As a homeowner I see little benefit for me for the insane value of my home. Do I want to pay more in property taxes? No. If I sell it’s to just buy a different insanely priced home. I suppose I’m privileged in that I have other retirement plans so my kids will inherit my home - and that’s good I guess if they ever want to afford a home. Homes being an investment is the wrong mindset for a healthy society. Have cheap homes so you have enough money to invest in something else. I couldn’t care less if the value of my home plummets if all other desirable homes did too. Heck, I’d celebrate it. Seems to me the people who care are those who invest in real estate instead of just want a nice place to live.
Property taxes in many states are set according to budget, so your home’s value relative to other homes is important, but if all housing prices all fall or rise, the money collected is the same.
Homes are considered an investment because people want nice ones in locations that can only support so many (either via artificial or natural restriction). In turns out homes outside of those locations can get really cheap since finding buyers is hard.
Homes are and should always be an investment because they are. They dont have to beat the stock market, but a well maintained home should track inflation at least. They have real and huge replacement costs in materials and labor. If my house burnt down, it would cost $1M to rebuild.
Im all for cheap simple houses for those with less money. However, unless they are so cheap as to be disposable, they too will be investments.
This is incorrect. If they are an investment then they should go up and down in relation to the value of being able to live wherever the property is. The big issue now is all places (but some more than others) are artificially constraining supply with excessive regulation and restriction on what one can do with their property. We need to largely get rid of that excessive regulation (i.e. much less strict zoning allowing much higher density, with drastically restricted ability of neighbours to interfere with what is built and much quicker turn around time on permits to get building rolling as fast as possible). Doing that will destroy a lot of "value" of houses that are only constrained because of these rules. Other places will go up in value as much higher density is allowed more easily on land in higher demand areas.
What your house would cost to replace is only very tangentially relevant to what its resale value is.
I agree with the first part of what you said, but disagree with your closing comment. I think a lot of people underestimate how significant construction costs are. I planned was infinite and there were no zoning regulations, my home would only give up like a third of its value.
Materials and labor are a huge component of housing prices
if your house is currently a million dollars then dropping in value by a third is roughly the difference between needing 220k a year of income to buy it or 156k a year of income to buy it. it's a 96th percentile income house vs a 92nd percentile income house, which makes it an affordable house to many millions more people.
That being said. I agree that labor and materials are a huge part. However, a large part of the labor and materials cost is itself driven by regulation and should decrease in a less regulated environment (everything from elimination of wasted trades time caused by regulators to it being much easier for startups in 3d printing, factory line production, etc. should drive costs down), Further, elimination of mundane but expensive required details like minimum parking requirements, multiple fire escapes in low rise smaller developments limiting floor plan design (while being unnecessary due to improvements in fire suppression), minimum suite sizes,etc, etc. should drive more right sized development to areas that are currently overheated, pushing prices down.
>if your house is currently a million dollars then dropping in value by a third is roughly the difference between needing 220k a year of income to buy it or 156k a year of income to buy it. it's a 96th percentile income house vs a 92nd percentile income house, which makes it an affordable house to many millions more people.
Another way to put this is it would set house prices back by 3-4 years, which is where I was coming at it from.
I do think there is a lot that should be done on the regulatory front, so that more people can own, and more people in general can have roofs over their head.
I think it is despicable that we as a society have enacted things like minimum unit size while there are homeless people struggling to find housing. I think there should be basically no regulations for owner occupied homes, and the bare minimum safety standards for rentals. IF someone wants to rent a 10x10ft cinderblock cell to live in, they must really be struggling, so why the hell would we want to make things harder for them.
Why did you compare home size in a city to home size in a country? Average Japan home size is about 1000 square feet, smaller but not that much smaller.
Because the meme/myth about disposable Japanese housing comes from dense urban environments like Tokyo.
It is largely a result of tax policy and construction methods between 1960-1990 where it made sense to gut apartments after they depreciated for tax purposes.
In Japan, property tax decreases to zero over time, but resets if you upgrade it. There for people gut and remodel before selling their units so they get the benefit of a higher price, but the buyer pays the taxes.
I think it would be the best if everyone was forced to live in a flat, which size is determined by the number of people living in that Appartement. It is cool for you that your house is valued at 1 million; that proves my point even more. A house shouldn‘t be an Investment, but your education.
There are huge transaction costs to buying and selling a home, renting could also be seen as a way to avoid those costs if you aren’t going to stay somewhere. But I rented for cheap in Beijing when housing to buy costs were super high, who wouldn’t rent a $1 million apartment for < $1000/month, buying in that market would have been dumb even without red tape to buy something.
Let's say you are an airline. You are selling tickets for the next year. Jet fuel is a major input cost, largely driven by the price of crude oil. If you sell a ticket today for 6 months from now, you are implicitly short the oil market.
You haven't actually shorted the market, but if prices increase over the next 6 months, you may end up losing money on the tickets you sold. This is why you see airlines hedging, because they are implicitly short.
The same holds true for housing for most people as I explained above. People rarely downsize their homes. Their forward consumption of housing is almost always greater than their current exposure to the housing market. This leaves them implicitly net short.
Thanks for explaining. your are talking about exposure to cost increases relative to your intended purpose.
I hold that still depends on what your alternative investment opportunities are. If you buy the $1M house when you actually want the $2M house, you are still locking in 50% of the cost. Thats a good thing if the alternative investments perform poorly, and a bad thing if the alternatives are better.
There are negative benefits to high housing prices. It's the most illiquid asset type. If you sell it where are you going to live? At the same time high rents drive up the price of goods and services you need to pay for.
