IMHO the inflation of housing costs has many factors, but one of the ones that gets overlooked is the concentration of wealth near the top. Rich people need safe places to stash their money, and they end up buying real estate all over the country. This isn't just Americans either, US real estate is a popular investment all over the world. But when you are buying real estate as an investment where do you buy, not out in some no-name town in some flyover state. You buy in a place where the market is already hot and ride the wave. Thousands of millionaire investors piling into a market end up pricing out regular folks who just want a place to live.
I'm frankly surprised that we have not seen more real estate bubbles pop over the years. It's clearly unsustainable, yet somehow the market keeps going. Ask your parents if they could afford to buy their home today, even with their best yearly income. Most of them will say no if they lived in the city for a couple of decades or more. I know so many who bought their house for $70k-$100k in the 70s and now see their neighbors sell for $1m-$1.5m. It's insane.
Here in CA we're riding one hella of a Macro bubble that no one sees. This certainly can't continue.
The unwillingness of voters to expand the housing supply is one the greatest social ills of our time. I can accept and understand that those who benefit don't want to address the issue. But, there are countless many who don't benefit from it at all.
Why is this not a great national issue of enormous debate? Why is there so little visibility? everytime i see a list of voter related issues, housing is never mentioned.
Shelter is a fundamental human need - it's at the very bottom of maslow's hierarchy of needs. If humanity can't even get past this bottom layer, we're not going anywhere.
The entire concept of real estate is wrong. You hear it all the time. Whenever real estate prices go up, people react like it's a good thing - it's not. For society to make progress, prices must come down. It's not just for those who don't have a home. Property owners should benefit too, with lower tax bills. Of course prop 13 creates more perverse incentives than i can count... I could go on, but we've already discussed this millions of times.
Why is this not a great national issue of enormous debate? Why is there so little visibility? everytime i see a list of voter related issues, housing is never mentioned.
Good question, but I think the answer is that it's simply not a national issue. In New York City, you can bet that it's a campaign issue across local politicians, and it's in the news weekly. Also, it's not true that one 'can't build' in NYC due to regulations. While there are regulations (as one would expect of a highly densely populated city), there's plenty of building. The price of land, however, is obscene.
Meanwhile, that $1M condo that's one bedroom apartment you purchased in Manhattan (in Manhattan it's probably small) or even the $800K 2 bedroom you purchased in Brooklyn (in a cheaper part of Brooklyn, like Bed Stuy or Bushwick), you could live like a Sheikh in a place like Omaha, NE or (perhaps) Dallas, TX.
Hotpots like SF, NYC, Boston and so on - the smaller, dense cities with jobs and no land left - no so much.
It's not a national issue. Everyone wants to live in California because you get nice weather, high salaries and cannabis edibles rain from the sky. You're a victim of your own success.
We have the same issue in Australia and it is very much a national issue. The problem with bubbles is that once they've begun and have enough people invested in them it becomes political suicide to deflate. You can't go to an election with a promise of reducing the value of the biggest asset most people will ever own. I doubt you can even win on a promise to stop it inflating further because most people have factored in future increases.
Ultimately I think trying to slow down or deflate the bubble might make things worse for more people than just letting it pop.
Intuitively it seems pretty rare for Midwesterners to live in cities or "urban" houses. Most of us seem to be in the metro areas, but in freeway-connected suburbs, not urban cores.
Yeah. I'm paying 1k a month for 1k square feet about 15 minutes from Minneapolis. When I want to do stuff in the city it's pretty easy to drive or use Lyft. I spend most of my time camping, playing board games, or doing martial arts and none of those are improved by actually living in a city so it makes little sense for me to live in one. Not everyone has the same hobbies so I understand if some people need cities but I talk to a lot of people who are paying 3k a month on the west coast and living a very similar life
They benefit in the form of less congested streets and easy-to-find parking, light coming through their windows (rather than blocked by tall buildings across the street), low building heights giving their neighborhoods a familiar small-town feeling, etc.
To be clear, I think it's unconscionable that we prioritize these concerns when rents are so high, but average people absolutely do benefit from restrictions on housing supply as long as they are secure in long-ago mortgages and grandfathered rent control.
One of the NIMBY talking points is that upzoning creates a profit incentive to destroy rent-controlled buildings and replace them with higher-density market-rate buildings. Rent-controlled lease holders actually become more secure in their positions when the neighborhood downzones.
This is really about seniority/tenure in an area, and if there's any serious reform, it will likely be to further protect those with grandfather status from newcomers.
> Whenever real estate prices go up, people react like it's a good thing
The problem is that, based on how things work, a significant amount of our assets are tied up in real estate. If you're a homeowner and your home's value tanks compared to the rest of the market, you're screwed! You can't move to another place because you've lost all of the money that you put into your home.
It gets even worse if you need the money: Think of elderly who sell their homes and use the profits to pay for assisted living.
Or, look at how we pay for education: We use our homes as collateral for education loans!
In the long run this hurts even the homeowners. They can never move and they're slaves to the needs of their home. At that point the home is equally a liability as well as an asset; if so much of your worth is tied up in it that you are destroyed if anything happens to it, isn't that slavery not freedom? Sure they may feel some selfish benefit if housing prices go up but it's a terrible prisoner's dilemma - everyone else's home values are going up as well; so you can never sell or move. For people that have a home because they need a place to live and not as an investment, that's not wealth, it's just a number on paper.
Just move to a cheaper part of the country and then illegally rent it out. This lets you profiteer off of more than one side of the shortage. You don't have to give up that property you don't particularly need anymore but could never acquire again. I know plenty of examples of people doing this.
I'd assume it was forced by all of the initiatives of making the "American dream" of owning a home a reality for as many people as possible.
