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Ever-increasing home values are a Ponzi scheme

101 points by tolbish 5y ago

BreakfastB0b 5y ago
Housing can either be affordable, or profitable, not both. Affordable means that the price of a house remains stable relative to inflation or wages. Profitable means it has to grow faster than inflation or wages. Everyone needs somewhere to live, therefore housing should not be profitable. You shouldn’t be able to make a tonne of money by just buying a house and sitting on it. Investing in housing should mean improving existing housing or building new housing. Here in Australia the government is talking about letting young people access our equivalent of their 401k to afford a deposit on a house. Without changing the supply of housing how is this anything other than another attempt from boomers to steal more wealth from their children so they can line their coffins with more gold.
- xwdv 5y ago
  Profitable means we get more and more houses being built.
  - reportingsjr 5y ago
    Except due to insane zoning rules and an ever greater push for exurban housing, which is insanely expensive due to the infrastructure required, we are not getting nearly enough housing.
  - nicoburns 5y ago
    The way to make them affordable rather than profitable would be to build many more than are currently being built. As long as the quality is decent, you then drive the prices down through a simple increase in supply. You probably still need some tweaks to disincentivise use of property as a financial vehicle, but you're 70% there just by building more.
    - darepublic 5y ago
      Unless something still manipulates the price, as in the diamond market.
  - BreakfastB0b 5y ago
    You would think so. But once again, how can housing continue to be profitable i.e. grow faster than wages, and people still afford to buy houses? Doesn’t it collapse at some point? Isn’t that the joke about only economists think that exponential growth can continue forever? Most of my peers are either completely priced out of the market, or taking on 40yr or interest only loans. It seems like the market is currently a game of chicken of who’s willing to sign away more of their life. An interest only loan is literally admitting you can’t afford this house and the only hope you ever have of paying it off is if it increases in value without you doing anything.
    - xxpor 5y ago
      Profitable by owning and sitting on an asset != Profitable for a builder to buy land and build a house. You can have one without the other.
      - BreakfastB0b 5y ago
        Totally agree. The government should have a policy goal of keeping house prices stable relative to inflation. But when multiple generations have locked up most of their wealth into housing, it’s unclear how to untangle the whole mess without collapsing the economy.
        nickcox 5y ago
        Also without losing votes from the people with property equity (i.e. the majority of the electorate).
    - maccard 5y ago
      > Most of my peers are either completely priced out of the market, or taking on 40yr or interest only loans. These interest only are the reason my parents lived in a house 2x what they could afford - they took out an interest only mortgage in 2002, paid less on the mortgage than I was paying in rent for a room in an apartment last year, and sold at a 2.5x gain (to someone in my generation who is now mortgaged to the hilt), and bought a smaller home in cash from the proceeds after retirement. It's insanely unfair that the solution to irresponsible lending to my parents generation is to protect their investments and make sure I can pay back what they won't be able to repay.
  - cshokie 5y ago
    If homes are a profit-seeking investment then supply and demand would incentivize lower supply. If new houses cannot be built, but the demand is the same or increasing, then prices must rise. The profit motive directly leads some people to fight against new housing.
    - jvfujnvxvcd 5y ago
      Quite frankly I don't think any of you in this thread have any idea what you're talking about
      - BreakfastB0b 5y ago
        That’s true! I’m not an economist or a policy expert. I don’t claim to have any answers. I’m just pointing out that profitability and affordability are mutually exclusive goals for housing prices. I leave it to people much smarter than myself to figure out if anything can or should be done.
  - mixmastamyk 5y ago
    Nimbys don’t allow it.
  - tfehring 5y ago
    Profitable to build != profitable to hold.
  - duped 5y ago
    housing is most profitable when there is the least new construction.
  - kelnos 5y ago
    I assume you are saying this to claim that if housing is "merely" affordable, no one will be incentivized to build houses. That's not really how it works. Developers can make a profit when building new housing on vacant land, or on improving existing housing. That does not preclude the resulting housing from being affordable, though. This is an unfortunate overloading of terms, but "profitable" in this sense doesn't mean just the usual "get more money out than you put in". It refers to the practice of land/housing speculation, and buying housing with the intent to hold and then sell at a profit without doing anything meaningful with it.
- koolba 5y ago
  > Here in Australia the government is talking about letting young people access our equivalent of their 401k to afford a deposit on a house. Which will have the effect of pushing housing prices even further. It’s like the government providing ever increasing student loans, if you don’t change the supply curve it just increases demand which pushes prices higher.
- andrepd 5y ago
  The answer to this particular problem is Georgism and a Land Value Tax. It strongly disincenctivises speculation and incenctivises productive use. It ensures that a person claiming ownership of land makes more productive use of it than the cost of depriving society of use of that land. As a cherry on top, the income from LVT can be used to reduce taxes on labour, or simply to be given back as a citizen's dividend.
  - worldsayshi 5y ago
    I wonder if there's a good way to sell such a concept onto a political landscape. Anyone who already owns anything would want to keep things as they are. Feels like a very central political problem. Those that have accumulated wealth and power it would be in their interest to increase rather than decrease the scheme-ines of the political system. This concept has to have a name?
    - timy2shoes 5y ago
      I think regulatory capture applies here (https://en.wikipedia.org/wiki/Regulatory_capture https://en.wikipedia.org/wiki/Regulatory_capture)
    - andrepd 5y ago
      > Anyone who already owns anything would want to keep things as they are. Feels like a very central political problem. Indeed, jt is perhaps the most central political problem: how does a class that doesn't have power wrestle it from those who already have power? As for the name, how about "human history"? :)
    - asdff 5y ago
      What you are describing is status quo bias I believe. This political structure is also oligarchy.
  - bcrosby95 5y ago
    It would only do this if LVT were significantly higher than property taxes. Because property taxes already includes the value of the land. E.g. my "house" is valued at 700k. But the appraisal puts that at $280k structure and $420k land. 1% of 700k is 7k, but 1% of 420k is 4.2k.
- vertere 5y ago
  > Profitable means it has to grow faster than inflation or wages. That is not what profitable means. Returns on investment in housing consist of: 1. rental yields, and 2. capital gains (i.e. change in price). You cannot say whether housing is profitable or not (or affordable, for that matter) only by considering number 2.
  - BreakfastB0b 5y ago
    That’s true, I didn’t figure in rental yields at all. Consider it a first order approximation. Would anyone rent if it was more affordable to buy?
    - sokoloff 5y ago
      I’d still have rented while in college. I’d still have rented for my first two or three places after college. After that, I bought a place, lived in it for a while, then moved and rented in the city in two places (including one with a girlfriend which seems like a bad idea to jump right into home ownership), then bought the house I live in now. There’s plenty of beneficial flexibility afforded by renting, even if you can afford to do either one. Plus, if housing doesn’t go up in value like an investment, why would you want to tie up a downpayment and tie yourself down, losing money all the while? You’d have more incentive to rent and invest your down payment money.
      - 8note 5y ago
        Rentals should always be more expensive than buying then, no? You're gaining a service overtop of the place to live. Not to mention, you should be able to leave atyhe drop of a hat, rather than be required to have a 1 year lease
        sokoloff 5y ago
        Renting hotel rooms is more expensive than a month-to-month lease is more expensive than a year-long lease, so that all checks out to agree with your premise. Whether renting or buying is more expensive depends on your market’s outlook for property prices. But in an environment where they don’t go up, I’d definitely expect renting to cost more.
- smnrchrds 5y ago
  > Here in Australia the government is talking about letting young people access our equivalent of their 401k to afford a deposit on a house. We do that in Canada. I don't think it has helped with the affordability issue at all. https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/what-home-buyers-plan.html https://www.canada.ca/en/revenue-agency/services/tax/individ...
  - kelnos 5y ago
    Of course not; it encourages home prices to keep going up, because people have access to another source to fund home purchases. The problem is, of course, that tapping your 401k-equiavalent is a long-term bad move unless you have a way to quickly put that money back without skimping on other things.
    - dharmab 5y ago
      It worked out pretty well for many of my friends' parents, who bought houses in the American West, raised their kids, and then sold their now incredibly valuable homes to retire to small towns. Doesn't work so well when houses are expensive.
  - trts 5y ago
    Why would the expectation be that it helps affordability? On an individual basis, having access to more money means you may be able to afford a home that would not have been within your means. In aggregate, everyone having more access to more money means inflation. Access to more money for a specific good or service means inflation concentrated in that category. See: college tuition and home prices in the U.S.
    - nicoburns 5y ago
      > Access to more money for a specific good or service means inflation concentrated in that category. See: college tuition and home prices in the U.S. 100x this. Financial policy giving everyone access to cheap mortgages has got to be one of the stupidest things governments have done in the last 30 years.
- ProjectArcturis 5y ago
