roughly approximates the local
services they consume. after that, we can think about credits for people who
are genuinely struggling to make ends meet.

~~~
sgc
I understand the renter dilemma. The goal would be to propel you towards home
ownership. If taxes were higher on investment properties purchase prices would
get pushed down, thereby reducing the amount your landlord would need to
charge for rent. Rent will go up with inflation regardless, since landlords
optimize for profit. But all of a sudden there is less of a difference between
what rent costs and a mortgage payment. it is easier to jump out of the
renter's cycle. And that means less demand and lower rents for those who
remain, creating a virtuous cycle. In the medium term (5 years plus) this
would keep rents flat or lower, and reduce housing prices at the same time. At
the same time there is a basic philosophy I espouse that all people have a
right to a home and a piece of land, and unless _absolutely_ necessary to
society, they should not be renting from the government.

I agree that there need to be several other programs in place to support lower
income individuals, including in respect to primary residences, but that is an
expanded conversation in a election year ;).

~~~
leetcrew
so I have two main objections here. the first is that tax breaks for
homeowners tend to benefit the middle class at the expense of those who are
just below the threshold to qualify for a mortgage. unless you just give them
the money or have the government guarantee their debt, this is going to be a
problem. if your idea works really well and housing prices drop a lot, this
could be a pretty small group, but it's still worth thinking about imo.

my second (and very self-interested) reason, is that I don't want to be
propelled towards home ownership. if I really wanted to I could buy a home now
(and probably break even; I live in a low price-to-rent area), but I like
renting. I'm quite happy in a 700 sq ft apartment, and I don't want the work
that comes with a larger dwelling. I'm not exactly hurting for money, but I
just don't see a compelling reason why the alternate version of me who bought
a house deserves a tax break. I'm not sure I'm convinced by your argument that
this policy would also lower my rent, but I'm not an economist so I can't
really say.

> At the same time there is a basic philosophy I espouse that all people have
> a right to a home and a piece of land, and unless absolutely necessary to
> society, they should not be renting from the government.

just wanted to say I can certainly respect this, but I have a very different
philosophy. land, especially in cities, is one of the only truly scarce things
in the world, and its value depends almost entirely on what other people are
doing near you. in our era of prosperity, I can agree that people should be
entitled to a place to live, but I don't believe they should get to control a
specific plot indefinitely.

~~~
sgc
Rentals are almost 40% or the market so it will have a real effect. Of course
this requires more changes to our systems. But given the terrible status of
current US social structure, anything you do worth doing will likely fail
without a number of changes to support it.

There is nothing that makes 700 sq ft something you can't own and can only
rent. That's a condo.

People will still buy and sell depending on their life goals and situations.
If you move, you will be more likely to sell rather than hold your old house
for a rental. Refis will still exist, along with the pressures they create for
some people to sell, etc.

------
bequanna
Comparing income vs median sales price across time isn’t quite as interesting
as income vs. total monthly payment (principal + interest).

~~~
natoliniak
yes, but in many desirable areas a significant portion of buyers are cash only
buyers whose monthly payment is $0 (other than property taxes).

~~~
bequanna
Intuitively, I would say the number all cash buyers is a pretty small number
in every market. Especially in a low interest rate environment.

Most people with the means to pay cash for a property would likely be savvy
enough to understand that that they would be better off getting a jumbo
mortgage at 3.25% and deploying that capital at a higher rate elsewhere.

~~~
scarmig
IIRC San Francisco all-cash buyers were accounting for 25% of transactions a
couple years ago.

~~~
e1g
Manhattan is usually at 50% all-cash. Recently it softened to 40%+, but still
much higher than intuition based on everyday-folks might suggest.

------
Jaygles
I almost don't want to buy property as a protest to the horrible policies we
have regarding basic necessities. Why should property owners be entitled to a
major portion of my productivity/success? I'll rent the cheapest apartment I
can find until the next housing crash or we have some sensible policy put
through that negates the investment aspect of housing.

~~~
OJFord
Is property ownership a basic necessity though?

Or is its prevalence as an ideal a product of a burgeoning middle class
through the last century?