Real estate shouldn't be an investment, it shouldn't raise in value, and it shouldn't be possible for a huge chunk of the population to fund the financial sector through mortgage interest. It's a tax on everyone designed to funnel wealth upwards towards a sector of capital owners that get paid for doing very little.
Regulations and taxes should be arranged such that it is very expensive to own real property that isn't for your own personal or business use. If you want to act as a gatekeeper for real estate, at least a large chunk of the profit should go to the state for the benefit of the public. If it's expensive and not beneficial to own things so others have to pay you to use them, the market will shrink dramatically and more people will actually be able to own homes.
There are so many things wrong in this country: real estate should be highly taxed, financial investments should be rightly taxed. Failure to do so is just maintaining a constant drain of money from the larger part of the population to that small group of rentiers. Instead, politicians want people to believe that everyone can get rich at the same time investing in housing and stocks. We are starting to see the results.
> Real estate shouldn't be an investment, it shouldn't raise in value,
This is an economical impossibility. Land becoming more valuable is unavoidable, because of the weather, of the people that surround you, the availability of jobs. Rent is high in SF because people are moving to SF and finding high paying jobs. Its not an unrelated effect.
So if there is land more valuable than others, and you taxed away all the value of the land (lets supposed that rent is taxed at 200%, hence all rents drop to 0), you are now going to see something new: people buying land. Now instead of renting, the only operation left is buy and sell. Provided it is cheap at first, because investors would all dump their properties, it will be impossible to get later on. Its an extreme case of rent-control.
Why spend all your income today when you can save and invest some for the future, thereby allowing you to consume more later in exchange for consuming less now?
Investments, including land, are owned on the backs of consumption foregone in the past.
Fancy-ass houses and condos are consumption. Most of these people buy up a place, then completely gut it, replacing everything with the new trendy kitchen or whatever. Even if they sold it for more than they paid, there's no way they made money on it after renovations, taxes, utilities, upkeep, and staffing.
But land is special in that it requires no maintenance. Its not the same as any kind of capital that requires care or maintenance in the long term,like a house itself.
There is a case to say that big money that buys land does something to make it more valuable, and hence there was care and investment. But most of the time, land is something bought long ago, that has benefit basically forever.
No, but its still is an investment with an expected positive return. Otherwise nobody would have any and would tend to sell it at 0.
Land also has the chicken-egg problem capital doesn't have. The first one that built a house didn't consume his capital, the first one that got the property rights didn't consume capital whatsoever.
I am closer to your position than to the other commenter in this thread, just wanted to distinguish that land can capital do have some differences worth thinking about.
Most places have real property taxes (and to a lesser extent, adverse possession laws) that act as a beneficial (to society) drag on infinite holding periods of land. That tends to be a tax on the current (improved) value of the land, where others have made an argument that a tax on unimproved value would work differently (in some ways better, in some ways worse).
My apologies on the prior post; I meant to imply that buying unimproved land in the "right" place is a great long-term investment.
> I know so many who bought their house for $70k-$100k in the 70s and now see their neighbors sell for $1m-$1.5m. It's insane.
Yet those returns (10x-20x) are lower than having invested the purchase price in the S&P500 (with dividends re-invested), which returned a 21x to 30x total return over that same time period (depending on which exact spot you chose to be the "70s")
The house also provided a place to live, so you need to goose the house effective returns a bit there, but that place to live also came with overt property taxes, maintenance expenses, etc.
Unfortunately, homes have a lot more protection from taxation of the returns than mutual fund investing: you can only put a small amount each year into a tax-protected account, and if you don't, any rebalancing or dividends produce a taxable event.
In contrast, the capital gains from owning a home are exempt for a certain amount, and "imputed rent" (the savings from not having to rent a similar house at current rates) is untaxed, like any other cost-saving purchase. [1]
(One small advantage the other way is that you don't have to pay "property taxes" on mutual funds, though you do have to pay management fees, which, even for index funds, are of similar magnitude.)
[1] IIRC the original income tax did cover imputed rents of sufficient magnitude.
> you don't have to pay "property taxes" on mutual funds
In my view, the tenant is paying the property taxes on the space they rent to live in, so the mutual fund investor (who is also a tenant) is paying property taxes, just on their housing not on the funds.
It's rolled into the rent, but there's no reason to me to think that the landlord is paying it when the tenant is the one bringing the money into the system.
I beg to differ. You, as the landlord, don't necessarily set the rent price--the market does. If the market is going for lower than your monthly upkeep cost (including property tax) then you will be paying the tax and other expenses.
It is implausible for this to happen at scale. Presumably all properties in competition for the same clients will have comparable tax and each landlord will implicitly factor taxes into their prices. This should have an effect, similar to collusion (by with no malice), of effectively raising the cost.
The taxes get factored into the price of the land and the house, not rents. If demand for housing falls such that rent does not make owning a house worthwhile, it gets sold (or force-liquidated through foreclosure), and the new owner at a lower cost basis will let it out at market rates.
> The taxes get factored into the price of the land and the house,
So you have checked with every property owner and verified this?
I actually rent now, from my father (because he makes bad real estate decision despite having his real estate license). After talking with my landlord, who I know well and often talk to, I learned that in this area there are laws about how low rents can be. In his specific situation he is not allowed to rent the property for less than 125% of the price of his mortgage payment which must include the property taxes. Apparently, this is to insure there is money repairs.
So as for houses in Omaha I am fairly certain you are factually in error. I suspect other jurisdictions have other things going on in general, but it seems reasonable that most people do simple things like take their expenses into account which includes tax.
Well, there are a number of things that complicate the comparison:
1) Mutual funds get hit with a lot more taxable events (any rebalance or dividend), and only a small fraction of that can be shielded.
2) Even if you could borrow to invest, stocks fluctuate a lot more and you would be subject to margin calls.