> Increasing median income and economic growth both increase affordability, even if housing costs track inflation.
Given 1% growth a year that would take close to a lifetime to just halve current home prices per income. It isn't a solution for the people living today.
"just halving" is a radical change that will never happen on a short timeline.
With a more realistic number of 2% (for the US), you are talking about a 35% reduction in Price/income in 20 years. I think that is a very optimistic case to shoot for socially and politically.
Over the same time period, the value of existing homes, as measured by the Case-Shiller U.S. National Home Price Index (which measures the price of repeat same home sales) more than doubled.
I still don't know what point you are trying to make or refute.
If you asking why I think it is completely unrealistic to expect a 50% decline on a short timeline, there are tons of reasons. You have to ask why housing prices doubled, and ask how easy or likely those underlying conditions are to reverse.
1) First, US GDP/capita went up by 60% in those 11 years.[1]
2) Similarly, US inflation in those 11 years was 40% [2]
3) US urban population increased by 25 million in those 11 years [3]
4) Construction costs/sqft are up about 90% in those 11 years [4]
5) More generally, Most Americans have 30 year fixed rate mortgages. This means they can and will avoid selling at a loss, so prices are sticky.
These are all factors without "quick fixes". Slow change can happen, but the fundamentals are sticky. If my house burnt down, it would cost $1M in materials and labor to replace.
>You have to ask why housing prices doubled, and ask how easy or likely those underlying conditions are to reverse.
Massive monetary expansion via QE and low interest rates. Resolved by raising interest rates and taxes on wealth holders (and particularly those holding unused or underutilized real estate) to deflate the asset bubble.
Strongly disagree. That is an additional factor, but doesnt change most of the factors I mentioned. It doesnt change population or urbanization. It doesnt change the cost of labor or materials.
Underutilized RE is a red herring.
As long as construction costs remain high, supply remains low, and there are enough buyers that afford the price, you wont see changes.
Monetary expansion underlies and significantly influences if not drives, everything you mentioned (save the nature of US mortgages, which is still related in the sense of it being a part of financialization of as much of American life as possible). The QE boom drove immigration, and low interest rates drove hiring and wage inflation; the COVID bust dampening immigration, and the extremely low interest rates driving a hiring frenzy that was itself followed by mass layoffs when the FRF was raised, essentially proved this.
>Underutilized RE is a red herring.
So you've stated. Please prove it, at the very least showing how RE isn't underutilized (this is going to be difficult, because it is).
I agree expansion is an influence, as it impacts just about everything. It you look back to my core point, it is that the factors driving real-estate prices are unlikely to reverse in the short term, and certainly not enough to cut prices like the proposed 50% of price.
You would have to have major declines in the first 4 factors I mentioned. good luck unwinding worker salary, population, cost of materials to that degree.
If the median income increases from 50K to 100K (adjusting for inflation), and houses stay at 500k (adjusting for inflation), they have become more affordable without losing value.
Rather than doubling all income one option would be to make the existing income more evenly spread out.
For instance McDonalds' CEO makes ~$20 million a year[0] and they paid out $6.6/share with 726M shares[1] to parasite shareholders[2] while the average non-CEO employee makes $25k a year[3].
Since there are 150000 employees working for McDonalds that means lowering the CEO salary to $200k and eliminating shareholder payouts would free up close to $5 billion/year.
If that $5 billion were distributed evenly to all employees they would take in an additional $33k/year, more than doubling their salaries.
Of course all these numbers are estimates and there are caveats but the overall point is there's a lot of money out there that's going to a very few people.
Do you realize the CEO salary is literally a rounding error in your calculation? Your answer doesnt have enough digits to express the worker impact of that $20m salary.
RV life in urban locations has a stigma these days of freeloaders and drug addicts. It works as a hack, but it’s a quick race to the bottom. Well maintained stealth van campers are a much more socially viable way to save on housing costs (and even then they achieve that by being super discreet).
Kids thrive best in stable environments; I don’t think moving them around a lot in an RV would be healthy or stable. It would be hard for them to form friendships, and be involved in the community.
Lowering housing prices will put many mortgages underwater. We are seeing the fallout from this today in CRE and across all properties in 2008.
Today, affordable housing means someone takes a loss. In new housing, the builder or the lender could take the loss but they won't start a project unless they are guaranteed to make a profit, which means the property owner takes the loss.
Deflating prices on existing housing means either the lender (ha!) or the homeowner takes the loss. An additional impact of deflating housing costs is that there may not be any equity for major repairs like roofing or medical expenses.
> Lowering housing prices will put many mortgages underwater.
But it's important to realize that if a mortgage goes underwater, nothing happens.
If you buy stocks on margin loan and that goes underwater too much you get a margin call and are in deep trouble.
A mortgage is nothing like that, it can happily go underwater and nothing happens. My mortgage has been underwater twice during its existence. No big deal.
If you keep paying it because you like the house and want to continue to live there, being underwater doesn't mean anything.
Can you point to articles describing banks in 2008 calling in underwater mortgages? That makes no sense, since it'll only hurt them (the bank doesn't want to own your house, they want the income stream from the mortgage). Also, at least for all mortgages I've signed, there is no provision in the contract for the bank to do that as long as I keep paying.
>Deflating prices on existing housing means either the lender (ha!) or the homeowner takes the loss.
Okay.
(Expand or they're going to flag you for snark.)
