I wonder because no one speaks about the poverty created by the last few decades, which might contradict what you wrote, or might not. I also wonder where one could track creation of wealth and creation of poverty.
(living outside income, for example, i think of as creating poverty)
I have family photos from back in the 50s showing lots of good orchards in the Bay Area. Certainly no dust bowl stuff. If I remember correctly, my grandparents bought their 5BR tract house in Santa Clara in the mid-1950s for somewhere around $15 or $16k, which was ~40% more expensive than the median California house back then. The Bay Area has always been expensive!!!
I mean, no, "good orchards" aren't desirable homes, by definition. There's at least an order of magnitude delta in real estate price between the two! And sure, your family found a very nice neighborhood in the south bay. That doesn't mean that South SF wasn't a dump or that Fremont wasn't completely uninhabited.
Because my upthread point was, and remains, that you can't look at the history of "desirable homes" over a 75 year scale because by definition desirability changes much more frequently.
Getting long historical series of economic data is often a challenge due to changes in definitions and sampling methodology over time. FRED has a bewildering array of both income and house price series, all with subtly different definitions, most with pretty short histories.
Median wages are up since significantly since 1950 (most stagnation was after 1970s), and house building is expected to be heavily affected by purchasing power parity, using a heavy portion of local labor.
Occupational deaths in construction went from 8 per thousand workers in 1950 to below 2 per thousand today, but I couldn't find numbers for residential. In the 1950s, if there was as much highschool attendance as today, out of each medium sized highschool you'd expect a higher than 50% chance of one of your peers to eventually die in a construction accident.
The rest is the "true" growth.
Ultimately it doesnt change the fact of affordability unless one can also find homes w/o indoor plumbing to make up for inflation.
But, affordability isn't represented well by inflation, either. Median family income in 1950 was equivalent to $45k today; the actual number is $100k.
A big part of the issue is that workers stopped benefitting from productivity growth in the mid-1990s. That's what's really made the housing crisis particularly sharp.
Distributing the benefits of increased productivity to the workers was never part of the capitalist motto. That was what socialism was for.
That's why Europe is falling behind the US at tech innovations. People aren't gonna put in the risk, the grind and the hours if they'll get the same living standards as a unionized tram driver.
They pay cash, too, which many sellers like.
One example is my grandparents' home was built in the 1930s. It's a small home but in a good location and they said when they were younger it was worth ~200,000$ (I don't know the exact decade they were talking about here but from context it was somewhere in the 50s to 70s). The literal exact same house is now worth around 3,000,000$. The house now needs a lot of work (it actually decreases the value of the land) but the price is still 15x higher.
If this is true, and using 1960 as our middle of the road, then this isn't exactly "egregious". 200k in 1960 is 2.1M today just accounting for inflation. If we use 1950 it's 2.6M and if we use 1970 it's 1.6M. Now sure the house needs work, but I also. bet the area even if it was "good" when they built it in the 1930's how many more people are living in the same location now all vying for the same plots of land? People often gawk at what their parents or their grand parents paid for their houses, but rarely consider what living there would have been like 30 or 60 years ago. I have some relatives that bought a house outside a developing area about 30 years ago that's probably seen an easy 3-4x increase in value (of which only 2x would be accounted for with inflation. But the difference between then and now is that when they bought that home, it was 1 of 6 on a street in the middle of nowhere, surrounded by fields and undeveloped land. There was a single main road that ran through "town" about 5 minutes away that had 2 gas stations, and 3 fast food stores and a grocery store. For anything else you were driving 20-40 minutes into the nearest city (or around). They commuted every day 45 minutes into the city. Today that same area is bursting with new homes, there's now 2 exits / entrances onto the highway within 10 minutes of their house, the main street is jam packed with businesses and filled with strip malls and shopping centers with multiple grocery stores, and a good chunk of the main "national brands" you might expect (Home Depot, Lowes, Walmart, Gamestop etc). And just about anything they don't have along that main street and it's adjoining centers can be found 15 minutes away in the shopping centers and neighborhoods that sprung up between them and the city. In short, the house they live in today is in the sort of place some folks looking to move into a thriving and growing area would want to move into, and the house they bought 30 years ago was in the sort of backwoods sticks that such people would be avoiding as "too remote".
Also, your example of your grandparent's home is long tail. Some places have seen skyrocketing prices that have everything to do with the location (and zoning restrictions limiting stock of housing in area). Example would be Santa Monica. Lots of coastal towns in California. But median, not mean. Think about all the one-room shacks that used to exist. You don't see them anymore because ... why would someone keep them around now? The homes that survive are the ones that retained enough value to make it worthwhile to keep up/restore.
Here in southwest Virginia, an empty lot near town might be about $40k. A house built on that will have multiples of that value.
Next you'll tell me you can't eat iPads.
A "basket" is chosen as a realistic example of how a typical person spends their money. Your personal "basket" is going to be different to mine.