  The problem in Australia in particular is that you're running out of land. The four major cities are surrounded by water and nature preserves. As population increases, demand runs up against a very inelastic supply. The only policy solution would be to strongly emphasize dense high-rise development.
  - blackth0rn 5y ago
    I'm not sure Australia has a land problem in general, population density is quite low (I understand that a lot of the land doesn't support high density living). They have an issue in that their major cities have some constraints on perpetual outwards growth. Maybe this will help encourage remote work and relocation of offices to places that aren't the core downtown area of Melbourne and Sydney?
    - foxpurple 5y ago
      There is very limited land in places where you want to be. There is endless land in the middle of nowhere but that isn’t very useful for most people.
      - bussierem 5y ago
        This comes up often in these discussions but, barring any indigenous lands, there's nothing especially inhospitable about central aus. Las Vegas is in the middle of a damn desert, and Arizona/New Mexico are both extreme climates compared to much of the US but they are still livable and many people actually prefer it. I can't see why this would be any different in Australia...
        foxpurple 5y ago
        It’s not about how possible it is to live, it’s about places people actually want to live. There is virtually unlimited land with good climate. But people don’t want to live there because it’s far from everything. Most people have picked paying more to live closer to events, jobs, stores and friends. Australia doesn’t have the population to start a new major city in the center. There are still multiple cities like Adelaide which could grow instead.
- shalmanese 5y ago
  Housing can be both affordable and profitable with a organized system of infill development. eg: You buy a single family home in an inner ring suburb in 1990 for $150K. You sell it in 2021 to a developer for $2.1M (9% RoR), the developer tears it down and spends $1.5M to build 12 apartments on the same footprint of land that sell for $350K each (~400K profit net transaction costs). People in 2021 are paying the same amount for housing as you did in 1990 but you also made a good return on your investment.
  - handmodel 5y ago
    That sounds like it is affordable and profitable if you are in the top half of incomes. In that situation - a renter who made ~40k a year (in today's dollars - probably 30k in 1990 dollars) in 1990 could not afford a single family home and had to deal with expensive rents (because the city didn't allowed apartments buildings where there was demand).
  - ryankupyn 5y ago
    The critical thing is that this also requires a growing population - which is not guaranteed in all places/timeframes!
  - nicoburns 5y ago
    So what you're saying is housing was affordable in the 1990, but not you're paying twice as much for a much smaller space.
    - handmodel 5y ago
      It is also worth noting that in the example above (assuming we accept the 150k as normal and that growth as typical) that 150k was a solid amount of money. In 1990 the median income for someone with a a high school diploma was 26k. For someone with a masters degree it was still 50k. An educational attainment was lower across the board. So if you didn't have 150k then I guess you're screwed since they weren't going to let apartments to be built for so long? The only situation where you'd get that ROI is if the supply of houses had been constrained strictly for so long - which almost by definition means that rents grew at that rate too.
- paxys 5y ago
  The reason this doesn't work is that people want to live in very specific places. If you aggregate at the national level, the cost of land or housing hasn't gone up all that much in America over the last century. For every San Francisco there is a Detroit to balance things out.
  - AnimalMuppet 5y ago
    Having looked around a bit lately, it seems to me that if you don't buy in a major metro area, and you buy a house that was built in the 1950s, you pay something that, inflation-adjusted, would look reasonable to someone in the 1950s. But lots of people don't want to live in houses that small. Well, if you want more, you pay more. And maybe the comparison isn't fair. In the 1950s, those houses weren't 70 years old, but they are now...
- pedalpete 5y ago
  As a Canadian who now lives in Australia, I'm astounded by the levers the Australian gov't will pull in order to keep the housing market "booming". In my 10 years here I've seen them split them make it difficult for foreigners to buy existing houses, but easy to buy off-plan https://treasury.gov.au/sites/default/files/2019-03/Stronger-rules-for-foreign-investors-owning-Australian-housing.pdf https://treasury.gov.au/sites/default/files/2019-03/Stronger... I've seen them restrict the amount of money retirement plans can use to invest in equities, promoting the use of more funds going to real estate (this was my understanding of the changes) - https://en.wikipedia.org/wiki/Superannuation_in_Australia https://en.wikipedia.org/wiki/Superannuation_in_Australia And now including your housing as part of your superannuation, which I wasn't aware of. Every time I think they've run out of levers to pull, they find another one. When I arrived here in 2011, I thought real estate was cheap compared to rents, that equation has completely flipped.
  - nl 5y ago
    > I've seen them restrict the amount of money retirement plans can use to invest in equities, promoting the use of more funds going to real estate (this was my understanding of the changes) I don't believe this is the case and haven't seen any coverage indicating a change like this. > And now including your housing as part of your superannuation, which I wasn't aware of. No, it's the opposite. You can withdraw part of any voluntary contributions to buy your first house. See https://www.abc.net.au/news/2021-05-13/budget-superannuation-changes-benefit-workers-women-retirees/100135376 https://www.abc.net.au/news/2021-05-13/budget-superannuation...
  - nickcox 5y ago
    > When I arrived here in 2011, I thought real estate was cheap compared to rents, that equation has completely flipped. As long as it's possible to negatively gear unrelated income while building up a property portfolio it makes sense that people will be happy to lose money on rents in order to take advantage of capital gains discounts down the track.
- Gatsky 5y ago
  Not sure this generational divide argument holds water much. The children of boomers, who grew up in relatively nice houses with backyards, similarly want nice houses. Increasing supply in an urban planning context involves increasing high density dwellings in the inner city. This is a hard pill to swallow for adults who remember playing cricket in the backyard with their Dad or whatever idyllic notion they are left with from their wonderful childhoods (not a joke, Australian kids have great childhoods by any metric). The boomer parents also want the same thing for their adult children, and help fund the acquisition. As boomers die off and the wealth passes to their kids, they will invariably spend it on houses (or second houses) as well. I also think different cities in Austrlia have differnet issues. Adelaide has a very old demographic and little migration, and has the problem that their health care costs are going to greatly exceed their revenue. Melbourne has had too much migration, which tends to just make the economy look fine but causes a lot of strain on infrastructure. Melbourne and Sydney also suffer from being gravity wells for migration, so that people don't leave for better paying work elsewhere or cheaper housing. They choose to suffer underemployment in very competitive and saturated labour markets with unaffordable housing. I include myself here. Housing affordability is not going to improve. There is no way prices are going to correct by the 30% - 40% in desirable places to live to get into the realm of affordability. Increasing urban density is neither attractive to people nor likely to happen. It's done and dusted. The only thing to hope for is that the rate of change will slow down, and wages will improve so that at some point in 30 years time affordability will be better. That means there will be a generation of people who don't own their homes, and the comparison to the previous generation will be highly unfavourable. Being an elderly renter is a greatly inferior experience, and the government outlay for housing the elderly will simply increase more and more. The 'solution' to my mind is to strongly encourage people to move to places with more affordable housing and good living conditions.
  - siquick 5y ago
    > Melbourne and Sydney also suffer from being gravity wells for migration, so that people don't leave for better paying work elsewhere or cheaper housing. This is exactly it, I'd love to leave Sydney to live somewhere else but until remote working is ingrained in our culture, it's just too risky for my partner and I to move away to a smaller city/town incase our current employment changes. I've been amazed to hear of so many people who, as soon as they started working from home because of the pandemic, bought a house 2.5 hours away from their office. You're one bosses decision away from having a very miserable daily life.
- xf1cf 5y ago
  > Without changing the supply of housing how is this anything other than another attempt from boomers to steal more wealth from their children so they can line their coffins with more gold. I don't think you can reduce this so easily. Houses can be profitable without be exorbitantly expensive. For example, a 6% increase per year would beat inflation and provide a small gain as an investment. Housing is, even under your proposed system, the largest purchase most people will ever make. People want to know the largest purchase they will ever make will be net profitable. Even marginally so. You have to be careful because disincentivizing ownership of houses (by making them net neutral or negative) will simply push more money into the rental market. The exact opposite of your intention of "striking back at the rich boomers". Moreover, there are several concerns regarding government interventionism. Some of housing prices can be described by the law of unintended consequences. I'm speaking as an American: (1) Land Use Rights: governments in many states won't let you bulldoze public land to build houses. This dwindles supply. (2) Disability requirements. Houses need to be built to support disabled people. ADA requirements can often significantly increase not only material costs (compliant walkways and such are not cheap) as well as legal costs (in case you get sued). (3) Foreign investment. In America foreign citizens can own property. This means prosperous nationals (for example from China and Saudi Arabia) can buy large swaths of houses to rent. So with (1) we lose supply because of land use. (2) we lose supply because of legal requirements. (3) we lose supply because foreign investment, ostensibly good for the country, is terrible for housing. Now you turn to finance and realize that with money easier to get through FHA loans, military-specific loans, and other hand out programs the amount of capital available in the market is much higher than 40 years ago. The solution isn't as simple as blaming boomers. There are many reasons housing is absurdly expensive and I don't think it's a conspiracy recently created to screw over millennials. This has been in the works for many, many decades and in my eyes the majority of it can be explained by unintended consequences.