The cohort that is currently at prime home-buying age (and, really, most people under the age of 50) have had the wealth that was generated by their labor and productivity systematically siphoned to mostly-older higher-earners, in order to shore up unsustainable compensation and retirement funding for the professional managerial/executive class and Silent Gen, Baby Boomer, and Gen X workers. The value of the overbuilt, low-density, transit-access/amenity-access-poor housing that they've built or speculated on plummeting would be not only economically healthy (as it would act as a stimulus for non-asset-speculation activity and finally incentivize density and transit access, while disincentivizing the socioeconomic/racial exclusion that characterizes most American suburbs and which drives so many of our objectively terrible NIMBY-focused municipal planning decisions), but also just deserts.
I tried to edit my original comment, but the editing was turned off. My comment was not intentionally snarky but based on my experiences in 2008. At that time, there were many subprime mortgages floating around that should've never been written. Those taking the risk (financial institutions) should've taken the fall, but instead, they pushed the losses onto the homeowners.
Your last paragraph needs more nuance because the real world is messy. There are many factors ranging from inadequate income for savings and personal scale disasters like divorce and medical bankruptcy that prove your claims are inaccurate. However, I think your last paragraph is a passionate disapproval of people living in ways different from you. Some of your points are valid on income inequality, power structures, and transit, but the reality is what we live with today. If you look at the practical realities, widespread transit changes and housing densification are not likely to happen any time soon.
If you want to make change now, join your city government. Promote a plan to destroy old properties and replace them with denser, more environmentally sound buildings. Fix the core of the city before you try to change the way anybody else lives.
An easier path is engineering and product development of solutions that make what we have now less destructive.
If that's too big, here is a simple change that significantly impacts people and natural life: Turn off the lights. If you can't do that, make them fainter and warmer (2800K) and point them at the ground. Light pollution substantially negatively impacts the environment and the health of people and animals.
Another small change is nudging people to rewild their lawns. This would have a huge impact on insects, birds, and small mammals. It's a simple change: change a little bit of the zoning laws to reward native plant use and punish the use of invasive and other non-native plants.
It's important to recognize that if you can't make a small change happen and stick, the big stuff is a non-starter. This is true for personal change as well as societal change. A small change is a big change.
You've given individual solutions to try to fix a systemic problem, which of course does not work. They are good ideas; they are also not enough, and don't even begin to address the issue at-scale.
What does is recognizing that the "be realistic" bluster is just that: a bluff, from people who hold real power in the status-quo, but who realize that that status-quo can be changed, if only the walls would fall and nature could take its course. The reality is that older generations have created a zero-sum situation, and the only way for the younger ones to thrive is for the older ones to give up some (many) of their advantages. The reality is that this happens when political and economic forces are finally incentivized to stop protecting them.
One last thing I feel the need to mention whenever it comes up:
>At that time, there were many subprime mortgages floating around that should've never been written.
This is true, but not because they were written for people who were financially unfit to be homeowners. It's because these loans were written intentionally to fail, knowing that banks could steal the homes back in illegal foreclosure proceedings, knowing that the mortgages would be wrapped up in financial vehicles and sold off at profit, knowing that the government would backstop them when it all came crashing down. Given fair loans, most of these mortgage-seekers would have been able to keep up their payments - but that woukd have been less profitable for banks than what ended up happening. Instead, these financial institutions were able to siphon billions from the middle class, and buy up the remains of their failed rivals for pennies on the dollar. Which is despicable, of course. But to understand this, you have to reject the notion that we're living in a just world whose past mistakes can't be corrected. It isn't and they can be.
On reading your comment, I am reminded of Planck's opinion that science advances one funeral at a time. I think that is true here too. The change you want will come one funeral at a time.
I think one fallacy in your logic is that the older generation reaped benefits uniformly. The reality is something like 40% of my generation is retiring into poverty. Another 20 or 30% will end up in poverty when they run out of assets. Does that sound like people who have advantages they can give up? How do you convince someone to give up hard-earned privilege that is not financial but makes life worth living for them?
The very real conflict you describe is, in my opinion, misattributed. It is a class problem, not a generational one. The number of people who have caused the pain and suffering you, heck, we experience would fill a very small city in our very large country. These are the people we need to take power from in order to make the change we want to see occur and stick.
When I gave examples of problems in a small, I was not telling you to be realistic. If I did, I missedited and I apologize. I gave you the examples to use as a tool for measuring your capacity to implement change. The problems you want to solve are huge and are what I consider century-level problems. However, if you put what you want to do in the context of a very small population of powerful people, change becomes a multi-century problem if nothing about the current power structure changes.
But all is not lost. Remember, it's "if nothing about the current power structure changes". The question then becomes how to change the power structure, and I think the fastest way is to increase rent-seeking opportunities in your desired future.
My logic is that people in power are motivated by money as a proxy for power. After all, who needs more than three or four times basic expenses to have a good life? In today's economic realities, rent-seeking is the dominant method of wealth accumulation. You want to change the attitudes of the rich and powerful, change where rent-seeking is rewarding.
This has been a good conversation, and I thank you for it.
I can't speak for the urban situation, but I don't care about my home value (to a point). I care about the quality of my community. I care about that a lot. Dense housing put in an area that isn't dense just because the area is high-demand is often not productive in the long run, as the effects it can have on the existing community range from nothing (a net positive though, since now there's more housing) to abject disaster.
Part of this is housing, but part of it is just people wanting to live in a high-demand location and thereby tempting politicians and developers. You can satisfy the important part (housing) without the bad part by prioritizing building outward. Create more communities, which have the opportunity to become high-demand, instead of destroying places people have worked hard to live in and in which people have developed solidarity and community.
