6 ms·
People are always surprised when I tell them, in the long term housing can only increase an amount equivalent to inflation or wages. Anything more, simply isn't
by thorwasdfasdf 8y ago
People are always surprised when I tell them, in the long term housing can only increase an amount equivalent to inflation or wages. Anything more, simply isn't sustainable or even desirable (for society anyway). In fact, in the longer term, if we were making actual progress in creating shelter for humanity, then housing should increase a bit less than inflation and return negative real rate of return.
- ThrustVectoring 7y agoThere's a fixed amount of "desirable" land, and a growing population competing over it. This means some combination of "up" and "out" is necessary - either we end up using less land per person (density), or new growth gets channeled into marginally desirable locations (sprawl).
- jimmaswell 7y agoHopefully more jobs turn remote so people are free to live anywhere and still have jobs.
- wpietri 7y ago> There's a fixed amount of "desirable" land I don't think this is true at all. Even the nature of "desirable" land has changed drastically over the last few hundred years. There's no reason to think that change won't continue to happen. Especially given the rise of internet, climate change, and the necessary decarbonization of our economy, what's "desirable", it's ridiculous to think where people want to live is fixed.
- mikeash 7y agoJust to reinforce this: for the vast majority of people who don’t live in the countryside, desirability is almost all about nearby human activities. Look at what makes a location desirable: good schools, good job prospects, retail, night life, transportation, etc. It should be pretty clear that this is definitely not fixed.
- ThrustVectoring 7y agoThat's uhh, way less true than you think it is. There's some pretty important geographical considerations. 1. Cheap shipping via navigable rivers 2. Deep water ports 3. Not subject to periodic flooding 4. Flatness (not a huge deal, but it does make construction cheaper) 5. Soil suitability for construction (especially relevant is where the bedrock is, and what kind of soil lies atop it) Granted, a lot of this is merely the reason why network effects got started where they did. But they are still highly relevant considerations that add completely natural value to land, regardless of what people would decide to do with it.
- mikeash 7y agoLots of desirable locations exist without those things. Lots of places with those things exist without being desirable.
- wpietri 7y agoI would submit that the first two are effectively irrelevant today. I agree they were historically important, but today we have cheap shipping handled. Note also that your "uhh" is something many people find objectionable. E.g. https://web.archive.org/web/20070105163441/http://www.televisionwithoutpity.com/articles/content/a12088/ https://web.archive.org/web/20070105163441/http://www.televi... with more discussion here: http://languagelog.ldc.upenn.edu/nll/?p=28802 http://languagelog.ldc.upenn.edu/nll/?p=28802
- drcode 7y agoIt's a sensible thought, but EMH argues that speculators would have already priced in that future expected value, again leading to a price rise in line with salaries/inflation.
- ThrustVectoring 7y agoThe speculators have to use a discount rate higher than the risk-free rate, otherwise why would they be doing real estate speculation instead of earning risk-free interest? Granted, the risk-free rate doesn't have to be above-inflation, but the real interest rate currently is positive in the US.
- oftenwrong 7y agoDon't forget "in": infill, another way to increase density.
- mikekchar 7y agoI find it incredible as well. The only way housing can increase above inflation without it being a bubble is if everything else is below inflation -- because housing is a big part of the inflation calculation. If inflation is 2% and you are "making" a 10-15% return on your house investment, something is very seriously wrong where you live. The piper will be paid. The problem is that you don't know when. If you are opportunistic you might be able to make some money off this inbalance, but it's certainly not a condition you should wish for if you actually want to live in that area long term.
- mises 7y agoPart of it is that some areas grow. Some cities are growing, others shrinking; different neighborhoods in different places. Some people I know have done a double or better on their property values over the past decade-and-a-half because it is now an upscale area. It can't happen nationwide, but even an economy which is stagnant over all is constantly in flux. Of course, others I know have also lost substantial value at times.
- rubber_duck 7y ago>something is very seriously wrong where you live Places can become more or less desirable to live in - all this talk about matching inflation rates etc. is about the housing market as a whole - average. If you bought in a bad neighborhood and suddenly the neighborhood gets renovated and richer people start moving in - your property can increase in value multiple times over what you paid for it initially. If your area has excellent job offers and limited housing supply you will see housing prices increase because more people with more income will come to that area to work there. The problem happens when the local job market hits a slump and you assumed the demand increase will fuel the growth to cover your investments.
