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Housing can’t both be a good investment and be affordable (cityobservatory.org)
478 points by DoreenMichele 3 months ago | hide | past | web | favorite | 377 comments



A lot of people here are playing semantics and ignoring the message of the article just to be "clever". The message of the article is we can't have our "housing values are always increasing" cake and eat our "housing is always affordable" dream too. If we want to keep housing affordable, we'll have to settle for valuations staying pretty much constant in real dollars forever and resign ourselves to be happy with only the savings opportunities everyone here are so cleverly pointing out.


> If we want to keep housing affordable, we'll have to settle for valuations staying pretty much constant in real dollars forever

This is basically the argument for buying into a co-op rather than buying an apartment. You aren't allowed to flip them for a profit, which means they're less expensive because you're giving up optionality. (At least when they actually are implemented as originally intended.)

To me this makes a ton of sense, because there are a lot of benefits to home ownership for both the individual and society, but real estate generally isn't a good place to put investible dollars unless you're super wealthy and just want some (relatively) predictable income from renters.

What we really need though is public housing for the middle class and upper middle class, rather than just for low-income families. Right now public housing is basically just a scam to transfer money from the middle class to the super wealthy by using money from the middle class to subsidize labor at below a living wage, when in reality everyone needs a house so it's a textbook example of a market where there should be a public option.


In Singapore, 90% of the housing stock is public housing -- including plenty of fairly upper-class developments. They public housing in a variety of sizes and styles, and to suit every income bracket, thus ensuring that there is no stigma associated with it. Then they use their control over the housing stock to engage in some completely overt social-engineering -- ensuring that no one neighbourhood becomes too concentrated in a single ethnic, religious, or economic bracket.

This is a very long way from how the West does things, but I've got to say that it works exceedingly well there.

(Disclaimer: not an endorsement of All Things Singapore.)


To relate it to the main article: public housing in Singapore is affordable and an investment.

You can sell it and prices are somewhat market driven but with complicated taxes and limitations to prevent speculation (flipping). It's affordable because, as public housing, there are numerous subsidies, incentives, etc that the government provides to make the initial down payment and subsequent installments as easy as possible.


A friend who is in the Singapore market right now mentionef that his mortgage payments would be nearly the same as his rent, thanks to the incentives the government gives for home ownership


Singapore also has absolutely massive fines for using your home as an AirBnB. In a well-functioning market AirBnB doesn’t matter much, but when supply is artificially constrained via zoning etc, the $150-per-night income from your $1500 per month home is hard to beat.


> massive fines for using your home as an AirBnB.

it still exists, and you avoid it by claiming to be a relative visiting. Just make sure you don't bring large amounts of luggage thru the front lobby, or make a nuisance in the building.


Facilitating a citizen in breaking a not unreasonable local law is not something a responsible tourist ought to consider. As a tourist you are a guest of the country you visit; behave as one.

Besides, Singapore is a nation where you probably don't want to break any laws a foreigner. Abetting fraud often is a punishable offence, and you might just become part of a crack-down on illegal subletting to set an example.


I agree with the visitor point.

That is not an argument for implementing it at home.


Oh yeah, I (of former communist republic origin) have missed constantly looking over my shoulder so much...


Vienna also has a significant amount of public housing: http://cityobservatory.org/housing-policy-lessons-from-vienn...


Co ops are just apartments whose land is owned by a corporation. The corporation usually has a perpetual interest only loan on the land. So when you buy a co op you are leasing the land and own a share in the apartment. You tend to give up options but no one really benefits. I don’t know other markets but condos in nyc are prob 30-50% more valuable in part due to these options. It’s cheaper but only because it’s objectively worse as anyone who had to deal with a co op board can attest. You can make things cheaper by making hem less valuable sure, but that’s just destroying value for no reason. Imagine you don’t like how expensive cars are so you make it so that you need a background check and waiting period to buy a car. Will new car prices go down? Probably, but that’s not a good thing


A cohousing community done well can be a dramatically superior quality of life worth extra cost.

https://www.youtube.com/watch?v=DmWrx0ntATU


That's cool, but that's also not what a coop is, at least in the context of this thread.


The living arrangements in the video are absolutely co-ops. I'm not sure I get how the context is different, other than that there exists other mediocre (or worse) cohousing co-ops.


“No one benefits” is not an accurate statement at all.

The purpose of a coop is to be able to choose your neighbors in the building.

The reasons for doing so could be indefensible, like keeping out blacks and Jews, or they could be things like ensuring the financial health of the building, blocking people who will engage in endless construction, or avoiding drama by excluding celebrities that draw paparazzi.


Shouldn't it be cooperative instead of corporation?


I live in a super well run coop in NYC, and it's cheap.


In Helsinki each building is owned by a maintenance company - a company that takes fees to cover basic expenses, but which isn't allowed to generate a profit. You don't buy a flat, as such, instead you buy shares in the holding-company.

In short all flats/apartments are cooperatives, but still profit occurs when they're bought and sold. The structure and profit/loss are unrelated.


There isn't really any law that disallows housing cooperative from generating profit per se , but generally there isn't any reason for it to do so. Some very old ones actually do pay dividends and do not ask fees from owners, but that usually requires that the cooperative is debt free and has a way to generate income (i.e. owns some of the apartments/business premises that it rents out) and that it has saved up enough to pay off planned maintenances.


Interesting stuff, thanks for the clarification.

(I suspect I'm going to find out a lot more about this stuff soon, as I own a studio which is due for some pipe-work .. Joy!)


That sounds similar in practice to a "condominium" in the US. You own your specific apartment and also a share in the whole building.


> You aren't allowed to flip them for a profit

You most definitely are! At least in New York City. There tends to be a flip tax, but that is just a mechanism of funding the corporation, and it's not the reason prices are lower. (Prices are lower because coops tend to be much less flexible about renting. Many forbid it entirely, and those that allow it will have limits like at most two years out of every five. That basically means there's a class of buyer -- real estate investors -- who have no use for coop units. Lower demand at a fixed level of supply leads to lower price.)


> There tends to be a flip tax

But that can take the form of 90% of any increase over the purchase price if you sell within the first five years, which effectively removes any economic reason to purchase for short term speculation.


It can, but I've never heard of a building where this is actually the case.


I’ve been thinking about this a lot lately. I want my children to be able to afford to live near me if they want. I own a house and would gladly relinquish my ability to sell it at a profit if it meant keeping prices affordable for young folks. I’m not sure what the real solution is, though.


Luckily you don't have to do anything to make that happen.

Housing is going to correct in a serious way, and soon.

Quantitative easing artificially keeping lending rates low screwed the housing market. That's in the process of correcting in a major way.

At the same time, the increasing rates are going to hit the stock market in a bad way, decreasing general liquidity for down payments.

The real headline is: "you can't keep high prices and increase mortgage rates amidst stagnant incomes."

A few other considerations:

Baby boomers are a huge population. The generations afterwards simply don't match their numbers. That generation is still primarily homeowners. As they age, that's no longer going to be the case, and the supply constrained market is going to reverse as houses get handed down or put on the market.

New developments and construction/renovation are targeting higher-end buyers, which makes affordable housing hard to find. But as everyone races to chase the higher end buyer, eventually there's going to be an over-supply and the market will tank. This was in part one of the contributing factors to the 2008 crash - new developments ended up as wastelands that eventually ended up as "affordable" housing because the buyers disappeared.

Personally, even though I'm open to buying a house at the moment, I'm staying the heck away from the market. I'm already seeing properties in my area sold a few months ago put back on the market initially for more, but then dropping the price below what they bought at.

We're approaching the cusp of the upward wave, and as rates increase, a lot of people that bought in the past two years are going to be stuck with whatever they bought into for a good while.


The sooner the Baby Boomer stop being consumers, the better, in regards to the rest of society. As a voting block and as a consumer group they've been large enough to completely reset the status quo.

I love my Baby Boomer parents, my aunts and uncles, and their friends -- but from a purely economic standpoint they've had their way for too long (extending to politics and societal-norms) and ultimately have hurt those of us in the later generations more than they've helped us.


That's tantamount to saying that life now is on balance worse than it was in the pre-boomer period. Personally I'm pretty happy the societal and technological advances of the last 50 years have happened. The idea of living in the 1950s doesn't particularly appeal.


Yes and No. The trick is that "as a whole" people change attitudes through life. In general, as you get more wealth, you become more conservative, as you get older, you generally end up with more wealth, so in general people become more conservative as they age.

The trick is that the baby boomers made a lot of progressive changes when they were younger, and we shouldn't take that away from them. However those changes were largely made since they benefitted the younger baby boomers.

As they get older, they are still influencing society in a way that largely benefits them over others, and sine they are wealthier, that tends to be in the direction of wealth creation.

Of course, every generation does this, the baby boomers just have an oversized representation, they have a better ability to "distort" the market/political landscape.

Of course this is all about generalisations, there are plenty of anecdotes that will refute parts of these stories, but anecdotes are not trends.


> Yes and No. The trick is that "as a whole" people change attitudes through life. In general, as you get more wealth, you become more conservative, as you get older, you generally end up with more wealth, so in general people become more conservative as they age.

You make it sound as being conservative is a bad thing. Alternatively, you could phrase it as, people become more conservative as they gain more responsibilities and experiences. Overall, I think it's a good thing, because it means that change happens slowly, which makes it easier to undo bad changes.


My grandma used to say, “you’re liberal till you grow up”.


> That's tantamount to saying that life now is on balance worse than it was in the pre-boomer period

I don’t follow your logic there at all


On this point:

>...ultimately have hurt those of us in the later generations more than they've helped us.

That seems to be saying the things they have done have made the world a worse place to live in.


I feel the same way. There is a fair amount of stigma that boomers also look down on millennials. As a result, I think there is a bit of a dim view the opposite way: seeing a generation that has been able to take and control so much while resenting the one coming next.


I've seen this all before, in the 1970's. Nothing new here. Just the name changed, then it was the "Establishment" instead of the "Boomers".