"making housing more affordable" means start to spread, meaning leaving big dense cities where real estate value is absurdly high, to build a distributed population were LAND value depend much more on the local land characteristics (a safe place for flooding, landslides and so on or not, an easy accessible land or not, ...) than human structure around and is a substantial part of the house price. This means build new, well insulated, ventilated homes with p.v. for all reasonable latitude, and so on.
Like it or not big cities have a future of big ghettos for poor and desperate and the real estate value there will surely drop retargeted to mere local human exploitability index (or hum much you can milk from the desperate before they start looking for you without friendly and civil intents).
Personally I left the big city for a nice mountain area where I built a new home, unfortunately for me my parents (who start to be a bit elder) do not want even if they can economically leave the city, so I'll suffer indirectly the easy foreseeable high entertainment costs of city classic buildings (at least here in EU, where most buildings are terribly designed and for another era) then the big drop of real estate value (plus taxes who will NOT drop) but I've NOTHING against that, it's simply a fact any rational human see if he/she do not want to be blind, the point is that if we start debating and moving slowly with public support we can transform the inevitable storm in an opportunity, otherwise it will be just another 1929-alike crisis probably covered by a concomitant global war.
My mom owns a single family home near the best park in her city.
The only way housing prices will fall in that city is if they build a massive number of affordable, high density buildings.
Which will significantly increase the population of the city, because people keep leaving for cheaper locations.
Which will significantly increase the price of my mother's house, because it'll be much harder to find a unit like hers, and there will be many more people competing for it.
There's little discussion about immigration. Canada has an even higher rate of immigration than the US and, no surprise, is watching housing prices spiral even higher.
If you build X affordable units, but let it 2X or even 1.1X new residents, the prices are going to go up.
The YIMBY types tend to be in love with unconstrained immigration. Unfortunately, more people means more competition for housing.
> Unfortunately, more people means more competition for housing.
You're explicitly assuming "1.1X new residents" but the point of YIMBY is to increase supply fast enough to maintain housing affordability. You're making the case for YIMBY rather than disproving it.
This isn't true at all; for one example, the main reason housing prices are high in the US is policies that exist to maximize the supply (and thus suppress the price) of low-density and particularly the extreme case of that, single-family detached, housing (which also suppresses the value of land, since the land can only be used for that purpose)
Removing those policies will decrease the cost of the minimal housing unit by increasing supply, but also increase land prices (by opening up more valuable uses) and increase the premium for single-family homes sitting on land (since they will become rarer), so making housing more affordable will simultaneously make existing houses more valuable.
Government policy is hugely biased towards homeowners and against renters. It would be more equitable to help renters more, perhaps by helping them become (first-time or partial) homeowners. Two schemes:
1) Government could put up down payments for first-time buyers in exchange for say 50% of the home equity. Buyers obtain a normal mortgage loan. Such buyers can optionally pay back the down payment over time and get 100% equity or govt regains their share of equity after a sale.
2) Government could offer landlords payments for equity in rented property and convert willing renters into owners. Renters can pay back the government over time to gradually gain equity. Landlord shares ownership with govt and some or all renters.
In Canada it's based toward landlords, not homeowners. If I own the home I live in, I have tax disadvantages over renting.
If I rent my property to somebody else, I can write off way more things like the mortgage interest portion.
Not necessarily. If you add density to an existing lot, your land increases in value, and since it’s likely the majority of the value of your property, your property probably goes up in value. Then, the increased supply decreases the cost of shelter.
How does it not reduce demand for land? Eg right now if I wanted to live in one of these places, I virtually have to compete to buy a plot of land that I alone own.
With high density housing, me and another few hundred people who would have been demand for land can instead buy condos or rent apartments and share that plot of land. Our demand was satisfied for fractions of a percent of the supply it would have taken with low density housing.
Ie high density housing efficiently uses land, thereby reducing demand for it.
Some areas will be gentrified and be worth more. If I were going to guess, the downtown core will spike in value and the suburbs will have to drop in value to compete with the affordability of downtown living.
I suspect a lot of people would live downtown instead of the suburbs if they could get a 2/3BR that wasn’t 4x the cost of living in the suburbs.
That's a single plot, increasing density by maybe a factor of 6, at absolute best. If enough units come onto the market to relieve the so-called shortage, prices necessarily drop.
In any case, the problem might very well be, directly, that prices are too high, because it has invited speculation and warehousing. Inventory as the crux might be wrong.
They're claiming we can see both, because the number of people sheltered per unit of land will have increased.
While I see this as plausible in some cases, I also think it's sweeping a big error constant into "housing affordability" if we're saying that the kind of housing "affordable" to one generation is of a different kind than was realistic for the preceding generation. If your parents could afford a single family home with a yard and you can afford an apartment in a building put up where someone's single family home used to be ... surely we can agree that actual housing affordability meaningfully decreased?
I really don't give a shit about the financial value of my home to someone else. Sure, my mortgage is calculated on it and I'll be paying that for the rest of my life but the true "value" of my home is the quality of life my family and I can enjoy here. What you're talking about is how much money some investor can make off of the desire of people to have this quality of life value for themselves. And quite honestly it's incredibly sickening that our world works that way.
unfortunately this cannot be viewed in isolation. For example, a drop in house prices may cause people with a mortgage to become technically or practically insolvent, as happened in japan. So, for better or worse, if you are tied up in a house, your fate may be tied to the future value of that house. but in principle, i too would like to agree :-/
I think you are an outlier if resale value doesnt matter.
