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.
The OECD link you’ve provided shows the complete opposite of your point.
The UK, Ireland, Canada, and New Zealand are at the bottom of % vacant dwellings indicating the opposite of underutilization.
Iirc, 20% of all bedrooms in UK are spare bedrooms in houses that are too big for their owners. This is indeed underutilization.
Underutilized would imply that it's literally useless dead space.
I have more rooms in my house than people, they have purposes.
UK census differentiates between rooms and bedrooms, so indeed an unused bedroom is likely a dead space.
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.
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).
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.
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.
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.
Rooms used for another purpose are not called bedrooms. See yourself: https://www.ons.gov.uk/peoplepopulationandcommunity/housing/...
How does a guest bedroom get counted, out of curiosity?
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.
That feels... weird. Would you say a car is underutilized if it's not being driven 24 hours a day?
They can be. My house is a four bedroom house. One of those is used as an office.
Nothing in the ONS link says otherwise, they just ask
"How many bedrooms are available for use only by this household?"
Also consider that many 3rd bedrooms in the UK are tiny. Like, "don't fit single bed frames and allow the door to open properly" tiny.
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.
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.
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.
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.
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.
It's the difference between 2011 and 2022 that I was highlighting.
Unfortunately the document doesn't show changes in vacancy rate.
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 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).
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).
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.
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.
Lack of building is not the problem - on the contrary.
You cannot realistically build enough so that the rents decrease.
And when you build you just fuel the vicious cycle of people -> opportunities -> people.
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.
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!
https://www.rmpbs.org/blogs/news/breckenridge-historic-home-...
https://www.nbcnews.com/news/amp/rcna17970
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.
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.
https://en.m.wikipedia.org/wiki/Induced_demand
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.
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 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.
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.
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.
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.
I think they answered in a curt but succinct way:
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).
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.
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.
Just trying to entertain the thought...
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.
More total costs divided by more total units is just the same cost per unit, if not lower because of economies of scale.
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.
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.
So... we should have paid builders to build more houses during the pandemic?
Eliminate regulations and laws limiting supply.
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.
Seems like the first amendment should prohibit that, but so far courts have not agreed.
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.
Funding bureaucracy only serves to increase the amount of bureaucracy
Giving them money is unlikely to help. They do not have any incentive to go faster.
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.
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.
Yes.
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.
What higher interest rates? We're nowhere near high interest rates.
Yeah, our current "high interest rates" are still artificially lowered by the Fed.
This is why NY is cheaper than the midwest.
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.
A lot of houses are empty simply because they are for sale. It's not unusual to take 6 months to sell.
Nobody is going to want homeless people living in it in the meantime.
Houses are also "empty" while they are undergoing renovation.
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.
They are already paying mortgage principal and interest, property taxes, utilities and maintenance.
Right. (Insurance, too.) It's very expensive to let a house sit vacant. There's also the risk of squatters, vandals, thieves, and partyers.
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 understand, my problems are with institutional/large wealth artificially constraining supply.
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?
I've sold houses before. I hated every day it was sitting there sucking up money.
to whom?
Borrowing does nothing to stop one from losing money.
As for artificially inflated values, bank lenders are not stupid and are not going to loan against a phony value.
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.
Most houses are listed publicly, require it for all of them. Transparency issue solved.
This is done already? Still an improvement over leaving them empty indefinitley.
How will you do that. Remember: "I wasn't planning to sell my old house at all, but when I got this offer out of the blue I decided to take it".
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).
so could this be resolved by having a high tax (~50%) on second/rental/investment homes?
So... where would renters live?
In their own houses. That's what cooperatives are for. Also prices would drop once speculation on housing is no longer profitable.
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.
No need to speculate. Other countries than the US do in fact exist and all these questions have already been answered.
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)
Private investors aren't the only way to have rentable properties.
And with not for profit housing, rent is much cheaper and gives a much greater opportunity to eventually no longer need to rent.
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.
Rents would go up to cover the tax increase.
A surplus of housing in Madison, WI is irrelevant to someone living and working in NYC, which has a severe housing shortage.
We are still subject to space time.
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.
Are you suggesting we deport homeless people from cities with low vacancy rates, to cities with high vacancy rates?
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.
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.
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.
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.
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.
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.
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.
0: https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=341001...
1: https://www.cmhc-schl.gc.ca/blog/2023/estimating-how-much-ho...
2: https://thoughtleadership.rbc.com/the-great-rebuild-seven-wa...
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.
This is a lot of mental gymnastics to pretend people don't need places to live. More people are born, hence more housing is needed.
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.