You can see it in the movies of the time, too, starting with "A Summer Place".


>The sooner the Baby Boomer stop being consumers, the better, in regards to the rest of society.

To make your comment explicit, you are cheering on the death and decrepitude of millions of people. I hope your children are kinder to you.


I hope I’m not telling my child they are lazy, entitled, or other generally ignorant statements about their generation and the society I hand down her.


Older generations have always made those same complaints about younger generations since humans first evolved. We like to think that we'll act better than our parents, but in the end it's just human nature.


It’s unusual for one generational cohort to control so much for so long though, so a lot of what we’re seeing with Boomers is new.

Boomers are an unusually large cohort that arrived basically at once. They are a much larger group compared to their parents and children. That alone guarantees economic and political distortions, as it means that an unusually high percentage of the population would be in a very narrow range of ages.

They also lived unusually longer than their parents too, by about 20 years so far. Their parents had to share power with the Boomers because they started to die out, with the Boomers this hasn’t happened at all. This means they took the mantle of power in unusually large numbers, didn’t need to share with their children, and lived so long that they’ve stunted the political and economic growth of younger generations. That Boomers are still clogging up the lower rungs of power is literally stunting the growth of Gen X and Millenials, which will be a problem when that cohort is forced to take over due to mortality.

Under normal circumstances no generation is ever in the majority, and the mortality of their parents and themselves ensures that they cycle into and out of power smoothly. This gives every generation the ability to transfer social and economic power smoothly, as well as maintaining a good worker to retiree ratio. The Boomers however have basically upset that balance by existing in a tight cohort and living unusually long.

So yes, parents shitting on “kids these days” is as old as humanity, but what we’re seeing with Boomers is actually quite new.


Don't forget their most important advantage: they grew up and came of age during the post-WWII boom period, and therefore enjoyed unprecedented rates of wealth and standard of living increases.

You know, in direct contrast to Millennials, whom they enjoy criticizing so much.


> unprecedented

I don't think so:

https://www.thebalance.com/us-gdp-by-year-3305543 https://www.nber.org/chapters/c1565.pdf

The most spectacular rise in the standard of living in the US was in the 19th century.


Millenials have also enjoyed a decade of economic boom 2008-2018, so it's not a specific advantage that boomers had that millenials did not have.


> Millenials have also enjoyed a decade of economic boom 2008-2018

Both the expansion after the 2001 recession and the one after the Great Recession were strong in aggregate terms but unimpressive unless you were in a narrow slice at the top when you look at distribution; this is very different from the post-WWII expansion (even the 1980s and 1990s expansions were better distributionally than the later ones, though worse than earlier ones.)

The expansion that centered the Boomer experience and provides the experiential basis for the belief that effort is sufficient for success was different than anything Millennials (and even, to a lesser extent, Gen X) experienced.


And quite a few of them have had their economic outlook badly damaged by the crash preceding 2008. Millenials who graduated before 2008 still have a lower salary on average than the younger members of their cohort.

In inflation adjusted terms, Millenials are far poorer than their parents for their phase in life on average. The latest number I can find is 20% less earnings than their parents at a comparable age.

Now Forbes argues that that’s because Millenials are extremely educated, their parents were working 4-8 longer than they were in their late 20s, giving Boomers more time to earn wealth.

While that’s certainly part of it, I don’t think it explains it all. The social contract around who gets the spoils of a growing economy seem to have shifted significantly since the 1980s. That an uneducated factory worker Boomer earned more in inflation adjusted money than a colleges educated Millenial indicates that something is up.


> They also lived unusually longer than their parents too, by about 20 years so far.

Life expectancy hasn't increased by 20 years. Maybe 1 year.


Life expectancy in 1946 was 64.4 for men and 69.4 for women for an average of 66.9. Now it’s an averages 78.6, 12 years longer.

And US life expectancy has dropped 1.5 years recently due to opioid deaths. Drop that from the equation and you’re looking at nice even 80.

I’m sure there’s a lot of legitimate quibbling to be done over my numbers. Obviously 20 wasnt the right number, but also obviously the general point stands: Boomers have lived a lot longer than anyone expected them to. If they lived as long as their parents had on average, we would be running out of them already.

As an aside. The above numbers really explain why social security and other pensions are in so much trouble. The greatest generation expected to receive only a few years of benefits on average, 1.4 for men and 4.4 for women. A tiny proportion of a worker’s lifetime wages would be required to cover these costs, better still since multiple workers would exist per retiree. Boomers on the other hand are legally entitled to a solid decade or more worth of benefits, an increase of an order of magnitude in time, not to mention increasing health costs. This combined with the unusually high ratio of retirees to workers, again caused by the unusual size of the Boomers, is a recipe for disaster.


Remove infant mortality from those numbers. There has been dramatic improvements in infant mortality, and IM really drags down the average.

A realistic figure for your position would be life expectancy at age 20.


An excellent point. This data was much harder to find, but I finally got it.

You are correct in that infant mortality rates have had a huge impact on life expectancy as a whole. An infant in 1900-1902 could expect 49.24 years, while one born in 2003 can expect 77.4.

But non-infant life expectancy has risen pretty dramatically too. A 20 year old in 1900-1902 could expect to live another 42.79 years, while a 20 year old in 2003 could expect another 58.4 years.

This trend continues the further up the age bracket you go. A 30 year old in 1939 could expect another 39.67 years, while that's up to 48.9 by 2003, a solid gain of 9 years.

Of course, Boomers are not 20 in 2003, they were 20 somewhere between 1966 and 1984. So the gap between the Boomers and their parents is a bit smaller than that (although the gap between Millenials and the Greatest Generation is huge). By my very rough estimate, the gap between the Boomers and their parents life expectancy hovers around 4-7 years, depending on how large the age gap between the Boomer and their parent. The gap appears to get the biggest around middle age, presumably because of improvements to medicine and reductions in Tobacco usage.

I tried to list out the data points I'm looking at, but it just didn't work in sentence form. Instead look at the raw data at [0]. Table 11 is my source, but I was just looking at all races and genders. Presumably one would see different results once you start breaking it down by demographics.

0. https://www.cdc.gov/nchs/data/nvsr/nvsr54/nvsr54_14.pdf


Their parents fought in WWII. That's enough to cause some distortions in life expectancy.


The Boomers' parents didn't die in WW2, as Boomers were born post-war.

Baby booms after terrible wars are common. I read that when the end of WW1 was declared, people were copulating in the streets of London.



Not at all—morally and with a humanistic-bent—I don’t cheer for the deaths of my loved ones or their peers. But like taxes, death is inevitable.

Economically, I’ll consider it from a Machiavellian perspective:

The sooner limited, choice, resources are freed up for the younger generations the better. The Old were useful because they spawned, and raised, the young. As replacements, knowingly.


You’re being downvoted, but I agree with you. Having a system where the old benefit at the expense of the young is a shit way to organize things.


>But like taxes, death is inevitable.

Taxes yes, but I am not so sure about death.


Well your comment has been immortalised in hall of infame:

https://www.reddit.com/r/ShitHNSays/


Sidebar:

Are we about to venture into a trans-humanist discussion, or a spiritual one?

I’m open to either, but I’d like to set the preliminary scope to narrow the available attack surface.


> Are we about to venture into a trans-humanist discussion, or a spiritual one?

They aren't mutually exclusive.


I barely got out of the last downturn. I did a very un-HN thing and went and got a 2 year MBA on top of my engr degree. I made my last mortgage payment from across the country and less than 12 months later the housing crash started.

Now, I see the market at a peak again and I'm not going _anywhere near_ this thing. I also contemplate whether I will ever afford a family sized place in a nice location. I am not sure but I wonder if I may have missed the boat on this.

I don't see a social adjustment to housing happening in my lifetime so at this point I'm just hoping that a major downturn happens during a time I'm not having a startup fail but instead on a rise from time off consulting or a successful company.

I wouldn't give up what I've done to have worked corporate for the past decade, but I'm also completely beholden to macro trends in housing with timing that feels completely like luck to me.


Unless if you are quite old, you will live to see the adjustment.

Houses at this point are owned by Boomers, some Gen Xers, and the richest subset of Millenials.

But this is quite an unstable situation. Everyone needs somewhere to live, but vanishingly small parts of the population need two places. As the Boomers either die or move to retirement homes they will need to liquidate their real estate in massive numbers, largely all at once thanks to the tight clustering of the Boomers.

There’s simply no way that this glut of housing will be absorbed by the richest groups of Millenials without sudden and deep price shocks, especially since Boomers appear to prefer suburban homes that the childless Millenials don’t typically want.

What’s interesting to me is what will happen politically. Boomer house owners have been very adept at using local politics to prop up their property values, the only notable failure was 2008. What kind of bailout will they ask for when their home is worth 1/5 what they expected?


While I don't disagree with a lot of your argument, according to some preliminary research it seems like there's about as many millennials as boomers. Like 77 million boomers, 65 million gen x, 75 million gen y.


The count is less important than the buying power.

Millennials, as a group, have significantly less buying power than their Baby Boomer peers at the same point in their lives.

One source, but eye-opening if you can believe/trust the underlying data:

"Only a third of millennials own their own home, compared with almost two-thirds of baby boomers at the same age. It will take a millennial on average 19 years to save for a deposit, compared[0] with three years in the 1980s. A third of millennials will, it is predicted, have a lifetime of renting with less space, poorer conditions, longer commutes and more insecurity than the baby boomers experienced."[1]

-----

[0] https://www.resolutionfoundation.org/publications/home-impro...

[1] https://www.theguardian.com/society/2018/apr/29/millennials-....


We’ve also not convinced our peers to vote in anywhere near the numbers that the boomers do.


The boomers didn't vote when they were young, either.


I'm a boomer myself, but I absolutely hope that this can be turned around. Higher voter participation from your generation could do much to reverse some of the really bad stuff that my generation has done.


I think the Boomers are in for a huge shock once they go to sell their homes for a “fair” price and discover that nobody is there to buy.


