6 ms·

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 (

by 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
    So, what is the most economical skycrapper that they can build in NYC? 20 stories tall? Ten stories tall? How many buildings are at the economical height or taller? How many are lower?
    - DougWebb 11y ago
      Have you seen NYC? 20 stories is a small walk-up these days. I've lived in and around NYC my entire life, and I always thought that the shape of the skyline was governed mostly by the underlying granite: lots of support for huge buildings downtown and midtown, not so much everywhere else. But in the past five years or so very tall buildings have been popping up all over. I think it won't be long until you'll have trouble finding the Empire State Building lost amongst it's bigger neighbors.
  - TulliusCicero 11y ago
    Most of Manhattan isn't actually all that tall. Just go over to Google Maps and look at it in the tilted 3D view: https://www.google.com/maps/place/New+York,+NY/@40.6654432,-73.9847289,11919a,20y,40.13t/data=!3m1!1e3!4m2!3m1!1s0x89c24fa5d33f083b:0xc80b8f06e177fe62!6m1!1e1 https://www.google.com/maps/place/New+York,+NY/@40.6654432,-... The south end and midtown are tall, the rest is not. You can stuff way more density into Manhattan than currently exists. And Brooklyn is shorter yet, of course. Could put way more tall buildings into Brooklyn if you wanted to.
  - sedachv 11y ago
    > 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. Where exactly will you find these armies of upper-middle class people? Wages and social mobility continue to decline. http://www.epi.org/publication/even-the-most-educated-workers-have-declining-wages/ http://www.epi.org/publication/even-the-most-educated-worker... http://www.theatlantic.com/business/archive/2015/07/america-social-mobility-parents-income/399311/ http://www.theatlantic.com/business/archive/2015/07/america-...
pdonis 11y ago
> The average person seems to simply pay ''as much as they can afford'' for housing. And the government has made the problem worse, by skewing the mortgage market with ultra-low interest rates and thereby making "as much as they can afford" significantly larger. > The best solution is to redesign the economy No, the best solution is to stop messing with it. If long-term interest rates were set by a free market, significantly fewer people would be able to buy homes, or at least homes of the size they're buying now in the areas they're buying now. So they would either choose to live in less populated areas, or they would choose smaller homes, or they would rent instead of buy. All of those things would reduce the average cost of housing compared to other things.
- DougWebb 11y ago
  The people getting priced out of a housing market are not choosing to live somewhere/somehow else. They're being forced out by the wealthier people who are bidding prices up. For these same people, moving to less populated areas is probably not an option because they can't afford to commute long distance to their job(s), and don't have the kind of job mobility enjoyed by wealthier people. They probably can't choose a smaller home, because the small home prices get bid up along with the other homes. (I speak from experience; I recently moved out of a 'starter' size home in the 'bad' end of town, where the houses cost $300K - $500K even over the past few years.) Renting instead of buying might be an option, but even there prices get bid up in desirable locations. Where do these people actually wind up? In undesirable locations: places with higher crime rates, more obvious poverty, worse public services, etc. And for most of them, and their children who have to be raised in that environment, it becomes a trap that's very difficult to escape.
  - pdonis 11y ago
    > They're being forced out by the wealthier people who are bidding prices up. "Wealthier" in the sense of "can qualify for a larger mortgage". But the ability to qualify is skewed by the fact that the money that is borrowed is printed on the spot when the mortgage is created; it doesn't come from actual savings. If that didn't happen--if the money loaned out for mortgages had to come from actual savings--the market for mortgages would look very different, which means the population of people who were looking to buy homes would look very different. And not just that everybody would have less buying power across the board--the people who would qualify for mortgages in a free market would have different financial habits. For one thing, they would have no incentive whatever to use "creative" loan vehicles to buy more home than they could actually afford--which is what many of the "wealthier" people who are bidding prices up in the current market are doing. > They probably can't choose a smaller home, because the small home prices get bid up along with the other homes. But a smaller home in a given area still costs less than a larger home in the same area. Furthermore, in a free market for loans, where the government wasn't printing money to finance them, smaller homes would probably be more common, compared to larger homes, than they are now, which would reduce the price of smaller homes relative to larger homes, over and above the general price reduction that would take place if the government stopped printing money for mortgages. > Where do these people actually wind up? In undesirable locations: places with higher crime rates, more obvious poverty, worse public services, etc. This is another example of government failure. If the government spent its resources on what it was supposed to be doing--ensuring that everyone's rights were respected--instead of trying to run expensive and damaging experiments with the economy, there would be far fewer locations that were undesirable in these respects.
AnimalMuppet 11y ago
Education is experiencing deflation? Not in my world, it's not. (If by "education" you mean "learning something", then yes, I agree with you. If you mean "college degree", though, not so much.)
- nugget 11y ago
  Not yet, but it's on the horizon. The current model of student debt for a degree which conveys little to no advantage in the job market is unsustainable. Once it starts to turn the deflation will be rapid and impactful. Not only does higher education employ lots of people (funded by student debt) but also keeps millions of hard working 18-25 year olds who would otherwise need jobs, out of the work force.
  - Qwertious 11y ago
    "The current model of student debt for a degree which conveys little to no advantage in the job market is unsustainable." I don't mean to be a smartass, but https://en.wikipedia.org/wiki/Conspicuous_consumption https://en.wikipedia.org/wiki/Conspicuous_consumption
    - nugget 11y ago
      Harvard and MIT - sure. But what about the millions of people who went to schools that no one has ever heard of, or for-profit schools like University of Phoenix? In addition to that. Do you see the broad concept of conspicuous consumption increasing or decreasing? All of the signals I see show it decreasing thanks to the great recession and the new generation coming into the market. Dave Ramsey, MMM, et al have started to make it trendy to be frugal. Once it starts to become trendy to go to vocational training or straight into the job market a cultural shift can happen quickly. Because of its combination of white collar income/career attributes and vocational like self-training nature, I think Computer Science will be at the forefront of this trend. Note how few people advise ''go back to school and get a degree in computer science'' and rather ''learn how to code'' (boot camp, self taught, however possible).
crdoconnor 11y ago
Social housing would end the madness. In Hong Kong they merely had to announce that they were building 50,000 new units and prices plunged overnight. New York and SF could do that tomorrow. Raising property taxes would also help drag down the prices to saner levels and ensure that this rich source of rent ends up distributed fairly rather than coagulating in the pockets of the 0.01%.
- Thriptic 11y ago
  Pardon my ignorance, but wouldn't higher property taxes further increase rents and housing prices? I would instinctively assume the increased costs would be passed on to buyers and tenants.
  - nugget 11y ago
    Normally yes but not in areas where prices are already at the maximum ceiling of what people can afford. Raising property taxes shifts net income from the property owner to the taxing authorities. This reduces net income (yield or CAP rate) from the property and drops the price accordingly as investors sell investment properties and migrate their capital to other assets. Now, there's no free lunch. You end up hurting both wealthy investors and poor/middle class mortgaged-to-the-hilt homeowners who barely squeezed into the market. As we saw in 2008, bad things happen when a large % of mortgages plunge under water.
    - prostoalex 11y ago
      > You end up hurting both wealthy investors and poor/middle class mortgaged-to-the-hilt homeowners who barely squeezed into the market. You don't necessarily hurt anyone, you just lower the attractiveness of real estate as an asset class. The yield chasers will move their money into a more attractive asset class, the value investors who buy real estate for price stability or tax reasons would stick around with lower yields.
    - crdoconnor 11y ago
      >You end up hurting both wealthy investors and poor/middle class mortgaged-to-the-hilt homeowners Yet you'd be helping everybody else who didn't take on irresponsibly large debts.

