(1) Americans consider housing to be an investment. An investment is only an investment if you expect a positive return over time. We generally want that investment to match or exceed inflation.
(2) That's antithetical to the idea of affordable housing. It's either affordable or an expensive, appreciating asset. It literally cannot be both at the same time. The only reason it's worked thus far is the broad-based expansion of the US economy and of specific population centers like SF has masked the problem for many, many years. Especially in conjunction with 30-year mortgages requiring 2% down. That's some serious leverage.
We don't talk about the lack of affordable AAPL shares do we? That's insane, it's an investment, we want it to go up. The less affordable, the better!
(3) Renters tend to be younger, transient and not vote. Owners tend to be older, wealthier, have deep roots in the community, and vote their asses off. They also aren't huge fans of change. They vote their interests: whatever keeps their, on average, largest investment performing well.
If you want cheap housing forget rent control. Allow developers to build up as high as the infrastructure can sustain. Allow smaller units, too, micro-apartments like whatever that place is on Mission, Panoramic. It's time to re-think the idea of housing as an "investment." We need to re-focus the narrative to make housing much more utilitarian.
This is reflected in major housing markets around the world, like Tokyo. They don't consider housing an investment, and they have some of the most affordable housing in any major metro in the world. 
Shameless policy plug: part of the reason that property tends to be a good investment is that a significant portion of its value derives not from improvements, but from "location, location, location": proximity to businesses and community services. Some economists (Henry George, Milton Friedman) have advocated shifting property tax to be based on the unimproved value of land, rather than its total/improved value, thus offsetting the (arguably unearned) benefits of sitting on a lot while the surrounding community accrues value.
The best argument against LVT that I came across was from Bryan Caplan concerning prospecting for oil; once a person finds oil and builds a well, LVT would not charge her for the well, but it would charge her for the oil. She didn't make the oil, but finding it does take effort and you don't want to disincentive that.
I still like LVT conceptually but I don't know what the best solution is for this kind of case.
Of course, you could alternately just sell your now-valuable land. However, the higher the ongoing tax bill (due to the LVT) the less people will want to pay for your land. The LVT captures some or much of the value currently accruing to landlords (depending on how high it is).
High property taxes can serve a similar function. Taxing the unimproved value of the land removes a disincentive to improve the land, though. If you knock down your house and build a much better one on the same land, your property taxes would go up while LVT would not.
LVT vs property tax is not the main point, though, in my opinion. The real issue is moving from heavy reliance on income tax to heavy reliance on property tax or LVT.
Granted, any LVT won't approach the 100%-of-rents rate, so it's a proportional thing.
>for the purpose of encouraging building housing how is a land value tax functionally different from a property tax?
A land-value tax is indifferent towards a single-family home and a thirty-story apartment building on identical plots of land. Property taxes aren't, they add an additional penalty on the highly-developed land.
Apparently I'm the lone dissenter on this, but I think for many people this is a side benefit that they may hope for, but the primary objective is simply to own a home that they can live in and raise a family.
In the modern era, if you don't own a home already you probably couldn't care less about the investment quality of a home. You just want a home to live in and call yours without an 80 minute commute.
The "investment" should not be "I can sell this in 20 years for a boatload of profit" but rather "I don't have to pay rent when retired, only property taxes + maintenance + energy".
But when property values are wielded as arguments to beat down proposals for growth, for transit, etc, it's clear that this isn't the meaning in use.
Unless you end up getting a reverse mortgage, in which case I guess you were renting all along.
I just put together a spreadsheet assuming 1% maintenance, 1% tax rate, and 3.5% mortgage rate on a 250k house. You still would need a 5% annual rate of return to make money. After 15 years you would have hit your $250k capital gains limit, but you'd only have $70k in profit after taxes, interest and maintenance. At 3%, you lose money until well after the house is paid off.
Further, your mortgage interest up to $750K is also tax deductible, and you have to index the whole thing to inflation. Once you do all that the costs are either nominal or negative on a 3.5% 30 year fixed deducted from a Bay Area income. Until Donny took us for a ride property taxes were deductible too.
This is what it looks like when owners vote.
In California, demand is high, and prices have been inflated by constraining supply due to a lack of upzoning. It also doesn't help that CA has proposition 13, which locks you into your purchase price tax rate in perpetuity. You should see wilshire country club's property tax bill, it's like a couple buttons and pocket lint.
But it also decreases turnover. Say its 1970, you buy a house in LA for 50k, have your kids, they move out, you are old and want a smaller place, it's 2019, and your house is worth 1m but your taxed as if it was worth 50k. You can cash out, but if you want to continue to live in LA in another 1m property, you pay taxes on that 1m.
It's like rent control for homeowners only you can also give your house and that sweet sweet 1970 tax burden to your kids, perpetuating the landed aristocracy at the cost of the working class.
I think most of this comes down to the fact that Americans generally had little savings outside of their home equity. This only became relevant in the 90-00s when home equity loans/LoCs took off and were widely available to almost anyone. Suddenly, it mattered how much equity you had in your home because you could spend it.
There's another group of people that look at their parents' home and realize that it has doubled in value since the early 90s. But these people usually don't account for interest, tax, and maintenance payments over those 20 years.
TBH I stole that from an article I read a while ago that I can't seem to Google now...
You can't liquidate any built up equity either, since you probably need income or assets to get a rental or equity loan. So it's completely possible that you lose any built up equity in the event of a foreclosure too.
I think, if anything, this position is actually supportive of making an educated rent vs buy comparison, by discarding any kind of "investment" potential on the buy side.
Others might have other reasons for similar state.
This is more meant to attack the idea of a primary residence being an "investment". If people insist on calling it an investment, then it's fair for me to insist that it's only covering a short position, because you need somewhere to live.