I understand it's not even so common (or common as a goal) now in continental
Europe, they think it's some silly English thing to care so much about home
ownership.

~~~
rorykoehler
It absolutely is a basic necessity unless you wish to remain a serf for life.

~~~
leetcrew
why? there's nothing inherent about owning a house that protects you from
having all your surplus income siphoned away. if most of your wealth is tied
up in the house, you are still vulnerable to property tax increases from
appreciation on the home. not every state shields you from this to the extent
that california does, and even california could change the law at some point
in the next several decades.

I'd much rather be renting and have $300k in a diversified portfolio than own
a $300k house and no other assets.

~~~
rorykoehler
You'd rather have both though right? Obviously it depends on the market and
california is a pretty bad example as an outlier where renting may make more
sense but in most places in the world atm buying is the cheaper and safer (as
in less chance of eviction at short notice) option. On the flip side renters
only pay for increase in property values and never gain. Real Estate is a
major wealth generator for people who get on the ladder. Finally you can't
live in your 300k diversified portfolio if the market crashes.

~~~
leetcrew
I would only prefer a house over stocks/bonds if the price-to-rent ratio was
very low and I could purchase a house I liked for a small fraction of my net
worth.

> Real Estate is a major wealth generator for people who get on the ladder.

ultimately this comes down to luck and how much of your income you spend on
housing vs put into investments. there are certain locales where home prices
are skyrocketing, but over the long term, average home appreciation is
basically flat (but with lots of variance). [0] actively investing in rental
properties is a different story, of course, but involves a lot of work, too.

> Finally you can't live in your 300k diversified portfolio if the market
> crashes.

sure, but rent is only about half of my monthly expenses currently. by the
same token, you can't eat your house or fill up your tank with it. if you're
worried about a crash and/or losing your source of income, you can always
rebalance into bonds.

[0]
[https://en.wikipedia.org/wiki/Case%E2%80%93Shiller_index](https://en.wikipedia.org/wiki/Case%E2%80%93Shiller_index)

------
KoftaBob
Say what you will about Texas government, but they know how to stay out of
people's way and let housing supply keep up with demand efficiently.

California on the other hand, is absolutely pathetic when it comes to this. So
absurd watching a state whose booming economy is funneling most of that money
to property owners pockets. A huge and abject failure that will be in future
economics textbooks as the example of how giving local government too much
power creates huge bottlenecks.

Not to be overdramatic, but NIMBYism and overly restrictive zoning is
California's equivalent to a tumor. Unchecked growth (of housing prices) that
sucks all the resources out of the host (renters and people looking to buy a
first home).

~~~
newnewpdro
By far the majority of renters I know in CA, in SF and Santa Monica, have
largely abandoned any hope of homeownership and live incredibly spendy
lifestyles while they can afford to be in the area.

Eventually, they will wise up, move out of their expensive rentals and turn
frugal - likely outside of these cities with a good possibility of leaving the
state.

In their absence, new young folks in their high-earning high-spending phase
will move in, and the cycle repeats itself.

None of this is bad for California. The state, in the desirable cities, is a
meat grinder drawing in a constant supply fresh, gullible, overpaid talent,
working not just to pay high rents but high _everything_ , including state
income tax, while saving very little. When they get exhausted, they leave, and
make room for more fresh meat.

~~~
thatfrenchguy
> supply fresh, gullible, overpaid talent, working not just to pay high rents
> but high everything, including state income tax, while saving very little

IDK, most people in know in California seem to be saving 30-50% of their post
tax income. That's clearly not the case anywhere else in the world.

~~~
jjtheblunt
Would that mean that, since California + Federal taxes are something like 46%,
post tax income is roughly 54% salary?

If so, they're saving only roughly 15-25% income?

~~~
jedberg
> California + Federal taxes are something like 46%

49.3% is the top rate you'd pay in California at the highest bracket (or 50.3%
if you make over a million) .

If your income is over 2 million a year you'd pay an effective rate of 44%.

