People intuitively jump to the conclusion that the problem is caused by a lack of building. While more building would help, a lack of it isn't the main cause of this problem.
Ask yourself, do Canada, Australia, New Zealand, the US, Britain, Ireland, etc, all have the same inability to build or is there maybe some other common cause?
In my view this is symptomatic of a more fundamental issue - global asset price inflation driven by a broken financial system (i.e. a system being artificially pumped up with cheap credit). Housing is just where the rubber hits the road and regular lives are directly effected. Just look at the tight correlation between the increase in the money supply and property prices.
For those who insist that the number of properties is inadequate, take a look at the numbers for each of the countries I mentioned in the first chart here: https://www.oecd.org/els/family/HM1-1-Housing-stock-and-cons... (Total number of dwellings per thousand inhabitants, 2022 and 2011).
This is a problem of underutilisation in my view. Too many properties are being used as investments and not as a primary residence.
Cheap credit causes an increase in demand. This is not demand for homes but additional 'artificial' demand for properties as investments. Think short term rentals, second homes, land banked properties, etc. By definition, only investment properties can be underutilised - owner occupied homes are occupied! So in an environment that encourages property investment you will see more underutilisation.
What will cause prices to fall is higher interest rates. This is what has been happening in NZ.
> do Canada, Australia, New Zealand, the US, Britain, Ireland, etc, all have the same inability to build …?
Sort of? See eg https://www.ft.com/content/dca3f034-bfe8-4f21-bcdc-2b274053f... for some graphs that show Europe vs anglophone countries in an obvious way. Obviously there are lots of differences between the countries, eg the specifics of their planning systems and economies. The US is different because of the big diversity of local governments – housing is more affordable lots of people outside of desirable cities, and places like Austin and Houston do build lots of homes and that seems to be a possible reason they haven’t grown like prices in California.
Credit costs have followed similar trends everywhere (obviously there are differences, especially in the US) and yet house prices have not followed similar trends but rather behaved differently in different places. I agree that when interest rates are lower you should expect to see higher prices, but that’s because interest rates change the price that a given income can afford. I don’t think interest rates are good at explaining the changes to affordability over time, or why affordability is different in different places.
Also, in your linked chart, you see something like 20% more dwellings per person in developed EU countries vs English-speaking countries, which doesn’t feel like no difference at all.
The issue in the article of affordability becoming worse across the US recently is probably interest rate related – prices change more slowly than interest rates, 30-year fixed rate mortgages mean rates change more slowly, and the higher rates mean existing mortgage-payers don’t want to move as they’ll lose their low rate, which reduces supply. I don’t know why prices are still up though – if interest rates being high was making housing unaffordable, one would expect prices to be down.
> for some graphs that show Europe vs anglophone countries in an obvious way
Housing is still extremely expensive in most major European cities relative to income. e.g. Milan, Lisbon, London, Rome, Munich are significantly more expensive than San Francisco or San Jose (e.g. Milan is more than 2x more expansive) if you're earning the median income.
It's not like most people in some European countries chose to live in rented cramped apartments they simple have no choice because they can't afford anything else.
> you see something like 20% more dwellings per person in developed EU countries vs
It's not clear how much of that is because of lower (or negative) population growth. e.g. Italy has one of the highest dwellings per person ratios and there are towns/villages which are basically giving away houses for free Milan is still relatively the most(?) expensive city in Europe and housing in other major cities is still less affordable than pretty much anywhere in the US.
Housing affordability is qualitatively different between Europe and the US. When a European city is expensive, it's usually only the central part that's expensive. Prices drop steeply as you get to the suburbs and satellite towns. In the US, suburbs and satellite towns are more likely to remain expensive, as long as you are within a semi-reasonable commuting distance. I guess that's because the US city is more likely expensive due to the job market and the European city due to the desirability of the city itself.
I think you are close but slightly off. EU has historically better public transit and lower sprawl allowing more price points of housing while still a "reasonable" commute.
US cities are vastly larger by land size, because America is larger allowing it, added with fewer public transit options.
Look at Houston, massive sprawl and some of the cheapest housing in the country.
The transit part is key for Tokyo, everyone talks about how housing supply is robust, zoning is loose, density is high and unit sizes are small; but few talk about how having 130 rail lines with pervasive express service means that there’s an enormous amount of land within commute distance.
Set this charting tool to Density, plug in Tokyo with a number of other major world cities, you’ll see the effect in the data.
Or you could just upzone. The nine-county Bay Area is larger in size than the Keihanshin area containing Osaka, Kyoto and Kobe and has 12 million less people.
Yeah. Bay Area denizens also would be wise to note that if they hate towers so much, part of how Japan stays low rise with higher density is by having smaller roads and more transit. So you still should be building those trains (and downsizing those roads!)
I am biased in that I live in Tokyo and am used to "a ton" meaning 150+ rail lines in this metropolis [1], constructed in a lattice that makes it hard to be very far from any train line within a large radius of the city center. What most Americans think is "a ton" is, in my view, closer to "bare minimum", but that's probably since I live in a city with an order of magnitude more transit than the most built out city in the USA.
I agree that the local land use is a total disaster, but even if they made it better, SF has a few skinny tendrils of transit which creates a few skinny corridors of transit-accessible area.
The constant excuse I kept hearing when I was living there was that there isn't enough space!! But that's only true if you won't do anything to increase the viable space to live in (and optimize the space that is present, through better land use). Even densifying the transit along these corridors, San Franciscans will still whine and complain about how there's no space, ignoring the obvious solution.
The answer to me is to do it both, yesterday. But I'm not a San Franciscan anymore and I understand that my values differ from theirs.
Aside, it's also worth mentioning that in Tokyo as well, single family homes near train stations abound. The difference is that they're smaller and denser, and mixed in with apartments. There aren't that many towers here! But the roads are mini-sized and they pack units tightly to better use land. If San Franciscans hate towers that cast shade, they have alternatives.
Prices can drop quite steeply in suburbs in US as well. It's just that when the rent is that high in most desirable areas to begin with, it's still too expensive for many after that drop.
> if interest rates being high was making housing unaffordable, one would expect prices to be down.
I think you have to be careful with the definition of "unaffordable".
Housing, at this moment, is unaffordable in the sense that the cost of housing squeezes many people's discretionary budget, savings, and even sometimes the budget for necessities. It is not unaffordable in the sense that (most) people do have enough money that they can pay for it, even though paying for it might cause them hardship elsewhere.
Housing is an inelastic good - particularly for demographics who have limited access to transportation and therefore need to live very close to where the jobs are. The price increases until it consumes all the money available to pay for it.
> Housing is an inelastic good - particularly for demographics who have limited access to transportation and therefore need to live very close to where the jobs are. The price increases until it consumes all the money available to pay for it.
Housing is not rising in price because it is an inelastic good. Housing is rising in price because the growth in the supply of housing is less than the growth in the demand for housing.
Indeed, the very fact that housing has inelastic demand means that it is particularly susceptible to price reductions when supply is higher than demand.
Anyway, supply and demand are murky concepts that don't map well to reality when trying to take them out of the supply/demand chart. You can't actually quantify potential "demand" because "someone wants a good or service" is not a data point for demand, only actual trades that happened do.
You are taking as an assumption the very thing we are currently questioning - does lack of supply actually account for the increase in housing prices?
Lack of supply would cause prices to rise - but so would cartel behavior on the part of those who control that supply. Housing of the type necessary for relatively low-income individuals, where the location must be close to jobs (see above), is typically controlled by a set of entities who exhibit cartel behavior in how they price the rent.
That’s a fair point. To be more precise, I mean that many people who buy houses need mortgages to do so. Higher interest rates mean that for a fixed deposit and budget for mortgage payments, the amount one can borrow decreases. All other things being equal, one would expect the demand for purchasing houses (I’m trying to be careful here to not talk about renting, which I guess the term ‘housing’ often includes) to decrease. Something that might not be equal is the available mortgage payment budget – it may be lower due to more money being spent on other things or it may be higher due to wage increases – so perhaps that’s part of it.
> you see something like 20% more dwellings per person in developed EU countries vs English-speaking countries, which doesn’t feel like no difference at all.
I was attempting to highlight the change in numbers for those countries I mentioned and how they are clearly inadequate when trying to explain the change in prices over the same time.
In NZ there was little change from 2011 to 2022 but median house price went from NZD350k to NZD900k.
I agree with regard to demand being different in various locations within a country, but those localised demand differences would have had to shift pretty dramatically over the same ten year period to explain much I imagine.
> Why would money printing increase housing prices but not wages?
Because most of the freshly printed money wasn't immediately used to increase the demand for consumer goods. Instead, it only kept consumer goods demand about neutral, until the summer of 2022.
Without inflation in consumer goods, most businesses don't have increased profits, and no incentive to try to hire more people, which kept wages down.
Instead, the extra money found it's way into assets, pumping up the stock market and housing market.
That started changing in 2022, as inflation hit (which SHOULD have surprised nobody). But the inflation was kept in check by increasing the interest rate.
The increase in the interest rate stopped the amount of money from continuing to grow and even fall slightly. But not nearly enough to reach pre-covid levels.
That means that there is still a lot of excess money in the system slushing around. As long as the real interest rate on bank deposits is still low, people are not tempted to keep them as deposits. So the money stays in assets, maintaining the high price.
> Why would money printing postpone its effect on prices until after interest rates increased?
I'm assuming you mean consumer prices here, not housing prices. Consumer prices stayed low during the pandemic, since people generally reduced their consumption, especially the consumption of services (restaurants, entertainment, etc). A lot of "regular" people paid down credit card debt or increased the size of their savings account.
In 2022, that changed. "Regular people" started to spend more of their savings again, and this caused inflation to rise. As inflation was going up, the fed (and other central banks) slowly increased the interest rate, but not quickly enough to stop the sharp rise in aggregate demand. (And war in Ukraine and continued lockdown in China didn't help either, nor did various initiatives to re-shore production of anything from microchips to ventilators, or for that matter the huge investments of capital currently going into AI infrastructure).
And as demand pushed inflation up, that lead to some increase in the demand for labor. So even if the salaries haven't kept up with inflation, inflation definitely has been increased by the increase in salaries.
Naively, one might expect that the inflationary pressure will cease once aggregate inflation reaches 25% relative to 2020.
And if you wonder why wages haven't kept up. I think this can be explained by a weakening of the demand side of consumer goods, driven by various inefficiencies in how capital allocation, due to the cost of building new and robust supply chains, due to the situation in Ukraine/Russia and China and AI investments etc (as listed above, too).
> I don’t know why prices are still up though – if interest rates being high was making housing unaffordable, one would expect prices to be down.
This is counterintuitive, but also persistent across high-interest rate environments. I asked my mom what the housing market was like in 1980, when rates went up to ~20%, and she said "Prices were basically stable, but nobody was selling houses." Similarly, if you look at historical data, you'll notice that home prices usually remain flat during recessions but don't really go down. Even in really bad recessions (eg. the Bay Area from 1989-1994, which got hit with the triple whammy of interest rates going up to 10%, a tech bubble bust in the workstation & AI market, and the crash in defense spending after the end of the cold war), you might see at most a 10% decline.
The reason comes from a fundamental asymmetry in the housing market: everybody needs a place to live, but most home sellers do not need money. If they fail to sell, they can take the place off the market and continue living in it, or rent it out, or just leave it vacant in hopes of better market conditions next year. So the negotiating leverage usually lies with sellers in the housing market.
When rates go up, affordability goes down, but sellers are usually unwilling to take a multi-hundred-K$ hit. So they don't. They rent it out, they live in it, or they hold onto it. It's usually worth taking a few thousand dollar hit in property taxes to avoid a $100K hit in home value. Liquidity dries up - instead of prices going down, inventory disappears. We're seeing that now, and the older generation saw it in 1980 and 1990.
To make prices actually go down substantively, you need those forced sales, where owners want/need to get out at any price. This could take the form of a foreclosure/bankruptcy crisis like in 2008, where the owners legally lose possession of the house, and the banks need to sell at any price to avoid bankruptcy themselves. Or it could be rising crime, like what happened to Detroit & the Rust Belt after the 1970s or SF in 2020. But many things that you would think would destroy home prices don't actually - New Orleans did not see a significant decline after Hurricane Katrina in 2005, and Silicon Valley did not see one after the dot-com bust in 2000.
One other thing to note is that when prices in a region decline, it's almost always because nobody wants to live there. This is actually rather intuitive - if rates and affordability go down but people still want to live there nobody will sell, while if people are forced to sell but others still want to live there you will still have competition among bidders and prices will go up. But it means that there's no magic bullet: "affordable" housing means that home prices stay stable while incomes rise, and if you can't get your income to rise, you are just screwed.
That is the shape of housing market corrections. Housing prices are sticky because of a range of financial and emotional reasons. Because of this prices hardly ever crash outright. What happens instead are periods of price stagnation while inflation does the work of reducing real prices. And a real collapse of prices indicates neither wages nor financial devices could support the market any longer.
Affordable is a different issue. Housing assets exhibit strong depreciation under normal circumstances and extreme depreciation under any kind of stress. Affordable houses are used houses in a way similar to how used cars are fundamentally more affordable than cheap new cars.
I guess I was surprised by the increase mentioned in the article. Rereading, it says:
“The median home sale price, external in the US has jumped by nearly 30% since the end of 2019”
So I guess you could have the increase due to Covid effects (or whatever else happened around then) and then seller hesitancy due to high interest rates, even though most potential sellers don’t stand to lose much.
Sellers do have much to lose. I think you're saying they have 30%+ in equity so why not sell and use it? Well they have 30%+ equity AND low interest rates.
If they sell, they need to buy again at a higher interest rate. So they can sell at a profit but then monthly payments will be higher.
Anyway, this is only 1 scenario. Urban areas are hit hard NYC/SF and sellers are sitting out waiting for recovery, so they rent them out.
My claim about ‘not losing much’ was more that many sellers would have had the property since before 2019 so in some sense they could feel like they didn’t lose anything if they just forget the 30% rise since 2019. But I guess you’re right about many not wanting to lose long mortgage terms at low rates (this does feel like a US-specific thing though hard to change in the short term as mortgages would have been priced based on the current rules)
But this is where it gets messy. Interest rates as they are now are already considered 'too high' by the WS crowd ( I have my own opinion, but it is just that -- an opinion ) and any indication that FED will lower rates is met with glee. There is, naturally, a solid reason for it. High rates will slow down the reckless flow funds sloshing around the economy ( and would help with the ridiculous prices ). However, this would come at a cost that no one wants to pay. I am not even talking about the political cost. No one wants to think of paying that high a price for serving US debt. I mean, I hold negligible amount of US bonds and I don't want to pay that..
But then US wants to 'invest' in current wars.. sorry, national security ... and money has to come from somewhere.
I feel like I should explictly state this is not an attempt at derailing this thread.. politics and rates are part of the reason we are in this mess. I agree that 20% rate would clean it all up really quick
Under utilization can be measured as a factor of the vacancy rate; which influences both home pricing and rental pricing.
Here in Canada, the desirable places to live all have relatively low vacancy rates for residential housing, and have for quite some time. Ie, it's rare to see cities with vacancy rates for apartments exceeding 3%, let alone a healthy 5%.[0] The CMHC estimates that by 2030 we will need 3.5M additional homes beyond the expected number to be produced.[1] The PBO has come up with similar numbers; roughly speaking, Canada needs to complete a new home every 50 seconds just to maintain current price levels.
There's much gnashing of teeth up here over our housing crisis, and it's clear to me that it's a multi-factor concern[2]. While there simply exists much more demand than the supply can service, the reasons for low supply are many and complicated. There are the obvious zoning and infrastructure issues; we don't build for mid and high density nearly enough, and we rely too heavily on cars. There's the labour supply issue the politicians focus on. But most unnerving, to me, is the suggestion that we simply do not have the capacity to produce or source the raw materials necessary in construction.
Why is the vacancy rate so low in desirable neighborhoods?
Is it that there isn’t enough housing period, in the entire country. Or is it is people and investments abandoning rural areas in favor of a handful of city neighborhoods?
I’m also curious if those vacancy rates can be / have incentive to be gamed by the homeowners, or otherwise don’t paint a very accurate picture. I lived in a wealthy part of NYC for a while, and my apartment faced a courtyard on the interior of the block. As a result, I could see into the windows of 100s of apartments of 3 adjacent buildings. Only maybe like 5 out of 100s of apartments consistently had someone living in them. This reflects my feeling on the street: the streets were empty, especially given the relative density of the apartment buildings.
I know this is anecdotal evidence, but everyone I know that lives in NYC has the same observation.
I wish scientists and experts would take these concerns seriously and research by this gap in perception and the reported vacancy rate is so different.
Just a note that "occupied" != "can see people milling about". A lot of people (particularly in NYC) treat their apartment as just a place to sleep. During the day, they're at work. For breakfast and dinner, they eat out. In the evenings, they hit the clubs, or go over to a friend's, or visit one of any number of cultural attractions. That's why they live in NYC, because of the density of non-home forms of entertainment. Particularly if you value your privacy, it makes sense to keep the blinds permanently shuttered, leave your apartment in the morning and come back at night, and just sleep & shower there.
Heck, it can make financial sense too. We tend to keep our windows covered most the day regardless of season. In winter it helps to keep the heat in and there's no natural light to miss out on anyway. In summer it helps to keep the heat out, and we mostly don't care about natural light in the apartment because we're outside enjoying the weather. (What's even the point of living in the city with the highest % public green space in North America if we're going to just stay at home bingeing Netflix all evening?)
And you can't necessarily see the lights on when somebody's home because we use the most blackout-y blackout curtains we can get. Urban light pollution has gotten so bad - especially since the switch to superbright LEDs - that they've become a sleep hygiene necessity.
This effect is also exacerbated in wealthier areas by bigger units. Units are less likely to seem lively because people are using a smaller proportion of rooms at any given time, and those rooms may not always even be visible to you. E.g. my grandparents flat would often have looked dark and abandoned from the courtyard, because that side of the flat was unused for much of the day, and often only lot when the curtains were closed, even when they were home and had visitors and a full house.
> Only maybe like 5 out of 100s of apartments consistently had someone living in them.
I would be highly surprised if this were true. I lived in NYC for year and the myth of tons of empty units is pernicious and just won't die. There has been a TON of research on this topic and it all points to there being a huge shortage of housing in the city. As a percentage of total housing stock vacant units make up a fraction of a fraction of a percent.
Anecdotally, my apartment building has 0% vacancy rate.
And a newer building across the street has at least 10 apartments vacant for the most of the year.
Anecdotally, i know quite a few boomers that own multiple properties (>3) in manhattan, some of which they rent some of which they keep vacant for when they want to come to the city
I feel like at least some % of apartments in the city are visibly vacant most of the time because they are just part time homes for the wealthy.
The research for this does account for pied-à-terres, which do exist in some number but are a tiny fraction of he total and mainly exist in a handful of Manhattan neighborhoods. There are only about 10K of these in NYC[1] which is 0.27% of the 3,644,000 total housing units in the city. This just doesn't seem like a real problem when the rental vacancy rate is shockingly 1.4%[2] (of the 2,183,064 total rental units).
I struggle to believe that pied-a-terres are less than 1% in NYC, particularly in the post covid era. Maybe paid off condos in NYC owned by people who also live in Florida aren't counted somehow? Seems like everyone with a net worth of $2.5mm has two properties.
My best friend's brother has a rent controlled manhattan apartment that sits vacant 80% of the time and is used as a crash pad for a rotating cast of ~12 people, what do you call that?
Why would you struggle to believe something that is accounted for in tax records and other city records?
The median household income in NYC is about $70k almost no one relative to the population has a $2.5mm net worth. There are only 350,000 people in NYC with a net worth of more than 1mm.[1] Anecdote is clouding your understanding here, the idea that there are tons of empty units in NYC is just another luxury belief, it stands up to 0 scrutiny.
A good friend bought her Hell's Kithen flat (read: condo unit) from a Japanese company. Years ago I had another friend who worked for a company that had a sizeable place in the Village.
There aren't that many. NYC housing data is sliced, diced, and studied by so many agencies, non-profits, think tanks, and so on that someone would notice. There's a marginal number of units that appear to largely unoccupied. Corporate and LLC ownership shows up in tax data and the totals are a drop in the bucket of the nearly 4 million units.
Yes, but you only need one unit per building to be over-bid and that then drives up the prices of other units in that building? It might not be an occupancy issue per se, but it doesn't help the overall residential market.
Housing exists in price bands more or less, so the thing you’re measuring has to be large enough to have an effect on the band. There’s a lot of research on NYC housing issues and no one has ever identified corporate housing as a contributing factor, so there’s a very high burden of proof on your claim.
Desirable neighborhoods in Canada and US typically resemble pre-automobile orientated design type neighborhoods. These are on short supply.
So while there might be enough physical houses around the country/province/city, what makes a place desirable to live extends far beyond the walls of your home.
Regarding your anecdote. I definitely notice the same thing, walk through the wealthiest parts of any bigger city and you will see many/most of the houses completely shuttered for >90% of the year. That also explains why the vacancy rates are low, the wealthiest 0.1% (whom ended up with much of the relief funding during the GFC and Covid) park most of their money in assets, but they are not interested in renting out these houses, so when they buy houses they reduce vacancy rates even when they don't live in them.
Growing housing costs and wealth inequality have been extremely correlated, anyone looking for other reasons for the housing inequality really needs to have a very good explanation why they are not related.
Vacancy rates should be lower where the total inventory increases and people’s ability to predict the market increases. That’s also going to be places people want to live.
Consider a city of 10 million people vs 1,000 small towns of 10k people. The variability for demand in those small towns is higher and vacancy rates can’t drop below zero. So some towns hit 0 while others might be 20%. But in a city if some apartment complex is full people just go to the apartment down the street.
Sure but on average Americans move once every ~7 years on average. A 5% vacancy rate would be ~4.2 months between owners/tenants which seems unnecessarily high. Most apartment complexes I was at could turn them over in a few weeks if someone wanted to move in. So 5% would seemingly represent a significant economic inefficiency.
3% may represent local shortages as Santa Monica is more desired than West Adams etc. So increasing availability in undesirable places may not reduce rents in general.
The 5% is a sliding window. Some of those have just opened up, some of those are about to close at any given time. And it also represents all buildings, from super in demand complexes to slower moving listings, and is a rule of thumb that also aggregates seasonal differences.
In aggregate, 5-7% seems to be a sweet spot where landlords can find tenants in a reasonable amount of time and tenants are not scrambling to send out a dozen applications a week.
I moved around a lot and the majority of the time I signed a lease it was 1+ months out for an apartment that was still occupied. Having some availability right now is definitely beneficial as stuff can happen, but current housing stock just wasn’t what I was looking at basically ever.
Though I agree less desirable locations should definitely increase the average, as should purchases vs rentals etc. It’s just 3% is already including a lot of mandatory time from cleaning, painting walls, replacing carpets, etc. So prices could fall heavily at a sustained 4% long before you hit the 5-7% range.
Expensive housing markets are very unhealthy. A median home is considered affordable at 5x median income. Most of the expensive areas (San Francisco, New York, Seattle, Los Angeles, etc.) are at 10+x.
The other metric is median rent as a percentage of median income. Nationally it has hit 40% when the affordability mark is 33%.
Just because what you are experiencing has been a norm for a while does not make it good, or the goal.
People who rent tend to move more often than people who own a house. Landlords will often take an apartment out of the rental pool for a few months to remodel it.
Actually, California population (for example) has fallen by >400k over the last several years. The first falling year was 2019, 2020 saw a small rise (<50k), 2021 saw a fall of >300k, 2022 a fall of ~150k, and 2023 a fall of ~50k.
That includes both births/deaths and in/out migration. Population growth rate has been generally falling since 1990 (except for a peak in 2000) and significantly so since the GFC in 2009. However, prices have skyrocketed.