It matters to me for many reasons I doubt you find sickening or sinister. It matters because my family might want or need to move for work. It also forms a major part of my retirement, and how I will feed and take care of myself in advanced age
It makes perfect sense that it has financial value to someone else, because it would take a tremendous amount of material and labor to re-create if it burned down.
what part of your house are you going to eat in your advanced age? if you sell your house, you no longer have a house.
What is your plan? Sell your house for money, move to somewhere cheaper, and use that money to live? What will you do when housing is too expensive elsewhere as well? Is uprooting your life near the end when you need the most care really the ultimate plan?
That is a pretty normal cycle for most people and it makes perfect sense.
You buy a house, use it to save on rent and protect your retirement from inflation. Come to old age, you reverse mortgage or sell and go back to renting. Many people need to downsize anyways as their energy and capability decreases.
It is pretty unrealistic to expect that everyone can die without breaking into what is their largest expense in life.
It's pretty normal, but I don't agree it makes sense. You've spent your whole life in Anytown, USA, and the plan is to determine a birthday at which to sell your home and move away from all your friends to Florida? Or maybe they move with you? What about setting down roots and living in the same house from generation to generation. I mean, to each their own, but housing as an investment is what leads to this "logical" conclusion. If housing merely tracked inflation then we'd have a different situation.
It is impossible for housing to be simultaneously a good investment and affordable. Policymakers simply have to decide if they cater to those that already own homes, or those desperately wanting to buy one.
I feel strongly housing is a basic human right, and so we should stop viewing residential property as an appreciating asset.
> It is impossible for housing to be simultaneously a good investment and affordable.
This is one of those meme-phrases that no longer really means anything.
> Policymakers simply have to decide if they cater to those that already own homes, or those desperately wanting to buy one.
What exactly would you propose this means?
A house is always going to appreciate over the long haul on average, simply due to inflation. Are you proposing policymakers should decide to make inflation go away? (If it were so simple to accomplish that!)
> This is one of those meme-phrases that no longer really means anything.
It means exactly what it says it means. You can either making residential housing something that regular people earning regular salaries can afford to purchase, or you make it a vehicle for investment to grow money, so that rich people, and companies and brokerages and all the rest want to park their money there so that it will grow rapidly.
> What exactly would you propose this means?
Policymakers could decide to implement laws to limit how much of an "investment" housing can be. Obvious choices are limiting houses to only be owned by humans, limiting how many each human can have and penalties (tax or otherwise) for trying to "make money" from owning residential housing.
> A house is always going to appreciate over the long haul on average, simply due to inflation.
Residential property appreciates WAY faster than inflation. Since covid most Canadian houses are up at least 50%.
> Policymakers could decide to implement laws to limit how much of an "investment" housing can be.
How, exactly?
> Obvious choices are limiting houses to only be owned by humans, limiting how many each human can have
These are great and I fully support such rules. They will not make houses depreciate though. They'll make more of them owned by regular people instead of rental conglomerates, which is a wonderful outcome. But it won't make them depreciate.
> penalties (tax or otherwise) for trying to "make money" from owning residential housing
You make money from owning housing merely by owning and living in it. How are you looking to punish homeowners?
> These are great and I fully support such rules. They will not make houses depreciate though. They'll make more of them owned by regular people instead of rental conglomerates, which is a wonderful outcome. But it won't make them depreciate.
So there are cities in the US where 40% of all residential properties are owned by investment firms. Now they can't own them. So they sell them. Now you have a LOT of residential properties on the market, and a lot less entities that are legally allowed to purchase them than before. Of course prices will come down.
> Now they can't own them. So they sell them. Now you have a LOT of residential properties on the market, and a lot less entities that are legally allowed to purchase them than before. Of course prices will come down.
It's an interesting thought experiment, I'm not sure what the outcome would be.
In the real world we also have a lot of people who want to rent, so someone else needs to own those rental properties. But for the sake of a thought experiment, let's ignore that part.
There's a town with 1000 houses and 1000 families. 500 families own their house, the other 500 are owned by MegaCorp who rents them to the remaining 500 families (who'd prefer to buy but can't).
If MegaCorp is ordered to sell all their 500 houses overnight, I agree prices will drop. Because not every one of those 500 renting families will be ready to buy overnight, it means the ones who do can negotiate down on price. But that's not how divestitures are usually done, precisely due to this shock to the market.
If MegaCorp is ordered to sell one house per month until all are sold, I suspect prices go up a bit. Because even though the buyers know every house will eventually be sold, it's going to take 500 months so many would rather get in earlier so they'll be bidding against each other, rising prices in the early years of this program.
My main point is that "a lot less entities that are legally allowed to purchase them" is not that important. Because MegaCorp is a pass-through entity, they don't occupy a house, they just want the income stream from it. Ultimately it is still occupied by a family, whether by direct purchase or via renting. So removing MegaCorp from the picture does not reduce demand, there's still 1000 houses and a 1000 families. (It does remove their profiteering from renting, so that part is still a win.)
Of course, reality is more complex since there are renters who want to rent as well as families moving both into and away from this town, so modeling this precisely is too much work for a HN comment.
Housing fundamentally IS and should be a good investment for the homeowner. It retains it's functionality over time, and saves the owner considerable rental expenses.
Think about what conditions would need to be true for housing to be a bad investment.
>I feel strongly housing is a basic human right, and so we should stop viewing residential property as an appreciating asset.
Its not about "views", it is about reality. You cant simply wish an alternative into existence by closing your eyes.
