9 ms·

MIT graduate student says income inequality is actually about housing

90 points by adidash 11y ago

x5n1 11y ago
Incredibly astute observation. Housing does eat most people's income.
stegosaurus 11y ago
This seems like an odd way to think about the problem to me. Housing is, to a first order approximation, the only thing I spend money on. Savings are framed in terms of 'how long could I afford the rent', or 'how long before I could pay off a mortgage'. Everything else is.. well, fluff. I would be happy to read books for a lifetime, I don't need 'fancy' food, but a stable home is pretty important to me. A 1 bedroom apartment with a reasonable commute to my job costs £10000pa as a lower bound. Add on the UK's equivalent of property tax and you're at 11000. Food? 1-2K. Gas, electricity, water, internet, cell phone? 1K, maybe 1.5K. So a combined upper bound of 3500. The only place in which those costs would get to 100% of housing would be in a depressed economic area. One in which most would struggle to find a job that paid much more than minimum wage. So the argument should be flipped, I think. Income inequality only actually matters at all because people have to buy housing. If everyone had a stable home then it would matter far less that other people could afford more toys. It's an issue because having a stable base is such a useful thing - without that problem, I don't think it matters that some are rich and some are poor, not really anyway.
- michaelbuddy 11y ago
  when a bunch of people have a "stable home" provided by somebody else, it results in the extra time on the hands of surprising few to absolutely destroy the place for everyone. Because value to people. See housing projects across the United States for more on that. Oh yeah the added bonus, when the place does get destroyed the inhabitants find ways to put the blame on the providers to usurp more while taking less responsibility or ownership over the situation.
  - rmxt 11y ago
    The story of public housing in the United States is quite a bit more nuanced then occupants "biting the hand that feeds," so to speak. There's a history of disinvestment and bias in the system that has had lasting repercussions through the present day, up to and including decaying conditions. Some reading: http://archive.law.fsu.edu/journals/landuse/Vol141/seit.htm http://archive.law.fsu.edu/journals/landuse/Vol141/seit.htm https://books.google.com/books?id=jjX2N9HgmWQC&lpg=PA1&ots=02SnDvlpjF&pg=PA1#v=onepage&q&f=false https://books.google.com/books?id=jjX2N9HgmWQC&lpg=PA1&ots=0...
    - sanderjd 11y ago
      Also, check out Show Me a Hero[0] or the HBO miniseries based on it, which is excellent and informative while doing a better job than any book I've read at evoking empathy with people trying to find a better place to live. Although, I'm not sure if it's unfair to the existing homeowners, or if they deserve their portrayal. [0]: http://www.amazon.com/Show-Me-Hero-Lisa-Belkin/dp/0316088641 http://www.amazon.com/Show-Me-Hero-Lisa-Belkin/dp/0316088641
  - malandrew 11y ago
    I'm curious if there are any solid solutions for solving this problem. i.e. how can you provide free housing that people take pride in and care for?
- nilkn 11y ago
  This strikes me as an equivalent formulation of the argument rather than a flipped version.
  - deleted 11y ago
    [deleted]
- cubano 11y ago
  > I don't need 'fancy' food, but a stable home is pretty important to me. Health and dental care probably rank up there too...dentistry can be quite expensive when you finally need it, and is definitely not "fluff"
wodenokoto 11y ago
Turning heads? This message, in the form of a very similar graph, was a Reddit post a few months ago and ensured a long discussion where people were quoting all sorts of historical figures who claimed that land ownership was the key to all sorts of power. I thought it was a fairly common theory.
- danharaj 11y ago
  A lot of modern liberalism is about hiding the brute calculus that underlies relations of property ownership. I'd love it if Marx became mainstream again without all the MLs and Stalinists ruining his ideas for everyone.
- jamie_ca 11y ago
  It was probably the same graph. This article was published Mar 25 - it says there's a followup coming, but I don't see any sign it's arrived.
rhino369 11y ago
Homes and communities are so intertwined with personal life and family that people forget it's also a huge investment / market. So we allow all sorts of behavior towards homes that we wouldn't let happen in other markets. NIMBY and zoning laws are a form of collusion. Also since the housing boom people have viewed high home prices as a good thing.
nugget 11y ago
Housing functions like a reverse auction. In the most HCOL areas, demand usually outstrips supply to such an extent that prices float up to a maximum ceiling (40-50% of avg income IIRC). Above which people's checks would bounce. That's NYC and SF. The average person seems to simply pay ''as much as they can afford'' for housing. In LCOL areas, it's a function of land and materials prices, and in some super LCOL areas, where demand is flat or shrinking, prices can even fall below this. As most/all other areas of life experience deflation (iphones, education, food, travel, entertainment), HCOL residents will reallocate the savings into housing, pushing the ceiling and housing prices up. Even despite attempts to increase supply, I think. The best solution is to redesign the economy to enable and incentivize the relocation of young people throughout lower tier cities and rural areas in the US.
- TulliusCicero 11y ago
  Or we could have saner zoning laws that provide for more housing. The most expensive metros nearly always have lots of restrictions on land use that prevent higher-density developments. Just look at SF, whose residential areas should all be zoned to allow buildings at least up to 5 or 6 stories: http://www.sf-planning.org/?page=1569 http://www.sf-planning.org/?page=1569 Of course, booming cities will nearly always have somewhat high rent prices, but they're way out of whack in some areas.
  - nugget 11y ago
