12 ms·

It is true that housing prices in urban areas have risen astronomically in many regions of the world, and while we may well see a correction, I wonder if these

by msvan 8y ago

It is true that housing prices in urban areas have risen astronomically in many regions of the world, and while we may well see a correction, I wonder if these these areas have simply become way more valuable than they used to be. People thought that the internet would make location irrelevant, but it seems that the opposite has happened. I can think of many armchair theories as to why, but it's not a simple question to answer.

dionidium 8y ago
> “I can think of many armchair theories as to why, but it's not a simple question to answer.” My guess: tools that make it easier to live wherever you want disproportionately benefit the places people most want to live.
- analog31 8y ago
  I think there's a lot of merit to this. The Internet has not made location irrelevant, because many other things still make location relevant. Drawing only from my own list of preferences, there are things like climate, proximity to family, access to outdoor activities, culture, social outlets, crime rate, the transportation system, and so forth.
olliej 8y ago
There's supply/demand - as some area becomes more popular more people want to move there. If you're not building new homes in the area at a rate that at the very least matches both the migration rate and the birth rate housing price is only going to increase. (People in SF fighting against tech folk also seem to fight new properties, ignoring that simply having children in SF means you necessarily must build more homes, maybe just a bit slower) The thing that makes it worse is when taxable property values trail actual property values - it makes simply holding on to property a tax payer subsidized investment. CA for instance has capped taxable property valuations at 2%, which is a subsidy for empty properties, properties that increase rent/lease by more than 2% a year, and business (which never sell property) - the biggest component of civic services is fundamentally the cost of rent/mortgage, as that dictates how much all civic servants (emergency services, city/county administration, elected officials) need as there /base/ income. It also indirectly costs tax payers through the increased need for housing and other financial support for low income people (which can actually be a double tax, as it may result in tax payers paying rent on a property that is underpaying taxes anyway).
mc32 8y ago
One thing surprises me about this article: It prescribes Inflation as the antidote to land/RE prices... But that was not the case necessary for Japan. And on the other hand they didn't highlight the role international investment in RE has had on local markets. It plays a significant role in many of the major international cities where foreign entities are allowed to buy RE as investment properties.
AnthonyMouse 8y ago
> It is true that housing prices in urban areas have risen astronomically in many regions of the world, and while we may well see a correction, I wonder if these these areas have simply become way more valuable than they used to be. They are, in the short-term. The problem is that high housing costs have a slow, long-term corrosive effect on a city. Companies have to pay higher wages for workers to achieve the same standard of living, which makes them less competitive. So, for example, you see a lot of tech companies springing up in Austin now. It doesn't happen overnight, but it happens. It also creates a large net transfer of wealth out of the city whenever someone moves. Someone who moves in with half a million dollars in net assets would normally be a boon because they would go use that money to patronize local businesses, but now they have to spend that and a good chunk of their salary going forward on housing, which goes to the seller who is moving out of the city and taking the money with them. The housing ratchet is also completely unsustainable. The people who already own real estate want prices to increase rather than decrease to justify the high price they already paid and generate a competitive return on that huge amount of money, but when housing is already the majority expenditure for city residents, costs long-term can't increase faster than wages, and the higher wages get for the same standard of living the less competitive local companies are. Eventually you reach a limit on how high housing costs can sustainably go, but once you hit it, nobody wants to put down a million dollars for a house that won't appreciate at all when they could be getting some ROI on the same money in the stock market. Then prices finally start to decline, but people definitely don't want to pay $950K for a house that will lose value, so the decline is rapid. This is, of course, catastrophic. It's almost impossible to avoid this once the values are already ridiculous, but what the article suggests can mitigate it somewhat: Sustained moderate inflation combined with a large increase in the housing supply, so that real values come down even though nominal values are stable. Then the crash is in real value rather than nominal value, so people don't end up with underwater mortgages, and it can ideally happen over a period of a decade or so rather than instantaneously in a way that causes a local economic crisis.
- timcederman 8y ago
  I think for most folks actually living in these high cost areas, capital appreciation is not the primary motivation. Also I disagree that they are universally destructive - how else do you explain the long term success of high price cities such as London, New York City, Hong Kong, etc.
debacle 8y ago
For starters, there are a lot of places in the US I can't live because I need home access to good Internet.
- jeffbax 8y ago
  That's going to change rapidly with 5G
  - restalis 8y ago
    I think you don't quite understand how things work. 5G may be efficient but the exploitable bandwidth is still limited. In cities the density of cellular mobile communications antennae is higher which leads to a reduced areas covered by a tower in which subscribers have to share the bandwidth with others. Also, in cities as opposed to rural areas, even when the bandwidth is shared, the users of a given area are often just transient. The conclusion is that the urban network quality is different from the rural one and that it (unfortunately) adds up as another reason to flock to a city.
_pmf_ 8y ago
> I wonder if these these areas have simply become way more valuable than they used to be. It will self correct once companies realize that by using middle managers with a modicum of domain expertise enables people to work remotely and not have to be at work for 8 hours just so their managers can visually check their presence for the contractually agreed amount of time. Give it 500 years.
scirocco 8y ago
A good start is to look at the interest rate curve (cost of borrowing money has gone down dramatically). Here is the US Fed Funds Rate since the early 80's: https://tradingeconomics.com/united-states/interest-rate https://tradingeconomics.com/united-states/interest-rate
Emma_Goldman 8y ago
I think it would be very wrong to think of increasing house prices as a direct reflection of intrinsic value. In the UK the economic model of the past forty years has been based on a conscious policy of asset price inflation. Thatcher stripped away most of the social housing in this country and put it into the market. Few have been built since. The recentering of the economy in financial services has led to a massive expansion of easy credit, that reaches its fulcrum in the housing market. Together this has meant: (a) a dwindling housing stock; (b) progressively larger sums of credit chasing the same number of properties. That is not to mention the fact the since the late 1960s London has been the main global waystation for offshore tax havens, much of which is attached to property sales in the capital. There are 100,000 properties in the UK which are held as investments, unoccupied.
- TheOtherHobbes 8y ago
  There are actually two economies - one where everything is an investment to be sweated for returns, and one where everything is priced according to real world utility. In a financialised system everything is priced according to the values of the first economy, which are completely divorced from conventional economic utility. This makes everything unaffordable to those who don't have access to that economy. It also lowers the quality of goods and services within the second economy, because providing quality and value conflicts with fast high returns.
- zimablue 8y ago
  Great post, worth noting that the marketing of the destruction of social housing as "right to buy" was a work of evil genius, and the citizens who know the most about it are people whose parents made a killing from it and are unsurprisingly very happy with the policy. Catchment areas for schools are also a significant factor, mandatory ballots for school entry would make a massive difference but our government has been going in precisely the opposite direction, privatising the education system and leading to an expulsion crisis which is having knock on effects in crime. Also London specifically is one of the lowest density major capital cities, the centre is often old and beautiful but we could stand to build a bit higher.