- zimablue 7y agoInflation is normally shorthand for "basket of goods" inflation, which notoriously /does not/ include housing costs. That's how we've had "low inflation" whilst having a bubble in housing and equity, because these forms of wealth are excluded. Which works out because you can have a mostly silent concentration of wealth without people screaming about this big indicator.
- outside1234 7y agoHousing can only grow by inflation, but LAND can multiply, because you can build higher on the same amount of land.
- ShorsHammer 7y agoIronic because one of the main arguments by locals against building higher is that it lowers local home prices.
- FooHentai 7y ago>housing can only increase an amount equivalent to inflation or wages inflation or wages within the pool of people eligible and willing to buy said housing. So you get weird distortion when housing is bought up by folks not actually living in them (foreign ownership, and kind of speculative buying)
- jtolmar 7y agoHousing prices can increase faster than wages/inflation, that just means that the share of wages spent on housing has to increase. This can continue until nobody has discretionary money left, since shelter, being an essential part of life, has very inelastic demand. Every step of that is awful, of course, but nothing disallows it from happening. And indeed, if you compare trends in wages[1] and home prices[2] you'll see two lines that don't look like they know each other. (I pulled the first two graphs I found, if someone wants to go get wages and home prices and index them by the same inflation metric that'd be awesome.) [1] https://en.wikipedia.org/wiki/Household_income_in_the_United_States#/media/File:U.S._Hourly_Wages_-_Real_or_Adjusted_for_Inflation_1964-2014.png https://en.wikipedia.org/wiki/Household_income_in_the_United... [2] https://commons.wikimedia.org/wiki/File:Median_and_Average_Sales_Prices_of_New_Homes_Sold_in_the_US_1963-2010_Monthly.png https://commons.wikimedia.org/wiki/File:Median_and_Average_S...
- Ericson2314 7y agoYes this is true and important, but you and the parent poster probably agree. "in the long term" i.e. asymptotically is constrained by "nobody hav[ing] discretionary money left", hence the OP's conclusion. Now ROI and asymptotic analysis are both mathematical niceties the belie real world limitations, but that's how people talk.
- pascalxus 7y agoYes, but you can never spend more than 100% of your income as long as your income is your primary means of obtaining money. In fact, I think most people would have a hard time spending more than even 65% of their income on housing. Now, I can imagine an exponentially distopian world where 4 families are forced to live in a single house. In such a world, housing prices could rise faster than wages/inflation for quite some time, but not forever. There's only a finite amount of space inside a house. And at some point, you will run out of cubic feet of space (if disease and pestillence doesn't kill you first). In the infinite long run, those prices will only be able to increase as much as wages as long as wages remain the primary source of money.
- luckylion 7y ago
- quickthrower2 7y agoHousing, yes. A particular house - not necessarily.
- perfmode 7y agoObviously. But we’re interested in aggregate effects in this conversation, no?
- snowwrestler 7y agoPeople also seem surprised to learn that, even though you are correct, housing can still be a good investment.
- runeks 7y agoTrue. But that’s not relevant to me if “the long term” is 50 years.
- HugoDaniel 7y agoYou are disregarding tourism. It can disrupt housing costs while the wages of everyone living in that country stay the same.
- soVeryTired 7y ago> People are always surprised when I tell them, in the long term housing can only increase an amount equivalent to inflation or wages I don't think this is true at all. Prices can outstrip wages easily when there's a large influx of new inhabitants, either through a high birth rate or through migration. See London over the last decade for an example. It's less common to see this effect in entire countries because it would take a vast number of people, but I do think it could happen. Prices can continue to rise if mortgages become cheaper to service: as we've seen over the last thirty years, declining interest rates and lengthening mortgage terms push up the price of houses. Prices can also rise if there is sustained outside investment - for example wealthy people outside the country looking for somewhere safe to stash their money (see London again). OF course, all of this is contingent on what exactly you mean by "the long term". But the UK has seen a sustained boom in property prices for a generation. That seems pretty long term to me.
- c0vfefe 7y ago> in the long term housing can only increase an amount equivalent to inflation or wages. This assumes the lack of a bubble created by anti-competitive regulation, like SV's cap on new development.