    SF yes I totally agree with you. But what about NYC specifically Manhattan? How do you make it significantly more dense than it already is? The best answer for NYC is probably to aggressively gentrify as many neighborhoods as possible, which means (bluntly) displacing most lower income residents and moving in bicycle riding organic jam loving armies of hipsters. This comes with a lot of challenges. The biggest pressure release valve for Manhattan real estate prices has been the very successful gentrification of Brooklyn (and a few years behind is Oakland filling the same role for SF).
    - kiba 11y ago
fiatmoney 11y ago
In a lot of areas housing is deeply entwined with the education market. Uniformly high housing prices aren't a problem, high housing prices and NIMBYism in particular areas is a solution to keep out the sorts of people parents believe cause Bad Schools.
deleted 11y ago
[deleted]
krosaen 11y ago
This and important issue, but is not original analysis... for instance was discussed on The Weeds just recently http://voxtheweeds.slate.libsynpro.com/are-we-counting-poverty-all-wrong http://voxtheweeds.slate.libsynpro.com/are-we-counting-pover... But it's an MIT student! OMG! Time for the front page of HN!
crdoconnor 11y ago
This seems more relevant than ever today: https://en.wikipedia.org/wiki/Georgism https://en.wikipedia.org/wiki/Georgism This isn't: >Local housing boards have made it damn-near impossible to build new condos. After much infighting, San Francisco plans on building up to 50,000 more units. But, San Francisco’s chief economist, Ted Egan, estimates that that the city would need at least 100,000 new units to stem increasing costs, let alone bring prices down to something more affordable. >If Rognlie is correct and we really care about inequality, it might be wiser to redirect anger towards those who get in the way of new housing, rather than rely on taxes to solve our problems. Millionaire NIMBY homeowners in San Francisco fighting with luxury condo developers has nothing to do with the rest of us. There's something particularly distasteful about luxury condo developers trying to position themselves as champions of equality while trying to gouge huge profits from this state of affairs.
- jdshutt 11y ago
  An important thing to note is that of those 50,000 units being built in San Francisco, the vast majority are market rate, which are out of the price range of most people who want to live in the city. Developers are strong-armed into building a certain percentage of "affordable" units, but that's defined in relation to area median income for the city of San Francisco, which is unusually high. Take the massive development in Hunters Point. 35% of the 12,500 units being built are affordable, but affordable is defined as less than 150% of area median income -- that's AMI for the entire city, not the impoverished Bayview neighborhood the development is being built in. 150% of AMI in San Francisco is $107,050 for one person, or $152,850 for a family of four. A new unit that's priced for someone making six figures a year doesn't really meet the common sense definition of affordable. And with market rate housing, a lot of it is bought up as an investment property or vacation property for the ultra-wealthy, which means each new unit of housing is underutilized compared to a truly affordable unit bought by someone who lives and works in the city. If a developer builds 5,000 market rate units, that has less of a supply and demand effect than 5,000 truly affordable units, since they aren't even really the same kind of asset. Demand for market rate housing in major cities is largely driven by a need to shelter money, where truly affordable housing is driven by a need to shelter people. This means that the statistics for San Francisco are even worse than they look, since the 50,000 units being built will be unaffordable and underutilized.
cygx 11y ago
Something I like to point out when discussing wealth distribution in the US: http://i.imgur.com/NRAhNYU.png http://i.imgur.com/NRAhNYU.png data source: https://www.census.gov/hhes/www/income/data/historical/household/2013/h06AR.xls https://www.census.gov/hhes/www/income/data/historical/house...
peter303 11y ago
I look to graduate students for all my personal advice. The have such deep experience of the real world.
staunch 11y ago
He's right about housing being the #1 issue, but it's hardly the only problem created by America's ruling class. I bet he's entirely blind to the fact that the only reason his paper is getting so much attention is that he's an "MIT graduate". Attending an elite school like MIT is not even a 1%'er thing, it's a 0.1% thing. There's probably some poor person, who went to a shitty college, that's even smarter and has a better theory but we'll never hear about it. Think about their career trajectories and the inequality of their outcomes. Of course the 99.9% contains almost all of the smartest people, but they get almost none of the opportunity. This elitism is absolutely pervasive in American society. Microsoft: "Harvard dropout inks deal with IBM" Google: "A new search engine from Stanford." Facebook: "The exclusive Harvard social network" Dropbox: "Google Drive killer coming from MIT Startup". This paper: "MIT graduate student says income inequality is actually about housing" Something like 95%+ of people that get into elite schools graduate. It's not hard to graduate, it's just hard to get in, and the test for getting in is so gameable and rigged that almost no one pretends it isn't anymore. As long as the rich can spend fortunes buying elite credentials for their children, we're going to have a ruling class and a worker class.
- oldmanjay 11y ago
  Lots of assertions and anger, not much substance. About the only thing I get from your comment is you have great antipathy for the people on top.
  - deleted 11y ago
    [deleted]
  - galago 11y ago
    My personal observation is that there is a lot of close, personal interaction at top tier schools. So, while this isn't entirely wrong, its missing a useful observation. Academics working in a curated environment encounter the best ideas and encounter less 'noise' from bad ideas. This isn't a problem that's easy to solve, although technology is slowly chipping away at it. Currently there's not substitute though, for being in the same room with Picketty and other smart people, which probably happened when Picketty visited MIT after the publication of Capital in the 20th Century.
Futurebot 11y ago