However, this could just be because I grew up in Chicago where there is endless farmland that can be developed and thus expecting greater than inflation appreciation on your house is foolish as someone else can just develop some farmland and sell it for the cost of building the house thus forever increasing the supply at the marginal cost of building a house.
Even expecting the house to hold its value is rather strange. You would naturally expect the value of a home to decrease by some amount each year. Most of us would prefer a modern home to an older home. The only reason it does not is because supply of new homes is restricted.
In well functioning markets like Tokyo, that's exactly what we see: homes tend to lose value each year until around 25-30 years most are simply torn down and re-built.
So in Tokyo, not only is the average rent sharply lower than a city like San Francisco, the housing is also more modern. The average age of a home in Tokyo is 20 years. More than half of Tokyo's housing stock has been built since the year 2000.
In San Francisco, more than half of the housing stock was built before 1940.
If you deduct maintenance from your home value, it more-or-less does. I don't see why a maintained home "should" decrease in value, though. A lot of the value of a home is in the structure, which tends to wear much more gracefully than, say, a car's body.
Wasn't a big issue for us at least as we have double decker commutator trains. The one that ran through my town has 3 tracks even so the train only has to stop at a few stations and then it hops onto the middle track and drives the rest of the way downtown. Only took 30 minutes to go 20 miles downtown and going out further doesn't add much time as your just adding distance traveled at top speed.
> better town
Not sure what metric you are interested in that regard but if it is school wise, I went to one of the highest rated public schools and you could still find smaller more affordable homes in the school district. While there were plenty of wealthy people, I had some friends whose parents were firefighters and USPS delivery men.
It results in farcical scenarios, like homeowners opposing workforce housing for the local school district because the people teaching their kids are too low-income to fit in. https://www.citylab.com/equity/2018/10/san-jose-trying-build...
And owning that home, as opposed to renting it, is an investment.
Not just city councils. Residents, environmental groups, and special interest groups controlled by residents have a huge influence on limiting housing through legislation as well. Often places where housing is approved by the city are stalled in courts for years. City councils can control some of the lawsuits by reforming local laws but there is a huge number of individual residents who are willing to spend absurd amounts of money preventing people from building a new 6 unit apartment at the end of the block.
Better yet keep those cars in the suburbs! But also suburbs are lame and we make fun of them (I would never be caught living there!). But yeah back to why I dont want more housing downtown... /s
1) Isn't a developer also making an investment when they build these high as hell micro-apartment apartment buildings?
2) How do you avoid a race to the bottom in terms of housing quality when you allow said micro-apartments? Do we want a culture where the poor are living in barely livable wage slave pods while the rich are living in abundant villas?
I'm all for affordable housing but it seems too nuanced to allow market forces to take care of it. I think the correct solution revolves around government subsidized/funded housing but that's a whole other can of beans.
At least the poor would have the choice between the barely livable pod in downtown, or a house 2 hours commute away. Currently they can only choose the latter.
It's a bit counter intuitive, but the best way to lower the cost of housing for the poor is to build more housing for the upper middle class and up. They will trade up houses which will increase the supply of used houses driving down their price. It's essentially impossible to build something new that will be cost competitive with something that already exists.
Why does a pod need a kitchen and bathroom? If it had those it'd be called a studio apartment. A pod is essentially anything from a dorm room styled apartment to a half-height room big enough to have a bed to sleep in and a shelf for a few items (like the Japanese have). In any of those cases you'd have communal kitchens and bathrooms. This would actually also be good socially because as we become more digitally immersed it provides a public area to meet new people, just like how it was in college.
These all went away by the late 60s in New York. They wouldn't be legal now. For one thing, buildings, or floors, were restricted to either men or women. And they didn't allow children, or more than one person/room. But they allowed people just getting started--working clearing tables, or washing dishes, etc--to be able to live near where they worked.
Annoying. I lived in a SRO (I just called it a studio apartment with a shared bathroom) for 3.5 years that was run by a co-op apartment building. This was in Seattle. Having a shared bathroom was an annoyance (shared between 4 men - never more than a sentence said to two of them) but I was more than happy to put up with it versus having to deal with roommates. It was also cheaper than having roommates in a variety of houses that I looked at. I had more space than all those rooms for rent I looked at. I often wish I could've kept that kind of housing when I moved to the bay area because everything here is so outlandishly expensive just to get your own bit of space and that housing was so cheap for me.
Second one was a former HoJo parked while awaiting condo conversion. Imagine a hotel room stripped of all furniture, with a single kitchen per floor. Had to wash my dishes in the bathtub, but otherwise it worked for me.
EDIT: just looked it up, xenophobia of course. New Yorkers didn't like immigrants living in Manhattan in 1955.
Basic human dignity? Being forced to share an intimate thing such as a bathroom with strangers or depending on strangers not eating your food/trashing your stuff or not being able to feed yourself because another person is cooking a 5-rounds-meal is not something that should be acceptable in a developed nation.
So you can save money - but not much - by not having full appliances. You can save a lot more by not building a full kitchen and a second bathroom.
Think about bathrooms; my childhood home and my grandparent's home both only had 1 bathroom. My grandparent's was on the second floor with enough room for a sink with a toilet on one side and bathtub on the other. Mine was toilet, sink and single standing shower.
Newer homes started having a guest toilet. Then guest/second bath and master bath. Now newer constructions seem to have 1 bathroom per bedroom as well a guest. All while increasing the size of the bathroom. And increasing the size of the bedroom. And the size of the closets. And so on.
I bought a 3 br 2 ba ranch. Currently my 2 sons are 1 and 6, I don't need the second bathroom. It's nice when we have guests but when we don't it just sits there.
I see many new constructions but not any that are even close in size or price to what I have. I also see the older lots being bought and redeveloped.