But can you at least attempt to explain how something that has a lot of value and can last for centuries, is realistically going to go down in price given inflation?
In general the only scenario where housing can go down in value is if the area/city is decaying. But then you don't want to live there so that's not a useful solution.
OK, so it can appreciate with inflation. So it doesn't go up or down, it just stays the same.
This can be done by changing who is even allowed to own them, and what they're allowed to do with them. Make it unbelievably unattractive to have "investment properties" - massive taxes, extremely high interest rates, very restrictive rental laws, and all of them go up by an order of magnitude for each successive residential property owned.
So now suddenly nobody (especially not corporations) want to actually own residential property for the purpose of making money. It won't be a good place to put money, because it doesn't make money in the same way bonds or the stock market will. So now demand has gone WAAAAY down. And then prices come down, because the only people who really do want to buy residential property are people that need a place to live, not people (or companies) looking to make a profit from that property.
We wouldn't let a couple of private companies buy all the drinking water or air and then sell it back to us for the purpose of making a profit. Those are as essential to a good life as a place to live.
Obviously rich people, and people (and companies) making profit from residential property don't like this idea. But we need to provide people a place to live, not companies a way to make profit.
> OK, so it can appreciate with inflation. So it doesn't go up or down, it just stays the same.
And how would you implement that?
So basically there needs to be a government agency which tracks the inflation adjusted price of your home. Ok that's easy. But this agency now also must have the power to prohibit you from selling your home for any price other than their official inflation-adjusted price. If they don't have this power, then someone could offer you more for your home and thus you made a profit, and your goal fails.
Would you expect to have voter support for such a price fixing scheme from any side of the aisle? Would you even want to live in such a world?
I keep asking because often these threads go into something like "Oh you just stop making homes an investment and problem solved.", but that word "just" is moving some pretty big mountains there. If you drill down on what that really might mean, it never comes out to something realistic to implement.
> So now demand has gone WAAAAY down.
Demand does not go down. Your scheme just favors owners living in their home as opposed to corporations buying them to rent them out (which I fully and enthusiastically support!). But actual number of homes and actual number of families wanting to live in them didn't change, so demand didn't change.
> We wouldn't let a couple of private companies buy all the drinking water
(Off topic to this thread but this is happening, scarily enough.)
> And how would you implement that?I keep asking because often these threads go into something like "Oh you just stop making homes an investment and problem solved.", but that word "just" is moving some pretty big mountains there. If you drill down on what that really might mean, it never comes out to something realistic to implement.
Only humans can buy residential property, and only one residential property for one human.
>Demand does not go down. Your scheme just favors owners living in their home as opposed to corporations buying them to rent them out (which I fully and enthusiastically support!). But actual number of homes and actual number of families wanting to live in them didn't change, so demand didn't change.
Number of entities that want to purchase residential property has now gone WAY down. No corporations, nobody owning multiples. There are not more homes total, and there are not less people needing a place to live, but there are less entities trying to buy homes.
I believe renting is the weakest part of my idea, but I don't see why it can't be solved.
Maybe humans are allowed to own some maximum number of properties for the purposes of renting it out, and that number will decrease over time.
Maybe banks can own houses and rent them out at some capped amount.
Maybe the government can own houses and rent them out with the express purpose of "rent to own", with absolutely no intention of "earning a profit".
I don't have all the answers, but I think it's pretty clear that companies owning 40% of ALL residental homes in a city and making massive profit renting them out does not make housing affordable, and it does not allow people to have their basic human needs met. Therefore something needs to change.
do you have a reference for that 40% number. I have a hard time believing it is accurate, and especially not for single family homes. It looks like large companies own 2% of single family homes in my state of California. This reference puts the number at 3% of single family homes nation wide
being institutionally owned, or 446,000 out of 15,1 million homes [Ref 1, pg 9].
There is also a fundamental tension between forces driving people into dense urban apartments and the desire for home ownership. When you look at dense European cities, virtually nobody owns their flat.
Overall, Im not opposed to banning mega investors, but think it will just make more opportunity for small scale rental companies. This reference [2], talks about some of the laws proposed in California, but also has a lot of valuable context.
Housing can be an asset and a basic right. The rights based housing just isn't in the center of a capital city. Also, do you mean housing ownership, or just housing? People can be housed in houses they don't own too - and it's probably better if it's owned by the municipality.
An asset produces cash flow. Primary residence can only be a speculation device because for a majority of people it does not produce a cash flow. Instead it produces expenses.
Utility is not an asset. When you grow up with your parents they provide shelter, you get a utility of it. No asset for you. Majority of assets produce cash flow (e.g. licensing software - IP asset, renting real estate to someone - you get monthly rent, bond - coupon payments, stock - you get dividends, etc)
“A present right of an entity to an economic benefit”.
“Essential to the definition of an asset is a right to an "economic benefit" —the capacity to provide services or benefits to the entities that use them. Generally, in a business entity, that economic benefit eventually results in potential net cash inflows to the entity. In a not-for-profit entity, that economic benefit is used to provide desired or needed goods or services to beneficiaries or other constituents, which may or may not directly result in net cash inflows to the entity.“
It also says “incurring a cost to acquire an item does not in itself qualify an item to meet the definition of the asset”
I’m trying to say that under mortgage, a property isn’t your asset. It’s a bank’s asset. The mortgage is booked under asset side on the balance sheet of the bank. It cannot be booked as an asset on your side. The economy wouldn’t balance. Until you actually paid off stuff the home is a liability. You pay money on it every month (negative cash flow) and that cash flow accrues to the bank (positive cash flow). I don’t know in what definition an asset produces a negative cash flow. It’s a liability under most definitions. Maybe I’m wrong. I’m not an accountant.
