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The Housing Theory of Everything (worksinprogress.co)
123 points by huevosabio 7 days ago | hide | past | favorite | 80 comments

If you're interested in more on why housing is expensive and complicated, I can't recommend Jerusalem Damsas' work highly enough: https://www.vox.com/authors/jerusalem-demsas

In particular, the video in this article sums up the problem https://www.vox.com/videos/2021/8/17/22628750/how-the-us-mad...

The video is good, but I found it disturbing how often the speaker mentioned the race of a group of people while identifying them as a problem. For example, "often a much whiter, wealthier crowd...".

It’s acknowledging the current discourse around gentrification. Changing that is the whole point of the video

Why do you find that disturbing?

Because it’s building a threat narrative. Anyone familiar with the great crimes of the 20th century knows what that looks like.

Many of those crimes were committed against the people who now feel threatened. That's worth acknowledging.

It's race baiting.

> Average New York City metropolitan area house prices are up 706% since 1980 (or 376% more than US consumer prices, and 326% more than US wages). For San Francisco the rise is 932%.

Mortgage interest rates were 14% in 1980, they are less than 3% now. This explains much (but not all) of the rise in the nominal cost of housing compared to wages. When people bought $50,000 houses in the nicest parts of Palo Alto in 1975, other people thought they were crazy because of the interest rates.

It's not interest rates.

$100k house, 14% interest, 30yr fixed: monthly payment of $1,427

$235.3k house, 3% interest, 30yr fixed: monthly payment of $1,427

Now that house now costs $706k in NYC and $932k in SF... the problem is supply.

Nationwide, it takes a higher income to buy a home than it use to (median sales price / median income): https://fred.stlouisfed.org/graph/?g=FYMk The problem is even worse in prosperous cities.

But 40 years at 3% inflation has a multiplier of 3.26 on top of that $235k, which brings it over $706k.

Most people don't pay the median sales price outright. They pay it in 360 installments.

True and that is why interest rates on loans are usually above inflation. Inflation in almost everything except housing has been going down but interest rates are set according to the overall inflation rate meaning nowadays low interest mortgages massively benefit from inflation.

Low interest rates have doubled housing prices but they didn't double financing costs. Speculators merely predict the fundamentals: A market with little supply and huge demand.

Have people done calculations where they compare housing prices but normalised by interest rates? I always find it difficult to compare housing prices when interest rates have dropped so much over the past decades.

Yeah, the rates soared in the 1970s, and went over 20%. The 1980s also gave birth to Adjustable Rate Mortgages, in an effort to get more borrowers with the promise of lower rates a decade later. Which then of course led to predatory lending practices when they'd start with a low rate, switch to a high rate, and the borrower would default. So in the 90s, with interest rates still high, regulation was passed to lower the capital requirements for Fannie & Freddie to give out loans - leading to more lending than could be covered by capital, leading in 2008 to a spectacular global "whoops!".

I think the housing prices are high because the market can get away with it. If I'm selling a house, new or old, I'm gonna price it at what the market values it at, even if it cost less to produce or if I didn't pay that much for it. And the value of it will keep going up as long as there appear to be buyers for it, and most cities in the country aren't losing value as long as the economy grows.

> So in the 90s, with interest rates still high, regulation was passed to lower the capital requirements for Fannie & Freddie to give out loans - leading to more lending than could be covered by capital, leading in 2008 to a spectacular global "whoops!".

There was outright fraud happening in the years leading up to 2008, with people writing down false incomes and assets, and underwriters looking the other way on verifying them.

And did anyone who committed that fraud go to jail?

The only people who I know committed fraud were the people filling out loan applications with false information about income/assets. And it would not be politically popular to go after them, and I do not recall ever hearing about them going to prison.

As for the underwriters and the executives who instructed underwriters to look the other way? I also do not remember them going to prison, but I also do not know if there was any evidence of their intent.

The beauty of many white collar crimes, where you can always claim you made an unintentional mistake and you are not dumb enough to write an email incriminating yourself, but rather talk it out over lunch in an all party recording law jurisdiction.

Mortgage rates did not exceed 20% at any time. They peaked in 1981 at 18.4%. They were over 18% for a few days only.