- xienze 5y ago
  > You shouldn’t be able to make a tonne of money by just buying a house and sitting on it. Maybe you should instead think of it as sitting on a piece of _land_, not a house. Twenty years ago you bought a house in the middle of nowhere, now because of people moving to the area it’s desirable and thus worth a lot more. Whose fault is that?
  - mikem170 5y ago
    One could argue that if the community expanding over a couple of decades is what made a house more valuable then it would be appropriate for the community to receive the profit, and not the home owner who just sat there.
- Sophistifunk 5y ago
  It's very clear that our (Strayan) government will sacrifice anything on the altar of the housing bubble, because that's what the boomers demand, and they're still in charge for some reason. The rest of us get the shaft.
  - foobar33333 5y ago
    It's because half the population has their retirement based on housing values so if you crush that, you have a generation of boomers with no retirement money.
    - 8note 5y ago
      Keeping the housing price expensive seems less efficient than just paying the boomers retirement money. All kinds of people get to profit off of the high housing prices that could otherwise be part of the retirement money
    - Sophistifunk 5y ago
      ...so instead we have gen x and younger with mostly no retirement money and mostly no houses either. Great plan.
- atweiden 5y ago
  > You shouldn’t be able to make a tonne of money by just buying a house and sitting on it. But humans occupy physical space. Almost everyone would prefer more privacy and space to less. Hence if the human population keeps growing, the price of having physical privacy and space will also keep growing. It’s just the bitter reality of it. In addition, often times the architecture or established land use patterns of certain neighborhoods act as an upper limit on population density. It really grinds my gears when people advocate for essentially paving over these crucial neighborhood characteristics. This effectively destroys local culture in the name of “inclusivity”. Granted, there are definitely more neighborhoods without any unique character than not, and it’s hard to feel any sympathy for paving them over. But there are certainly quite a few neighborhoods globally that are quite special, and in these places inclusivity tends to be a tragedy of the commons scenario.
  - mertd 5y ago
    How do you define a neighborhood characteristic? Usually it's nothing but an arbitrary snapshot in time that some folks decided is ideal and should be frozen. Curiously it tends to correlate with the date they moved in to the said neighborhood.
    - atweiden 5y ago
      > How do you define a neighborhood characteristic? Usually it's nothing but an arbitrary snapshot in time that some folks decided is ideal and should be frozen. Usually so, but sometimes not. What are the characteristics of Gion Kyoto, for example?
  - 8note 5y ago
    I think that is to say that land needs to be taxed quite heavily. If you're taking up a lot of space, you're keeping important resources tied up in nothinh
    - Tagbert 5y ago
      Sounds like you want to significantly increase the price of housing to do…?
- nickcox 5y ago
  There is definitely a serious intergenerational fairness issue here. One of the best expositions of the problem I've seen is this talk by Tory peer (and boomer!) Lord David Willetts. https://www.youtube.com/watch?v=ZuXzvjBYW8A https://www.youtube.com/watch?v=ZuXzvjBYW8A
alisonkisk 5y ago
Is this payback for the crypto Ponzi scheme posts? OK, asset appreciation without value creation is a Ponzi scheme. Let's stop rehashing, and move on to novel discussion angles.
- ComputerGuru 5y ago
  I’m going to ignore the first sentence since it’s just snark, but in response to your second: if there’s a problem that needs to be addressed, surely the first step is acknowledging its existence?
  - AnimalMuppet 5y ago
    Mis-naming it doesn't help address it, though.
- XorNot 5y ago
  So here's the thing: if housing prices crash you still have a house. When Bernie Madoff crashed, how much stock did anyone have?
  - jakeva 5y ago
    Didn't everyone who didn't sell have the same amount of stock they had before the crash? Not that it helps since you can't live in a share, or a bitcoin, but I don't know how being able to live in something makes the market around it a ponzi scheme or not.
    - XorNot 5y ago
      They never owned the stock, is the point of the Madoff scheme. If investing in Bernie Madoff's Ponzi scheme bought actual units of shares, then it wouldn't have been a Ponzi scheme. The point of a Ponzi scheme is that the current value is being supported by keeping the influx of new investors greater then those withdrawing their money. The only way Madoff's investment scheme was worth anything was if he kept new investors coming in to cover withdrawals and siphoned off the capital base to support himself.
rossdavidh 5y ago
So, there are things I disagree with inside the article (rent control and government-built housing have both been tried, in many places, and have not gone well), but the basic thought in the title is spot-on. We have learned nothing from (and fixed nothing since) the 2008 Fiscal Crisis. We are headed for a new one.
- jhfftjnbv 5y ago
  Is the government incentivizing subprime mortgages which are being bundled into mortgage backed securities and resold again? If so, could you point me to official documentation of this policy or practice continuing to take place?
acwan93 5y ago
>A land with a house on it does not somehow increase in productivity to produce more housing, like a share of Apple generally does with smartphones. It's just a pile of concrete, steel, wood, bricks, and so forth that slowly falls apart over time. Buying a house ought to be roughly analogous to buying a car — a thing that (with rare exceptions) decreases in value over time, because it wears out. Funny, this is the opposite of what I've heard from pretty much anyone bullish on real estate. "You can always live in your investments" is the rebuttal whenever I mention that a share of AAPL could generate more return. Don't forget "land is a finite resource." On a related note, housing seems like a "bigger sucker" situation right now. A 1100 sq ft living area, 5000 sq ft lot SFH next to me just sold for 50% ($500K) over asking price. If we go with the mantra that "house prices always goes up", who on earth is going to pay for a small house in the millions, let alone where is that money coming from?
- numbsafari 5y ago
  Housing prices don’t always go up. At some point an over leveraged market will deleverage and it will suck for everyone. Remember 2008? Sometimes a neighborhood goes to shit because jobs leave, or natural resources are depleted or you have a shit government. House prices don’t always go up and don’t let anyone tell you otherwise.
  - acwan93 5y ago
    I totally agree, a Vegas Airbnb I stayed at was a prime example. It was purchased for $500K in 2005 and Redfin estimated its value in 2018 at $220K. Cities like Detroit or Pittsburgh (until recently) are also examples. Large cities along the west coast could probably be too new to suffer a collapse in prices yet.
    - numbsafari 5y ago
      It's all relative and cyclical. Even SF was it by the 2008 crisis. If you bought in 2008 and had to sell any time prior to 2014, between carrying costs and transaction costs you most likely lost money. By the same token, I bought a house 2 years ago on the East Coast and made bank selling it this Spring. Only time will tell what buyers in this market are going to experience.
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ProjectArcturis 5y ago
In the US, we've under-built for more than a decade following the 2008 crash, and that undersupply is running into millennials entering the key home-buying years, further exacerbated by the pandemic. It's not a Ponzi scheme, it's supply and demand. Absent a recession, I expect prices to keep going up.
- TheJoeMan 5y ago
  The article author seems to be falling into the trap of only thinking the few huge cities of NY/LA are all there is to the USA. Why are home prices *in major cities* rapidly rising in cost? Because every 3rd rate blogger has aspirations to live in NY, which has limited supply. If all the value is how much land you have, like the author claims, then people would just build a mansion in South Dakota.
  - forz877 5y ago
    There was always an argument to go to an up and coming city like Austin or even Pittsburgh. Now, the prices in Pittsburgh are skyrocketing. It's not just LA, NYC, and San Francisco anymore. Home values are rapidly increasing in places with declining population (Pittsburgh metro, e.g.)
  - cableshaft 5y ago
    It's not just major cities. This current housing mania is happening in smaller cities too. Like cities with only ~60k population and over two and a half hours away from any major city, in the Midwest. Like where my parents live. There are several people they know that are selling there just because their homes have shot up so much the past year and are renting until the market cools down. Our house isn't on the market, but the Zillow estimate has gone up 26% in the three years since we bought it, most of that in the past year, and we're not in a major city (far suburbs of one, though).
  - asdff 5y ago
    It's not people aspiring to have some vain dream. It's people looking for work and thats where they end up employed. I've read recently that since the recession, LA has added 5 jobs for every new unit of housing built. That is a recipe for tenement conditions and we are seeing that play out with how the working poor are currently living in these cities.
LAC-Tech 5y ago
It's been going on in New Zealand for decades now. Median house price is now $590,000 USD. And the quality is abysmal. Insulation and double glazing are considered opulent luxuries, most properties do not have them. A big proportion of them don't even have baths. They're closer to American barns than they are to American houses.
- mikedilger 5y ago
  This is true for houses built more than 20 years ago. But houses built in the last 18 years or so almost all have insluation, baths, better joinery, and many with double glazing. We are also starting to see more ducted heat pumps, polished concrete floors, and architectural features like vaulted ceilings, but still playing catch-up with America. While the quality has improved, so has the price. What always mystifies me is why someone would buy one of these crappy >20 year old homes at $700,000 or more just because of it's location. I'd much rather live on a small farm with a brand new house at the same price.