If you don't think the typical basket is representative, then be honest and come up with your own basket and work out what your personal inflation is.
Some will have inflation far higher, others will have it far lower, that's the nature of a generalised number.
None of this means that the figures are "doctored"
The typical home is a reasonable basis for comparison.
All the high prices “now” are concentrated on the coast - where was that wealth 80 years ago ?
Homes now are probably 3 times as big as before
Want pricing to go down then we need to build more dense housing even an hour drive from the city. The days of wanting a big backyard are coming to an end for most home owners.
You can't really run power tools in dense housing, correct? Or fix stuff yourself? Sounds awful.
To each their own though. I definitely grew to understand that if someone was raised in rural or suburban life, it would be extremely hard to adjust to hardcore city life, and vice versa. But I don't think we should be blocking build ups for one, if there's demand.
There are lots of benefits to density. Our grocery store and day care are less than ten minutes away on foot, because there's a ton of people so we can support these kinds of businesses (also weed, hair salons, bars, cafes, boutiques, secondhand stores, restaurants, play cafes, etc etc.)
You need mass transit and transport integration. House density can only move you so far (and it's not very far).
Up to some point, and it's not even that high...
What really makes mass transit viable is integration.
1. bigger houses
2. a lot more equipment in it: electricity, plumbing, AC
3. zoning restrictions reducing supply to increase the value of existing houses; owners benefit from that, local government benefits even more from higher property taxes and also from permitting taxes
4. increase of demand due to different factors, like lifestyle changes (back then almost nobody lived on their own in a house, single people were very rare by comparison), unequally distributed immigration and internal migration to some cities)
5. very different and more expensive safety requirements for new houses
6. more expensive workforce building the houses
7. huge reduction in self-building houses and price gouging by the developers
and more
also 300 sqft condos.
sqft per person hasn't changed much since 1980s.
(I wanted to strangle Trump when he once commented that real estate in India and other parts of Asia, are still "undervalued"!)
Had no data for low/middle income countries, but thanks as well for reporting that it’s a global issue.
When demand starts slowing down or supply is caught up (it's happening everywhere outside of Tokyo in Japan, and somewhat in HK and other places as well), they stabilize or go down.
Many current homeowners have their wealth in their home, they want it to (in some cases) to continue to out-perform the S&P 500. Since they live there, they bully the local governments to not allow more building so there is less supply to compete with their asset. State and federal agencies are going to have to step in at some point to incentivize local governments to upzone. Not even mentioning this isn't remotely sustainable as a tax base in most instances, because subdivisions and infrastructure to deal with the sprawl this a bill that will come due in a harsh way making higher property taxes inevitable pricing out many of the people that were in. The #1 reason people are fleeing California and New York is due to costs...and in turn they are about the lose electoral power in Congress and Electoral college.
In a related phenomenon, people will pay more to be around better neighbors (which you can see reflected in price differences across similar houses in similar areas but in different school catchment areas). It makes some sense that people will pay as much as they can to be in a better area with better kids when you look at the state and direction of public education. If you can't afford private school, that's basically your only lever to try to buy quality. If you can, you still have a tradeoff that you could spend ~13k/yr/kid on tuition or add 200k/kid to your home budget to live in an area with better public schools. Living in a more affluent area carries other QoL benefits as well of course.
- We clearcut 95% of US timber, now the remaining 5% is in states like Oregon, Washington and Idaho. Some wood is an order of magnitude more expensive or simply unavailable, with prices held artificially low by importing wood and deforesting Canada, for example.
- Good, fast, cheap (pick any two). We build homes good and fast, but little effort is being made to reduce costs by an order of magnitude by using materials like hempcrete.
- Zoning laws have been changed so that row houses and 3-4 story apartments can be built right up to the road, maximizing profits but externalizing urban decay. High price/low value.
- The US adopted a service economy when it sent 100,000 factories overseas under the GW Bush administration in the 2000s after Clinton signed NAFTA in the 1990s. Now a smaller fraction of the population does the work of building homes, with most everyone else pushing paper, so charges what it wishes.
- People with high carbon footprints had more children. Bigger houses for high consumers left less housing for thriftier people.
- Garages, lawns and commuting wasted immeasurable resources after we could/should have transitioned to sustainable energy and transportation in the 1980s but chose to double down on the nuclear family, trickle-down economics, etc.
- The cost of those unnecessary roads was factored into property taxes, driving home prices higher.
- Nearly unlimited financing was available for home loans, while almost none was devoted to startups and other disruptive industries. We got what we paid for (McMansions instead of, I don't know, 3D printed homes).
- Modern techniques were almost never adopted into building codes. So rather than running wiring conduit through walls or encouraging similar practices to make additions and remodeling easier, we encouraged tearing down and building from scratch, which wasted countless trillions of dollars.
- The tax system doesn't value trees, existing structures, previous money spent on remodels, etc. So developers profit from bulldozing homes and razing lots in a day to build houses in a month. The human and environmental cost of that can never compare to moving homes, remodeling them, etc.
