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As far as I can remember -- my entire adult life -- I've heard about this great real estate bubble in the big cities. Every year I hear NYC and SF are about to

As far as I can remember -- my entire adult life -- I've heard about this great real estate bubble in the big cities. Every year I hear NYC and SF are about to crash because the growth is not sustainable. I assume this myth has been around much longer. Perhaps people know what was being said or written in 90s, 80s, 70s and 60s. But in spite of all this, in spite of temporary slow downs and slight blips, the broader market just becomes more and more expensive. Numbers that seem to make no sense, or seemed absurd even 5 years ago get blown past. I don't know what the reason is, but I would love to read a truly satisfactory explanation for this.

acct1771 8y ago
Money laundering and export of funds from stricter home countries. Chinese and Saudi Arabians own a very large portion of our country.
- projectramo 8y ago
  I should add that I find data quite convincing. I hear arguments like the one you state but I don't find them convincing. This is for several reasons: 1. Saudis feel quite unwelcome in the US, and prefer to buy homes in London. 2. New York is so far that a Chinese billionaire would prefer something on the other coast. Especially in Canada where they don't have to pay taxes on worldwide income if they establish residence. And without data, this is just an impression based on fragments of articles. I still haven't seen data for the Chinese buyers in Vancouver, and that is a far easier case to make.
  - acct1771 8y ago
    ...who'd be collating that race data on homebuyers? Good luck. Link it if you find it.
ghobs91 8y ago
The demand side of it is that with every decade, the midwest's manufacturing economy shrinks, and more of their population empties out into the coastal cities. The supply side of the problem is detailed here: https://i.redd.it/ibo81s465yy11.png https://i.redd.it/ibo81s465yy11.png
- projectramo 8y ago
  For sure people want to go to the coastal cities. I think the missing component of the demand side is the prices of these places. Even with bank bonuses, the numbers are so astronomically high you have to wonder how so many people can afford them.
- maxsilver 8y ago
  > the midwest's manufacturing economy shrinks, and more of their population empties out into the coastal cities. Except midwest housing prices are constantly rising too. Obviously not anywhere near coastal cities, but Midwest city housing prices keep going up even as the manufacturing economy there supposedly shrinks.
rsync 8y ago
"As far as I can remember -- my entire adult life ..." ... "I don't know what the reason is, but I would love to read a truly satisfactory explanation for this." Well, it did just happen ... bay area housing, for instance, plummeted from 2007 to 2011. This was neither a slight blip or a "slowdown": https://www.bayareamarketreports.com/trend/case-shiller-reflects-accelerating-home-prices https://www.bayareamarketreports.com/trend/case-shiller-refl... Note that mid-range homes dropped, in their index, from "220" to "125" (give or take). How long have you been an adult ?
- projectramo 8y ago
  Before 2007 for sure, but I didn't realize there was this sustained drop after 2007. I thought it was a temporary bounce. Thanks for showing some data!
VonGuard 8y ago
One major factor in the rise in prices is the view of "Property as investment." This is a broad category encompassing "Flippers," investors, and other people not necessarily looking to actually live in the property they've bought. This also includes a humongous contingent of Chinese speculators ( https://www.businessinsider.com/china-investors-inflating-housing-markets-in-us-canada-australia-2018-6 https://www.businessinsider.com/china-investors-inflating-ho... ). The real reason they're investing and speculating, however, is two-fold, and has nothing to do with the real estate market as a thing. Wealthy Chinese families want to get their money out of China, and thus, overseas real estate is a good way to bank that money outside of the Chinese economy. Couple that with the fact that foreign investors bringing over $500,000 to the United States basically buy citizenship. So, if you're a Chinese family with a factory, and you want your kids to move to the US, go to American colleges, etc. You buy a $650,000 property in Vegas, or SF, or wherever, you send them over, they reap the investment benefits, and get fast tracked to citizenship. Plus, your investment always goes up because the American real estate market always goes up, right? Well, tariffs and the coming trade war mean those exact types of investors are now pulling out, selling, leaving... That sort of behavior ran us right back to the brink of another bubble bursting, but it slowed a year or two ago and now we're seeing the resulting cooling of real estate markets. This citizenship loophole was what Jared Kushner's people were giving seminars on in China, presumably to help sell newly made suburban homes over $500,000 to foreign investors. ( https://money.cnn.com/2017/05/06/news/jared-kushner-nicole-family-event/index.html https://money.cnn.com/2017/05/06/news/jared-kushner-nicole-f... )