> I’m trying to say that under mortgage, a property isn’t your asset. It’s a bank’s asset.
No, the property is your asset. The mortgage is your liability. Each month as you pay the mortgage you have an expense (the interest part of the mortgage) and a reduction in your liability.
The loan is a liability (and an asset on the bank's side) but the house itself is your asset and is treated as such. You pay capital gains tax on sold assets even if you used a loan to obtain them. For individuals there are exceptions to that specific to real estate, but corporations definitely do. It's not an asset only if it's actually owned by the bank - such as a car or machine on leasing.
I'm not an accountant either but my company has some assets we paid for with a loan, so this is a situation I know.
I think you have a very skewed perspective of assets, let alone physical assets (which housing is).
A store that owns its own real estate isnt generating cashflow with it. This is the equivalent to a Homeowner living in a home.
If you are deadset on using intangible assets, it is the same a company holding a drug patent and producing the drug. Cashflow comes from sales, not the patent.
an investment property with a renter in it produces rental income for the landlord, and cash is currently giving me 5% returns for just sitting in the bank.
It’s going to be very difficult to make housing more affordable with high interest rates and high inflation. I highly doubt just increasing supply is going to be enough.
limitations on what people can buy aren't popular but forcing housing to be owned by local people, who have a stake in the local community, rather than an REIT with investors 5 states away that are only interested in returns, or even an overseas owner. Taxing rental income harshly and the gains from the sale of housing would also contribute to making investment property less attractive, though there are second order effects to consider.
still, I think building more really is what's needed, so subsidies for building would be a great way to stimulate building, as well as better funding for city permit departments, and also challenges to more egregious zoning restrictions.
If housing prices drop and a crisis ensues, government/central banks lower interest rates and provide stimulus in the form of grants/loans/monetary expansion to prop them up. It becomes clear that the only way to make housing affordable is for authorities to have the political courage to let a crash happen.
Its just that never before has there been an investment firm large enough to take a big enough share of the largest market in the world, the US housing market.
The moment the federal government (Federal Reserve), private equity and investment firms like BlackRock started buying up every available home not nailed down it was the beginning of the end for the US consumer.
The only solution to the housing affordability crisis palatable to current homeowners is to build many new homes of a totally different type that can not be readily substituted. This is already happening where new housing tends to be denser, stacked (apartments) or closer together (row houses). Of course there is some overlap, but to the extent overlap and substitutability can be minimized, current homeowners can enjoy their high values that many have relied upon for retirement plans, and prospective homeowners can enjoy plentiful inexpensive housing to “get into the market”, which would help keep rent costs lower too (much more substitutability between small starter homes/condos and rentals).
Just my 2 cents. If we are reliant on Boomers giving up their house values (which many foolishly rely wholly on for retirement) then there’s zero chance we tackle this crisis.
The kind of person who wants a 3000sqft suburban home is in a different market than someone that needs to keep the rain off their head and shower before work.
Building dense urban dwellings, especially cheap ones, shouldn't impact the price for better housing much.
This is the same reason the availability of paddle boats doesn't impact the price of megayachts.
People generally wont substitute a single family home on a large lot for a condo on the 16th floor of a building. So if you build a lot of condos and stacked townhomes, etc, then it wouldn’t necessarily affect the price of single family homes on large lots. So young people can get into the housing market without affecting boomer retirement plans (their houses).
South Korea built a new capital but most everyone there still tries to live in Seoul. There are very affordable cities in upstate New York within a few hours of New York City that are still losing population. This concentration in winner cities might swamp efforts to lower prices with new cities.
Arguably the Sunbelt suburban cities are new cities. If 90% of a metro's population is new since 1945, that's a new city grafted onto an old town.
In the US at least, we have built new cities, and we have also crowded into a smaller number of winner cities.
Canada, despite being huge, actually has fewer opportunities for new cities because building on the Canadian shield is impractical.
We settled the best spots already. There are huge economic returns for living in an urban area with other people, so its hard to bootstrap new cities. I think it would basically require starting as a company town. Epic medical records sort of did this in Madison
Epic has had a significant influence on Madison's economy but I'm pretty sure hosting one of the country's larger universities and state government have played a greater role in its growth than any private investments. It's Madison's consequently vibrant culture that makes its housing competitive.
Downtown Las Vegas was Tony Hsieh's baby and he sunk hundreds of millions of dollars into it to make it what it is today, and that's as part of an existing city. Cities take a lot of money to grow.
Housing affordability is such a silly subject. We live in both a democracy and a capitalist economy, both in the US and Canada. Most believe those within some locality should have a say over that area. If they do not want more housing because it financially benefits them to enforce scarcity, why should they not be able to?
We accept the limited availability of other luxury items, why is housing in a _specific_ locality any different?
If housing affordability is a problem, live somewhere else.
Housing affordability is wrapped up in good jobs aggregating around major cities.
The complaint is that good jobs are accruing to particular areas, through nothing the inhabitants of those areas have done, and then the locals are using that accrual of jobs to boost their own property prices.
Housing in a specific locality is a weird luxury item because people often don’t really want the housing, they want access to the job market.
So an underlying question is “are we okay with citizens enriching themselves by gatekeeping the good jobs behind a paywall?”
Their desire to enforce scarcity is causing societal issues as workers demand more wages to pay for the housing, prices of everything go up as a result of wage demands (among other things), and the US deals with its citizens funneling ever greater portions of their income to housing.