If your income is $200K, your effective rate is about 34%.

~~~
chii
at higher and higher incomes, it makes more and more sense to try and deduct
income via investment costs (such as interest on borrowing). So your optimized
effective tax rate would be a lot lower.

------
sologoub
Over 8x seems to be a CA thing mostly (one tile in Oregon bordering CA).

Wonder if we can thank prop 13 for that? (Frozen property tax that constrains
supply and encourages ani-development stance by removing the tax consequences
of appreciating property)

~~~
bcrosby95
I doubt you can lay all the blame on prop 13. It passed because CA home prices
went crazy in the 70s. My parents bought a home in 1973 for $34k and sold it
for $95k in 1978 (the year prop 13 was enacted). A 3x increase in 5 years.

~~~
mikeyouse
Just out of curiosity, I tried to 'ground' those figures to median income to
compare against what's happened in the past few years.

Per the US Census[1], median income in 1973 was $10,500, so the price of your
parents' home increased by 3x median household income.

Looking at a completely unremarkable house in the sunset of SF on Zillow[2].
It sold for $1.725M in Nov of 2019 after selling for $997k in June of 2014.
Household income today is right around $60k, so an increase of more like 12x
median household income in 5 years.

Just madness. (And yes, I know that the median household income in SF is
higher than the nationwide, but that'd apply in the past too.)

[1] -
[https://www2.census.gov/prod2/popscan/p60-096.pdf](https://www2.census.gov/prod2/popscan/p60-096.pdf)

[2] - [https://www.zillow.com/homedetails/610-Rivera-St-San-
Francis...](https://www.zillow.com/homedetails/610-Rivera-St-San-Francisco-
CA-94116/15118110_zpid/)

~~~
cjhopman
That's a bad example, that home was completely remodeled between the two
sales.

~~~
mikeyouse
Fair to a point, it was merely a random click on a recently sold property, but
it was a $20,000 kitchen remodel (permit 201608084481), a $7,000 bathroom
remodel (permit 201408113562) and a new roof for $7,500. So not sure if it's
really a bad example when 5 years + $35,000 in investment adds over $700k in
value to a home.

You can review the permits here:
[https://dbiweb.sfgov.org/dbipts/default.aspx?page=PermitType...](https://dbiweb.sfgov.org/dbipts/default.aspx?page=PermitType&SearchBy=PermitNo)

~~~
cjhopman
That's really cool thanks, didn't realize you could just look up the permits
like that.

I'm not sure what those values in the permits really mean, but they can't be
the total costs. Hell, the kitchen remodel probably has $20,000 just in
appliances.

According to [https://blog.housemanager.calstate.aaa.com/blog/how-much-
wil...](https://blog.housemanager.calstate.aaa.com/blog/how-much-will-bay-
area-home-renovation-cost), the price for a mid-range kitchen remodel in SF is
~$83,000, $65,000 for the bathroom and $30,000 for an average roof
replacement.

Looking at the pictures of the kitchen
([https://www.zillow.com/homedetails/610-Rivera-St-San-
Francis...](https://www.zillow.com/homedetails/610-Rivera-St-San-Francisco-
CA-94116/15118110_zpid/?mmlb=g,20)) and bathroom
([https://www.zillow.com/homedetails/610-Rivera-St-San-
Francis...](https://www.zillow.com/homedetails/610-Rivera-St-San-Francisco-
CA-94116/15118110_zpid/?mmlb=g,40)) those numbers seem like they're probably
closer than the permit numbers.

It looks like they also remodeled the half-bath as it matches the remodeled
master.