- projectramo 8y ago
  Wouldn't you (if you were Chinese) rather go to Canada so you don't pay taxes on your worldwide income?
  - j-c-hewitt 8y ago
    Are they going to file reports to the IRS on Chinese income in China? Don't think so.
- justaguyhere 8y ago
themagician 8y ago
It’s less of a bubble and more of a trend of increasing inequality. It seems like the prices can’t possibly go any higher, but then more wealth gets consolidated into the top 1%, and the top 1% itself expands in terms of absolute numbers. San Francisco and Manhattan (as well as most of Western Brooklyn) are almost exclusively for those who the media would call “elites”. This wasn’t always so. Go back to the 90s, 80s, 70s, and 60s and the population of these areas is much more diverse. You’d think prices can’t possible go higher, but income inequality is actually increasing—so they can. In 10 years there will probably be zero market rate properties in either San Francisco or Manhattan under $1 million. It’s already a rarity, but soon it will actually be non-existent. And unless things change in another decade that bar will be $1.5 million, and so on.
- rukittenme 8y ago
  Trying to prove your theory. Help me out. The Houston metro area: * Population: 6.3 million * Land Area: 10,000 sq. miles * Average wage: $25.87/hr * Average 1 bed rental rate: $967/mo * Wage/rent ratio: 22% monthly income. The Bay Area: * Population: 8 million * Land Area: 7000 sq. miles * Average wage: $37.19/hr * Average 1 bed rental rate: $2500/mo * Wage/rent ratio: 39% monthly income. Why is Houston so much more livable than the Bay Area? If income inequality were the driver you would think a low-tax, pro-business, anti-regulation state like Texas would be very attractive to the elites of the world.
  - jessaustin 8y ago
    If you move to Texas they take away your "elite" status.
  - ummonk 8y ago
    A few points. First, the Houston metro is actually 10000 sq. miles. And very little of that is green space, unlike the Bay Area, which is filled with large strips of mountains / state parks. Additionally, I don't have numbers but Houston does seem to have much lower income inequality for the bulk of the population. The SF Bay Area is really good at churning a lot of moderately wealthy people through the tech industry, who far outearn anyone else, and end up bidding against each other for the available housing. I imagine Houston's energy industry creates far fewer moderately wealthy people who outstrip everyone else in income to this extent. Finally, one big thing that Texas does very right is having strong property taxes instead of state income taxes. You don't have early homeowners holding on to their feudal properties while new workers struggle to make ends meet, as you do in California.
cm2187 8y ago
Since 2008, QE has put a lot of cash in the pockets of the upper middle class and above. They then faced double digit inflation on the goods they are the typical buyers of, tuition fee, bug cities real estate, stocks, etc...
CydeWeys 8y ago
They're not making any more land in Manhattan. Haven't in awhile. Meanwhile, the worldwide population continues going up and up, and the city's population has increased too. It's the inevitable result of constricted supply and growing demand.
- teachrdan 8y ago
  You're mostly right, but the construction of the Hudson Yards projects basically counts as new (buildable) land in Manhattan: https://en.wikipedia.org/wiki/Hudson_Yards_(development) https://en.wikipedia.org/wiki/Hudson_Yards_(development)
  - donretag 8y ago
    Battery Park City was built on landfill using material from the World Trade Center.
staplers 8y ago
Monetary inflation and human population growth.
twblalock 8y ago
Inflation, people wanting larger homes than they used to, and simple population growth are obvious factors. Another major factor is that zoning laws make it more difficult to build new housing in most cities than it used to be. Zoning restrictions are combining in a bad way with another major economic trend: the increasing centralization of good jobs in large coastal cities. Those cities are experiencing high population growth and the housing supply is not growing enough to meet the new demand.
scottlocklin 8y ago