by nugget 11y ago

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
  So, what is the most economical skycrapper that they can build in NYC? 20 stories tall? Ten stories tall? How many buildings are at the economical height or taller? How many are lower?
  - DougWebb 11y ago
    Have you seen NYC? 20 stories is a small walk-up these days. I've lived in and around NYC my entire life, and I always thought that the shape of the skyline was governed mostly by the underlying granite: lots of support for huge buildings downtown and midtown, not so much everywhere else. But in the past five years or so very tall buildings have been popping up all over. I think it won't be long until you'll have trouble finding the Empire State Building lost amongst it's bigger neighbors.
- TulliusCicero 11y ago
  Most of Manhattan isn't actually all that tall. Just go over to Google Maps and look at it in the tilted 3D view: https://www.google.com/maps/place/New+York,+NY/@40.6654432,-73.9847289,11919a,20y,40.13t/data=!3m1!1e3!4m2!3m1!1s0x89c24fa5d33f083b:0xc80b8f06e177fe62!6m1!1e1 https://www.google.com/maps/place/New+York,+NY/@40.6654432,-... The south end and midtown are tall, the rest is not. You can stuff way more density into Manhattan than currently exists. And Brooklyn is shorter yet, of course. Could put way more tall buildings into Brooklyn if you wanted to.
- sedachv 11y ago
  > 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. Where exactly will you find these armies of upper-middle class people? Wages and social mobility continue to decline. http://www.epi.org/publication/even-the-most-educated-workers-have-declining-wages/ http://www.epi.org/publication/even-the-most-educated-worker... http://www.theatlantic.com/business/archive/2015/07/america-social-mobility-parents-income/399311/ http://www.theatlantic.com/business/archive/2015/07/america-...

pdonis 11y ago

> The average person seems to simply pay ''as much as they can afford'' for housing. And the government has made the problem worse, by skewing the mortgage market with ultra-low interest rates and thereby making "as much as they can afford" significantly larger. > The best solution is to redesign the economy No, the best solution is to stop messing with it. If long-term interest rates were set by a free market, significantly fewer people would be able to buy homes, or at least homes of the size they're buying now in the areas they're buying now. So they would either choose to live in less populated areas, or they would choose smaller homes, or they would rent instead of buy. All of those things would reduce the average cost of housing compared to other things.