It's probably more like $100-150k in renovations.

~~~
mikeyouse
Yeah the city sets prices based on the square footage being renovated and:

> _" The valuation data is based on information provided by a variety of
> sources, including without limitation, local contractors, design
> professionals, cost estimators or nationally published construction cost
> data books or websites."_

[https://sfdbi.org/sites/default/files/Cost%20Schedule_0.pdf](https://sfdbi.org/sites/default/files/Cost%20Schedule_0.pdf)

So it looks like SF figures $98/sq ft. + $10,561 for the kitchen remodel and
$8/sq ft. for reroofing, etc.

In either case, even if it did cost 3-4x that permit amount, we'd be talking
about 10x the median household income instead of 12x over those 5 years. Still
just a crazy situation.

------
bradlys
While we're on this subject - does anyone know how median household income is
actually calculated within the USA? I feel like there's some weird distortion
bubble within the bay area because I've seen the data on household income
within the bay area and the amount of households under $100k/yr seems way too
low. Individuals under $100k/yr would make sense but households? No - it
doesn't add up.

For instance, the median household income in SF is around $100k/yr. By its own
measure in SF - $100k/yr is considered poor for a household of 4. I have a
hard time believing that somewhere around 50% of residents in SF are poor.

I feel like something is off with the way this is measured. How can it be that
a large amount of housing is SFH (can't be rented on a $100k/yr income), about
half of people rent here (thus - half of people can't be prop 13
beneficiaries), and yet the median income is $100k/yr? The median rent in SF
is beyond $2,500/month - which is the max a $100k/yr household can afford.

I've looked at the stats a bit and it just feels like the incomes are
estimated to be too low across the board for households. I see way too many
homes/apartments where there are 3+ working adults.

If I look at all the people I've worked with or socialized with - I can't find
a single one where the household income was below $150k+. I know there's a
bubble in terms of what I've worked with or interacted with - but the truth is
that anyone below $100k/yr income was very likely renting with someone else.
(Which would push the household income higher)

~~~
thorwasdfasdf
gotta remember 75% of SF is rent controlled. Plus, if your income is below 60%
or 40$ of median income you can get nearly free housing from subsidized
housing.

~~~
bradlys
But this applies outside of SF too - I used SF as a relatable entity. Santa
Clara and plenty of other cities without rent control are the same.

Subsidized housing is not very common within the bay area. I doubt 20%+ of
people are living in that...

------
KennyLogins
This map looks more like the result of a highschool project, not Harvard
published data. I wish they would have linked the specific sources and labeled
more on the map.

~~~
ianai
Without looking at their data, I can vouch that this sort of data may be
prohibitive to access. The players involved don’t see data as something to be
given out freely IME. It’s probably provided in a technically difficult to
parse way-just to add insult to injury. Enough so that the simplicity of the
presentation is remarkable.

------
throwmeaway999
I used to make about $600K/yr salary in SF and couldn't imagine affording a
home there that I'd feel comfortable with a 30-year mortgage payment on.

~~~
sadasy3748
I currently make 600K / year in SFBA and don't feel comfortable buying a home
(2000+ sqft in a good neighborhood is 2.5M) We rent for $7K / month but our
mortgage would be 14K a month if we bought.

I am not sure how much money I would need to make to do this.

My worry is that I lived through 2 recessions and we'd almost certainly lose
everything if I lost my job and couldn't afford the mortgage.

~~~
6gvONxR4sf7o
At that salary, you should be able to save pretty quickly to put more than 20%
down. Live like you're only making $150k/yr and you can buy a $2.5M in cash in
a decade if you prefer a $0/month mortgage.

------
salty_biscuits
This plot suffers from my pet peeve for geographic display of data. Small
areas will have all the interesting details (e.g. extreme outliers in inner
city areas), and you just can't see them from a zoomed out perspective.

~~~
kaybe
Do you have a favourite solution for this problem?

~~~
salty_biscuits
No, but I would love to hear about one.

------
gbronner
Restrictive governments in coastal cities (Boston, NY, SF, LA, now Seattle) as
well as a few places where people, often retirees, are asset rich but income
light (N. Arizona, S. Florida, some parts of Colorado) are limiting nationwide
growth.

It is a shame that there are no national supply-siders in congress who are
willing to to 'encourage' coastal building.

------
6gvONxR4sf7o
Whenever these graphs come up, I want to see the median ratio between sales
price and income, not the ratio between median sales price and median income.
I expect they'd be very different. But that data isn't so readily available,
so report what you've got I guess.

------
mNovak
For anyone wondering how these price multiples translate to a fraction of
median annual income paid on mortgage..