The US has been printing money since 1973. Generally speaking, when you debauch the currency you get inflation. For decades we've been pushing that inflation into stuff like real estate and stock market asset bubbles. This will likely continue in first rank cities since the printed money is going to elites and institutions who reside in such cities. It's pretty interesting that the recent changes in the tax code have had the effect you'd predict: since you can't deduct property taxes and interest off your federal taxes in the same way as before, real estate has defacto become more expensive. I haven't closely studied Tokyo real estate values, but I remember at one point Tokyo's real estate was worth more than Japan's GDP or something absurd like that. I think that bubble eventually normalized. https://en.wikipedia.org/wiki/Japanese_asset_price_bubble https://en.wikipedia.org/wiki/Japanese_asset_price_bubble
- RhodesianHunter 8y ago
  There's always at least one commenter with an econ degree from Zerohedge.
ummonk 8y ago
I mean it's not just in NYC and SF. There is a housing affordability crisis in basically every cosmopolitan city in the world. And it's clearly generational - people who grow up in these cities are unable to afford to purchase there, despite being in the same socioeconomic class as their parents who did purchase there. There seems to be a global undersupply of housing development in the largest cities. My guess would be that the growing information economy has meant a much denser concentration of well-paying jobs in a small fraction of cities (farming was obviously very spread out, and industrialization somewhat spread out as well, since factories naturally require space), coupled with the double populaton bulge from baby boomers and their children, the millennials. Additionally, outside East Asia, communities seem to have become increasingly unable to dream big and invest in large scale development.
- toasterlovin 8y ago
  And the dual income, no kids phenomena really fucks with real estate prices, since those couples need less real estate and can pay for it with two incomes.
- downrightmike 8y ago
  A lot of the issue is how did we anticipate going from 1 billion people to over 7 billion? We didn't There are a lot of people that need somewhere to live and the supply doesn't keep up with the population that is always growing. If a couple raised kids in an area and those kids want to stay there and have their own homes, while their parents also stay and have their own homes, the demand multiplies per every kid.
ricardoreis 8y ago
I don't know what the reason is, but I would love to read a truly satisfactory explanation for this. There's too many of us. And most of the good land has been taken and/or ruined.
victor106 8y ago
Texas does not have state income tax but has high property tax (rightly in my opinion)[1]. 1.973% in Austin,TX California has high state income tax but low property taxes.[2]. 0.625% in SF The worst is New York. NY has high state income tax and high property taxes[3]. 1.925% in nyc. That is insane. I just don’t get how people put up with this and where all that money is going to [1] https://smartasset.com/taxes/texas-property-tax-calculator#IZMmjqscrb https://smartasset.com/taxes/texas-property-tax-calculator#I... [2] https://smartasset.com/taxes/california-property-tax-calculator https://smartasset.com/taxes/california-property-tax-calcula... [3] https://smartasset.com/taxes/new-york-property-tax-calculator https://smartasset.com/taxes/new-york-property-tax-calculato...
- refurb 8y ago
  SF property tax rates are ~1% the last time I looked.
- jdhn 8y ago
  >I just don’t get how people put up with this They don't. In the past couple of years staples of the Northeast such as Wawa and Yuengling can be found in places as far away as Florida. The reason for this is because of the number of people leaving the Northeast due to the fiscal pressures that you describe. Also, NJ is just as bad as NY when it comes to taxes. My parents live in Central Jersey, and their property taxes are insane.
gammateam 8y ago
I saw historical prices for plots of land and prices in San Francisco, and they've been increasing 6%/yr since 1920, which was simply when that set of records started Really made the area's uncomfortable relationship with wealth very clear to me, and easily ignorable when the information is so bad. "Why exactly do you want me to come to this housing protest again? Because our tour of the 2 bedrooms are scheduled at the same time?"
refurb 8y ago
Well at least in SF, the population was decreasing as people fled the city. It didn’t start going back up until the 1980’s. And in addition, SF home prices dropped ~30% only 10 years ago during the financial crisis. The truth is that real estate in the big urban centers will likely always be more expensive than the average American home, but there is no reason why NYC and SF couldn’t see a big reset with people losing a ton of money. If SF real estate drops 20% and you bought a home for $2M, that’s a major loss.