  - LAC-Tech 5y ago
    Most houses that people can afford are built more than 20 years ago though.
garyrichardson 5y ago
To answer the title: They aren't make more land, but they are making more people. And people like to live where it's nice and they can get jobs. I don't think land values are a Ponzi scheme. From a supply and demand perspective, it does seem like a good investment. The rest of the article is meh.
- TeeMassive 5y ago
  I don't remember a baby boom or a population increase of 500% in the last few years.
  - sokoloff 5y ago
    Is there a housing market that has has 5x’d in the last few years?
    - TeeMassive 5y ago
      https://globalnews.ca/news/2531266/one-chart-shows-how-unprecedented-vancouvers-real-estate-situation-is/ https://globalnews.ca/news/2531266/one-chart-shows-how-unpre...
  - Johnny555 5y ago
    It doesn't take a 500% increase in demand to result in a 500% increase in prices.
    - TeeMassive 5y ago
      Which is the point of the article, that it's not based on a simple increase in demand.
- b212 5y ago
  Unless: - you can work remotely, - it’s nice where there are no other people, - there’s really a lot of land, eg. if you split Europe into 1000 square meter parcels it will fit over 10 billion people, - the nicer the place the faster population declines (somehow).
Johnny555 5y ago
Many Americans rely on home equity as a part of their retirement funding (sometimes through necessity - running out of retirement funds and having to use home equity to live on either through selling, or getting a reverse mortgage), so anything that changes home price appreciation is going to affect many people's retirement plans.
- foxpurple 5y ago
  As much as I agree that things need to change, it’s also not fair to pull the rug out on these people. They made the safest choice to secure their retirement and should somehow be compensated or taken care of if things are changed.
  - dane-pgp 5y ago
    > it’s also not fair to pull the rug out on these people. But what if they voted for policies that prevented subsequent generations from ever even owning a rug? The choice they made to secure their retirement is only "safest" if they can convince the non-retired people to treat them better than these retirees have treated everyone else.
  - aaomidi 5y ago
    Sure, cover retirement for everyone everywhere. We are humans. Old people should not have to suffer.
    - b9a2cab5 5y ago
      This is liberal idealism divorced from reality. Reality says that we (the U.S.) already spend a third of our budget on social security and that's before the Baby Boomers start drawing from SS. SS is obviously not even enough to afford a shack in the SFBA now so you'd have to 3-4x the payments. Even if you doubled taxes we wouldn't be able to pay for what you're proposing (nevermind the massive market impact a huge number of elderly getting paid the median US salary by the government would have on rent prices).
michaelcampbell 5y ago
> Most Americans take it for granted that home prices should generally go up. But if you think about it for a moment, there is no inherent reason to expect this. This is a goofy, naive statement; population is ever increasing, so when you buy a home or even just a plot, your "share" of the earth in terms of land is constantly growing if you amortize it over the population. I say this without a stance on the morality of it, but just the math.
- roberto 5y ago
  The annual population growth in the US in the last 40 years is around 1%, and is diminishing (latest numbers show 0.5%). The average annual growth in house prices since 1992 in the US is 5.3%.
  - xienze 5y ago
    > The annual population growth in the US in the last 40 years is around 1%, and is diminishing (latest numbers show 0.5%). Population growth isn’t evenly distributed over the entire country.
    - deleted 5y ago
      [deleted]
    - roberto 5y ago
      And how is that relevant?
      - deleted 5y ago
        [deleted]
- TeeMassive 5y ago
  > population is ever increasing That doesn't make sense. Population didn't grow in the order of hundreds of percents in the recent years.
- vesinisa 5y ago
ppeetteerr 5y ago
Home values show the costs people are willing pay to be home owners in desirable areas. There is no Ponzi system here (there are some markets which are, mind you, but not all) Having said this, the US government's insistence on tax subsidies for home ownership is bull. It restricts geographic mobility, encourages people to get mortgages they cannot afford, creates unnecessary pollution, and creates a delusion that being a home owner is an aspiration. It's another case of the government trying to help and hurting people instead. As the author mentioned, if you want to help the housing situation, stop subsidizing at the federal level.
- sokoloff 5y ago
  If you stop the owner-occupied mortgage interest deduction and property tax deduction (both of which have been nerfed a bit in the last few years), you put commercial landlords at an advantage relative to owner-occupants (as commercial landlords are taxed on profits not revenues, like any other business). I personally think that’s a bad policy balance in its own way.
  - ppeetteerr 5y ago
    That shouldn't necessarily be a consideration. Apartment units are owned by commercial landlords and there is no harm in that.
josh_today 5y ago
Increased housing supply will solve the problem of expensive housing. But increasing supply in cities could be difficult (all the challenges that come with increased population density). Building out was historically an issue due to commute time to city centers but we have an opportunity here with the new work from home environment. We need more micro towns, that geographically don’t have to be near a major metro (2+ hours out), and that can sustain a decent economy based on the WFH population. In turn new business will open (grabbing lunch locally versus near the old office).
- billykid24601 5y ago
  Exactly this - I am trying to think through the implication for me personally. There aren't quite micro-towns where I am yet so maybe just a place outside of the city centre?
  - josh_today 5y ago
    If you can work from home, why not. Having lived in a city before and now in a suburb, I miss the energy of the city but the suburban quality of life outweighs the urban energy.
- deleted 5y ago
  [deleted]
pedalpete 5y ago
When examining crypto and equity investments, I first started understanding the "store of value" investments, and that was my first introduction to the poor fit of real estate to be an investment. I know a few people who are mortgage rich, and cash poor (or house rich? I don't know the saying). They are essentially stuck. They can't sell the house and move into a new property because relative to everything else, all real estate has essentially moved at a similar rate. They can't sell their bathroom if they needed to. They have to keep investing in the house to keep it in good condition, so it costs money to keep the investment. If they want to sell their house, they have to find somebody who wants THEIR house, not the one next door, not one in a different town, but their exact house. This is in contrast to other investments, gold, stocks, crypto, where you can sell to anyone, you can make money (dividends) if the business is doing well, you can sell any portion of your investment and buy another investment with it. There is no cost to you to hold on to the investment, etc etc. The only argument I see for owning a house is the "I'm paying myself my mortgage, so it is like investing in myself", but if your money can do better in another investment, I feel you're better off renting and making money in other ways. The two big questions I think we have are 1) if we suffer population collapse - which is a possibility - what will happen to house prices 2) will millenials, or whoever comes next want to own houses? We thought it was crazy that somebody wouldn't want to own a car, I think it's crazy that any of them would want to have a University degree. We're seeing digital nomads as a fringe atm, but perhaps that becomes more mainstream. What happens to housing?
- chrisco255 5y ago
  We already are at a demographic cliff as older boomers begin to pass and younger boomers are retiring. Baby boomers are the largest generation in human history and it's looking like Millennials and Gen Z will not have nearly as many kids as their parents and grandparents. So even if they do want to own houses as much as boomers did, there's going to be a lot less of them to absorb the supply of housing on the market over time.
- jamie_ca 5y ago
  > if your money can do better in another investment, I feel you're better off renting and making money in other ways. This can be true, but the math is complicated - it depends on the differential between a mortgage payment and what rent in the area would be, as well as expected maintenance costs. If you assume a mortgage runs 3% (which seems to be approximately correct this month in Canada), housing appreciates 5%/year, we're looking at a 500k house over 25 years, and you can invest cash at 8%: - Annual mortgage is 28,395, or 2,366/mo - Total mortgage payments are 710k - Home value is 1,693k - ROI is 983k - Matching that ROI at 8% needs almost exactly $1510/mo - So naively you'd need to find rent at $856/mo to come out ahead renting - But now adjust for property taxes and maintenance (over 25 years you probably need a new roof, maybe new siding, furnace, hot water tank...). Like I said, it gets complicated. The other reason people buy homes is stability and control - you can't be evicted from a home you own other than for non-payment (no risk of the landlord wanting to move in), and you also have the freedom to renovate to suit your changing needs.
bawolff 5y ago
Ugh. This is even stupider than calling bitcoin a ponzi scheme. A bubble is not a ponzi scheme.
claytongulick 5y ago
Once lumber prices correct, I think we'll see a housing market correction in urban areas. The combination of covid adaptation to remote work and Starlink rural broadband has the potential to be a major market force. In DFW, we're already seeing a lot of this as more and more people move out of the city to rural farmland where their money goes a lot farther.
fieldc 5y ago
Inflation = asset price increases = house price increases. All assets have gone up, new cars, used cars, new houses, old houses, stocks, risk assets literally everything. It is mostly a result of fed reserve policy not any of the programs they list. Fundamentally none of those programs have any impact on $5m brownstones in Brooklyn NY, or $100m penthouses ok 57th street in Manhattan. Japan as a comparison is not really fair, it’s population has been declining for a decade and well under 1% for the last 40 years. They also have amazing mass transit making living outside of Tokyo much more palatable. Additionally, the apartments they do build are smaller (750sq ft vs 866 sq ft) But none of that matters that much because shockingly prices in Tokyo do actually increase.