Vox has a much more nuanced analysis of the finding: http://www.vox.com/2015/4/1/8320937/this-26-year-old-grad-student-didnt-really-debunk-piketty-but-what-he http://www.vox.com/2015/4/1/8320937/this-26-year-old-grad-st...
- rcarrigan87 11y ago
  This is a much better analysis and should really be swapped with the current article.
- fernly 11y ago
  Thank you, that was informative. But something seems very wrong to my uneducated understanding. Quoting the Vox writer, >The issue here is depreciation. When a firm buys a computer, the value of that purchase erodes with time. A $2,000 computer bought in 2012 is not worth $2,000 in 2014. When you take that into account, business profits look less impressive. That the resale (or "book" or "scrap") value of a $2K laptop is small after two years' use means nothing in practical terms. It's a significant item in the asset-accounting for the business, sure. But the damn laptop is still working, still being used, still grinding out Excel spreadsheets under Windows XP, two, five, even seven years after it was bought. The department that bought it for $2K in 2012 is, bitter employee experience proves, NOT going to get authorization to replace it with a shiny new one in 2014, nor 2015 either. So although the $2K capital cost of the laptop might evaporate from the company's books, the UTILITY of the laptop remains and it replacement cost is NOT incurred. This I think would apply with even more force to something like an assembly-line robot. At least my impression from seeing videos of car and motorcycle assembly lines is that the robots and other high-tech tools are quite well built -- better built than the average laptop fer sure -- and although they might depreciate, they won't stop working. In fact don't they become MORE valuable and profitable as their book value drops while their productivity contribution remains steady?
  - Futurebot 11y ago
    You're correct that "utility"-type depreciation isn't that fast when it comes to the day-to-day, but "business profits" don't typically (ever?) take that into account in the calculation. So it's really two different things. As an aside, here are the BEA's depreciation rates: http://www.bea.gov/scb/account_articles/national/wlth2594/tableC.htm http://www.bea.gov/scb/account_articles/national/wlth2594/ta... None of the above take into account the "utility goes to zero" fact for certain computer hardware: i.e., if a machine winds up too slow to run the latest software because of ever-increasing system requirements, the practical value of said hardware can go from "less than recently calculated resale value" to "possible resale value of raw parts" or even "zero."
Steko 11y ago
Previous discussion: https://news.ycombinator.com/item?id=9263107 https://news.ycombinator.com/item?id=9263107
rkallos 11y ago
This reminds me of an unfortunate part of history. When Roosevelt signed the G.I. Bill in 1944, a lot of soldiers who returned from the war were able to claim benefits in the form of tuition assistance, low-cost mortgages and low-interest loans. Soldiers coming home from overseas had the choice of pursuing higher education, purchasing a home, or starting a business. Another result of the G.I. Bill were Levittowns, newly sprouting suburban neighborhoods offering low-cost housing to these returned soldiers ($8,000 in 1950, approximately $80,000 in 2015). With the help of the expanding auto industry and the joining of highways, people began to move out into the suburbs and build new communities. The unfortunate bit is that while the G.I. Bill didn't advocate discrimination, it was interpreted differently for people according to their race. For example; of the 67,000 mortgages insured by the G.I. Bill, fewer than 100 were taken out by non-whites. Now, the heavily-inflated value (example; houses in Levittown, NY are selling for approximately $350,000) of these post-WWII homes are passed down and borrowed against or leveraged to send the grandchildren of those veterans to private schools and expensive universities, while many black families struggle financially in urban sectors. The racial discrimination of WWII veterans has been cited as a reason for the increased economic inequality and racial tensions being experienced today in the United States.
- saryant 11y ago
  Do you have any proof to back up your assertions? As the grandson of a WWII veteran, they ring awfully hollow to me. I assure you we did not live high off the inheritance of his mobile home when he passed on.
  - rkallos 11y ago
    Sure thing. The $8,000 figure for the Levitt & Sons housing can be seen on this ad: http://explorepahistory.com/displayimage.php?imgId=1-2-16F7 http://explorepahistory.com/displayimage.php?imgId=1-2-16F7 The $80,000 figure was from http://www.dollartimes.com/inflation/inflation.php?amount=8000&year=1950 http://www.dollartimes.com/inflation/inflation.php?amount=80... . I can't vouch for its accuracy, though. Current prices for ranch-style homes in Levittown, PA: http://www.trulia.com/PA/Levittown/ http://www.trulia.com/PA/Levittown/ 67,000 mortgages insured, fewer than 100 to non-whites: A book citation from Wikipedia; https://en.wikipedia.org/wiki/African_Americans_and_the_G.I._Bill#cite_note-2 https://en.wikipedia.org/wiki/African_Americans_and_the_G.I.... I didn't really explain why this figure is so astonishing, though. According to http://www.shsu.edu/~his_ncp/AfrAmer.html http://www.shsu.edu/~his_ncp/AfrAmer.html black people comprised around 8-9% of the US military. With that figure in mind, an expected number of G.I. Bill insured loans to black veterans should be around 5,300, not under 100. Someone's master's thesis on how the Post-WWII G.I. Bill has shaped modern homeownership: http://www.academia.edu/8352751/The_Homeownership_Gap_How_the_Post-World_War_II_GI_Bill_Shaped_Modern_Day_Homeownership_Patterns_for_Black_and_White_Americans http://www.academia.edu/8352751/The_Homeownership_Gap_How_th...
dschiptsov 11y ago
It is about land ownership sinse beginning of time.
crimsonalucard 11y ago