3) You are implicitly paying maintenance/insurance costs as a renter, true, but only as a renter do you benefit from division of labor and tax-deductibility of such expenses.
4) For the specific time history: It would have been difficult in the 70s to buy something like an S&P index mutual fund; Vanguard started then but you're unlikely to have heard of them. Then again, you wouldn't be borrowing at 5% either!
In Canada there is the "Smith Maneuver" which involves a Home Equity Line of Credit (HELOC) where you borrow against your equity and invest it, and write off the interest payment on the HELOC.
So technically you're using low-cost mortgage lending (2.15% rates are possible) to invest and get 5-7% returns on average, plus writing off the interest payments.
Of course they are, but they are excluded from the "so and so bought for $70-100K in the 70s and just sold for more than a million" calculus. The latter was my point about needing to include them in the comparison.
One interesting thing I learned: as a homeowner, your home doesn't depreciate. As a landlord, the home you own is an asset and you take depreciation on it. That's a massive tax benefit.
Which is subject to depreciation recapture upon sale, so it's more of an immediate cashflow benefit than a long-term structural benefit. (It can also be seen as a form of "hand-out" to renters, but it's unpopular to complain about that, so few people do as compared to those who object to mortgage interest deduction.)
It's easy to make money if you are already rich. The parent post is an excellent example of that. If all of those poor plebes who bought homes in the 70s had instead inherited their home and invested millions of their own dollars in the stock market just like those smart rich people they would be way better off today.
> The house also provided a place to live, so you need to goose the house effective returns a bit there, but that place to live also came with overt property taxes, maintenance expenses, etc.
indeed. there are also more transaction costs involved in real estate, too. driving around to look at properties, real estate agents, significant paperwork, etc.
Well the mortgage got them that initial capital in the first place to buy a home. Banks weren't giving them a loan to buy an index fund so it's not really a fair comparison, especially if you ignore opportunity cost of paying rent as you state.
Interest rates were also very high in the 70's and early 80's.
If we could get housing interest rates up to 8% you'd see a large decline in housing prices. If it got up to 1970's and 1980's rates it would be around 17%. This would dramatically reduce the price of a typical house and become a darling market for people who have can pay in cash.
If rich people just stashed they money in housing, you would see a higher gap between housing and rental prices (because if there isnt demand to rent those places, but there is demand to buy them, the gap would increase).
I dont think thats whats going on. Concentration of work in cities is a global effect, and although china erupting cash over the world might change some numbers,it wouldnt explain the migratory movement from rural to cities.
The easiest and most classical explanation of housing prices in the US is that construction took a huge hit in 2008, and getting the whole system to produce more housing for the demographic growth is lagging. I remember seeing some data about that happening.
A more esoteric one is that we are living in a world with a curious monetary policy, with low interest rates but no inflation, and that as money gets more expensive, housing demand will lower and so will its prices.
If you look at the US, people mostly congregate around areas with nice weather and flat geography. The rust belt is arguably a reaction to Air Conditioning not offshoring.
100 years ago being north of Virginia meant trading milder summers for worse winters. But, summer with high humidity and no AC can be brutal.
I think that has been somewhat broken as small ports and small farms have become less important due to contanerized shipping. Las Vegas is a rather striking example, as it's close to lake mead but not centered on it like say NYC, DC, or SF. The draw of living near other people still pushes people to the coast, as does recreation.
Rich people buy real estate because it steadily rises in value. Not the other way around. If motorcycles had the same price development, they'd buy motorcycles instead.
The interesting question is why real estate prices behave like this.
On average, (after smoothing out the bubbles like in 05-07 and the crashes like in 08-09) real estate prices track inflation. Deflation is exceedingly rate, so this behaviour of nominal prices rising steadily is to be expected. Unless you mean real estate prices rise steadily in real terms, in which case I'd like to see data behind that assertion along with corresponding interest rates as mentioned in another comment.
The only high tech/low construction center is the San Francisco Bay area. Seattle has had a lot of construction over the past few years. Since housing supply isn't perfectly elastic, it can take a few years before supply shifts to meet demand and in the mean time, prices rise. New York is definitely a high tech center but it is also a center for a lot of other things too. I'm not sure if it is high or low construction but there are other factors at play in the high rents there that aren't at play in other tech centers.
After decades of Federal policy to encourage investment in housing, the consequences are getting harder and harder to ignore, yet the blind faith in these sorts of paternalistic policies remains unabated.
The many tax breaks and loopholes for real-estate investors resulted in overbuild in many parts of the country... these were the parts that were hit hardest in the crash of 2008.
Not only was this a big misallocation of capital which robbed other industries of investment for decades, but the response to the crash was to prop up real-estate prices through other drastic measures.
These massively inflated prices enriched many of the landlords in urban areas, greatly increasing their political clout and ability to push for regulations that protect their incomes and harm the public.
Meanwhile, transit systems and roadways declined, further increasing the value of urban real-estate because of the great inefficiency of getting to and from a city if one lives outside of the city.
So now, real-estate-fueled urban price inflation has altered mobility patterns creating further economic distortion. Software engineers in SF make high salaries but live a lower standard of living than those in other cities:
The problem has been popularly summarized as "housing cannot be both affordable and a good investment."
Of course that might be an oversimplification. Housing has been an investment class as long as it's existed and yet there hasn't been an affordability crisis like this since at least before WWII. What's different now?
Housing that you live in (aka "consume") has not been a particularly good investment, IMO. What confuses many people into thinking that it is is that you often end up holding it for a long period of time, paying down the mortgage and when you go to sell, you have a large gain, where you started with a very small downpayment. For most people, that gain is also tax-free, so it seems like a magic windfall.