- Our culture and entertainment tell everyone they need granite countertops and $50,000 gas guzzlers. Things are expensive because other people consume more and more and more with insatiable appetites and expectations.
- Wealthy people who could have steered our culture in a positive direction chose to do nothing. Or worse, actively encouraged extractive and vulture economic policies to enrich themselves further.Some quick unverified googling says that in 1950 US Median income was $3300, and that inflation since 1950 has been a 10.89x increase. US median income today is $80k.
So indeed, housing has gotten a lot more expensive in real terms. But we've all gotten richer, and on average A US Household is spending less of its income on housing today than in 1950, not more.
California, it's true, is sort of out of control. But that's clearly a local thing in two metro areas, not a problem with the economy as a whole.
I live in an affluent suburb in a rich city in a sleeper town just outside Toronto. My home was built in the past twenty years and is in a "McMansion" style neighbourhood. It's a relatively large home, but in many ways things have regressed.
Craftsmanship is non-existent. The kitchen cabinets look like Ikea specials with shelves held up by little plastic pegs. All of the various particle board doors are installed laughably poorly with giant gaps. Sound travels through the home with ease.
It's well insulated and has good multi-pane windows, but automation and mass production should bring a lot of that just with the passage of time. I would expect that all else being equal the same work should by better windows and insulation and so on than fifty years ago.
Regarding land value, it is interesting how in denial we are about land values. The city gives me property tax statements valuing my land at 1/10th the price of the dwelling...yet people are buying $1M homes on smaller lots and immediately tearing the home down to build new. More than a few cases of that demands that we completely upend our valuations.
- Building codes have changed. Things are much safer now than in the past. The chance of dying in a fire has decreased 1/4 since 1950 [1].
- Houses are much bigger. Houses have almost tripled in size [2].
- Quality of finishes have increased. People will probably debate me on this because things have generally gotten cheaper over time but that means that the expectation for a house now is quartz countertops and not vinyl.
- Desirability has changed. For example, the number of sports teams have tripled since 1950.
[1] - https://www.statista.com/statistics/526310/timeline-deaths-n...
[2] - https://www.ahs.com/home-matters/real-estate/the-2022-americ...
In a lot you could build one largish luxurious home and sell it for 1.5 to 2.0M
Or do 8 tiny townhouse units and sell each for 800K for a total of 6.4M
I don't see how the single home will ever be more profitable if a builder is doing it.
We're seeing a lot of these 8 townhomes per lot (4 on each side with small driveway in between) popping up everywhere, precisely because it maximizes profit per lot for the builder.
Many zoning codes prohibit building even a duplex in a "single family home" area.
Maybe this is starting to change in some areas.
That's the opposite of what we see around here. Developers buy houses from the 1940 to 60's (big houses on big lots), tear them down and build an 8-pack or 6-pack (depending on lot size) of tiny townhomes.
The only people building large houses are wealthy individuals building for themselves (as opposed to a development company building to sell) because they can afford to take the potential-profit hit and just build what they want.
Houses near desirable locations (e.g. sports stadiums) are more expensive. There are more of those desirable locations now (more sports teams = more sports stadiums). So the average is driven upwards even with no change to the housing itself.
Running a 15 minute errand on a game day could take hours. It was impossible to get my car out of the garage or get on/off the highway. The food/trash left on the streets was terrible too, which made walking my dog a PITA instead of a pleasure.
For me? Absolutely not, haha. But I'm sure it is for others. I have no idea what the average American would say.
People who choose to live, say 250mi from the nearest major professional sports team are going to have a ton less job opportunity, things of note to do, but will generally have a lot less to pay because no one else wants to live there.
If the market was flooded with options nobody would be talking about housing prices. People don't give a single thought about sports stadiums or if you're near a highway/airport or any of that soft nonsense. People are hard: they want a big house that isn't damaged on a nice plot of land above the flood plane where they don't spend 3 hours a day commuting to their job.
Who said that?
>People don't give a single thought about sports stadiums or if you're near a highway/airport or any of that soft nonsense.
You might not, but other people definitely do. It's common for people to have criteria when looking for a house (e.g. not having an airport or train station directly in your backyard, being near a good school, being close to x and y amenities, being on a main bus line, etc.). They don't go to a real estate agent and only say "I want a house". Being close to work is a starting filter. Most people apply more filters.
Stadiums were just an example of what people might consider desirable. I think the broader point hervature was making was that what is considered a desirable location (and the cost of being near those locations) has changed in the last 70 years. That is an effect on housing prices which is not clearly captured in the article's analysis.
- take the average household size in 1950 vs 2020 to calculate median house price per person in a household
- then take the average square feet per person and find out what % it has increased in the past 75 years
Then layer those stats on top of the inflation adjustments to hopefully remove some of the confounding factors?
Now "living wage" calculations assume that every child has their own bedroom.
Basically, if you are only allowed to build single family housing on a plot of land, it doesn't make sense to build anything other than a large luxury home.