Nobody expects car manufacturers to build new run-down clunkers they sell for $200... they build new cars and people who can’t afford them generally buy cheap used ones!
Houses are the same way. A nice house built in the 80s is going to be way better than a cheap house built today. Outdated looking quality construction > modern looking cheap crap.
> You don't really save all that much money by building a barely livable pod vs an actual apartment.
Okay, so build normal size apartments then. Even if it's the same price as a house 2-3 hours away, you're removing 3-6 hours of commute time.
The important part is splitting land costs over tens of units instead of just one or two, not exactly how many tens.
300 sq ft is a quite livable studio apartment, with enough room for a bathroom and (compact) kitchen.
with that said, yes, any additional housing is better than none.
The problem is that housing in any location is not a closed system with fixed demand. It is an open system in which increased supply can generate increased demand.
When you build that housing for upper middle class and up, they vacate their homes, the price of their old homes goes down, then upper middle class and up people who previously decided to live in a cheaper area over paying the extreme rent costs move in, the population grows, and the price break never fully flows down market to the poor people in the city. This is why the market approach to building more housing isn't going to solve the whole problem. You need to build new homes at every pricing level and the market generally doesn't do that without the government incentivizing them.
It does because the poor people move into the housing that the upper middle class vacated. Population growth is an independent confounding factor. In other words, housing cost can still go up due to population growth but they would go up less if the new luxury housing is built.
> You need to build new homes at every pricing level
But you can't. You have high fixed costs like land, hook ups to the city utilities, architect work, plumbing, electrical, permits, and HVAC. These are pretty much the same regardless of how big of a house you build. The stuff that varies directly with size like dry wall, paint, framing, flooring, etc. doesn't cost that much. And even then the more you do at one time the cheaper it gets. In other words, hanging the last section of drywall costs a lot less than hanging the first one because you incur all of the over head to hang that first sheet.
The end result is that you can't build a new house that a poor person can afford. They probably can't even afford the fixed costs. Even if you could, it wouldn't be economically viable. You're way better off spending the ~10% more to get a upper middle class house that you can sell for 50-100% more. It's still good for affordability because you've increase supply. Everybody takes one step up the ladder and the benefit will trickle down to the poor.
That only works if the system is closed. If housing in the bay area goes down in price, you get people moving in from New York, LA, Boston, Austin, etc who previously avoided the area due to costs. Do you just ship off those poor people to those vacated homes hundred or thousands of miles away?
>Population growth is an independent confounding factor. In other words, housing cost can still go up due to population growth but they would go up less if the new luxury housing is built.
This is of course true. The question is just will building new luxury housing increase population growth to an extent that swallows the whole price break before it ever flows down to the bottom of the market?
>But you can't. You have high fixed costs like land, hook ups to the city utilities, architect work, plumbing, electrical, permits, and HVAC.
The reason housing in the bay area is so high has nothing to do with fixed material costs or else housing everywhere would be that astronomical. The reason housing is so high is because demand is high and the supply of land is limited. Land is the primary costs. You fight that by building vertically. The higher the building, the lower the marginal cost of land for each unit and therefore things become more affordable. But like I said in my first post, this doesn't happen if everything is left up to the market because it isn't the way to be most profitable, so the government would need to be involved to incentivize this.
Yes, and the other direction too, if NYC dropped hugely in price probably a lot of people would move from SF. If a city manages to solve its housing problem in some enormous way some of the benefit would go to other cities.
The reverse is true too, SF building nowhere near enough will cause people to move away and drive up housing prices in other places like Austin. This sounds more like the reality today.
It's a real effect, but it seems like the best action for people who need housing is still to build more.
The main thing is does luxury housing act like a totally separate market. For example, if no affordable luxury 2bd apartments are available, will a software engineer move to Boston from SF instead of settling for an ordinary 2bd apartment. I'd expect the majority of the time high-income people who can't afford luxury apartments simply displace middle-income people in ordinary apartments rather than move cities, but I don't have hard data on it.
If that were true the bay area would have been empty long ago because of the ridiculous housing cost. Fact is most people won't change cities for lower housing cost.
>The reason housing in the bay area is so high has nothing to do with fixed material costs or else housing everywhere would be that astronomical. The reason housing is so high is because demand is high and the supply of land is limited. Land is the primary costs. You fight that by building vertically. The higher the building, the lower the marginal cost of land for each unit and therefore things become more affordable. But like I said in my first post, this doesn't happen if everything is left up to the market because it isn't the way to be most profitable, so the government would need to be involved to incentivize this.
Developers are putting 5 on 1 buildings every where they possibly can because it's the most economically efficient use of the land. They can't in the bay area because of zoning restrictions. Remove the zoning restrictions and you'd see skyrocketing density.
Do you genuinely think that housing costs don't factor into which cities people choose to live? I'm not sure this conversation can go anywhere beneficial if we can't agree on that fundamental and in my opinion obvious fact.
There is a ton of pent-up demand in the bay area, because this has been going on for a long time. People who own houses there are going to fight you the whole way.
Developers will build as long as it seems profitable to do so. Presumably this means that when the prices do go down, a few projects will end up in the red when they're done.
Fit the whole extended family into the 1br unit.
I've seen a craigslist ad in LA for barracks style bunk beds for rent near downtown in a shitty looking room, 500/mo.
Zoning laws restrict what builders can build. Subsidies take funding. I find it unpalatable to have a portion of my income taken to solve a problem caused by rules which can be repealed for free.
An extreme example would be subsidizing gold plated homes. Gold plating adds no practical value and makes the house needlessly expensive. Tax dollars should not fund gold plated houses.
Replace the concept of gold platting with suburban zoning.
Right now we've got a scenario where the rich live in fifty-year-old units that really ought to be reasonably priced and the poorest live in alleyways. Having the poor in up-to-code micro-apartments would be a major step up. It would also help if the rich could also live in modern up-to-code units of luxurious size. That would free some of the stock of existing units for everyone else instead of them being pinched between the rich and the most vulnerable.