It's very easy to see where all the wealth is going and how and why it is divided unequally in this county. It's a simple observation that is self evident. Look at yourself, the average joe. Where is the wealth you generate going? Let's follow the process step by step. You work for a company and most of the wealth you generate is for said company... the company pays you a salary, lets say 10$/h. In order for the company to afford you, you must be generating more wealth then 10$/h. You're generating 20$/h of wealth and the company is shafting you by paying only half of that. It's one of the ironies of capitalism... employment is usually a deal that is unfair and weighted heavily towards the employer. But hey, it's a freemarket... you chose to get shafted. The rest of your money goes to things related to your survival. Unless you own a house, then the majority of what's left will go to RENT. So in the end, rent and labor output is what's sucking out the wealth from underneath you. Where does this wealth go? To the owners of the houses that are rented to you and the owners of the corporations you work for. In short owners of both HOUSING and HUMAN Capital is where most of your wealth getting extracted. Logically if your friends and coworkers are also employees then the same shit is happening to them and the rest of the population of the united states. Simply by observing where most of your own wealth goes, you can see where all of the wealth flows in this country and elucidate the primary cause of wealth inequality. The person who wrote this article seems to think that rich people invest their wealth in something called "technological capital" which "depreciates." What is he talking about? Does he think wealthy people are putting their wealth into warehouses loaded with piles of smartphones and macbooks? Rich people put their money into real estate and stocks (aka Housing and Human capital).
- tomp 11y ago
  > employment is usually a deal that is unfair and weighted heavily towards the employer I agree with most of your comment, but the sentence above is a bit of a fallacy. Sure, the employer isn't paying you the whole of the value you generate, but it works the same in reverse - you're getting paid much more than you would be if you were working on your own. Math: X = what you can produce on your own Y = what your employer can produce without you Z = what you and your employer can produce together employment only makes sense if Z > X + Y. In that case, your split of Z is > X, and the employer's split of Z is > Y.
jcfrei 11y ago
I doubt this comes as a surprise to most economists. After all demand for housing is pretty inelastic, universal and the supply in terms of property is finite. It reaffirms my believe that restrictive zoning regulations are one of the leading causes of wealth inequality in modern economies. In the Vox article about the paper they mention that Lawrence Summers supports "an easing of land-use restrictions" because otherwise they " [...] cause the real estate of the rich in major metropolitan areas to keep rising in value".
iandanforth 11y ago
Price controls would be appropriate in this situation. I'd much rather have money in the hands of tech workers than in the hands of banks or landlords. Rent-seeking behavior is too often allowed and ignored. The demand/price correlation is not a natural law or a natural good.
sytelus 11y ago
Article doesn't do justice to original paper. In fact I was left totally confused what it's trying to even say. However after reading the paper, it feels very profound. Paper basically finds a subtle but important issue in Piketty's famous argument that people with capital would grow much faster than rest of economy in current century than any other time (aka rich becomes even more richer than before). This paper says that Piketty's argument is correct only because of one component in their capital investment: real estate. In essence, if you had invested money in anything but real estate you would have much lower eventual return over very long term with high probability. This even includes areas that is believed to be gold rush like technology. Not only nothing beats real estate but the fact only real estate will allow rich people to grow fastest than any other time in history! The consequence of this assessment is very stark: People with money will continue to invest large chunk of their capital in real estate. The money invested in real estate is essentially "dead" because that money is locked up doing nothing, it doesn't work to produce goods, innovations or make world a better place. But real estate is indeed the most rewarding thing for your investments. So the thing is that behavior of real estate is completely against at odds with advancement of humanity. Real estate is in essence like cocaine of economy and there are no DEAs. If these conclusions are right then it's huge problem. Goverments across the world should immediately take measure to discourage real estate possessions if you are not living there. Real estate should be placed in same category as food and water. We don't let wealthy hog up all the food and water and then inflate the prices for higher return on their capital. There can be progressive tax for the real estate properties you own but don't live at. Further, there should be national movement to aggressively create and encourage new housing . Without these measures, our economy is living on real estate cocaine with little productivity. I would wonder if our current limbo state of economy where nothing grows except real estate is precisely the manifestation of these issues.
- bsder 11y ago
  Thanks for actually reading the paper and summarizing it properly. Now, I'm willing to go read it as well.
- TheOtherHobbes 11y ago
  You can see this happening in London, which is in the middle of a useless government-supported property bubble. Areas with prestige developments of > £20M houses and apartments are being left almost empty - because they're an investment, not a home. What you're describing would essentially be a land and property tax. The idea is so shocking that proponents of both - like Henry George - literally tend to be written out of economic history.
bikamonki 11y ago
An MIT degree to find the obvious? (go ahead downvote me)
rohankshir 11y ago
So strange. this guy housed me for admitted-student-college-visit-weekend about 6 or 7 years ago. really nice guy who had the complete genius vibe. he told me that in high school he didn't care about anything, and then around junior year he realized that he should give a shit, and self-studied for 22 AP courses and got 5s on all of them. he also had research papers lying around everywhere in his room and had also made a ton of money working at Jane Street and said it was fun but not for him.