Why would the laptop class need to commute?
I didn't say they would.
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.
This reduces housing value close/in the city.
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.
https://www.macrotrends.net/global-metrics/states/california...
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.
https://www.numbeo.com/cost-of-living/city_price_rankings?it...
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.
How much more housing? More housing is being built.
Average house size has increased significantly over time. Average household size trends broadly downward, with rare counterexamples.
When is "better" also "more"? Because better costs more, just like more area costs more. What resources should be redirected from quality to quantity?
5pc is considered the healthy level of vacancy because some apartments are always free as people move in and out.
It’s similar to how totally full employment is actually a sign of a labor shortage.
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.
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.
That’s already included into the current ~3% numbers. So 5+% represents a much larger increase than just 67%.
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.
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).
[1] https://www.brickunderground.com/buy/what-is-a-nyc-pied-a-te...
[2] https://www.nyc.gov/site/hpd/news/007-24/new-york-city-s-vac...
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.
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.
I lived in the West Village for the last 6 years, also facing the courtyard and maybe seeing 20 apts, pretty much all consistently utilized
¯\_(ツ)_/¯
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.
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.
Yes they do, to varying degrees. The Anglo land use regime is a disaster.
Asian countries have a lot more people and build a lot more housing.
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.
They're generally lower than the US, despite having a higher population density.
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.
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.
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.
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.
I don't think so. Ask any indians about the cost of buying a property in eg. Mumbai.
This really is a global phenomenon. I don't know where the reluctance to admit that comes from (not you specifically, but in general).
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".
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.
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.
https://www.reuters.com/world/china/chinas-new-home-prices-d...
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).
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.
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.
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.
It's always amusing that this implies back when housing was cheap, landlords weren't greedy.
Not really? It could also imply that they were greedy then, but less capable of acting on their greed.
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.
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.
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.
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.
Yet it’s one of the worst at providing affordable housing per a study conducted by Rice University:
https://kinder.rice.edu/urbanedge/report-houston-second-wors...
At this point many high COL cities have sprawled out as much as is reasonably possible and then some.
People now commute from Stockton to San Francisco which is already a 2.5hr drive.
Just nitpicking here, but Milan (Lombardy) is the second most expensive region in Italy. The first ist South Tyrol: https://www.immobiliare.it/mercato-immobiliare/
Probably because income there is higher than in the province of Milan, and quality of life is better for some indicators.
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.
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.
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.
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
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 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.
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.
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.
Beijing, Tokyo and Singapore are not that expensive to live in. Especially if you're renting.
Hong Kong has all sorts of crazy building restrictions and is a different story
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.
Not to mention, it's about the only extant example of a benevolent dictatorship.
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.
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.
Tokyo does have cheaper housing at a income : cost ratio and is growing in population.
Depending whose numbers you believe, Tokyo stopped growing around 2018 and has been slightly shrinking since. https://www.macrotrends.net/global-metrics/cities/21671/toky...
Tokyo does have much lower housing costs than New York because they build enough housing :)
Rent prices are 72.9% lower in Tokyo compared to New York [1].
[1] https://www.numbeo.com/cost-of-living/compare_cities.jsp?cou...
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.
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.
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.
Taxes on rental income are already more than capital gains tax rates.
Then they need to be at least doubled, and funneled into individual owner-occupied housing subsidies.
Crushing the real estate business with taxes isn't going to increase the housing supply.
It will if every AirBNB becomes a place someone can buy.
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.
People don't buy vacation homes in generic suburb #5 which is where most people statistically want to buy homes.
Vacation homes are in beautiful tourist areas. That can be a problem for local workers but I doubt this is much of a problem for most markets.
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:
* https://www.businessinsider.com/real-estate-apartment-rent-p...
* https://www.propublica.org/article/yieldstar-rent-increase-r...
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.
Marginally higher and higher property taxes for non primary residences would deal with that.
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.
The problem is that there’s enough demand out there—as capital seeking to be invested—to keep supply constrained.
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 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.
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.
Nice try. Oh The Urbanity! - "What Happened When This City Banned Housing Investors": https://www.youtube.com/watch?v=BRqZBuu_Ers
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.
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.
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 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.
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.
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.
[0] https://vancouver.ca/home-property-development/empty-homes-t...
[1] https://dailyhive.com/vancouver/vancouver-empty-homes-tax-st...
[2] https://vancouversun.com/news/local-news/dan-fumano-some-new...
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)
British Columbia passed province wide zoning to allow quad plexes on every single family home lot, so hopefully that will help.
Vancouver is full of a population which kicked out the ladder after they got theirs. We moved away a few years ago and haven’t regretted it since.