The problem is that over that long a period of time, inflation may have halved the purchasing power, meaning your gain is a paper one, you spent a lot of years fixing and maintaining the house, paying taxes and insurance, working on the yard, maybe did some remodeling, etc. If you'd instead invested in the stock market any surplus over renting, you often would have come out ahead.
Most people would find a way for that surplus to turn into lattes, vacations, new cars, and large TVs rather than into shares of VTSAX, so for them, homeownership is a good idea, not because it's a better investment than equities, but because it's a better savings vehicle than nothing.
I'm a homeowner and very happy about that fact for our family (for lifestyle reasons), but even in a steeply rising market (Cambridge, MA), my other investments have performed much, much better (even including the 2007/2008 crisis).
What's your investment strategy? I recently started a Roth IRA and started maxing it out each year, but I don't know what else to do with my savings (that are extra over my ~6mo salary buffer + emergency fund, I mean). Dumping it all into something like VTSAX is something I've thought about for a while, but I'm not sure how well it works for long-term investment/"making my money work for me".
Mega backdoor Roth is capped at $35000 (highly unusual to be able to fully fund this amount, since it requires a 401(k) that is structured to support it).
Backdoor Roth / direct contribution is capped at $5500 a year.
So in a perfectly optimal world of all the right situations, you could put up to $40,500/yr into a Roth IRA.
Currently, I'm getting about $15k into my Roth IRA annually (got lucky with the properly structured 401(k) plan at work) and I feel pretty fortunate about that.
Yes, but read the "mega backdoor Roth" technique. It allows many people to effectively contribute much larger sums into Roth IRAs, even though there is a $5500 "front door" limit.
If you have a low current marginal rate and a lot of money to stash away for retirement (that might be a semi-uncommon combination), it's absolutely something to look into. I have a high marginal rate, so I haven't done it.
So it's basically opening a Trad IRA, putting money into it, then immediately rolling it into a Roth IRA? I thought the contribution limit was across all IRAs you own, so you still wouldn't be able to put any extra into the IRAs in general?
This is complicated and weird. I might hold off until I understand it better.
Don't get hung up/paralyzed into doing nothing for fear that something slightly better might be available if you did hundreds of hours of research. The most important thing is to get started, IMO.
Just to be clear. The Mega backdoor Roth requires a 401k that allows After-Tax Contributions. Most won't let you do that. Their software will say "that contribution percentage you have selected will result in more than $18k/year in contributions and that isn't allowed" or you'll get to the end of the year and they'll just refund you the extra contributions. Which also doesn't help you.
i haven't read the suggested bogleheads book, i expect it's good. but there's also a bogleheads wiki with a bunch of stuff for free. https://www.bogleheads.org/wiki/Main_Page
> Most people would find a way for that surplus to turn into lattes, vacations, new cars, and large TVs rather than into shares of VTSAX, so for them, homeownership is a good idea, not because it's a better investment than equities, but because it's a better savings vehicle than nothing.
This is often not true.
I know its a popular belief with alot of millennial but anyone who has looked at a rent buy calculator quickly realizes for many areas (not the bay area / inflated housing markets beyond what the fundamentals support) buying still makes more sense than renting.
For instance, I'm considering a $325k purchase in an area where the equivalent rent is $1700/month.
There sure are many situations where buying trumps renting. The point in general is that buying is often overvalued and renting is undervalued.
One thing this calculator also cannot take into account is risk: if you lose your job, or get hit by an economic crisis like the one on 2008, you have an added catastrophe. But even discarding that, there are always situations where its better to buy.
> One thing this calculator also cannot take into account is risk: if you lose your job, or get hit by an economic crisis like the one on 2008, you have an added catastrophe. But even discarding that, there are always situations where its better to buy.
Of course. But if you invest your money you take the same risks also. There is a limit to how much risk you can really avoid long term.
I've lived in houses before, stuff tends to break over time....keep that in mind. As long as more than $3600 worth of stuff doesn't break within 5 years you are good. Probably depends partially on the age of the house.
> If you'd instead invested in the stock market any surplus over renting, you often would have come out ahead.
Why do you assume there is a surplus over renting? If renting gives you that much if a surplus versus buying the equivalent property either your local market is seriously out-of-whack or you have a really sweet deal from your landlord.
There's a massive surplus in the Boston/Cambridge/Arlington market right now, thanks to cheap money (low interest rates on mortgages).
That's before considering the optional upgrades that people tend to do to owned houses that they don't do when they are renting. (A functional kitchen with white appliances and laminate counters in a rental is a functional kitchen. Same kitchen in a house is a drive to install granite countertops, subway tile, pendant lights, and stainless steel appliances. Scratched wood floors and 5-year old beige paint are fine in a rental, etc.)
> There's a massive surplus in the Boston/Cambridge/Arlington market right now, thanks to cheap money (low interest rates on mortgages).
If that is the case, landlords are leaving money on the table.
> That's before considering the optional upgrades that people tend to do to owned houses that they don't do to rentals. (A functional kitchen in a rental is a functional kitchen. A functional kitchen in a house is a drive to install granite countertops, subway tile, and stainless steel appliances. Scratched wood floors and 5-year old beige paint are fine in a rental, etc.)
That is a separate issue, though I think someone who is not disciplined enough to avoid vanity upgrades to their property is probably not disciplined enough to maintain a significant investment balance either.
Edit:
Just took a quick look at Cambridge on realtor.com, and I would classify that as a textbook out-of-whack market. The rents are stupid low compared to the sale listing prices. In contrast, rents in my part of northern New Jersey are roughly the same, but sale prices are less than half. Hell, even Manhattan isn't that out-of-whack. I don't think you should be taking that as typical.