Some food for thought in the other direction, though:
- Tools (e.g. nail guns, paint guns, concrete finishers, horizontal drilling for utilities, etc.) and materials (e.g. pre-engineered trusses) are significantly more efficient, so labor costs can be reduced which should drive pricing down. At least enough to offset changes in building codes, but likely more.
- Triple house size does not equal triple building costs.
- I would definitely debate on quality of finishes. Some might be better, but plenty is worse. For example, crown moulding is not as common (in my experience), and skirting is typically much cheaper, and I rarely see chair rails anymore. More often than not I see vinyl floors replicating wood instead of real hardwood floors.
Even if tripling house size doesn’t literally triple costs, that is a straw man. It certainly must account for some of the cost increase.
What data are you looking at? I worked in construction (to be fair, industrial and commercial sector) for over a decade. Productivity rates changed quite a bit during the decade I was an estimator. I will dig up my productivity books from when I first graduated and compare to the last one I purchased (a few years ago) when I get home.
>Even if tripling house size doesn’t literally triple costs, that is a straw man.
A straw man? Even if labor only accounted for 10% of the cost of building a house (it is much more), changes to labor productivity absolutely affect the cost to build. Productivity rates are different for a new build of 1000sqft and 2000sqft. Not sure how that's a straw man?
Also, just to clarify, I'm not really presenting an argument. I agree with the parent comment that these maps/analyses aren't able to capture all of the variables. They gave some variables to consider when looking at the article data. I'm giving some others.
>It certainly must account for some of the cost increase.
I said it's not a 1:1 relationship, not that size didn't account for costs at all.
I wonder if we could do housing the Chinese way and just give people a concrete box to renovate (houses aren't sold new renovated in China, and you are expected to do your own re-renovation after you buy a house second hand), but that really hasn't helped housing prices over there very much.
Why it's not there doesn't really matter when we're talking about costs. If it's not there, you don't have to pay for it, end of story.
Regarding labor costs and productivity, there is vastly more specialization in building a house now than there was in 1950. I suspect that in 1950 you only had a few types of skilled labor involved: carpenter, electrician, plumber, and maybe a flooring person (the flooring may have also been done by carpenter at that time). Now, there are additional specialties that need to be involved - roofer, concrete, HVAC, tile, countertop, appliance, etc.
But yes, absolutely, you are right that there are many variables at play. Which is what my original post, and the person I replied to, were trying to convey.
All of the things that I pointed out, as well as all of the things you point out, would be considered a "finishing material". Some are generally more high quality (e.g. counter, toilet) some are lower (e.g. vinyl flooring), some are no longer really bothered with at all (e.g. crown moulding).
One of the letters talked about how common fires were and how the standard practice was to just pull up a chair in the middle of the street and watch it burn.
1950: 6,405 fire deaths / 150,000,000 US pop = 0.00427%
2022: 3,490 fire deaths / 335,000,000 US pop = 0.00104%
Similarly the murder rate is a more accurate than other crime rates. Burglaries, muggings and assaults are often not reported to police whereas violent deaths almost always are.
Gred's post however strongly implies that the only outcome worth considering is death. That might be true for them, but I'm not sure if that applies broadly.
Speaking from experience, losing your house to a fire is traumatic, expensive, and you lose things that can't be replaced. Even when there are no deaths.
a) better electrical wiring and circuit provisioning. Overloaded outlets or circuits were more common in the 1950s. Fuses could also be tampered with more easily than circuit breakers.
b) Matches everywhere. You had matches in the kitchen for lighting the stove, and around the house for lighting cigarettes. "Kids playing with matches" was a common cause of fires. You don't hear about that nearly as much today.
In 1950 around 50% of adult males smoked, these days it is closer to 15%
"Smoking in bed" was such a common cause of fires that even in elementary school we were taught "never smoke in bed."
Basically everything is soaked in flame retardant: your insulation, your wiring, your furniture, your appliances.
Heater technology is way safer now. Central heat is a lot more prevalent, and space heaters are a lot less likely to start a fire.
I'd also add to your wiring point: electrical appliances are way safer and way less hot.
A counter-argument though is the prevalence of lithium-ion batteries. I do wonder if a spike in fires is coming--though I would've expected it by now.
Arguably came and left. In the early 00s battery pack explosions in cell phones wasn't a super rare event. Now Li batteries are a lot safer with better protections to keep fires from starting. Additionally, the biggest batteries someone is likely to setup for their homes are LFPs which are quiet resistant to starting fires. If sodium batteries are successful they'd go even further in being a non-issue.
Like, a big reason for fires in the 50s was paper covered and underspeced wiring.
Safe wiring simply uses plastic instead of paper.
I know the numbers support this but I always wonder why my observations are so different.
When growing up (I'm Gen X) all my friends houses and mine were pretty big. Most of us were lower middle class so these were cheap houses. Land was dirt cheap so houses used the space and still had huge yards. Houses were simple, but spacious.