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.
0: https://vancouver.citynews.ca/2023/02/03/bc-condos-investor-...
The vacancy rate in Vancouver is now minimal.
Did you misread something? Maybe from this post:
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%.
Why do you choose to just tell lies?
Two more causes:
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.
Another cause: people live until an older age.
Life expectancy increase has leveled off a while ago.
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.
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?
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.
Taxes cause all kinds of distortions and inefficiencies as people adapt their behavior to them.
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.
I wish there were a $500k capital gains exemption for turning my ETFs into a house.
Yet another way in which real estate receives massive privilege.
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.
https://www.forbes.com/sites/hyunsoorim/2024/05/20/here-are-...
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.
Also known as sufficient property tax.
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.
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.
... which are also the same ten square yards where all the butt-in-the-air folded-in-half fent zombies hang out.
Sorry but it's true.
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.
There were cranes everywhere back in 2017, now the cranes are mostly gone. My rent increases every year, generally by 10%.
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.
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.
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.
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'd love to see a progressive rate purchase tax on properties. Proceeds to fund transit capital expansion.
Above the median, buyers (and therefore developers building) start incurring increasing transaction costs.
Part of the issue is that builders can dump luxury properties into the market, then wash their hands of future responsibility as soon as it's sold.
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.
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.
crafting a "i owe you a house" and giving it to the investor while squatting the real estate seems much more efficient
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.
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.
Its tough
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.
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.
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.
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.
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.
People really want there to be "one reason" for skyrocketing housing prices. Real life is not so accommodating.
The problem is multi-faceted.
Is there asset price inflation due to cheap money? Yes.
Have foreign nationals been parking their cash in real estate in certain western countries? Yes.
Has restrictive zoning and NIMBY-ism reduced the incoming supply of new homes? Yes.
Multiple things can be true at the same time, all contributing to the current state of affairs.
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.
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.
All need to be addressed.
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.
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).
Right, but when you’re driving 100km/h down the road, hitting a moose will slow you down a whole lot more than a bird.
Is there any discussion in the scaling/proportion of a given facet when these get brought up?
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.
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.
I reject the idea that not having a backyard means that that property is shitty.
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).
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)
0: https://www.newshub.co.nz/home/politics/2021/12/the-full-lis...
I think it's a different problem entirely.
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
EUR 400k for a newly build home in the greater Berlin area seems like extremely affordable in my opinion.
Houses, like other goods, decrease in value over time. A new house should be significantly more expensive than a 50 year old house - just like a car.
I was picking the absolute lowest cost for an example, so on one hand it should have.
On the other hand, what's that in "years of average income", and does it seem reasonable that half of this is the land itself?
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.
The median pre-tax household income in Berlin is €43,572, not everyone gets to be on software engineering pay scales: https://allaboutberlin.com/guides/salaries-in-germany
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.
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.
This is akin to denying the existence of climate change or evolution, or that the Earth revolves around the Sun.
Yes, housing prices are determined by supply and demand.
This was found to be true by a California Circuit of Appeals: https://x.com/CSElmendorf/status/1774115015551074434
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/1643477536695803904 https://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."
There are plenty of sources which show a strong correlation between new supply and housing prices: https://x.com/sam_d_1995/status/1762597879154123241 https://x.com/JeremiahDJohns/status/1761205726230216943 https://x.com/ArmandDoma/status/1770961181093859375 https://x.com/jayparsons/status/1761028332781478227 (STRONGEST:) https://x.com/JeremiahDJohns/status/1761205728356802806
There is plenty of unused space in our cities for new housing: https://x.com/ftw_cool/status/1779228107754623084
Texas vs California; Texas builds a lot and has lower housing price growth, California builds little and has high housing price growth: https://x.com/jburnmurdoch/status/1760995124690231526
This effect holds regardless of if the new housing is "affordable", "below-market rate", or "luxury": https://x.com/jayparsons/status/1712110658601255211
That supply and demand applies to housing has been reported repeatedly in the news: https://x.com/AlecStapp/status/1757939504126832802
Lots of new apartments have been built lately. The effect on rent growth is obvious: https://x.com/mnolangray/status/1755818637750161540
Landlords themselves acknowledge the difficulty of finding tenants and getting high rents when there is a glut of housing inventory: https://x.com/sam_d_1995/status/1752346758254887132
Surprisingly, supply and demand also affect housing prices in the Midwest: https://x.com/StatisticUrban/status/1752008654734147718
Real estate investors and landlords acknowledging that new construction lowers rents and increases vacancies in their properties: https://x.com/SmackTrout/status/1652396524389961731
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.