China has overbuilt their population by 10-100million (yes, and there are even more outrageous numbers) homes over the last 10-15 years, and yet prices in Shanghai/ Beijing/ Shenzhen still exceed NYC or SF by 50%. They have a falling population.
Crowding is huge in California though. The starting point was "multiple unrelated families living in one house." If the population has dropped by 1% but you started with 3 families per house, you still have (to some rounding error) 3 families per house.
China has the confounding issue where it has both poor social security systems and a mistrusted, dysfunctional stock market and financial system, so everyone shoves money into real estate for retirement.
This is not even a new problem. The imperial landed gentry was so named because bureaucrats would shovel their money into land.
A net migration out of California does not mean an increase in available housing. There are a lot of families (adults+kids) where the children grew up and then can’t afford a home in California and left the state. A household of 4 then becomes a household of 2 but the housing supply stays the same.
The price finds whatever level it needs to maintain a population that fits within the housing supply. Obviously population can’t grow that much against a fixed housing supply; once the vacants and spare bedrooms are filled up, people just get priced out. This is Malthusian NIMBY policy working exactly as intended.
Population geography also shifts from rural to urban and from declining to rising cities even as the total population size holds constant or shrinks. The fact that there is space for you on a farm or in a coal-mining town is cold comfort to someone with a STEM degree and a job offer at a corporate headquarters.
Did you forget to factor in that it is a replacement rate? Sure, more people are born every year, but plenty of people pass along in one way or another (mortality, downsizing, various care facilities).
but it's not necessarily needed in dense urban centers. Plenty of laptop class people could secure housing in rural areas for a fraction of the cost of what they're paying now.
One of the many things contributing to pricing, is that not enough road corridors are being built or widened.
It's harder live further out, when traffic slowdowns extend commute time 10x. And governments love the idea that expensive roads can be waved away using environmentalism as an reason.
Yet these same governments don't build fast transit either, and without fast amd efficient transit, trips take far far longer than a car.
At this stage we should be building both, as we're that far behind.
The point is, there is a move for 'dense urban areas'. Pack 'em in. Increase that housing density. Yet there is another way in North America, where there is often an endless bounty of space. Better transportation corridors.
Better transportation corridors means that housing costs plateau, because it's just easier to drive 10 minutes more, 20 minutes more, than spend 4x for housing.
That said, even the laptop class often does need to commute:
* Many remote workers have to attend once a week, or more often.
* People make lives, friends, contacts, have relatives in specific areas.
* Every once in a while, you may need to go to "the city" for something important. Medical treatment or specialists, specialty products, etc. Not everything can be shipped, or is shipped.
Anyhow, it seems you sort of missed the point, that is... the faster you can get into a city, the further you can live from the city and still be part of it.
> People intuitively jump to the conclusion that the problem is caused by a lack of building.
In my experience, people "intuitively" jump to basically every conclusion besides this one. "Greedy landlords" or "[favorite scapegoat] collusion" are intuitive conclusions which are far more common than supply and demand.
> Ask yourself, do Canada, Australia, New Zealand, the US, Britain, Ireland, etc, all have the same inability to build or is there maybe some other common cause?
Yes they do, to varying degrees. The Anglo land use regime is a disaster.
> Yes they do, to varying degrees. The Anglo land use regime is a disaster.
Population growth (which is mainly concentrated in relatively small number of areas) is not helping either.
e.g. in European countries which have comparable population growth to Ireland/UK like Norway, Sweden, Belgium real estate prices have been increasing at a similar pace.
And yet housing prices in much of Asia is still insane. The only market that is sane is sort of Japan with a falling population and an aversion to property speculation due to getting burned on their last property bubble.
Chinese housing market is completely messed up, with turn over almost halted since the government won’t let prices fall no matter what, while they have overbuilt like crazy.
Chinese municipal governments are funded through the tax assessed on the sale of the home and not through a continuous property tax - or at least that used to be the case, haven't checked in a while. That resulted in municipalities encouraging higher prices for housing.
Some locales have experimented with property tax, but they haven't really expanded the program yet, and they usually exempt your first home. It isn't enough to fund municipal services, and cities are still screwed when it comes to income (the central government collects most of their VAT, they are expected to pay for a lot of services without a lot of income beyond taxes on property sales).
> And yet housing prices in much of Asia is still insane.
They're generally lower than the US, despite having a higher population density.
> Chinese housing market is completely messed up, with turn over almost halted since the government won’t let prices fall no matter what, while they have overbuilt like crazy.
A place with the government policy objective of not allowing housing prices to decrease isn't much of an argument that supply and demand doesn't work in general. China is just its own kind of broken.
Whereas prices are significantly lower in e.g. India, not just Japan.
They are only lower in the sense that incomes are lower, and often not even that much lower than American cities even if incomes are ten times less. India, for example, if you take median home prices and median incomes, they don’t match at all. Yes, an American moving to India who retains an American salary somehow will find it affordable. The locals are struggling, much more than Americans could ever imagine. Japan housing wins by being smaller, and having less requirements like central heating, that would never fly in the west. We really should have that lower end housing, I agree, but then we are comparing apples to Orenjis.
China is simply repeating what Japan went through in the 80s/90s. Maybe market sanity comes only after a period of crazy insanity.
> They are only lower in the sense that incomes are lower
The urge to measure everything by income leads to absurd results, like putting Saudi Arabia and the UAE near the top of the "housing affordability" list because they're flush with oil money, and for the same reason the United States.
> We really should have that lower end housing, I agree, but then we are comparing apples to Orenjis.
But that's the point. Someone in the US who makes 20% of the median household income still needs somewhere to live, and by refusing to provide smaller units, we make things cost more for everyone else too. Because now they have to spend their entire salary on housing and make up the rest with government assistance, which bids up housing costs for people in the middle -- who are also the ones footing the bill for subsidies made necessary by the high costs.
It's not just about the cost per square foot, it's also that small units aren't even available because the rules proscribe more units from being built on the same lot. The result is a de facto prohibition on smaller units because ordinarily it costs a similar amount to build a small number of large units and a large number of small units, but now the latter is unlawful and a small number of small units is uneconomical.
> The urge to measure everything by income leads to absurd results
If you believe housing is for people to live while doing the work they can get at the salaries those jobs are willing to pay them, then it is absurd not to consider income in housing affordability.
Exactly right. Ignoring income of local buyers in market would be ridiculous.
My family bought an apartment couple of hrs from Delhi for about $100K which is huge amount for locals considering it is center/ hub of nothing. And as far as fit/finish goes one can easily spend another $50K on it to bring it barely to level of basic rental apartment in US.
If it costs e.g. $200,000/unit to create a housing as 5-story buildings then housing should not cost more than $200,000 anywhere that isn't already saturated with 5-story buildings (which includes every metropolitan area in the US), regardless of what local salaries are. Only regulatory rules that constrain construction prevent this from being the case.
There is a minimum amount that it intrinsically costs to create housing, e.g. the cost of lumber, and in some places local wages are too low to afford that, and that sucks but the reason for it is low wages rather than housing scarcity. Then there are places where housing is unaffordable, not because wages are low, but because housing costs are artificially high, and that is a different problem with a different solution.
First, it costs way more than $200k/unit for new builds where I live (Seattle). Unless they go for scale, then maybe they are getting $200k with lots of profit and a $1k/month HOA. The biggest cost these days is simply labor. Construction workers aren't cheap.
Second, the housing is not at all equivalent in Asia. The standard 30 story overbuilt concrete apartment buildings, completely un-renovated (but at least you can get that done for cheap), but it keeps migrant workers employed (they overbuild on concrete for less technical builds, at the expense of increased building maintnence and/or reduced building lifetime). China and India just don't magic up these buildings, and often times it is used as a jobs program (or they would move on to more expensive but longer lasting builds, the fact that the buildings will be torn down in 20-30 years is seen as a feature and not a bug). But those cheap to build flats are still going for $1 million/each in cities like Shanghai or Shenzhen.
> First, it costs way more than $200k/unit for new builds where I live (Seattle).
That's the point. If you restrict where they can be built, and how they can be built, they cost more to build. And then prices go up.
> The biggest cost these days is simply labor. Construction workers aren't cheap.
This is part of the regulatory cost. Rules that require labor-intensive construction methods (preferred by both labor and landlords because they both want new construction to be more expensive), and licensing requirements that statutorily take a long time or significant money to satisfy (e.g. multi-year apprenticeships, expensive licensing exam fees) rather than immediately licensing anyone who can pass the exam and not charging to take the test.
> China and India just don't magic up these buildings, and often times it is used as a jobs program
At which point it's a government subsidy, but that doesn't really get you out of anything at scale. Somewhere or another somebody is paying for the construction.
> But those cheap to build flats are still going for $1 million/each in cities like Shanghai or Shenzhen.
You can allow something to be built without allowing enough of something to be built.
You can also build enough of something and still have high prices because of some other constraints or regulations preventing the people paying the high prices from using some of the supply, so it goes to waste.
But these are not the reasons that a $1000/month flat in India is unaffordable to locals. The reason for that is that local wages are low.
> The urge to measure everything by income leads to absurd results
What? Measuring relative to income is the only criteria that matters. What would be absurd is not to compare to income.
There isn't any absolute number at which housing is affordable or not affordable. It is purely a function of what percentage you need to spend of your income to be housed.
If the global price of materials means that it isn't possible to build a housing unit for less than $40,000 then in places where $40,000 isn't an affordable housing cost, your only options are to somehow lower global commodity prices or somehow raise local wages. Both of which are hard, and neither of which are particularly specific to the housing market. It's just not a place where that problem can be solved.
Whereas if the global price of materials means that it is possible to build a housing unit for $40,000, but local regulations make it cost $800,000, and then as a result local housing costs are $800,000, that is a problem in the local housing market.
It's global in the sense that it's present in multiple countries, often for the same reasons. For example, the costs are high in the UK for similar reasons as in the US. But many of the comparisons just don't apply.
If you look at a country with a very low median income, of course housing costs a lot compared to the median income -- everything costs a lot compared to the median income. And housing in particular requires skilled labor and global commodities like timber and steel, which put a floor on the cost regardless of what local incomes are.
So housing in India or Vietnam costs a lot relative to local incomes because wood costs a lot relative to local incomes, even though housing there doesn't cost a lot in absolute terms. Which is not the problem in San Francisco, is it?
It is more than that. In the UK we track this through a figure called HPI (house price inflation). It just means the cost of real estate. My guess is that the graph would look quite similar for most non war ravaged countries around the world. Rocketing HPI over the last few decades.
There is more to it than just "anglo countries don't build enough".
There are more components to housing prices than just not building enough, but in ordinary markets that aren't constrained by pathological factors (e.g. China), supply and demand operates and increasing supply lowers prices.
For example, suppose you don't have artificial supply constraints and then you lower interest rates. No problem, more people can get a loan to buy a house which causes more houses to be built and them more people get to be homeowners. But long-term prices stay the same, because it's easy to add supply, so it keeps getting added until prices fall to the construction costs, which acts as a long-term ceiling on prices.
Now suppose you do have artificial supply constraints. Prices are at $200,000 but you've made it cost $1,000,000 to create a new housing unit. Now if you lower interest rates, prices are going to go up, because you can't increase supply at the current price so people just end up having to outbid each other on the existing supply. And the same thing if local demand increases or anything else like that, because you've prevented supply from responding to demand until prices hit a million dollars.
But the problem isn't low interest rates or growing cities or anything like that, because the only reason those things are a problem is that supply can't increase until prices are unaffordable.
The difference is that China had a housing bubble. After it popped, housing prices started plummeting. In the US, housing is just expensive. Given the current supply and demand, there isn't a good reason why the price should be lower.
> After it popped, housing prices started plummeting.
Prices haven't plummeted in China. Sales volume has seized since the red families control the real estate agencies. They have added more incentives, like easier access to hukou, and have eliminated limits on how many homes you can buy.
The government is doing everything they can stop it, but home prices are indeed falling [1]. A 2.2% decline doesn't sound like much, but it's wild given the strong GDP growth over the same period.
I wouldn't take much credence in reported GDP growth. Tearing down a building that was built last year creates reported GDP. Also, you really really need to look at volume, since the party will just cut off sales if they have to (since they control the real estate agencies).
I only have firsthand experience in the US but it makes a lot of sense to me that the influence of colonization by Britain would cause all of the listed countries to have similar issues related to land use.
Every state west of the Mississippi has at least 50% of all land owned by the Fed Gov and isn't used at all. We have plenty of land, that isn't a real problem.
There are only 5 states with federally owned land over 50% (Nevada, Utah, Idaho, Alaska and Oregon). Other states west of the Mississippi don’t necessarily have a large percentage of federal land. For instance, Texas only has 1.78% that is federally owned, Arkansas at 9.38%, Oklahoma at 1.59%, Kansas at 0.52%, and the Dakotas at 3.91% and 5.41%. In fact, there are only ten states with over 30% of federally owned land in the Union, granted they are all in the Western part of the States.
I don't know that that is what they were claiming. Land use policy != Land availability. If it was, Russia would have ended homelessness 500 years ago.
Much of that are involves forests far away from where people would want to live anyway. Often without roads.
When people say the issue is land, that usually implies a very particular smaller subset of land which is in proximity other populations, economic centers, and with certain features and infrastructure.
There are also plenty of houses in recently a abandoned ghost towns. The catch is that they were mostly abandoned due to lack of jobs nearby, meaning nobody could afford to live there.
Seattle is building far more than many other cities and rents are lowering as a result. Rents are up nationally, but down over 7% in Seattle. If you've visited recently, the amount of new construction and cranes is immense.
Ten years ago people talked about how much Seattle was building and how many cranes were everywhere as well - then as now, it’s because all that building is in the same ten square yards of “urban villages” across the city where you are allowed to build densely.
And now we are running very short of buildable volume. There are not many places left you can build a tower. We need to allow a lot more. Also, in the meantime, we have added more time to the permitting process, all in the name of aesthetics/design, not safety.
The market in Seattle has become softer for sure but is not evenly distributed. In my area, the vacancy rate for apartments appears to be in the 10-20% range depending on the building and the incentives are becoming more aggressive. A bit more surprising, some housing prices in nice neighborhoods have also declined since a couple years ago (some areas have also increased). Renting makes a lot of sense in Seattle right now.
Anecdotally, all of my friends renting have had their rents continually raised with no breaks. Perhaps there is a wider trend, but if so, their landlords do not seem aware of it.
Part of that is also a fact that renters face the pressure that real estate firms now use big data to manage the rent accross a set of units. They know people will keep paying to avoid the skids so they can keep both rents high, and vacant houses because the over under makes them money.
If you had the state / city charge rent to owners on vacant property you'd see rents fall through the floor as realestate companies would quickly pack anyone that could pay something into an structure.
There is actually currently a Seattle class action lawsuit on renting because a majority of the corporate landlords use the same big data company to set rents, and the big data company says you must use their rates (and so do the landlords instructing their property managers). It turns out you may not be able to launder price fixing using an algorithm.
No, lack of building _is_ the main problem. It doesn't matter if the demand for homes is "artificial" or not - the easiest solution is to build more.
> Ask yourself, do Canada, Australia, New Zealand, the US, Britain, Ireland, etc, all have the same inability to build or is there maybe some other common cause?
This is something I've wondered, and I'm of the opinion there's two reasons that are rarely discussed. One is the great recession/sub-prime crisis, which, at least in the US, caused a collapse in housing construction - I'm not sure how much this is true for other countries. The other is the coming of age of millennials, leading to a "bump" of people in their 20-30s trying to get their first home - I'd expect this to apply to most of the countries listed.
You really need to provide data to make that assertion. Shortages of buildings are not the only reason that property prices can be high.
Properties are made up of a building and a plot of land that it's attached to. Whilst we can nake more buildings, we can't make more land, so the land in a given location is by definition going to be in a permanent state of shortage. If more poeple want to live in that location OR (the main driver of this crisis) if more money is chasing the same fixed supply, then the prices rise. The land component is the part that has become more expensive recently, not the buildings.
> Shortages of buildings are not the only reason that property prices can be high.
It pretty much is - everything else is window dressing. Pretty much every single city in China is 3-10x more dense than any area in the US, so lack of land is a reason I find continually uncompelling. Our lack of density, zoning practices, NIMBY attitudes and car dependency all contribute to this, with the result being a lack of construction.
Here's a grad student on tiktok who does good, well-sourced analysis on this front (he has an entire playlist on the issue of vacancy rates given how frequently it comes up): https://www.tiktok.com/@divasunglasses?lang=en
Land price is inherently tied to buildings though, in the sense that the cap of value one can realize from land is the maximum square footage you can build by zoning.
Land that you can develop into multifamily that still has capacity is getting ever rarer. If you poll Americans the preference split is 60-40 suburbia for suburbs vs dense walkability, and yet in metropolitan regions the residential land allocation looks more like 93-7. This shows up in square footage prices, where dense walkability is priced much higher per square foot.
It’s a shortage of floor space that is the issue. The problem is the Anglo countries have mostly made it illegal to supply it, in both dimensions. Auckland clearly showed this when it upzoned.
Doesn't the US already have something like the most sq footage of housing per capita in the world amongst major countries?
We have lots of secondary and tertiary homes, parked empty RVs, vacant investment properties, and lots of floor space per occupant, empty spare bedrooms, dedicated social entertainment rooms that are only used for parties, etc.
This might be one of those things where the obvious bit (built more!) is both true, and reductively incomplete. We do have a sense that just building more housing in the presence of lots of liquid capital and easy credit seems to create a speculator market -- even down to retail investors. (e.g. The China real estate bubble bursting seems to be strong evidence that this can happen.)
We also have some evidence that building a single type of housing leads to another kind of speculator bubble (e.g. the subprime mortgage crisis of the early 2000s was proceeded by a massive wave of construction of primarily giant single family homes for example). Even if somebody was interesting in buying something smaller at that time, there wasn't inventory anyways - yet those smaller housing units were not where prices increased the most (note: I'm aware I'm not providing specific evidence of this, but if memory serves it's basically correct) yet they often saw large increases in rental prices.
So from those two examples we can likely say that a market that:
1. Speculation causes housing prices to rise, even when millions of units are being built.
2. Lack of diversity in housing construction can lead to both high prices for some types of stock and lack of availability for others.
So how can we solve this beyond the trivial "build more"?
I'm starting to believe a few things are needed for a healthier housing market:
* We need to limit housing speculation, or at least make it less interesting as an investment option. In South Korea, they've introduced various taxation schemes that limit the appeal of owning multiple properties after decades of housing speculation. The idea there is that housing does exist, but occupancy rates are lower than desired. The result seems to have been an explosion in new housing starts with entire districts in Seoul being razed and rebuilt.
* We also need to find ways to ensure diversity in housing. Now that interest rates have gone up and single family homes seemed to have softened as a market, it seems that developers are concentrating on building "luxury" units of various other types. It's a good start, but if these units are still outpricing need, then they'll sit empty or end up speculated on. Many areas have dealt with this by mandating a certain amount of "affordable" housing, but that has turned into a joke in these areas.
There needs to be other ways for developers to build lower budget units, perhaps tax incentives, or changing zoning to allow for more types of housing.
Here's an example of the problem: The D.C. Metro recently added an entire new line to the system intended to connect the major international airport into the city. The areas around the new stations along the line have all been subject of new rezoning plans, higher density, urban fabric, etc. However, the construction that's happening along that line, while adding tens of thousands of new housing units, is almost all "luxury" (e.g. high price). One of the areas along the line is among the largest reurbanization projects on the planet (Tysons), and Reston/Herndon could grow into a contiguous "city" as large as many other "name recognized" cities in the U.S. like Providence, or Salt Lake City. Average housing unit prices in that area have been rising double digit percent per year (quarter over quarter) with the average home price (not just single family, but condos, town homes, etc.) is at around $700k USD. People who bought in this region even just a few years ago would be unable to afford their own homes today given pricing and interest rates.
So we see another example of "build more" and even "build more types" but aren't being met with "limit speculation" and "build more diversity" - and even in the presence of harder to get credit, the prices are spiraling.
Because property taxes are one step removed from builder incentives. Better to directly adjust builder housing price choices, at least for intents of building less luxury housing.
> developers are concentrating on building "luxury" units
And many of those "luxury" units don't cater to families, but single people. You'll find 1 or 2 bedroom units with bedrooms where you can barely fit a queen sized bed. So these are units that are not only more expensive than, say prewar or midcentury units, but more expensive per unit area than those units.
I think you might be missing the point of the poster. While building more might in the reduce housing stress in the next few decades, rapid building for the sake of feeding the investor market is pouring gas on the fire.
This is where discussing the housing problem becomes challenging. Half of us want to burn the whole system down and take housing back to the basic human need it is, while the other half want to work with the system we have.
Multi-faceted and interrelated: a lot of housing would become a less attractive investment vehicle if near-substitutes were more plentiful. An overseas investor buying a Vancouver condo assumes that the asset will have high resale value (in addition to its use value as, e.g., a rental or airbnb). But in a saner world, housing would depreciate in value over time in proportion to its use and maintenance, like other durable goods.
That would make sense in a world where the surrounding location is completely static, but generally as a town/city grows it's much more desirable - more work for better wages, more business opportunities, economies of scale, better education... A world that doesn't respond to that with increasing price doesn't seem sane. Imagine that you start with a house in the middle of nothing. 20 years later there is a major city around you - and the house should be cheaper than it was when there was nothing? What about new housing around your house, should it have the same nearly zero price too? What even is depreciation in case of housing - my grandmother lives in a 120 year old house and I'm pretty sure my grandchildren will live there too.
Not so much it'd be visible in the price - maybe 5-10% up or down, more pronounced in remote locations. The location is the important factor. Realtors work with square area pricing set for entire towns or municipalities.
That REALLY depends on the type of housing, not only on location. And it also depends on the interest rate relative to inflation.
In fact, it's really similar to dividends on stocks, just with cost instead of profit.
For a house in a suburb or rural area, maintenance (enough to keep the house in the same condition you bought it in) can easily cost as much per year (on average) as the cost-of-money (interest rate - inflation) for the debt.
And in some case much more than that.
If one such house is twice as expensive to maintain (over time) due to differences in building materials, environmental conditions, size/geometrical factors, etc, the cost of owning the house over a time period may easily be 25-50% higher for the most expensive compared to the least expensive if we assume the same purchase price.
Purchasing a single piece of land with the expectation that it will increase in value, is similar in many ways as to do so with single stocks.
Land and stock tend to go up in value. But land also sometimes go to 0, just like stocks.
With the booming American car industry in the 50's and 60's, who would have thought that houses in Detroit could go from having a premium price in 1970 to be sold for $1 40 years later?
A single peice of land may or may not appreciate. but a diversified portfoilio of land will always appreciate if the last 10,000 years has anything to say about it.
The rockefellers and other "Old Money Family's" have the three rules to building multi-generational wealth. Land, Art and Gold.
Even for detroit, land prices have only increased since the 80's[0] and over long time horizons, i'm sure will be back in line with other "Single peice land bets".
> A single peice of land may or may not appreciate. but a diversified portfoilio of land will always appreciate if the last 10,000 years has anything to say about it.
I believe there are large parts of Europe that would take centuries if not a millennium to reach the peak value it had during the Roman Empire (measured vs gold).
In general I agree, though. A portfolio is fine.
Most people tend to have most of their "savings" in a single property though.
As an example, what do you think this $2500 property cost when it was new? (Edit: make that 1965, since it's quite old.)
Short of it being on a superfund site most residential land will never have a value of 0. It's called REAL estate for a reason. Partial ownership in a company can evaporate, but 405 park west, manhattan nyc will always be there, at least for the next million years.