acct1771 8y ago

Money laundering and export of funds from stricter home countries. Chinese and Saudi Arabians own a very large portion of our country.

projectramo 8y ago
I should add that I find data quite convincing. I hear arguments like the one you state but I don't find them convincing. This is for several reasons: 1. Saudis feel quite unwelcome in the US, and prefer to buy homes in London. 2. New York is so far that a Chinese billionaire would prefer something on the other coast. Especially in Canada where they don't have to pay taxes on worldwide income if they establish residence. And without data, this is just an impression based on fragments of articles. I still haven't seen data for the Chinese buyers in Vancouver, and that is a far easier case to make.
- acct1771 8y ago
  ...who'd be collating that race data on homebuyers? Good luck. Link it if you find it.

ghobs91 8y ago

The demand side of it is that with every decade, the midwest's manufacturing economy shrinks, and more of their population empties out into the coastal cities. The supply side of the problem is detailed here: https://i.redd.it/ibo81s465yy11.png https://i.redd.it/ibo81s465yy11.png

projectramo 8y ago
For sure people want to go to the coastal cities. I think the missing component of the demand side is the prices of these places. Even with bank bonuses, the numbers are so astronomically high you have to wonder how so many people can afford them.
maxsilver 8y ago
> the midwest's manufacturing economy shrinks, and more of their population empties out into the coastal cities. Except midwest housing prices are constantly rising too. Obviously not anywhere near coastal cities, but Midwest city housing prices keep going up even as the manufacturing economy there supposedly shrinks.

rsync 8y ago

"As far as I can remember -- my entire adult life ..." ... "I don't know what the reason is, but I would love to read a truly satisfactory explanation for this." Well, it did just happen ... bay area housing, for instance, plummeted from 2007 to 2011. This was neither a slight blip or a "slowdown": https://www.bayareamarketreports.com/trend/case-shiller-reflects-accelerating-home-prices https://www.bayareamarketreports.com/trend/case-shiller-refl... Note that mid-range homes dropped, in their index, from "220" to "125" (give or take). How long have you been an adult ?

projectramo 8y ago
Before 2007 for sure, but I didn't realize there was this sustained drop after 2007. I thought it was a temporary bounce. Thanks for showing some data!

VonGuard 8y ago

One major factor in the rise in prices is the view of "Property as investment." This is a broad category encompassing "Flippers," investors, and other people not necessarily looking to actually live in the property they've bought. This also includes a humongous contingent of Chinese speculators ( https://www.businessinsider.com/china-investors-inflating-housing-markets-in-us-canada-australia-2018-6 https://www.businessinsider.com/china-investors-inflating-ho... ). The real reason they're investing and speculating, however, is two-fold, and has nothing to do with the real estate market as a thing. Wealthy Chinese families want to get their money out of China, and thus, overseas real estate is a good way to bank that money outside of the Chinese economy. Couple that with the fact that foreign investors bringing over $500,000 to the United States basically buy citizenship. So, if you're a Chinese family with a factory, and you want your kids to move to the US, go to American colleges, etc. You buy a $650,000 property in Vegas, or SF, or wherever, you send them over, they reap the investment benefits, and get fast tracked to citizenship. Plus, your investment always goes up because the American real estate market always goes up, right? Well, tariffs and the coming trade war mean those exact types of investors are now pulling out, selling, leaving... That sort of behavior ran us right back to the brink of another bubble bursting, but it slowed a year or two ago and now we're seeing the resulting cooling of real estate markets. This citizenship loophole was what Jared Kushner's people were giving seminars on in China, presumably to help sell newly made suburban homes over $500,000 to foreign investors. ( https://money.cnn.com/2017/05/06/news/jared-kushner-nicole-family-event/index.html https://money.cnn.com/2017/05/06/news/jared-kushner-nicole-f... )