(Mortgage interest rates went up greatly between 1975 and 1980, but setting that aside...)

These days it's hard to imagine not borrowing as much as possible because prices are so high and rates are below inflation. But back then why wouldn't someone, say, live with their parents until they can buy that $50,000 house in Palo Alto entirely from their savings? No doubt that seemed like a lot of money back then. But regardless, at some point, interest rates get high enough and principal low enough that you might actually choose not to borrow money.

> Average New York City metropolitan area house prices are up 706% since 1980 (or 376% more than US consumer prices, and 326% more than US wages).

Are they just subtracting here? Because that's not how percentages should work.

This is a good analysis of what's wrong, although it doesn't go into how we got here or how we could get out of this mess.

If you're interested in those topics, you'd probably enjoy reading Strong Towns (strongtowns.org), and if you're _really_ motivated you should consider becoming a member. At present, Strong Towns is the most influential group in the broader "YIMBY"-sphere, and is starting to have a real impact on the way municipal leaders operate cities.

Ultimately it's going to be a very long journey to change the culture so that we can change the laws (to permit incremental development and return to more scalable transportation patterns). Every additional supporting member makes a big impact.

(disclaimer, I'm a member)

Piggybacking, if you are convinced that we must do something about this and you live in the US and particularly in the SF Bay Area, join YIMBY Action [1].

[1] https://yimbyaction.org/2021/about/

YIMBY Action is growing nationally. We have a YIMBY group where I live in Oregon, and we signed up as a chapter.

Strong Towns is great, and if you have the money, definitely send some their way. But YIMBY Action has more actionable advice, more tools to run campaigns, and get people involved, and in general feels like it's getting more done. I happily share a lot of Strong Towns articles, because they're very applicable to the city I live in, and am a member, but if you want to go beyond sharing articles, I think YIMBY Action is where it's at.

What sort of real impact has Strong Towns been having?

Crazy idea: viral densification of housing

In the city I live in, the government turns a blind eye to secondary suites. If I buy a house, renovate a secondary suites and then rent it out with a special condition: if the renter buys a house I will give them 50% of the rent paid if they setup the same arrangement.

Depending on the local conditions, the doubling time can be like 3 years.

It'll be tricky to make the contracts enforceable, but I suspect it's possible. It'd be nice to live in a world where housing wasn't scarce.

The problem for this particular problem is not just regulation but also financing. One has to spend money to build an ADU or convert a room to be habitable, and most people who own homes don’t have free capital around to do that conversion. Ask your bank for a loan to do it and you’ll get laughed out of the room.

The FHA guarantees on home loans have made FHA insured loans much more attractive to banks, and the limits pretty much limit loans to single family homes in high cost areas. This and the mortgage deduction are probably the three biggest distortions of the market today with zoning.


Interesting. Canada might be different in this regard.

Pretty interesting point about greater productivity coming from superior division of labour in a city. Each person creates more time to focus on their specialised work by paying other specialists to deal with their household problems (plumbing etc).

Good analysis.

What we are experiencing is an inevitable decline in a late stage of an empire.

Land and real estate market under current laws doesn't clear, so leaves too many city lots vacant or unused. Lots don't come back to market and new properties are promptly snatched up by speculation on even less availability. This forms a monopoly in housing and land markets. Orders of magnitude larger than any big tech, oil or railroads that we've ever experienced. In effect, most of disposable income of orninary people is eaten away by the monopoly. Everyone pays a "rent" tax which is impossible to avoid. This is well described by Georgist economists.

What is not described yet and what the article touches on is important. The real estate monopoly, sucking away all incomes, doesn't allow for many winners in the economy. In the 50s every man could have been a "winner" in an environment of half of the world destroyed after ww2. Nowadays there are only a few winners at the top. Women only mate with winners and would rather hold out than having to reproduce with losers. You witness rise of feminism, break down of family units and rock bottom birth rates. Beginning in Japan which suffered from the mega real estate crash first, now the same scenario spreading to the rest of the world.

The land monopoly won't be dismantled because both parties benefit and most importantly, population is invested in this pyramid scheme of ever increasing house prices. You can't expect people to vote away their ponzi life savings stored in crumbling houses.