Some actually sell for $1 ($0 may be technically more difficult), some may sell for less than 10% of what it was once considered worth, which is close enough to 0 for the difference to not matter much.
a person buying a condo in Vancouver generally isn't purchasing land, and if they are, then yes, the land might appreciate even as the thing built on it degrades over time due to a bunch of natural processes (e.g. wood decays)
someone buying a condo is absolutely buying land. That land just is split up across x number of condos. The appreciation that you get on the Condo, is the fact that the land is usually in a very ideal location. That's when the economics of "Going up" even makes sense.
> But in a saner world, housing would depreciate in value over time in proportion to its use and maintenance, like other durable goods.
Without any external influencing factors, a house would not typically depreciate. So a depreciating house isn't normal, there is something external causing it (like the city is going broke, lost most jobs, or environmental factors make the area bad to live in, etc).
But if all is well, a house will not depreciate if it is lived in and maintained. A house can last centuries and inflation means building an equivalent house is always more expensive later than it was to build this one.
So it is not natural to expect a house to depreciate.
Exactly! And important to recognize the interest groups behind preventing progress on each.
Fixing the issue has been stymied for too long by each pointing at the others and saying "They're the real problem!" to justify inaction / rolling back fixes on their pet interest.
These aren't all issues though. Another contributing factor is that home/lands ownership can be inherited.
That's going to be the biggest contributer as time goes on (not right now though), as eventually all desired land will have been bought by what amounts to an oligarchy.
Honestly, land/homes should never be inheritable, and companies should never be able to own land altogether.
Not that this would ever happen. The status quo is too profitable for the land/home owners.
Eh, nah. But, there should be inheritance taxes set at a level which prevents the formation of a "landed gentry". Unfortunately, the issue has been demogogued to the point that middle-class people (who won't have anywhere near the assets to be taxed, as in not by an order of magnitude) treat the idea as anathema.
The middle class is afraid of taxes that are "for the rich" being extended to tax them. And not without some reason - income tax was sold as "only for the rich".
Immigration Numbers alone are Wörth nothing. How many people emigrated. How many people died? Tell me how the Population Numbers chnaged per years instead If Just looking at Immigration.
Well since Canada only has a slightly declining natural population rate, not many in comparison to births?
They added 500.000 people to their populace since the beginning of the year. The births are on top of that.
It‘s not true that immigration numbers are worth nothing. Immigration happens mostly in densely populated areas, thereby further increasing home prices.
Just shy of 1% of people die each year (~389,000 people) but the birth rate is just over 1%. That means all immigration counts towards the pop increase
Uh, it's not strange at all to expect a single cause when a system fails. Rather, there's often a chain of failure but with one thing at the head. You can look at how a car breaks down - you go from a single belt failing to a damage spread around.
Your list can be easily sorted this way (Notably, foreign nationals with money are just an instance of asset price inflation, in no way an instance of "nuance" or something).
I see the chain of causation thus - a flood of printed money has increased the value of all capital assets (some of that money appears as the money of foreigners and some of domestic investors, some as hedge funds, etc). Housing has been a focus and areas with restricted supply are where the money has been most attracted (it's spread more and more as the scale increases - a key point of the gp).
The issue is always lack of building. Higher interest rates just mask the problem and hand more money to rich people for no effort.
The problem is that the private housing production system responds to increased credit availability only at the margins and does not over produce. That’s largely because houses are still hand built and not really substitutable like a vehicle. You don’t generally have a choice of two houses on the same site.
However if you produce houses publicly then you can force private housing to compete outside the margins. At which point you get excess supply, as we see with cars and then house prices start to stabilise and even depreciate. At which point the “investment” hoards would start to liquidate.
We need the housing market to behave like the production car market, not the classic car market.
The fix is public policy producing housing in order to force a situation of excess supply.
Where I used to live, it cost $7k to get a plot of land ready to build on. Today, that cost is $70k and 6months to 1y to get past all the permits and paperwork.
And then having to deal with a governing body that doesn't understand how money works, and it is no surprise no one builds affordable houses anymore.
Or increase planning department funding with higher emphasis on throughput. It's the bureaucratic delay (nearly a year for approvals or revisions in many places) that causes much of the pain, not the regulations themselves.
About the biggest delay in Seattle permitting is the requirement to get a board of volunteer assholes to approve the visual appearance of the project, which is estimated to add an average of 8 months to the permitting process but is allowed to last for an indefinite period. The average total permitting time for these projects (over 35,000sq ft) is about 18 months.
Hopefully they will be thrown out soon. The really fun note is that these boards are almost entirely made up of architects who are getting the chance to single-handedly destroy a competitor’s work.
This sucks. In addition to adding so much time and costs to projects, visual approval boards are going to be culturally suffocating. Some of the most iconic structures in the world were widely considered to be eye sores when new, see: Eiffel Tower.
At minimum any sort of approval system needs to come with some sort of rubric to bypass it: "build it this way and it's approved automatically". It gives the approvers the same agency while prohibiting holding anything up, and it puts the onus on the approvers to say what they want to see instead of the builders finding a way to hit a nebulous target.
The better solution along these lines is to give them a week to render a decision (with stated reasoning that can be immediately appealed) or the application is automatically approved. Then they can request more resources if they don't have enough to be thorough but what they can't do is delay rendering a decision.
One of the ways government can help us by funding counter-cyclical building, keeping the sector afloat and preventing supply crunches when a recession ends.
The almost 7% that the US is currently at, vs the < 3% it was at back in 2021, 2.3x as much. It's true 7% isn't high compared to a peak of 18.5% in 1981, but neilwilson said higher, not high.
> You cannot realistically build enough so that the rents decrease.
I'm curious what makes you think this.
Suppose you built twice as many housing units as you had residents. Rents wouldn't decrease? Why not?
Or do you think that a sufficient amount of housing wouldn't fit? For reference, the San Francisco metro area has ~7.5M people in an area of ~3500 square miles. With housing at the population density of Manhattan, the number of people who could be housed in that area is approximately 250M people, i.e. three quarters of the entire US population. Obviously you wouldn't do this, but you could, so that can't be the constraint.
> when you build you just fuel the vicious cycle of people -> opportunities -> people
So long as a place is desirable to live, people will keep moving there. Obviously there's a logical limit to the argument- things get weird when you build more housing than there are people- but then so too do the logistical issues of sewer, water, electricity, and geology (some locations simply aren't economical to build high rise buildings on).
> So long as a place is desirable to live, people will keep moving there.
The underlying premise being that they're moving to this place from some other place. But that has an obvious solution: Build more housing everywhere. People can't increase the population of everywhere by moving from everywhere to everywhere.
It also implies that building it in one place still helps to reduce the cost somewhere else. If you make San Jose more attractive and people move from San Francisco to San Jose then you're reducing demand in San Francisco and lowering the prices there.
> Obviously there's a logical limit to the argument- things get weird when you build more housing than there are people- but then so too do the logistical issues of sewer, water, electricity, and geology (some locations simply aren't economical to build high rise buildings on).
The constraints at the physical limit are irrelevant because you don't need to get anywhere close to it. The point is that you could if you had to, not that you actually have to.
This incorrectly assumes that housing is expensive everywhere. It isn't. My house's mortgage payment wouldn't get me a studio apartment in San Francisco.
Not that it necessarily invalidates your comparison, but the home pricing run-up has resulted in many people who wouldn't be able to afford a mortgage on their own home if they had to re-qualify and buy at market price.
Far from assuming this, that is the entire premise. Housing isn't that expensive in Detroit. It's expensive in San Jose. So more housing needs to be built in San Jose. This won't remove people from Detroit because the people have already left Detroit (and those cities are quite far apart). It might remove people from San Francisco, but that's a good thing too.
> > You cannot realistically build enough so that the rents decrease.
> I'm curious what makes you think this.
> Suppose you built twice as many housing units as you had residents. Rents wouldn't decrease? Why not?
It seems entirely logical that rents should decrease.
Not the OP but I do always question this, despite sounding logical. Why? Because it has never worked that way in practice. Can you think of a city that built so much housing that rents became cheap (relative to local income)?
It's easy to say "built twice as many housing units as you had residents" and I agree if you could do that overnight, rents would free-fall. But in practice it would take years to build so much housing. Meanwhile, more and more people and jobs are moving in, attracted by all that new housing. The area becomes ever more popular and more expensive. So you end up with a city that is more vibrant, with a lot more people and a lot more jobs and economic activity. All good things, but rents don't go down, given all this success rents go up.
> Can you think of a city that built so much housing that rents became cheap (relative to local income)?
Most cities with a declining population. They built more housing than they needed, then people moved out, so now housing costs there are low.
It's hard to find other examples of places that have built too much housing, because there is no market incentive to do that. In practice the best you can do is prevent there from being too little.
But the areas with less restrictive zoning do have lower housing costs.
Houston metro, not very restrictive zoning:
Per capita income: $68,344
Median home price: $192,500
Riverside metro, California zoning:
Per capita income: $50,407
Median home price: $393,000
> Meanwhile, more and more people and jobs are moving in, attracted by all that new housing. The area becomes ever more popular and more expensive.
It isn't the housing that attracts them, it's jobs etc. The housing is then needed to give them somewhere to live, or you get California.
In some ways having more people will create more jobs and attract more people, but the idea that it's not possible to keep up with demand is just defeatism. You can't build a million new units overnight but neither do a million new people move in overnight, and even if they did, you would then be better off to build a million new units over five or ten years than to not do this.
Whereas the argument is simply that building the units should not be prohibited. You obviously don't need a law against it if your actual problem was people not doing it fast enough, right?
If we magic in twice as many housing units there would be calamity and chaos, because a bunch of building magically appeared, in violation of the understood laws of physics. I doubt money would be as much of an important concern in the ensuing chaos. So sure, if we look at a supply and demand graph, and double the supply, the intersection of the two moves, meaning the price goes down.
However, we don't live in a world of perfectly spherical cows and because we don't live in a world where we can double housing units overnight, realistically the reasons we're in this problem is because we can't build enough housing units. Given than, we're not going to be able to double the number of housing units, so realistically we can't build enough to lower rents.
The reasons we can't build enough housing aren't going away overnight, so even pretending they did, it would still take many months, if not years, before new housing units were being sold. Given the time it would take to double housing supply, the natural increase in demand over time because the population is increasing means it would rise to meet supply to keep rents at the current level. Lets say demand increases by 9% each year and it takes 10 years for double the housing stock to come online. Demand is basically doubled by the end of 10 years if that 9% remains constant.
With those problems not disappearing, new housing units are going to be slow to come online, so realistically, again, realistically, because we're not going to double the housing supply, so the best (and my bias is that of being in the SF Bay Area) we can hope for is for rents to increase at a slower rate. (Aka the derivative of rents goes down.)
I just don't seeing the rents themselves decreasing, relative to inflation of money, as well as inflation of the population.
> Suppose you built twice as many housing units as you had residents. Rents wouldn't decrease? Why not?
People make the same specious arguments about gpu production during mining booms etc. Surely producing more gpus will lower the price, or reduce the profit per gpu at least? Are you saying prices don’t fall with increased supply!?!? that’s a counterintuitive statement, Mr Bear!
it just also turns out to be a true one. Getting more people into the bubble etc, or building more hype around the bubble, often only drives the bubble higher even with increased supply. Macro and micro are different things and the forces can work very differently!
now, ponder the way we’ve turned housing into a bitcoin-style money machine full of people who never want the number to go down… yeah there actually is all sorts of counterintuitive and hazardous second-order effects involved in housing, why would you ever think there aren’t?
(The American housing market is basically the exact same kind of “deflationary asset” as bitcoin by design, in fact - if the system is built around the idea the number can never go down (can never be allowed to go down, in fact) that’s what you’ve got, regardless of any actual utility delivered in the process. We have turned housing into bitcoin instead of a place to live and that’s the overarching problem here.)
Maybe increasing the supply only increases the supply of luxury condos, which if they are all consumed by wealthy individuals might push housing prices upwards etc. Such activity could, similar to bitcoin, actually stimulate enough economic activity in an area itself to sustain upwards trajectory on pricing, or merely crowd everyone else out without prices actually dropping “on older condos” as everyone blithely handwaves. These effects are observable in real towns - Colorado mountain towns have a massive worker shortage yet no workers able to afford housing, so the area has been wracked with crippling labor shortages for multiple decades now! Markets are weird and inefficient in all kinds of exciting ways!
Basically economics 101 is barely sufficient for economics 101, and frankly every assertion you can pull from such content is somewhat incorrect and massively oversimplified, even one as simple as “prices will decline if production volume increases”. No, not always - and that’s not the only case I can think of where that simple, confident assertion is completely wrong, it’s not true of giffen goods either for example.
> Surely producing more gpus will lower the price, or reduce the profit per gpu at least?
But that is what happens. The issue with GPUs is that a) there are only a small number of companies that make them b) fab capacity has to be booked in advance, and c) they know it's a bubble, so they're not going to commit to buying a large amount of future fab capacity when it could pop at any time. So then they don't actually increase supply, and prices don't go down.
> Maybe increasing the supply only increases the supply of luxury condos, which if they are all consumed by wealthy individuals might push housing prices upwards etc.
Only in the sense that the average cost might increase because the average unit is now larger, not in the sense that the existing smaller units would cost more rather than less. After all, their occupants no longer have to outbid the wealthy individuals who have put their money into the new luxury units instead.
> Such activity could, similar to bitcoin, actually stimulate enough economic activity in an area itself to sustain upwards trajectory on pricing
The premise here is that if you make an area more attractive then more people may want to live there. But that's fine. Suppose building 10 units increases demand by 5 units. So if you need 10 more units, build 20 more units.
In some kind of hypothetical edge case or rare circumstance, building 10 units might increase demand by 11 units, but that is obviously not sustainable -- if you built 50 million units, there aren't 50 million people in the region to live in the city, so at some point it stops being true, if it even ever was.
> Markets are weird and inefficient in all kinds of exciting ways!
This isn't markets being weird. If prices are high then construction companies want that money, which they get by building new housing. Weirdness only occurs when regulations interfere with their natural market incentive.
Especially for nvidia, who have been badly burned by crypto bubbles going from 100->0 very rapidly in the past and ending up with massive oversupply of both used and new GPUs.
Especially given the AI people are buying dedicated business GPUs and not gaming ones like the crypto miners were, that's probably good news for gamers that nvidia haven't gone full bore AI only. If they were, it wouldn't make sense to spend fab time on a new series of gaming GPUs as they have leaked they're doing.
In the case of Nvidia, I don't think they see gaming GPU's and AI as being in direct competition with each other.
Continuing to also produce gaming products give a few advantages, besides simply to serve as something to fall back to if the AI boom turns out to be a bubble.
For instance:
- Having consumer GPU's out there has marketing effects and can also increase the population of developers who experiment with AI development.
- Consumer GPU's can be built with cheaper memory types (no HBM needed) and less efficient process technologies (like when the 30-series used Samsung's).
- Having an installed base of consumer GPU's out there allow AI companies to deploy AI products (inference) to edge devices.
- Related to the previous: In the future, AI technology, VR, gaming and TV/film may merge into a single entertainment class, with everything happening or being told in an interactive VR environment, complete with fully AI agents acting within. Having much of the processing power in the edge device may increase the quality of such experiences, and may cause consumers to be willing to significantly increase spending on such products.
>People make the same specious arguments about gpu production during mining booms etc. Surely producing more gpus will lower the price, or reduce the profit per gpu at least? Are you saying prices don’t fall with increased supply!?!? that’s a counterintuitive statement, Mr Bear!
That is not the argument. In your example, demand is increasing more than supply, so obviously prices would not fall.
Supply has to increase at a rate greater than demand (including higher property taxes to incentivize sellers to increase supply of properties for sale).
Yes, exactly. But sometimes a vast increase in supply actually induces additional demand by itself. Demand would not have increased by itself if you did not increase the supply, potentially even if the price increases.
Traffic lanes work this way, notoriously. It’s also fundamentally one of the mechanisms underlying Jevons Paradox.
Again, the practical example in real estate is Colorado mountain towns. Demand, supply, and prices all accelerate together, and this is particularly amplified because of the customer base in question not having any real price sensitivity etc, and then driving out the portions of the market which do have price sensitivity.
Like it or not, induced demand is a very real phenomenon, and in real estate and similar markets it observably does not always occur at a lesser price due to other positive feedback loops being induced. And you cannot “peel away” those effects separately - the price increase will not necessarily occur exogenously without the demand induction and vice versa.
Again, you’re trying to pick apart the “but that’s separate from the supply increase!” and unfortunately that’s not really severable. The demand increase wouldn’t have occurred without the supply increase. Jevons Paradox being real doesn’t mean gas prices will never go up, so to speak.
> But sometimes a vast increase in supply actually induces additional demand by itself.
Induced demand is a specious argument because the demand is not actually induced by the new construction, it's suppressed by its absence.
If you have traffic congestion, or a housing shortage, then people who would have used the road or moved to the city instead do something else. The normal amount of demand that would exist in a functioning system is suppressed.
If you then alleviate some of the shortfall, that demand comes back. But you haven't induced it, you've just stopped suppressing it through congestion or high prices.
The most important thing about this is that the amount of demand at the lower cost isn't infinite. It's just more than there is at the higher cost. What this means is that you thought you had a shortfall of 100,000 units but you actually had a shortfall of 250,000 units. What it doesn't mean is that you can't solve the problem by building more units -- you just have to build 250,000 rather than 100,000.
> Again, the practical example in real estate is Colorado mountain towns.
This is not a practical example because Colorado mountain towns are not fungible or reproducible. This applies to much of the western US that features amenities in very limited supply that cannot be increased, such as low humidity, tall mountains, surfing, and vast expanses of public land. So the US west will always be expensive, especially if you have an airport/Costco/Apple/Trader Joes nearby.
NYC has a similar dynamic, since no other US city will come close to having a comparable subway transit system.
But this would not apply to places that are relatively fungible and in greater supply, which include many metros in the southeast/midwest/northeast.
Induced demand is a thing, but the population of people is limited hence total demand is limited.
well, no real-estate is fungible, that's not an actual distinction between GP’s thesis and mine.
I don't think that's the fundamental/underlying dysfunction of the real-estate market, because the same induced-demand effects clearly exist in other areas. Again, things like Bitcoin pretty clearly demonstrate that supply can induce its own demand and then build a positive-feedback loop that would not have existed exogenously.
But regardless, it's equally true of the real-estate that both grandparent and I were talking about. If induced demand doesn't count because every real-estate parcel is a unique good, then you also can't ever compute a curve for price, because supply will never exceed n=1 either. Therefore the Law Of Supply and Law Of Demand do not exist in this universe and GP's assertions are still false.
I'm not sure that's a useful way to think about the world, clearly real-estate is at least somewhat fungible (people don't not buy an apartment because they lost a single bid) but if you want to use that model, grandparent's arguments are equally broken, for whatever value of broken you are asserting here.
The more useful analysis imo is that real estate is mostly actually not about real estate - it’s about community, economy, etc. And those are clearly things that are highly susceptible to induced demand. There is a near-infinite supply of beautiful mountain slopes, but that’s not really what people are buying homes in Vale or Breckenridge for. They are buying it for the social factors, which is effectively 100% pure induced demand in this context.
An interesting example of this phenomenon is the development of derelict neighborhoods. I used to live in an area which was re-developed from abandoned buildings and working class housing to a luxury playground. While supply was significantly increased, typical rents skyrocketed.
But what happened to prices in the areas the new residents moved from? Didn't it make them more affordable?
And what would happen to prices in the new area if you kept building, instead of stopping? Finding an inflection point in the curve and passing legislation forcing everybody to live inside it is no proof that there isn't a point higher on the curve where more supply reduces prices again.
It would seem to me that more supply = more construction + more maintenance + more taxes = more costs. And these costs must go somewhere. Obviously, they would fall under the landlords responsibility, but they probably would try to pass on these costs as much as possible.
Now this is where it gets iffy...
Vacancies don't earn revenue, and so obviously would be costly to landlords. If there is more supply than renters, landlords would be competing with each other for the renters (or risk having vacancy and the costs falling on them), so they would have to compete (such as by lowering rents) in order to attract the renters. Rents therefore decrease.
However...
Let's assume again that there is more supply than renters, but this time there is few landlords (for hyperbole one landlord). Competition for the renters is thus low, (in the case of one landlord - none), and so there is less need to lower rents to attract renters. In fact, in the case of one landlord, he can raise prices despite there being more apartment supply than renters, and have them pay for all the units, including the vacancies. Rents therefore increase, despite there being more supply.
> It would seem to me that more supply = more construction + more maintenance + more taxes = more costs.
More total costs divided by more total units is just the same cost per unit, if not lower because of economies of scale.
> Rents therefore increase, despite there being more supply.
If there is a monopoly landlord then rents will be at the monopoly rent whether you increase supply or not. Even then increasing supply could lower rents, because the monopoly landlord could capture more rents by charging $9000/month on twice as many units than $10,000/month on half as many units, and can't charge $10,000/month on twice as many units because there aren't enough tenants who can afford that.
Also, the premise here is that you're increasing supply. The monopoly landlord would have to outbid everybody else for the new supply or they'd lose their monopoly, and have to pay the monopoly price or else the new units would be cheaper than their existing ones. But then the construction companies would be receiving the monopoly price and become flush with cash to build even more housing until the monopoly landlord ran out of money.
There is a reason landlords collude through zoning boards: It's otherwise quite easy for someone new to enter the market.
> Also, the premise here is that you're increasing supply. The monopoly landlord would have to outbid everybody else for the new supply or they'd lose their monopoly, and have to pay the monopoly price or else the new units would be cheaper than their existing ones. But then the construction companies would be receiving the monopoly price and become flush with cash to build even more housing until the monopoly landlord ran out of money.
All of which presumes the risk here is all on the monopoly landlord, when this isn't the case. Even disregarding zoning, construction companies have to compete for bidders, and the monopoly landlord may not have to compete with bidders. Additionally, if insufficient housing is really a problem because more people and businesses are moving into the neighborhood, then the monopoly landlord isn't likely to have problems running out of money. If that isn't the case, and there is sufficient housing (or renters are struggling to afford rent), then they have market advantage over new entrants to the market in the appropriate pricing of bids. This increases risk and pressures margins for new entrants, limiting their ability to compete, which puts risk onto construction companies in bids. In other words: it is quite possible the new entrants or construction companies fold before the monopoly landlord does.
Again, it's all iffy, but, fact is, every new supply constructed comes with a cost, and it falls on someone, even if cost/unit goes down. The assumption that that cost won't fall on renters, isn't a certainty, nor is the assumption that renters will be the ones to benefit from a decreased cost/unit.
> Even disregarding zoning, construction companies have to compete for bidders, and the monopoly landlord may not have to compete with bidders.
What?
The premise is that there is a monopoly landlord but it's possible for others to create housing, e.g. the landlord owns all of the existing rental properties but anybody can buy an empty lot or single-family home and build a multi-unit building there instead.
Obviously if the monopoly landlord owns all of the land then you have a different problem, but that isn't even close to the case in any metro area in the US. (Though neither is anyone owning all of the rental properties for that matter.)
> Additionally, if insufficient housing is really a problem because more people and businesses are moving into the neighborhood, then the monopoly landlord isn't likely to have problems running out of money.
Won't they?
Suppose it costs $200,000 to build a new housing unit, but because of the existing monopoly they sell for $1,000,000, whether it's to the monopolist to sustain their monopoly or to someone else who would break it. To sustain the monopoly the monopolist has to remain the high bidder.
But now the construction company has a million dollars, and it still costs $200,000 to build a housing unit. So they build five new housing units, and now they have five million dollars. So they hire more guys and start training new apprentices because in the next round they're going to have 25 million dollars and build 125 new units which the landlord will still have to buy for a million dollars each.