projectramo 8y ago
Wouldn't you (if you were Chinese) rather go to Canada so you don't pay taxes on your worldwide income?
- j-c-hewitt 8y ago
  Are they going to file reports to the IRS on Chinese income in China? Don't think so.
justaguyhere 8y ago

themagician 8y ago

It’s less of a bubble and more of a trend of increasing inequality. It seems like the prices can’t possibly go any higher, but then more wealth gets consolidated into the top 1%, and the top 1% itself expands in terms of absolute numbers. San Francisco and Manhattan (as well as most of Western Brooklyn) are almost exclusively for those who the media would call “elites”. This wasn’t always so. Go back to the 90s, 80s, 70s, and 60s and the population of these areas is much more diverse. You’d think prices can’t possible go higher, but income inequality is actually increasing—so they can. In 10 years there will probably be zero market rate properties in either San Francisco or Manhattan under $1 million. It’s already a rarity, but soon it will actually be non-existent. And unless things change in another decade that bar will be $1.5 million, and so on.

rukittenme 8y ago
Trying to prove your theory. Help me out. The Houston metro area: * Population: 6.3 million * Land Area: 10,000 sq. miles * Average wage: $25.87/hr * Average 1 bed rental rate: $967/mo * Wage/rent ratio: 22% monthly income. The Bay Area: * Population: 8 million * Land Area: 7000 sq. miles * Average wage: $37.19/hr * Average 1 bed rental rate: $2500/mo * Wage/rent ratio: 39% monthly income. Why is Houston so much more livable than the Bay Area? If income inequality were the driver you would think a low-tax, pro-business, anti-regulation state like Texas would be very attractive to the elites of the world.
- jessaustin 8y ago
  If you move to Texas they take away your "elite" status.
- ummonk 8y ago
  A few points. First, the Houston metro is actually 10000 sq. miles. And very little of that is green space, unlike the Bay Area, which is filled with large strips of mountains / state parks. Additionally, I don't have numbers but Houston does seem to have much lower income inequality for the bulk of the population. The SF Bay Area is really good at churning a lot of moderately wealthy people through the tech industry, who far outearn anyone else, and end up bidding against each other for the available housing. I imagine Houston's energy industry creates far fewer moderately wealthy people who outstrip everyone else in income to this extent. Finally, one big thing that Texas does very right is having strong property taxes instead of state income taxes. You don't have early homeowners holding on to their feudal properties while new workers struggle to make ends meet, as you do in California.

cm2187 8y ago

Since 2008, QE has put a lot of cash in the pockets of the upper middle class and above. They then faced double digit inflation on the goods they are the typical buyers of, tuition fee, bug cities real estate, stocks, etc...

CydeWeys 8y ago

They're not making any more land in Manhattan. Haven't in awhile. Meanwhile, the worldwide population continues going up and up, and the city's population has increased too. It's the inevitable result of constricted supply and growing demand.

teachrdan 8y ago
You're mostly right, but the construction of the Hudson Yards projects basically counts as new (buildable) land in Manhattan: https://en.wikipedia.org/wiki/Hudson_Yards_(development) https://en.wikipedia.org/wiki/Hudson_Yards_(development)
- donretag 8y ago
  Battery Park City was built on landfill using material from the World Trade Center.

staplers 8y ago

Monetary inflation and human population growth.

twblalock 8y ago

Inflation, people wanting larger homes than they used to, and simple population growth are obvious factors. Another major factor is that zoning laws make it more difficult to build new housing in most cities than it used to be. Zoning restrictions are combining in a bad way with another major economic trend: the increasing centralization of good jobs in large coastal cities. Those cities are experiencing high population growth and the housing supply is not growing enough to meet the new demand.