Maybe they are, but I doubt as a large class they're all similarly stupid. I think it's because their available rent is capped by desirable tenants buying property because of low interest rates. "Desirable" in this case meaning those who consistently pay rent on time and therefore likely have credit scores of 750 or better so can readily get a 4% or lower mortgage, which drives bidding wars for properties, which increases purchase/listing prices, which increases the surplus for just renting.
I agree with your edit that our local market is out of whack. It's what's kept me from buying investment property at all.
RE is location based. I live in one of the top places to move to in the US, and bought a house in 2011. I would have a hard time finding an equivalent place to rent for my mortgage cost right now, and would have a hard time affording my same house if buying it today. Of course, I had to do some maintenance and there is friction if I want to move, but even then rent would be more expensive in monetary and personal terms (can't do what I want with my space).
I'm renting in East Boston right now and my parents are getting the idea in their heads to try and snatch up property in the area before it really starts to take off (read: gentrify). On the one hand, I kinda get what they're trying to do, but on the other, what you mentioned here and in the parent comment makes me a little hesitant to agree with them.
The difference now is that we have seen a big uptick on inequality in American. People that are well off not only drive up housing prices, they also use their political clout to avoid the construction of affordable housing in order to maintain the value of their homes. It is a double effect that makes a big difference. Also, Americans got used to the idea that their personal home is wealth, which is a misleading and dangerous idea.
Maybe its a soft-cap on commute times? People were fine driving 20 minutes instead of 10, 30 instead of 20 and so on if it meant they got to live in nice suburbs. But now staring down the barrel of an hour commute or more people aren't willing to continue moving further and further out. Purely speculation of course.
Dramatic increases in lifespan have produced a home owning class that would normally have died years ago, locking up a large chunk of the housing stock. Also NIMBYs.
It surprised me when I moved to the US from Canada how many elderly planned to stay in their homes. In Canada it felt like many people downsized to smaller condos, at least in the city.
In California prop 13 freezes property tax assessments at time of purchase, so many elderly people are paying less property tax on their house than they would on a newly bought condo.
Prop 13 will go down as one of the biggest blunders in legislative history IMHO.
I get the complaint that people were being taxed out of their homes and that's not good, but in the end it just shifts the tax burden from the old to the young.
And it's extremely Regressive. Out of 2 people who bought the same house, the guy who bought it 30 years ago, made 2 million dollars, but is taxed 10 times less!
> Prop 13 is outright generational theft from younger people by older generations.
It's actually theft by corporate (or family chain) long-term property owners from everybody else; it doesn't favor individuals of particular ages (especially since the parent-child residence exception was adopted.)
It disfavors people who choose to live somewhere other than a home they (or their parents before them) have lived for a long time, but it disfavors old people who choose to move just as much as young people who do so.
Another factor that is present in some places (at least here in Seattle) is that certain regulations discourage condo construction relative to building rental units. Essentially, there is a stricter inspection process for any units that are to be sold. The law was well-intentioned, but has led to crazy things like 10-20k luxury apartment units being built per year with none of them available for purchase.
To be fair, moving is a pain, you'd be giving up an investment you've held for decades, and you may have settled down into an area and not want to move around. Plus, maybe there just aren't many other options where you live.
I'm not elderly, but that's a few reasons why they wouldn't downsize.
Cash compensation for most percentiles has stagnated since the 80s. There's a lot of mooted reasons for that -- increasing fringe benefit costs, demographic changes, Cowen's technological plateau, decline of labor unions, etc., etc., etc. -- but the upshot is that we have a ratio where the numerator has continued its growth pattern but the denominator has not.
NIMBYs are part of the problem, but there are also well-meaning (if poorly executed) safety and zoning regulations that drive up the cost. Rules like parking minimums, disability accommodations (i.e elevators) and minimum square footage requirements all contribute to increasing pricing. We have to decide as a society whether housing should be considered a luxury, and those who can't afford things like elevators and parking spots should be forced to live in a tent on the street or not.
Most of those are well intentioned laws to fix actual problems, but the lawmakers didn't take into consideration that not all developments would have those problems. The parking thing is a good example. It basically just says you need to have a space for most people in the building to park so they don't fill up the street parking for the entire block all of the time. A very valuable rule for suburban development where most units will have at least one vehicle. Not so necessary for downtown units where most of the apartments won't own a vehicle.
Or there are just cases where the developer is complaining about having to build parking, but if they had built the building as they wanted the parking would have been a total nightmare, not only for residents but also for everybody else in the neighborhood. In other words they're being forced to consider the actual cost of their actions instead of pushing them off on the community and pocketing the profits like in the good old days.
If you could designate a building "car free", and have all local street parking be permit parking, AND don't hand out permits to people living in "car free" buildings, it seems like it would fix the problem. But I don't know how practical it is to do this.
The city is in charge of handing out parking permits. When you apply for a permit they check their list of "car free" buildings. If you're in a car free building your application is denied. Aside from filing an extra form with the city, the developer saves tens of thousands of dollars per space: https://sf.curbed.com/2016/6/8/11890176/it-costs-38000-to-cr...
Federal regulations apply in San Francisco, CA as much as they do in Binghamton, NY. You'd think withdrawal from broad swathes of the country to a few hub cities is the problem, driven by ever increasing automatization and volatility in the labour market.
I totally agree on the hub cities phenomenon. I've been noticing it for 15+ years. I've talked to older people (>50) and they say that no-- when they were in their 20s and 30s you did not have to be in one of about eight cities to advance your career. Your career could advance in St. Louis, Cincinnati, or Phoenix. Stuff actually happened in places other than the big coastal cities.
I don't know the explanation for this, but IMHO it's one of the absolute worst trends of the early 21st century. It's also the opposite of what the Internet was supposed to do. I'm supposed to be able to live in some tiny town in West Virginia and have a broadband Internet line and work alongside people in NYC. Technically it's possible but the culture has shifted radically toward hyper-concentration of all innovation and advancement into a few places.