It doesn't matter how much money the landlord has, the landlord is going to run out of money, because now the construction company has its own R&D division dedicated to construction automation it's only five more rounds before the landlord is paying the entire US GDP to the construction company.
> In other words: it is quite possible the new entrants or construction companies fold before the monopoly landlord does.
It costs them $200,000 to build something the monopoly landlord has to buy from them for a million dollars, or someone else will buy it from them for $999,999 which then happens again and again and destroys the monopoly.
> but anybody can buy an empty lot or single-family home and build a multi-unit building there instead
Anybody can buy and build? Yeah... only if they have the funds for it!
That's what you're ignoring: running out of funds isn't just a possibility for the monopoly landlord, it's possible for new entrants to the market, as well as the construction companies. The new entrants and construction companies are facing that risk, just as the monopoly landlord is.
For example, a new entrant to the market may have to go into debt to fund his bid or construction in order to compete with the landlord. The monopoly landlord on the other hand, might not have debt and instead has large capital reserves. Depending on the circumstances, it is even possible for the new entrant needing to rent ABOVE what the monopoly landlord already does to just to break even on costs that the monopoly landlord doesn't have (e.g. because of debt, and/or they overbid for the risk in the market, higher land costs, and other reasons). If done in a market where there is already more supply than renters, it would be a very risky venture for the new entrant.
And again, it's also entirely possible that there are 0 bidders showing up to compete with the monopoly landlord (due to shear lack of other participants willing to step in to compete). In which case, the monopoly landlord doesn't have just a monopoly on rents, but bids, and the construction companies would have tough time running the monopoly landlord out of business, no matter how much they build.
> It costs them $200,000 to build something the monopoly landlord has to buy from them for a million dollars, or someone else will buy it from them for $999,999 which then happens again and again and destroys the monopoly
Look... we can make a bunch of "what if" scenarios, but the scenario you made doesn't necessarily have to be the case (nor any of my examples). But, you had inquired about:
>> You cannot realistically build enough so that the rents decrease.
>I'm curious what makes you think this.
All I need is one possible example to demonstrate how that can be.
> Anybody can buy and build? Yeah... only if they have the funds for it!
The construction costs are much lower than property values, so construction would be highly profitable. Every wealthy person in the world would be lining up to invest in a hundred construction companies because they would be yielding a 400% year-over-year return until the monopoly is broken.
> All I need is one possible example to demonstrate how that can be.
You need a real example, not a contrived one. "What if the emperor of the world declared that rents have to stay high?" Then you don't have a market anymore and we're no longer talking about what happens in markets at all.
>The construction costs are much lower than property values, so construction would be highly profitable
You have purchase property to construct something on. So high property values works against your own argument.
> You need a real example, not a contrived one
No I don't, as I did not make the original argument you inquired on. That poster needs a real example, I however, only need to entertain how that possibly could be.
> You have purchase property to construct something on. So high property values works against your own argument.
The basis of construction is that you're converting fewer units into more, on the same piece of property. If a single-family home is a million dollars then you can buy one for a million dollars, build a 50-unit condo tower on the lot at a cost of $180,000/unit, apportion the original million dollars across 50 new units so the cost per unit is $20,000, and you're creating new units at a cost of $200,000/unit while selling into a market where a unit goes for a million dollars.
> I however, only need to entertain how that possibly could be.
But that's only interesting if it's something that might plausibly happen in practice. You can make anything possibly happen given an arbitrary set of unrealistic constraints.
Again, we can make up a bunch of made up scenario's, but you seem to want to ignore your own questions, which suggests you're not arguing in good faith. Let's revisit this question of yours:
>Suppose you built twice as many housing units as you had residents. Rents wouldn't decrease? Why not?
I gave you an example of how that would not happen: in an uncompetitive market such as a monopoly, additional supply doesn't impact price if it is simply hoarded. Now we could argue whether that's realistically to happen or not, but I see not why that is relevant to your question.
> in an uncompetitive market such as a monopoly, additional supply doesn't impact price if it is simply hoarded.
Let's consider whether this can even possibly happen. In order for a monopolist to own all the housing, there would have to be somebody with that much money.
The largest wealth fund in the world is China's, with a total value of around $2.75 trillion US dollars. This is the entire fund across all asset classes. Jeff Bezos with his paltry $200 billion can't even hold a candle to it. By contrast, the total value of US housing is north of $47 trillion dollars. So if you were to double the amount of housing in the US, no one in the entire world exists who could afford to buy all of it. Even the entire government of China isn't within an order of magnitude of it.
Ireland are a complete outlier, as the government incentivised itself not to deliver on housing as a result of IMF/Troika bullying. It set up National Asset Management Agency in 2009 to clean the property crash related debts from the balance sheets of the main Irish banks.
https://en.wikipedia.org/wiki/National_Asset_Management_Agen...
As per the usual government mouthpieces, it was a roaring success -
"NAMA's overall contribution of €10.5 billion to the State, comprising its projected surplus €4.9 billion and recoupment of the €5.6 billion of state aid it paid to the participating institutions, represents a significant outperformance relative to expectations at inception in late 2009"
https://www.rte.ie/news/business/2024/0306/1436280-nama-ibrc...
Sadly it has resulted in arguably the worst housing crisis in the EU. 68 per cent of people aged between 25-29 in Ireland still live at home. This figure is nearly 26 per cent higher than the EU average of 42.1.
NAMA is not in any way responsible for the housing crisis. Its purpose was not ever to fund or incentivize homebuilding and in any case, if I think back a decade, to a point where NAMA had been in operation for five years, there was no housing crisis. Neither NAMA nor the Troika ever discouraged housebuilding. Even if it had been a policy of theirs, there wouldn't have been any need: a sizeable proportion of the building companies here went bust after the 2008 crash and their employees had to emigrate or retrain. Furthermore, none of the local banks were in the financial position (or the mood) to fund property development.
The Irish housing crisis has very simply and abruptly come about because of the massive growth in population that has occurred here over the last nine or ten years. Due to the catastrophic implosion that occurred in the indigenous building industry after 2008, speedily ramping homebuilding up to a level that can keep pace with inward migration is essentially impossible.
We may eventually be able to build fifty thousand dwellings a year, but the shortages will persist until then. There are other factors that exacerbate the problem, most notably our sclerotic planning system, but the fundamental issue is the hollowing out of the private construction sector that occurred at the start of the last decade.
I never claimed its aim was to fund or incentivize housebuilding - in fact not only was NAMA emblematic of the overall government policy to restrict supply in order to re-bolster its portfolio of residential housing in deep negative-equity, it also played a significant role in worsening the housing crisis through its sale of assets to real estate investment trusts (REITs).
https://www.irishtimes.com/opinion/housing-crisis-why-nama-s...
Dr Rory Hearne's research from Maynooth sums it up brilliantly
"The housing crisis has also been caused by wider government policy from 2010 to encourage the entry of global investors and vulture funds (via various tax incentives, lobbying and fire sale of assets) into Ireland in order to offload toxic loans from NAMA and the banks. Rising house prices and rents post 2013 were also viewed positively and were promoted as an enticement to investors, while rising prices and rents were also viewed positively for rehabilitating the balance sheets of the banks, a core aim of all policy post 2008. The impact on the housing system was not considered an issue, despite myself and others highlighting the potential problems.
We can see now that these policies have contributed directly to the crisis with vulture funds hoarding land purchased from NAMA. Vulture funds are more likely to repossess houses in mortgage arrears and raise rents on buy to let properties (for example, Ireland's biggest landlord Ires Reit has raised rents substantially). The increase in investors purchasing homes means they are competing with potential home owners. We need to cool off this speculative inflow of investors into our housing system (investors bought up to a fifth of all homes in 2017) and extend the vacant sites tax to derelict property and increase it further to force either sale or development."
https://www.maynoothuniversity.ie/research/spotlight-researc...
At least in our city, another big thing that seems to be tied to cheap credit is the rise of house flipping. Fueled by cheap interest rates and low capital gains taxes, it's easy for a decently capitalized speculator to buy up older houses, do quick, cursory updates to the interior modeling, and then put them back on the market again at a significant markup.
This is a quadruple whammy for people who just want somewhere to live. It means people who only have budget for an older home need to be hasty with purchases so they can get ahead of the speculators. It directly reduces the supply of homes by extending the period in which they aren't occupied. It reduces the supply of more affordable housing by quickly converting it all into more expensive housing. And it robs people who might want to fix up their own home of the opportunity to choose their own decor.
It's not actually front running, but it still feels like a similar kind of problem.
> Total number of dwellings per thousand inhabitants, 2022 and 2011
The issue here is that demand shifts regionally over time. Dwelling units in Detroit don't satisfy demand in San Francisco. The result is that you continually have to increase supply in the places demand currently is. To keep prices flat, the number of units per thousand inhabitants has to increase over time, because the number of empty units in areas that have fallen out of demand will increase, but the high prices you're trying to avoid will be somewhere else.
> By definition, only investment properties can be underutilised - owner occupied homes are occupied!
This is also not true. You can have e.g. a 3-bedroom home with one occupant, even if the occupant is the owner. You can also certainly have underutilized land -- any single family home in an area where there is demand for more housing but zoning prevents it from being constructed on that piece of land. Because then you have that acre of land providing housing for one family when it could have been two or twenty.
> global asset price inflation driven by a broken financial system (i.e. a system being artificially pumped up with cheap credit).
This can only happen when supply is artificially constrained. If it cost $200,000 to add a housing unit and suddenly everyone can get a bigger loan than before, the instantaneous effect would be for housing prices to increase -- but once they're above the construction cost, construction occurs until they no longer are, i.e. until they fall back below $200,000.
At that point cheap credit might cause people to buy bigger houses, or use the loan money to buy things other than housing, but long-term you can't get the price of the same housing unit to increase above the cost of creating more of them, or supply would just increase until it fell back to that cost.
What you can do is increase the cost of creating supply, e.g. by restricting where it can be done, so that the cost of doing it goes up and with it the price of a given housing unit. Which is what has happened.
> Dwelling units in Detroit don't satisfy demand in San Francisco.
They do help though. Individuals need to realize they can’t afford to live in a place like California and have to give up that luxury if they want more affordable housing arrangements.
> They do help though. Individuals need to realize they can’t afford to live in a place like California and have to give up that luxury if they want more affordable housing arrangements.
But this is no solution at all because everybody knows that. People want to live in California because there are jobs in California and not in Mississippi. In Mississippi you pay $100 less for a house and then make $200 less in income, so who is going to do that?
To fix this you either need to make housing cost less in California or make jobs pay more in Mississippi. But if anybody knew how to do the second one they'd be doing it already, whereas we do know how to do the first one -- build more housing.
> In Mississippi you pay $100 less for a house and then make $200 less in income, so who is going to do that?
I understand your point but you’d have to validate this assumption.
You’re also not accounting for the costs to build more housing in California. Instead something you may want to look at is moving employers to Mississippi (or wherever).
To take your point to its logical conclusion everyone in America would move to California for the highest paying jobs relative to housing. But that would never work in the real world even if we had no restrictions on housing development.
When you look at the entire planet I think this becomes more pronounced. When you look at hyper-local environments as well (say Manhattan) it also demonstrates the point.
> I understand your point but you’d have to validate this assumption.
This is basically the efficient market hypothesis. If it was better to live in Mississippi then people would be doing it. Which allows housing in California to be overpriced by the amount that jobs in California pay better, before it starts happening. Which is bad, because then all of the people still in California are overpaying for housing.
> You’re also not accounting for the costs to build more housing in California.
Stop inhibiting it from being built and people will voluntarily pay to build it.
> Instead something you may want to look at is moving employers to Mississippi (or wherever).
But how? And is that even good? There are some benefits to having regions specialize in things.
> To take your point to its logical conclusion everyone in America would move to California for the highest paying jobs relative to housing.
The high paying jobs are for people in particular industries that are currently concentrated in California. Those people do live in California, or other similarly situated places like New York, rather than places like Mississippi or West Virginia.
The way you prevent everybody in that industry from wanting to move to the same city is by creating more housing in every city, so that it balances and the result is not net migration but rather just an increase in real wages at the expense of incumbent landlords.
They can, but I think it is missing the other component. Housing alone in a vacuum is not going to. Its not a case of, build houses and they will come. You also need other things that attract people. Jobs, activities, amenities, restaurants, etc. But yes, if building more dwellings in Detroit along with building other things people want make Detroit more attractive to someone who would have moved to San Francisco instead, it can alleviate housing demand in San Fransisco. Which is what some of these places should be gunning for.
I hear what you are saying, but I have an issue with saying something to the effect of 'you are too poor to live in this state'. I can kinda accept it at the city level, but saying 'just move to another state' is a little much. And I am saying this as a person, who moved few thousand miles, because that was my best opportunity at the time.
I agree with you, but we don’t need to focus this on only San Francisco. Other cities should be walkable and productive. Tech companies should relocate jobs from “status” cities to non-status cities across the country.
Some cities have untapped potential for more suburban sprawl. It's unlikely that any such place capable of attracting tech investment has enough commutable land to make a difference before succumbing to the same problems.
Every area that's a candidate for urban density and public or active transportation has people living in it already. Those people are not any different from San Franciscans in terms of their concerns about gentrification, traffic, parking, shadows, or change.
People join Goldman because it opens doors to other higher paying jobs.
If they don’t like it they can relocate to other financial services jobs in other locations, make less money, but have more discretionary income to spend on houses. Everyone can’t work at the most prestigious companies or life in the most prestigious zip codes.
Alternatively maybe Goldman should open tech and investment banking jobs in Poughkeepsie.
It’s a multitude of factors - limited supply in certain (most?) markets, “cheap money”, supply chain factors with certain common building materials, “corporate owned homes”.
One thing that has definitely not helped is hostile building codes that prevent density. In some cities in the US, building height is constrained by the nearest single family home. Then there’s the parking minimums for buildings that allocate more space for parking than for building space for people.
In Austin, TX (USA), you frequently see buildings with massive amounts of multilayered parking but a smaller fraction of the building used for residential or commercial space. Some “clever” developers have tried to disguise the parking structures as part of the building itself to hide this fact from public view.
Problem with America is that we think this is 1950 and we can scale by building more deadass suburbs, expensive regional highways, and further strain our limited pool of resources (water, sewage, electrical infra) to support suburban living without any consequences.
> Problem with America is that we think this is 1950 and we can scale by building more deadass suburbs, expensive regional highways, and further strain our limited pool of resources (water, sewage, electrical infra) to support suburban living without any consequences.
That doesn’t explain why it’s so hard and expensive to build things. We built those suburbs in the first place when we were much less rich as an economy. Indeed, we built all the water and sewage and electrical infrastructure all over the place too.
For one - all the easy places to build now have things in the way. Because they had things built there.
In the 50’s these were mostly empty range land, or timberland, or farms, or swamp, or whatever. One (or just a few) owners, low property values, little to no political/environmental resistance - relatively easy to buy someone out and develop.
Now? HOAs, tons of urban zoning rules and environmental rules, thousands of stakeholders for any sizable project.
Which also now means more stakeholders, more political resistance, more BS if you want to increase density there. Or building in not-so-easy places, like steep hillsides, more remote locations, etc.
Most of the existing folks don’t want change. In 1950, especially out west, there essentially were no ‘existing folks’. Even the natives had been wiped out.
And as an economy, we were used to building things at a war economy pace, and had reasons to continue to want to do so.
Now everyone would rather blame someone else (or ensure they get their sizable cut) rather than do anything about it.
As the boomers slowly die out and assets change hands, the momentum will change. Eventually. But we’re talking about a decade plus.
Then it will be the millennials turn to be the ‘bad guys’.
I recently visited a Baltic state and was impressed with a refurbished Soviet style brutalist building used as a hotel/ long term stay. It definitely seemed like a good solution.
While it is a multitude of factors, a bunch of those factors could be solved in an instant with a simple new regulation: a cap on how many homes a single entity/person can own, with steep taxes applied to every home above that cap. This would flood the market with homes as investors and corporate landlords moved to unload inventory and the prices would fall drastically. One could even have a cap that lowers over a long period of time to avoid shocking the market too hard with stock and keep current homeowners relatively stable, but ultimately, we can't keep letting corporations and wealthy people lock up perfectly usable housing behind private property nonsense. It's literally killing people.
Ultimately, these empty homes are investments and sometimes investments fail, and if they're big enough sometimes those failed investments cause people to lose a lot more than what they invested. That's literally the definition of investment risk. We can't keep doing status quo with this shit while the market continues to sail further and further out of reach of all the people who actually need what it's selling.
It seems to me that such a cap would help affordability for people who are currently renting homes that they can't afford to buy, but it's not going to make more homes available (and might slow down the rate of building due to the value of a newly built home being lower), so won't help anyone who isn't already in a home, or who already owns their home. (The latter of which it will hurt by decreasing their home value.)
Hard disagree. The market is complex but a massive driver of price hikes is investment companies and private owners coming in to an already hot market and making cash offers that are higher than any aspiring homeowner can match with loans, which are inherently tied to the stated assessment of the property. It's the largest factor in the absolutely ridiculous prices we're currently seeing, and also the most straightforward to address.
It won't fix everything, of course, but it will give us a much more normalized market to then attempt further reform on, rather than the current one which has more in common with a casino floor than a market.
I'm not really clear on what you're disagreeing on. I've acknowledged that prices could go down for people who are already in homes and who don't own them - that's the only portion of the market that your post and proposal addresses.
I'm not watching that clickbaity nonsense, but I will happily flip through the studies they cite as their sources, and doing so tells me several things.
For one, the city did not "ban housing investors," they banned some investors from purchasing a subset of homes, which is already weak, and only made weaker by the fact that the first study analyzes only a few months of market activity under that new restriction.
That being said, both studies do indeed conclude that a link cannot be established with certainty between the policy and house price reduction.
> Results from the difference in difference analysis show that the null hypothesis that the policy effect on home prices and days on the market is not significantly different from zero cannot be rejected. This means that it cannot be concluded that the buy-to-let restriction reduced housing prices or increased the days on the market.
However, this is one city, not in America notably where the problem is at it's worst, and they did not restrict lower income housing which is the most liable to be outbid on by private investors and rented, so I would hardly say these two studies by themselves utterly disprove anything in the way your dismissive comment implies they do. I don't think a partial restriction on a housing market in one metropolitan area out of the roughly ten-thousand currently on the planet is definitive proof.
It was such a small study that it favorably attracted outsiders that finally got a chance at owning, which gentrified the community. If this was more of a global policy, the study would have reveal massively different results.
Yes, at one time it was estimated that roughly 1/3 of Vancouver’s condo supply was vacant. So the city implemented an empty homes tax [0] and promptly raised $115,000,000 in tax revenue [1].
However, the tax is still far too low and it contains various loopholes that allows developers to hold condos empty for years until deep-pocketed buyers show up [2].
Vancouver isn’t unique. Housing is being traded like poker chips everywhere, often but not always by ultra-wealthy foreign nationals with zero regard for the local consequences.
Vancouver has obscene housing prices because the city and the politically connected spend tens of thousands of hours fighting against any new housing, and any new supply. Just look at what happened when the Squamish Nation decided they were going to build high rises on the land they were given: https://reason.com/volokh/2024/03/14/canadian-indigeneous-na...
The entire city and all of the NIMBYs cried about their "neighborhood character" and tried every legal trick they could to block the development: threatening to not connect it to utilities.
Vancouver literally has single family homes within half a mile of downtown! Clearly there is room for growth.
I think a lot of people still feel burned by the property crash in the 1990s, when you saw billboards on I5 driving up offering flats for $100k in 1997.
(Note I actually remember seeing those billboards and pointing it out to my gf at the time on how affordable Vancouver housing was, when she just spent $200k on a two bedroom in Issaquah)
3% vacancy tax producing $115M in revenue indicates roughly $3.8B in empty housing stock. Average condo prices in the CoV are roughly $2.1M, and so we can conclude there is likely around, or a little less than, 2000 empty condos hit by this tax.
That's not 1/3 of Vancouver's condo supply. Not by a long shot.
I'd guess that many of the unused condos are borderline condemned, and priced way below median. So, it's possible there are ~20,000 condos that need enough work to make repair uneconomical.
Still, it doesn't sound like that'd make much of a dent in Vancouver's housing supply. (Razing them and building higher density buildings might, though.)
IIRC, the oft-repeated and rarely-cited 1/3 vacancy is a misunderstood statistic which showed that 1/3 of condos in BC are investor-owned[0]; where an investment property is any property where the owner is not the occupant.
> Empty Homes Tax has reduced Vancouver's number of vacant homes by 36%
> After five years of the EHT being in effect, the total number of vacant properties within Vancouver has fallen to 1,398 homes or 36% fewer properties compared to 2017, when the tax regime first launched.
The statement about 36% is a relative percentage, not absolute percentage points. What happened is that ~2184 homes were vacant in 2017, and fell by 36% to 1398 in 2022.
It's saying that of the homes that were originally vacant, there is 36% less of that now. It is not saying that of all homes that exist, the vacancy rate decreased by 36%.
1. People have mortgages with very low interest rates. If they sell the home, they give up that cheap mortgage for a much higher mortgage interest rate with the next home. So, they stay.
2. The capital gains tax exemption of $500,000 has not risen with inflation. Selling your appreciated home will result in a large tax bill. It makes sense to sit in the home until you die, then it gets a basis boost when transferred to the heirs.
> 1. People have mortgages with very low interest rates. If they sell the home, they give up that cheap mortgage for a much higher mortgage interest rate with the next home. So, they stay.
This may be true only in the US. In Canada, for example, the maximum term a mortgage rate is fixed for is 5 years, after which you have to "renew" your mortgage and renegotiate the rate. So a lot of people are already being forced into higher interest mortgages here.
In the UK most owner-occupiers don't even have a mortgage. Of those that do, the majority took the mortgage out 15+ years ago when prices were far lower as a percentage of current wages, and thus higher interest rates don't really make it terrible.
The people who suffer are those who bought 5 years ago -- prices going down means negative equity so you can't sell and move to a cheaper place, and you reach the end of your 5 year fix.
That said, wages have increased a lot over the last 5 years, so higher rates aren't the end of the world. My mortgage increased last year by about 25%, but as average wages are up at least that much that's not devestating.
let us all remember the US is special. The government buys all mortgages -kind of- and that's what makes it possible and cheap to get 30 year fixed rates.
With regard to (1), I would have to agree, though I think this is only the case in the US?
For (2), absolutely. Tax advantages play their part (adding to investment demand relative to other investment options). Is it not also the case that interest payments on a residential mortgage are tax deductible in the US?
> Is it not also the case that interest payments on a residential mortgage are tax deductible in the US?
They are only if you itemize your taxes nowadays. During the Trump administration the tax law changed so that the vast majority of Americans now take the Standard Deduction. I received the mortgage interest deduction for about 15 years but haven’t received it for 5-6 years now.
Life Expectancy differs from human years lived, no? Got any numbers?
It seems difficult to believe all the medical treatment advances and insane amounts of money spent are having zero effect on postponing date of death (Or even the date of loss of ability to live independently including death).
Of 100,000 people born in a nation 80 years prior, how many still alive and living independently in that nation. Compare with the same metric in 2004. This is to net out immigration, which can be considered separately.
You don’t necessarily have to use “alive” as the metric though.
Do we know if older people are living unassisted in their homes longer? That’s all we really care about in this context. Or not even unassisted, but family members moving in and taking care too.
And they have below-expected dwellings per 1,000 residents. The "Total number of dwellings per thousand inhabitants, 2022 and 2011" suggests there are potential supply problems.
As someone with spare bedrooms, this itself is a problem of undersupply. If you can't be sure of being able to trade up when you need to (e.g. after starting a family) because house prices are up 100% in 10 years, then you're going to want to buy a house for all possible future needs, rather than current needs.