101 points by tolbish 5y ago

Housing can either be affordable, or profitable, not both. Affordable means that the price of a house remains stable relative to inflation or wages. Profitable means it has to grow faster than inflation or wages. Everyone needs somewhere to live, therefore housing should not be profitable. You shouldn’t be able to make a tonne of money by just buying a house and sitting on it. Investing in housing should mean improving existing housing or building new housing. Here in Australia the government is talking about letting young people access our equivalent of their 401k to afford a deposit on a house. Without changing the supply of housing how is this anything other than another attempt from boomers to steal more wealth from their children so they can line their coffins with more gold.

xwdv 5y ago
Profitable means we get more and more houses being built.
- reportingsjr 5y ago
  Except due to insane zoning rules and an ever greater push for exurban housing, which is insanely expensive due to the infrastructure required, we are not getting nearly enough housing.
- nicoburns 5y ago
  The way to make them affordable rather than profitable would be to build many more than are currently being built. As long as the quality is decent, you then drive the prices down through a simple increase in supply. You probably still need some tweaks to disincentivise use of property as a financial vehicle, but you're 70% there just by building more.
  - darepublic 5y ago
    Unless something still manipulates the price, as in the diamond market.
- BreakfastB0b 5y ago
  You would think so. But once again, how can housing continue to be profitable i.e. grow faster than wages, and people still afford to buy houses? Doesn’t it collapse at some point? Isn’t that the joke about only economists think that exponential growth can continue forever? Most of my peers are either completely priced out of the market, or taking on 40yr or interest only loans. It seems like the market is currently a game of chicken of who’s willing to sign away more of their life. An interest only loan is literally admitting you can’t afford this house and the only hope you ever have of paying it off is if it increases in value without you doing anything.
  - xxpor 5y ago
    Profitable by owning and sitting on an asset != Profitable for a builder to buy land and build a house. You can have one without the other.
    - BreakfastB0b 5y ago
      Totally agree. The government should have a policy goal of keeping house prices stable relative to inflation. But when multiple generations have locked up most of their wealth into housing, it’s unclear how to untangle the whole mess without collapsing the economy.
      - nickcox 5y ago
        Also without losing votes from the people with property equity (i.e. the majority of the electorate).
  - maccard 5y ago
    > Most of my peers are either completely priced out of the market, or taking on 40yr or interest only loans. These interest only are the reason my parents lived in a house 2x what they could afford - they took out an interest only mortgage in 2002, paid less on the mortgage than I was paying in rent for a room in an apartment last year, and sold at a 2.5x gain (to someone in my generation who is now mortgaged to the hilt), and bought a smaller home in cash from the proceeds after retirement. It's insanely unfair that the solution to irresponsible lending to my parents generation is to protect their investments and make sure I can pay back what they won't be able to repay.
- cshokie 5y ago
  If homes are a profit-seeking investment then supply and demand would incentivize lower supply. If new houses cannot be built, but the demand is the same or increasing, then prices must rise. The profit motive directly leads some people to fight against new housing.
  - jvfujnvxvcd 5y ago
    Quite frankly I don't think any of you in this thread have any idea what you're talking about
    - BreakfastB0b 5y ago
      That’s true! I’m not an economist or a policy expert. I don’t claim to have any answers. I’m just pointing out that profitability and affordability are mutually exclusive goals for housing prices. I leave it to people much smarter than myself to figure out if anything can or should be done.
- mixmastamyk 5y ago
  Nimbys don’t allow it.
- tfehring 5y ago
  Profitable to build != profitable to hold.
- duped 5y ago
  housing is most profitable when there is the least new construction.
- kelnos 5y ago
  I assume you are saying this to claim that if housing is "merely" affordable, no one will be incentivized to build houses. That's not really how it works. Developers can make a profit when building new housing on vacant land, or on improving existing housing. That does not preclude the resulting housing from being affordable, though. This is an unfortunate overloading of terms, but "profitable" in this sense doesn't mean just the usual "get more money out than you put in". It refers to the practice of land/housing speculation, and buying housing with the intent to hold and then sell at a profit without doing anything meaningful with it.
koolba 5y ago
> Here in Australia the government is talking about letting young people access our equivalent of their 401k to afford a deposit on a house. Which will have the effect of pushing housing prices even further. It’s like the government providing ever increasing student loans, if you don’t change the supply curve it just increases demand which pushes prices higher.
andrepd 5y ago
The answer to this particular problem is Georgism and a Land Value Tax. It strongly disincenctivises speculation and incenctivises productive use. It ensures that a person claiming ownership of land makes more productive use of it than the cost of depriving society of use of that land. As a cherry on top, the income from LVT can be used to reduce taxes on labour, or simply to be given back as a citizen's dividend.
- worldsayshi 5y ago
  I wonder if there's a good way to sell such a concept onto a political landscape. Anyone who already owns anything would want to keep things as they are. Feels like a very central political problem. Those that have accumulated wealth and power it would be in their interest to increase rather than decrease the scheme-ines of the political system. This concept has to have a name?
  - timy2shoes 5y ago
    I think regulatory capture applies here (https://en.wikipedia.org/wiki/Regulatory_capture https://en.wikipedia.org/wiki/Regulatory_capture)
  - andrepd 5y ago
    > Anyone who already owns anything would want to keep things as they are. Feels like a very central political problem. Indeed, jt is perhaps the most central political problem: how does a class that doesn't have power wrestle it from those who already have power? As for the name, how about "human history"? :)
  - asdff 5y ago
    What you are describing is status quo bias I believe. This political structure is also oligarchy.
- bcrosby95 5y ago
  It would only do this if LVT were significantly higher than property taxes. Because property taxes already includes the value of the land. E.g. my "house" is valued at 700k. But the appraisal puts that at $280k structure and $420k land. 1% of 700k is 7k, but 1% of 420k is 4.2k.
vertere 5y ago
> Profitable means it has to grow faster than inflation or wages. That is not what profitable means. Returns on investment in housing consist of: 1. rental yields, and 2. capital gains (i.e. change in price). You cannot say whether housing is profitable or not (or affordable, for that matter) only by considering number 2.
- BreakfastB0b 5y ago
  That’s true, I didn’t figure in rental yields at all. Consider it a first order approximation. Would anyone rent if it was more affordable to buy?
  - sokoloff 5y ago
    I’d still have rented while in college. I’d still have rented for my first two or three places after college. After that, I bought a place, lived in it for a while, then moved and rented in the city in two places (including one with a girlfriend which seems like a bad idea to jump right into home ownership), then bought the house I live in now. There’s plenty of beneficial flexibility afforded by renting, even if you can afford to do either one. Plus, if housing doesn’t go up in value like an investment, why would you want to tie up a downpayment and tie yourself down, losing money all the while? You’d have more incentive to rent and invest your down payment money.
    - 8note 5y ago
      Rentals should always be more expensive than buying then, no? You're gaining a service overtop of the place to live. Not to mention, you should be able to leave atyhe drop of a hat, rather than be required to have a 1 year lease
      - sokoloff 5y ago
        Renting hotel rooms is more expensive than a month-to-month lease is more expensive than a year-long lease, so that all checks out to agree with your premise. Whether renting or buying is more expensive depends on your market’s outlook for property prices. But in an environment where they don’t go up, I’d definitely expect renting to cost more.
smnrchrds 5y ago
> Here in Australia the government is talking about letting young people access our equivalent of their 401k to afford a deposit on a house. We do that in Canada. I don't think it has helped with the affordability issue at all. https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/what-home-buyers-plan.html https://www.canada.ca/en/revenue-agency/services/tax/individ...
- kelnos 5y ago
  Of course not; it encourages home prices to keep going up, because people have access to another source to fund home purchases. The problem is, of course, that tapping your 401k-equiavalent is a long-term bad move unless you have a way to quickly put that money back without skimping on other things.
  - dharmab 5y ago
    It worked out pretty well for many of my friends' parents, who bought houses in the American West, raised their kids, and then sold their now incredibly valuable homes to retire to small towns. Doesn't work so well when houses are expensive.
- trts 5y ago
  Why would the expectation be that it helps affordability? On an individual basis, having access to more money means you may be able to afford a home that would not have been within your means. In aggregate, everyone having more access to more money means inflation. Access to more money for a specific good or service means inflation concentrated in that category. See: college tuition and home prices in the U.S.
  - nicoburns 5y ago
    > Access to more money for a specific good or service means inflation concentrated in that category. See: college tuition and home prices in the U.S. 100x this. Financial policy giving everyone access to cheap mortgages has got to be one of the stupidest things governments have done in the last 30 years.
ProjectArcturis 5y ago
The problem in Australia in particular is that you're running out of land. The four major cities are surrounded by water and nature preserves. As population increases, demand runs up against a very inelastic supply. The only policy solution would be to strongly emphasize dense high-rise development.
- blackth0rn 5y ago
  I'm not sure Australia has a land problem in general, population density is quite low (I understand that a lot of the land doesn't support high density living). They have an issue in that their major cities have some constraints on perpetual outwards growth. Maybe this will help encourage remote work and relocation of offices to places that aren't the core downtown area of Melbourne and Sydney?
  - foxpurple 5y ago
    There is very limited land in places where you want to be. There is endless land in the middle of nowhere but that isn’t very useful for most people.
    - bussierem 5y ago
      This comes up often in these discussions but, barring any indigenous lands, there's nothing especially inhospitable about central aus. Las Vegas is in the middle of a damn desert, and Arizona/New Mexico are both extreme climates compared to much of the US but they are still livable and many people actually prefer it. I can't see why this would be any different in Australia...
      - foxpurple 5y ago
        It’s not about how possible it is to live, it’s about places people actually want to live. There is virtually unlimited land with good climate. But people don’t want to live there because it’s far from everything. Most people have picked paying more to live closer to events, jobs, stores and friends. Australia doesn’t have the population to start a new major city in the center. There are still multiple cities like Adelaide which could grow instead.
shalmanese 5y ago
Housing can be both affordable and profitable with a organized system of infill development. eg: You buy a single family home in an inner ring suburb in 1990 for $150K. You sell it in 2021 to a developer for $2.1M (9% RoR), the developer tears it down and spends $1.5M to build 12 apartments on the same footprint of land that sell for $350K each (~400K profit net transaction costs). People in 2021 are paying the same amount for housing as you did in 1990 but you also made a good return on your investment.