The inevitable stage that follows is a next-gen feudal society with landed aristocracy as we know it from history. You only win in life if you get born into the right family with enough inherited real estate, getting paid rent taxes by serfs.

Or, and hear me out here.... we could tax non-primary residences.

But I agree, we should instead allow the free market to lead us towards a non-competitive hereditary based future

We should erode the value of housing and housing debt through inflation, and have the government buy up lands to redevelop into high density housing with corresponding transport infrastructure.

Then set land value tax when the government sold the land back to the market, or otherwise continue to subside and manage these housing stocks.

Otherwise, the middle class will continue to fight any land reform.

> We should erode the value of housing and housing debt through inflation

If you want to lower house prices, easier to just tax houses/properties more.

If you want to lower house prices, easier to just tax houses/properties more.

Increase taxation, the middle class homeowners will revolt. Political will is required to build more housing.

Sure. Political will and homeowner revolt is why we havent done it already.

You seem to say inflation can sidestep these issues. But why should we even assume house prices wont just grow with inflation, or much faster, as has been the case so far?

Good point. Inflation does no good if housing undergoes asset inflation faster than inflation can rise.

If land value taxes won't happen, then the next best thing is a ground lease for all new plots of land.

Land value tax and ground lease are equivalents. Calling it a lease or tax or fee or whatever is just a political strategy to appeal to the right group. Naming it a tax will surely infuriate right leaning propertarians and common populace.

Interesting idea about govt buying up all land and then reimposing LVT on then newly privatised land.

I am skeptical, because of

    1. government corruption
    2. higher chance of experiencing a land market reset through war

Government corruption shouldn't be a reason to stop the government from doing anything, unless it is an issue that obviously going to stop effective implementation.

Hypothetically, summer / winter homes. The tax law should exempt, from this tax on inverters, any home the owner resides in for at least 33.4% of a year (literal text "one third of a calendar year, rounded up to the next whole day").

Someone could thus have a summer and winter home, but only two.

An additional clause should also disqualify any home rented for value for more than 1/3rd of a year. Letting friends and family stay free thus exempted from the disqualification. (Still must comply with the above qualifier on primary residence.)

Sure! Taxes can go up with each subsequent home owned. Taxes can go up in inverse proportion to time spent in the home. Taxes can go up in proportion to the total value of the home (to avoid simply buying your neighbor's home and calling it one property to bypass this law). Etc, etc, etc.

There are plenty of possible ways to implement this, and I leave it to actual experts to determine what the best way is. But the plethora of ways makes it quite clear that at least one viable path should be determinable and implementable.

People in the US are moving to states where housing in successful cities is cheap.


Texas grew by 15.9% between 2010 to 2020. Florida by 14.6% , Georgia by 10.6% and North Carolina by 9.5% .

Average house price in Houston is 285K according to Redfin.

Either Zoning will change in CA, NY and other places or they will fade in importance.

You can't escape a monopoly of such size. There isn't a city where housing is cheap. At best it is a temporary situation or your view is biased by working in a above average income field.

Zoning will bever help. Once you make space for more housing, developers will build units to be snatched up for speculation that will be left vacant.

You need the housing market to clear. To release unused units to the market. For that you need land tax or an equivalent.

Or just build huge amounts of homes. It's not impossible. The US doesn't even build as many dwellings as we used to in the 60s and 70s if I remember correctly.

Enable developers to build skyscrapers of 500 square foot apartments until there are enough of THOSE apartments to house literally 100% of the population. Then people can choose to either pay say $1000/mo to live in one of those small apartments, or whatever it costs to buy a single family home. And if people have the option of renting somewhere cheap, even if it isn't ideal, that'll help balance the market. Right now we have situations where people need to pay $2000+/mo for the smallest of apartments.

You can build huge amount of buildings if you are a societ style central planner and build a ton of cheap prefabs outside of the city. Further urban sprawl doesn't help being of commuting citizens and city ecology.

Or if you are a central planner with the power to evict tenants from parcels. Then it's easy, you just lose credibility as a government.

Or under a system with LVT, the land/housing market clears and unused parcels return to the market, solving the problem by itself with just market design techniques. As you can see, LVT is a necessary component for land/housing market to even function without getting stuck in a feudal monopoly.

US home building peaked in absolute terms in the 1970s.