The solution is to get rid of zoning laws. Baring some breakthrough in public choice theory allowing us to break out of this mess, I predict we are stuck with this until the robots take over.


One thing you still need to consider is infrastructure like water, sewer, schools, hospitals, etc. I agree it should be easier (and thus cheaper) for landowners to build what's profitable, but there needs to be a feedback mechanism so that the things necessary for people (apart from housing) is available for them.


Yes, every perspective renter/buyer should consider that and choose what works for them.

That feedback mechanism is called a market and it coordinates via price signals and a desire to achieve equilibrium.


Zoning laws get a lot of negative on HN, but I think they serve an important, good purpose.

Here me out.

I work from home. Yay.

I live in a residential area in US, near an elementary school across the street, with an apartment building in the way. I can hear kids out running around and playing in the yard. They get pretty noisy, but I'm fine with it.

Right next to the elementary school is an apartment complex where a guy seems to be running a motorcycle repair business based out of his apartment's garage. The garage faces the street, facing my home.

He tests the loud motorcycle engines about 1 - 2 times running a few minutes each time, about 3 - 5 times a week. One of these days, I'm going to super glue his garage shut so that he can't get the motorcycles in and out of the garage.

Ok, well, just kidding. I will just have to deal with it. But still, it is dang annoying to hear the motorcycle engines revving up as described above. I can't imagine how I can deal with a motorcycle/car repair shop across from my home.

Zoning laws are often used as a tool by people who practice NIMBYism, but the laws were introduced for a reason, and I support zoning laws because it would mean keeping certain types of businesses bit placed away from homes.


Loud motorcycles should be violently taxed and restricted to low density zones of operation. I can't think of any other behavior that is as destructive to the common good for so little benefit to the individual. "I like loud sounds" is not good enough reason to inflict them on everyone else.


I mean, I'm ok with occasional loud motorcycles driving through the neighborhood.

But this case is more than that. So, this particular neighbor is not riding a motorcycle through the neighborhood. Other riders do and I'm ok with that. But this particular neighbor revs the motorcycle engines "while standing still to test them". A few minutes at a time, about 3 - 5 times a week.

Now imagine zoning law was gone. It might mean a user car mechanic moving in to operate a repair business, while leaving numerous unused cars on the street. It could mean someone opening a hair salon a door down from me. Or maybe another person opening a martial arts studio above me.

Zoning laws used as a tool by NIMBYers is not good. But the laws have a valid place in our society.


Im pretty sure for each loud motorcycle that drives by your street there are 20 angry neighbors wherever the owner lives :)


I agree, wholeheartedly and have a hard time understanding the thought process and worldview of someone who rides a loud motorcycle even five blocks in a dense urban neighborhood at night.

In one neighborhood I lived in... each building was 4 stories, with 5 apartments facing the road. There are two sides of the road. There were four apartment buildings per block.

5 * 4 * 5 * 2 * 4 = 800 homes being affected! Yikes!


Assuming your area is zoned against his usage, why don't you report him to the authorities? Seems like the easiest way to solve your problem.


Getting rid of zoning laws only works if you have a lot of extra land to sprawl out onto. Otherwise, even if you build up to get more dense ala NYC, HK, Tokyo, or Shanghai, the area will just become more attractive and more people will want to live there. No easy solutions here.


You say that like vastly increasing the productivity of our largest cities is neutral at best. This would create an extraordinary surplus, and other cities that can build out would compete for citizens, just like Texas is doing right now.


No city in Texas is dense, its all sprawl, even in liberal Austin.


I looked into this and Texas still has a lot of pro-sprawl policies, such as mandatory parking minimums.

People paint them as no zoning, but that's only on one specific measure.


> Otherwise, even if you build up to get more dense ala NYC, HK, Tokyo, or Shanghai, the area will just become more attractive and more people will want to live there.

The problem with this theory is that it's zero sum. If density attracts people and prices there rise, those people will have come from some other place. Then the prices in that place will fall and we still serve the goal of giving people an affordable place to live.

You can't increase demand in every place at the same time. It has to come from somewhere. And if you increase density everywhere at once, it also can't move from everywhere to everywhere. If one city increases density it attracts new people from other cities. If every city does it there is no net migration because the benefits accrue everywhere, so the demand in each place stays the same and the greater supply lowers prices.


I don't see how that has anything to do with it. Living costs in rural areas isn't the problem. This seems like a variation of the "luxury apartments are actually good for affordable housing" argument. Which of course is popular on HN, but not particularly true.


> I don't see how that has anything to do with it. Living costs in rural areas isn't the problem.

The people can't come from rural areas because they aren't there to begin with, or because they can't leave (e.g. because they're farmers and that's where the farms are, or they don't have the money). To get a large enough influx for the demand to overcome the increase in supply, it has to come from places that already have a lot of people, i.e. suburbs or other cities. Which is where housing costs are a problem.

> This seems like a variation of the "luxury apartments are actually good for affordable housing" argument. Which of course is popular on HN, but not particularly true.

[citation needed]

If you build more housing then people move into it. Those people used to live somewhere else. The place they used to live opens up for someone else.

If the new place is above-average that means everybody gets to move up -- new supply lowers cost of luxury apartments from $3000/month to $2500, which means the previous $2500 apartments fall to $2200, which means the previous $2200 apartments fall to $2000 etc.

On the one hand, this means the effect on $750 apartments is relatively small because some of the benefit of increased supply is also going to people with $1500 apartments and $2000 apartments. On the other hand, that's actually what we need. It's absurd to have a giant cliff between regulated "affordable housing" and market rate housing. People at the 50th percentile need to be able to afford housing too.


Population growth can increase demand everywhere at once.

And affordable housing away from a high demand urban center is no use to anyone and not going to attract anyone if there aren’t good jobs there.


> Population growth can increase demand everywhere at once.

But where is the extra population coming from? If you're talking about any other place, it reduces housing costs in that place. If you're talking about a rise in birthrates, that's theoretically possible (though by no means guaranteed), but the timescale is so long that there is plenty of time to build even more housing by then.

> And affordable housing away from a high demand urban center is no use to anyone and not going to attract anyone if there aren’t good jobs there.

Where do you expect the people to be coming from? If it's another city, that's still an urban center with jobs. If it's the suburbs, people can still live there and work in the city as they do now.

And they can't be from the middle of farm country because there aren't enough people there to be a major source of demand, even before accounting for the fact that they would have to both want to move to the city and be able to afford to.


Birthdates don’t have to rise for population to increase. For instance, our global population is expected to continue to rise for the next couple decades even as birth rates fall because life expectancy is rising. Yes, the US is currently below replacement rate (without immigration), but if birth rates 20 years ago were higher than the current death rate, demand for housing will be increasing.

As for where people are moving from other than farm country, there are plenty of economically struggling cities, towns, and suburbs.


> Birthdates don’t have to rise for population to increase. For instance, our global population is expected to continue to rise for the next couple decades even as birth rates fall because life expectancy is rising. Yes, the US is currently below replacement rate (without immigration), but if birth rates 20 years ago were higher than the current death rate, demand for housing will be increasing.

The relevant numbers are relative to the status quo, not relative to zero. If we are expecting rising housing costs due to rising population, a method of lowering hosting costs is productive even if it only reduces the rate of price growth, since the alternative would be for prices to be even higher.

The only problem is if the method can itself cause population growth, e.g. by short-term lower housing costs allowing more people to afford to start a family. But that's the thing we have plenty of time to stay ahead of by continuing to build more housing.

> As for where people are moving from other than farm country, there are plenty of economically struggling cities, towns, and suburbs.

Except that they're in the same position as farm country. There aren't that many people there anymore -- Detroit has already lost more than 60% of its population since 1950 -- and the people who are there can't afford the cost of living in an expensive urban center.

The people who move into the city center when new housing opens up are predominantly the people who used to live in that city's suburbs.

Your argument would also imply a strong case for "economically struggling cities, towns, and suburbs" to eliminate density restrictions and attract economy-boosting density-preferring people to locations where housing is already more affordable.


Housing prices have been more or less flat in Tokyo for 30 years.

https://marketurbanismreport.com/tokyos-affordable-housing-s...

> According to the website RealEstate.co.jp, average housing prices throughout Greater Tokyo have actually decreased since 2006. In 2014, the average price of second-hand condos was 27,890,000 yen, or about $232,914. This is above the U.S. median of $187,000, but is a steal when considering that average housing prices in many destination U.S. cities are triple or quadruple this amount.


Again, it only looks like a steal if you look at unit costs and not per square feet/meter costs. This puts Tokyo on par with Seattle. See https://www.numbeo.com/property-investment/compare_cities.js...


It's easy to keep housing prices from rising when a country has a low birth rate and minimal immigration.


Tokyo’s population has grown in every census since 1955.

http://www.newgeography.com/content/002923-the-evolving-urba...


I heard many many commuters who work in Tokyo actually live pretty far away, commuting via the bullet trains. So the housing market in Tokyo is not in tremendous demand.


Good public transportation certainly helps there, which most of the US doesn't have.


> Getting rid of zoning laws only works if you have a lot of extra land to sprawl out onto.

Other way around. Zoning encourages horizontal growth by constraining vertical growth. Once supply has reached horizontal and vertical limits, prices skyrocket to reach equilibrium with demand.

> Otherwise, even if you build up to get more dense ala NYC, HK, Tokyo, or Shanghai, the area will just become more attractive and more people will want to live there.

Density implies noise, pollution, traffic, people, and a certain type of urban lifestyle... all of which decrease attractiveness.


> Density implies noise, pollution, traffic, people, and a certain type of urban lifestyle... all of which decrease attractiveness.

Prices in big dense cities say otherwise, there is plenty of demand to be where all the economic action is, many people also prefer urban lifestyles.

The lack of zoning doesn't encourage density at all, if there is land to build out instead of up, everyone will prefer the former because its cheaper and can provide amenities like free parking. Zoning can prevent that, it can also discourage vertical growth but at the same time discouraging horizontal growth as well.