90 points by adidash 11y ago

x5n1 11y ago

Incredibly astute observation. Housing does eat most people's income.

This seems like an odd way to think about the problem to me. Housing is, to a first order approximation, the only thing I spend money on. Savings are framed in terms of 'how long could I afford the rent', or 'how long before I could pay off a mortgage'. Everything else is.. well, fluff. I would be happy to read books for a lifetime, I don't need 'fancy' food, but a stable home is pretty important to me. A 1 bedroom apartment with a reasonable commute to my job costs £10000pa as a lower bound. Add on the UK's equivalent of property tax and you're at 11000. Food? 1-2K. Gas, electricity, water, internet, cell phone? 1K, maybe 1.5K. So a combined upper bound of 3500. The only place in which those costs would get to 100% of housing would be in a depressed economic area. One in which most would struggle to find a job that paid much more than minimum wage. So the argument should be flipped, I think. Income inequality only actually matters at all because people have to buy housing. If everyone had a stable home then it would matter far less that other people could afford more toys. It's an issue because having a stable base is such a useful thing - without that problem, I don't think it matters that some are rich and some are poor, not really anyway.

michaelbuddy 11y ago
when a bunch of people have a "stable home" provided by somebody else, it results in the extra time on the hands of surprising few to absolutely destroy the place for everyone. Because value to people. See housing projects across the United States for more on that. Oh yeah the added bonus, when the place does get destroyed the inhabitants find ways to put the blame on the providers to usurp more while taking less responsibility or ownership over the situation.
- rmxt 11y ago
  The story of public housing in the United States is quite a bit more nuanced then occupants "biting the hand that feeds," so to speak. There's a history of disinvestment and bias in the system that has had lasting repercussions through the present day, up to and including decaying conditions. Some reading: http://archive.law.fsu.edu/journals/landuse/Vol141/seit.htm http://archive.law.fsu.edu/journals/landuse/Vol141/seit.htm https://books.google.com/books?id=jjX2N9HgmWQC&lpg=PA1&ots=02SnDvlpjF&pg=PA1#v=onepage&q&f=false https://books.google.com/books?id=jjX2N9HgmWQC&lpg=PA1&ots=0...
  - sanderjd 11y ago
    Also, check out Show Me a Hero[0] or the HBO miniseries based on it, which is excellent and informative while doing a better job than any book I've read at evoking empathy with people trying to find a better place to live. Although, I'm not sure if it's unfair to the existing homeowners, or if they deserve their portrayal. [0]: http://www.amazon.com/Show-Me-Hero-Lisa-Belkin/dp/0316088641 http://www.amazon.com/Show-Me-Hero-Lisa-Belkin/dp/0316088641
- malandrew 11y ago
  I'm curious if there are any solid solutions for solving this problem. i.e. how can you provide free housing that people take pride in and care for?
nilkn 11y ago
This strikes me as an equivalent formulation of the argument rather than a flipped version.
- deleted 11y ago
  [deleted]
cubano 11y ago
> I don't need 'fancy' food, but a stable home is pretty important to me. Health and dental care probably rank up there too...dentistry can be quite expensive when you finally need it, and is definitely not "fluff"

wodenokoto 11y ago

Turning heads? This message, in the form of a very similar graph, was a Reddit post a few months ago and ensured a long discussion where people were quoting all sorts of historical figures who claimed that land ownership was the key to all sorts of power. I thought it was a fairly common theory.

danharaj 11y ago
A lot of modern liberalism is about hiding the brute calculus that underlies relations of property ownership. I'd love it if Marx became mainstream again without all the MLs and Stalinists ruining his ideas for everyone.
jamie_ca 11y ago
It was probably the same graph. This article was published Mar 25 - it says there's a followup coming, but I don't see any sign it's arrived.

rhino369 11y ago

Homes and communities are so intertwined with personal life and family that people forget it's also a huge investment / market. So we allow all sorts of behavior towards homes that we wouldn't let happen in other markets. NIMBY and zoning laws are a form of collusion. Also since the housing boom people have viewed high home prices as a good thing.

nugget 11y ago

Housing functions like a reverse auction. In the most HCOL areas, demand usually outstrips supply to such an extent that prices float up to a maximum ceiling (40-50% of avg income IIRC). Above which people's checks would bounce. That's NYC and SF. The average person seems to simply pay ''as much as they can afford'' for housing. In LCOL areas, it's a function of land and materials prices, and in some super LCOL areas, where demand is flat or shrinking, prices can even fall below this. As most/all other areas of life experience deflation (iphones, education, food, travel, entertainment), HCOL residents will reallocate the savings into housing, pushing the ceiling and housing prices up. Even despite attempts to increase supply, I think. The best solution is to redesign the economy to enable and incentivize the relocation of young people throughout lower tier cities and rural areas in the US.

