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I would argue that failure to adequately address the power of the wealth-income feedback loop is the West's biggest economic mistake, and that this is at the ro

I would argue that failure to adequately address the power of the wealth-income feedback loop is the West's biggest economic mistake, and that this is at the root cause of rising housing costs. Housing is consuming a bigger and bigger share of median income because growth in housing is not keeping up with growth in income of the top tiers of the population, who can afford to pay disproportionately more than the median, and the trend is accelerating. While it's true that increasing supply would help relieve some of the pressure, it would have to skyrocket to keep up with the meteoric rise in income of the top 10% of the population. All the well-meaning housing policy in the world can never speed up supply fast enough to keep up with the rate at which the wealthy are giving themselves raises.

karmelapple 7y ago
If large amounts of 1- and 2- bedroom condos or apartments are built in a fairly densely-populated city, how much are the very rich going to want to buy or rent these? They may want to own them and rent them out, but if they can’t make a profit, I don’t see why they’d want to do that. Luxury condos attract investment from richer people all around the world, but imho, fairly standard 1 and 2 bedroom apartments likely wouldn’t, especially if they have to be rented. Could that be a way to combat the inequality? The biggest problem I can see: developers love building luxury condos since the profit is much higher than building non-luxury places.
- javagram 7y ago
  What exactly is the difference between a luxury and non-luxury condo/apartment? I think it’s mainly a few cheap cosmetic features like countertops and stainless steel refrigerators. Of course developers label everything new luxury because why wouldn’t you spend an additional 1% of your investment on these types of things? The cost of building a “non-luxury” building is almost identical. In either case, you need investors to put up the money to pay for construction and maintenance of the building until enough units have sold/rent to be self sustaining. So even if you build a slightly less cosmetically appealing building, you still need investor capital / “the rich” to do so.
- vannevar 7y ago
  It depends on who you consider "very rich" and where the condos are. In many cities, a modest 1- or 2-bedroom condo can go anywhere from $500K to over $1M. The people who buy them are not extravagantly wealthy, but are part of the executive class that has seen its wages rise rapidly over the past 30 years, while median incomes are comparatively flat.
javagram 7y ago
> While it's true that increasing supply would help relieve some of the pressure, it would have to skyrocket to keep up with the meteoric rise in income of the top 10% of the population How many % of available units do you think the top 10% of the population reside in? I’d be surprised if the average member of the 10% had more than two or at most three homes (e.g. city home, country home, vacation home). For reference, the 95th percentile household income in the USA is $250k a year, you will struggle to afford even two homes on that type of salary. If you had, say, 600 million homes available in a country of 300 million people, you aren’t going to run out of homes... the rich may have a lot of money but they can only be in one place at once.
- lucas_membrane 7y ago
  Between vacant homes and second homes, there is enough vacant space in USA to home all the homeless multiple times over. If Americans had no brains, this would be done.
- vannevar 7y ago
  >How many % of available units do you think the top 10% of the population reside in? In urban areas, where the housing crisis is, a disproportionate share. Imagine a topographic map where housing prices are the relief. Thirty years ago, say the highest point in a given city was at $1M. Over time, as the top end income increases, that peak will steadily rise, pulling up all the prices around it. The problem is that to earn income (to be able to afford rising housing costs), people need to be close to the city center. So people with lower incomes "buy up" out of necessity, driving up the percentage of their income they spend on housing, because their income didn't rise as rapidly as the income of the next topographical "ring" in. Basically, there is a mismatch: there's a growing disparity in wealth between classes, but the need for proximity to cities in order to make money has remained largely constant for lower incomes, particularly for service workers who cannot adapt to work remotely, like middle class tech workers can.
  - javagram 7y ago
    Over the past few decades there has been a period of re-urbanization and migration from rural to urban areas due to changes in the job market. For instance, Washington DC had 802,000 residents in 1950. Later the population dropped to 572,000 residents in 2000. The population has now increased to 705,000. However, over the last 70 years, living standards have changed and some dwellings have either been demolished or made illegal (e.g. in 1950 it’s likely many people lived in Single Room Occupancy boarding houses more like a college dorm, or crowded into what we’d now consider slums, or so on) As a result there’s a mismatch in supply and demand, and Econ 101 is occurring: price of housing goes up until the supply and demand curves match. Solving inequality isn’t needed to solve this problem, any more than inequality was solved in 1950 when more people were living in poverty than today. We need to make more housing available and fix the supply/demand imbalance. When there aren’t enough units available, it’s impossible to solve the problem and allow everyone to live where they want. Even if everyone had the same salary or rents were arbitrarily fixed at a low rate, then the system of distribution would just change to something else, e.g. a ticket lottery.
mrep 7y ago
If by west, you are just referring to the west coast of the US, then yes, home prices are outgrowing inflation. If you mean the entire US, then no, it is not as "In 2017 the price per square foot of a new home was only 4% more (about $3) than in 1979" [0]. [0]: https://www.supermoney.com/inflation-adjusted-home-prices/ https://www.supermoney.com/inflation-adjusted-home-prices/
- vannevar 7y ago
  From the same article, "If you adjust for inflation, the median income of Americans has only increased by 33%. The median housing prices, however, have increased by 60%." The problem is not limited to the western US.
  - mrep 7y ago
    So did you stop right after that? It literally goes on to explain how that's due to people buying larger homes.
    - vannevar 7y ago
      Larger houses are a symptom, not a cause. Wealthier buyers drive the market, and because of the inelasticities I pointed out earlier, the rest of the market is dragged along. If a builder makes more profit on luxury homes, that's going to affect downmarket buyers as well. It's tempting to imagine that every home purchase is a completely independent event, and buyers have complete freedom to buy per square foot, but in the real world, that is not the case. Your article acknowledges this as well, towards the end: "The good news is you can find some great deals in your area, if you are willing to buy a house the size of your grandparent’s home. The bad news is houses that size or hard to find."