I think it's due to the fact that no one stays with the same employer for more than four years. Back then, you could look forward to a decades-long career with the same company (my father-in-law was with IBM all his life) - you joined Dow out of university and could expect to stay with them for 20 years. But who would even consider moving to Midland, MI nowadays? It's a godforsaken place an hour north of Flint! You can't risk buying a house in a one-company town! So we all submit to the Boston or Bay area commute madness.
Historically hosuing has not been an investment where people could expect a BIG payout after ten years. It was a good, conservative investment but not a money maker as it is now.
We have external money moving into US property. I wonder how much the Pacific Northwest's recent surge is due to Chinese investment moving on from Vancouver.
In retrospect, the problem is the US has had poor property tax policies. Property tax should be based on 1) the land square footage and 2) the value of the location. If a lot is double the space of normal lot, the tax should be at least 50% higher. If the price increases sharply, the taxes should as well. This way large lots sizes and price fluctuations would stay in check. The property taxes in SF, by the way, are way too low for the current value and square footage of the lots.
Prop 13 has hugely restricted the ability of municipalities to tax land. Despite being sold as keeping the elderly in their home after retirement, that's a tiny subset of what was actually covered in the law.
I agree that a more Georgist tax policy is in order, but fixing Prop 13 is pretty tough. It gets older residents really really riled up when changing Prop 13 is mentioned.
With decent reason. There is no, and I really mean no reason why someone should be forced out of their house due to rising property taxes. That's just not what taxes should be used for.
Really, it should have applied to one's primary residence, and that's it. Maybe the primary office of a small/medium business.
It always stuns me to hear so many people blaming NIMBY movements for housing prices while completely ignoring the effect that good job concentration has on the local housing markets. Housing is insanely expensive on the east and west coast because those are the only areas of the country seeing economic growth. If everyone is required to be in such a small area to even have an opportunity to get a good job, then of course it will be expensive to live there.
That is because we on the west coast have zoned most neighborhoods to single family housing, and that is a direct cause of our housing supply constraint and therefore our high housing cost. It would be trivial to replace a fraction of that housing with enough housing to meet demand if we rezoned.
It is a direct cause, but not the only cause. The fact that virtually all job growth is in these cities is equally if not more to blame. As a Seattle resident who was priced out of a succession of neighborhoods through grad school, I can't help but wonder why we need so much growth. It's not like there's a shortage of employment opportunities.
The NIMBY problem prevents the housing market from adapting to demand, it's entirety of the problem. Job growth and economic growth are not the problems. In places such as Texas with high economic growth housing is not a problem.
It just so happens that NIMBYs have huge economic gains from restricting the market from supplying what people want.
I'm in Houston personally. My employer is always hiring. I'm several times a week contacted by recruiters for jobs in Houston, Dallas, Austin, San Antonio, Chicago, Kansas City, and Denver. None of those are on the east nor west coast.
I've heard good things about San Antonio, but I don't know the specifics. Texas is just too hot and dry for me to live there, though, so if it suits you good luck
There are plenty of startups in TX but not in the traditional Silicon Valley definition. There are a lot of startups in oil & gas, transportation, banking, retail to name a few.
I'd say it's because our postwar experiment with living far away from each other failed. It was a bad idea and it created spaces that were unpleasant to live in. Those of us who were born in such places, and have a choice in the matter, are getting out.
Certain skills are in high enough demand that people with those skills get to choose where to live. We choose places that don't look and feel like crap. We choose places that lots of other people choose. This makes them expensive. The arc of human history is towards urbanization, and those of us with in-demand skills are its primary agents simply because we have the most choice in the matter of where to live.
Of course it doesn't help that the places we choose believe they are already full.
Inflation of housing costs wouldn't be that big of a problem if we had cheap and fast public transportation.
I live in the Bay Area, and I've seen families forced to move further and further from the area to afford a reasonable house and good education for their kids. The problem is, now they have to commute for hours, driving in sub-optimal conditions to get to their jobs.
Imagine if BART charged a flat $1 fare? Or if the Caltrain ran every 15 minutes from 5AM to 1AM and charged $1/ride? Then living far away wouldn't be that bad. But we're getting squeezed from both sides here: sky high housing costs, and terrible commutes on gridlocked "highways".
Or if the Caltrain ran every 15 minutes from 5AM to 1AM and charged $1/ride?
Then you'd have absolute gridlock at all unseparated crossings (e.g. Castro Street, Rengstorff, Menlo, Redwood City, etc. Those would have to be separated first.
Well no kidding. You don't need to be a genius to see that housing costs in big cities have outstripped wage growth by a large margin for many years. Housing costs outside of the big population centers have grown at a much more reasonable rate.
This article speaks to regional income convergence. However, national wages, according to Bureau of Labor Statistics data (1) for Usual Weekly Earnings (parsed by education level in particular) show clear divergence - along with a clear dissappearance of the middle class.
Perhaps regional economies are simply settling down and catching up to the economy at large (I'm not implying that wage divergence is good or fair - it just seems to be what is happening based on BLS data).
I don't know shit about real estate, be it property taxes or zoning laws. From my dumb angle, I see it as metropolitan markets across the country going crazy because of the decade-long-or-so trend of people moving to cities. In simple terms, what are governments doing/not doing that is causing such ridiculous costs?
It is not a conspiracy or an inevitable consequence of growth. It is not because of the concentration of wealth (also a problem!). It is because there is not enough housing.
There are many kinds of restrictions, some you probably agree with. Most of the restrictions are popular with liberals, conservatives, Democrats, and Republicans.