TulliusCicero 11y ago
Or we could have saner zoning laws that provide for more housing. The most expensive metros nearly always have lots of restrictions on land use that prevent higher-density developments. Just look at SF, whose residential areas should all be zoned to allow buildings at least up to 5 or 6 stories: http://www.sf-planning.org/?page=1569 http://www.sf-planning.org/?page=1569 Of course, booming cities will nearly always have somewhat high rent prices, but they're way out of whack in some areas.
- nugget 11y ago
  SF yes I totally agree with you. But what about NYC specifically Manhattan? How do you make it significantly more dense than it already is? The best answer for NYC is probably to aggressively gentrify as many neighborhoods as possible, which means (bluntly) displacing most lower income residents and moving in bicycle riding organic jam loving armies of hipsters. This comes with a lot of challenges. The biggest pressure release valve for Manhattan real estate prices has been the very successful gentrification of Brooklyn (and a few years behind is Oakland filling the same role for SF).
  - kiba 11y ago

fiatmoney 11y ago

In a lot of areas housing is deeply entwined with the education market. Uniformly high housing prices aren't a problem, high housing prices and NIMBYism in particular areas is a solution to keep out the sorts of people parents believe cause Bad Schools.

deleted 11y ago

[deleted]

krosaen 11y ago

This and important issue, but is not original analysis... for instance was discussed on The Weeds just recently http://voxtheweeds.slate.libsynpro.com/are-we-counting-poverty-all-wrong http://voxtheweeds.slate.libsynpro.com/are-we-counting-pover... But it's an MIT student! OMG! Time for the front page of HN!

crdoconnor 11y ago

This seems more relevant than ever today: https://en.wikipedia.org/wiki/Georgism https://en.wikipedia.org/wiki/Georgism This isn't: >Local housing boards have made it damn-near impossible to build new condos. After much infighting, San Francisco plans on building up to 50,000 more units. But, San Francisco’s chief economist, Ted Egan, estimates that that the city would need at least 100,000 new units to stem increasing costs, let alone bring prices down to something more affordable. >If Rognlie is correct and we really care about inequality, it might be wiser to redirect anger towards those who get in the way of new housing, rather than rely on taxes to solve our problems. Millionaire NIMBY homeowners in San Francisco fighting with luxury condo developers has nothing to do with the rest of us. There's something particularly distasteful about luxury condo developers trying to position themselves as champions of equality while trying to gouge huge profits from this state of affairs.

jdshutt 11y ago
An important thing to note is that of those 50,000 units being built in San Francisco, the vast majority are market rate, which are out of the price range of most people who want to live in the city. Developers are strong-armed into building a certain percentage of "affordable" units, but that's defined in relation to area median income for the city of San Francisco, which is unusually high. Take the massive development in Hunters Point. 35% of the 12,500 units being built are affordable, but affordable is defined as less than 150% of area median income -- that's AMI for the entire city, not the impoverished Bayview neighborhood the development is being built in. 150% of AMI in San Francisco is $107,050 for one person, or $152,850 for a family of four. A new unit that's priced for someone making six figures a year doesn't really meet the common sense definition of affordable. And with market rate housing, a lot of it is bought up as an investment property or vacation property for the ultra-wealthy, which means each new unit of housing is underutilized compared to a truly affordable unit bought by someone who lives and works in the city. If a developer builds 5,000 market rate units, that has less of a supply and demand effect than 5,000 truly affordable units, since they aren't even really the same kind of asset. Demand for market rate housing in major cities is largely driven by a need to shelter money, where truly affordable housing is driven by a need to shelter people. This means that the statistics for San Francisco are even worse than they look, since the 50,000 units being built will be unaffordable and underutilized.

cygx 11y ago

Something I like to point out when discussing wealth distribution in the US: http://i.imgur.com/NRAhNYU.png http://i.imgur.com/NRAhNYU.png data source: https://www.census.gov/hhes/www/income/data/historical/household/2013/h06AR.xls https://www.census.gov/hhes/www/income/data/historical/house...

peter303 11y ago

I look to graduate students for all my personal advice. The have such deep experience of the real world.

staunch 11y ago

He's right about housing being the #1 issue, but it's hardly the only problem created by America's ruling class. I bet he's entirely blind to the fact that the only reason his paper is getting so much attention is that he's an "MIT graduate". Attending an elite school like MIT is not even a 1%'er thing, it's a 0.1% thing. There's probably some poor person, who went to a shitty college, that's even smarter and has a better theory but we'll never hear about it. Think about their career trajectories and the inequality of their outcomes. Of course the 99.9% contains almost all of the smartest people, but they get almost none of the opportunity. This elitism is absolutely pervasive in American society. Microsoft: "Harvard dropout inks deal with IBM" Google: "A new search engine from Stanford." Facebook: "The exclusive Harvard social network" Dropbox: "Google Drive killer coming from MIT Startup". This paper: "MIT graduate student says income inequality is actually about housing" Something like 95%+ of people that get into elite schools graduate. It's not hard to graduate, it's just hard to get in, and the test for getting in is so gameable and rigged that almost no one pretends it isn't anymore. As long as the rich can spend fortunes buying elite credentials for their children, we're going to have a ruling class and a worker class.

oldmanjay 11y ago
Lots of assertions and anger, not much substance. About the only thing I get from your comment is you have great antipathy for the people on top.
- deleted 11y ago
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- galago 11y ago
  My personal observation is that there is a lot of close, personal interaction at top tier schools. So, while this isn't entirely wrong, its missing a useful observation. Academics working in a curated environment encounter the best ideas and encounter less 'noise' from bad ideas. This isn't a problem that's easy to solve, although technology is slowly chipping away at it. Currently there's not substitute though, for being in the same room with Picketty and other smart people, which probably happened when Picketty visited MIT after the publication of Capital in the 20th Century.