You clearly did not look at any of my sources.
You have zero evidence for this claim and cited zero sources.
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?
Are you sure finance wasn't the main cause?
sources: https://www.oecd.org/els/family/HM1-1-Housing-stock-and-cons... https://www.globalpropertyguide.com/pacific/new-zealand/home...
Edit: Also compare what happened to the money supply over the same period: 2011(NZD180 billion) to 2022(NZD400 billion). https://tradingeconomics.com/new-zealand/money-supply-m3
Neither of these point to any direct causation.
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.
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
Higher rates don't do anything because incumbent owners simply pull houses off the market to wait it out.
You need to increase carrying costs. Land value tax is the best way but it's about as far as you can get from what's implemented anywhere
You need a recession.
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.
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.
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.
What is the connection between the Irish housing crisis and NAMA?
The tl;dr version is encapsulated here; can't post an archive link as on the work VPN
https://thecurrency.news/articles/86599/we-had-our-chance-to...
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...
You can think back a decade as you say, but your recollection isn't in accordance with the recorded protests at the time https://www.independent.ie/news/protesters-call-for-nama-fun...
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...
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.
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.
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.
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).
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.
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'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.
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.
I _wish_ the UK had zoning. Instead, there is no by-right development, everything has to get it's own individual permission.
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.
https://genus.springeropen.com/counter/pdf/10.1186/s41118-02...
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.
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.
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.
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.
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 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.
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".
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) ?
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.
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 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.
Put it this way: if over-supply were a problem, what would happen?
Depends if property tax was appropriately high to encourage productive use of the land (rather than letting it sit empty).
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.
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.
Are you missing a /sarc tag?
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.
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.
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%.
[1] https://www.theguardian.com/uk-news/2024/feb/23/birthrate-in...
[2] https://commonslibrary.parliament.uk/research-briefings/sn06...
[3] https://commonslibrary.parliament.uk/research-briefings/cbp-...
[4] https://www.pittandmoore.co.nz/publications/foreign-buyer-ba...
[5] https://www.bbc.co.uk/news/business-50504151
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.
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.
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.
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].
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."
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
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].
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.)
[1] http://news.bbc.co.uk/1/shared/spl/hi/guides/456900/456991/h...
[2] https://www.theguardian.com/business/2024/mar/14/who-are-the...
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.
The issue is it takes significant pressure over time for any real effect to occur here.
Think San Francisco or New York in the 70’s type of ‘urban decay’. [https://amp.theguardian.com/cities/2015/may/18/welcome-to-fe...
A one-off broken window, or never cutting your grass isn’t going to do anything.
Realistically? High central bank rates for awhile does the same thing.
1974 had a fed rate of 10.74%, 1975 5.82%, etc. [https://www.macrotrends.net/2015/fed-funds-rate-historical-c...]
But we don't control the fed. The degree to which these investments are risky is our only lever.
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.
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.
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.
I don’t know about those other places but Australia definitely has a horrendous under supply of homes
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.
Following this logic it would be a net positive to buy an apartment building, move everyone out, and live in it as a single family home.
That makes no sense.
Yes, it's lack of building.
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.
On the other hand, Moscow got densified to hell and back during 2000-s. Guess how it affected the housing prices?
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.
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?
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.
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.
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.
Rare perspective, and I totally agree. Building more homes is like expanding roads. It doesn't solve the root problem.
The obvious answer is predatory finance capitalism.
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.
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.
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.
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.
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)
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!
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.
"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.
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.
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.
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 buying 1/10000th of Apple Inc.
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.
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.
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.
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.
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.
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.
https://www.lynalden.com/broken-money/
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.
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 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).
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.
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.
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%
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.
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.
Ugh. Another “it’s not X” post…
Yes, it is. It’s everything.
It’s inflation.
It’s that none of the countries you mentioned built anything during the covid craze (word selected specifically).
It’s regulation and complexity and permitting and zoning.
It’s AirBNB.
It’s remote work.
It’s manipulated stock markets and poor returns on other investments.
It’s blackrock and VCs and MBAs.
It’s out of country investors.
It’s everything.
So why these reductionist “well, I know it isn’t X” posts are supposed to be insightful, I have no idea.
Who told you it needs to be one thing, or can be disproven as one thing?
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...
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.
You picked culturally-similar countries with common law systems and a history of local zoning.
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.
A land value tax would fix this.
https://www.gameofrent.com/
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.
Yes! Yes they all do! None of them are producing housing at anywhere near the rate required.
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"
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.
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.