By the 90s houses had shrunk, since now land was quite expensive so builders had less space.
All the construction going on right now in my town is even tinier, since land prices have skyrocketed, so builders have the incentive to stuff as many tiny units into tiny plots as possible.
So, where are these 3x larger houses these days?
The stuff that people buy now are much bigger and much more luxurious even at the bottom end.
I also think about Louis Rossmann's quest to find a NYC storefront for his repair business a few years ago. He brought a laser measure with him, to document how the actual space squared with advertisements. I don't know that he ever found a place that wasn't lying. Yes, New York and, yes, commercial, but I wouldn't be surprised to see similar tactics in place for residential, across the country.
I was curious what this house looked like, so I asked the address. Looked it up on Redfin. It was less than 2400sq ft. The house she was standing in and comparing to was twice that size.
Most of the appreciation in housing is due to higher household incomes due to two income households.
I wonder, should arguments like this be used to justify the issue? With technological advancements things should become better (i.e. safer in this case) without raising inflation-adjusted costs. Wouldn't it be very similar to saying that processors should have become more expensive because they became faster or hard drives because they have larger capacity? Additional costs built into the new codes should decrease over time as builders become more efficient at implementing them or technological advancements allow them to become more efficient.
- Square-footage-maximizing floorplans, with a 3-foot wide lawn that your HOA still wants in pristine condition
- "Open floorplans" so you can listen to the roar of your dishwasher, washer, and dryer from the comfort of your living room (is it cheaper to get rid of interior walls and doors?)
- Mandates to use more-fireproof sticks and boards, and non-carcinogenic insulation
- Incremental improvements in the technology of home appliances, no thanks to home-builders
I hate that's the sum of "progress" in housing quality. I wish more expensive homes meant something more than extra bedrooms with the same race-to-the-bottom construction and townhouse-level neighbor-separation as the next development.
My theory is that we simply don't allow building anywhere near the rate of increasing demand, which is reflected by the anemic supply growth compared to population increases.
Income and wealth inequality is increasing, not decreasing. Meaning people's quality of life is decreasing.
The most expensive part of a house is the land it stands on (which also determines the building codes and the local labor price).
A good investment outperforms its alternative asset classes. We chose policies that ensured they’d be a good investment. For housing to become cheap in our lifetimes, existing homeowners will need to experience an enormous capital loss.
This has been exacerbated by the long-term decline of interest rates. Sticker price and interest rate are roughly inversely correlated since the monthly payment a prospective owner can afford is roughly fixed. Over the past fifty years, boomers have been able to regularly refinance their loans into lower and lower interest rates as prices skyrocketed. This also made it easy to move since you could trade up on your home’s increased value relative to the remaining mortgage.
That pathway isn’t as available to millennials who bought at sub-4% interest rates, and it likely never will be.
> Sorry, you have been blocked
> You are unable to access kinsta.cloud
Prices, accordingly, have risen.
I think what we see here is primarily a function of constrained supply.
Also, having owned older built Canadian houses, they're a constant maintenance. Many were not well designed and don't age well (wood construction). So for them to still appreciate tells you how much government has been busy printing. Where does all that money go? I sometimes wonder.
Indebted servitude to banks, a good chunk of a lifetime of work to pay off one of these mortgages. And waging so government can take most of it in taxes. I'm not sure if this is sustainable much longer without a revolt in Canada... at least younger Canadians may one day decide it's not a good system and turn the tables. Average house price in Canada is like 700k now, average wage is like 54k.
Young people have to do their best to survive in an unfavorable macro for the life they have left, and old folks age out eventually (which is the only way they give up power, the power which is needed to make change to improve the macro).
https://news.ycombinator.com/item?id=40338619
https://www.ted.com/talks/scott_galloway_how_the_us_is_destr...
https://www.youtube.com/watch?v=u-PinTQcuik
https://www.axios.com/2024/07/25/adults-no-children-why-pew-...
A lot of those old folks have children who will inherit their homes.
If you are lucky enough to inherit an unencumbered (or one with a mortgage you can at least afford) residential property you can live in as a young person when your parent(s) pass, that is fantastic luck. Take the win if you can get it. That is not the mean experience, based on the data.
https://www.gao.gov/financial-security-older-americans
https://www.nbcnews.com/business/consumer/generational-wealt...
https://www.nytimes.com/2023/05/14/business/economy/wealth-g... | https://archive.today/fpbNK
https://www.deseret.com/business/2024/09/10/millennial-gen-z...
It's fairly likely we won't see any inheritance from him. The 2 of us who can realistically work for a living might make more, but it's not looking likely either of us will ever be able to retire. On the other hand, if I chose the same life, it's plausible I could buy a house eventually, but buying a house in my home town isn't worth the trade of living in my home town.
Primary residence equity is the largest component of wealth in most family estates, ergo maximize efforts and opportunity to protect that wealth. When it’s gone, it’s gone. Good luck.