by msvan 8y ago

dionidium 8y ago

> “I can think of many armchair theories as to why, but it's not a simple question to answer.” My guess: tools that make it easier to live wherever you want disproportionately benefit the places people most want to live.

analog31 8y ago
I think there's a lot of merit to this. The Internet has not made location irrelevant, because many other things still make location relevant. Drawing only from my own list of preferences, there are things like climate, proximity to family, access to outdoor activities, culture, social outlets, crime rate, the transportation system, and so forth.

olliej 8y ago

There's supply/demand - as some area becomes more popular more people want to move there. If you're not building new homes in the area at a rate that at the very least matches both the migration rate and the birth rate housing price is only going to increase. (People in SF fighting against tech folk also seem to fight new properties, ignoring that simply having children in SF means you necessarily must build more homes, maybe just a bit slower) The thing that makes it worse is when taxable property values trail actual property values - it makes simply holding on to property a tax payer subsidized investment. CA for instance has capped taxable property valuations at 2%, which is a subsidy for empty properties, properties that increase rent/lease by more than 2% a year, and business (which never sell property) - the biggest component of civic services is fundamentally the cost of rent/mortgage, as that dictates how much all civic servants (emergency services, city/county administration, elected officials) need as there /base/ income. It also indirectly costs tax payers through the increased need for housing and other financial support for low income people (which can actually be a double tax, as it may result in tax payers paying rent on a property that is underpaying taxes anyway).

mc32 8y ago

One thing surprises me about this article: It prescribes Inflation as the antidote to land/RE prices... But that was not the case necessary for Japan. And on the other hand they didn't highlight the role international investment in RE has had on local markets. It plays a significant role in many of the major international cities where foreign entities are allowed to buy RE as investment properties.