Restrictions like:
* must build parking per housing unit
* zoning restrictions to limit density
* long approval processes for construction
* many blocks to construction approval even after complying with all the restrictions
This is a bipartisan problem, it's really a culture problem. It's understandable, even on the micro scale. When you move into a place (and are done renovating it), you'd prefer that the neighborhood never change and that no one does any construction in it. There's a little tinge of atavistic fear of strangers too, even though people are moving in and out of neighborhoods all the time.
In 1960, San Francisco population was 740,000. 50 years later in 2010 it's 808,235. The east bay and peninsula have been as reticent about housing.
Despite wanting to live in SF and ending up in San Mateo once they get there they don't want anyone to build anything - no more density. Despite wanting to live in the mission/noe valley/haight and ending up in the less dense sunset once people get there they vote against more housing.
The solution is more housing. Transit oriented development (denser zoning and no parking requirements near transit), allowing people to convert illegal inlaws to legal apartments, converting garages into apartments, and allowing people to add stories to their homes are all possible good moves. Maybe there are some of those you don't like, but each one we don't do is less housing and higher costs.
And when you do vote for more housing you are getting:
* cheaper housing
* less climate change
* less pollution
* less homelessness (because homes)
* less inequality (housing costs are a regressive expense)
* a more prosperous city (you personally will have more money)
* a more interesting city (you personally will have more interesting restaurants and things to do)
You think that cute 4 story victorian in Noe looks cool? Maybe make it legal to build it anywhere in the city or bay area. The whole sunset and richmond are filed with 1 story single family homes. Even pretty dense mission/noe/haight have lots of individually low density properties. Regionally why not let people build 4 story houses with apartment flats anywhere along caltrain or bart?
The dirty secret of the tech industry is that their leaders and investors are making a killing in Real Estate. VC owners and their billionaire friends have bought a lot of land and buildings in San Francisco, Seattle, and other cities, and are "forcing" their companies to move into these cities. This has the nice side effect of making another fortune for them. At the same time, tech workers need to pay essentially a large tax for living where the jobs are, and other types of workers cannot even live in these cities anymore.
I hope this is not true. It just means all these tech billionaires are, not actually "tech" billionaires....
For some unknown, and Stupid reason, I personally think it is unethical to invest in Real Estate. Previously you would have to live in area like Seoul or Hong Kong to understand that. Now I guess people in London, Vancouver or San Francisco may understand a little bit more.
My tax rate doubled when I moved from the Midwest. So did my cost of living. My salary did, too. But I am saving more now than I was there, and I will easily be able to retire and live very nicely back home: much better than I would have had I stayed. So for some (many?) the "tax" you describe is worth it.
An in exchange, I suspect a much larger percentage of the population in these areas will see their cost of living gradually (like a frog in a pot of slowly heated water) increase to the point that they'll never be able to save money for retirement. I have a very strong feeling that this is what's happening in places like Vancouver, people spend so much (and relentlessly increasing) of their income on rent, but the same thing is happening to almost everyone, so it seems "normal" to them. Or they think just work my ass off for another year or two and "some day" I'll land a good job so I can afford to live here....next thing you know 5, 10 years have passed, and you eventually realize that "some day" is never going to come, and you're middle aged with no savings and no career.
I don't know what Canada is going to do with the 30% of its population who hasn't gotten rich in the real estate boom as they get older, have no savings, no pension, and when they can no longer physically work are priced out of rent due to the ever increasing levels of immigration from wealthier nations. Maybe we can just hook them up to machines that feed them basic nutrition and pain killers with a VR headset on.
It isn't just the tech industry. Pretty much any massively wealthy family uses these effects to exploit their affect on the landscape for investment income.
Companies like the Irvine Company did this masterfully.
Yep, biggest example is marc andreesen himself. His wife a member of the Arrillaga family (old money real estate in the south bay, lots of buildings in stanford and palo alto parks & rec named after them), and they have more land wealth than tech wealth.
> In the 1960s, Arrillaga and business partner Richard Peery bought California farmland and converted it into office space.[4] They became two of Silicon Valley's biggest commercial landlords with more than 12,000,000 square feet (1,100,000 m2).
> His daughter Laura Arrillaga-Andreessen is married to Marc Andreessen, the successful entrepreneur
Marc Andreessen is worth a billion dollars at 46 years of age. John Arrillaga is worth $2.5 billion at ~81 years old.
With Andreessen Horowitz now the preeminent VC firm in the US, it's extremely likely Marc Andreessen is going to far out pace Arillaga's real estate wealth via his investment returns in companies.
Simply put, Marc Andreessen found a far more lucrative and faster way to make money than John Arillaga did. Andreessen's current position is worth more than a couple billion in real estate. The biggest companies on earth are all tech companies now. The most profitable companies on earth are all tech companies now. Andreessen has a seat at the center table of the greatest corporate wealth boom in world history (just MSFT+AMZN+GOOGL+FB+AAPL = $3 trillion).
Further, Andreessen isn't necessarily entitled to that land wealth. For your premise to even be considered, we'd need to know more details about their marriage. How do you know Andreessen won't be richer - courtesy of his growing tech wealth - than John Arrillaga before John passes away?
The money isn't in tech? Just ask Gates, Bezos, Zuckerberg, Ellison, Page, Brin, Powell Jobs, Ballmer, Allen, and Dell how that works. Now compare them to the dozen or so richest real estate tycoons in the US.
This implies a mutual exclusivity that isn't realistic.
The GP is asserting that real estate is a significant additional revenue stream for tech VCs. You're asserting that real estate returns aren't important because they're dwarfed by the tech returns.
You can both be correct. Being good at tech investing doesn't exclude other investments from consideration or scrutiny, nor diminish their returns.
The parent is intentionally targeting Andreessen's reputation by insinuating several negative things that must inherently go along with the top level comment and the parent's comment.