When adjusted for population it's even more down.


> In the 50s every man could have been a "winner" in an environment of half of the world destroyed after ww2.

In the United States, quite possibly so. But what about people who already had their wealth literally bombed away? For example, most of Dresden was destroyed. My argument isn't that improved economies are zero-sum, but rather the example of the 1950s was one where many were set up to succeed and others to lose. And if you look further back, the opportunity to have cheap ubiquitous land to carve out suburban areas was enabled by taking land from Native Americans.

The economic pie is ever-growing, but it seems moments of great technical advancement, war, etc segment the growth into new groupings of winners and losers, and for the average person, riding on the coattails of this growth is merely being at the right place at the right time, perhaps being at the right spot on the socioeconomic ladder.

> In the United States, quite possibly so. But what about people who already had their wealth literally bombed away? For example, most of Dresden was destroyed.

It's true for Germany as well and called the Wirtschaftswunder.


This period of fast growth in Germany happened a bit later than in the US, more like in the 60', 70'.

The bombs not only destroy the city, they also destroy the hubris. It wouldn't surprise me if most wars are motivated by land disputes because land is one of the few things that can only be protected and obtained through violence.

Our real estate and land markets seem hyper fragmented, not close to being a monopoly? Maybe I'm misunderstanding.

They are only fragmented at first glance. Upon a closer look, there are organizations like the Association of Bay Area Governments, and of course all kinds of unofficial meetings and shared information sources that keep people on the same page.

Similar to how "salary surveys" are "not collusion" among the big employers, even though they're used to effectively fix the price of employee salaries to certain ranges and treat that as some sort of natural barrier like a mountain range that can't be overcome.

Cudos for mentioning the godfather of this line of thought, Henry George. However, limiting the theory to housing is too restrictive, and land for non-housing productive purposes follow the same laws of monopolistic supply and inelastic demand.

Another question to ask: will remote work fix this? I know most people have no interest in living in the city they work long term. That's a compromise that's demanded because if requirements most jobs place.

If I had a steady stream of remote friendly work guaranteed in the same way in person work is I'd move to PA and buy a mini mansion the next week.

Outside of tech, most businesses are back in the office now. Personally I work from home in an apartment in the city because the lifestyle is just better than a sprawling isolated suburb.

Remote work could help to alleviate the pressure on housing markets in major cities, but mini mansions are the opposite of dense, affordable housing. Even if the price is cheap to you, the associated costs for the city — more infrastructure and roads — are high. We can’t further sprawl our way out of this.

To me, a mini mansion is a house with 3 bedrooms.

Apartments in the east coast and NYC area are very small and overpriced.

Ah, okay, my apologies :) I read that as a synonym for "mcmansion".

If housing and other goods are really cheap that means it's very easy to achieve financial independence. Everybody would be able to retire. Then nobody would work anymore.

I think if we pushed housing prices down, goods and services prices would increase.

That might be a good thing though.

It sounds like 74% of residents in Singapore own their own home and I don’t think that’s happened there.


The prices of goods and services would increase because people will have more money to buy them. It's not a bad thing because high prices motivate investment.

> And none of these estimates accounts for how much better most of these products are now than they were in 1975.

Better in what regard? More feature-rich certainly. More durable? Not so. Planned obsolescence is a thing.

> Japanese land use regulation is light touch. At its most restrictive, it allows buildings three floors high that use up the entirety of their parcel of land. This means both that Japan’s superstar cities grow far more densely than American cities, and also that they absorb far more of the country’s population. The urban environment this produces is akin to the traditional urbanism of pre-bicycle, -train and -car cities around the world: with narrow streets, finely grained, that are highly walkable. Of course, modern Japanese cities are not quite so tightly knit, and there is space for cars, bicycles and transit. But streets are extremely narrow, parking is expensive, major roads are tolled, and pedestrians mostly have priority over other road users.

#include <pointless_japan_comparison.h>

Sure; Japanese city zoning is nice and all. But Japan has a shrinking population and is fairly hard to immigrate to. If you don't look and act Japanese, you're forever a foreigner in Japan. The language is hard to learn, especially to full literacy.

You can still get a cheap fully detached house in Japan, because Japan is resistant to massive immigration.