> Prices in big dense cities say otherwise, there is plenty of demand to be where all the economic action is, many people also prefer urban lifestyles.

Prices just show urban areas are highly valued, there is no proof those areas defy supply and demand.

Density increases attractiveness for some people, but the trade-offs are clearly not for everyone given NIMBYism and higher prices outside some urban areas. Increasing supply may increase demand to a point, but there is still an equilibrium - density is still part of the solution.

> The lack of zoning doesn't encourage density at all, if there is land to build out instead of up, everyone will prefer the former because its cheaper and can provide amenities like free parking. Zoning can prevent that, it can also discourage vertical growth but at the same time discouraging horizontal growth as well.

Moot point, this entire discussion is about urban areas where land has already run out.

> if there is land to build out instead of up, everyone will prefer the former because its cheaper and can provide amenities like free parking.

"Everyone", except people that care about the time cost of commuting and the financial obligation of car ownership.


> Moot point, this entire discussion is about urban areas where land has already run out.

That isn't true. Houston is still sprawling, many cities off the coat have plenty of land to grow, and they do.

> "Everyone", except people that care about the time cost of commuting and the financial obligation of car ownership.

Of course. But property developers can make more money off the former than they can off the latter, if given the choice.


> Prices in big dense cities say otherwise,

Price doesn't strongly correlate to density.

Prices are very high in low density areas like Los Angeles, Silicon valley, North Virginia, Palm Beach, etc.

Before Manhattan got "nice" 20 years ago, it was dense, and there was cheap real estate to be had. It was the gentrification that drive the price increase, not the density.


>Density implies noise, pollution, traffic, people, and a certain type of urban lifestyle... all of which decrease attractiveness.

That is an incredible amount of personal opinion injected as fact.


Demand isn't infinite. Every person that moves to the attractive city is one less person that wants to move to the attractive city because that person is already there.

The goal isn't lowering the housing price. If one person moves in and the price stays the same that alone is already a success.


> The solution is to get rid of zoning laws. Baring some breakthrough in public choice theory allowing us to break out of this mess, I predict we are stuck with this until the robots take over.

The breakthrough is using higher-level entities to constrain lower-level entities. What creates the problem is that you have a neighborhood zoned only for low density and the only people with a vote to change it are the existing homeowners whose collective voting sentiment is "screw you, got mine."

What's needed is a law at the state or federal level that any given fifty mile radius has to have a certain percentage of area zoned for unrestricted density.


Why do you see this as a mess?


The instant someone signs a mortgage it becomes in their (cynical) economic best interest to try to keep others from being able to do the same.

The only solution I see is state level zoning standardization around pro-density zoning and limitations on NIMBY power.


People choose to buy in neighborhoods they like (if they have a choice). It doesn’t make them cynical schemers if they then don’t want the neighborhood to change.


The nature of a NIMBY is to label any change as bad, regardless of the benefits to other people. If that isn't cynical, I don't know what is.

Would you defend segregationists, who tried desperately to preserve the racial makeup of their neighborhoods, schools, and buses?

It's a rhetorical question of course -- I know you would not. My point is just that your logic can be (and is) used to defend any number of despicable causes. There's no reason our civil society has to put up with with this nonsense.


Just because a certain principle can be used destructively does not mean the principle itself is flawed.


That's kind of a strange thing to say. I'd argue it's clearly not true in this case. Do you disagree? Can you maybe explain why?


I read your comment as arguing that people who structure their social systems based on conservative principles e.g. we like our neighborhood a certain way so we resist rapid change (barring explicit racism, of course) are a tax on society.

I agree with your example and agree that people wanting an explicitly racially segregated community are cynical and racist. But an similarly conservatively principled person may simply prefer a low-density lifestyle and act in ways that resist change for that reason. There may even be scenarios where we can look back and correlate responsible, well meaning, application of certain principles with undesirable social trends, but I don't think that alone invalidates the principle.

I don't know if I misread your comment, but it was odd to see a broad critique on conservatives and their principles:

> My point is just that your logic can be (and is) used to defend any number of despicable causes.

I could use plenty of sound logic to defend despicable causes, but fact that the cause is despicable does not alone invalidate the logic if the logic is sound. When sound logic argues for despicable things (which it often does) we introduce ethics and morality to judge whether we should actually act on the logical conclusion.

I think a better way to phrase your comment would be, "We shouldn't have to put up with despicable causes, period". I'm being a little pedantic, yes.


Is there another part of the market where you apply this twisted reasoning? I thought 1992 was a pretty good year for Japanese sports cars. I think building new cars after 1992 should have been illegal. We can keep 1992 cars affordable through price controls.


Bad analogy. A 1992 car does not change when new models are released to others. But changes to neighbourhoods from increased density can be negative to quality of life, such as having a quiet road suddenly become a connector road for large amounts of commuter traffic (kids no longer playing outside), or schools get overcrowded, or there is standing-room only on the subway for a long commute into town.


Traffic is a consequence of segregated uses and insufficient density. Densification is how a quiet residential neighborhood might come to support pedestrian life, service its resident’s need without making them get on a collector road, fund additional public transit capacity, etc.

Some mid-rise condos down the block are far better than another suburban subdivision a few miles down the road, as traffic goes.


What about all the people who would prefer lower density over all those other things that you mention?


The problem is that due to the way most property taxes and house prices work those people are getting a free ride off of the prosperity of the city: a tragedy of the commons.

Assuming this quiet neighbourhood is near an urban area with nice jobs/schools/amenities etc, the value of the 'hood is created by the network effects of the city. Growth of the city means growth in the value of that 'hood. The people living there usually aren't doing a lot to increase the value of their properties. But as property assessments lag market values, or the way taxes are structures, those owners can see flat costs for their housing while their values rise. Meanwhile by refusing to add density to their neighbourhood they are driving up the costs for others. When they eventually sell or move they get all of the gains in property value all the while having very low carrying costs.

If they wanted a quiet neighbourhood they could move to a smaller town or further out from the city centre, but I don't think they do. If the market were better organized then their behaviour would be dampened by higher taxes as their property values rise. Owners would then have an economic choice: resist density in your 'hood and pay more for that privilege, move somewhere cheaper, or allow more density which will keep costs flat.


> If they wanted a quiet neighbourhood they could move to a smaller town or further out from the city centre, but I don't think they do.

Well, I did move out to a smaller town, pretty much as far away from the regional megapolis as I could while still being within reach of its metro area. But it seems that demand for "moving out" is such that it turns small towns into big towns pretty quickly, which kinda defeats the purpose. I'm not opposed to paying higher property taxes to keep the neighborhood low-density, but it's not like we even get that option.


Yeah I hope we can eventually find a way to price these kinds of things more accurately. Like a sibling comment says: price in the externalities of low-density living and let those who want to pay them pay them, or else increase the density of the area.

In your case it's sounds like you're paying it to some extent: longer and/or more expensive commute.


We do a terrible job of capturing all the externalities that come from that low density. Low density requires much more infrastructure to serve it, and gets subsidized by the high density areas further in. If all that was captured in the actual costs of living in those low density areas, you might very well decide that low density was too expensive, and that you preferred high density areas instead.


If you can afford to waste land out of your own pocket, go right ahead. But supporting and subsidizing people who want to live an economically inefficient and socially detrimental lifestyle, in part by outlawing efficient and pro-social alternatives, is a terrible use of government power.


That's the best analogy to NIMBY housing policy I've ever read.


That says more about you than the analogy.


I don't think it's even in their own economic interest. I think it's just fear of the unknown and nostalgia. I'd love it if my neighborhood were to become popular enough for someone deciding that they want to build a skyscraper next to my house. It would mean the land value alone would allow me to retire.


Sure, but before you had a chance to cash out, they tore down the skyscraper and built a fracking well.


Yeah, happens all the time. Cities like Tokyo and Manhattan are full of them.


Parts of Los Angeles literally are full of oil wells.


Yeah, but no skyscraper has been torn down for one and land prices in LA are still better than in your NIMBY suburb.


Wanting to live in your house is not (just, or even primarily) an economic interest.

EDIT: clarification


The presence of other people on neighboring lots does not stop you from living in your house.


I think I misunderstood. Why would having a mortgage make it desirable to stop others from getting one? Surely you want to fill the neighborhood as much as possible and create public services—this increases the value of everything. NIMBY on the other hand is completely irrational.


Allowing supply to catch up with demand might crater housing prices to quasi-normal levels, destroying ~70% of most Bay Area homeowners’ net worth.


> A lot of people here are playing semantics and ignoring the message of the article just to be "clever".

Welcome to Hacker News!


This is exactly right - infact, because some people might consider housing in Bay Area to be a good investment, we can try to make it affordable for others.

This is the project we’ve been working on for the last month or so: https://zerodown.com/


Given the supply of land is fixed (the old real estate joke about their not making any more) while the population and the economy are both growing, we should expect to see a rise in land values over time in real terms.

Housing land (houses are a deprecating asset) should be an asset class that mirrors population and economic growth.


The supply of land is fixed but it's not full yet, and filling it up with single-story buildings is a practice that can certainly be improved upon.

The obstacle to building new housing is not the availability of land, it is the zoning laws. Even a geographically constrained place like San Francisco, surrounded by water on three sides, could accommodate far more housing units simply by building taller structures.


At this point the car centric nature of the city and relatively poor public transit are far bigger barriers to growth.


The car-centric nature is a consequence of filling the land up with single-family homes that have garages. Mass transit is only ever popular when it is more convenient than driving and parking a car.


This is true. However, it does not point to an immediate solution.


There are millions of empty houses. We need remote work more than anything.


It makes sense for housing land cost per acre to grow steadily. However, that's fully compatible with a scenario where housing land cost per person is steady or even decreases, as long as you allow for increased density.


Yes, and that would be a wonderful thing.

Or if we love constantly increasing prices so much, why not have it on food, computers and everything else?


> Or if we love constantly increasing prices so much, why not have it on food, computers and everything else?

We do have that, via inflation.