Add to that, things that might be desirable for other reasons, like garden space, rooms for use as offices, large kitchens, etc. all tend to scale with bedroom count too.
Also trading up comes with stamp duty, which is a damper on moving house unless you absolutely have to. Not only is your new house bigger and more expensive then anything you've ever bought before with that extra bedroom, plus the large expenses and hassle of moving in general, it's likely another £10k or more in stamp duty unless your new 3-bed is somewhere pretty cheap in the country. You don't get the first time buyer discount either, as you already have a house.
It's basically a tax that punishes labour mobility and not oversizing property.
Of course, you have to pay to heat and maintain that bigger house and pay higher council tax on it, so your saved stamp duty will probably be used after a few years, so in an ultra-rational way, it comes out in the wash, but it certainly doesn't feel like it at the time.
House ownership is higher among boomers, who are not going to have children anyway. Maybe for some people concern for future prices is a good reason, but certainly it is not for everyone. If there’s spare capacity enough for 20% more people and population growth forecast by 2050 is just one third of that, you cannot really talk about undersupply, when there’s enough accommodation to cover even future demand.
This assumes a level of fungibility that's just not there. Apart from the discussions elsewhere in this thread about why spare bedrooms might not be suitable to rent, even for those that are, splitting a family of 4 across 4 spare bedrooms in 4 different properties is suboptimal at best and legally child neglect at worst.
Equally, houses in Cornwall are of little use when the jobs are in London.
If you're talking about the study that everyone was talking about last week, that definition of "spare bedroom" includes a family of four with three bedrooms who gives each child their own bedroom when they could just have them sleep in the same room.
Just to conceptualize this, it's like every 5 bedroom house having 1 unused bedroom, perhaps being used as an office. Of course, most houses don't have 5 bedrooms, so in reality this is an extra bedroom for every 2 houses. Again, possibly being well used for another purpose. That doesn't seem like a lot of underutilization to me.
Guest bedroom is underutilized space unless you are a hotel or full-time Airbnb. How often people are staying there? A few months a year in total, if children spend the whole summer with grandparents and visit on rare holidays?
Is that a problem? It's a guest bedroom for every two houses. Something approaching the vast majority of all economic output goes toward things which are extraneous when measured against the historical median standard of living. But people like nice things. And a guest bedroom is a nice thing that some people like.
My home is listed as having more bedrooms than people.
They are not dead spaces, and they wouldn't somehow become more useful if I knocked a wall or two through to reduce the room count or reclassified them.
Are you purposefully being obtuse? The point is the difference between bedrooms, bedrooms used as offices, etc, and spare bedrooms. You can have more bedrooms than people and fully utilize the rooms not being used as bedrooms; the statistic is 20% of rooms are being underutilized ie spare bedrooms that don’t get used.
I'm not deliberately being obtuse - I simply don't believe that many people have literally empty rooms that they don't use.
I don't know anyone that has an empty room in their house, or one that no-one enters for weeks at a time, etc. Maybe the odd country estate is like that.
To a communist, the concept of having a guest room, office, storage room etc might feel like "underutilization".
If we apply that more generally, then the park outside my house is underutilized because the maximum capacity are not sunbathing in it at all times. I think that's a pretty silly use of language.
I absolutely know people with rooms that are literally unused. They aren’t empty, but it’s not a valuable use of space just because it means you don’t have to get rid of your last three couches and a desk that’s nice but not nice enough to use.
Who decides what "valuable use of space" is? Next we'll be taxing people whose living rooms are too big because they're not "valuable use of space" and could be split into another bedroom.
In life, some people look up, some people look down.
I'll never understand how someone could think that completely normal things like a house, garden, car, etc are somehow "too much". But they do. It's baffling.
I can understand, though not agree, with being angry with someone who owns say, tens of thousands of houses, millions of acres of land, and leaves it all empty.
But the idea that a house is underutilized if it doesn't have as many people as could possibly live in it? All I can say is, Hong Kong exists, Manhattan exists, feel free, I'm not in for that.
> I don't know anyone that has an empty room in their house, or one that no-one enters for weeks at a time, etc.
I don't have any statistics to hand but, based on experience, there are a lot of houses in the UK like this. Particularly among middle class couples in their 60s, whose children have left home. In fact, my parents have two spare bedrooms that are only used a handful of times each year.
Labeling formal logic as „communism“ won’t help (it‘s also kinda funny when people with certain cultural background use this word as synonym for some biblical evil, rather than for what it is). Guest room is not a necessity in most cases, it is convenience for which alternatives do exist and may even be more cost efficient/practical. Since it is not, downsizing your home in retirement to release space for bigger family will be more efficient than building everyone a house with a spare bedroom. It does not have to be expropriation of the property for this to happen, just a policy with good incentives (less maintenance effort, less taxes to pay, better investment opportunities etc).
> Since it is not, downsizing your home in retirement to release space for bigger family will be more efficient than building everyone a house with a spare bedroom.
This is true. The problem tends to be that people become settled in an area, and would prefer to downsize there so they don't need to uproot themselves. This is often very difficult, as there may not be availability in that area for a suitable smaller property.
The owner is living there and happy with the space or they would move. That is not underutilization. The solution to housing shortage is to build more housing, not to create “bedroom police” who go around and tell you’re not allowed to have your house because they will decide for you how much space you need.
Lol bedroom police. Yes, because that's exactly what we were discussing.
Or, you could, you know, make it more affordable to build smaller homes with fewer bedrooms so people actually have options when they become empty nesters.
The difference showing that Ireland, Canada, New Zealand, and the US had either the same, or more dwellings per thousand inhabitants in 2011 than 2022?
I don’t know if I’m just misunderstanding your point, or misreading the material, but that is also not an example of underutilization.
My point is that the relatively static proportion of people to dwellings in those countries over that period suggests that a supply shortage is not sufficient to explain the accommodation crisis.
What I am suggesting is that incentives to invest in property have led to an increase in the number of properties that are not being used as a primary residence (i.e. are underutilised) and that that is the most significant factor causing the shortage of available homes.
I see now through a US & REIT centric bias, I think.
Given a market like NZ’s size, growth/prices, and attractiveness I can see demand like speculation, STRs, and 2nd homes possibly affecting utilization more than supply.
Given US markets that are larger, cheaper, and less attractive where investment properties fueled on cheap credit were rented out or to a much smaller degree flipped, it’s truly, significantly more difficult to imagine vs simple lack of supply (especially given historically low US rental & homeowner vacancy rates).
I think you’d want to look at household size - 4 five person households need fewer houses than 10 two person households, even though the population is the same.
That's a good point and I have done that in the past (for NZ). Household size has remained steady over roughly the same period (decade up to 2018 where census data is available). This doesn't account for a possible significant change in household size distribution of course (e.g. the possibility of many more elderly living alone while young people increasingly live in shared housing).
> This is a problem of underutilisation in my view. Too many properties are being used as investments and not as a primary residence.
I hear this argument a lot and always wonder if the causal direction is flipped: people use housing as an investment because it’s scarce, not that it’s scarce because it’s used as an investment. If there weren’t so many restrictions on building, the supply would grow to meet the demand and parking your money in property wouldn’t be such a hot idea.
Tbf many of those restrictions are there for good city planning reasons - and important to keeping a city livable and not outgrowing its infrastructure. But the cost of enforcing those is quite often a ridiculously bogged-down planning department that often takes months or a year to process applications and revisions, significantly inflating the risk and thus costs of construction, and relegating it to big firms that can handle all of the legalese and scheduling turmoil.
Now, why dont governments better fund those departments and emphasize faster throughput? Well, let's ask their main constituents - who are largely homeowners and companies in the industry - whether they'd like to dedicate more taxes to a service that would speed up construction and drop their housing prices.
> Tbf many of those restrictions are there for good city planning reasons - and important to keeping a city livable and not outgrowing its infrastructure.
I don't believe this to be true. If someone wants to build a single multi-story building in an area, no additional infrastructure should be required. It's one building, the existing infrastructure shouldn't have so little slack in it that this could be a problem.
If lots of people are building lots of buildings, the city government can notice this taking place and while the buildings are going up they expand the capacity of the infrastructure in that area. It's no excuse to refuse the construction, it's just something the city has to do as a result, because that is a city's job.
Their job is not to decide what can be built, it's to allocate the property tax on the new buildings to paying for the things the new buildings need.
Nobody is talking about building a single multidwelling building. But you can't make rules just for a single building (what are you going to do for the next building... And the next). There are plenty of examples where local governments have removed lots of restrictions and essentially created Airbnb wastelands, a good example is the southbank in Melbourne. The last time I looked into it (admittedly some years ago), they had a single primary school and one post office for ~50000 people IIRC. It was definitely high density housing, but no infrastructure that makes it liveable except for running Airbnb and rich people who want a holiday apartment close to the casino.
> Nobody is talking about building a single multidwelling building.
Then why is that the level at which the decision is made?
> But you can't make rules just for a single building (what are you going to do for the next building... And the next).
The point is that you can respond to demand rather than legislating it. If four high rises are going up in a neighborhood, the city officials can notice this and use the new tax revenue to build infrastructure those new buildings need, and then go on the MLS and find a local property for sale in the area which is in a good location to turn into a park etc. None of this requires restricting the construction.
> There are plenty of examples where local governments have removed lots of restrictions and essentially created Airbnb wastelands
This is really the opposite problem. If you have restrictions that heavily constrain where you can put short-term rentals, and then you set aside an area where they're permitted, of course that area is going to be saturated with them -- you're still prohibiting them from being anywhere else, so they all end up there.
This is the fatal flaw in the zoning board. "You can build anything here" should be the default, and then if you want to set aside 20% of the land in the area to be exclusive for e.g. single-family homes for the people who want that, that's fine. But we do the opposite -- 80+% of the land is required to be single-family homes and not even the entire remainder is allowed to be multi-unit buildings.
Monocultures are shitholes. Nobody wants to live in a place which is exclusively short-term rentals, or exclusively office towers. It even sucks to live in a place which is exclusively single-family homes, because then you're isolated from the community and have to spend half your day sitting in traffic to get anywhere.
What you need is the majority of the land area to be mixed-use zoning. Which is the opposite of having an area set aside which is predominantly short-term rentals.
Ya, and housing used as an investment doesn’t need schools or any real infrastructure, so we could basically build them anywhere. Planning is only needed if people are going to live in them.
Ireland leading up to 2008 basically ended up trying that, with ghost estates that then got knocked. China has also basically done this.
It obviously doesn't work as housing, but even its value as an investment is at least nominally tied to the fact that someone, somewhere could value it as a house. Otherwise, eventually it's found the emperor has no clothes and it comes tumbling down.
I had a wonderful idea for this. The trick is to put some truly bizarre requirements on the constructions that when done in volume adds up to an extraordinary place to visit.
For example a single floor dwelling that is the socle of a giant statue depicting a person appropriate for that street. Each must come with a plaque describing who they are and a qr code to a website about them that lives up to some high standard. Think what you will, it is considerably more interesting than "buying" a picture on some blockchain.
People able to buy lots of properties as investment won't allow an increased supply as it ruins their investment. Restrictions on building is just a service one can buy.
Lack of building can play a part but even the interests that want housing as investment naturally want to limit supply.
The main thing is that the US has been printing dollars for several decades - primarily to deal with or prevent periodic financial crises. Ben Bernacke's "Helicopter Dollars" speech was infamous but nothing has changed but the (increasing) scale (and, yes, all the central banks of the developed world are doing it too).
Effectively, the modern order has come to involve an endless hand-out to those who already have money while "market discipline" prevails against those who don't. Of course, this has long term problems aside from its immorality.
>Ask yourself, do Canada, Australia, New Zealand, the US, Britain, Ireland, etc, all have the same inability to build or is there maybe some other common cause?
Do they all have zoning, urban planning requirements, and restrictions on what landowners can do with their property? Yes?
This isn't a complicated issue, this is 100% a self inflicted "problem" that can be solved with the stroke of a pen.
Pro-tip: abolish all restrictions on what landowners can build in the property. No licensing requirements, no filings, no nothing.
The sum total requirement for someone to build something anywhere should be them asking themselves "do I have permission from the landowner to do this?" And getting to work.
That's not a winning formula at all. When my neighbor's DIY grow farm in a shed burns down, the fire spreads and affects me. When my neighbor decides to open a diesel engine repair business, the noise and fumes affect me. Most people don't want that.
Segregating housing from industry makes sense, and is what's done everywhere, but segregating housing from services, like coffee shops or day-care, is a very uncommon thing globally.
Where I am there’s been a huge increase in houses being bought for cash by equity hedge funds, like 25% of houses going on the market. Nearby Kushner bought hundreds of houses in Baltimore. The impact of this is that house prices soared because no one can compete against a multi-billion-dollar company to buy a house, which artificially pushes up prices.
Secondly, I’ve done a lot of engagement with policy makers and builders and you are not going to get affordable housing being built if you relax zoning laws (which I’m in favor of across the whole city). Instead, what is supposed to happen is that the older properties become less attractive and hence their prices (or rent) are supposed to fall. That’s the theory anyhow. Anyway, the builders all say there is no financial incentive for them to build affordable housing, they make so much more on luxury buildings. You’ll only get it if the local government does it themselves and most in America are reluctant to get involved (it’s why they like saying 15% of a complex should be ‘affordable’ because they don’t have to do anything about it, the builders do, and it’s too small an impact to fix the issue).
> Anyway, the builders all say there is no financial incentive for them to build affordable housing, they make so much more on luxury buildings.
This is only really a problem insofar as building luxury homes reduces the throughput of new supply because they take longer to build than affordable housing. In terms of overall market effect, as long as you're not allowing places to sit empty, it doesn't particularly matter if you're adding new homes at the top or the bottom of the market.
> Where I am there’s been a huge increase in houses being bought for cash by equity hedge funds, like 25% of houses going on the market.
Is this increase in absolute number of sales, or increase in the percentage? Because, if the house affordability due to high interest rates goes down, one of the only buyers with money that remain are hedge funds. So, in the past you had 1000 homes selling per year, 100 of those going to hedge funds, now you have 400 total sales, with 100 going to hedge funds. The relative percentage of houses bought by hedge funds increases from 10% to 25%, even though the absolute number remains flat.
It seems to be an increase in both absolute number of sales and increase in the percentage. Some signs indicate hedge funds purchasing consumer real estate (houses/apartments) is working towards an all time high thanks to the bottom falling out of the commercial real estate market in 2020 and it being far less reliable an investment post remote-work culture. A lot of commercial real estate investors have flipped to consumer real estate in a way they hadn't before. It may be a while before a new equilibrium happens.
(This is where investments in risky things like flipping various cities' "downtown' commercial real estate into additional consumer real estate are starting to look really interesting, especially in some of the cities that had massive corporate tower investments just pre-2020. It's also where you see some cities directly and indirectly pressuring major corporations into RTO policies in the hopes of it releasing some of the pressure on the consumer real estate market in those cities by encouraging hedge funds to reinvest in corporate real estate. It's hard not to feel those pressures are somewhat futile long term, but to feel sympathy for why they seem like necessary short term sandbagging projects.)
It's true that the current large developers will never meet the need for affordable housing, but that's where small local developers can fill in assuming zoning and regulation allows them to. All of the small projects that are profitable but too tiny to justify the time of large developers can be picked up by small, local developers who have a vested interest in incrementally improving a place.
All those countries killed their manufacturing and offshored it over the last 40 years. Factories and manufacturing meant good jobs located far away from major cities, and towns/communities built up around those jobs.
Now all the jobs are located in large cities so housing prices there are going through the roof. If you are young you almost have to move to a major city if you want to start your career. Meanwhile there are "ghost cities" and other dwindling towns where you can buy a house for pennies.
> look at the numbers for each of the countries I mentioned in the first chart
The number is irrelevant - people want to live in desirable areas where's there are jobs, and are constrained as such. Rebuilding high density in towns and cities is an issue, as well as maintaining decent services ( hospitals, roads, public transport, post office etc).
You say that houses are being treated as investments, that's why these crises happen; but then why are building materials and tradespeople also at sky-high prices (in Ireland)? Is it all competition on investment building?
> why are building materials and tradespeople also at sky-high prices (in Ireland)?
Similar issue in NZ. Cost of building materials was getting extreme. There's an argument to be made that these are linked to profitability of building and so increased during the speculative boom. Helped along by the fact that many suppliers are monopolies. Cost of building materials has however started falling considerably since the property market crashed here. Likewise the cost of labour and building quotes overall.
The price of a home in an area is strongly related to the aggregate income divided by the total number of housing units. Even if the numerator is significantly affected by the artificial credit pumping you mention, that does not mean changing the denominator wouldn't help.
In Swedish big cities, prices are also ridiculously high despite investment in properties being much harder than in Australia or the US due to some strict rules regarding renting out. I live here now but lived in Australia before. Prices in Stockholm are more or less on par with Perth or Brisbane I think (i.e. crazy, but not at the completely off-the-charts Sydney prices, at least... when I lived in Sydney like 20 years ago I remember you already needed half-a-million to get just an average house... today it's like well over a million to get anything at all).
Can confirm that as interest rates went up, people just can't afford the enormous loans anymore and prices of houses (and apartments to a lesser extent as they're a bit cheaper overall) fell, up to 20% at the worst, I believe. But as soon as interest rates are expected to go down, prices already shoot up again (even while interests are still high as people and banks estimate how much they may expect to spend in the near future).
Unfortunately Perth and Brisbane have climbed a great deal closer to Sydney now. The gap in terms of cost to buy or rent is narrowing, at current rates we're looking at the gap closing entirely in the next 5-10 years.
Immigration. It's not that immigrants buy up the houses (opposites, we tend to live cramped up in flat shares). It's that they support landlords profits (with cream on top of not knowing your rights) and have overall pressure on market.
Building should at least match immigration/population growth.
Also not building dense enough. Kiwis always tout "I wouldn't wanna live in a house without a backyard" - well I don't wanna rent forever either. Given choice of no housing and shitty housing I choose shitty housing.
I think people have the causality the wrong way around, the immigration is to prop up the economy. Price is set at the margins and even relatively small amounts of new immigration keeps pushing the margins up. Any successful attempts to fix the housing market, by reducing immigration or any other means, will implode the Ponzi economy. Absolutely no politician is going going to do that - you might as well hand them a grenade at ask them to pull the pin.
It's my view that this implosion will happen, just later, with less control and with more devastation.
It's one of many factors. NZ already becoming unattractive partly due to expensive housing and somewhat low wages - immigration is slowing down. Also new law allows import of foreign-certified building materials so that might help too.
Thing with politicians is (depending on party) something like 90-100% of them are property owners and 30-70% are also property investors [0] so I just can't see how they would be willingly taking a haircut.
(Cherry on top - most of them couldn't even afford to buy their homes now on MP salary)
The underappreciated problem with immigration is that it allows advanced economies to cover up issues that make raising kids difficult. A shrinking population crashes the housing market. A growing population powered by immigration rather than birth rate props up the housing market.
The irony being that (from a UK perspective at least), in the absence of immigration, childcare and senior care would be even less affordable than they are.
Somebody has to do this work: it's essential, as well as hard, unglamorous and badly paid, and societies must take their pick from:
- Family members, almost always women, who have to give up paid work.
- Paid labour from less educated parts of their existing/indigenous population.
- Migrant labour, whether temporary or permanent.
The great mistake of Brexit is that the UK has now replaced temporary migrant labour (Poles and so on, who'd mostly come here in their early/mid 20s, stay for ten/fifteen years and then go home to raise families and be closer to their elders) with permanent migrants from much poorer countries who won't want to go back if they can at all avoid it.
It's not my sentiment, but I do see it why it's a big part of culture and life here.
Flats tend to be horrible here. Townhouses are ok and are growing, albeit too slow and too far from public transport.
There was some news yesterday about new row of townhouses around Auckland being classified as rural and unable to receive mail (rural mailboxes must be grouped in one spot, not on each house).
> Ask yourself, do Canada, Australia, New Zealand, the US, Britain, Ireland, etc, all have the same inability to build...
Why wouldn't they? They are relatively similar countries in many ways, any problem that one has could easily be replicated in others. For example I imagine zoning laws are all somewhat similar, favoring suburbs and strictly zoned areas vs market driven mixed use areas.
I also suspect they all have significant migration, high labor costs and high building standards.
I agree. Inflating the money supply (for example, via cheap credit policies) distorts the economy and creates malinvestment. Unadulterated consumer demand is eclipsed by the artificial demand created by the newly created money. The new money isn't distributed uniformly and immediately in an economy. It starts out somewhere. So, in this case, one of the distortions is in the housing market.
Working people are perfectly willing to purchase homes they can afford. In fact, it is safe to assume that it is one of their top priorities. If affordable housing isn't being created, something is amiss. See above!
I think it is a question about the area of central locations grows much slower than the amount of people who wants to live in a central location.
Dubai is expanding like there is no tomorrow, and the price of down town and marina just keeps increasing, regardless of how many new high rise areas the emirate undertakes.
China has hundreds of literally empty cities, yet people are being priced out of living in Beijing.
The question is not about a lack of new buildings, or under utilization of current buildings but simply you cannot built _dense_ enough to follow demand.
The empty cities are interesting. People don’t want to live there because there are no jobs and no services. There are no jobs or services because there are no people. Sounds like an opportunity for the government to step in and create employment, e.g. move a big military contractor there to “bootstrap” the city.
Several countries in Asia are/were not only making new cities, but new Capital cities (Malaysia, Egypt, Indonesia, etc) and they have mixed results. Old city pull and inertia is so strong.
> Ask yourself, do Canada, Australia, New Zealand, the US, Britain, Ireland, etc, all have the same inability to build
Yes, everybody does. The population exploded everywhere, and rent-seekers enriching themselves out of land price increases popped out everywhere. All at about the same time.
Other strategies to discourage the usage of properties as investment have existed at various times ... Things like squatters rights laws have been deployed for this purpose in some parts of the world at various times (Netherlands for example had quite large movements where the youth would occupy empty homes owned by rich investors in order to take advantage of favorable (to the squatters) laws -- which discouraged folks from sitting on unoccupied investment properties home at least at some historical points in time
> In my view this is symptomatic of a more fundamental issue - global asset price inflation driven by a broken financial system (i.e. a system being artificially pumped up with cheap credit).
Maybe? 2008 happened. At that point, there was a policy choice: allow a deflationary collapse, or prevent it. If we allowed it, there would be a lot of ruined businesses and ruined people. There would have been a lot of people who lost their houses. Instead, we chose to prevent the collapse, and we wound up here, where people can't afford houses. That's almost the same place, except that 1) the numbers are higher, and 2) it happened gradually rather than in a shock. That is, people didn't lose their existing houses, but new families can't buy their first homes.
So is this better or worse? My impression is that, for all the problems, it's still better than a collapse in 2008 would have been. But given the situation in 2008, some damage was inevitable. This amount of damage 16 years later is actually pretty good, considering.
I agree that there's more than one factor, but not building enough is absolutely a major one. There's tons of data to back this up.
Another one is the hyper-concentration of high paying jobs and other opportunities in a small number of cities.
There's always been a power law distribution for cities and opportunity with larger cities tending to win out, but since roughly 2000 it seems like it's greatly intensified. I've asked this question to many older people and have looked up some stats and both back up the sense that this has gotten significantly worse in the last 2-3 decades.
In the USA if you are not in one of maybe six cities you are second-tier, and it's much harder to find high paying and upwardly mobile jobs. The very top tier cities of SF Bay, NYC, Seattle, and LA are of course fantastically expensive.
Telework helps a bit but generally you still have to do time in one of those cities to establish yourself enough to get good high-paying telework jobs. Telework is often a senior-level thing or something you need a strong network to land.