The article mentions how housing cost has climbed in forty years, yet for all the mentions of the word population throughout the text, it completely neglects to mention how the world population has doubled in that time.

The world population has doubled, and everyone wants to live in the developed countries. That translates to pressure on housing.

> There are 23.7 million residents in North America’s biggest metropolitan area, New York City, and these people are spread over 34,500 square kilometres. Only a small part of this is dense enough to sustain walking, cycling, and transit. By contrast, Tokyo metro area has a far larger population, with 38.1 million people, but they are four times more densely populated, across only 8,500 square kilometres.

These figures smell funny. The 34,500 square kilometers is not "New York City"; it is the size of something called the "New York–Newark, NY–NJ–CT–PA Combined Statistical Area". Whereas 8500 km^2 is some sort of urban landmass figure. The Greater Tokyo Area is actually 14,000 km^2. It includes a lot of sprawling single-family dwellings, and vast tracts of farmland and plenty of wilderness; it's not elbow-to-elbow populated!

It's fairly transparent what stunt the article authors pulled here. They opened these two Wikipedia pages:



and pulled the smallest square km figure they could find in the one, together with the largest one from the other.

True about immigration and population although the cities themselves are growing due to internal migration. There are other factors like transportation, half an hour from the city centre can be much more far in Tokyo than in other cities where transportation is not as available, safe, accurate, clean and rapid.

When an upper class mind is a derivative of "old money", they will naturally be less creative than their forefathers. This idea affected Ludwig Wittgenstein, and is the reason the richest man that ever lived (Rockefeller) would not buy Christmas gifts for his offspring.

When arbiters of economic gain birthright are handed the dividend generating assets of yesterday, without sufficient character-building world experience [0], useful creativity development (naturally possessed by the starving artist) will be stunted, and their blue chip asset portfolio will begin to include the "basic needs of the worker" - economic proxy wars of the free market conducted with existing supplies of citizen prerequisites like housing, education, and healthcare.

This is part of the reason Elon Musk is one of the darlings of the Internet - fresh, unconventional enterprise development, dodging traditional hedge (synonym for protection/security/safety) fund procurement. A portfolio absent of the soybean futures, railroad ownership, hospital shareholder spreads (fueled by things like artificially priced $10 Advil capsules), guaranteed road-tire decay dividends, pipeline infrastructure, et al that make up the core Maslow's hierarchy "operational cost" of the productive worker. He is instead situated on the front-lines of R&D progress which require the aforementioned preliminary basic services & goods to keep employed minds healthy enough to produce or gather high-hanging fruit.

The natural duty that falls into the dividend collecting "hands" of the few million >2nd generation resource commanders dispersed across the planet (whose own base hierarchy needs are equal to everyone else) is meant as hiring/guiding "fuel" to determine which citizens are being allowed access to industrially produced basic goods stored in warehouses, and skilled services of other citizens as described in the article, so that they may carry on with the specialized skill set for which they are selected. This sacred dispatch duty is what drives the discovery of new industries and the continued propagation of civilization.

Adam Smith suggested that the gluttony of the rich serves to feed the poor. (Although symptoms of poorly raised nobility include the perils of pride, envy, wrath, lust, sloth which could trickle down throughout their legions as wasted labor).

"The rich ... consume little more than the poor, and in spite of their natural selfishness and rapacity, though they mean only their own conveniency, though the sole end which they propose from the labours of all the thousands whom they employ, be the gratification of their own vain and insatiable desires, they divide with the poor the produce of all their improvements. They are led by an invisible hand [emphasis added] to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus [unintentionally] ... advance the interest of the society, and afford means to the multiplication of the species. When Providence divided the earth among a few lordly masters, it neither forgot nor abandoned those who seemed to have been left out in the partition. These last too enjoy their share of all that it produces. In what constitutes the real happiness of human life, they are in no respect inferior to those who would seem so much above them. In ease of body and peace of mind, all the different ranks of life are nearly upon a level, and the beggar, who suns himself by the side of the highway, possesses that security which kings are fighting for."[1]

[0] https://youtu.be/TnXwGZuyTZI?t=213

[1] https://en.wikipedia.org/wiki/Invisible_hand#Other_uses_of_t...

