5 ms·

It's not zoning. The same issue persists irrespective of supposed NIMBYISM. The primary, most obvious driver is historically low interest rates. How much we c

by jariel 6y ago

It's not zoning. The same issue persists irrespective of supposed NIMBYISM. The primary, most obvious driver is historically low interest rates. How much we can attribute to that is hard to say but it's #1 for sure. During the 2008 crises, the Fed took toxic housing loans off their books, which 'saved the banks' but it also 'saved millions' from foreclosure i.e. creating a moral dilemma there as well and signalling the Fed won't let home prices crash.

whimsicalism 6y ago
In urban areas, I think it is hard to claim that the high rents have little to do with zoning. I don't think the problem is low interest writ large, but specifically attempts to prop up the homeownership market with debt. There's a reason that post-2008 private lenders have basically backed out of the mortgage market and let Fannie Mae & Mac hold the bag, even in the context of so much more money chasing yields.
- stjohnswarts 6y ago
  This is incorrect zoning and "historic" zones prevent new building. A new 70 floor tower replacing an old 5 or 6 floor "historical residence" -drastically- increases density. Now go try and get that to happen in San Francisco in less than a decade.
  - whimsicalism 6y ago
    I don't see how you think what you're saying contradicts what I'm saying. Prices in urban areas are very much caused by zoning (primarily), but changes in macro-scale pricing of houses in the US are definitely related to supply of financing.
    - bluGill 6y ago
      Only partially. Anyplace where you want to live has zoning that limits how many people can live there. Zoning won't stop you from building out on some ranch in the middle of nowhere (ranches are getting bigger so you can find some no longer used homestead to rebuild). However zoning will stop you from building in a city.
      - whimsicalism 6y ago
        Yeah, but zoning outside of the city is a. Much more permissive, b. There are many places to build, and c. There is little demand for the type of housing that is blocked by zoning (ie. Fourlplexes and above) outside of the city.
    - jariel 6y ago
      Zoning does not 'cause' anything. Demand does. The notion is ridiculous - housing is extremely affordable in the US. There absolutely is no affordability crisis. There is merely 'a lot of people who want to live in SF and NYC'. You don't have a right to move to a place and demand they tear down their homes so you can jam yourself in with others in a flat. What is causing prices to increase is either: a) more people b) interest rates or c) higher wages. a - isn't happening rapidly (though partly) c - isn't really happening it's b, consistently over time causing greater and greater leverage.
      - whimsicalism 6y ago
        > There absolutely is no affordability crisis. Even with a very generous look at the general price index for homes, it is going up at a much higher rate than inflation. There's a reason that younger generations are buying homes at a much lower rate. The idea that there is no affordability issue just isn't rooted in reality. > You don't have a right to move to a place and demand they tear down their homes so you can jam yourself in with others in a flat. I'm not demanding that anyone tear down their homes. I think that if someone voluntarily sells their property to someone new, and that new person wishes to build a new construction on that property, they should be able to. It is a very new historical phenomenon that doing so (voluntarily building on your own land, not demanding that others tear down their homes) is difficult in major urban areas - that has not historically been the case. It's pretty ridiculous to demand that people who "got there first" get to demand restrictions on how the "newcomers" get to use their legally acquired property.
  - mamon 6y ago
    70 floor tower is a bit extreme. What would really benefit places like San Francisco is replacing single family homes with 3-4 stories apartment buildings. Such a low buildings still make neighborhood look nice and cozy, while increasing density 10 times.
  - DrScump 6y ago
    Now go try and get that to happen in San Francisco in less than a decade. Go take a look at maps of the Mission Bay area (around the ballpark) from 2006 to 2016. It's unrecognizable.
WarOnPrivacy 6y ago
> The primary, most obvious driver is historically low interest rates. This doesn't align with the last 20 years of housing prices, which have dramatically risen/fallen/risen while the interest rate has barely budged.
- jariel 6y ago
  Well it does actually. As interest rates stay low - the amount of leverage in housing increases, which creates more volatility. The economic crises is obviously the primary forcing function during the crises and subsequent recovery. This will cause pressure one way, and then the other. The amplitude of the swing is a function of the fact interest rates are so low, and leverage is so high. They have been really low for a long time relative to the return on other assets, ergo, the leverage maintains and increases. Obviously this is amplified by other aspects of easy monetary policy. Put inversely: if rates were up 3 or 4 points, I don't think we'd see this kind of bubble in housing, not remotely. We are living in weird credit bubble, and thanks to COVID it may never let up - i.e. this could be 'the new normal'. It's like Earth's gravity has shifted for good and we're all having to adjust to a new reality. Part of that new reality is crazy home prices.
- whimsicalism 6y ago
  ? https://fred.stlouisfed.org/series/MORTGAGE30US https://fred.stlouisfed.org/series/MORTGAGE30US 2000 interest rate - ~8.5% 2020 interest rate - ~2.8%
  - WarOnPrivacy 6y ago