> I'm all for affordable housing but it seems too nuanced to allow market forces to take care of it. I think the correct solution revolves around government subsidized/funded housing but that's a whole other can of beans.
The US has a poor record of being capable of funding and running public housing, even after you get past the effects of concentrating poverty. The first major problem is often that permanently BMR units cost in excess of $800k each to construct in places like SF - and the city has to be able to afford a lot of those. Then you have the problem of funding ongoing costs, which has often been the problem in the US.
With this in mind, it's perhaps worth reconsidering why some might favor approachs that center on inclusing subsidized units into mixed-income properties.
Unfortunately, like the bay area we are very popular for tech and the all the new dense buildings going up hasn't been able to outpace demand from newcomers. Prices have been skyrocketing and it's really starting to squeeze the most vulnerable. Even more zoning restrictions need to be slashed and timelines for building permits approvals need to tumble.
They are but they build and then sell off, developers develop, they tend not to own those units long-term. I believe this to be true regardless of market direction. Generally in the case of condos for sale, developers manage the complexes for a couple of years until enough units are sold off and the HOA takes them over.
If someone wants to run the whole building for rental, they can certainly still do that. You would just factor in that your rent would grow with inflation instead of geometrically when you're planning your building.
Indeed, that is a risk, however the current solution of not providing these folks a place to live is a punt.
Re: government operation model, I actually agree with you wholeheartedly. Singapore's model where something like 80% of housing is built and managed by the HDB and 20% if totally free-market has worked very well there. I didn't want to bring that into the already-long-enough post as I felt it might distract from my point shrug. 
Compounded growth at inflation is geometric growth.
The poor can always move away if space becomes a real problem. Plenty of "SF-poor" people outside CA who are actually living in "abundant villas" in their preferred locations.
Also a lot of non-trash-strict places will take a mattress in the trash pickup if you just put it near the trash can and make it known it's trash. Also, for the same reason it's hard to sell a mattress, it's easy to buy one used in a new city. If you can afford to heat treat it, you can be sure theres no bed bugs, or if you have a job, buy a $200-$300 mattress from amazon - theyre surprisingly good these days.
I moved 10 times in the first 3 years I was on my own, and have done huge moves up/down since (up to a three bedroom, then decided I hated owning so much and downsized to a studio.) - no family, no savings, just a lot of manual labor/smart packing.
I think ops comment stands, unless you are used to some crazy nice cost of living (which is a different privilege).
That's littering. In most places this carries a substantial fine. Sure, you, might not get caught. I've known several tenants that got large disposal fee bills from their landlords for doing this. This happened whether they left their trash on the sidewalk, or by/in the bins.
>it's easy to buy one used in a new city. If you can afford to heat treat it, you can be sure theres no bed bugs, or if you have a job, buy a $200-$300 mattress from amazon - theyre surprisingly good these days.
Easy != free. Every expense adds up.
Deposit up front before getting back whatever's left after the previous landlord takes their scammy fees.
Lost wages. Costs of moving itself, and disposing of stuff that needs to be repurchased . Buying new stuff, even replacing a modest set of furnishings for a studio from second hand stores can pass $1k easily.
>no family, no savings, just a lot of manual labor/smart packing.
That has a price tag. You're not calculating it accurately. Just because you think you made all those moves cheaply doesn't mean you did.
Did you rent vehicles? Rebuy furniture? Stay at hotels? Mooch off friends or family? Did you eat out or sleep in your car?
These costs grow with a family. It might cost me $500 to move in a hurry. But it could cost a family $10k or more.
Did they stay long enough to build significant equity or make repairs? They might've lost money compared to renting. Some people do everything right and suffer bad luck forcing a move in bad conditions.
Do they need to rent or stay at hotels in between the move out and move in? It's not always possible to avoid this.
Even moving/re buying a minimal amount of furnishings for a family can cost thousands. Moving it is often cheaper. That adds time and labor either way. Or cost to avoid this. Some people also aren't physically capable of moving themselves.
It feels so easy and simple because you make these decisions for you and you alone.
The difference is that it's a value-creating investment rather than a purely speculative one. If you buy a piece of property for $500K and then build a dozen $300K condos on it, you come out with a sizeable profit, but each of the new residents gets the opportunity to live somewhere for $300K when they would have previously had to compete to pay $500K.
> 2) How do you avoid a race to the bottom in terms of housing quality when you allow said micro-apartments? Do we want a culture where the poor are living in barely livable wage slave pods while the rich are living in abundant villas?
You can't make someone's options worse by adding more of them. If you'd rather keep your existing two hour commute in exchange for a larger living space, that option continues to exist. But if people choose the closer, smaller apartment when given the choice, what does that tell you about whether having that option leaves them better off?
American localities have significantly larger minimum space requirements than peer cities around the world. A Parisian studio can be from 9-35 square meters, and that basically wouldn‘t be allowed as new construction in the vast majority of the country today.
There are a lot of options (opportunities) between residential zoned single family dwellings with huge setbacks and love hotels.
Simply progressively incrementally upzoning areas, on a fixed 30 year schedule, is The Correct Answer. So that (for instance) Seattle would go from 75% zoned residential today to 70% in 2050.
That kind of long term planning makes the market predictable and protects current owner's investment and plans. eg Maybe someone wants to stay in their house until their kids go off to college, or stay in their house during their golden years, and it'd be nice to know they can afford to stay.
The “race to the bottom” is called the market price and quality. One of the big progressive mistakes was instituting all sorts of bans on cheap, low quality housing. Bans on week-by-week rentals, etc., made it hard for poor people to live near where jobs are. The alternative has become fighting for a tiny supply of subsidized housing, or going to locations where there are few jobs.