Briefly poking around a mortgage payment estimator (assuming 20% down, 3.75%
30 year fixed rate), annual mortgage payments come to roughly 7.2% of purchase
price (including tax and insurance). Slightly higher towards $100k price
(7.8%) and slightly lower towards $1.5M+ (6.8%), but lets say 7.2%.

So, for a house priced at X times median income, you're paying 0.072X of
annual median income every year into mortgage payments. 2-3x in the chart
means 14-21% of income spent on mortgage. 8x means 57.6% of median income
spent on mortgage. (Quick reminder that 20% down on an 8x house is 160% of
median annual income in the first place)

------
RickJWagner
I grew up in the 70s in a two-story house with 4 bedrooms (5 if you count the
unfinished basement) with Mom and Dad, plus 8 kids. A total of 10 people in
the house. No air conditioning until later years, two bathrooms, no garage.

My wife and I, with our 3 kids, currently live in a house that's bigger and
has 5 bedrooms and 3 1/2 bathrooms and of course the cars are housed. It's
more luxurious in every way than the house I grew up in.

I think this situation is not uncommon. Sure, houses cost more. So do cars.
Both last longer, are more energy efficient, have more amenities, and are
better in just about every way. I'm not surprised they cost more.

------
ianmobbs
I wonder if this is due to stagnant wages, excessive home price inflation, or
both.

~~~
RugnirViking
A bit of both, and also a sprinkle of the interest rates going from almost 20%
at points in the 80s, to essentially 0% today, meaning people can afford to
borrow a lot more at once, and home sellers profiteering off this.

~~~
fiter
Just to give an example: a 30 year mortgage for $300,000 at 4% is about $1400
per month where a 30 year mortgage for $100,000 at 17% is about $1400 per
month. That can explain a 3x multiplier in the home price to income ratio
assuming that people purchase based on what they can afford monthly.

------
thorwasdfasdf
for some reason, it's getting harder and harder to build shelter. Shelter is
becoming increasingly expensive and increasingly less affordable. This is in
stark contrast to the progress that humanity has made in many other
industries.

I think it's about time we started asking why. Most people don't understand
why. Why is it so hard to build shelter. Why is something we've done for
hundreds of years so well, all the sudden become so hard and so innaccessible
that only the most elite can afford it.

~~~
neilparikh
The reason is fairly obvious. In most of the places (SF, NY etc.) where
housing is expensive, it is illegal (or very difficult to get approval) to
build new housing.

------
baroomba
Cross-reference with school quality and you’ve got a map I’ve wanted for some
time. Difficulty: it’ll be less useful the more people have access to it :-/

~~~
ccvannorman
I may be interested in building such a map. Pm me (check my profile for
website, which has my email).

------
H8crilA
There is no bubble in technology

 _looks at TSLA $650_

~~~
xmprt
I'm not a TSLA shareholder because I don't really understand how the company
is being valued but I also wouldn't be surprised if the stock price goes
beyond $1000 within the next 2 years.

------
weaponizedwords
Anyone know what caused such a jump around 2001-2003?

~~~
ldayley
Post dotcom bust and 9/11 interest rates were dropped significantly to spur
consumer spending.

~~~
weaponizedwords
interesting, so interest rates go down and prices go up then?

~~~
ldayley
Lowering interest rates makes borrowing cheaper, and it has the effect of
putting more money to work faster. It’s one of the basic tools of economic
policymakers.

------
maerF0x0
This data makes me wonder why taxation doesnt take CoL into account? "Lower"
salaries in the Bay Area are upper tier tax brackets.

~~~
AWildC182
This is a feature, not a bug. This helps prevent everyone from completely
piling on top of desirable places and further driving prices up, as well as
effectively subsidizing poorer places cover the remaining 99% of the US.

~~~
maerF0x0
Why shouldnt people pile onto something that is desirable? Isnt that
effectively a market making their decision?

------
starpilot
[https://en.wikipedia.org/wiki/Matthew_effect](https://en.wikipedia.org/wiki/Matthew_effect)

~~~
swiley
Yes but we also artificially make it worse with the way we build and sell
housing.