    You're right. Me going back to 2000 isn't helpful because it doesn't reflect our current reality. Going back to 2011 is better. By December rates were under 4%, setting the stage for all the years that followed. ref: http://mortgage-x.com/general/national_monthly_average.asp?y=2011 http://mortgage-x.com/general/national_monthly_average.asp?y...
    - whimsicalism 6y ago
      > Going back to 2011 is better. By December rates were under 4%, setting the stage for all the years that followed. Is that not when housing prices started continuously increasing? https://fred.stlouisfed.org/series/CSUSHPINSA https://fred.stlouisfed.org/series/CSUSHPINSA
pas 6y ago
You're mixing up cause and effect. Due to NIMBYism and insufficient supply was housing able to become an "asset class" at all. Again the interest rate has been historically low in order to facilitate low rate mortgages to help people finance the increasingly costly housing market. Of course since demand outpaced supply the added funding just caused even more inflation. (Sure, it caused some new entrants to the housing market, but since the place where people want to live is still constrained due to zoning and NIMBYism, the prices literally skyrocketed in those areas.)
- jariel 6y ago
  No, in your own answer you pointed out the cause: "low interest rates in order to help keep housing priced up". That is literally the cause. NIMBYISM cannot be a 'cause' of anything - there is always more demand than supply in SF and in many places (also - people have a right to manage their own communities as they see fit.) If a million people try move to a village, the price of the houses goes up - the cause is 'zoning'? Or is the 'cause' the the people trying to move into the village? (Propped up with huge leverage due to ever decreasing interest rates?)
  - pas 6y ago
    I said no such thing. Since 1938 US government is backing housing via guaranteed mortgages. These are "money supply-side" policies that boost demand. I'm saying that just like with healthcare and higher education, since supply is fairly limited dumping more money into those markets just raises the price. > there is always more demand than supply in SF and in many places That doesn't mean much. The equilibrium point is what matters. If there were more supply prices would be a lot lower. Of course desirable lots/houses/apartments will be priced higher. The problem is that house prices are going up too much, the barrier to entry (to join the community) is going up, also rents are going up (the price to stay part of the community is going up). Plus, it's not like the demand is infinite. Let's say 10 million people want to move to SF. That's a very finite number. And I'm not saying sure, let's build HongKong2.0. > (also - people have a right to manage their own communities as they see fit.) I agree with the spirit of self-determination, but alas I'm not well versed enough in the ethical problems with determining which group's interest have primacy when groups' interests overlap. After all if someone commutes every day to SF they are just as part of the community, and they might like to move closer. They want density. But this obviously quickly leads to the tragedy of the anti-commons. Everybody in that "SF community" has a vested interest in living in a nice and healthy city, but they would have to agree on how to manage housing. Usually nobody wants to voluntarily give up their advantageous spot. Nobody wants a big construction and high-rise as their neighbor. The common resource (land) gets under utilized. (NIMBYism. Plus gentrification as people who want money sell their houses to exploit this situation, which then pushes up prices of local services, which puts even more people into financial peril, who then increasingly feel that selling their property and moving is their only option.) (You might have read this recent story about newcomers and old timers in Austin: https://news.ycombinator.com/item?id=26567350 https://news.ycombinator.com/item?id=26567350 ) > If a million people try move to a village That sounds like a disaster or a gold-rush. What's the fair way to manage this? A quota system? First-come first-serve? The current system is rich people only.
mchusma 6y ago
I think interest rates almost can't possibly explain it. The cost to take 4 single family lots and build a 12 story building to fit maybe 100 units. The actual per unit construction cost is like $100k ($10M for the building), but that is because they are all custom. Mass producing housing would easily drop prices 50%. Let's say these 4 lots with houses on them are worth $1M each. In the mass produced housing model, the price per unit including land is $140k. This is ballpark a 10x difference. Why is the spread so high? It's not interest rates.
- jariel 6y ago
  Ironically you've demonstrated why low interest rates might be a primary culprit. (FYI the cost of the building it not hugely relevant, it's the land.) Imagine that you can afford some kind of monthly payment for your mortgage - as interest rates go down, the larger the loan you can afford i.e. 'leverage'. The longer people believe that interest rates will 'stay low', the more confidence they have in taking large loans. The longer the process goes on for, the longer people believe we are in a 'new normal' and feel confident in their purchases. Ironically, the big swings in prices in real estate are a function of leverage (i.e. low interest rates): if an economic crash hits, fear causes a crash and then upswing commensurate with the leverage in the system. NIMBYISM does not cause an increase in demand. Only 'more potential buyers' with 'more income' and 'more leverage' can do that. Since cities are not rapidly expanding in size with NIMBYISM, and wages are not radically increasing, it's likely a function of continuing high leverage.