The problem with government subsidized housing is: where will you build it? At least the market creates an incentive to put the housing near where the jobs are. Political control of where housing gets built and how much results in poor people being segregated away from jobs, opportunity, etc.
Given the abundance of "working homeless" (homeless people with jobs); I think we're already there. At least with cheap housing they can be insulated from the cold and such (unlike tents).
This is separate from the YoY post property tax equity appreciation of a housing unit by simply buying and holding.
I don't see how this is worse than what we have right now. SF housing is already dystopian.
our bias as to what we would accept is not what others would accept. let alone what qualifies as a micro apartment, is the size the same world wide or even nation wide?
We already have a market that is effectively subsidized/funded by government and that is why we have the problem we do have. Government does not have to serve the market, it only has to serve the particular housing program put in place and no more.
Eg. quality control, you can't post-inspect a house easily, much less a high-rise. Also usually with new real estate development there's always some fraud-ish scheming going on. Not just with the safety, but regular consumer protection shouldn't be left to the courts, because that leads to a lot of wasted energy. (So anything from the hardcore crimes of developers taking the money and disappearing to developers missing the completion date and not compensating the buyers, because "sue me", and the obvious after handover warranty.)
Rent control is almost completely orthogonal to the whole problem. If lending becomes impossible people will just become owners and they will pay to banks. The problem is that it costs sooo much to build new units. (Because idiotic density limits.)
By "proximate", I don't mean "my home's value dropped more after the bubble popped than I think it should have because [points to new housing]". I mean the housing built as a consequence of relaxed laws directly caused the decline.
Houston seems like a good case study as it lacks zoning and vast swaths don't have deed restrictions, either.
When you let local town hall meetings give their input on every single development, it heavily hinders the ability of housing supply to keep up with demand. States need to create universal zoning laws that adapt to different situations and if a building meets it, it's automatically approved, full stop.
Holding up development by town hall meeting should be for exceptional cases where there's a gray area in meeting the zoning law, not the norm.
Can you imagine what NYC would look like today if they let local homeowners block every single building until their every desire was satisfied? It would be a shell of the metropolis it is today.
Homeowners need to get out of their head this idea that when you buy a home, you're entitled to a neighborhood that stays frozen in time to how you liked it. The only thing they have a say on is their own property, and thats it.
But the poor youth don't need to vote, they can just simmer on things long enough until they break out in riots. I mean hey massive social upheaval and unrest nearly got the FAP passed under Nixon.
Let the kids burn down a few small suburbs and the government will figure out something.
I've always found our obsession with stock price amusing. It's the dividend that technically matters (and, with risk and growth potential, what ultimately should be setting the stock price).
When you sell your stock at a gain it just means that, while you owned it, the expectations of future dividends has done up. You're just bowing out of the future returns to enjoy them today.
So, seeing how people need retirement funds as well, expensive  AAPL means people can't afford to fund their retirement.
 What does "expensive" mean when shares are, individually, kinda cheap? First the fees to play are very high, unaffordable to low-income people. Second, it means that returns, interest rates, are low (price = return / interest rate as a quick rule of thumb).
So yea, we should be complaining that, not AAPL but financial instruments, are expensive!
Many major mutual fund companies have had commission free trading of mutual funds for over a decade (probably more like 3+ decades.)
I’m not sure which fees are “very high” in this context.
And to the point of this topic I think this contributes to housing woes, atleast in major markets where there's a very low rental yields.
I can afford to rent in my area, but I can't afford to buy because (with an identical unit in the same neighborhood) my monthly costs would go up by $1000 or $1500 or so, even with 20% down. I think low returns on financial instruments contribute to this (because on the contrary, if you could buy bonds yielding 5% why would you hold rental properties that yield less before maintenance?)
All financial markets are connected, and across the board we have capital appreciation with low yield. It seems like we're headed to some kind of reckoning, but I have no idea what or when. Last year I thought it would come with rising interest rates, but that's off the table for who knows how long.
There is leverage available for real property that is much greater than that typically available for other investments. (There are also depreciation tax incentives that further help cash flow.)
An investor who is seeking cash-on-cash returns can invest $200K to control $1MM of property or invest $200K to control $200K of bonds. If the bonds yield 5%, that's $10K per year. (With bonds yielding ~2% now, that's $4K per year on $200K invested.)
If the property appreciates at 3% per year, that's $30K per year in appreciation. Add rental income, subtract insurance/taxes/interest on the mortgage (but not principal), and you can often find that real estate is a "better" investment than bonds, particularly if you discount the fact that you're working it as a second job, the labor of which is not taxed as labor but returned to you as capital gains later.
Because you're able to get a mortgage for lower interest than that?
This is literally economics 101. Supply and demand curves.
Anything that decreases supply, increases price. Anything that makes some of that supply available cheaply, increases price for the rest. Anything that increases development risk or reduces the profit available to landlords, decreases supply and therefore increases price.
In short, drives for affordable housing mandates help cause the very problem that they intend to solve.
If you want to actually improve affordable housing, build a shit ton of housing. And built it close to where people work. This will reduce prices, reduce congestion, and reduce commutes. Everyone winds up better off.
And yes, the solution needs to be built in YOUR backyard. If you whine about that and whine about the problem, you're either willfully blind to facts, or a hypocrite. Get over it.
Not just an investment, but for many, it's the investment. For most of the 99% property ownership is seen as the only reliable motive for social mobility. It's the only way to sustained and reliable long-term financial wealth.
I'm not saying you're wrong, I'm just saying asking people to give up their only solid method of upward social and financial mobility for the sake of fairness is a little callous, especially since all the other methods were discounted and are heavily tilted in favor of the 1% so they can cling to their mountains of gold just a little harder.