I take it you don't follow the used computer market closely.


Except that governments are free to create arbitrary laws. So there certainly are a number of schemes the government can use to balance these two things, though most people would claim they are "socialist" because many revolve around subsidizing first time homeowners.


Subsidizing homeowners does not hold prices down. It may actually help prices to increase, as everyone knows that they will be able to sell homes at higher prices because the government will continue to help people pay for them.


I don't see the problem. You are adding in this extra "hold prices down" that isn't required.


>> The message of the article is we can't have our "housing values are always increasing" cake and eat our "housing is always affordable" dream too.

Replace housing, with salary and you will see why your argument isn't entirely right.

Should salaries/wages increase over time? yes. Should labor and employees remain affordable to employers? yes. Are both possible? yes.

The right question is who is paying, and what are they paying for.

Plus at the end housing is subject to the same laws of economics. Demand, supply equations, timing, value with regards to location and proximity to city enters, school districts etc.

You can't talk of home prices from one dimension alone.


Replacing housing with salary, it doesn't seem obvious that the answer is yes, though. Quick Google for wage vs inflation came up with this, which appears to show that real wages actually haven't increased when you account for inflation. Maybe I'm missing something, but your point doesn't feel quite as self-evident as you imply. http://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-...


On the entire average, wages haven't increased. But you can't apply that argument to FAANG employees who are buying expensive homes in Bay Area, CA. Where very clearly salaries have as a matter of fact increased by a large percentage.

The same is the case with housing. Its not like the entire USA has the same housing prices as Bay Area, CA. In fact its not even the whole Bay Area, CA itself.

The thing is there is something always available for everybody. But one might not get what they want. Just like how every one wants to be a employee at Netflix and earn $500K but can't.


I think you're basically saying that for housing to stay affordable, entry level housing should lower in quality over time. If you buy an entry level house today for price X, and you expect it to be worth X*k at some future time, and you expect other people to still buy houses for X at that future time, then those houses have to be lower quality.


If X is adjusted for inflation then the quality can stay the same as long as the supply/demand curve doesn't shift. As population increases, you need to increase supply to achieve that.


Or maybe just smaller?


> The message of the article is we can't have our "housing values are always increasing" cake and eat our "housing is always affordable" dream too.

Sure you can, as long as you have enough overall economic growth. It won't be a particularly great investment in the sense of growing at a faster pace than the surrounding economy, but it will at least keep pace, and you can live in it meanwhile, and you can borrow money for it, so it's leveraged, unlike most of your investments.


"Net positive" works only as long as it works...until it doesn't.

Overall economic growth may be "real" in the sense that is it growing organically, or it may be a complete fiction based on quantitative easing and manipulated stock prices. It is likely both, but like Bernie Madoff's scheme, the question will be whether you're someone who made a profit during the "good" years or those who took a bath once the scheme unraveled.


The only hard ceiling on real economic growth is Kardashev II at the very least, if not Kardashev III; until then, the material wealth of the human race is either going to continue to grow, or else we will have big enough problems that canned beans and water purification tablets are the only meaningful investments anyway. And those beans and tablets are going to be a lot easier to hold onto if you own a house ;)


That’s brilliant. Can I count you in as a de-anonymized co-founder of the all-important, infinitely-divisible “Strategic Water Purification Tablet Reserves”-backed cryptotoken ICO?

Edit for clarity: You’re probably right. I thought it would be an apropos time to slip in a blockchain joke. :)


Great, so you made $50k because your $200k house is now worth $250k - a 25% increase. You now have a family and bigger income and are looking at a bigger house priced $500k. You are really glad that you “made” $50k on your old house.

But wait, if the new house is in the same neighbourhood, it’s price increase was probably also close to 25%. If prices had stayed the same, it would be worth $400k today.

So you just gained $50k on your old house but are paying $100k more on the new one.

This is only beneficial if you move from a large house in a popular area to a smaller house in a less popular area.

If you have kids, they might inherit the wealth gained from your housing “investment” - after splitting with their siblings and after taxes of course. Sounds good, until you realise that they will have to spend it all - and put in extra - on housing because of the price increases.

In a world where housing prices stay the same, or become slightly cheaper year by year, everyone is better of. The prices of common utilities such as food and clothing have gone down spectacularly in the last decades while quality has gone up. No one would rather live in a world where these had instead become more expensive. It’s time we start thinking about housing in the same way.


The article is dead wrong about the economics of whether buying a house is a good investment. So much so as to be intellectually dishonest.

1. The alternative to buying a home is renting. If the net cost of home ownership is lower than renting, you do not need to make a net profit on the sale of your home for it to be a good decision. The right way to make this decision is to look at all net cash flows, discounted to their present value, such as is done by the New York times rent vs. buy calculator.

2. The article ignores the fact that mortgages, which most people use, amplify the gains of inflation.

3. The inflation hedging properties of a home make for a good way to protect your future self and retired self from cost of living changes in a way that alternative investments cannot.

Many people outside of VHCOL San Francisco have found housing that is both affordable and a good investment.


Here's the core argument of the article, rephrased slightly: housing cannot both outpace inflation and remain affordable indefinitely.

This is not incompatible with some people being able to find affordable housing that is a good investment. All it means is that in the long term - especially when real wages remain relatively constant [1] - these two policy aims are mathematically at odds.

[1] https://en.wikipedia.org/wiki/Real_wages


I agree with your rephrasing that housing cannot both outpace inflation and remain affordable indefinitely, but I disagree that it is identical in content to the article's core argument.

Now I'm just picking nits I suppose.


> The article is dead wrong about the economics of whether buying a house is a good investment. So much so as to be intellectually dishonest.

What part of the article is that? Because that certainly wasn't my take away. The article is about whether housing can be affordable and a good financial investment, giving large returns, at the same time. Housing as an "investment" in your life, family or security isn't what is meant.


Just an example: the average price per square meter in Berlin has increased up to 4x between 2007-2018[1], and it was possible to buy a 42 m² apartment for 25k EUR in 2006[2].

[1] https://guthmann-estate.com/marketreport/real-estate-report/

[2] https://www.toytowngermany.com/forum/topic/48094-advice-on-b...


That’s a single data point. Extend that rate of growth relative to inflation for the next 10,000 years and you reach absurdity.


For others not in the loop, VHCOL seems to mean "very high cost of living".


> If the net cost of home ownership is lower than renting

How do you know the net cost on a 30 year loan? If you can confidently predict decades of interest rates there's far more profitable investment classes for your money.


I thought that with most mortgages you end up paying for the house twice. Once in principle and once in interest.

This will vary a lot by the rate you get but I think it’s in the ball park.

https://budgeting.thenest.com/end-up-paying-house-once-paid-...


Most homes are bought with fixed interest rates. If you are buying with a variable rate, 99% chance your credit is shit, and you shouldn't be buying a home, because the bank will own it soon.


Ah yes, you're right, I forgot about that occurring in the States. Everywhere else offers far shorter fixed terms. Struggle to understand how the banks manage it, seems like some risk is offloaded onto either taxpayers or other bank customers.

So let me rephrase then: How do you know the cost of 30 years rent to compare it with?


In a big city, rents almost never go down. Here's my calculations to buy: I will pay somewhere $1700-$2200/month to rent 2+ bedrooms (wife + 2 kids) in LA near where I want to work (5 years ago). $2200 can cover the mortgage on a $600k house, assuming ~3.5% interest (rates were good 5 years ago) and ~20% down payment (pretty common down payment). In the right market conditions in the part of LA I like, $600k of house might be 2-4 bedrooms, 2-4 bath, and 1000-1600 square feet. Now it's just a parameter fitting / optimization problem.

But how does that even pay off? Consider down payment as an investment, and rent / mortgage something you'd have to pay to live wherever as a cost of life or an investment in yourself.

Even if all you got was your original purchase price back in 30 years, that can make the purchase worth it. Doing the math above, saying I paid $2200/month for 30 years on a $600k house, that gets me $792k paid for a $600k house, with $120k required up front. But I get $600k back at the end (even assuming zero market appreciation). So if you had instead invested the $120k somewhere else, rented some place for $2200/month (never to see that money again, like it was burned up), in order to get $600k back in 30 years, you would need to beat 5.5% annual return on that invested $120k.

But if that house increased in price (even by average appreciation)? Then the reality is that your investment of $120k needs to beat 9.2% of annual return in the open market to beat the investment in a house, even if all you did was live there instead of some place else (assuming your house can fit your needs).

Of course things like property tax, HOA dues, etc., can muddy up those calculations, but all of it is easy to drop into a spreadsheet. The hard part is actually earning the money (or at least that's been the hard part for me).

(please note that I paid substantially less than $600k for my home in LA, the numbers above are for reference, and not necessarily valid for current market conditions - especially interest rates and home cost)


Maybe that's true in the US (I don't know), but it's certainly not true elsewhere in the world; such as Australia for example where most home loans are have a variable rate.


Good point, US-centrism bit me.

How often do the rates change? Anything crazy like 2-3% swings? Doesn't that make budgeting tough?


No, never massive swings in the short term (GFC caused a 4% drop (7% to 3%) in 2009 for example). I think that even when the cash rate is moving quickly rates don't change more than a percent or two per year.

Re budgeting, I think the relatively slow rate of change makes it mostly a non-issue though I think people at the upper end of their borrowing power struggle with rate rises.


Good to hear that they aren't so bad.

The ARMs (Adjustable-Rate Mortgages) here in the US can jump pretty severely, mostly because they are only given to folks with bad credit. Folks with bad credit push to buy something out of their budget, get behind, rates spike, then lose it all to the bank, continuing the bad credit cycle.


Fixed interest loan?


1. No: housing bubble crashes, and the 10+ years of your life crashes and burns with it. That's your good investment decision

2. True.., but the era of net negative rate mortgages, a minutes hike in rate will trigger a wave of defaults

3. That's only thanks that in the west that "unique inflation hedging property" is a result of decades old self fulfilling prophecy

Housing market in US is, I believe, the best examples of "ECON 101" vs common sense and reality.