- handmodel 5y ago
  That sounds like it is affordable and profitable if you are in the top half of incomes. In that situation - a renter who made ~40k a year (in today's dollars - probably 30k in 1990 dollars) in 1990 could not afford a single family home and had to deal with expensive rents (because the city didn't allowed apartments buildings where there was demand).
- ryankupyn 5y ago
  The critical thing is that this also requires a growing population - which is not guaranteed in all places/timeframes!
- nicoburns 5y ago
  So what you're saying is housing was affordable in the 1990, but not you're paying twice as much for a much smaller space.
  - handmodel 5y ago
    It is also worth noting that in the example above (assuming we accept the 150k as normal and that growth as typical) that 150k was a solid amount of money. In 1990 the median income for someone with a a high school diploma was 26k. For someone with a masters degree it was still 50k. An educational attainment was lower across the board. So if you didn't have 150k then I guess you're screwed since they weren't going to let apartments to be built for so long? The only situation where you'd get that ROI is if the supply of houses had been constrained strictly for so long - which almost by definition means that rents grew at that rate too.
paxys 5y ago
The reason this doesn't work is that people want to live in very specific places. If you aggregate at the national level, the cost of land or housing hasn't gone up all that much in America over the last century. For every San Francisco there is a Detroit to balance things out.
- AnimalMuppet 5y ago
  Having looked around a bit lately, it seems to me that if you don't buy in a major metro area, and you buy a house that was built in the 1950s, you pay something that, inflation-adjusted, would look reasonable to someone in the 1950s. But lots of people don't want to live in houses that small. Well, if you want more, you pay more. And maybe the comparison isn't fair. In the 1950s, those houses weren't 70 years old, but they are now...
pedalpete 5y ago
As a Canadian who now lives in Australia, I'm astounded by the levers the Australian gov't will pull in order to keep the housing market "booming". In my 10 years here I've seen them split them make it difficult for foreigners to buy existing houses, but easy to buy off-plan https://treasury.gov.au/sites/default/files/2019-03/Stronger-rules-for-foreign-investors-owning-Australian-housing.pdf https://treasury.gov.au/sites/default/files/2019-03/Stronger... I've seen them restrict the amount of money retirement plans can use to invest in equities, promoting the use of more funds going to real estate (this was my understanding of the changes) - https://en.wikipedia.org/wiki/Superannuation_in_Australia https://en.wikipedia.org/wiki/Superannuation_in_Australia And now including your housing as part of your superannuation, which I wasn't aware of. Every time I think they've run out of levers to pull, they find another one. When I arrived here in 2011, I thought real estate was cheap compared to rents, that equation has completely flipped.
- nl 5y ago
  > I've seen them restrict the amount of money retirement plans can use to invest in equities, promoting the use of more funds going to real estate (this was my understanding of the changes) I don't believe this is the case and haven't seen any coverage indicating a change like this. > And now including your housing as part of your superannuation, which I wasn't aware of. No, it's the opposite. You can withdraw part of any voluntary contributions to buy your first house. See https://www.abc.net.au/news/2021-05-13/budget-superannuation-changes-benefit-workers-women-retirees/100135376 https://www.abc.net.au/news/2021-05-13/budget-superannuation...
- nickcox 5y ago
  > When I arrived here in 2011, I thought real estate was cheap compared to rents, that equation has completely flipped. As long as it's possible to negatively gear unrelated income while building up a property portfolio it makes sense that people will be happy to lose money on rents in order to take advantage of capital gains discounts down the track.
Gatsky 5y ago
Not sure this generational divide argument holds water much. The children of boomers, who grew up in relatively nice houses with backyards, similarly want nice houses. Increasing supply in an urban planning context involves increasing high density dwellings in the inner city. This is a hard pill to swallow for adults who remember playing cricket in the backyard with their Dad or whatever idyllic notion they are left with from their wonderful childhoods (not a joke, Australian kids have great childhoods by any metric). The boomer parents also want the same thing for their adult children, and help fund the acquisition. As boomers die off and the wealth passes to their kids, they will invariably spend it on houses (or second houses) as well. I also think different cities in Austrlia have differnet issues. Adelaide has a very old demographic and little migration, and has the problem that their health care costs are going to greatly exceed their revenue. Melbourne has had too much migration, which tends to just make the economy look fine but causes a lot of strain on infrastructure. Melbourne and Sydney also suffer from being gravity wells for migration, so that people don't leave for better paying work elsewhere or cheaper housing. They choose to suffer underemployment in very competitive and saturated labour markets with unaffordable housing. I include myself here. Housing affordability is not going to improve. There is no way prices are going to correct by the 30% - 40% in desirable places to live to get into the realm of affordability. Increasing urban density is neither attractive to people nor likely to happen. It's done and dusted. The only thing to hope for is that the rate of change will slow down, and wages will improve so that at some point in 30 years time affordability will be better. That means there will be a generation of people who don't own their homes, and the comparison to the previous generation will be highly unfavourable. Being an elderly renter is a greatly inferior experience, and the government outlay for housing the elderly will simply increase more and more. The 'solution' to my mind is to strongly encourage people to move to places with more affordable housing and good living conditions.
- siquick 5y ago
  > Melbourne and Sydney also suffer from being gravity wells for migration, so that people don't leave for better paying work elsewhere or cheaper housing. This is exactly it, I'd love to leave Sydney to live somewhere else but until remote working is ingrained in our culture, it's just too risky for my partner and I to move away to a smaller city/town incase our current employment changes. I've been amazed to hear of so many people who, as soon as they started working from home because of the pandemic, bought a house 2.5 hours away from their office. You're one bosses decision away from having a very miserable daily life.
xf1cf 5y ago
> Without changing the supply of housing how is this anything other than another attempt from boomers to steal more wealth from their children so they can line their coffins with more gold. I don't think you can reduce this so easily. Houses can be profitable without be exorbitantly expensive. For example, a 6% increase per year would beat inflation and provide a small gain as an investment. Housing is, even under your proposed system, the largest purchase most people will ever make. People want to know the largest purchase they will ever make will be net profitable. Even marginally so. You have to be careful because disincentivizing ownership of houses (by making them net neutral or negative) will simply push more money into the rental market. The exact opposite of your intention of "striking back at the rich boomers". Moreover, there are several concerns regarding government interventionism. Some of housing prices can be described by the law of unintended consequences. I'm speaking as an American: (1) Land Use Rights: governments in many states won't let you bulldoze public land to build houses. This dwindles supply. (2) Disability requirements. Houses need to be built to support disabled people. ADA requirements can often significantly increase not only material costs (compliant walkways and such are not cheap) as well as legal costs (in case you get sued). (3) Foreign investment. In America foreign citizens can own property. This means prosperous nationals (for example from China and Saudi Arabia) can buy large swaths of houses to rent. So with (1) we lose supply because of land use. (2) we lose supply because of legal requirements. (3) we lose supply because foreign investment, ostensibly good for the country, is terrible for housing. Now you turn to finance and realize that with money easier to get through FHA loans, military-specific loans, and other hand out programs the amount of capital available in the market is much higher than 40 years ago. The solution isn't as simple as blaming boomers. There are many reasons housing is absurdly expensive and I don't think it's a conspiracy recently created to screw over millennials. This has been in the works for many, many decades and in my eyes the majority of it can be explained by unintended consequences.
xienze 5y ago
> You shouldn’t be able to make a tonne of money by just buying a house and sitting on it. Maybe you should instead think of it as sitting on a piece of _land_, not a house. Twenty years ago you bought a house in the middle of nowhere, now because of people moving to the area it’s desirable and thus worth a lot more. Whose fault is that?
- mikem170 5y ago
  One could argue that if the community expanding over a couple of decades is what made a house more valuable then it would be appropriate for the community to receive the profit, and not the home owner who just sat there.
Sophistifunk 5y ago
It's very clear that our (Strayan) government will sacrifice anything on the altar of the housing bubble, because that's what the boomers demand, and they're still in charge for some reason. The rest of us get the shaft.
- foobar33333 5y ago
  It's because half the population has their retirement based on housing values so if you crush that, you have a generation of boomers with no retirement money.
  - 8note 5y ago
    Keeping the housing price expensive seems less efficient than just paying the boomers retirement money. All kinds of people get to profit off of the high housing prices that could otherwise be part of the retirement money
  - Sophistifunk 5y ago
    ...so instead we have gen x and younger with mostly no retirement money and mostly no houses either. Great plan.
atweiden 5y ago
> You shouldn’t be able to make a tonne of money by just buying a house and sitting on it. But humans occupy physical space. Almost everyone would prefer more privacy and space to less. Hence if the human population keeps growing, the price of having physical privacy and space will also keep growing. It’s just the bitter reality of it. In addition, often times the architecture or established land use patterns of certain neighborhoods act as an upper limit on population density. It really grinds my gears when people advocate for essentially paving over these crucial neighborhood characteristics. This effectively destroys local culture in the name of “inclusivity”. Granted, there are definitely more neighborhoods without any unique character than not, and it’s hard to feel any sympathy for paving them over. But there are certainly quite a few neighborhoods globally that are quite special, and in these places inclusivity tends to be a tragedy of the commons scenario.
- mertd 5y ago
  How do you define a neighborhood characteristic? Usually it's nothing but an arbitrary snapshot in time that some folks decided is ideal and should be frozen. Curiously it tends to correlate with the date they moved in to the said neighborhood.
  - atweiden 5y ago
    > How do you define a neighborhood characteristic? Usually it's nothing but an arbitrary snapshot in time that some folks decided is ideal and should be frozen. Usually so, but sometimes not. What are the characteristics of Gion Kyoto, for example?
- 8note 5y ago
  I think that is to say that land needs to be taxed quite heavily. If you're taking up a lot of space, you're keeping important resources tied up in nothinh
  - Tagbert 5y ago
    Sounds like you want to significantly increase the price of housing to do…?
nickcox 5y ago
There is definitely a serious intergenerational fairness issue here. One of the best expositions of the problem I've seen is this talk by Tory peer (and boomer!) Lord David Willetts. https://www.youtube.com/watch?v=ZuXzvjBYW8A https://www.youtube.com/watch?v=ZuXzvjBYW8A