I agree higher rates are likely to help with prices, and that low rates drove asset price inflation, and purchases of non-primary residences, as well as rental properties, but I also think there's also an element of nobody being willing to stomach a loss leaving supply constrained. And it seems like maybe that can only be loosed by more supply coming from somewhere, while in the meantime, it means prices only get higher.
One thing that's surprised me is that I'd expected this situation to lead to building being relatively cheap compared to buying. But land + labor + materials price increases seem to have left building less competitive in most areas meaning new supply can't actually undercut the market much, if at all. Or seemingly won't. It really feels like there's nothing that can give at the moment, like it's some kind of doom loop.
IMO the main issue are zoning laws and urbanization. You can find lots of articles about rural areas, small villages elsentially dieing out, while large cities just (try) to grow larger.
Also there is a shift from people living in families to living single or just with one person which is more inefficient and requires more space.
We're definitely in some kind of next stage of urbanization where people are moving into the big cities even from smaller ones. It's very noticeable in the former Soviet states, but I believe it also happens elsewhere.
I've been looking at getting a house built, and that starts at about €200k*, but the land in Berlin is at least another €200k on top of that (and usually more).
If I was willing to live in the back end of nowhere, I can get the land for almost nothing, halving the total cost.
But then I'd be living in the back end of nowhere, and turning that into an interesting town (let alone city) would need some very expensive infrastructure to be built, just to support that many residents.
Make the infrastructure cheap, and you can build New Towns.
Most of the developed world seems to struggle with infrastructure during my lifetime, be it major roads, railways, sewage, electricity networks, or anything else.
* list price €100k but that's a cheat as it's the outer shell only, no plumbing or interior plastering
I think the rule of thumb is that you should not buy at more than 4x household income.
I know that the salaries in Berlin are in the lower end, but 100k EUR a year in household income seems like a reasonable expectation for people wanting to live in attractive areas.
But even if the median income were €100k, the €400k level was around the cheapest I could find that you could actually live in and wasn't a weekend house, or a reverse-mortgage you'd only get to use when the seller died, or a building opportunity with no land, or they're rented out and as Germany has fantastic protection for tenants you are not going to move in etc.
If the standard is 4 years, even then you'd be excluding 50% of the households from ownership at €100k/year and €400k minimum prices. As is, €43k/year is closer to 9.5 years income still not being enough for 50% of households.
> not everyone gets to be on software engineering pay scales
Not everyone gets to live the most popular places.
> The median pre-tax household income in Berlin is €43,572
Seems like Germany can not afford to not allow mothers into the work place.
Edit: At a median household income of EUR 43k the issue is not housing prices. in Denmark the median salary (not household) is 73.000 EUR a year. I think Germans need to negotiate their salaries.
> Not everyone gets to live the most popular places.
Definitionally, everyone who actually lives in a place must be able to afford that place. If people suddenly can't, they leave, it's now less popular.
Right now, it's rent controls which allow most Berliners to live in Berlin. Without that, many would be forced to leave, making the city less popular, and thus less expensive.
(Perverse incentives, yay!)
> Edit: At a median household income of EUR 43k the issue is not housing prices. in Denmark the median salary (not household) is 73.000 EUR a year. I think Germans need to negotiate their salaries.
As a salaried person one has a responsibility of putting and upwards pressure on the salary (with the help from unions) - companies have the responsibility of making their ventures profitable.
Anecdotally, Tesla Berlin pays in the range 50-60k/year in Berlin (for SWE roles) - I am quite sure they are able to pay muuuch more.
So either are workers in Berlin less than half as effective as Tesla's other offices or Berliners accepts a much lower pay.
GDP is a number - If the Berliner kebab was priced at 12 EUR instead of 6 EUR, then they could afford paying double the salary - The rest of the world is about to add zeroes to everything. Why wouldn't Berlin?
My thinking is that this is Europeans focussing on "budget rather than profitting".
> If the Berliner kebab was priced at 12 EUR instead of 6 EUR, then they could afford paying double the salary
And then the houses and the land also double, or house builder's salaries real term wages halve and the workers leave and stop building stuff. Land prices are harder to draw conclusions about, but the owners have to want to sell at the price being asked, which is ultimately what the market will bear.
> The rest of the world is about to add zeroes to everything. Why wouldn't Berlin?
At a median household income of EUR 43k there is definitely not a housing cost crisis in the Berlin area - there is a stagnant wage crisis.
This is roughly 1/3 of the Danish household income. If I were German I would riot for higher salaries - we simply can not accept such disparities in a modern world with movement of labor and remote work.
It seems like German fear is what forces the ECB to lower the interest rates causing severe asset price inflation in Denmark.
I think a lot of it is this. A lot of our grandparents literally built their own houses, and while that's probably easier than ever nowadays, it doesn't solve the infrastructure problem. I won't save much money doing that if getting a road / electricity / water / Internet / sewer to the property will cost as much as (or more than) the house itself.
IMO it's yet another network effect caused by fewer people being willing to work in these kinds of fields, and a decreasing birth rate. Infrastructure inherently requires maintenance, so as it increases, so does the amount of people required to maintain it. Yet we have fewer and fewer people to do it, so adding new stuff just becomes unreasonably expensive.
RE "problem is caused by a lack of building" In my opinion there needs to be more houses built so the vacancy rate rises from the present extremely low ( round 1%) to the long term average of around 3% house vacancy rate. This 3% vacancy rate is recognized as a fair equilibrium between renters and property owners. Furthermore such a rate helps stop property owners raising rents as much , as happened in recent years. This is in Australia, do not know about other countries. Alos with record low interest rates, my opinion is lots people over commixed to loans, without proper consideration if they could afford the loan when interest rates rise to the long term average of around 7%
The worlds population has doubled since 1974. In every country listed the rate of new building construction has stayed roughly constant or declined since then. You can explain this phenomenon with an Econ 101 supply and demand curve without need for any further elaboration.
That's contradicted by the provided OECD link that shows that in many countries the housing stock per capita has stayed the same or slightly increased since 2011. Yet prices continue to increase.
But people per household has plummeted. Going from 6 to 4 to 2, see page 9. Combined with population pyramid flattening out, that is a lot of increase in demand for housing, until the population pyramid is upside down and more people are dying rather than being added to demand for housing.
Are the houses equal though? If houses 20 years ago averaged 1500 square feet and 10 years ago averaged 2000 square feet it would increase the price even if they stock increased.
do Canada, Australia, New Zealand, the US, Britain, Ireland?
Yes they do. This is exactly the problem. Specifically in big cities. Zoning and nimby-ism holds back building. Even Toronto which builds a lot doesn’t build enough housing units to keep up with growth. And they only build as much as they do because the province is constantly overruling the city.
Every western major city is blocking building on any meaningful scale. This leaves cities at effectively net 0 increase in supply. In major US cities, new builds are more expensive to own due to changing property taxes. And California is just a huge F U to young people by making new owners have to pay higher taxes than the old ones.
> Ask yourself, do Canada, Australia, New Zealand, the US, Britain, Ireland, etc, all have the same inability to build or is there maybe some other common cause?
Yes! Yes they all do! None of them are producing housing at anywhere near the rate required.
The statistics are skewed because the demand varies a lot between different regions .e.g there are towns in Italy selling houses for $1 (well sort off...) that doesn't mean that housing is affordable in Milan or other major cities. Same Applies to US, Canada, Ireland etc.
Prices are increasing for a few reasons, some you named and others I think you underweighted:
1. Asset price inflation generally
2. Population growth (incl. immigration)
3. A lack of building (housing stock is inflexible, e.g.: if we need more two beds, then no number of 1 beds or 4+ beds is sufficient, really).
4. We are changing our ways of living (see 3), that’s partly social norms and partly demographic
5. Working from home changed the market. If the economic hub of your country is priced well above the national average excl. the hub, then WFH will see prices move towards the average incl. the hub, if not higher.
NZ is maybe a poor example, as we do not have capital gains taxes on houses (or most things), and do tax foreign investments (via a ~1.5% annual wealth tax, so house flipping is tax-free money)
This is true, but I wouldn't underestimate the tax advantages property investment has relative to other investments in many countries.
Take Australia for example. People in NZ often say a CGT won't help because AU has one and it doesn't seem to make a difference. What they forget is that there is 50% discount on CGT there, so the relative advantage of property investment remains. Also negative gearing.
In the US I believe there are two obvious advantages given to residential property investment - 30 year fixed mortgages and tax deductions on interest payments.
I think it wouldn't be too much of a stretch to guess that all of those countries I mentioned earlier have different reasons for residential property investment being favoured relative to more productive investments.
> Housing is just where the rubber hits the road and regular lives are directly affected.
The reason why we didn't see rampant consumer product inflation in the wave of irresponsible money-printing meant to soften the 2008 crisis was that the stimulus targeted at the wealthy and went into assets, such as the housing you just mentioned. However, COVID-19 stimulus checks were given to normal people, so inflation now hits normal people's daily purchases.
> This is a problem of underutilisation in my view. Too many properties are being used as investments and not as a primary residence.
Not in London - according to a pressure group saying there are too many houses used as non-primary-residence [0] - they claim just 1 in 45 houses are either airbnb, second homes, or empty, and half of those are second homes (i.e. someone with a small flat in the city and their main house in the country)
On top of that you have the hidden demand. A typical 3 bed house will house 4 or 5 30yo adults in a HMO because there simply isn't enough housing.
Lower rates means House prices are higher sure, but that's because the monthly cost will always rise to meet what's affordable. If supply outweighed demand then prices would fall.
It is primarily restrictive zoning. When Auckland up-zoned there was a clear relative decrease in prices. You can also see it in the massive price discontinuity on the city’s rural-urban boundary.
It’s a pretty simple problem: existing owners have an interest in restricting new supply, and there aren’t many costs associated with being a nimby. Housing stops being a good investment when supply is responsive.
Refreshing to see other voices out there who get it, thanks for posting. The financialization of housing and guarantee of an increasing asset price allowed global wealth to pile into purchasing as much real estate as they can.
Not only does the pump of money increase housing purchases (it's a short against the currency), but unstable currencies also cause real estate to go up as wealth looks for safety.
>Cheap credit causes an increase in demand. This is not demand for homes but additional 'artificial' demand for properties as investments. Think short term rentals, second homes, land banked properties, etc. By definition, only investment properties can be underutilised - owner occupied homes are occupied! So in an environment that encourages property investment you will see more underutilisation.
An important nitpick: cheap credit intensifies the search for returns. You need to consider why those races end in real estate. In the US, at least, the answer is that the American single family house is the single most privileged asset class in the history of the world. The entire economy assumes that housing prices will grow at a rate that outpaces inflation. You cannot, in that system, be a person who calmly watches to evaluate the correctness of the hypothesis.
No, you shut up and push. Whether you're the President or the Fed or some affordable housing commission, you shut up and push for housing as an appreciating asset.
That's comingling a few things, because a lot of the privileges around holding a home as an asset don't extend to investment properties. E.g. the easy availability of competitive mortgages and individual tax breaks.
Personally, I think we should lean into that -- make single family homes completely unattractive as an investment.
Rental units are more debatable, because of the density argument, but I think we should probably disincentize it as an asset class too. In favor of offering townhomes for sale.
I didn't mean even tax advantages or favorable financing. The heart of the issue is that we have a national policy of not letting housing prices go down because that would crush too many people's equity and with it their financial stability. The longer it goes, the more we ratchet up the tension between affordable housing and housing as investment.
There's probably a lot to be said about the secondary market for conforming mortgages, but I'm not the knowledgeable person to do so.
Half of my city and many other cities around my country were built during the communist 70s and 80s... and then we stopped building and maybe built 5, 6 apartment buildings in the last 30 years.
Then urbanization came, centralization, everyone wants to live in a city.. but we're not building more housing.
We can look around europe.. how many apartment projects were done in the 70s and 80s, and how many are being built now.... we built whole new neighbourhoods back then, and now we have 4 people sharing a two bedroom apartment.
While I agree building housing is a symptom, and not the core problem. But I'm skeptical that increasing building or density would actually lower housing costs. If that were true, high dense cities like Beijing, Tokyo, Singapore, or Hong Kong would have much lower cost housing.
Housing more people in a concentrated area creates more demand for services, which creates more demand for housing which jacks up prices. Packing 1,000 people into an apartment build creates extremely high demand for plumbing, house cleaning etc, services, which jack up housing prices. But if cities were low-density with commerce centers decenteralized across many neighbhorhoods or towns, you don't create location demand hotspots (e.g. cities) that jack up prices.
Property taxes and interest rates are a forcing function to keep unoccupied properties in check, as long as the appreciation doesn't dramatically exceed the risks of being a LL. For Tier 1-3 markets in the USA, you can't cash flow properties as rent is drastically lags property ownership costs.
The article is specifically about purchasing homes. Even the USA, it also is cheaper to rent than to buy. Buying a home in Singapore has a 6 year waiting list to access public housing with properties exceeding $1m SGD.
Taxes, Transportation and food costs are cheap, but property is not.
Singapore is not really typical of anything anywhere, it's a small island nation with insane population pressure with regards to housing.
Almost any other Asian city from Bangkok to Ha Noi has room to expand. In fact speaking of Bangkok buying a condo there is widely considered a bad investment because there is so much supply.
Beijing has cheap rent, at least for foreigners making western wages. That 10k RMB/month 1 bedroom is supposed to cost 7 million RMB to buy, so you are still screwed if you are looking not to rent for some reason.
I hear Shanghai is much worse, but never lived there before.
Your argument about increasing demand for services isn't convincing. Since there are more people in the area, should supply be higher as well, balancing prices?
It seems more likely that costs are higher in cities because there are valuable opportunities for skilled people who demand high salaries, simultaneously encouraging dense living to maximize access and increasing cost of living through the Baumol effect. High prices causing density, not the other way around.
> Since there are more people in the area, should supply be higher as well, balancing prices?
I think we are starting a conversation about gentrification: Rich white-collar/coat workers move into an area creating demand for service work. There is some price competition for their service work labor, raising wages, but typically housing costs are too high for these workers, so they leave (lowering supply, pushing up wages).
But this is just assuming the conclusion. Suppose that you were to increase the housing supply as much as, or more than, the increase in population. The existing lower-wage workers don't have to leave until prices have already increased to price them out, so their leaving can't have been the cause of the higher prices but rather its effect.
So it's a feedback loop, but one which is prevented by keeping supply enough to meet demand, because then lower paid workers aren't priced out and cost of living doesn't increase.
I don't think looking at density is sufficient enough, what matters if total supply can keep up with demand. Hong Kong and Singapore are very dense, they have to be to sufficiently house the population, but it's still not enough.
> But I'm skeptical that increasing building or density would actually lower housing costs. If that were true, high dense cities like Beijing, Tokyo, Singapore, or Hong Kong would have much lower cost housing.
Increasing building and increasing density are different things. Singapore and Hong Kong are dense because they have a very limited geographic area to build in. You can’t point to their density and conclude that adding housing doesn’t help lower housing costs. They would be even more expensive if they weren’t so dense.
> In my view this is symptomatic of a more fundamental issue - global asset price inflation driven by a broken financial system (i.e. a system being artificially pumped up with cheap credit).
I've been crowing on this since the 2008 crash. The cycle is this:
1. A person has a job, but can't afford things
2. They get credit to buy the things they want, in lieu of demanding better pay
3. Everyone does this, so demand goes up and prices go up
4. The value of their dollar goes down
5. Go to 1.
Consumer credit has _broken_ money. Broken it. We've seen this in housing prices and student loans, and now that we have online checkout buttons that say "you can have this for $17/mo!", we're starting to see it in stock-and-trade consumer goods even more now.
We have to -- have to -- eliminate consumer credit if we ever want to give people a fair shake at maintaining the value of their money and purchasing things. Otherwise, prices will be determined by people who are dumbest with their money.
Speaking of Canada; here the problem is the unwillingness to build, coupled with rampant immigration, fueling a real-estate bubble that is compounded by speculators (foreign and domestic). Cheap money throughout the 2000's didn't help either.
I've been told that immigration isn't a driver for the housing problems in the USA though, interestingly.
Higher interest rates and/or regulations against excessive (however that is defined) ownership. Any regulation should focus on the bigger players as a priority.
The person with the second vacation home isn't a priority but the fund with hundreds or thousands (or 10s of thousands as is the case in the US) should be a focus.
> Ask yourself, do Canada, Australia, New Zealand, the US, Britain, Ireland, etc, all have the same inability to build
Of course. Remember, homebuilding continues to be incredibly labour intensive. Meanwhile, all of those countries have enjoyed "full employment" for many, many years. Which means that workers have all kinds of job options.
In other words, you can't build without people. Ask yourself, why would the people choose construction? Wouldn't sitting at a comfy desk programming computers all day be more desirable? The small few who enjoy it can’t keep up.
Do you work in construction as a career? If no, why not? What would it take to get you to start building houses? Higher compensation than other jobs, perhaps? But guess what high compensation brings...
> Too many properties are being used as investments and not as a primary residence.
When properties are being used as an investment, they are rented out. If that's true, it should show up as higher rental vacancy rate and low/stagnant rent. That's not the case in Vancouver, BC as we have low vacancy rate and rising rent.
Homes could be left as left empty as well, but we have multiple annual taxes, ranging from 0.5% to 3% of the total property value targeting these underutilized home, and that hasn't driven price down. In additions, these taxes essentially provide an one-time only increase in the number of homes available. They can be easily absorbed by population growth.
With the population increase in Canada, building more is the only way out.
> By definition, only investment properties can be underutilised - owner occupied homes are occupied!
I think this part is what kills the anti-investment argument. If we hypothetically got rid of all the property investors we’d have only owner-occupied units. So then where do you find a vacant house when you want to move out of your folks’ place? Everyone has to find land, buy it, and build? (I won’t even get into the fact that single family homes aren’t really a sustainable use of land)
As long as there are enough vacant units investors will lower rent enough to fill them to an equilibrium. Nobody makes money on apartment buildings that are 50% empty.
Let’s not forget that low financing rates allows companies like homebuilders to build homes and subdivisions on credit that are intended to be owner-occupied. These developments are never intended to be rentals.
I think it’s a little funky that, especially in the US, nobody really had a problem with apartment buildings being apartments until landlords started owning single family homes. Now everyone has pitchforks over it and want to ban investors from owning homes - which seems kind of insane when you think about how cities with skyscrapers work. It would make condo and apartment buildings impossible. There’s nothing different about a single family home compared to an apartment besides form factor.
The thing that all those countries have in common is low supply in the tradespeople. Those are all countries where you’re better off learning to do a desk job rather than working for a construction company. In addition, a bunch of home builders went bust in 2008 in the United States.
In the case of Canada and the US they also have some horrible bad habits when it comes to city planning. Single family home building causes the growth Ponzi scheme raising the cost of city services per capita and pushes affordable housing crazy far from the city center and strains single occupant car highway infrastructure. You’ve got to own one car per person in the US in Canada in addition to your mortgage. Then load up student loans on top of that.
> What will cause prices to fall is higher interest rates. This is what has been happening in NZ.
I hope so. But this assumes a fair market. I believe the NZ market will be pumped up through government action in order to avoid paper losses for property investors, landlords, and also for regular family property owners' unrealised gains.
Case in point: reinstating full interest deductions for residential property, reducing the tax investors pay. A $2.5b kickback to landlords. 60 per cent deduction in 2023/24, rising to 80 per cent in 2024/25 and 100 per cent in 2025/26.
It's basically this. Because there's a finite supply of land in desirable areas, home ownership is an investment, unlike renting. Same as how I got "priced out" of owning 1/10000th of Apple Inc.
IMO takes like this are problematic. The problem is not enough building. That's it. All the other stuff you said is just noise that confuses people into believing this is some hyper-complicated modern-financial-system problem that's going to end the world due to its intractability. Its not any of that. Its just not enough building.
There are problems which feed into there not being enough building; the biggest one is definitely that property represents a major portion of Americans' investment portfolios, and thus our democratic system is filled with people (and companies) (and their representatives) who are heavily biased toward any decision that will raise property values. But its not that low building causes this; its just NIMBYism. This causes low building; it causes weird municipal rules about density; it causes expensive permitting; etc.
People also say "well, there's not enough land in the place people want to live so of course house prices are insane". Also bullshit. The "place people want to live" changes and expands all the time. Exurbs that were forests 15 years ago are now extremely hot. Why? BECAUSE WE BUILT. That's it. That's all it takes. Build housing. Build parks and sidewalks. Allow cool businesses to open.
Everyone, including and especially local governments, has made this so freakin complicated when its seriously not. Its freakin MBA prediction brain all over again. They're so afraid they don't understand the full problem, or the implications of their decision, that they refuse to act (build) and instead blame the lack of action (building) on intractably large problems like "interest rates" or "blackrock".
It IS more complicated than that. It's not easy to build within a 1 hour commute of a dense population center. All that land is owned, built, and called for. Calling it "overpopulation" could be fair.
A parallel problem is immigration and, as the top comment pointed out, cheap credit encouraging vacancy.
Not enough building, and also the inequality in ownership of land and houses. May be tax every third or later house owned higher and plug loopholes that allow you to own an extra house under trust or other structure to rent.
But where will this end for a lot of investors (which in Canada seems like a lot of the influential population) ?
> Not enough building, and also the inequality in ownership of land and houses.
Its really just building.
I grew up in a somewhat rural part of the US, basically just farm land and forests, but a few dozen miles from a city of ~100,000 people. The amount of NIMBYist "we gotta protect the farm" "we'd never sell to some big developer (spits on the ground)" you hear day to day was extreme, to say the least.
Ten years later, that city of 100,000 people is 115,000 people, a half-dozen miles closer to the rural farming community, and they just opened a strip mall outside of town. In another ten years they'll likely have a Starbucks and a luxury apartment complex. In thirty years that small community won't really exist; it'll be called an "exurb" of a city of 250,000 people.
My point in saying this in response to your comment is: Density brings money; and money trumps everything else. It trumps NIMBYism. It trumps Good Ole American Values. It can also trump inequality, weirdly enough; because density (aka money) increases the efficiency of our land use. The issue is: We aren't building enough.
> where will this end for a lot of investors
Constant-ish property asset values relative to baseline inflation. Its really not the end of the world. There's so many places to park money in the US economic system, its weird that we're so caught up in something so real and ugly as residential real estate. Go park your money in Nvidia.
Here's my take: the government should back low interest rate and high eligibility loans specifically for the purchase of housing which has never been lived in before. There should be some provision which allows the loans to be used in the case of initial development, or redevelopment if the new development has a higher density than the previous development on that lot (e.g. the lot had 1 unit before, now it has 4 units, you're good). These loans should be made available to individuals; two per person, some reasonable market-dependent limit per loan. That's it. If the specifics are correct, a program like this would fix an extreme number of problems the US housing system has. It would create a few problems, for sure, but critically: a program like this would create liquidity in the housing system, and its far, far easier to fix problems in a liquid system versus an illiquid one.
It posits that the high prices are caused by rich people parking their money in houses. It explains many problems with a few variables.
While it's not the whole picture, it explains why the middle class is getting squeezed out of house ownership. And why stimulus package didn't much help.
It's more likely a correction on interest rates combined with lack of supply. It will even out, it's not a failure of the system. If more houses are build then value gets diluted, private capital can't keep buying up all the "extra" supply. Rates will also need to drop and more people can buy, as people include "that payment is more than I can afford" every bit as much as "this house costs $X"
In the US, it's a combination of lack of building, increased materials costs, and (in places like California) government policies that block new construction.
Note that Trump's tariffs on Canadian lumber increased the cost of new construction by 20% over a period of a few months (the article mentions the cost of materials, but not the root cause, which was this tariff, and some climate disasters, like when the Texas storms took out 20% of global PVC production for a year or so). Biden has been aggressively increasing tariffs, so they are both directly to blame.