Is it more likely the trend continues and young people will simply become priced out, or is a correction more likely? If the latter, what are smart people expecting?
>Is it more likely the trend continues and young people will simply become priced out, or is a correction more likely?
As a layman, take this with a huge grain of salt: it depends. By established rules, a major correction should be imminent. In fact, it should have happened one of several times already.
Examples of catalysts include a bond liquidity crisis in late 2019, the flash crash at the start of the COVID pandemic, the Gamestop debacle in early 2021, the collapse of the Chinese real estate market later in 2021, and the US bank collapses of early 2023. There are also others, though several venture into conspiracy theory territory.
In every example I mentioned, unprecedented action was undertaken to prevent a catastrophic event that might have lead to financial contagion across global markets. There will be probably be more. It remains to be seen whether authorities will continue undertaking steps to shore things up when the bubble threatens to pop. (Trump's return to office is an interesting wrinkle; grab another grain of salt, but it's my opinion that the Gamestop thing only got as bad as it did because the regulatory regime under his tenure was asleep at the wheel.)
It should be noted that a correction doesn't necessarily lead to affordability if purchasing power simply continues falling or remains stagnant, as a result of a weaker job market. There are people who believe that sellers will simply refuse to drop residential real estates prices, as they have with commercial properties. Consolidation of ownership under large entities - as we've already seen to some extent - would allow owners to simply squat on properties, perhaps renting then out. Who knows what happens to the algorithmic rent fixing lawsuits, that might have brought those costs back to Earth a bit, after this year's electoral red wave.
With regards to the labor market, due to structural demographics and labor shortages, it is highly unlikely in my opinion that the job market weakens to the point where housing experiences a crisis from a rapid, sustained increase in homeowners who cannot afford their mortgage payments.
https://www.voronoiapp.com/demographics/Over-Half-of-Househo... ("Over Half of Households in the U.S. Don't Have Kids")
https://www.fanniemae.com/research-and-insights/perspectives... ("U.S. Housing Shortage: Everything, Everywhere, All at Once")
https://www.fanniemae.com/media/45106/display ("Fannie Mae: The U.S. Housing Shortage from a Local Perspective")
https://www.marketplace.org/shows/marketplace/the-housing-se... ("APM Marketplace: The housing sector droops under a labor shortage and price hikes")
https://www.businessinsider.com/baby-boomers-housing-wealth-... | https://archive.today/OsNgL ("Business Inside: Baby boomer homeowners got rich from skyrocketing house prices. Now they can't find retirement housing.")
https://www.bloomberg.com/news/articles/2024-09-18/us-faces-... | https://archive.today/Lyr5t ("Bloomberg: US Faces a Deficit of 6 Million Workers in Less Than a Decade")
https://www.axios.com/2024/06/27/labor-shortage-workforce-ec... ("Axios: Labor shortages are the new normal")
https://www.axios.com/2023/08/27/labor-shortages-air-traffic... ("Axios: Labor shortages plague high-stakes industries")
https://www.axios.com/2023/05/08/us-labor-shortage-older-wor... ("Axios: Why labor shortages could be here to stay")
Home builders, especially with a risk-free 4% return today, do not have any incentive to build “cheap” or “affordable” housing, and as material prices continue to increase because there are 330 million people in America who also want those resources, new builds will have to continue to increase in price and perhaps decrease in quality, depending on how much oil goes into the construction of the house. Home builders, absent clear evidence of industry collusion will simply increase their profitability and will not build ‘starter homes” or “affordable housing”.
We can address the issue in a few ways, for example removing artificially limiting zoning practices, generally speaking, or perhaps the elected government can just pay for cheaper housing, or we can craft good legislation.
But on its own I don’t see a good catalyst right now that will cause home prices to “correct”* without a treatment worse than the disease (economic depression or global war or something else that is otherwise catastrophic).
* The term “correction” is popular but misused. The current price of an asset is always correct. When an asset decreases in price, that decrease is no more correct than a corresponding increase in price.
https://news.ycombinator.com/item?id=39037589 ("HN: Remote work doesn't seem to affect productivity, Fed study finds")
https://www.stlouisfed.org/on-the-economy/2024/nov/why-do-wf... ("Federal Reserve Bank of St Louis: Nearly half of people working from home — who moved to a different state — moved because of housing.")
People argue about paperclip maximizers that don't exist yet while being unaware of the one they live their lives in today.
I'm not from the US, and unfamiliar with the statistics, but in NZ the general narrative has been similar - i.e. "the property price boom was due to a shortage caused by an increase in population and a lack of new stock".
For NZ, this doesn't hold up when looking at actual statistics.
- Prices rose x4 between 1995 and 2021 (inflation adjusted).
- The total number of households to total number of dwellings remained relatively unchanged over the same period.
- The average household size remained steady (i.e. it's not just a case of each dwelling housing more people).