by jariel 6y ago

whimsicalism 6y ago

In urban areas, I think it is hard to claim that the high rents have little to do with zoning. I don't think the problem is low interest writ large, but specifically attempts to prop up the homeownership market with debt. There's a reason that post-2008 private lenders have basically backed out of the mortgage market and let Fannie Mae & Mac hold the bag, even in the context of so much more money chasing yields.

stjohnswarts 6y ago
This is incorrect zoning and "historic" zones prevent new building. A new 70 floor tower replacing an old 5 or 6 floor "historical residence" -drastically- increases density. Now go try and get that to happen in San Francisco in less than a decade.
- whimsicalism 6y ago
  I don't see how you think what you're saying contradicts what I'm saying. Prices in urban areas are very much caused by zoning (primarily), but changes in macro-scale pricing of houses in the US are definitely related to supply of financing.
  - bluGill 6y ago
    Only partially. Anyplace where you want to live has zoning that limits how many people can live there. Zoning won't stop you from building out on some ranch in the middle of nowhere (ranches are getting bigger so you can find some no longer used homestead to rebuild). However zoning will stop you from building in a city.
    - whimsicalism 6y ago
      Yeah, but zoning outside of the city is a. Much more permissive, b. There are many places to build, and c. There is little demand for the type of housing that is blocked by zoning (ie. Fourlplexes and above) outside of the city.
  - jariel 6y ago
    Zoning does not 'cause' anything. Demand does. The notion is ridiculous - housing is extremely affordable in the US. There absolutely is no affordability crisis. There is merely 'a lot of people who want to live in SF and NYC'. You don't have a right to move to a place and demand they tear down their homes so you can jam yourself in with others in a flat. What is causing prices to increase is either: a) more people b) interest rates or c) higher wages. a - isn't happening rapidly (though partly) c - isn't really happening it's b, consistently over time causing greater and greater leverage.
    - whimsicalism 6y ago
      > There absolutely is no affordability crisis. Even with a very generous look at the general price index for homes, it is going up at a much higher rate than inflation. There's a reason that younger generations are buying homes at a much lower rate. The idea that there is no affordability issue just isn't rooted in reality. > You don't have a right to move to a place and demand they tear down their homes so you can jam yourself in with others in a flat. I'm not demanding that anyone tear down their homes. I think that if someone voluntarily sells their property to someone new, and that new person wishes to build a new construction on that property, they should be able to. It is a very new historical phenomenon that doing so (voluntarily building on your own land, not demanding that others tear down their homes) is difficult in major urban areas - that has not historically been the case. It's pretty ridiculous to demand that people who "got there first" get to demand restrictions on how the "newcomers" get to use their legally acquired property.
- mamon 6y ago
  70 floor tower is a bit extreme. What would really benefit places like San Francisco is replacing single family homes with 3-4 stories apartment buildings. Such a low buildings still make neighborhood look nice and cozy, while increasing density 10 times.
- DrScump 6y ago
  Now go try and get that to happen in San Francisco in less than a decade. Go take a look at maps of the Mission Bay area (around the ballpark) from 2006 to 2016. It's unrecognizable.

WarOnPrivacy 6y ago

> The primary, most obvious driver is historically low interest rates. This doesn't align with the last 20 years of housing prices, which have dramatically risen/fallen/risen while the interest rate has barely budged.

jariel 6y ago
Well it does actually. As interest rates stay low - the amount of leverage in housing increases, which creates more volatility. The economic crises is obviously the primary forcing function during the crises and subsequent recovery. This will cause pressure one way, and then the other. The amplitude of the swing is a function of the fact interest rates are so low, and leverage is so high. They have been really low for a long time relative to the return on other assets, ergo, the leverage maintains and increases. Obviously this is amplified by other aspects of easy monetary policy. Put inversely: if rates were up 3 or 4 points, I don't think we'd see this kind of bubble in housing, not remotely. We are living in weird credit bubble, and thanks to COVID it may never let up - i.e. this could be 'the new normal'. It's like Earth's gravity has shifted for good and we're all having to adjust to a new reality. Part of that new reality is crazy home prices.
whimsicalism 6y ago
? https://fred.stlouisfed.org/series/MORTGAGE30US https://fred.stlouisfed.org/series/MORTGAGE30US 2000 interest rate - ~8.5% 2020 interest rate - ~2.8%
- WarOnPrivacy 6y ago
  You're right. Me going back to 2000 isn't helpful because it doesn't reflect our current reality. Going back to 2011 is better. By December rates were under 4%, setting the stage for all the years that followed. ref: http://mortgage-x.com/general/national_monthly_average.asp?y=2011 http://mortgage-x.com/general/national_monthly_average.asp?y...
  - whimsicalism 6y ago
    > Going back to 2011 is better. By December rates were under 4%, setting the stage for all the years that followed. Is that not when housing prices started continuously increasing? https://fred.stlouisfed.org/series/CSUSHPINSA https://fred.stlouisfed.org/series/CSUSHPINSA

