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.
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.)
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.
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.
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.
That is not an argument for implementing it at home.
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.
In short all flats/apartments are cooperatives, but still profit occurs when they're bought and sold. The structure and profit/loss are unrelated.
(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!)
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.)
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.
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.
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.
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.
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.
I don’t follow your logic there at all
>...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.
You can see it in the movies of the time, too, starting with "A Summer Place".
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.
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.
You know, in direct contrast to Millennials, whom they enjoy criticizing so much.
I don't think so:
The most spectacular rise in the standard of living in the US was in the 19th century.
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.
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.
Life expectancy hasn't increased by 20 years. Maybe 1 year.
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.
A realistic figure for your position would be life expectancy at age 20.
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 . 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.
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.
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.
Taxes yes, but I am not so sure about death.
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.
They aren't mutually exclusive.
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.
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?
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 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."
That feedback mechanism is called a market and it coordinates via price signals and a desire to achieve equilibrium.
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.
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.
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!
People paint them as no zoning, but that's only on one specific measure.
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.
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.
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.
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.
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.
As for where people are moving from other than farm country, there are plenty of economically struggling cities, towns, and suburbs.
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.
> 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.
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.
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 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.
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.
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.
That is an incredible amount of personal opinion injected as fact.
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 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.
The only solution I see is state level zoning standardization around pro-density zoning and limitations on NIMBY power.
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.
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.
Some mid-rise condos down the block are far better than another suburban subdivision a few miles down the road, as traffic goes.
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.
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.
In your case it's sounds like you're paying it to some extent: longer and/or more expensive commute.
Welcome to Hacker News!
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Housing land (houses are a deprecating asset) should be an asset class that mirrors population and economic growth.
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.
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.
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.
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.
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.
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.
Edit for clarity:
You’re probably right. I thought it would be an apropos time to slip in a blockchain joke. :)
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.
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.
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  - these two policy aims are mathematically at odds.
Now I'm just picking nits I suppose.
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.
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.
This will vary a lot by the rate you get but I think it’s in the ball park.
So let me rephrase then: How do you know the cost of 30 years rent to compare it with?
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)
How often do the rates change? Anything crazy like 2-3% swings? Doesn't that make budgeting tough?
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.
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.
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.
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.
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?
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.
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.
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.
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.
(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.)
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.
"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).
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.
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
I’m looking forward to more automation in construction so that vertical is not significantly more expensive.
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."
==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.
The trouble is, lots of people will lose money...
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.
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.
I think you made a good argument here against fiat currency and Keynessian economics in general. Let's have gold standard and deflation again.
It would be better for everyone if housing was not an investment.
If you don't own a home you are not hedged against the housing market.
That's different from being short.
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
> 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.
Much like a car - many things are expensive and not expected to go up in value.
Spending money on something in th expectation of being able to resell it later for greater than the cost is, exactly, an investment.
> 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.
Housing as an investment and friction around moving keeps you tied to a particular area, which can be argued is better for a community.
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.)
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.
There's a wonderful video 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.)
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
But that won't happen, because everyone's minds are married to the idea that law must be provided by a monopoly called "government".
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?
A calculator: https://medium.com/@usaar33/an-up-to-date-buy-or-rent-calcul...
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.
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.
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.
It seems fundamentally problematic, but is there any alternative workable system that wouldn't have unintended consequences?
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.)
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.
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.
But given the way my mom still talks up real estate there's probably some more room for tamping down.
Maybe what happened with Detroit helped too.
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.
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.
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.
Also is brand new outweigh renovated?
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.
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?
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.