A theory of everything needs to account for everything. This article doesn't even demonstrate that a housing shortage exists, and it completely ignores the unfavorable demographics of the aging boomers and lack of replacement demand.


High prices are not by themselves evidence of a shortage. High prices can, for example, be caused by ultra-loose monetary policies that encourage housing market speculators to soak up supply. This condition can readily unwind, although few prior to 2009 would have considered the possibility.

High prices are not by themselves evidence of a shortage

High prices prices in conjunction with specific restrictive policies that create shortages are by themselves great evidence of a shortage: https://www.nber.org/papers/w21154.

We see the results of shortage policies all around us: https://jakeseliger.com/2015/12/27/why-did-cities-freeze-in-...

Right; not an expert in the topic, but it seems to make sense that super low interest rates + the fed actively buying morgtage-backed securities would pump up housing prices. (Indeed, I think propping up asset prices is the idea? Though I'm confused why this is considered a good thing.)

Someone who knows more about this, please weigh in...

I think the asset price inflation is a secondary benefit (and may help if it makes people feel wealthier and more likely to spend/invest). The main goal of the Fed's asset purchases is to lower long term interest rates (they can only directly control short-term rates). This makes borrowing more affordable for everyone.

The main goal is to prevent a recession. They do this by encouraging spending. They encourage spending by making money cheaper. They make money cheaper by buying bonds using their money printer. This makes interest rates cheaper.

A reason I've heard is that small businesses borrow against their home equity usually, so if you're house is worth more then more money to pump into your business, this is a good thing so they say.

You pay $1000 per month for 30 years. At 0% you get to spend all of it ($360k) on the house. At 5% you get to spend most of it on interest.

Ah yes, the fact that the bank is no longer taking 50% of the money I paid (interest) for my house is bad...

Speculators simply follow the fundamentals. They discover prices earlier than others. That's their job. If prices are 30% higher in 10 years, speculators will make prices 30% higher today. That's all they do. Those who fail to find the correct price (they charge above 30%) will simply be destroyed when the bubble pops.

>it completely ignores the unfavorable demographics of the aging boomers and lack of replacement demand.

So there will be enough housing... when my parents die? And you say this like it's a good thing?

>High prices are not by themselves evidence of a shortage.

Only if you're treating housing as an investment asset, rather than what it materially is: a durable good.

> So there will be enough housing... when my parents die?

Not necessarily if the location is in demand such that it is seeing a net inflow of people.

There may be a housing shortage in the expensive cities, but I doubt there is one nationwide. I’ve come to believe that the real driving phenomenon here is the “you have to be in one of five cities” idea that took hold in the early 2000s.

but it is true (sort of) that to earn the big bucks, you have to be in one of the big cities (very rarely do you have high salaries in the lower tier cities).

But this increase in pay means the assets tied to those cities must also increase in value, as there are now more cash chasing the same (or similar) amount of assets - exacerbated by zoning, which restricts supply.

Perhaps it would simpler to encourage some companies to leave those cities (tax policy?) rather than to build/subsidize new housing.

But then you don't have to live in a big city to make money, you just have to buy land there.

When people invest internationally their investment money will flow disproportionately into those top 5 cities.

Children follow the pension fund of their parents.

It's a monopoly enforced by government though. What if EVERYONE would be allowed to build a home himself on his very property, without asking the government for allowance? Maximum size though is restricted to, say, 30m² / person, so certainly larger than a tiny home but certainly not overly spacious.

He/she must take care for sewage him/herself and he/she has no right to claim power supply or water supply to this home.

Property itself is a monopoly enforced by government, and many people don't have and can't afford it in urban areas, so it's not clear how much of an impact that might make. Of course, if you're looking to live in a rural area you'll already find a pretty lax permitting process, but there may not be enough commercial activity around to support you. In an urban area things are more inter-dependent, and having a dense area of small homes on small lots, built however the owner feels like it and disconnected from sewage, could be a recipe for disaster.

That said, allowing people to build accessory dwelling units in their yard can be a good way to slowly and evenly density an area (as opposed to plonking down a few bit apartment complexes). Many cities already do this, with some kind of expedited permit process.

This sounds like it would very quickly encourage the development of slums, and then there goes many of the public health gains made over the last century.

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