4 ms·

I'm not sure if a fix would be so easy. Housing prices have been rising everywhere, even in small cities like my home town, where a decent amount of constructio

I'm not sure if a fix would be so easy. Housing prices have been rising everywhere, even in small cities like my home town, where a decent amount of construction is going on. I think that the biggest reason for growing housing prices are the currently low interest rates. There are two factors that cause rising prices (due to low interest rates): 1) It's more affordable than ever to borrow money, so people are willing to pay higher prices, and even people with little savings can afford to buy a home. At 8% interest rates nobody would be able to afford current prices. This means that sellers can ask much higher prices. 2) Since interest rates are so low, people are increasingly looking at the housing market as an investment opportunity. Aspiring homeowners now have to compete with deep-pocketed investors leading to a further increase in prices. So I think that housing prices would naturally fall if interest rates went up. (Of course, for young people without savings this makes little difference; they would likely end up paying just as much due to higher financing costs.)

pjc50 11y ago
So I think that housing prices would naturally fall if interest rates went up. The problem is that falling house prices put people "underwater", and rising interest rates put people on variable rate mortgages in arrears. This inflicts a huge amount of pain on middle class floating voters.
- kspaans 11y ago
  I think one way to soften the blow could be to make all property sales, even your first home that you live in full-time, fully capital-gains taxable. Homes need to be seen less as investment vehicles.
  - st3v3r 11y ago
    No, not your primary home. The last thing we want is a bunch of old ladies being hit with a huge tax bill on the home they've lived in for 40 years.
    - kspaans 11y ago
      Not sure if you're being sarcastic, but the whole point of making the changes to the capital gains taxes is so that it only affects people who sell. The old ladies will simply be earning less profit when they _sell_ their homes, there would be no "huge tax bill" while they are still living in them.
- jungturk 11y ago
  Well that's the downside of variable rate, yes, but that's more of a feature than a bug. Locking in the interest rate costs a little bit more (in the form of a higher fixed rate), so perhaps the folks taking the variable rate weren't financially prepared to handle those terms in any case?
  - st3v3r 11y ago
    Doesn't matter. The end result would still be that middle class voters would feel the pain, and would likely try to vote people out because of it.
- jakobegger 11y ago
  Yes, I think this is a huge problem -- if interest rates rise again, a lot of people will suffer. Therefore policy makers have a big incentive to keep interest rates low. I don't know how this will end, but I don't think that the current low interest situation, which incentivises credit and discourages saving, can be stable in the long run.
  - pjc50 11y ago
    incentivises credit and discourages saving Both of those things encourage economic growth, though. Until we come up with some better way of meeting our demand-side needs, rates are going to stay low.
usaar333 11y ago
This is true, but this should have less effect on rents which the article notes are high in Vancouver.
usaar333 11y ago
This is true, but this should have less effect on rents which the article notes are high in Vancouver.
maxsilver 11y ago
> I'm not sure if a fix would be so easy. Housing prices have been rising everywhere, even in small cities like my home town, where a decent amount of construction is going on. Yeah, this doesn't get enough attention. Everyone's so focused on NYC / Boston / San Francisco / Seattle / Denver, that they're missing that this problem is happening almost universally, in the vast majority of markets across the US. I live in a very small city in flyover Midwest that commonly hits the top ten "affordable places to live" lists, and has the lowest average incomes of any market in the entire US. Despite all of that, even here our costs have skyrocketed. Monthly rents have doubled over the past five years. It's feels like another housing bubble, but this time everyone is refusing to let it pop.

pjc50 11y ago

So I think that housing prices would naturally fall if interest rates went up. The problem is that falling house prices put people "underwater", and rising interest rates put people on variable rate mortgages in arrears. This inflicts a huge amount of pain on middle class floating voters.

kspaans 11y ago
I think one way to soften the blow could be to make all property sales, even your first home that you live in full-time, fully capital-gains taxable. Homes need to be seen less as investment vehicles.
- st3v3r 11y ago
  No, not your primary home. The last thing we want is a bunch of old ladies being hit with a huge tax bill on the home they've lived in for 40 years.
  - kspaans 11y ago
    Not sure if you're being sarcastic, but the whole point of making the changes to the capital gains taxes is so that it only affects people who sell. The old ladies will simply be earning less profit when they _sell_ their homes, there would be no "huge tax bill" while they are still living in them.
jungturk 11y ago
Well that's the downside of variable rate, yes, but that's more of a feature than a bug. Locking in the interest rate costs a little bit more (in the form of a higher fixed rate), so perhaps the folks taking the variable rate weren't financially prepared to handle those terms in any case?
- st3v3r 11y ago
  Doesn't matter. The end result would still be that middle class voters would feel the pain, and would likely try to vote people out because of it.
jakobegger 11y ago
Yes, I think this is a huge problem -- if interest rates rise again, a lot of people will suffer. Therefore policy makers have a big incentive to keep interest rates low. I don't know how this will end, but I don't think that the current low interest situation, which incentivises credit and discourages saving, can be stable in the long run.
- pjc50 11y ago
  incentivises credit and discourages saving Both of those things encourage economic growth, though. Until we come up with some better way of meeting our demand-side needs, rates are going to stay low.

usaar333 11y ago

This is true, but this should have less effect on rents which the article notes are high in Vancouver.

usaar333 11y ago

This is true, but this should have less effect on rents which the article notes are high in Vancouver.

maxsilver 11y ago

> I'm not sure if a fix would be so easy. Housing prices have been rising everywhere, even in small cities like my home town, where a decent amount of construction is going on. Yeah, this doesn't get enough attention. Everyone's so focused on NYC / Boston / San Francisco / Seattle / Denver, that they're missing that this problem is happening almost universally, in the vast majority of markets across the US. I live in a very small city in flyover Midwest that commonly hits the top ten "affordable places to live" lists, and has the lowest average incomes of any market in the entire US. Despite all of that, even here our costs have skyrocketed. Monthly rents have doubled over the past five years. It's feels like another housing bubble, but this time everyone is refusing to let it pop.