Prior to these laws, cities absolutely could not get away with such nonsense restrictions on growth because people would move just outside of the city limits, establishing new communities not within the city's taxing region, so cities would try to accommodate to keep the taxes in the city.
Now, the cities all know that people cannot move outside of cities, so they can behave as oligarchs.
Infrastructure costs increase as you increase density. Charging an appropriate fee for new housing rather than limiting the growth is an efficient solution, but current methods allow for local corruption.
That’s just one of the hidden reasons for our current system. Another, is most people want to live as far as possible from poor people.
They increase much slower than the efficiency gains from having a higher density and the rate of per capita costs decrease from having much more people pay for those costs.
Having existing residents subsidize new residents is a common approach, but understandably unpopular.
I wish we could sticky this post at the top of every housing discussion.
Progress means things become more affordable and cheaper. For instance the price of lighting up a room has come down my many orders of magnitude. It used to cost a significant portion of one's earning to buy a candle and light up a room for an hour, now it costs mere pennies. I hope some day humanity can have that kind of progress in housing as well.
The way to get there is to start opening up innovation. Start letting builders build it the way they want, and allow startups to create new ways to make buildings. We can deregulate certain parts of the towns/cities or start new ones. We need to open things up and reduce barriers to entry. That's why there was an explosion of innovation on the internet: no barriers to entry and no regulations to get in the way. Let's do the same for housing and see what progress we can make.
There are also the issues of tenant protections (most of the unsheltered people in Oakland lived here better living on the streets, and they still have jobs here) and making sure low-income affordable housing is built.
Do i need a huge fridge, sink, 4 burner stove with oven and all? Not really.
I don't need a window in my bedroom.
I don't _need_ a private bathroom.
I don't _need_ a private kitchen.
Until there's a fire. Some regulations actually make sense.
Correction: Americans who own their homes consider housing to be an investment. But that in no way prevents housing from being "affordable" for renters.
I have friends who work on housing (and related) policies. The stereotype of "Liberal Seattle" simply isn't true. One of our biggest intraparty food fights is the upzoners vs the nimbys. The tortured logic and hypocrisy of the nimbys is maddening. Yes, homelessness and affordability are acute problems, govt should do something, but increasing supply couldn't possibly work.
I can't prove it, but I know it's true: Ok Boomer. All the nimbys I know (active in policy, politics) are my age and older.
The city council wants to reduce the lot size,parking, and setbacks required for duplexes and triplexes all over the city. They want to increase density for about 100 units along a transit corridor from single family to 4 units, up to 6 with affordable housing.
The nimbys are going crazy, talking about lawsuits, protests etc. Many posts talk about flooded schools, huge traffic increases, and gigantic duplexes on every lot. The reality is people can already build duplexes and they dont at a huge frequency. People have even posted articles written by NIMBYs in other cities how housing pricing doesnt follow supply and demand.
It is all about "neighborhood character". Im a hardcore conservative and believe upzoning is the best way to solve the affordability problem.
Removing zoning restrictions is arguing for the free market, and for reducing government intervention and in this case, as a liberal, I couldn't agree more. This is an example of government being used as a cudgel of the wealthy to beat back the poor. That's not what I want the role of government to be.
If this were true then cities with comparatively less zoning (e.g Houston) would comparatively speaking -- be meccas of affordability.
But in reality this is of course anything but the case.
We don't talk about the lack of affordable AAPL shares do we? That's insane, it's an investment, we want it to go up. The less affordable, the better!
If you look at many other major cities in Asia (especially China) you will see a combination of wall-to-wall skyscrapers as desired by yimby (usually really yiseby) types, plus insanely high property prices.
I think city policies are a problem but nowhere near 100%. Banks and cheap risk free lending massively dwarf the impact of city policy.
It's a strictly factual viewpoint that you want to distort to fit your lens which is quite clearly in favor of your (likely) minority (rural) freeloading* living situation.
America has by far and away the cheapest/easiest country to buy a home in general.
* Most people who live in rural areas are subsidized in huge amounts by the government for things like telephone access, electricity, and roads. They says they "only rely on themselves" but it's bullshit.
Even in the best growing markets, like San Francisco, housing is still not a very good investment. It's only gone up about 8% per year over the last decade. That significantly underperformed the s&p 500.
The real reason people want to use it as an investment is that you can get it at a very low interest loan, whereas you cannot with the s&p. this has the unfortunate effect of making well-off people more well-off, at the expense of making poor people poorer.
"Tokyo has positive population growth of about 100,000 people a year, and rents and home prices are roughly stable for last decade.
How? Outconstructing NYC. And LA. And SF. And Boston. And Houston.
Houses in Japan have tended to be torn down and rebuilt every twenty to thirty years. It’s an unusual situation, owing to various factors, including code updates for earthquake resistance.
An article on this topic:
I have heard (but am not sure) that the pattern is more to buy some land, knock down the previous guy's house, and build your own. On a time-scale of 20-30 years, closer to how Americans regard cars (e.g. having to buy used cars is undesirable) than how they regard houses (once built they stay in use forever, although renovated).
In the US, zones tend to be "single family home", "apartments", "town homes", "commercial", "retail". No overlap and the housing variants don't allow increased density without re-zoning, which is expensive.
In Japan, zones are more like a maximum usage. "homes", "homes+retail", "home+retail+commercial", etc. The housing zones are less restrictive - typically single family, duplex, and low-rise apartments are all allowed in the basic residential zone. High-rise would be in a different zone, along with retail, commercial, etc.
(I would blindly guess 90% for the US.)
Those are the options. You can decide which one you look forward to more.
Assumption, I don't know how many tech workers there truly are.
Seems pretty low of an estimate tbh. Just for scale, Google has around 45k employees in Bay Area alone. I realize that not every single one of them is an engineer. But even if just 30k of them are (completely ballpark guessing here), it seems pretty implausible that every 3rd engineer in bay area is a googler.