DougWebb 11y ago
The people getting priced out of a housing market are not choosing to live somewhere/somehow else. They're being forced out by the wealthier people who are bidding prices up. For these same people, moving to less populated areas is probably not an option because they can't afford to commute long distance to their job(s), and don't have the kind of job mobility enjoyed by wealthier people. They probably can't choose a smaller home, because the small home prices get bid up along with the other homes. (I speak from experience; I recently moved out of a 'starter' size home in the 'bad' end of town, where the houses cost $300K - $500K even over the past few years.) Renting instead of buying might be an option, but even there prices get bid up in desirable locations. Where do these people actually wind up? In undesirable locations: places with higher crime rates, more obvious poverty, worse public services, etc. And for most of them, and their children who have to be raised in that environment, it becomes a trap that's very difficult to escape.
- pdonis 11y ago
  > They're being forced out by the wealthier people who are bidding prices up. "Wealthier" in the sense of "can qualify for a larger mortgage". But the ability to qualify is skewed by the fact that the money that is borrowed is printed on the spot when the mortgage is created; it doesn't come from actual savings. If that didn't happen--if the money loaned out for mortgages had to come from actual savings--the market for mortgages would look very different, which means the population of people who were looking to buy homes would look very different. And not just that everybody would have less buying power across the board--the people who would qualify for mortgages in a free market would have different financial habits. For one thing, they would have no incentive whatever to use "creative" loan vehicles to buy more home than they could actually afford--which is what many of the "wealthier" people who are bidding prices up in the current market are doing. > They probably can't choose a smaller home, because the small home prices get bid up along with the other homes. But a smaller home in a given area still costs less than a larger home in the same area. Furthermore, in a free market for loans, where the government wasn't printing money to finance them, smaller homes would probably be more common, compared to larger homes, than they are now, which would reduce the price of smaller homes relative to larger homes, over and above the general price reduction that would take place if the government stopped printing money for mortgages. > Where do these people actually wind up? In undesirable locations: places with higher crime rates, more obvious poverty, worse public services, etc. This is another example of government failure. If the government spent its resources on what it was supposed to be doing--ensuring that everyone's rights were respected--instead of trying to run expensive and damaging experiments with the economy, there would be far fewer locations that were undesirable in these respects.

AnimalMuppet 11y ago

Education is experiencing deflation? Not in my world, it's not. (If by "education" you mean "learning something", then yes, I agree with you. If you mean "college degree", though, not so much.)

nugget 11y ago
Not yet, but it's on the horizon. The current model of student debt for a degree which conveys little to no advantage in the job market is unsustainable. Once it starts to turn the deflation will be rapid and impactful. Not only does higher education employ lots of people (funded by student debt) but also keeps millions of hard working 18-25 year olds who would otherwise need jobs, out of the work force.
- Qwertious 11y ago
  "The current model of student debt for a degree which conveys little to no advantage in the job market is unsustainable." I don't mean to be a smartass, but https://en.wikipedia.org/wiki/Conspicuous_consumption https://en.wikipedia.org/wiki/Conspicuous_consumption
  - nugget 11y ago
    Harvard and MIT - sure. But what about the millions of people who went to schools that no one has ever heard of, or for-profit schools like University of Phoenix? In addition to that. Do you see the broad concept of conspicuous consumption increasing or decreasing? All of the signals I see show it decreasing thanks to the great recession and the new generation coming into the market. Dave Ramsey, MMM, et al have started to make it trendy to be frugal. Once it starts to become trendy to go to vocational training or straight into the job market a cultural shift can happen quickly. Because of its combination of white collar income/career attributes and vocational like self-training nature, I think Computer Science will be at the forefront of this trend. Note how few people advise ''go back to school and get a degree in computer science'' and rather ''learn how to code'' (boot camp, self taught, however possible).

crdoconnor 11y ago

Social housing would end the madness. In Hong Kong they merely had to announce that they were building 50,000 new units and prices plunged overnight. New York and SF could do that tomorrow. Raising property taxes would also help drag down the prices to saner levels and ensure that this rich source of rent ends up distributed fairly rather than coagulating in the pockets of the 0.01%.

Thriptic 11y ago
Pardon my ignorance, but wouldn't higher property taxes further increase rents and housing prices? I would instinctively assume the increased costs would be passed on to buyers and tenants.
- nugget 11y ago
  Normally yes but not in areas where prices are already at the maximum ceiling of what people can afford. Raising property taxes shifts net income from the property owner to the taxing authorities. This reduces net income (yield or CAP rate) from the property and drops the price accordingly as investors sell investment properties and migrate their capital to other assets. Now, there's no free lunch. You end up hurting both wealthy investors and poor/middle class mortgaged-to-the-hilt homeowners who barely squeezed into the market. As we saw in 2008, bad things happen when a large % of mortgages plunge under water.
  - prostoalex 11y ago
    > You end up hurting both wealthy investors and poor/middle class mortgaged-to-the-hilt homeowners who barely squeezed into the market. You don't necessarily hurt anyone, you just lower the attractiveness of real estate as an asset class. The yield chasers will move their money into a more attractive asset class, the value investors who buy real estate for price stability or tax reasons would stick around with lower yields.
  - crdoconnor 11y ago
    >You end up hurting both wealthy investors and poor/middle class mortgaged-to-the-hilt homeowners Yet you'd be helping everybody else who didn't take on irresponsibly large debts.