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Housing affordability is part of a larger demographic/economic problem - due to extended longevity and declining birth rates, many Western societies are facing

Housing affordability is part of a larger demographic/economic problem - due to extended longevity and declining birth rates, many Western societies are facing a higher ratio of retirees to workers. This is a problem because essentially all current consumption is created by current workers, and retirees aren't working. The transfer from workers to retirees happens in one of two ways: either through taxation ("Pay As You Go" systems like Social Security), or in exchange for transferring a financial claim from retirees to workers. So as the retiree ratio increases, a combination of several things have to happen to balance the flows of goods and services: 1. Retiree consumption decreases. 2. Worker productivity goes up. 3. Taxes go up. 4. Workers spend more of their money on financial claims. If you look at what happens when the first three are relatively fixed, what does the last one happening look like? The only household budget items big enough to swing the needle are things like paying back student loan debt, their rent or mortgage (basically equivalent here), 401k contributions and other retirement investments, and to a lesser extent automobile financing and other consumer debt. Note that this is more like an energy-based physics analysis than a force-based ones - it illustrates the overall tradeoffs that have to get made somewhere, but doesn't specify causal mechanisms. The actual causal path is something like the increase in saving pushing down interest rates, which makes financing desirable long-term goods (housing, education) more affordable on a monthly cash flow basis, which drives up prices until the market clears once more. In other words, college and housing became more expensive because the aging population needs to loan more money to the next generation to fund their retirement. Also, the demographic that's currently getting squeezed the hardest by all this isn't Millennials. It's middle-aged folks stuck in the awful gap of having aging parents and maturing children. After all, "retiree consumption decreases" is a really bland euphemism for what goes on at the ground level - retirees not having enough food to eat or being unable to afford medical care. And on the other end, it's getting harder for children to afford to take the steps required to become independent, so this unfortunate demographic also has to set aside more housing and other resources for their children than before. I really don't have good ideas for any sort of practical action to resolve these tensions. It's extraordinarily depressing. Personally, I'm expecting these trends to continue, and for this all to result in lower per-capita retiree consumption when I'm of the appropriate age, so I'm saving at a higher clip now to compensate. All this does is, though, is increase current retiree consumption and improve my rank-ordering in my retirement cohort; saving more doesn't fix the problems my cohort will end up facing.

dools 7y ago
This is only a problem if you take the view that a nation needs to (and is able to) save for its future in terms of a currency it issues. Increased taxation is not required to support a growing population of retirees, increased production is. Taxation is neither here nor there: it is required as an inflation control and to give value to the currency but the limits on spending at the federal level (where social security/pensions SHOULD reside instead of in privately held pension funds) are total spending this year, not tax receipts last year. Tax receipts extinguish a liability that was created when the federal government spent the money into existence in the first place. It's not true that current consumption is created by current workers. Retirees spend. What's true is that we have an incredibly inefficient means of funding their retirement through property as an asset class which sucks money out of the current working population via private financial institutions and hands it to retirees, some of whom support their kids in purchasing exorbitantly priced property, placing them in a very precarious financial position which lowers birth rates and further exacerbates the problem down the line. Property isn't required as an asset class, it's just a convenient thing most people understand and governments worldwide have been able to conveniently take their hands off the wheel.
- ThrustVectoring 7y ago
  >This is only a problem if you take the view that a nation needs to (and is able to) save for its future in terms of a currency it issues. If you track the real goods and services involved, nations are essentially incapable of saving for the future. Ignore the financial claims and just look at the goods involved - today's retirees are consuming the fruit of today's labor, essentially. They're not making a car in 1980 so that they can drive it around today. >Increased taxation is not required to support a growing population of retirees, increased production is. Increased productivity definitely helps (see point 2 above). It has to grow in excess of the rate of growth of the gross retiree consumption, though, or else you're just facing a less intense version of the prior dilemma. >Taxation is neither here nor there: it is required as an inflation control Saying you don't have to tax workers and can allow inflation to rise instead is solving the problem through point 1: reducing the consumption of retirees (by inflating away their purchasing power). > It's not true that current consumption is created by current workers. Apologies for saying things in an unclear way - I probably should have used "produced" instead of "created", because I was getting at the physical act of producing goods and services for consumption, rather than the desire and means to consume goods and services.

dools 7y ago

This is only a problem if you take the view that a nation needs to (and is able to) save for its future in terms of a currency it issues. Increased taxation is not required to support a growing population of retirees, increased production is. Taxation is neither here nor there: it is required as an inflation control and to give value to the currency but the limits on spending at the federal level (where social security/pensions SHOULD reside instead of in privately held pension funds) are total spending this year, not tax receipts last year. Tax receipts extinguish a liability that was created when the federal government spent the money into existence in the first place. It's not true that current consumption is created by current workers. Retirees spend. What's true is that we have an incredibly inefficient means of funding their retirement through property as an asset class which sucks money out of the current working population via private financial institutions and hands it to retirees, some of whom support their kids in purchasing exorbitantly priced property, placing them in a very precarious financial position which lowers birth rates and further exacerbates the problem down the line. Property isn't required as an asset class, it's just a convenient thing most people understand and governments worldwide have been able to conveniently take their hands off the wheel.

ThrustVectoring 7y ago
>This is only a problem if you take the view that a nation needs to (and is able to) save for its future in terms of a currency it issues. If you track the real goods and services involved, nations are essentially incapable of saving for the future. Ignore the financial claims and just look at the goods involved - today's retirees are consuming the fruit of today's labor, essentially. They're not making a car in 1980 so that they can drive it around today. >Increased taxation is not required to support a growing population of retirees, increased production is. Increased productivity definitely helps (see point 2 above). It has to grow in excess of the rate of growth of the gross retiree consumption, though, or else you're just facing a less intense version of the prior dilemma. >Taxation is neither here nor there: it is required as an inflation control Saying you don't have to tax workers and can allow inflation to rise instead is solving the problem through point 1: reducing the consumption of retirees (by inflating away their purchasing power). > It's not true that current consumption is created by current workers. Apologies for saying things in an unclear way - I probably should have used "produced" instead of "created", because I was getting at the physical act of producing goods and services for consumption, rather than the desire and means to consume goods and services.