alisonkisk 5y ago

Is this payback for the crypto Ponzi scheme posts? OK, asset appreciation without value creation is a Ponzi scheme. Let's stop rehashing, and move on to novel discussion angles.

ComputerGuru 5y ago
I’m going to ignore the first sentence since it’s just snark, but in response to your second: if there’s a problem that needs to be addressed, surely the first step is acknowledging its existence?
- AnimalMuppet 5y ago
  Mis-naming it doesn't help address it, though.
XorNot 5y ago
So here's the thing: if housing prices crash you still have a house. When Bernie Madoff crashed, how much stock did anyone have?
- jakeva 5y ago
  Didn't everyone who didn't sell have the same amount of stock they had before the crash? Not that it helps since you can't live in a share, or a bitcoin, but I don't know how being able to live in something makes the market around it a ponzi scheme or not.
  - XorNot 5y ago
    They never owned the stock, is the point of the Madoff scheme. If investing in Bernie Madoff's Ponzi scheme bought actual units of shares, then it wouldn't have been a Ponzi scheme. The point of a Ponzi scheme is that the current value is being supported by keeping the influx of new investors greater then those withdrawing their money. The only way Madoff's investment scheme was worth anything was if he kept new investors coming in to cover withdrawals and siphoned off the capital base to support himself.

rossdavidh 5y ago

So, there are things I disagree with inside the article (rent control and government-built housing have both been tried, in many places, and have not gone well), but the basic thought in the title is spot-on. We have learned nothing from (and fixed nothing since) the 2008 Fiscal Crisis. We are headed for a new one.

jhfftjnbv 5y ago
Is the government incentivizing subprime mortgages which are being bundled into mortgage backed securities and resold again? If so, could you point me to official documentation of this policy or practice continuing to take place?

acwan93 5y ago

>A land with a house on it does not somehow increase in productivity to produce more housing, like a share of Apple generally does with smartphones. It's just a pile of concrete, steel, wood, bricks, and so forth that slowly falls apart over time. Buying a house ought to be roughly analogous to buying a car — a thing that (with rare exceptions) decreases in value over time, because it wears out. Funny, this is the opposite of what I've heard from pretty much anyone bullish on real estate. "You can always live in your investments" is the rebuttal whenever I mention that a share of AAPL could generate more return. Don't forget "land is a finite resource." On a related note, housing seems like a "bigger sucker" situation right now. A 1100 sq ft living area, 5000 sq ft lot SFH next to me just sold for 50% ($500K) over asking price. If we go with the mantra that "house prices always goes up", who on earth is going to pay for a small house in the millions, let alone where is that money coming from?

numbsafari 5y ago
Housing prices don’t always go up. At some point an over leveraged market will deleverage and it will suck for everyone. Remember 2008? Sometimes a neighborhood goes to shit because jobs leave, or natural resources are depleted or you have a shit government. House prices don’t always go up and don’t let anyone tell you otherwise.
- acwan93 5y ago
  I totally agree, a Vegas Airbnb I stayed at was a prime example. It was purchased for $500K in 2005 and Redfin estimated its value in 2018 at $220K. Cities like Detroit or Pittsburgh (until recently) are also examples. Large cities along the west coast could probably be too new to suffer a collapse in prices yet.
  - numbsafari 5y ago
    It's all relative and cyclical. Even SF was it by the 2008 crisis. If you bought in 2008 and had to sell any time prior to 2014, between carrying costs and transaction costs you most likely lost money. By the same token, I bought a house 2 years ago on the East Coast and made bank selling it this Spring. Only time will tell what buyers in this market are going to experience.

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ProjectArcturis 5y ago

In the US, we've under-built for more than a decade following the 2008 crash, and that undersupply is running into millennials entering the key home-buying years, further exacerbated by the pandemic. It's not a Ponzi scheme, it's supply and demand. Absent a recession, I expect prices to keep going up.

TheJoeMan 5y ago
The article author seems to be falling into the trap of only thinking the few huge cities of NY/LA are all there is to the USA. Why are home prices *in major cities* rapidly rising in cost? Because every 3rd rate blogger has aspirations to live in NY, which has limited supply. If all the value is how much land you have, like the author claims, then people would just build a mansion in South Dakota.
- forz877 5y ago
  There was always an argument to go to an up and coming city like Austin or even Pittsburgh. Now, the prices in Pittsburgh are skyrocketing. It's not just LA, NYC, and San Francisco anymore. Home values are rapidly increasing in places with declining population (Pittsburgh metro, e.g.)
- cableshaft 5y ago
  It's not just major cities. This current housing mania is happening in smaller cities too. Like cities with only ~60k population and over two and a half hours away from any major city, in the Midwest. Like where my parents live. There are several people they know that are selling there just because their homes have shot up so much the past year and are renting until the market cools down. Our house isn't on the market, but the Zillow estimate has gone up 26% in the three years since we bought it, most of that in the past year, and we're not in a major city (far suburbs of one, though).
- asdff 5y ago
  It's not people aspiring to have some vain dream. It's people looking for work and thats where they end up employed. I've read recently that since the recession, LA has added 5 jobs for every new unit of housing built. That is a recipe for tenement conditions and we are seeing that play out with how the working poor are currently living in these cities.

LAC-Tech 5y ago

It's been going on in New Zealand for decades now. Median house price is now $590,000 USD. And the quality is abysmal. Insulation and double glazing are considered opulent luxuries, most properties do not have them. A big proportion of them don't even have baths. They're closer to American barns than they are to American houses.

mikedilger 5y ago
This is true for houses built more than 20 years ago. But houses built in the last 18 years or so almost all have insluation, baths, better joinery, and many with double glazing. We are also starting to see more ducted heat pumps, polished concrete floors, and architectural features like vaulted ceilings, but still playing catch-up with America. While the quality has improved, so has the price. What always mystifies me is why someone would buy one of these crappy >20 year old homes at $700,000 or more just because of it's location. I'd much rather live on a small farm with a brand new house at the same price.
- LAC-Tech 5y ago
  Most houses that people can afford are built more than 20 years ago though.

garyrichardson 5y ago

To answer the title: They aren't make more land, but they are making more people. And people like to live where it's nice and they can get jobs. I don't think land values are a Ponzi scheme. From a supply and demand perspective, it does seem like a good investment. The rest of the article is meh.