Housing is not independent of other goods, house prices go up because we use inflation to manage the economy. They make people money because they are the one example of large yet safe leverage which most investors have access to, so they are a good hedge against inflation. This is why buying is worthwhile long term. Over a lifetime the gains can be considerable because of the falling value if the debt and the rising value of the asset. Of course a volatile market makes this very risky and is highly undesirable.

Deflation is generally agreed to be a bad thing by economists. I disagree falling housing costs would be good as then no-one would want to buy and quality would fall.

All that said I agree relatively stable housing costs are desirable, and in fact quite achievable as the government controls pricing via planning laws. They are in fact 'making' buildable land all the time, and the supply is tightly constrained and tightly regulated in cities. This is a solvable problem.


> Deflation is generally agreed to be a bad thing by economists. I disagree falling housing costs would be good as then no-one would want to buy and quality would fall.

Is it a bad thing when the prices of mobile phones and large screen TVs fall? Does those falling prices mean no one wants to buy them? Do they imply falling quality?


Taiwan was nearing net deflation for 2 decades while the GDP grew at double digit rates. That saying that is more of a self fulfilling prophecy, than something with fundamental underlying mechanism.


Deflation is the critical component of human progress. Economic cycles and interest rates can make it difficult to see the long term, underlying trends. This becomes very destructive when governments pursue policies which pretend otherwise.

I'm generalizing a great deal without providing examples, because it is such a large topic and economics is filled with misleading theories. In the simplest example, when prices are flat or declining, if you want to do well financially you have to be more productive, produce more and/or better products. When prices just go straight up, borrowing money and buying assets is "profitable."

This stuff is really obvious for those of us who have been in technology a few decades but I can understand why people in other areas are led to believe ideas which aren't very logical.


>> Housing is not independent of other goods...

Yes it is. Or rather, prices rise with inflation but there is another much larger influence on housing prices - interest rates. When rates fall, prices rise and when rates rise prices fall. This may actually be a driver of inflation, as it is the biggest way consumer borrowing changes things.


> Or rather, prices rise with inflation but there is another much larger influence on housing prices - interest rates. When rates fall, prices rise and when rates rise prices fall.

Interest rates have the exact effect you describe on all prices, because they effect consumer credit at all levels (and houses aren't the only thing typically bought on credit), business access to capital (and thereby employment), etc., which drives the demand curve in every sector of the economy.

So, no, that's not a unique effect on housing prices. It's the reason monetary policy is a lever for effecting the economy broadly.


Consumers don't borrow money for most spending. Houses and cars are primarily it. Credit cards are generally at higher interest rates that the Fed doesn't really have control over and that's not a consideration in most buying decisions. I would hypothesize that one of the primary ways Fed interest rate changes influence the economy is through home lending and the resulting consumer spending of that borrowed money.


Withdrawing tax benefits and government backing for long term mortgages would both probably reduce the increases in housing prices.

As would higher price inflation. Because people decide on a monthly payment and more price inflation means higher interest rates. Those interest rates would reduce the size of mortgages that people would enter into.


Could you please describe exactly how could housing get continuously cheaper when there are more people every year and the demand for good locations is increasing?

(Edit: I asked a sincere question. Don't downvote without explanation, please. It's really tiring, anti-discussion and makes it seem like you don't have any good point at all.)


Yes, there are more people every year, but in the US, there aren't a lot more people every year. Population growth is at 0.7% and falling.

On the other hand, I see no reason to think that "demand for good locations is increasing". What counts as a "good location" is in flux, but people always want to live in "good locations". I see no reason that it's more important to live in a "good location" today than 5 years ago, or 50, or 3000.

So what I see is a fairly static number of people who'd like to live all over the place, but a decent chunk wanting to live in large, dense, desirable cities. Which are, not surprisingly, quite expensive.

> how could housing get continuously cheaper

Housing, as opposed to land, is a manufactured good, and we're getting better at manufacturing things every year.

As for land, we can use it more efficiently (higher density, fewer parking lots, more transit, etc.) It's well documented that many cities (Los Angeles is an infamous example) drive up the cost of housing and bias new developments towards luxury units due to building codes that, eg, require very inefficient land use and a large number of parking places.

Alternatively, we can work towards changing what is desirable. In 1920 something like 5% of the entire US population lived in New York City; now things are much more spread out. Today a hefty slice of software engineers live (or want to live) in San Francisco, but that's not an immutable law of nature.

I mean, taken to an extreme, if you build an absurd number of houses in San Francisco without sufficient infrastructure, the combination of massively increased supply (all the new units) and decreased demand (because it's no longer a great place to live) would absolutely lead to house prices dropping. That doesn't sound like a good policy (and is certainly not what the parent comment was suggesting!) but there's no particular reason why house prices can't continuously fall.


In regards to whether or not a good location is more desirable today than 5, 50, or 3000 years ago it definitely is. Reminds me of a story I found about Greyhound going down in my neck of the woods.

https://www.theguardian.com/world/2018/oct/29/canada-greyhou...

Relevant bit:

"More and more people are leaving rural Canada, and the people who remain are often the ones who are unable to leave.” Since 1950, the rural share of the country’s population has fallen by half."

So while population growth isn't fantastically large, people are flocking to urban areas (for many pretty obvious reasons).


> On the other hand, I see no reason to think that "demand for good locations is increasing".

I think demand pretty clearly is increasing and my hunch is that it's a technological effect. † The internet didn't make place irrelevant, as many thought it would; in fact, it had the opposite effect in that it made it a lot easier to move to the most desirable cities. You can scope out neighborhoods on Street View; shop for new apartments on Street Easy or Craigslist; endlessly research the target city, apply for your new job, and complete the first round of interviews -- all on the internet, from the comfort of wherever you live now.

(And, not for nothing, it's also a lot cheaper to fly back and forth today, once you get to that point in your transition.)

In some abstract, Platonic sense, San Francisco is probably no more desirable than it might have been in 1971, but, as I try to argue above, a Clevelander then would have had a much, much harder time manifesting that desire than today. And as more and more people realize this desire, the attraction grows as if by accretion.


but its not just house prices themselves if you look at a map of value of farmland in the US you will find that more accurately reflects the current house price upward rise.

Example...in NW Indiana farm land is about $35k per acre which reflects the amount of revenue earned per acre. In California its 3 times that.

Its we are running out of farm land acre to feed the world that is driving up the house price in the US


Housing can be built vertically.


At significantly higher cost. If you’ll excuse a very broad brushstroke, this is why California — with lots of land — builds so many single-story buildings compared to the UK where there is so little land available for construction. (That the difference is in part due to policy doesn’t change that there is less availability).

I’m looking forward to more automation in construction so that vertical is not significantly more expensive.


==At significantly higher cost.==

Significantly higher building costs, but lower land acquisition costs.

Excerpt from a BuildZoom analysis:

"The high cost of housing in expensive coastal metros is not driven by construction costs. It is driven by the high cost of land which, in turn, reflects a scarcity of zoned units, not a scarcity of land per se."

https://www.buildzoom.com/blog/paying-for-dirt-where-have-ho...

==That the difference is in part due to policy doesn’t change that there is less availability==

Except the current policy explicitly limits the availability, they are one in the same.


Is this some special case? I can’t find sources listing it that high.


Build more. Better transport. Encourage remote working. Allow denser construction. Relax ridiculous laws that push up construction costs.

The trouble is, lots of people will lose money...


You can bribe those people. If any new building on your block gives you a tax abatement for 5 years (which is then absorbed into that building's construction costs), then you bring a serious economic incentive to YIMBY. You can tune up the amount of tax benefit until YINBY outvotes NIMBY, and then you're good.


That sounds like a way to make construction more expensive. Transfer money from new buyers to existing owners. This is against the entire premise of the article.


All things being equal, it would, indeed. However, the main driver of the high real estate prices is the artificial scarcity of locations. If you can remove that, you'll see prices collapse all over the country. To remove this scarcity, you need to fight NIMBY.


We currently have a feedback loop where rising prices attracts investors who sink money into real estate, which reduces supply and raises prices, which attracts investors, etc. There are a number of factors that incentivize reduced supply such as reduced incentive to build lots of new buildings because that would increase supply too much and reduce prices and an increased incentive to build a small number of luxury apartments instead, which further raises property values.

If ownership wasn't seen as an investment vehicle, this feedback loop would be broken. People would only buy because they need it, or in the case of landlords, the rents they could secure from rentees would be much lower because of the lower market value of the object and the overall lower rent prices across the entire market.

Of course, sufficient supply has one big condition: Zoning laws are relaxed, allowing enough supply to be built in the first place.


It depends where you are.

I'd argue the SF Bay Area is not being driven by investors (many investors think it is bad to invest given the very low rent yields), but by supply constraints themselves.

The supply constraints are not so much financial, but being driven by residents who don't want their neighborhood to change. And since they don't suffer (no property tax increases come with the home value increase), there's not much push back other than the moral argument that their children can't afford homes anymore.


You're right. I just didn't want to write an essay. There are a number of incentives that motivate owners to prefer supply constraints.


I guess, meet and exceed housing demand and improve less affluent areas. This involves government money but most seem happy to let the public take the bill in the form of continuously inflating house prices instead.


You build more houses, supply/demand, etc. There are many, many good locations in the US where affordable housing been be built. You can also replace low density housing with medium/high density housing.


Population growth is very low, the technology to make homes should get cheaper, and old homes degrade and become less desirable as the rich continue to build new homes.


>> In a world where housing prices stay the same, or become slightly cheaper year by year, everyone is better of.

I think you made a good argument here against fiat currency and Keynessian economics in general. Let's have gold standard and deflation again.


If you don't own a home, you are effectively short the housing market. If you own one home you are neutral: you can't sell it to make a profit because you always need one roof over your head. If you own more than one house, you are a landlord/investor and I don't know why we are giving you special treatment relative to other asset classes.

It would be better for everyone if housing was not an investment.