The interest rate spike and high inflation were predicted by pretty much all economists when Trump decided to needlessly keep rates low during his first term, so blaming Biden never made much sense to me
Anyway, lots of studies have been done looking for root causes for homelessness and unaffordable housing. Every theory I've heard (drugs, mental health, nice weather for tent encampments, joblessness, etc, etc) has been shot down by such studies except the idea that if you have fewer houses per capita, then you will have more homeless people and more expensive houses.
Assuming global financial stuff changed radically but we didn't build more houses, where would these people with lots of money in the bank live, exactly? Also, wouldn't that cause the price of housing to increase (increased demand, constrained supply, and inflation from the increased money supply)?
The graph you cite says the US has 0.4 houses per person. That means that, on average, we don't have enough houses for people that are single, couples without a live-in kid, or single parents.
It goes on to say that 7% of US houses are vacant, but that wouldn't make up the gap. Also, many houses in the US are vacant because there are in places where the economy has dried up, and there aren't adequate utilities, schools, groceries, etc. Even if those houses were somehow renovated, many people would still be better off financially if they chose to live on the street instead of in those places.
Most buyers would require mortgage or another kind of loan. For a loan holder, the question is monthly payment, not price. Higher interest means higher payments, thus negating the decrease in prices. Of course, for cash buyers high interest rates are good, but I suspect people worrying aboug being priced out of the market aren't cash buyers.
> What will cause prices to fall is higher interest rates. This is what has been happening in NZ.
Then again, with higher interest rates, the lower prices don't mean anything unless they drop significantly faster than interest rates are raising, yes?
Check out the Speculative Vacancy Reports (https://www.prosper.org.au/speculative-vacancy-reports/) to shed some interesting light on that. It is for the Melbourne market only, but their methodology of relying on water usage to determine occupancy reveals some interesting results.
I have a feeling that those hoping to wait it out in the hopes of a return to low rates might be caught out this time around.
The past few decades (coinciding with the property price boom) have been all about ever decreasing interest rates. What is happening now looks a lot like a paradigm shift. I wouldn't bet on rates falling substantially anytime soon.
Do lower house prices in a recession matter if no one has money, and everyone is being laid off from work? I feel like no one, except the very rich, benefits.
Unfortunately recessions and job losses are how you get lower prices. You need forced selling. As long as we're labor constrained with a hot GDP, people with a house and low rate will continue living their best life.
How do people even think of these things? You're not a computer. You have the ability to intuit when people are not talking about some stupid edge case that literally never happens.
Lack of available dwellings is currently a huge problem here in Australia - the building industry is collapsing due to cost blowouts and most available builders are snapped up by a vastly more lucrative mining industry.
>Ask yourself, do Canada, Australia, New Zealand, the US, Britain, Ireland, etc, all have the same inability to build or is there maybe some other common cause?
This is found to be true by Blackstone, who frequently notes that shortages and low increases in new supply are fundamental to their strategy of buying and building housing for rent: https://x.com/RikAdamski/status/1643477536695803904https://x.com/IDoTheThinking/status/1378737834824060931 "We could also be adversely affects by overbuilding or high vacancy rates of homes in our markets, which could result in an excess supply of homes and reduce occupancy and rental rates."
It's especially dumb because while as a whole rents are increasing in America, there are many desirable parts where it's not. Texas has decreasing rents despite an increasing population
I am not denying that the number of properties relative to people has an effect - but I am arguing that this is insufficient as an explanation for what has happened with regard to prices recently.
See my earlier comment regarding NZ. The number of homes per 1000 people changed very little between 2011 and 2022. At the same time prices went from NZD350k to NZD900k.
I think my suggestion that finance is the most significant factor here is a stronger argument than a supply shortage.
>I think my suggestion that finance is the most significant factor here is a stronger argument than a supply shortage.
You have zero evidence for this claim and cited zero sources.
>The number of homes per 1000 people changed very little between 2011 and 2022. At the same time prices went from NZD350k to NZD900k.
You cannot look at an entire country's housing/population ratio and think that explains everything. New homes in Queenstown don't reduce housing costs for people in Auckland or Christchurch. You need to look at the supply of housing in an area where it is a substitutable good: where you can switch housing without switching your job, school, friends, and life.
A new house 6 hours from me does not lower the price of housing in my neighborhood.
Do you think that a shift in demographic preferences from certain locations in NZ to other locations in NZ is sufficient to explain why - while the overall proportion of dwellings to people was steady - prices rose 250% in 10 years?
I don't think anyone would disagree that finance has an impact, but these are only indirect evidence.
It seems to me that increasing urbanisation and desire to live in cities could easily have pushed city prices up much faster than anything else, while less populated areas stagnate.
But you have to admit that no one could have guessed that increasing the money supply (ie: printing money) would have led to higher asset (including real estate) pricing.
This, and certainly no one has warned about this type of policy being inflationary by default. Granted, it is just a part of the equation, but not a small one by any means.
> Ask yourself, do Canada, Australia, New Zealand, the US, Britain, Ireland, etc, all have the same inability to build or is there maybe some other common cause?
In the UK, we have an issue with immigration that nobody wants to speak about. The birth rate in the UK is 1.49 in 2022 [1], meaning that housing demand should be going down. We build houses to last, and yet there is a massive shortage - why? In 2023 the ONS reported we had a net migration of 685k people [2], where 9% of the population do not have a British nationality at all.
The demand for housing in the UK (and related infrastructure) can be entirely explained by net migration. The reason the housing market is bubbling is because the demand is so insanely high. We need to build 340k houses a year to keep up with demand [3].
The fundamental issue in the UK is that we borrowed too much from the future, in terms of loans, but also pensions. They think that increasing the population dramatically will solve the problem, but it's actually destroying the UK. We are building on farmland, the infrastructure (water, gas, electric, roads, schools, etc, etc) is failing under the weight of the new housing. The interest on the debt owed [5] I believe is projected to exceed spending on the NHS (national healthcare system) by 2035.
The question we need to ask is whether large net migration is worth it, or whether we should largely reduce it. It seems clear to me that the UK is currently trying to grow too fast. It'll be a bitter pill to swallow, but at some point you need to deal with the spiralling situation.
> This is a problem of underutilisation in my view. Too many properties are being used as investments and not as a primary residence.
In NZ and many other Countries they put bans on foreign buyers exactly to stop this investment [4]. I know many, many professionals living in NZ that cannot afford to buy a home. They are all stuck renting, despite all earning in the top 25%.
UK has massively high house prices - at least in "desirable" areas, and some not so desirable ones where it's possible to commute to work in a desirable area.
That doesn't necessarily reflect a shortage, it also reflects availability of money - and therefore the market bearing higher prices. It also reflects the unevenness of the UK economy: the expensive and unaffordable housing is mostly in and around London (where ~all the economic activity is), and in the most scenic of rural areas which is retirees, second-home owners and AirBnB investors. There's plenty of the UK which has affordable housing, but it's too far from anywhere with decent jobs.
The boom in house prices began when it became the norm for educated women to have lifelong progessional careers. All of a sudden there was a huge amount more discretionary income in the educated class. If you consider that, circa 1970, perhaps 20-30% of one male earner's income went on housing and the rest on life's essentials, all of a sudden the potential amount of cash to spend on housing goes from 30% of one income to 130%, a more than 4x increase. It took a while to filter through, sure, but in the end, it has - to the point where most families are now obligated to have two full-time earners.
Housing is a positional good (think about an auction where demand of the most desirable items will always exceed supply), the prices bear almost no relation to rational economic utility and every relation to how much cost people are able to bear. Which is one reason they're so responsive to interest rates i.e. debt affordability.
A 1.49 birth rate and 685k net migration isn't a desirable situation for any country, but the other issue here is the health and productivity of our own population, we're using migrants to prop it up and provide much of the labour needed by the NHS, childcare and elderly care. Our government is massively anti-immigration, and yet immigration remains high, the country can't and won't go cold-turkey on that: it's not practical to do so without further increasing the retirement age, cutting pensions and increasing "sin taxes" to keep a greater proportion of the population healthy enough to work til 70. And that'd be even less popular, politically, than mass immigration.
The reforms the UK needs are to get the economy functioning better in the regions, and to make it much easier to build higher density housing close to where the jobs are. The current system where they can't build apartment blocks on train-station car parks because a bunch of pensioners complain that it spoils their view is massively counterproductive.
If actions speak louder than words then the UK government is not massively anti-immigration. I would say that devolution of power in Britain has ensured that governments are not actually that powerful and unelected authorities with views of their own, hold sway with opinions which do not reflect the electorate. Polls suggest that a majority of people would like reduced migration. Problems abound.
I agree with you about the reforms but basically Brits live beyond their means and need to lower expectations or face a very uncertain future. The NHS is a good example. Demand is literally infinite. We're all going to die and likely suffer an ailment demanding treatment so how can a health service which fails to match that hard reality, survive. As you say, we can use stick and carrot to attenuate demand but it's finally going to crack IMO as was prophetically illustrated so tragically in the pandemic.
Asking people - or indeed governments - in isolation if they'd like less migration is a bit like asking if they'd like less rain. Leaders and media who were up-front about the reality of the choices we face would make for a less toxic situation, but they're too lazy and cowardly, it's easier to lie for political points than to tell hard truths.
Agree re the NHS, my overall views are left, but the centre-right analysis that it's a National Sickness Service is correct, where is the investment in public health to reduce demand? Most Brits barely get out for a walk once a week, our environment doesn't prioritise health (driving everywhere, fast food outlets..) and the complaints when the state actually tries to do anything about it are endless.
> UK has massively high house prices - at least in "desirable" areas, and some not so desirable ones where it's possible to commute to work in a desirable area.
Other than very undesirable areas, the house prices are pretty bad. I have friends living nowhere near London in remote Scotland noticing the house price increase. I've seen a local property double in price after ~11 years.
> That doesn't necessarily reflect a shortage, it also reflects availability of money [..]
It's not clear who has an availability of money. I'm aware of zero people within recent years buying a home without a mortgage. Availability of money has never been worse.
> It took a while to filter through, sure, but in the end, it has - to the point where most families are now obligated to have two full-time earners.
I don't think we're seeing 4x the living standard of 1970. It also doesn't explain that we see house prices increase by more than 4x relative to wages [1].
> Housing is a positional good (think about an auction where demand of the most desirable items will always exceed supply), the prices bear almost no relation to rational economic utility and every relation to how much cost people are able to bear. Which is one reason they're so responsive to interest rates i.e. debt affordability.
It's didn't used to be like that. A house would feasibly cost between 4-10 years of one man's wage. But this would defend what I said, that demand outstrips supply. There is a saying at auctions: "it's only worth what somebody else is willing to pay for it."
> we're using migrants to prop it up and provide much of the labour needed by the NHS, childcare and elderly care.
It's not working, the NHS is failing. Where I live I cannot get an appointment any more. If I am lucky the doctor calls me and essentially prescribes anything I ask for. I recently saw a similar situation with midwifery.
I generally don't find myself convinced that migration is a net good. They typically have dependants and create massive burdens on our infrastructure and systems. We are now at the state where children are deferred from starting school because there just are no palce
> Our government is massively anti-immigration, and yet immigration remains high, the country can't and won't go cold-turkey on that: [..]
I suspect not. If I am right in saying that immigration increases demand for housing and therefore the price, it would make sense that the Conservative party would keep this in place as their largest donors are property developers [2].
> The current system where they can't build apartment blocks on train-station car parks because a bunch of pensioners complain that it spoils their view is massively counterproductive.
I don't think that is fair, the answer isn't to build on every square metre of the UK until it's gone. Besides, if they get rid of the train station car park, where will all the commuters park? (I've seen this one play out, they park everywhere else.)
> It's not clear who has an availability of money. I'm aware of zero people within recent years buying a home without a mortgage. Availability of money has never been worse.
"Availability of money" includes the ability to apply for, and service the debt on, a mortgage.
> I don't think we're seeing 4x the living standard of 1970. It also doesn't explain that we see house prices increase by more than 4x relative to wages [1].
I don't remember 1970, but there's no particular reason we should expect to have 4x living standard.. competition for housing can eat up a much bigger slice of the overall pie, as long as people are willing to compete.
> But this would defend what I said, that demand outstrips supply. There is a saying at auctions: "it's only worth what somebody else is willing to pay for it."
100% - but if nobody CAN pay (the asking price), nobody will be willing to pay it. And that's where positional goods matter, because effectively people are jostling for a place in a ranked queue. The prices are a function of "how much money are the people in the queue able and willing to raise and deploy". And so it's natural to have situations where incomes might only go up by 50%, but house prices can rise MUCH more if interest rates are low and the bulk of that extra income is discretionary.
> It's not working, the NHS is failing. Where I live I cannot get an appointment any more. If I am lucky the doctor calls me and essentially prescribes anything I ask for. I recently saw a similar situation with midwifery.
Bad here too, but most of the staff are immigrants or of immigrant background so I find it hard to blame that on migration, it'd be a lot worse if they turned the taps off. It's more to do with our population (native Brits and 1960s/70s immigrants) being elderly, unhealthy and generally decrepit, and a health service that tries to do too much. It excels at keeping people alive, but it sucks at keeping them healthy.
> We are now at the state where children are deferred from starting school because there just are no place
Not the case here, in a high-immigration area: they're actually closing primary schools because there aren't enough kids to fill them.
> I don't think that is fair, the answer isn't to build on every square metre of the UK until it's gone. Besides, if they get rid of the train station car park, where will all the commuters park? (I've seen this one play out, they park everywhere else.)
They should walk or take the bus. I'm talking about stations that are at most a mile or so spread out and usually served by half a dozen bus routes, suburban zone 3 & 4 London. Wouldn't work further out where distances are longer.
> 100% - but if nobody CAN pay (the asking price), nobody will be willing to pay it. And that's where positional goods matter, because effectively people are jostling for a place in a ranked queue. The prices are a function of "how much money are the people in the queue able and willing to raise and deploy". And so it's natural to have situations where incomes might only go up by 50%, but house prices can rise MUCH more if interest rates are low and the bulk of that extra income is discretionary.
If this is the case, then the best way to lower house prices would be to get rid of mortgages entirely? I don't think this would work of course. We would simply see more foreign investors who have access to mortgages.
> Bad here too, but most of the staff are immigrants or of immigrant background so I find it hard to blame that on migration, it'd be a lot worse if they turned the taps off. It's more to do with our population (native Brits and 1960s/70s immigrants) being elderly, unhealthy and generally decrepit, and a health service that tries to do too much. It excels at keeping people alive, but it sucks at keeping them healthy.
My point is that after lots of immigration, we still have a massive recruitment crisis in the NHS. It never really solved the problem, and worse still, there are now more people using these services.
> Not the case here, in a high-immigration area: they're actually closing primary schools because there aren't enough kids to fill them.
If immigrants are not having children in the UK, then that would lead towards another crisis of an ageing population. Again, I believe increased immigration is a temporary solution.
> They should walk or take the bus. I'm talking about stations that are at most a mile or so spread out and usually served by half a dozen bus routes, suburban zone 3 & 4 London. Wouldn't work further out where distances are longer.
Not everywhere is London. Where I live, there are no buses to the train station. People commute by car up to 30 minutes to catch the train.
Getting rid of mortgages rather illustrates my point. You'd lower prices but also destroy people's ability to afford/buy... anything.
Prices are a function of people's ability to access money, not their direct income.
And to your last point.. they need to build housing in places where there's the infrastructure to support it, or build the infrastructure. Building to suburban-like density in areas with a rural-like level of services (not just transport but shops, schools, leisure) is a recipe for misery.
The big new housing developments they're putting in outside midsize town ring roads are a case in point. Too far to walk to the centre (and indirect routes, because of the ring road), but the centre itself doesn't have room for them to park cheaply. No bus so no independence for teens. Nothing at all to do on the development itself. And that's before we get to the quality and design of the actual builds.
It's American style living done on the cheap. At least in the States they build large so there's room to do more at home, and the whole place is low density - their solution to the challenge of town centres is not to have town centres.
That's true. Property tax can help, but at some other level of over-supply, it doesn't even matter what the property taxes are. Once there is far too much supply (perhaps to the extent that it would be a bubble), pumping millions of dollars into housing that will sit empty or rent at a low yield will not be a good use of capital.
> In my view this is symptomatic of a more fundamental issue - global asset price inflation driven by a broken financial system (i.e. a system being artificially pumped up with cheap credit). Housing is just where the rubber hits the road and regular lives are directly effected. Just look at the tight correlation between the increase in the money supply and property prices.
Prior to covid, the global economy was booming. US and UK had low unemployment rates. the US especially was remarkably doing well, with lowest unemployment rate for minority communities.
There is a price to pay for completely disregarding long-term economic costs of reckless responses to a what was a moderately severe flu epidemic. We went nuts and shut ourselves down. And on top of that, we helicopter dropped 4-6 trillion dollars of freshly printed cash.
And the reckless governance continues in the name of flaming conflicts in Europe and ME. A lot of what happened in the recent years is attributable to just atrocious governance.
Interest rates in Canada have doubled and were only seeing a trickle of investors selling. I do agree that we have way too much investment in finished real estate, which is only hurting consumers trying to get into a market. We've been a lot more strict with ownership transparency and clamping down on short term rentals, which is still too soon to see how significant the effects will be, but the big tldr here being that rates doubled and there's still not a high push to reduce prices (yet), so both sides of the market are holding out for better.
In December there was an expectation that the FED would do 7 interest rate reductions this year. Now we are down to 1 - maybe.
I think a lot of people in the market are still holding on with a strong expectation that the interest rates will go down.
Personally, I think high interest rate environments are better for most people - it compresses asset prices and adds more value to a salary. But it will take some years for that compressions to kick in again.
There's a huge difference in rates and how it affects markets between Canada and the US. I'd assume most US based loans have a lock in period of 25-30 years, but is basically unheard of to have Canadian rates locked in longer than 5 years for fixed mortgages. That means there's a bunch of mortgage renewals that will dramatically affect the amount of disposal income for these individuals that locked in low rates a few years ago. In the US, it's more about potential buyers holding out for cheaper rates. In Canada is more about owners that "suddenly" have dramatically higher servicing rates. It's not unlikely that people are paying 1000/mo extra post renewal.
Coming from another angle, this might not be a "problem" when you consider the greater scheme of things.
Being able to obtain assets, when you don't have any is a relatively new thing, historically speaking. One could also say that we were living in a brave new world of opportunities and growth for a few centuries. And now we are returning to the historical norm. One thing that all the examples you listed is that they could be seen as "late game" economies.
I might be totally wrong, though. This is just another angle.
"Ask yourself, do Canada, Australia, New Zealand, the US, Britain, Ireland, etc, all have the same inability to build or is there maybe some other common cause?
... a broken financial system."
You claim that these countries do not have the same system of building but they do have the same financial system. That is a large claim to make. You should try to offer at least some kind of argument for why you feel the variations in the financial systems are less significant than the variations in their systems of construction.
I try to explain the ills of interest rate intervention to people all the time and they act like I'm a conspiracy theorist. The problem will likely not get better.
>do Canada, Australia, New Zealand, the US, Britain, Ireland, etc, all have the same inability to build
I don't know about the others, but we're building about 50% of what we need for Australia's population growth. Neo-liberalism has resulted in decades of de-funding of public education, which trains tradespeople, and now we have a shortage of tradespeople. And we're getting another tax cut in a few weeks so I guess that problem, plus all the others with same cause, is just going to get worse.
Yeah, too many people think supply/demand is all there is to prices, when that is just economics 101. What many people seem to not even know, is that the theory only holds true under competitive free market conditions and falls apart under captive/uncompetitive markets. Many also assume trade volume is necessarily representative of a supply shortage, when that isn't always the case, as " supply" and "supply for sale" are two different things.
But yeah, the root of the problem is because governments are subsidizing housing/costs, and the problem with subsidies, is that the money for them has to come from somewhere, meaning they come with a burden (ie cost) placed elsewhere.
In the US this is primarily done via the government backing mortgage debt. It creates a vicious circle where homeowners raise their prices, the Fed ensures the funds for the mortgages, and the buyer is on the hook for paying it.
This is also why college prices are high. The government offers student loans to help people afford college, but colleges see this and raise their prices to capture that additional funding, and the student ends up on the hook for paying the price. Rinse and repeat...
> What many people seem to not even know, is that the theory only holds true under competitive free market conditions and falls apart under captive/uncompetitive markets.
Why would the law of supply and demand fall apart under captive/uncompetitive markets? A captive or uncompetitive market may impact the quantity of a good or service available and/or the quantity of a good or service willing to be purchased at a given point in time, but that doesn't change the law.
> Many also assume trade volume is necessarily representative of a supply shortage, when that isn't always the case, as " supply" and "supply for sale" are two different things.
Huh? Supply is characterized by being "for sale". Of course, a shortage occurs when price is prevented from rising. Housing certainly doesn't have that problem. The so-called "housing shortage" is really an issue of latent demand – people desire homeownership but can't afford it.
> Why would the law of supply and demand fall apart under captive/uncompetitive markets?
For the law to hold perfectly and describe prices, everyone in the market (both buyers and sellers) must be a "price taker". That is, the amount anyone supplies(sells)/demands(buys) is entirely a function of the going market price of whats being traded, and no one believes they will influence prices. (If anyone isn't a "price taker" , then supply/demand of the good being traded are no longer the only variables in the function of price). So, typically under competitive market conditions (that is there are many buyers/sellers), as prices rise demand from buyers will drop and selling increases from sellers, whereas the opposite happens when prices fall.
However, in captive markets such as one consisting of a monopoly seller, the seller can test demand to find the most profitable price for them specifically. At which point the seller is no longer operating as a "price taker", as they will reduce selling as prices rise to find that optimal price point for themselves (as they have input costs which have their own price curves that buyers don't know or care about). Remember, a "price taker" cannot influence the price, but must take or leave it depending on price. Thus price is no longer determined purely by the market supply/demand of the good, but also profit margin of the monopolist.
> Huh? Supply is characterized by being "for sale".
It often is, and there is nothing wrong with it being defined that way. But the idea which is being expressed here is what is important. For hyperbole, if I hoarded all of the worlds water, but only listed 2 liters of it for sale (much less than the population needs), would that indicate the world has a water shortage? One would argue yes, if you defined supply as "for sale", but no if
differentiated in the way I did.
> Thus price is no longer determined purely by the market supply/demand of the good, but also profit margin of the monopolist.
In fact, the price is "purely determined" by supply/demand in the scenario you gave. The monopolist is using their monopoly position to create artificial scarcity, thus driving up prices. This is consistent with the law of supply and demand.
> would that indicate the world has a water shortage?
Impossible to say without more information. What is happening around the 2L for sale? Are you rejecting the sale based on price (i.e. preventing price from rising), instead selecting who gets it using some non-priced-based mechanism, such as a lottery or first-come, first-served? If yes, then that indicates that there is a shortage. If it is sold using a price-based mechanism, then clearly not. That is a "normally functioning" market.
Once the water is all used up and there is no remaining water supply, where no amount of money can buy more (i.e. preventing from rising), then perhaps you might say that there is a shortage. However, in the real world, absent of some other factor (e.g. price gouging laws), price will keep rising until you are compelled to make more of that water available, so that still wouldn't be a shortage situation.
> In fact, the price is "purely determined" by supply/demand in the scenario you gave. The monopolist is using their monopoly position to create artificial scarcity, thus driving up prices. This is consistent with the law of supply and demand.
Yes, if you look at it from the perspective of only the "supply for sale", then everyone still is a "price taker", so what I said is in full agreement. But if you draw your boundaries to include that additional supply that's hoarded and not for sale, the theory no longer holds. Do you see what I mean now?