TeeMassive 5y ago
I don't remember a baby boom or a population increase of 500% in the last few years.
- sokoloff 5y ago
  Is there a housing market that has has 5x’d in the last few years?
  - TeeMassive 5y ago
    https://globalnews.ca/news/2531266/one-chart-shows-how-unprecedented-vancouvers-real-estate-situation-is/ https://globalnews.ca/news/2531266/one-chart-shows-how-unpre...
- Johnny555 5y ago
  It doesn't take a 500% increase in demand to result in a 500% increase in prices.
  - TeeMassive 5y ago
    Which is the point of the article, that it's not based on a simple increase in demand.
b212 5y ago
Unless: - you can work remotely, - it’s nice where there are no other people, - there’s really a lot of land, eg. if you split Europe into 1000 square meter parcels it will fit over 10 billion people, - the nicer the place the faster population declines (somehow).

Johnny555 5y ago

Many Americans rely on home equity as a part of their retirement funding (sometimes through necessity - running out of retirement funds and having to use home equity to live on either through selling, or getting a reverse mortgage), so anything that changes home price appreciation is going to affect many people's retirement plans.

foxpurple 5y ago
As much as I agree that things need to change, it’s also not fair to pull the rug out on these people. They made the safest choice to secure their retirement and should somehow be compensated or taken care of if things are changed.
- dane-pgp 5y ago
  > it’s also not fair to pull the rug out on these people. But what if they voted for policies that prevented subsequent generations from ever even owning a rug? The choice they made to secure their retirement is only "safest" if they can convince the non-retired people to treat them better than these retirees have treated everyone else.
- aaomidi 5y ago
  Sure, cover retirement for everyone everywhere. We are humans. Old people should not have to suffer.
  - b9a2cab5 5y ago
    This is liberal idealism divorced from reality. Reality says that we (the U.S.) already spend a third of our budget on social security and that's before the Baby Boomers start drawing from SS. SS is obviously not even enough to afford a shack in the SFBA now so you'd have to 3-4x the payments. Even if you doubled taxes we wouldn't be able to pay for what you're proposing (nevermind the massive market impact a huge number of elderly getting paid the median US salary by the government would have on rent prices).

michaelcampbell 5y ago

> Most Americans take it for granted that home prices should generally go up. But if you think about it for a moment, there is no inherent reason to expect this. This is a goofy, naive statement; population is ever increasing, so when you buy a home or even just a plot, your "share" of the earth in terms of land is constantly growing if you amortize it over the population. I say this without a stance on the morality of it, but just the math.

roberto 5y ago
The annual population growth in the US in the last 40 years is around 1%, and is diminishing (latest numbers show 0.5%). The average annual growth in house prices since 1992 in the US is 5.3%.
- xienze 5y ago
  > The annual population growth in the US in the last 40 years is around 1%, and is diminishing (latest numbers show 0.5%). Population growth isn’t evenly distributed over the entire country.
  - deleted 5y ago
    [deleted]
  - roberto 5y ago
    And how is that relevant?
    - deleted 5y ago
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TeeMassive 5y ago
> population is ever increasing That doesn't make sense. Population didn't grow in the order of hundreds of percents in the recent years.
vesinisa 5y ago

ppeetteerr 5y ago

Home values show the costs people are willing pay to be home owners in desirable areas. There is no Ponzi system here (there are some markets which are, mind you, but not all) Having said this, the US government's insistence on tax subsidies for home ownership is bull. It restricts geographic mobility, encourages people to get mortgages they cannot afford, creates unnecessary pollution, and creates a delusion that being a home owner is an aspiration. It's another case of the government trying to help and hurting people instead. As the author mentioned, if you want to help the housing situation, stop subsidizing at the federal level.

sokoloff 5y ago
If you stop the owner-occupied mortgage interest deduction and property tax deduction (both of which have been nerfed a bit in the last few years), you put commercial landlords at an advantage relative to owner-occupants (as commercial landlords are taxed on profits not revenues, like any other business). I personally think that’s a bad policy balance in its own way.
- ppeetteerr 5y ago
  That shouldn't necessarily be a consideration. Apartment units are owned by commercial landlords and there is no harm in that.

josh_today 5y ago

Increased housing supply will solve the problem of expensive housing. But increasing supply in cities could be difficult (all the challenges that come with increased population density). Building out was historically an issue due to commute time to city centers but we have an opportunity here with the new work from home environment. We need more micro towns, that geographically don’t have to be near a major metro (2+ hours out), and that can sustain a decent economy based on the WFH population. In turn new business will open (grabbing lunch locally versus near the old office).

billykid24601 5y ago
Exactly this - I am trying to think through the implication for me personally. There aren't quite micro-towns where I am yet so maybe just a place outside of the city centre?
- josh_today 5y ago
  If you can work from home, why not. Having lived in a city before and now in a suburb, I miss the energy of the city but the suburban quality of life outweighs the urban energy.
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pedalpete 5y ago

When examining crypto and equity investments, I first started understanding the "store of value" investments, and that was my first introduction to the poor fit of real estate to be an investment. I know a few people who are mortgage rich, and cash poor (or house rich? I don't know the saying). They are essentially stuck. They can't sell the house and move into a new property because relative to everything else, all real estate has essentially moved at a similar rate. They can't sell their bathroom if they needed to. They have to keep investing in the house to keep it in good condition, so it costs money to keep the investment. If they want to sell their house, they have to find somebody who wants THEIR house, not the one next door, not one in a different town, but their exact house. This is in contrast to other investments, gold, stocks, crypto, where you can sell to anyone, you can make money (dividends) if the business is doing well, you can sell any portion of your investment and buy another investment with it. There is no cost to you to hold on to the investment, etc etc. The only argument I see for owning a house is the "I'm paying myself my mortgage, so it is like investing in myself", but if your money can do better in another investment, I feel you're better off renting and making money in other ways. The two big questions I think we have are 1) if we suffer population collapse - which is a possibility - what will happen to house prices 2) will millenials, or whoever comes next want to own houses? We thought it was crazy that somebody wouldn't want to own a car, I think it's crazy that any of them would want to have a University degree. We're seeing digital nomads as a fringe atm, but perhaps that becomes more mainstream. What happens to housing?

chrisco255 5y ago
We already are at a demographic cliff as older boomers begin to pass and younger boomers are retiring. Baby boomers are the largest generation in human history and it's looking like Millennials and Gen Z will not have nearly as many kids as their parents and grandparents. So even if they do want to own houses as much as boomers did, there's going to be a lot less of them to absorb the supply of housing on the market over time.
jamie_ca 5y ago
> if your money can do better in another investment, I feel you're better off renting and making money in other ways. This can be true, but the math is complicated - it depends on the differential between a mortgage payment and what rent in the area would be, as well as expected maintenance costs. If you assume a mortgage runs 3% (which seems to be approximately correct this month in Canada), housing appreciates 5%/year, we're looking at a 500k house over 25 years, and you can invest cash at 8%: - Annual mortgage is 28,395, or 2,366/mo - Total mortgage payments are 710k - Home value is 1,693k - ROI is 983k - Matching that ROI at 8% needs almost exactly $1510/mo - So naively you'd need to find rent at $856/mo to come out ahead renting - But now adjust for property taxes and maintenance (over 25 years you probably need a new roof, maybe new siding, furnace, hot water tank...). Like I said, it gets complicated. The other reason people buy homes is stability and control - you can't be evicted from a home you own other than for non-payment (no risk of the landlord wanting to move in), and you also have the freedom to renovate to suit your changing needs.

bawolff 5y ago

Ugh. This is even stupider than calling bitcoin a ponzi scheme. A bubble is not a ponzi scheme.

claytongulick 5y ago

Once lumber prices correct, I think we'll see a housing market correction in urban areas. The combination of covid adaptation to remote work and Starlink rural broadband has the potential to be a major market force. In DFW, we're already seeing a lot of this as more and more people move out of the city to rural farmland where their money goes a lot farther.

fieldc 5y ago

Inflation = asset price increases = house price increases. All assets have gone up, new cars, used cars, new houses, old houses, stocks, risk assets literally everything. It is mostly a result of fed reserve policy not any of the programs they list. Fundamentally none of those programs have any impact on $5m brownstones in Brooklyn NY, or $100m penthouses ok 57th street in Manhattan. Japan as a comparison is not really fair, it’s population has been declining for a decade and well under 1% for the last 40 years. They also have amazing mass transit making living outside of Tokyo much more palatable. Additionally, the apartments they do build are smaller (750sq ft vs 866 sq ft) But none of that matters that much because shockingly prices in Tokyo do actually increase.