AnthonyMouse 8y ago

> It is true that housing prices in urban areas have risen astronomically in many regions of the world, and while we may well see a correction, I wonder if these these areas have simply become way more valuable than they used to be. They are, in the short-term. The problem is that high housing costs have a slow, long-term corrosive effect on a city. Companies have to pay higher wages for workers to achieve the same standard of living, which makes them less competitive. So, for example, you see a lot of tech companies springing up in Austin now. It doesn't happen overnight, but it happens. It also creates a large net transfer of wealth out of the city whenever someone moves. Someone who moves in with half a million dollars in net assets would normally be a boon because they would go use that money to patronize local businesses, but now they have to spend that and a good chunk of their salary going forward on housing, which goes to the seller who is moving out of the city and taking the money with them. The housing ratchet is also completely unsustainable. The people who already own real estate want prices to increase rather than decrease to justify the high price they already paid and generate a competitive return on that huge amount of money, but when housing is already the majority expenditure for city residents, costs long-term can't increase faster than wages, and the higher wages get for the same standard of living the less competitive local companies are. Eventually you reach a limit on how high housing costs can sustainably go, but once you hit it, nobody wants to put down a million dollars for a house that won't appreciate at all when they could be getting some ROI on the same money in the stock market. Then prices finally start to decline, but people definitely don't want to pay $950K for a house that will lose value, so the decline is rapid. This is, of course, catastrophic. It's almost impossible to avoid this once the values are already ridiculous, but what the article suggests can mitigate it somewhat: Sustained moderate inflation combined with a large increase in the housing supply, so that real values come down even though nominal values are stable. Then the crash is in real value rather than nominal value, so people don't end up with underwater mortgages, and it can ideally happen over a period of a decade or so rather than instantaneously in a way that causes a local economic crisis.

timcederman 8y ago
I think for most folks actually living in these high cost areas, capital appreciation is not the primary motivation. Also I disagree that they are universally destructive - how else do you explain the long term success of high price cities such as London, New York City, Hong Kong, etc.

debacle 8y ago

For starters, there are a lot of places in the US I can't live because I need home access to good Internet.

jeffbax 8y ago
That's going to change rapidly with 5G
- restalis 8y ago
  I think you don't quite understand how things work. 5G may be efficient but the exploitable bandwidth is still limited. In cities the density of cellular mobile communications antennae is higher which leads to a reduced areas covered by a tower in which subscribers have to share the bandwidth with others. Also, in cities as opposed to rural areas, even when the bandwidth is shared, the users of a given area are often just transient. The conclusion is that the urban network quality is different from the rural one and that it (unfortunately) adds up as another reason to flock to a city.

_pmf_ 8y ago

> I wonder if these these areas have simply become way more valuable than they used to be. It will self correct once companies realize that by using middle managers with a modicum of domain expertise enables people to work remotely and not have to be at work for 8 hours just so their managers can visually check their presence for the contractually agreed amount of time. Give it 500 years.

scirocco 8y ago

A good start is to look at the interest rate curve (cost of borrowing money has gone down dramatically). Here is the US Fed Funds Rate since the early 80's: https://tradingeconomics.com/united-states/interest-rate https://tradingeconomics.com/united-states/interest-rate

Emma_Goldman 8y ago

I think it would be very wrong to think of increasing house prices as a direct reflection of intrinsic value. In the UK the economic model of the past forty years has been based on a conscious policy of asset price inflation. Thatcher stripped away most of the social housing in this country and put it into the market. Few have been built since. The recentering of the economy in financial services has led to a massive expansion of easy credit, that reaches its fulcrum in the housing market. Together this has meant: (a) a dwindling housing stock; (b) progressively larger sums of credit chasing the same number of properties. That is not to mention the fact the since the late 1960s London has been the main global waystation for offshore tax havens, much of which is attached to property sales in the capital. There are 100,000 properties in the UK which are held as investments, unoccupied.

TheOtherHobbes 8y ago
There are actually two economies - one where everything is an investment to be sweated for returns, and one where everything is priced according to real world utility. In a financialised system everything is priced according to the values of the first economy, which are completely divorced from conventional economic utility. This makes everything unaffordable to those who don't have access to that economy. It also lowers the quality of goods and services within the second economy, because providing quality and value conflicts with fast high returns.
zimablue 8y ago
Great post, worth noting that the marketing of the destruction of social housing as "right to buy" was a work of evil genius, and the citizens who know the most about it are people whose parents made a killing from it and are unsurprisingly very happy with the policy. Catchment areas for schools are also a significant factor, mandatory ballots for school entry would make a massive difference but our government has been going in precisely the opposite direction, privatising the education system and leading to an expulsion crisis which is having knock on effects in crime. Also London specifically is one of the lowest density major capital cities, the centre is often old and beautiful but we could stand to build a bit higher.