Except that the amount of housing you need does not stay the same throughout your entire life. Nor do constraints on your proximity to urban job centers.


> If you don't own a home, you are effectively short the housing market.

If you don't own a home you are not hedged against the housing market.

That's different from being short.


But if you have a mortgage you're long and leveraged. A 20% fall in the value of a house may end up with you losing 200% of your investment.


> If you don't own a home, you are effectively short the housing market.

No, the same way that you aren't short on Tesla if you merely don't own any Tesla shares.

> If you own one home you are neutral

Long, actually.

> you can't sell it to make a profit because you always need one roof over your head.

Yes, you can; you may prefer to have a home, but people do in fact live without them, and, further unless you own the most minimal home allowed by habitability laws in the most inexpensive neighborhood, you can always downgrade while still having a roof over your head.

> If you own more than one house, you are a landlord/investor

That's no more true that it is of “if you own more than the least expensive house possible”; it is quite possible to own multiple homes only for personal use value, viewing them neither as investment for resale or things to rent out.

> It would be better for everyone if housing was not an investment

If it wasn't, how would development happen? It only happens because housing is an investment for the first owners, the one building it.


Many things are created with out them being 'investments.' The builder just needs to be able to sell the home for more than the cost of labor, material, and land. The owner buys it as a place to live and not as an investment.

Much like a car - many things are expensive and not expected to go up in value.


> Many things are created with out them being 'investments.' The builder just needs to be able to sell the home for more than the cost of labor, material, and land.

Spending money on something in th expectation of being able to resell it later for greater than the cost is, exactly, an investment.


> > If you don't own a home, you are effectively short the housing market.

> No, the same way that you aren't short on Tesla if you merely don't own any Tesla shares.

I'm not required to produce Tesla shares every month for the rest of my life. It's not precisely that I need to own "one home" to be "neutral housing", but I need a claim on enough housing for myself (and those I'm responsible for) that I don't have to keep paying market rate for.


That is a very interesting way to think about it, but I am not sure that it works fully. By extending that principle, wouldn't anyone that can't afford to own shares in TSLA or MSFT be short then? In this framework it seems like you can't be "neutral", ie neither short nor long.


No, because you need a home to live. OP is arguing that living in a home you don't own and being exposed to the housing market through your rent costs is equivalent to being 'short'.


Okay that's a fair point. In the housing case, you aren't simply not participating; your money is exposed to the housing market in the form of rent. I buy that.


You can sell at a profit by moving someplace where housing didn’t go up at the same rate (e.g. to another area or to a smaller house).

Housing as an investment and friction around moving keeps you tied to a particular area, which can be argued is better for a community.


I don't see how being tied to a particular area is essentially good for the community, especially for big cities, which are used to huge turnovers. For me having the freedom to move wherever I want for my job sounds much more enticing than being forced to find jobs in the same area even though there might be better chances elsewhere/I just want to experience something different.

Also, you don't necessarily have to be tied to that area either. You can still treat the house as an investment and rent it out, while you yourself rent a smaller house. In some places in Europe such practices might even be encouraged by the policy (tax incentives etc.)


In your analysis, I believe you're missing the class of folks that can't afford a home.


He is not. Within the point he’s trying to make, that class of people are effectively shorting real estate, whether or not they want to.


I’ve never heard of renting as being “short” the housing prices but that’s a great way to think of it.


> ...its price would need to increase faster than the rate of inflation.

If you don't own a home, you pay rent, and rent increases over time. Even if you never made a dime on selling the home years later, the difference between years of rent vs. the total of your mortgage may still come out ahead. Or, keep the house, and live the rest of your live only having to pay property taxes and utilities. Either way, inflation goes up, rents go up, mortgages go down.

I'm not sure that invalidates the larger points within the article. I just worry about the perspective of treating a home purely as an investment when their primary benefit is to be a roof over your head.


If you’re single or a couple with no dependents who doesn’t mind moving every now and then, renting isn’t so bad. You avoid the risk of dealing with damage to the structure, fixing things, labor markets being disrupted (like factory towns or smaller towns everywhere in the US). Take all that saved up money and put it in a low cost index fund, you very well might come ahead, and be liquid when you need to move because the jobs disappeared. And rents definitely don’t always go up.


> you very well might come ahead

There's a wonderful video[1] explaining just that. The TL;DW is that if you compare a renter & a buyer from day 1 to the end of a 25 year mortgage, both the renter and owner will have roughly the same net worth.

My folks always talked about how renting just pissed away money, but never mentioned how mortgages piss away an obscene amount of money on interest payments. (And repairs/tax/insurance/HOA/etc.)

[1] https://www.youtube.com/watch?v=NZR_vMTLfIk


Well you still own the house after 25 years....


Sure. And you also have to replace the roof when it leaks, the heating if it fails, and the water heater when it goes. You may or may not have had to mow the lawn and other such things.

Owning isn't always a benefit nor is renting always a curse. Either one can be a solid choice for an individual and/or their family.


I totally agree, but you at least need a clear fermi approximation to compare. I don't agree off the cuff that renting and buying have equivalent value.


Here is one such app (mine) running said approximations and plotting the results:

https://github.com/radekstepan/buy-vs-rent#buy-vs-rent


Obviously the comparison accounts for that. The rental owns the equivalent of the value of the house in other assests.


Hmm, that relies on reasoning that necessarily pegs mortgage above rent by a large margin. That’s a difficult sell.


The down payment on a house is a pretty large opportunity cost. (In the case of a small down payment, then the PMI is the relevant cost.)


That’s assuming people purchase assets that increase in value over time. And that most people are fiscally responsible and manage their debt properly. Which isn’t the case for probably 90%+ of Americans.

It’s very easily to live a paycheck-to-paycheck lifestyle (even in higher incomes, people adapt to expensive lifestyles very quickly) and spend a lot of money on vacations, cars, eating out etc... and only consider your living costs as a passive constant that you pay no attention to. I imagine most people think of spending and budget allocation in this way, so for them having a mortgage makes more sense.

Rather if you think of every purchase in terms of your total net worth and you spend a significant amount of your income towards saving, investments, and assets that don’t depreciate, then sure, maybe renting is your better option.


OTOH it can also be argued that fiscally irresponsible people should not be taking on mortgages as they are the more likely to end up with a foreclosure.


Of course there's the problem of being unable to improve a rental- the landlord doesn't reap any reward and the renter doesn't have a stake to be willing to invest- so rental stock tends to be uninsulated, uncomfortable, poorly designed, rarely renovated, etc.

Last summer I spent $900 in materials to build a pergola that I carefully planned as passive solar management. It made a huge difference in comfort and slashed cooling loads. In rentals, I just suffered.


Landlords improve rentals when they think it will allow them to raise the rent enough to make back more than the renovation cost in the long term.

Or when they think it will allow them to attract a “better” type of tenant who’s more likely to pay rent on time and take care of the space instead of damaging it.

Or because the real estate is their nest egg and they want to maintain and increase its value. Or because they live in the building and the improvements will improve their own quality of life.

Every apartment I’ve rented in NYC has been in a building over 75 years old. Even at fairly low rents (by NYC standards), every one had been gut renovated less than 10 years before I moved in.


I know there are scenarios where rentals do get improved. But insulation, efficiency & comfort is really hard to value, and so I've not really seen it happen. This is specifically called out by government & eco groups as a major challenge going forward to improving energy efficiency of the housing stock.


I've known a few families over the years in California who rented detached houses. They rented houses (didn't have the down payment) to get the benefits of more space (ex: 3-bedroom place), yard (well small yard, this is California), garage, and washer/dryer.

Every single one of them had to move out before their kids grew up old enough to go to college. In fact they didn't last more than a few years at each house because every landlord would come around and ask the renters to move out.

The excuses given were: - I'm selling the house (turned out it wasn't sold years) - I'm remodeling the house (nope, not true)

Pretty much in all cases, the owner of the house was forcing the renter out so that they could raise up the rent much higher with the next, new renters.


California is obviously an outlier in real estate discussions. Obviously in highly desirable areas, demand will keep going up will cause rents and home prices to keep going up, and of course owning will be better.

NYC/AUS/DEN/SEA/PDX are also forecast to be high demand, but who knows when an earthquake or drought or whatnot can come along and destroy home values. But for most other places not posting double digit growth like Midwest towns or the Northeast with its stagnant high tax suburbs, home values don’t see the rise in value that make it a no brainer to buy.


> They rented houses (didn't have the down payment) to get the benefits of more space

This is just a statement that living beyond your means is bad. Even in markets where renting is cheaper (https://medium.com/@usaar33/why-you-shouldnt-buy-a-home-in-t...), you have to ensure your savings rate is high enough to absorb any reasonable rent appreciation.

Realistically, you might be able to get 20% more house than what you can buy - I imagine your friends were pushing more than that.


But you are assuming they were living beyond their means.

They were really not. They were able to find another place near paying similar rent.

The point is the house owners were basically getting around a local laws meant to protect renters against unreasonable rent increases.

Where I live, there is a law against raising monthly rent substantially on an existing renter. Owner can raise the rent for existing tenant say about 3 - 5%, once a year. I'm not sure about the exact percentage, but it is allowed only once a year for sure, to a specific percentage of the existing rent.

So the house owner gets around this law by periodically forcing out the renter with bogus reasons, so that they can rent out the property to the next renter at a substantially higher rate.

Instead of being able to increase rent from $2500 to $2700 after the renters lived there for first 2 years, property owner can raise the rent from $2500 to $3000 or even $3500. The property owner is basically getting around the local law to protect renters.


> They were able to find another place near paying similar rent.

I'm a bit confused here. I assume the new place was inferior in some way? Otherwise, I don't see why the landlord would try to force them out if they are paying market rent.


Well it seems some owners seem to think they can beat the market and get higher rent by chasing renters out every few years. So they can raise rent by 7- 10% instead of just say 3%.


> If you don't own a home, you pay rent, and rent increases over time. Rent costs are directly tied to property values. Assuming rents will always increase is based off the same assumption that property values will always increase as well.