scottlocklin 8y ago

The US has been printing money since 1973. Generally speaking, when you debauch the currency you get inflation. For decades we've been pushing that inflation into stuff like real estate and stock market asset bubbles. This will likely continue in first rank cities since the printed money is going to elites and institutions who reside in such cities. It's pretty interesting that the recent changes in the tax code have had the effect you'd predict: since you can't deduct property taxes and interest off your federal taxes in the same way as before, real estate has defacto become more expensive. I haven't closely studied Tokyo real estate values, but I remember at one point Tokyo's real estate was worth more than Japan's GDP or something absurd like that. I think that bubble eventually normalized. https://en.wikipedia.org/wiki/Japanese_asset_price_bubble https://en.wikipedia.org/wiki/Japanese_asset_price_bubble

RhodesianHunter 8y ago
There's always at least one commenter with an econ degree from Zerohedge.

ummonk 8y ago

I mean it's not just in NYC and SF. There is a housing affordability crisis in basically every cosmopolitan city in the world. And it's clearly generational - people who grow up in these cities are unable to afford to purchase there, despite being in the same socioeconomic class as their parents who did purchase there. There seems to be a global undersupply of housing development in the largest cities. My guess would be that the growing information economy has meant a much denser concentration of well-paying jobs in a small fraction of cities (farming was obviously very spread out, and industrialization somewhat spread out as well, since factories naturally require space), coupled with the double populaton bulge from baby boomers and their children, the millennials. Additionally, outside East Asia, communities seem to have become increasingly unable to dream big and invest in large scale development.

toasterlovin 8y ago
And the dual income, no kids phenomena really fucks with real estate prices, since those couples need less real estate and can pay for it with two incomes.
downrightmike 8y ago
A lot of the issue is how did we anticipate going from 1 billion people to over 7 billion? We didn't There are a lot of people that need somewhere to live and the supply doesn't keep up with the population that is always growing. If a couple raised kids in an area and those kids want to stay there and have their own homes, while their parents also stay and have their own homes, the demand multiplies per every kid.

ricardoreis 8y ago

I don't know what the reason is, but I would love to read a truly satisfactory explanation for this. There's too many of us. And most of the good land has been taken and/or ruined.

victor106 8y ago

Texas does not have state income tax but has high property tax (rightly in my opinion)[1]. 1.973% in Austin,TX California has high state income tax but low property taxes.[2]. 0.625% in SF The worst is New York. NY has high state income tax and high property taxes[3]. 1.925% in nyc. That is insane. I just don’t get how people put up with this and where all that money is going to [1] https://smartasset.com/taxes/texas-property-tax-calculator#IZMmjqscrb https://smartasset.com/taxes/texas-property-tax-calculator#I... [2] https://smartasset.com/taxes/california-property-tax-calculator https://smartasset.com/taxes/california-property-tax-calcula... [3] https://smartasset.com/taxes/new-york-property-tax-calculator https://smartasset.com/taxes/new-york-property-tax-calculato...

refurb 8y ago
SF property tax rates are ~1% the last time I looked.
jdhn 8y ago
>I just don’t get how people put up with this They don't. In the past couple of years staples of the Northeast such as Wawa and Yuengling can be found in places as far away as Florida. The reason for this is because of the number of people leaving the Northeast due to the fiscal pressures that you describe. Also, NJ is just as bad as NY when it comes to taxes. My parents live in Central Jersey, and their property taxes are insane.

gammateam 8y ago

I saw historical prices for plots of land and prices in San Francisco, and they've been increasing 6%/yr since 1920, which was simply when that set of records started Really made the area's uncomfortable relationship with wealth very clear to me, and easily ignorable when the information is so bad. "Why exactly do you want me to come to this housing protest again? Because our tour of the 2 bedrooms are scheduled at the same time?"

refurb 8y ago

Well at least in SF, the population was decreasing as people fled the city. It didn’t start going back up until the 1980’s. And in addition, SF home prices dropped ~30% only 10 years ago during the financial crisis. The truth is that real estate in the big urban centers will likely always be more expensive than the average American home, but there is no reason why NYC and SF couldn’t see a big reset with people losing a ton of money. If SF real estate drops 20% and you bought a home for $2M, that’s a major loss.