As such, I'm further claiming this: to assault someone's character in that manner while providing absolutely zero supporting evidence, is disgusting. That is, show me the proof that Andreessen is making huge sums of money in real estate as implied; show me the proof he's entitled to any of the land wealth through marriage. He's being stoned as guilty by association as it stands, with zero evidence to the contrary having been supplied.
If a large amount of supporting evidence can't be supplied, to match the seriousness of the character attack, well how can such a thing be allowed to stand or go unchallenged in a civilized forum?
Why are you so rigorously defending this billionaire? It's not disgusting to discuss his business activities, or even to speculate about them. How is that disgusting? Do you even know what that word means?
I'm rigorously defending a person whose character is being seriously inpugned without a shred of supporting evidence.
I don't care if he's a billionaire. I don't care if he's a venture capitalist. I don't care who he is. I would defend you just the same, under the same circumstances.
No, his character is not being seriously impugned. This isn't a national broadcast, with some guy getting up on the podium and proudly declaring these things. It's just a random comment on a dinky message board that will fall below the fold by the end of the day. It's just a discussion board, people are discussing!
Relax with your charged language, you're really twisting the meaning of these words. Because you're so vehement about your defense, I am tempted to think you are being paid to defend Marc or you yourself are Marc.
Declaring that someone owns property, makes money from property and is part of an "old money" family is not character assassination. Nothing is implicitly wrong with any of that.
Declaring without proof, is one part of the obvious character hit. Further, being part of a family isn't evidence of entitlement to said wealth.
There is most obviously a negative implication there, and it isn't subtle: that the VCs (in this case Andreessen specifically) are harming non-wealthy people in places like SF by intentionally driving up land values for their own benefit. The countless front page stories on HN in the last few years about this specific topic, make it more than a little bit clear there's a negative association in place.
And if you want to get really close to a very serious legal charge, here it is: it's being blatantly implied that Andreessen is conspiring with very wealthy land owners, knowingly against at least some of the interests of his own investments through Andreessen Horowitz, for his own personal gain. How is it against the interest of said investments? The claim is he's involved in intentionally driving up the value of real-estate, which drives up the cost of living in eg SF, which makes it more expensive to retain and lure talent, which harms his investments (lowers their odds of success in numerous ways, lowers their margins by raising costs, etc). That's an extremely serious accusation.
You are defending a person who doesn't need defending. Or are you defending your side of the (non-) argument and can't accept being wrong? (Only as wrong as presuming slight, the description of the business strategy could have been a compliment)
You are hanging onto uncommon cases and what-ifs. What if this mega rich Venture Capitalists doesn't have to his family's real estate wealth and doesn't have any of his own? Doesn't matter, you are yelling and arguing with me like it affects me. I just swooped in and pointed out one fallacy, now I am swooping out because this doesn't affect me.
I don't think people who rent have a right to complain about the housing market. If there's a toxic spill across the street, they can just pack up and move. They also can't complain about gentrification of "their neighborhood" since it's not really their neighborhood, they're just visitors.
Yeah it's the investor's neighbourhood! Despite the fact that they live in a fancy part of town in some other city, or in China, or they're a corporation. Screw the people who actually live there. It's not like they are the neighbourhood. /s
In addition, who do you think is selling the apartments to the Chinese investor corporation? It could be another nameless corporation, but it's equally likely to be the same people that you refer to as the real neighborhood. They certainly aren't complaining about gentrification on their way to the bank.
There's no need for snarkasm. You don't have to be a Chinese investor to buy an apartment. I simply have no sympathy for people who rent long term:
1) They can take off any time. A new job? A market crash? No problem, just pack your stuff and leave.
2) Someone else is doing all the maintenance and dealing with building codes and paying all the taxes, etc.
Because of the inherent risk in owning a home and the effort required to maintain it, it will always be cheaper to buy than rent. If someone likes their neighborhood, but isn't willing to commit and put in the work, they deserve what's coming for them.
That's decidedly untrue. In many markets you can make the case that conservative assumptions result in a cheaper buy option. However, the Bay Area in particular throws that calculus in reverse for many neighborhoods and property types.
Your argument seems to rely on the premise that buying is monteraily cheaper in the long run as long as you're willing to put in nominal sweat equity and risk. And that labor buys you some sort of citizenship that money, for the same amount of tenure, does not. The Bay Area market does not reward that puritanical ethic.
Can you explain how buying in Bay Area can be more expensive than renting? The only reason I can think of is that there's an expectation that the property will appreciate greatly in the near term and can be sold for a profit, but eventually either the rents will raise to be above the buy option (in which case congrats to those who bought, well done) or someone will be left holding the bag.
So yes, I'll concede that in the temporary situation that buy is more expensive than rent, and there's a market correction coming, it's savvy to rent, but those aren't the folks that cry "Gentrification!".
And yes, owning a deed to your place or, even better, owning a business in the neighborhood, counts for more than just "having been there".
We would have been much better off if politicians left housing alone and just cut checks to the people they are buying off with all the interventions into the housing market.
Of course that would run into the problem that people love to push for giveaways from the government but want it to be slightly obfuscated so they can tell themselves stories about how they never got anything from anyone. Witness the uproar over "you didn't build that."
Rent seeking is a fact of life, I can accept it. But the hypocrisy and self righteousness of some rent seekers just drives me bananas.
I'm frankly surprised that we have not seen more real estate bubbles pop over the years. It's clearly unsustainable, yet somehow the market keeps going. Ask your parents if they could afford to buy their home today, even with their best yearly income. Most of them will say no if they lived in the city for a couple of decades or more. I know so many who bought their house for $70k-$100k in the 70s and now see their neighbors sell for $1m-$1.5m. It's insane.