5 ms·

The obvious solution is to build more housing.

twic 5y ago
Or to raise interest rates: https://www.bankofengland.co.uk/working-paper/2019/uk-house-prices-and-three-decades-of-decline-in-the-risk-free-real-interest-rate https://www.bankofengland.co.uk/working-paper/2019/uk-house-...
- xyzzyz 5y ago
  And how will raising interest rates make housing more affordable? If you have enough cash to buy a place outright, maybe, but normal people get mortgages. Raising interest rate will make monthly payments higher, which will exactly compensate the drop in house prices — this is in fact how raising interest rates reduces asset price.
  - KptMarchewa 5y ago
    Increase in mortgage availability is directly linked to price increase.
    - xyzzyz 5y ago
      Yes, but the point is that price increase doesn’t affect affordability if the lower interest rates compensate for it. Why does it matter for affordability that house prices went up 20%, when mortgage rates fell so that the monthly payments did not budge much?
      - runako 5y ago
        But this is not what happened. Median carrying costs for real estate have fallen, so that US housing affordability has increased (for buyers). The places where this is not true are all places that have seen significant population growth and have not permitted sufficient new construction. For example, in Jacksonville, FL, the median home costs $250k, which would leave a payment of ~29% of the median household income in Jacksonville using a 5% down payment. Similar math works in other cities where builders have been allowed to keep pace with population growth.
  - 988747 5y ago
    I think this is about interest rate on savings side. Ten years ago in Poland you could get saving account paying 7% interests. 5 years ago you could get one that pays 3%. Right now interest rates are almost at 0, and saving accounts pay ridiculous 0.01% interests. Which has the effect of people taking money from the bank and buying apartments, as an investment.
    - xyzzyz 5y ago
      With high interest rates, you might get good return on savings account, but it will make the mortgage payments much higher. Most people prefer to get a mortgage and move in earlier in their lives, instead of saving for decade or two in order to buy house/apartment with cash in their mid 30s or even 40s.
      - unholythree 5y ago
        Not only that but if you’re paying a mortgage you’re not paying rent. Buying means your housing cost is now an investment (minus interest, tax, and upkeep) rather than just an expense. Now it could well be a terrible investment, but in theory you’ll own something of value in the end in addition to the housing you had as you paid.
    - ahepp 5y ago
      I am assuming those rates aren't adjusted for inflation? Real rates have certainly decreased in the USA, but when we had high rates we tended to have high inflation as well.
      - 988747 5y ago
        Yes, rates were not inflation-adjusted. But in our country it is the opposite: in times when savings account paid 7% we had maybe 1.5% inflation. Now, when the rates are near zero we have 5% inflation. So keeping money in the bank means losing 5% yearly - you can see how that motivates people to buy some real estate.
- spankalee 5y ago
  Zoning, not interest rates, is inhibiting residential building the most.
- imtringued 5y ago
  Raising interest rates makes everything else more expensive. When people talk about how raising interest rates lowers the cost of housing what they really mean is that interest rates lower the value of income streams derived from monopolies and land is the biggest monopoly of them all. Monopolies basically can do perfect price discrimination, the more money you have, the more the monopolist can charge. Thus the obvious solution of giving people more money doesn't seem to work. Raising interest rates is basically the opposite. What if we take everyone's money away? If people have less money the monopolists will charge lower prices. This didn't really solve the monopoly problem. After all, the monopoly allows perfect price discrimination. If the monopoly power is strong enough to get 30% of your salary it will always get 30% of your salary no matter how high it is. What really happened is that you now have less money to buy non monopoly goods. Here are the practical implications: You can spend $1000 per month on your mortgage at 5% interest or -5% interest. The -5% interest house is significantly more expensive but the monthly payment is still the same. You still lose $1000 no matter what you do.

twic 5y ago

Or to raise interest rates: https://www.bankofengland.co.uk/working-paper/2019/uk-house-prices-and-three-decades-of-decline-in-the-risk-free-real-interest-rate https://www.bankofengland.co.uk/working-paper/2019/uk-house-...

xyzzyz 5y ago
And how will raising interest rates make housing more affordable? If you have enough cash to buy a place outright, maybe, but normal people get mortgages. Raising interest rate will make monthly payments higher, which will exactly compensate the drop in house prices — this is in fact how raising interest rates reduces asset price.
- KptMarchewa 5y ago
  Increase in mortgage availability is directly linked to price increase.
  - xyzzyz 5y ago
    Yes, but the point is that price increase doesn’t affect affordability if the lower interest rates compensate for it. Why does it matter for affordability that house prices went up 20%, when mortgage rates fell so that the monthly payments did not budge much?
    - runako 5y ago
      But this is not what happened. Median carrying costs for real estate have fallen, so that US housing affordability has increased (for buyers). The places where this is not true are all places that have seen significant population growth and have not permitted sufficient new construction. For example, in Jacksonville, FL, the median home costs $250k, which would leave a payment of ~29% of the median household income in Jacksonville using a 5% down payment. Similar math works in other cities where builders have been allowed to keep pace with population growth.
- 988747 5y ago
  I think this is about interest rate on savings side. Ten years ago in Poland you could get saving account paying 7% interests. 5 years ago you could get one that pays 3%. Right now interest rates are almost at 0, and saving accounts pay ridiculous 0.01% interests. Which has the effect of people taking money from the bank and buying apartments, as an investment.
  - xyzzyz 5y ago
    With high interest rates, you might get good return on savings account, but it will make the mortgage payments much higher. Most people prefer to get a mortgage and move in earlier in their lives, instead of saving for decade or two in order to buy house/apartment with cash in their mid 30s or even 40s.
    - unholythree 5y ago
      Not only that but if you’re paying a mortgage you’re not paying rent. Buying means your housing cost is now an investment (minus interest, tax, and upkeep) rather than just an expense. Now it could well be a terrible investment, but in theory you’ll own something of value in the end in addition to the housing you had as you paid.
  - ahepp 5y ago
    I am assuming those rates aren't adjusted for inflation? Real rates have certainly decreased in the USA, but when we had high rates we tended to have high inflation as well.
    - 988747 5y ago
      Yes, rates were not inflation-adjusted. But in our country it is the opposite: in times when savings account paid 7% we had maybe 1.5% inflation. Now, when the rates are near zero we have 5% inflation. So keeping money in the bank means losing 5% yearly - you can see how that motivates people to buy some real estate.
spankalee 5y ago
Zoning, not interest rates, is inhibiting residential building the most.
imtringued 5y ago
Raising interest rates makes everything else more expensive. When people talk about how raising interest rates lowers the cost of housing what they really mean is that interest rates lower the value of income streams derived from monopolies and land is the biggest monopoly of them all. Monopolies basically can do perfect price discrimination, the more money you have, the more the monopolist can charge. Thus the obvious solution of giving people more money doesn't seem to work. Raising interest rates is basically the opposite. What if we take everyone's money away? If people have less money the monopolists will charge lower prices. This didn't really solve the monopoly problem. After all, the monopoly allows perfect price discrimination. If the monopoly power is strong enough to get 30% of your salary it will always get 30% of your salary no matter how high it is. What really happened is that you now have less money to buy non monopoly goods. Here are the practical implications: You can spend $1000 per month on your mortgage at 5% interest or -5% interest. The -5% interest house is significantly more expensive but the monthly payment is still the same. You still lose $1000 no matter what you do.