Given the above (and some other evidence), my assumption is that the property boom was not driven by increased demand for homes, but by steadily declining interest rates causing an increase in demand for investments. If this is true, and we are at the end of the era of ever decreasing interest rates, then I believe a correction is entirely possible (it is well underway in NZ - 30% down in 3 years in my city).
I would be interested to know what makes the US situation so different (my feeling is that the situation in most anglo countries is similar - if not so extreme as NZ with regard to price rises and population increases).
https://nlihc.org/resource/gao-releases-report-institutional...
When I said "steadily declining interest rates causing an increase in demand for investments", I wasn't referring to institutional investment only (for residential properties this is almost entirely insignificant in NZ). I was referring to the motivations of all purchasers.
Nobody was paying the average of NZD1M for just a home - they were making an investment with future capital gains in mind (as well as getting a home). Now that credit is no longer cheap those capital gains are less than assured - even negative. So a correction is occurring. The correction has not been caused by a drop in demand for homes/places to live.
The solution is already known, as it has been executed successfully in many places, including Singapore, the UK[2], and the Soviet Union: the government builds units directly and either sells or rents them according to affordability rather than cost. This will destroy housing as an investment, which would certainly have knock-on effects, but in terms of solving the problem at hand - "Are there enough places for people to live?" - it's adequate. Chalk up any resulting difficulties as a redistribution of the externalities of letting the problem fester for so long.
>With regards to the labor market, due to structural demographics and labor shortages, it is highly unlikely in my opinion that the job market weakens to the point where housing experiences a crisis from a rapid, sustained increase in homeowners who cannot afford their mortgage payments.
Please see GP for examples of situations where just that exact scenario happened (China, relevant because of the potential for financial contagion) or almost happened (the rest). It's unwise to bet the labor market on the ability of officials to pull novel remedies out of thin air every time a systemic threat appears.
[1] https://www.tandfonline.com/doi/full/10.1080/10511482.2024.2...
So I wouldn't expect a correction until the US is unable to borrow more money or defaults on its debt.
Much like climate change it will already be too late by the time young people have the power to change it. So I'm not surprised many of them have sort of checked out from the "spouse/house/kids" grift/grind
It is time for people to accept that if they want affordable housing they should look at some lesser developed areas in the country. Otherwise it’s pay to play.
solar and starlink keep on improving. i continue to be surprised remote work communities arent commonly developing in scenic, non-traditional locations. it seems idealistic, but makes a lot of sense on paper
Cheaper housing is available if people are willing to move to less densely populated areas.
At the end of the day, housing is all about supply and demand. Like most other things in life. There is not enough supply in the areas where people want to live. And no country has been able to figure out a solution for that problem.
Minor nit, the "solution" is well known, it's to increase supply of housing by removing zoning regulations and letting the increase in demand pull more supply out of the market. It's just not politically popular, everyone is for it in the abstract but campaign against multifamily homes being constructed in their backyard. Basically, we know how to build homes but do not know how to convince people that neighbors who can't afford McMansions are still desirable neighbors.
It's a game of chicken. The people who live in these areas and expect to be served without complaint either acquiesce to density and lower property values, or risk (occasionally fiery) demonstrations against the unfair and unworkable situation. Their goal is to keep the game running, so that everyone else doesn't decide on one or the other end state. Essentially, "Highly desirable areas that are too expensive for low/middle-income workers," is a transition state.
Also, less desirable areas are not necessarily constructed to be any more functional or sustainable, so why should we promote that? Areas that are "less desirable" in my city are swathes of oversized, copy-pasted houses massively spaced apart with near zero amenities. 100% car dependent. Near-dystopian land use, really. We don't need more of that. Instead, I'd much rather take amore sustainable approach to housing across the board.
This line of thinking is commonly repeated, but it fails to take into account the old “location, location, location” thing. If you bought a house that was once in the middle of farmland 30+ years ago but now that house is on (let’s say) two acres of land in the middle of a coveted suburb of a large city where the average house sits on .2 acres, why _wouldn’t_ that house (or more accurately, the land) have appreciated greatly in value?
A LOT of these houses that “boomers” bought were once out in the boonies, and now those places are desirable, developed areas.
Hedge funds and other corporations should be disallowed from purchasing single family homes. Period.
So while it is a financial asset, the cost is still tied to the cost of physically constructing the thing.
The only solution is to legalize building more homes, especially at higher densities that allow more people to live in desirable locations.
In Texas, for example, the inflation adjusted cost per square foot was $79 in 1950, and about $130 in 2024. Still a steep rise, but a 60% jump instead of the 285% without considering square footage.
Just some examples zoning/land use, building standards codes (electrical, plumbing, mechanical), permits, compliance, inspections, water, sewage, etc etc.
I am not advocating a wild west for building, but rules & regulations always increases and with that comes more costs.
This of course also drives higher rents, and if you think they are high now...
I think it is more likely that house prices have slightly decreased in real terms and they are tracking closer to the M2 as houses are assets not consumables. This gels with home ownership [0] which is generally stable or higher than usual, it doesn't look like people are actually struggling to acquire homes all that much. Especially since I expect household size is shrinking.