Futurebot 11y ago

Vox has a much more nuanced analysis of the finding: http://www.vox.com/2015/4/1/8320937/this-26-year-old-grad-student-didnt-really-debunk-piketty-but-what-he http://www.vox.com/2015/4/1/8320937/this-26-year-old-grad-st...

rcarrigan87 11y ago
This is a much better analysis and should really be swapped with the current article.
fernly 11y ago
Thank you, that was informative. But something seems very wrong to my uneducated understanding. Quoting the Vox writer, >The issue here is depreciation. When a firm buys a computer, the value of that purchase erodes with time. A $2,000 computer bought in 2012 is not worth $2,000 in 2014. When you take that into account, business profits look less impressive. That the resale (or "book" or "scrap") value of a $2K laptop is small after two years' use means nothing in practical terms. It's a significant item in the asset-accounting for the business, sure. But the damn laptop is still working, still being used, still grinding out Excel spreadsheets under Windows XP, two, five, even seven years after it was bought. The department that bought it for $2K in 2012 is, bitter employee experience proves, NOT going to get authorization to replace it with a shiny new one in 2014, nor 2015 either. So although the $2K capital cost of the laptop might evaporate from the company's books, the UTILITY of the laptop remains and it replacement cost is NOT incurred. This I think would apply with even more force to something like an assembly-line robot. At least my impression from seeing videos of car and motorcycle assembly lines is that the robots and other high-tech tools are quite well built -- better built than the average laptop fer sure -- and although they might depreciate, they won't stop working. In fact don't they become MORE valuable and profitable as their book value drops while their productivity contribution remains steady?
- Futurebot 11y ago
  You're correct that "utility"-type depreciation isn't that fast when it comes to the day-to-day, but "business profits" don't typically (ever?) take that into account in the calculation. So it's really two different things. As an aside, here are the BEA's depreciation rates: http://www.bea.gov/scb/account_articles/national/wlth2594/tableC.htm http://www.bea.gov/scb/account_articles/national/wlth2594/ta... None of the above take into account the "utility goes to zero" fact for certain computer hardware: i.e., if a machine winds up too slow to run the latest software because of ever-increasing system requirements, the practical value of said hardware can go from "less than recently calculated resale value" to "possible resale value of raw parts" or even "zero."

Steko 11y ago

Previous discussion: https://news.ycombinator.com/item?id=9263107 https://news.ycombinator.com/item?id=9263107

rkallos 11y ago

This reminds me of an unfortunate part of history. When Roosevelt signed the G.I. Bill in 1944, a lot of soldiers who returned from the war were able to claim benefits in the form of tuition assistance, low-cost mortgages and low-interest loans. Soldiers coming home from overseas had the choice of pursuing higher education, purchasing a home, or starting a business. Another result of the G.I. Bill were Levittowns, newly sprouting suburban neighborhoods offering low-cost housing to these returned soldiers ($8,000 in 1950, approximately $80,000 in 2015). With the help of the expanding auto industry and the joining of highways, people began to move out into the suburbs and build new communities. The unfortunate bit is that while the G.I. Bill didn't advocate discrimination, it was interpreted differently for people according to their race. For example; of the 67,000 mortgages insured by the G.I. Bill, fewer than 100 were taken out by non-whites. Now, the heavily-inflated value (example; houses in Levittown, NY are selling for approximately $350,000) of these post-WWII homes are passed down and borrowed against or leveraged to send the grandchildren of those veterans to private schools and expensive universities, while many black families struggle financially in urban sectors. The racial discrimination of WWII veterans has been cited as a reason for the increased economic inequality and racial tensions being experienced today in the United States.

saryant 11y ago
Do you have any proof to back up your assertions? As the grandson of a WWII veteran, they ring awfully hollow to me. I assure you we did not live high off the inheritance of his mobile home when he passed on.
- rkallos 11y ago
  Sure thing. The $8,000 figure for the Levitt & Sons housing can be seen on this ad: http://explorepahistory.com/displayimage.php?imgId=1-2-16F7 http://explorepahistory.com/displayimage.php?imgId=1-2-16F7 The $80,000 figure was from http://www.dollartimes.com/inflation/inflation.php?amount=8000&year=1950 http://www.dollartimes.com/inflation/inflation.php?amount=80... . I can't vouch for its accuracy, though. Current prices for ranch-style homes in Levittown, PA: http://www.trulia.com/PA/Levittown/ http://www.trulia.com/PA/Levittown/ 67,000 mortgages insured, fewer than 100 to non-whites: A book citation from Wikipedia; https://en.wikipedia.org/wiki/African_Americans_and_the_G.I._Bill#cite_note-2 https://en.wikipedia.org/wiki/African_Americans_and_the_G.I.... I didn't really explain why this figure is so astonishing, though. According to http://www.shsu.edu/~his_ncp/AfrAmer.html http://www.shsu.edu/~his_ncp/AfrAmer.html black people comprised around 8-9% of the US military. With that figure in mind, an expected number of G.I. Bill insured loans to black veterans should be around 5,300, not under 100. Someone's master's thesis on how the Post-WWII G.I. Bill has shaped modern homeownership: http://www.academia.edu/8352751/The_Homeownership_Gap_How_the_Post-World_War_II_GI_Bill_Shaped_Modern_Day_Homeownership_Patterns_for_Black_and_White_Americans http://www.academia.edu/8352751/The_Homeownership_Gap_How_th...