Just did some googling, and according to this source, there are about 624k software developers in CA. I realize that it includes not only Bay Area, obviously, but I am willing to reasonably bet that a heavy majority of the developers are there, with a notable chunk in LA as well, something on the order of 116k.
To be more specific about how I arrived to that estimate, I checked StackOverflow Jobs portal, to see how many job openings there are in LA vs Bay Area, assuming that the number of job openings proportionally correlates (positively) with actual people working in said jobs. LA had 118 openings , while Bay area had 518 . 624,000/(518+118)*118 ~= 116,000. Yes, it is napkin level of statistics, but that's the best estimate I could think of.
Not that I disagree much with the substance of pointing out Prop 13, etc, but you should also definitely blame tech for loading an entire industry into a metro area.
Supply and demand gonna supply and demand. It's weird to "blame tech" for existing and injecting a massive amount of jobs into our economy; there's no metro region that could have handled that growth without the same effect on price, and there is no singular entity responsible for concentrating tech into a single city instead of distributed more evenly.
Maybe Houston could have come close to handling it without massive price increases, but I'm guessing Houston is too spread out to enjoy strong network effects, and probably would have become gridlocked with traffic to boot.
New York could have "handled" it, from a raw housing & transit perspective, but the region is already pricy and all of Manhattan (which has the best access to jobs and transit across the metropolitan region) has long since gentrified, so I don't know if that really counts.
(Of course, part of the reason no region could have handled it is precisely because of how Americans approach zoning and growth. Like our politics, our cities and neighborhoods seem to be static until there's an absolutely overwhelming force against the status quo, and even then sometimes that's not enough to change anything)
What we are seeing is cities eager for job growth and commercial business to call their city home, but the other half of the equation is given no thought. Upzoning residential areas to match commercial growth is not being done. Even when tech companies promise to build some housing with their new office space, it's never 1:1, so it too is a net strain.
When looking at the problem in those simple terms, it really seems like insidious profiteering on the local government's part, considering LA councilmen all own at least 1 property and therefore all stand to benefit from housing price surges.
It confuses the issue to anthropomorphize an industry category.
I don't think it's fair to blame rank-and-file tech workers. In today's scary economy, you can't blame anyone for entering a growth industry and taking a good job that's offered. Who wouldn't want a great salary, good benefits, a safe comfortable workplace, and a stable work-life balance?
The more interesting question is why are there so many tech jobs and why do they pay so well? Facebook had 35,587 full-time employees in 2018. What the hell are all of those people doing that Facebook can pay them so much?
My hunch is that this is a consequence of perilously low corporate taxes. Giant companies simply have more money than they know what to do with, so they are throwing it any place that seems reasonable. In particular, they're trying to build bigger and bigger moats to outcompete the other tech giants. The biggest moat of all is skilled humans since it takes so long to increas the supply of them. So they're throwing money at tech workers mostly to keep other companies from scooping them up.
Being essentially on retainer is great for the people who luck into that field, but it seriously screws up the economies of the few cities where it happens. Other job categories that aren't dominated by huge companies competing for each other's skilled workers don't end up driving up wages to the same degree so everyone else gets priced out.
I think the real answer is to start taxing these companies appropriately. You can look at their current behavior as wealth distribution that only trickles down to tech employees. If the wealth is going to be distributed, I'd rather some of it go to teachers, nurses, sanitation workers, and waiters too.
Wait, you mean deregulation isn’t just a republican talking point? And restrictive city (and state) governments were the problem this whole time???
Example: I live in DC and there's been recent controversy with the Historic Preservation Review Board essentially thinking solar panels are ugly. It's legit to have regulations regarding the appearance of homes if those neighborhoods want them, but at the same time is short-sighted to block solar panels. I'm sure you're for some regulations and not others, no reason to make this ideological.
Deregulation does not equal zero regulation.
Most midwestern state governments are very laissez faire about the whole thing which is incredibly annoying. Apartment cleaning is illegal to make tenants pay for or withold a security deposit, yet they still do it anyway cause landlords know tenants aren't taking them to small claims for it. As a tenant, you need housing references. So taking your landlord to court over $100 is a surefire way to making you ineligible for further tenancy basically.
Landlords don't like tenants that know and enforce their rights.
Sure, but isn't the reason that housing is cheaper because those cities don't have anywhere near the level of demand that coastal cities have.
The monetary value of the something is by definition what the highest bidder is willing to pay for it. How would you determine it otherwise?
Places in California requires things like requiring all homes to have a high amperage outlet in the garage for charging electric cars. Do you really think people that are struggling to keep a roof over their head are driving a Tesla?
Removing the requirement for a high-amperage outlet (a tiny incremental cost during building) is like an umbrella in a hurricane. Nice to have, but totally doesn't solve the real problem.
On the other hand increasing supply (even if somewhat more expensive in a per unit basis due to regulations that neither of us can really say are good, bad or cost effective) will.
It’s the easy win.
I mean - adding an outlet for electric cars is probably $100-200 in labor+parts when constructing a new home. It's trivial to add when everything is already exposed.
And, if you're in CA and buying a new home -> you can afford a Tesla or some other electric car. Alternatively - you have a 40-amp outlet. Run a washer/dryer there instead or maybe a table saw or something? The outlet will still be useful for things beyond a car.
The new ruling on requiring solar on new homes is actually more problematic in terms of cost. https://fortune.com/2018/12/06/california-solar-panels-new-h...
There's something broken in city planning that seems to be the largest hurdle to addressing affordability. Cities seem to want to have a box with a label on a map that doesn't change much. Then, if something changes within that box, there needs to be this big massive process. The "real fix" might be figuring out how cities can work on a smaller scale, not with these massive projects.