Most of the pain people are feeling is because of the insanity leading up to and flowing from the '07 crisis if the home ownership rates are good evidence.
[0] https://en.wikipedia.org/wiki/Homeownership_in_the_United_St...
Article suggests it is, I'm suggesting that the CPI is an inappropriate index to use and I suspect the trend is - if anything - probably in the other direction. Relative to the money printing that has taken place, the real price of homes appears to have dropped a smidgen which is what we'd expect given technology improvements.
I do agree that houses are probably a lot less affordable. All that debt is expensive. But that has little to do with the real value of the house, it depends on how the financial system is architected.
There isn't a particular reason why the real price of houses would go up. A house today is more or less the same good as in 1950, and technology improvements suggest that if anything it is probably easier to build cheap houses today than back then. And on the other hand, the money printing being done is entering into the economy through loans so it probably turns up first in things like house prices. I can imagine scenarios where the real price rose, but the more likely explanation for affordability issues is that real incomes dropped.
Still means homes has became much more unaffordable than in the past since you have to use your income to pay for the house.
(1) If any economy ever has been killed by deflation, you should include it on the the Wikipedia page for deflation. The list of economies that experience deflation [0] is almost a whos-who of places I'd be happy to live - it is often a precursor to economic success.
I don't argue that it is a good thing, but inflation is actually a way to kill an economy because it can get completely out of hand and regularly does. Deflation isn't and doesn't.
(2) It doesn't make it any harder to get a loan. When making a loan, you estimate the real return (say 2%) and adjust for inflation/deflation. So if there is 1% inflation you loan at 3% and if there is 1% deflation you loan at 1%.
Deflation does put a floor on what people will loan money for. The argument that this is a bad thing is very questionable indeed - why we should want people borrowing investing in low-return activities when they could be not-borrowing and resources could be going into high-return activities is a mystery to me. Lending money doesn't make real-world resources appear out of nowhere.
And again, lending can be good or bad so I'm not arguing against it in the abstract. But encouraging lending in marginal and risky gambits is stupid, it causes regular collapses and seems to me to be be making society relatively poorer. People don't save enough as a starting point, end up broke in their retirement all too often. They shouldn't be punished for putting money aside on top of that.
> What exactly should the fed have done in the decade following 07 when the economy was growing and prices were stable?
The election is behind us, people can stop with this silliness. The US economy is obviously not growing. Countries don't put a Trump in charge twice when economies are growing. Global hegemons don't get overtaken by China when the economy is growing. The US has very visibly not been growing strongly for the last decade, it has been papering over cracks with money printing. Maybe that is fine, growth has to end sooner or later.
[0] https://en.wikipedia.org/wiki/Deflation#Historical_examples
That time period was the best performance of any economy in history up to that point and has been largely unsurpassed in "Wow!" factor until the miracle that is modern China. The post civil war era was when the US established the foundations of the economy that became globally preeminent for a century. If that is the economy being killed, maybe we should kill more economies.
This sort of thing drives me crazy. I ask for examples of deflation being a bad thing and I get "well there was the time the US became a global economic colossus, that was pretty bad".
Fun youtube video for reference: https://www.youtube.com/watch?v=kFl4YdvDE_8
> 1% loans do not work because loans cost money to give out(pay the banker salary) and some default which also costs money.
1) You missed the argument. The argument is that if a loan doesn't make economic sense then it is stupid to adjust the entire monetary system to encourage people to do stupid things.
2) The argument is just wrong. I'd lend money at 1% if I was making a real return.
The us became an economic colossus before the civil war and in the early 20th century. 1873-1893 was absolutely horrible for Americans.
That is absurd. The premise here is there are different nominal scenarios with the same real return. It isn't possible to make the same real return and be worse off. The risk of default hasn't changed.
If you think 2% real return is too low you can just pretend I chose a higher number. It doesn't change the argument.
> The us became an economic colossus before the civil war and in the early 20th century. 1873-1893 was absolutely horrible for Americans.
So your position here reads a lot like the economic situation that led to a civil war was the good part, but the era where the US set themselves up and overtook the British and Chinese empires was a good example of an economy that is best described as "horrible" and "killed".
Are you sure that this is the best example you have of deflation being a bad thing? You might want to pick a different example - maybe one from an era that wasn't characterised by rapid improvements in economic power leading to a century of commercial dominance. I haven't even got to the point in the thread where I bring up that this horrible era was just after, you know, a civil war. It might be that that was the reason people felt badly off rather than goods and services getting cheaper in nominal terms.
The higher house prices get the more desperate people are to use every cent to buy a house. That’s why things like mortgage tax deduction is useless because that money immediately gets factored into increasing the amount of mortgage you can get and spikes the house prices.
It’s fascinating and sad because we are at the stage now where hedge funds are driving up the prices of single family homes so that millennials and gen z become renters for the rest of their lives.