dschiptsov 11y ago

It is about land ownership sinse beginning of time.

crimsonalucard 11y ago

It's very easy to see where all the wealth is going and how and why it is divided unequally in this county. It's a simple observation that is self evident. Look at yourself, the average joe. Where is the wealth you generate going? Let's follow the process step by step. You work for a company and most of the wealth you generate is for said company... the company pays you a salary, lets say 10$/h. In order for the company to afford you, you must be generating more wealth then 10$/h. You're generating 20$/h of wealth and the company is shafting you by paying only half of that. It's one of the ironies of capitalism... employment is usually a deal that is unfair and weighted heavily towards the employer. But hey, it's a freemarket... you chose to get shafted. The rest of your money goes to things related to your survival. Unless you own a house, then the majority of what's left will go to RENT. So in the end, rent and labor output is what's sucking out the wealth from underneath you. Where does this wealth go? To the owners of the houses that are rented to you and the owners of the corporations you work for. In short owners of both HOUSING and HUMAN Capital is where most of your wealth getting extracted. Logically if your friends and coworkers are also employees then the same shit is happening to them and the rest of the population of the united states. Simply by observing where most of your own wealth goes, you can see where all of the wealth flows in this country and elucidate the primary cause of wealth inequality. The person who wrote this article seems to think that rich people invest their wealth in something called "technological capital" which "depreciates." What is he talking about? Does he think wealthy people are putting their wealth into warehouses loaded with piles of smartphones and macbooks? Rich people put their money into real estate and stocks (aka Housing and Human capital).

tomp 11y ago
> employment is usually a deal that is unfair and weighted heavily towards the employer I agree with most of your comment, but the sentence above is a bit of a fallacy. Sure, the employer isn't paying you the whole of the value you generate, but it works the same in reverse - you're getting paid much more than you would be if you were working on your own. Math: X = what you can produce on your own Y = what your employer can produce without you Z = what you and your employer can produce together employment only makes sense if Z > X + Y. In that case, your split of Z is > X, and the employer's split of Z is > Y.

jcfrei 11y ago

I doubt this comes as a surprise to most economists. After all demand for housing is pretty inelastic, universal and the supply in terms of property is finite. It reaffirms my believe that restrictive zoning regulations are one of the leading causes of wealth inequality in modern economies. In the Vox article about the paper they mention that Lawrence Summers supports "an easing of land-use restrictions" because otherwise they " [...] cause the real estate of the rich in major metropolitan areas to keep rising in value".

iandanforth 11y ago

Price controls would be appropriate in this situation. I'd much rather have money in the hands of tech workers than in the hands of banks or landlords. Rent-seeking behavior is too often allowed and ignored. The demand/price correlation is not a natural law or a natural good.

sytelus 11y ago

Article doesn't do justice to original paper. In fact I was left totally confused what it's trying to even say. However after reading the paper, it feels very profound. Paper basically finds a subtle but important issue in Piketty's famous argument that people with capital would grow much faster than rest of economy in current century than any other time (aka rich becomes even more richer than before). This paper says that Piketty's argument is correct only because of one component in their capital investment: real estate. In essence, if you had invested money in anything but real estate you would have much lower eventual return over very long term with high probability. This even includes areas that is believed to be gold rush like technology. Not only nothing beats real estate but the fact only real estate will allow rich people to grow fastest than any other time in history! The consequence of this assessment is very stark: People with money will continue to invest large chunk of their capital in real estate. The money invested in real estate is essentially "dead" because that money is locked up doing nothing, it doesn't work to produce goods, innovations or make world a better place. But real estate is indeed the most rewarding thing for your investments. So the thing is that behavior of real estate is completely against at odds with advancement of humanity. Real estate is in essence like cocaine of economy and there are no DEAs. If these conclusions are right then it's huge problem. Goverments across the world should immediately take measure to discourage real estate possessions if you are not living there. Real estate should be placed in same category as food and water. We don't let wealthy hog up all the food and water and then inflate the prices for higher return on their capital. There can be progressive tax for the real estate properties you own but don't live at. Further, there should be national movement to aggressively create and encourage new housing . Without these measures, our economy is living on real estate cocaine with little productivity. I would wonder if our current limbo state of economy where nothing grows except real estate is precisely the manifestation of these issues.

bsder 11y ago
Thanks for actually reading the paper and summarizing it properly. Now, I'm willing to go read it as well.
TheOtherHobbes 11y ago
You can see this happening in London, which is in the middle of a useless government-supported property bubble. Areas with prestige developments of > £20M houses and apartments are being left almost empty - because they're an investment, not a home. What you're describing would essentially be a land and property tax. The idea is so shocking that proponents of both - like Henry George - literally tend to be written out of economic history.

bikamonki 11y ago

An MIT degree to find the obvious? (go ahead downvote me)

rohankshir 11y ago

So strange. this guy housed me for admitted-student-college-visit-weekend about 6 or 7 years ago. really nice guy who had the complete genius vibe. he told me that in high school he didn't care about anything, and then around junior year he realized that he should give a shit, and self-studied for 22 AP courses and got 5s on all of them. he also had research papers lying around everywhere in his room and had also made a ton of money working at Jane Street and said it was fun but not for him.