karmelapple 7y ago

If large amounts of 1- and 2- bedroom condos or apartments are built in a fairly densely-populated city, how much are the very rich going to want to buy or rent these? They may want to own them and rent them out, but if they can’t make a profit, I don’t see why they’d want to do that. Luxury condos attract investment from richer people all around the world, but imho, fairly standard 1 and 2 bedroom apartments likely wouldn’t, especially if they have to be rented. Could that be a way to combat the inequality? The biggest problem I can see: developers love building luxury condos since the profit is much higher than building non-luxury places.

javagram 7y ago
What exactly is the difference between a luxury and non-luxury condo/apartment? I think it’s mainly a few cheap cosmetic features like countertops and stainless steel refrigerators. Of course developers label everything new luxury because why wouldn’t you spend an additional 1% of your investment on these types of things? The cost of building a “non-luxury” building is almost identical. In either case, you need investors to put up the money to pay for construction and maintenance of the building until enough units have sold/rent to be self sustaining. So even if you build a slightly less cosmetically appealing building, you still need investor capital / “the rich” to do so.
vannevar 7y ago
It depends on who you consider "very rich" and where the condos are. In many cities, a modest 1- or 2-bedroom condo can go anywhere from $500K to over $1M. The people who buy them are not extravagantly wealthy, but are part of the executive class that has seen its wages rise rapidly over the past 30 years, while median incomes are comparatively flat.

javagram 7y ago

> While it's true that increasing supply would help relieve some of the pressure, it would have to skyrocket to keep up with the meteoric rise in income of the top 10% of the population How many % of available units do you think the top 10% of the population reside in? I’d be surprised if the average member of the 10% had more than two or at most three homes (e.g. city home, country home, vacation home). For reference, the 95th percentile household income in the USA is $250k a year, you will struggle to afford even two homes on that type of salary. If you had, say, 600 million homes available in a country of 300 million people, you aren’t going to run out of homes... the rich may have a lot of money but they can only be in one place at once.

lucas_membrane 7y ago
Between vacant homes and second homes, there is enough vacant space in USA to home all the homeless multiple times over. If Americans had no brains, this would be done.
vannevar 7y ago
>How many % of available units do you think the top 10% of the population reside in? In urban areas, where the housing crisis is, a disproportionate share. Imagine a topographic map where housing prices are the relief. Thirty years ago, say the highest point in a given city was at $1M. Over time, as the top end income increases, that peak will steadily rise, pulling up all the prices around it. The problem is that to earn income (to be able to afford rising housing costs), people need to be close to the city center. So people with lower incomes "buy up" out of necessity, driving up the percentage of their income they spend on housing, because their income didn't rise as rapidly as the income of the next topographical "ring" in. Basically, there is a mismatch: there's a growing disparity in wealth between classes, but the need for proximity to cities in order to make money has remained largely constant for lower incomes, particularly for service workers who cannot adapt to work remotely, like middle class tech workers can.
- javagram 7y ago
  Over the past few decades there has been a period of re-urbanization and migration from rural to urban areas due to changes in the job market. For instance, Washington DC had 802,000 residents in 1950. Later the population dropped to 572,000 residents in 2000. The population has now increased to 705,000. However, over the last 70 years, living standards have changed and some dwellings have either been demolished or made illegal (e.g. in 1950 it’s likely many people lived in Single Room Occupancy boarding houses more like a college dorm, or crowded into what we’d now consider slums, or so on) As a result there’s a mismatch in supply and demand, and Econ 101 is occurring: price of housing goes up until the supply and demand curves match. Solving inequality isn’t needed to solve this problem, any more than inequality was solved in 1950 when more people were living in poverty than today. We need to make more housing available and fix the supply/demand imbalance. When there aren’t enough units available, it’s impossible to solve the problem and allow everyone to live where they want. Even if everyone had the same salary or rents were arbitrarily fixed at a low rate, then the system of distribution would just change to something else, e.g. a ticket lottery.

mrep 7y ago

If by west, you are just referring to the west coast of the US, then yes, home prices are outgrowing inflation. If you mean the entire US, then no, it is not as "In 2017 the price per square foot of a new home was only 4% more (about $3) than in 1979" [0]. [0]: https://www.supermoney.com/inflation-adjusted-home-prices/ https://www.supermoney.com/inflation-adjusted-home-prices/

vannevar 7y ago
From the same article, "If you adjust for inflation, the median income of Americans has only increased by 33%. The median housing prices, however, have increased by 60%." The problem is not limited to the western US.
- mrep 7y ago
  So did you stop right after that? It literally goes on to explain how that's due to people buying larger homes.
  - vannevar 7y ago
    Larger houses are a symptom, not a cause. Wealthier buyers drive the market, and because of the inelasticities I pointed out earlier, the rest of the market is dragged along. If a builder makes more profit on luxury homes, that's going to affect downmarket buyers as well. It's tempting to imagine that every home purchase is a completely independent event, and buyers have complete freedom to buy per square foot, but in the real world, that is not the case. Your article acknowledges this as well, towards the end: "The good news is you can find some great deals in your area, if you are willing to buy a house the size of your grandparent’s home. The bad news is houses that size or hard to find."