pas 6y ago

You're mixing up cause and effect. Due to NIMBYism and insufficient supply was housing able to become an "asset class" at all. Again the interest rate has been historically low in order to facilitate low rate mortgages to help people finance the increasingly costly housing market. Of course since demand outpaced supply the added funding just caused even more inflation. (Sure, it caused some new entrants to the housing market, but since the place where people want to live is still constrained due to zoning and NIMBYism, the prices literally skyrocketed in those areas.)

jariel 6y ago
No, in your own answer you pointed out the cause: "low interest rates in order to help keep housing priced up". That is literally the cause. NIMBYISM cannot be a 'cause' of anything - there is always more demand than supply in SF and in many places (also - people have a right to manage their own communities as they see fit.) If a million people try move to a village, the price of the houses goes up - the cause is 'zoning'? Or is the 'cause' the the people trying to move into the village? (Propped up with huge leverage due to ever decreasing interest rates?)
- pas 6y ago
  I said no such thing. Since 1938 US government is backing housing via guaranteed mortgages. These are "money supply-side" policies that boost demand. I'm saying that just like with healthcare and higher education, since supply is fairly limited dumping more money into those markets just raises the price. > there is always more demand than supply in SF and in many places That doesn't mean much. The equilibrium point is what matters. If there were more supply prices would be a lot lower. Of course desirable lots/houses/apartments will be priced higher. The problem is that house prices are going up too much, the barrier to entry (to join the community) is going up, also rents are going up (the price to stay part of the community is going up). Plus, it's not like the demand is infinite. Let's say 10 million people want to move to SF. That's a very finite number. And I'm not saying sure, let's build HongKong2.0. > (also - people have a right to manage their own communities as they see fit.) I agree with the spirit of self-determination, but alas I'm not well versed enough in the ethical problems with determining which group's interest have primacy when groups' interests overlap. After all if someone commutes every day to SF they are just as part of the community, and they might like to move closer. They want density. But this obviously quickly leads to the tragedy of the anti-commons. Everybody in that "SF community" has a vested interest in living in a nice and healthy city, but they would have to agree on how to manage housing. Usually nobody wants to voluntarily give up their advantageous spot. Nobody wants a big construction and high-rise as their neighbor. The common resource (land) gets under utilized. (NIMBYism. Plus gentrification as people who want money sell their houses to exploit this situation, which then pushes up prices of local services, which puts even more people into financial peril, who then increasingly feel that selling their property and moving is their only option.) (You might have read this recent story about newcomers and old timers in Austin: https://news.ycombinator.com/item?id=26567350 https://news.ycombinator.com/item?id=26567350 ) > If a million people try move to a village That sounds like a disaster or a gold-rush. What's the fair way to manage this? A quota system? First-come first-serve? The current system is rich people only.

mchusma 6y ago

I think interest rates almost can't possibly explain it. The cost to take 4 single family lots and build a 12 story building to fit maybe 100 units. The actual per unit construction cost is like $100k ($10M for the building), but that is because they are all custom. Mass producing housing would easily drop prices 50%. Let's say these 4 lots with houses on them are worth $1M each. In the mass produced housing model, the price per unit including land is $140k. This is ballpark a 10x difference. Why is the spread so high? It's not interest rates.

jariel 6y ago
Ironically you've demonstrated why low interest rates might be a primary culprit. (FYI the cost of the building it not hugely relevant, it's the land.) Imagine that you can afford some kind of monthly payment for your mortgage - as interest rates go down, the larger the loan you can afford i.e. 'leverage'. The longer people believe that interest rates will 'stay low', the more confidence they have in taking large loans. The longer the process goes on for, the longer people believe we are in a 'new normal' and feel confident in their purchases. Ironically, the big swings in prices in real estate are a function of leverage (i.e. low interest rates): if an economic crash hits, fear causes a crash and then upswing commensurate with the leverage in the system. NIMBYISM does not cause an increase in demand. Only 'more potential buyers' with 'more income' and 'more leverage' can do that. Since cities are not rapidly expanding in size with NIMBYISM, and wages are not radically increasing, it's likely a function of continuing high leverage.