Just look at the report for the Oakland plan: https://cao-94612.s3.amazonaws.com/documents/FINAL_DOSP-Publ...
I'm struck by how much it must have cost to even generate that plan. And, there's a ton of goals, but no feedback loop. As the plans are implemented over the next decade or two, how do they know what's going well and what isn't?
Building new housing lowers prices for all preexisting housing.
This is not true in the US. Housing in the US is valued solely by the value of the housing around it (called 'comps' or 'comparables'). Building new luxury housing raises the price for all preexisting nearby housing, because your comparables will now be based on whatever the luxury housing prices are (even if your own house is very modest, even if your own house could never fetch a similar price, even if you never try to sell your house)
This is one of the big reasons you see pushback by rational, logical, well-informed residents in the US. Luxury housing usually raises all non-luxury housing costs nearby, simply by proximity. Is is effectively a form of financial pollution. Some people's wealth is so obscene, that the mere fact it exists in a physical location, punishes everyone else in proximity to that location.
This is what Gentrification looks like in non-California, non-coastal cities. Wealthy people artificially inflate the value of property in an area (which they can do, because there's never any limits or restrictions on construction of any kind, so they always build the highest-cost highest-margin property possible). And regular residents are now forced to bear that cost, forever.
It is possible to continue this bubble, irregardless of any actual demand for the housing, long after all real humans have checked out of the system. (See 2008 Financial Crisis). This process was not primarily driven by real people's housing needs, but by private capital's desire to store or grow their wealth, so real people have little control over it.
And, in non-Californian states like mine where property taxes are not locked in, but are recalculated constantly based on "market comparables", the bill for this financial pollution will hit you instantly on your next property tax invoice. Luxury condos go up on your block? Congrats, the tax bill for your old modest home is now doubled next year. Don't like it? Your only other option is to rent the unaffordable shitty luxury crap they just built.
If this was true, you could create infinite wealth by just building more and more "luxury" housing.
You will not find any economist agreeing with this "folk wisdom".
I mean, it works until the bubble bursts. But the last time that happened, the federal government bailed out everyone participating in it -- they carefully re-assembled the bubble, like nothing had ever happened.
So, uh, until federal policy changes, this sort of does just create infinite wealth (on paper, at least).
The tax bill objection also strikes me as odd given that it is synonymous with a windfall to owners - the renters it makes perfect sense for.
It's not. It's just inflation. If I double your salary, but jack the price of everything up 50%, you "got a windfall", but have in real-world dollars earned nothing.
If you own a house worth $100k, but a luxury condo goes up next door full of $600k/each units, and your old house is now "worth" $300k, have you really gotten a windfall?
You still need somewhere to live, the windfall doesn't cover even half the new cost of housing. You could sell it, but there's no where safe for you to land nearby without doubling your mortgage (since your house went up, all nearby ones did too), and paying the extra on your mortgage just to remain housed is a destruction of wealth, not a windfall. You could get a home equity loan out of the new equity, but you'd just have to pay that all back with interest.
It's technically a "windfall" on paper, but it's mostly fake wealth. You are now liable for this "windfall" and owe taxes on it anyway, despite it the fact that it's never physically existed in the real world, and is mostly unusable (except for a few specific scenarios, like cashing out your home to Gentrify some other poorer people out of their homes, in some other different place)
It may come with inconveniences of linked job changes and relocation but that is a real gain of wealth. The locational value has gone up - which is why they can even afford to "displace".
Assuming that buying a home elsewhere will automatically have comparable price or displacing is also a bad assumption. Despite the rhetoric a single person with a collegd degree in a neighborhood won't cause appreciable rises in real estate value.
Based on this logic we should ban all new housing construction and ignore basic things like population growth.
Hint: It's only "luxury" because the market can bear it.
I'll be surprised if it helps a lot. Demand seems infinite.
Yes, the model is called supply and demand. When you increase the quantity supplied, the only way the extra quantity can be sold, is if the price drops. If you increase the quantity supplied without reducing the price, the extra units will never be sold. Why would they... anyone who was willing to pay the previous price, would have already done so and will already have a home in SF/Oakland. The only way to fill the new units is to entice new residents who aren't willing to pay the previous price point.
Why so defensive? I’m asking Because if it works, I’d like to sell the idea to skeptics. We all lean scientific here, right?
For instance, in cases of inelastic demand and low liquidity (like housing), if prices are pegged at a maximum that buyers can pay, the actual equilibrium price could be much higher. In that case, a small amount of extra supply will not lower prices.
Urban density cannot keep on increasing. You cannot ‘keep on adding homes’. We are already having very high costs of living and this also contributes to unaffordability of Bay Area cities.
The only winner is the state which can get more property tax dollars in Bay Area and other urban centers than elsewhere in California. Essentially a handful of high tech dollar fueled California cities are subsidizing the entire state.
This state will implode with this ‘high density is sustainable’ and ‘build and they will come’ mantra. We are already having power outages, crumbling infrastructure, increasing water rates, more and more tolls, high rents, overcrowded schools and unending traffic jams. And the rent is nothing to sneeze at..
The high density lobby is going to incinerate my state. Having already witnessed the devastation this kind of building has caused in my home country, this breaks my heart and frankly I am terrified for the future.
High density living is potentially more efficient than low density living (look European or some Asian cities, etc). Indeed, the US model of the low-density mega-city is the thing that has become unsustainable - commuting from city to suburb or suburb-to-suburb involves a huge amount of infrastructure that is simple to build but expensive to maintain.
The problem of the US in particular is that low-density has had the upper hand for so long that efforts to produce sane high density get sabotaged in a variety of ways (look the difference in cost per mile of public transit in the US versus Europe).
You can’t compare Asian and European (i have lived in both places)high density building to what is touted in the Bay Area.