> If housing affordability is a problem, live somewhere else.
There are a few problems with that statement.
Less expensive homes tend to be in regions that lack jobs. Most of these regions also lack adequate infrastructure for remote work. Many of these regions also lack the resources for people to meaningfully live off the land, never mind the resources and infrastructure to generate income off the land.
This isn't really an example of capitalism. It is extraordinarily rare for people to be compelled to surrender their property to facilitate development. It is far more common for property owners to be denied the right to develop their own property in the manner they wish due to restrictions imposed by the government.
Quite often this isn't even an example of democracy. A group going to city council to lobby against a development is not necessarily representative of the community as a whole. Zoning laws developed fifty years ago don't necessarily represent the interests of people today. Then you have complicating factors. Democratically elected representatives at the provincial and federal level may be pushing for more housing because the population as a whole is pushing for more housing, while city counsellors are opposing development since the people who voted for them oppose development. Who's voice is more important? When everyone is saying: we need more housing, but not in my neighbourhood, how do we decide where housing gets built?
Finally: while some housing is luxury housing, housing is not a luxury item. People should not be denied access to housing due to income. People should not be denied access to housing in a reasonable location due to income. By reasonable location I mean things like reasonable physical access to employment, education, transportation, and material necessities (e.g. food). The environment should also be safe. In other words, that penthouse suite on the waterfront is a luxury item. An apartment within thirty minutes of the shipyards, in a community with a grocer, a school, a low crime rate, and isn't a former toxic waste dump is not luxury housing.
Why do new homes have to be built in competition with existing homes? With remote work and the digital elite moving wherever, why not just pop up new developments wholesale, complete with shopping and services somewhere out of the way and cheap?
I love the power of the word "just." It pairs well with armchair pundits who can simply wave a wand and solve major problems that lots of heavily motivated people who have resources and would profit nicely from solving these problems... still struggle to solve.
Can you answer your own questions in reverse? Why aren't new developments built wholesale, complete with shopping and services somewhere out of the way (and cheap)?
People do intentional communities all the time, and that's small groups of grassroots folks solving the problem. I have no doubt that a company could set up intentional communities much more efficiently, and provide more services to them so they were closer to parity with typical suburbs.
Ideas are already being tried. They are also not solving the (entire) problem. But to suggest "just" doing this one thing is a solution to the (entire) problem is easy to say, but how much does it contribute to actually solving things?
(Notably, me discussing this on the internet isn't a solution. It's just entertainment, and hopefully I learn something along the way!)
People do not want to live out of the way. In fact there are quite possibly lots of homes already available out of the way and cheap; I've heard some countries like Italy and Japan give them away for nearly free.
You can get perfectly good 2000 SF, 4 BR homes in places like Fargo or Little Rock for $200,000.
There are reasons housing prices in expensive areas are what they are. Some of it is poor zoning and land usage that suppresses supply, but a lot of it is also demand. People want to live in dense, vibrant areas, even if they could live cheaper elsewhere.
I'd argue the pandemic rural flight exemplified precisely how much everyone values the vibrance and density of cities: when quarantine put a pause on the vibrance and nullified employment proximity, everyone had only affordability to select for. And when the vibrance returned, so did the residents. https://ncrc.org/the-washington-post-americans-are-returning...
Because people also care a lot about their families and the communities they live in. Being close to family and friends is a very tough point to argue against.
If someone could predict what shopping and services would do well in a neighborhood with any accuracy, they would go work for Target or Walmart or a hedge fund.
How are you supposed to predict what to build before anyone moves in? A grocery store is easy, but the hipster main streets that people love are hard to nail down. What stores are going to seem “eclectic” and “cute” to the people who move in, without being too far out there or too “corporate”?
How many bars? What kind of bars? Is the coffee shop fine or does it need some kind of fancy tea time place?
What price point should these places target?
All of this is very hard to know without having people living in the houses who can be polled or observed to see what they’d want.
Cities are trash in my opinion. I don't want to live in a city. I'm happy to visit them once every few months, enjoy the cream of the crop of their culture, then leave and forget about them. It's not worth enduring the constant bullshit, traffic, $10 coffee and $20 cocktails so that you have instant access to culture, the mid live culture that's on offer half the time is less appealing than internet content I could consume from anywhere and taking a trip for a special occasion is fun.
Cities used to be where young folks found a job and a mate. The job part isn't such a thing anymore due to remote work but I can still see the appeal of a place like NYC if you're trying to find someone.
This is certainly as valid opinion, but just looking at the cost of housing makes it pretty clear that we have a shortage of housing in cities, and an excess of it in bumfuck where you want it to be built. Lucky for you your preference is to live where its already cheap.
There's a shortage of housing in cities because it's nearly impossible to build in most of them. That's why Dallas and Houston are cleaning up. Hence the original article.
Also, if by bumblefuck nowhere you mean places like Santa Ynez instead of San Francisco, then yes please.
You know what is neat when housing prices go down? You pay less to upgrade your house size than when the prices go up. Despite the fact your own house value dropped.
Housing price dropping is good for basically everyone I say.
If prices go down I won't sell my current house for as much as I bought. If I try to upgrade, granted the new house will be less expensive, but I won't have access to as much funds to pay for it.
Well, I'm against affordable housing then. Let Blackrock, who bought over 40% of the single family homes on the market, take it on the chin. Perhaps we can do a fire sale of corporate-owned homes.
This has made me determined to fight affordable housing even more so. I'd also like to ask, why is British journalism so shit tier? It's a fucking joke.