In other words, this is entirely a matter of how we define things, and draw our boundaries. How we do that isn't what's important. What is important is that everyone holds the same axioms. For example, we can define 3 means 3 and 3 + 3 = 6, or we can define 3 means 27, and 3 + 3 = 54. But if you think 3 means 3, and someone else thinks 3 means 71, it's hard to have a fruitful conversation as people will be in disagreement. This is why I made the distinction of "supply" and "supply for sale".
So when it comes to building more housing supply, it will never help housing prices no matter how much we build, if that supply which gets built is never for sale. You need to address the issue of what's for sale.
Now you might think this is a silly distinction to make, but it isn't. If the data provided in the top post is any accurate, then there are quite a few more vacant properties than what's listed for sale in many markets, suggesting that needing more supply isn't the core of the problem, but obviously needing more supply for sale is. And IMO, as the top post had earlier mentioned, cheap credit is largely to blame.
> Impossible to say without more information. What is happening around the 2L for sale?
It was just hyperbole to demonstrate a concept. You can of course disagree depending on the circumstances and the axioms you choose, but hopefully you understand the point I was trying to make.
> But if you draw your boundaries to include that additional supply that's hoarded and not for sale, the theory no longer holds. Do you see what I mean now
In the same vein, if we consider the earth to be flat then the law of universal gravitation no longer works. I see what you mean, but I have no idea why anyone would ever want to convey such meaning. Of course you can "invalidate" every law in existence if you completely redefine the conditions under which the law is made, but that's rather nonsensical.
> So when it comes to building more housing supply, it will never help housing prices no matter how much we build, if that supply which gets built is never for sale.
While I am unsure of how this relates to our discussion, I expect you will find that virtually every house is for sale. Sure, there is always a "stubborn old mule", but I'm certain the vast majority of homeowners would not say no to you dropping a billion dollars in front of them.
The biggest trouble is that new construction costs even more than used houses. Nobody is going to purposefully go out of their way to build a home in order to lose money on it. So while building endless new homes would theoretically reduce prices, it would never happen in the real world because who is going to do it? Houses most certainly don't just magically spring out of the ground.
I mean, the reason I convey such a meaning is kind of exactly why we're having this discussion, which is people often have different (hidden/underlying) assumptions (which they take for granted), and conversations don't go anywhere because of it. No one does this intentionally, everyone makes and holds assumptions, but it's important we all hold the same ones if we want to come to an agreement. That's all.
Anyways, as what I meant about building more houses...
You can see elsewhere in this thread that people disagree on whether or not the core issue is that we have a shortage of houses. Some people are holding the assumption that, building more houses will increase the inventory for sale, and therefore help prices. Good old supply/demand. That's a perfectly rational assumption, and I don't necessarily disagree, but like you note, new construction is costly...
Additionally, as data given above (and elsewhere) indicates, housing per capita in 2022 is similar or better than in 2011 for many markets, but as we know, prices (even adjusting for inflation) are higher than 2011. From the theory of supply/demand, this suggests some degree of hoarding is happening, but as to how that is happening is not certain, as people could simply be living with fewer people than the past, or people could be living more or less the same amount people and investors are more of the ones who are buying up new construction. If the latter, then that new built construction might not really be for sale if you get what mean, as investors may simply rent it out or use it as a seasonal. Hence why I said "building more supply won't help if it is never for sale".
Now of course everything is for sale, just a matter of price, but who does cheap credit / inflation help more, people with assets or people without assets? That's right investors. And, given vacancies are higher than inventory for sale, I just have a hard time finding support for the idea that the core issue is that there is insufficient houses and we need to build more. The only reasoning for it seems to be the idea that more supply = lower prices (an idea which falls apart if it is simply hoarded). But of course, that's not to say, that many markets likely do need more supply, just that it doesn't seem to be the fundamental issue.
> Hence why I said "building more supply won't help if it is never for sale".
It doesn't need to be for sale to help with the situation, of course. It still relieves pressure on the demand side. An individual can never afford an infinite number of houses. Even if someone is, as you say, hoarding houses, at some point the last house they build will be the last house they can own and then they drop out of the demand side of the equation.
> who does cheap credit / inflation help more, people with assets or people without assets?
Whomever finds opportunity in it, I suppose. Same as always. Someone sitting on cash assets will be worse off (after all, that's what inflation is: a devaluing of a currency), while someone with no assets can leverage the situation to build real wealth. Even the job market tends to improve in a cheap credit / low inflation environment as businesses use that to chase more labour-requiring opportunities, which is a boon for those who have nothing. There is no one answer here.
It doesn't if it's sitting there, with no one really occupying it, and priced out of the free market's reach. You're assuming a competitive free market is always determining the price here. That's another thing people don't understand, the theory that supply/demand fully determines prices again assumes a perfectly competitive market, which is almost never the case in reality, especially in places of low liquidity. (keep reading if you don't know what I mean).
>An individual can never afford an infinite number of houses
But there is still someone who practically can afford an infinite number of houses - those closely tied to the infinite money printer. Banks are deemed "Too big to fail". Take the SIVB failure for example, yes they failed, but the assets did not and got absorbed by other big banks. Just because those assets changed hands, doesn't really change anything in the grand scheme of things. I mean hell... there's a $25 million dollar estate with a private horse track and an observatory tower near where I live, whom locals are very familiar with, which has been vacant for 25 years ever since it was built. No one has ever lived in it. I happened to meet a greenskeeper at a golf course who happens to maintain it a while back. Who is paying his salary for maintenance? The banks. How can they afford to perpetually maintain those costs? Well, when they struggled like in 2008, they got bailouts, and the assets were never sold at whatever the market would bear. So the banks just sit on it, maintenance costs just get tacked onto the price or onto the banks customers over time, and if shit hits the fan, they'll get absorbed by another bank, and they'll just sit on it until hopefully someday someone will pay the price. It's technically for sale, but if the price is set by the bank and outside what demand for it actually is, its price is not really being determined by a competitive free market.
And that seems the case in a lot of places. I mean Miami has some of the highest vacancy rates in the US, but median price is like $660k, which is also amongst the higher end in the nation. China has 65 million vacancies, and literally multiple ghost cities where there is like a few dozen people living in skyscrapers, but prices are still sky high. There's a Toronto man who owns 30,000 houses. The US has just under ~15 million vacant properties, but housing inventory for sale is ~ 1.2 million.
I mean... I don't disagree that more supply is badly needed in some places, or fixes to zoning, but how does this not look like what the top post mentioned as the core underlying issue: underutilization of housing, and cheap credit creating an asset bubble virtually around the world? It just seems to me we do in fact have supply in many places, it's just no one is really being forced to adhere to the principles of supply/demand, due to cheap credit.
> It doesn't if it's sitting there, with no one really occupying it, and priced out of the free market's reach
It does. Reiterating: Supply and demand, not just supply. When someone builds a house and keeps it for themselves, occupied or not, that is "one less demand" for a different house. Not even banks want to own an infinite number of houses.
> price is not really being determined by a competitive free market.
What difference does that make? Supply and demand says nothing about competitive free markets. Hell, supply and demand is just as applicable to socialist command economies and everything else you can imagine. Supply and demand is even observable in animal populations. It is considered a law, and not in the legal sense, for good reason.
> When someone builds a house and keeps it for themselves, occupied or not, that is "one less demand" for a different house. Not even banks want to own an infinite number of houses
Not necessarily. Are you saying that if I demand to have $1 and keep it for myself, that is 1 less demand I have for different dollars? Seems to me I can still have demand for more dollars. In practice, there may be a point where I don't have demand for more dollars, but I don't see why demand could be unlimited. Are you implying prices have a theoretical maximum? Like $1000000000000000 and once that limit is reached, prices could never go above that?
> What difference does that make? Supply and demand says nothing about competitive free markets. Hell, supply and demand is just as applicable to socialist command economies and everything else you can imagine. Supply and demand is even observable in animal populations. It is considered a law, and not in the legal sense, for good reason
The difference matters when it comes to determining prices. Again, when it comes to prices, the law only holds true under certain conditions: competitive free market conditions. If the economic environment is not a free market, supply and demand are not influential factors when it comes to prices. We already discussed this above. In socialist economic systems, the government typically sets commodity prices regardless of the supply or demand conditions. In which case, if the price set by the socialist economic system (or monopoly) is higher than the price determined by what supply/demand for it really is, it is essentially being hoarded, and thus not for sale.
> Seems to me I can still have demand for more dollars.
Only to the maximum capacity of your ability to fulfill the wishes of other people. A dollar is, after all, an IOU. For someone to willingly give you an IOU, you have to give them something first. While a single dollar may not satisfy you, there is an eventual limit to how much you can meaningfully give. Of course, as IOUs can be traded, the value is also subject to the properties of supply and demand.
> The difference matters when it comes to determining prices.
That's fine. The law of supply and demand isn't some kind of enacting force. It is not a law in the legal sense, if that is where you confusion lies? It is an observational law. The observation does not concern itself with the exact mechanics of how the price is determined, it merely notices the relationship of price as a function of supply and demand.
> the government typically sets commodity prices regardless of the supply or demand conditions.
And you will notice that the law of supply and demand still holds.
> For someone to willingly give you an IOU, you have to give them something first
Not necessarily, someone can just hand me a dollar for nothing in return.
> While a single dollar may not satisfy you, there is an eventual limit to how much you can meaningfully give
Agreed, that limit is what total supply is.
> It is an observational law... it merely notices the relationship between price as a function of supply and demand
Agreed.
> But you will notice that the law of supply and demand still holds. This idea that supply and demand only applies in a competitive free market is completely unfounded
Yes, it still holds from the perspective of what's actually being traded. But notice it's possible to withhold something from being traded. The stuff withheld is not priced according to the law. However, the price of stuff which is still being traded, still is.
> Not necessarily, someone can just hand me a dollar for nothing in return.
Value is certainly subjective. While it is possible you might find someone seeing a dollar as being worthless, just as they might give you a house for nothing in return, I don't expect you will find that to be scalable. If you have a thirst for all the dollars you can get your hands on, you are bound to go thirsty relying on this.
> Agreed, that limit is what total supply is.
There is a limit on supply, but also a limit on demand. That's why we call it "supply and demand", not just "supply". In a "normally functioning" market, demand actors start to drop out of the market as price rises.
In fact, you can see this happening in the housing market. A lot of people can't afford a house, so they are no longer participants in the housing market. They may still wish to own a house, but that's not demand, that's dreaming (or what you might call latent demand).
Hence why a shortage occurs when price is unable to rise. When price is unable to rise, there is no price-based mechanism to see that people leave the market, creating a situation where "demand exceeds supply". Which is why you will typically see alternate mechanisms step in instead, such as a lottery, or offering on the basis of first-come, first-served, to force people out some other way. A medical doctor with an ethical, and often legal, obligation to not allow price to rise is apt to use a needs-based mechanism, serving the patients in most need of care ahead of the richest patients with the common cold. That's certainly not the case in the housing market, though. Price is most definitely able to rise – demonstrably so.
> But notice it's possible to withhold something from being traded.
Of course – at which point it ceases to be supply. Just like, as above, it is possible to withhold on the other side of the transaction, at which point that ceases to be demand. This is exactly what the law of supply and demand describes.
> They may still wish to own a house, but that's not demand, that's dreaming (or what you might call latent demand)
Again this is a matter of where you draw your boundaries. Latent demand is still demand which exists just demand withheld from the market (ie priced out).
>Of course – at which point it ceases to be supply
But it is still supply which exists, just supply which is withheld from the market (ie not supply for sale). This is why I made the point of "supply" and "supply for sale". You're never going to help home prices by building more houses, if what you build is withheld from the market, because, if we use your definition of supply:
> Again this is a matter of where you draw your boundaries.
Just as with the boundaries of what shape the earth is. If you want to consider it flat, good on you. But if you want to talk about the law of universal gravitation, you'd better be prepared to accept that the earth is approximately a sphere (at very least, toroidal). Otherwise you are contradicting yourself.
> Latent demand is still demand which exists just demand withheld from the market (ie priced out).
It exists in the world where the price is lower. It does not exist in the world where the price is higher. That divide is what supply and demand observes.
The law of supply and demand says: When the price of a good or service falls, there tends be less willingness to sell said thing (decrease in supply) and when the price of a good or service rises, there tends to be less willingness to buy said thing (decrease in demand). Likewise, when the price of a good or service rises, there tends to be more willingness to sell said thing (increase in supply) and when the price of a good or service falls, there tends to be more willingness to buy said thing (increase in demand).
That's it. Not exactly groundbreaking. If you've ever stepped outside, even if only in Soviet-era Russia, you probably already reached the same independent observation. Why you think you need a "competitive free market" for that to stand is a head scratcher.
> But it is still supply which exists, just supply which is withheld from the market
It is something that still exists, but it is not supply as the law of supply and demand considers it. If "supply" was all things out there in the world, and equally "demand" every last wish someone has for something, we couldn't talk about supply and demand. It fundamentally could not be a concept. So what is it that you do think we are talking about?
> This is a problem of underutilisation in my view. Too many properties are being used as investments and not as a primary residence.
I've believed for a long time that heavily taxing income from second+ properties, similar to capital gains, would help reduce rent-seeker hoarding, to help free up and reduce the cost of properties for primary-residence owners.
Yes, any government that was serious about addressing this issue would take measures to decrease the incentives for property investment. Instead in most of the countries I mentioned property investment enjoys benefits that other forms of investment don't (tax, leverage, etc).
Personally, I think LVT would be the best approach.
It's not about vacation homes. It's about rentals in generic suburb #5, primarily, but it's also the case that an increasing number of rental properties are being left vacant thanks to "algorithmic collusion" being used to drive up rents:
How is this not a defacto transfer of wealth from renters to owners? Rental supply will go down due to reduced profits, and therefore ultimately rental prices as a whole will go up once a new equilibrium with fewer rentals is reached.
These sorts of suggestions generally seem hugely biased towards buyers at the expense of everyone else.
I don't follow. If you make holding an investment property more expensive than owning, than fewer people will own investment properties, reducing supply and increasing rental prices.
Yes, the investor makes less, but the expected result is less supply so rents are higher, not the same supply but with strictly lower rents.
Renting homes and building and selling homes are two different business.
Higherand higher marginal property taxes for owners of non primary residences disincentivizes owning secondary residences, hence disincentivizes renting, hence decreasing supply of buyers wanting to buy homes.
There will still be first time buyers or people moving, so builders should still have incentivize to build homes, hence supply should not cease to come online just because there are fewer landlords.
We tried subsidizing individual housing and caused the 2008 recession. It's better to let the homes be owned by those who will pay up whether their renter does or does not. A landlord provides a valuable insurance service in some ways.
Thing is, rental buyers really only make out well because they can rent places for more than their purchase/mortgage equivalent. If supply were large enough, I'd think rental rates below the average monthly mortgage payment would be more widespread and tend to make rental property ownership less appealing.
Absolutely agree. Everyone else that replied seems to disagree probably because they are landlords. Which is fairly high in HN. Oh I'M not the problem it's someone / something else.
The reason "not building" is not the issue, is because even brand new homes are being scooped up in investments.
Raise property taxes for all non-occupied, airbnbs, and fuck even rentals, and while it might cause rentals to temporarily go up, housing prices will drop like a brick. Make it unreasonable to rent out a home. Heck make it unreasonable to own a second home unless you're Bill Gates.
Raise property taxes? Those are usually a rounding error in a rental P&L (and it’s tax deductible)
The only way I see out of this mess is to ban ownership of SFH by anyone other than…single families as primary owners. Corporations, foreign owners, secondary homes, etc.
But we need to address other issues too: zoning (make Houston’s approach nationwide) and construction costs.
First two make sense ... rentals is really complex. How long are you willing to hurt those with the least amount of money.
Maybe a home owners break, and a second weaker first rental/vacation home break would match the current approach (and dodge more of the individuals who'd kill the legislation for for your idea. Alternately, a discount for occupied properties.
I was initially thinking corporate owned rentals or anyone with more than 2 properties, but the above seems cleaner.
Housing is such a unique thing that I think it should be treated differently when we talk in terms of 'capitalism', 'public services', etc. Everyone needs a house. Nobody can use more than one house simultaneously. Houses are incredibly expensive, but most of that cost is purely market-driven. Housing is, essentially, a zero-sum game.
The solution is to make the property-as-an-investment a less lucrative perspective by occasionally sabotaging the property value of (but not the ability to safely live in) houses that are not being used to house people.
A few high profile jury nullifications would probably be sufficient, but we gotta be the rational economic agents that the theories think we are and work together on this.
Unless you’re forming your own street gang (or conspiracy in the city planning dept.), my point is that you aren’t meaningfully influencing how risky the investment is either.
I was going to go with "union", but I suppose "gang" does the same thing, just so long as it's a significant percentage of the population, organized and acting with restraint and purpose. Because I agree, a random act here and there wouldn't do the trick.
1000%. I will never get tired of teaching people (it's news to every single one of them!) that at any given time, there are more than 20 empty housing units in the United States for every single homeless person on the street (https://www.self.inc/info/empty-homes/). There is not, nor has there ever been, anything resembling a "housing shortage". We live in a post-scarcity world as far as housing is concerned, and have for centuries. There is absolutely no barrier to housing every single human being beyond greed.
The entire framing of the issue as a false NIMBY/YIMBY dichotomy is a distraction from the reality that there is not and has never been a supply issue. The only issue is artificial demand from speculators who choose to withhold and deny a basic human right in the hope that it might magically raise in value for no reason instead of depreciate like every other asset.
I’m curious about how these empty homes are distributed? Take California for example, where there are 19 empty homes per homeless person according to the link provided. But where are these empty homes in California? If they are disproportionately located in areas far from employment opportunities, then this suggests that we still need to build more housing near employment centers. But if there are plenty of vacancies in areas close to job centers, then this is definitely something that needs to be looked into more closely.
> I will never get tired of teaching people (it's news to every single one of them!) that at any given time, there are more than 20 empty housing units in the United States for every single homeless person on the street
Are you suggesting we deport homeless people from cities with low vacancy rates, to cities with high vacancy rates?
> There is absolutely no barrier to housing every single human being beyond greed.
I suspect your answer to the question above will reveal a barrier.
Red states bus homeless to blue states, then blue states buss them right back until the problem is solved or one of them (the red state) runs out of money.
I don't understand what you mean. Nothing prevents people from moving to Madison. And let's not have any spurious claims that there are no good jobs in Madison: the unemployment rate is significantly lower in WI than in NY.
This is simply not correct once you account for the fact that people do not like to be uprooted from the communities they're part of. We are simply not in a post-scarcity situation for housing, and YIMBYism is essentially correct.
Homelessness is the most visible sign of a much larger systemic problem. For example, it's quite likely that many homes today are overcrowded, and people don't have as much space to live as they desire. This is bad! Not as bad as homelessness, but depending on the specifics still quite bad. The good news is that building vertically permits more private space per person, so we don't just have to accept things getting worse.
Your statement aggregates across cities with different job opportunities and economic outputs. You need to look at specific cities with housing problems, and ask whether building more houses in that specific city would alleviate housing shortages.
If this was true you should be able to build a new house for much less than the asking price for existing houses but unfortunately that is not the case either.
Definitely true. Probably also worth considering that during a speculative boom there is a lot more turnover which will increase the proportion of properties sitting empty while they are on the market (not sure how significant this would be but another example of how a booming market can lead to a decrease in properties used as a permanent residence).
> A lot of houses are empty simply because they are for sale. It's not unusual to take 6 months to sell.
A thought: Disincentivize having them for sale for too long, tax a % of the listing price every year it's on the market. That way gougers get penalized for crazy asking prices and there's some additional negative price pressure.
All that would result in is less transparency. People wouldn't put their house openly for sale anyone and you'd just create informal market places. Or worse people would just hang onto properties and not sell them at all, biasing towards turning houses into rentals.
>Right. (Insurance, too.) It's very expensive to let a house sit vacant.
I'd argue it's not expensive enough since it's frequently done.
EDIT: This has already become a common issue in locations like NYC, big money parked into properties with many commercial and residential units vacant. Better to pass those fees and borrow against artificially inflated value than it is to realize a loss.
EDIT2: I typo'd and meant to say 'pay', not pass those fees. (as a cost of doing business)
Commenting on Walter's comment below:
> I've sold houses before. I hated every day it was sitting there sucking up money.
I understand, my problems are with institutional/large wealth artificially constraining supply.
> As for artificially inflated values, bank lenders are not stupid and are not going to loan against a phony value.
Do correct me if I'm wrong but is it really their problem if they can sell that risk or the gov bails the whole sector out when there's a panic?
How much do you think prices would drop? Sure a lot of supply is now on the market, but for buyers it's "20% down or your sleeping in your corolla".
What about people living in an area temporarily? People who just moved?
Honestly, these ideas come across as you personally being ready to buy but wanting a lower price rather than wanting a more sustainable housing market.
This is 90% of internet suggestions. Lots of people want to buy and don't really think through the second order of their consequences (which largely fall on renters, in the end)
Rent controlled public housing. These could be mass produced and stacked like legos so that rents would be less than 1/3 of UBI. With the addition of municipal broadband there would be plentiful jobs for teleworkers in virtual call centers to provide a back end for no-checkout stores and providing teaching assistance to students using MOOCs.
Are you ”teaching” that because some 2% of housing units are empty we don’t have a shortage? Because I don’t think any of economy, capitalist or not can reasonably obtain 100% use of any resource. 98% is pretty dang efficient and I think is actually a counterpoint to what you’re trying to argue.
It does seem like we run the risk that if we expand building, especially low cost, nearly turn key rentals, that all the excess supply will be mopped up by corporate landlords like Blackerock etc. it’s a twofold advantage to prop up value of existing property portfolio, and rents have been high for so long with so much demand they may be a good return on capital over a very long term.
To counter this may be impossible; there are limits to how small you can build a SFH, and there is only so much land commuting distance from job centers.
Condos and apartments are generally a very bad investment, have huge disadvantages of high fees and lack of green space, so are a poor substitute. It’s sometimes better than renting, but it can swing wildly based on build quality of building, the maintenance, and competence of the board — very hard to evaluate or hedge against versus a SFH where you have autonomy. And in the US we rarely build family focused condos — so few have playrooms or playgrounds or 3 bed room units (outside NYC)
> In my view this is symptomatic of a more fundamental issue - global asset price inflation driven by a broken financial system (i.e. a system being artificially pumped up with cheap credit).
Spot on. You're not alone. For a more thorough and clinical review of how we're f'ed and why see Lyn Alden's "Broken Money".
To your point, ppl are fond to talk about the economy. That's a distraction. It's a false god. Fact: the economic system and the sociopolitical system both side on a foundation. That foundation is the financial system. Full stop.
Ask yourself, do Canada, Australia, New Zealand, the US, Britain, Ireland, etc, all have the same inability to build or is there maybe some other common cause?
In my view this is symptomatic of a more fundamental issue - global asset price inflation driven by a broken financial system (i.e. a system being artificially pumped up with cheap credit). Housing is just where the rubber hits the road and regular lives are directly effected. Just look at the tight correlation between the increase in the money supply and property prices.
For those who insist that the number of properties is inadequate, take a look at the numbers for each of the countries I mentioned in the first chart here: https://www.oecd.org/els/family/HM1-1-Housing-stock-and-cons... (Total number of dwellings per thousand inhabitants, 2022 and 2011).
This is a problem of underutilisation in my view. Too many properties are being used as investments and not as a primary residence.
Cheap credit causes an increase in demand. This is not demand for homes but additional 'artificial' demand for properties as investments. Think short term rentals, second homes, land banked properties, etc. By definition, only investment properties can be underutilised - owner occupied homes are occupied! So in an environment that encourages property investment you will see more underutilisation.
What will cause prices to fall is higher interest rates. This is what has been happening in NZ.