> Rent costs are directly tied to property values.

In the long term, probably. But definitely not in the short or middle term. There can be many years where the ratio deviates from the norm. So "directly" is not definitely not the word I'd use.

https://www.investopedia.com/terms/p/price-to-rent-ratio.asp


> If you don't own a home, you pay rent, and rent increases over time.

That's not necessarily true. I live in Japan. While the price of land may raise, the price of houses only goes down. As for rent, it looks flat.


You could also argue that Japan's extremely low crime rate makes it a safe place for families to live. But good luck getting the US crime rate down to those levels. Japan is an outlier in so many ways that it's not useful to use the country for comparison. It has a completely unique culture and an almost totally homogenous population, ethnically and culturally.

I have yet to see anyone put forth a realistic proposal for achieving the social harmony of Japan in a country as diverse as the United States.


Well, if different courts were allowed to exist in the same geographical area, with different laws, selling their services (and their laws) to customers, competing for these customers, and negotiating between themselves as to how inter-court disputes should be resolved ... then different cultures living in the same places could live by the laws that best suited them, with maximally-efficient interaction with other cultures/courts, without people having to geographically segregate themselves into multiple homogeneous nations (such a transition being inefficient and outright disgusting).

But that won't happen, because everyone's minds are married to the idea that law must be provided by a monopoly called "government".


Japan also had a negative population growth for quite a while now, which translates to less demand and too much supply.

In that regard, I'm not at all surprised about prices for houses going down, probably plenty of them on the market. Just like flat rents make sense, wouldn't want to lose your tenant due to increasing rent when he has plenty of other options.

Tho don't urban population centers still see rising rents and house prices?


Japan is unique in how housing deprecates over time. Rentals also kind of works like that in the states; with older properties becoming cheaper to rent as newer stock fills the high end.


Or it can come out behind if alternative investments have higher returns.

A calculator: https://medium.com/@usaar33/an-up-to-date-buy-or-rent-calcul...


That’s only true from a cash flow perspective. Buying a house is effectively a form of savings. When you rent it’s a recurring expense.


The real problem is that there hasn’t been any attempt at policy changes to correct this. In order to do so, society needs to chip away at the problem in steps.

Right now, real estate is simply a good investment regardless of everything else because of the tax benefits of transferring properties to heirs. Depreciation and tax bases are reset, essentially making real estate a double whammy of tax benefits for the current owners as well as their heirs. Depreciation means tens of thousands of dollars saved in taxes per year per property. Transfer benefits means never having to pay that back due to generational reset. Take away the transfer and estate benefits first.

Once that first dent is made, the wealthy/NIMBYs will naturally vote for the next correct move, which is to take away policies that make housing unaffordable to their own children. As the law is right now, there is no incentive for land owners to be altruistic to society because their children are sheltered from affordability problems due to transfer benefits.

My wager is that all it would take is removing transfer benefits on commercial properties (e.g. like kind exchange, or enforcing depreciation recapture upon transfers, including 1031) to see the first domino fall on the way to an eventual partial rollback of laws like prop 13 and more property development due to fewer NIMBY incentives. That’s a very small bite to chew that leads to much greater changes down the road because it realigns incentives tremendously.

I say this as someone who has Bay Area real-estate. The strategy to reverse things doesn’t exist at the moment.


This article misses two points that are so basic that I'm shocked. 1) Home prices don't need to go up in order to make it a good investment 2) Banks pay a huge percentage of the cost of buying a house, but the consumer keeps 100% of the profit.

To use the example in the article, if you bought a house for $200,000 and sold it ten years later for $256,000, you didn't only make $56,000. You also paid down your mortgage over that time. A typical mortgage isn't much more than rent, so minus interest, that's more money for you. Also, you only needed to put down $40,000 and the bank paid the other $160k for the house purchase. So for $40k plus the cost of rent, you did pretty well. You also would have done better than renting if the house had only appreciated half as much.


> Also, you only needed to put down $40,000 and the bank paid the other $160k for the house purchase.

In this scenario the bank just creates the money out of thin air. And then they get to keep all of the interest payments.

So, yeah, it's good for the home owner, but it's great for the bank -- so long as most people keep paying back their loans.


Something I've been wondering about: Would it be a good or bad idea to tamp down on the whole concept of housing as an investment?

It seems fundamentally problematic, but is there any alternative workable system that wouldn't have unintended consequences?


One component of the problem is that "housing" isn't a free market. More specifically, if you buy a plot of land in nearly any city or town, you aren't free to build whatever you want (e.g. building a duplex or small apartment building). The housing supply is centrally controlled by the local (and possibly other levels of) government, via zoning rules and building codes. Property owners tend to vote more than renters or future residents, so they generally vote for a more controlled supply of property which helps to keep prices on an upwards trend.

What seems to help with this Japan is that zoning and building codes are top down from the highest level of government, so they can adjust supply according to flows of people. E.g. Tokyo builds as many units of housing as people who move into the city. (Among other differences.)


>What seems to help with this Japan is that zoning and building codes are top down from the highest level of government

This is the only way to effect a society where housing is "not an investment". Otherwise you're looking at local governments that are wholly captured by a constituency tilted toward, effectively, cronyist voters furiously determined to keep their property as valuable as possible.


Rents in Tokyo aren’t really that cheap on a square meter basis, just the size of unit you can rent is much smaller. Housing is actually more expensive to buy than many American cities (comparing equivalent sizes).


Fair point, but people tend to demand less space right? Is the average-sized rental affordable for the average income in the city? I've heard the relative affordability is better than most of the Western world.


Incomes kind of suck in Tokyo, so no. The average income is like 325,000 yen/month, the average for an 85 sqm apartment in an average area is 271,000 yen/month. Life is tough, you need to think small or think super long commute.


I think I can see how buying up single family homes, and not living in them can artifically increase housing prices.

But I dont see why we should disincentivize people from buying multi-family homes and renting them out. Being a landlord is not free, and its not a charity. Landlords need an incentive to provide services like maintaining the property, renovating and dealing with the headaches of owning property. If property did not offer any financial return, less people would buy multi family homes or they would put as little effort into maintaining the property.


A Land Value Tax would help a lot: http://www.henrygeorge.org/pcontents.htm


It would be a good idea. 2008 went a long way towards disabusing a lot of folks of the notion that buying property is always a good investment.

But given the way my mom still talks up real estate there's probably some more room for tamping down.


Good point, prior to 2008 it seemed like everyone was convinced that buying a house was a no brainer and that renting was throwing your money away.

Maybe what happened with Detroit helped too.


In Asia, house value is like car value. People want to buy brand new ones, and the minute it's used, it's worthless. People can live in their old house as long as they want to, but young people would prefer a clean new house free of mold (humidity makes it inevitable) and other problems and they can get a new house relatively affordably.

It works very well. The fact house prices in America/many Western countries increase with time is an anomaly that applies to no other item as far as I know, barring the odd historical/valuable antiques. But nobody can predict their value 10 years from now.


The physical house itself generally isn't gaining in value. A newer house tends to be worth more, so age is still impacting the price.

Many of the houses near me are torn down and replaced after being purchased, so the price is more reflective of the cost to acquire the land.

The mold issue isn't unique to Asia. Parts of the southern US have a preference for new homes due to mold, termites and storm damage.


>In Asia, house value is like car value. People want to buy brand new ones, and the minute it's used, it's worthless. People can live in their old house as long as they want to, but young people would prefer a clean new house free of mold (humidity makes it inevitable) and other problems and they can get a new house relatively affordably.

Moreover that, in China, there are close to no second hand cars. Second hand market is microscopic.

The same is true witch apartments. It amazes me to see rich Chinese simply abandoning their old apartments when they move to new ones. Personally met a family with 4 apartments, who simply left each of their old apartments collecting dust.


What about an old mouldy home in a super desirable location?

Also is brand new outweigh renovated?


Tear it down and build it over, especially if you're an investor and can buy a bunch of mouldy homes on a block.

Example in the US is smaller suburban houses that happen to be located near commuter rail stations. They are torn down and replaced with new, bigger houses. The neighborhood across the tracks from my house is another example: Doctors and professors have bought and "renovated" all of the smaller houses.

I notice something similar with hotels. My experience in a hotel is 100% proportional to the age of the hotel. The newer the better. Hotel owners rarely renovate unless they are in super prime downtown locations. They just let the hotel deteriorate while lowering their room rates while someone builds a new hotel next door.


In Japan, it's common for the land to be worth a lot of money and the house on the land to be worth nothing. New buyers frequently tear down the house and build a new one.

After a few decades of ownership, it is not unheard of for people to move out of their house, tear it down and replace it with a new one, and then move back in. I guess they rent a place to live while this is happening.

In Japan particularly, this is a legacy of the poor quality of houses built in the early 20th century and the period after WWII when everything was slapped together as quickly as possible. They really were worthless after a decade or two because they were not built to last.

This seriously damages the incentives for maintaining existing homes, because they are going to be worthless in 10 years, why bother?


Housing is a good investment for natural reasons: as population increases, housing near developed communities becomes scarcer.

To tamp down on that concept would be really difficult. You'd probably have to artificially limit the ROI of home sales, which would likely increase the number of renters. Then what? Rent goes up, so you have to artificially limit the price of rent. So how do you choose the limit?

Then once you've chosen the rent limit, will RE firms have an incentive to build?

Free markets work pretty well for settle prices. The problem is that not everyone can participate equally. If we artificially brought people out of poverty instead of artificially fixing housing markets, the housing problem would be a lot less severe.


It's inevitable that land prices in urban areas will go up as populations grow. That doesn't mean that the price of housing has to grow too. You could build more density (build up, build smaller units) to keep rents and prices stable.


And this is the way cities used to work, pre-automobile. Our post war sprawl is a huge cultural experiment, and there are a lot of people who think it is not sustainable.


There's an argument that urban housing is deflationary because of land reclamation and taller buildings. So is farm land because of crop farming efficiency.

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