5 ms·

The price for housing has gone up substantially in the last 20 years, housing takes up a greater share of peoples incomes than it did in the past, and there is

The price for housing has gone up substantially in the last 20 years, housing takes up a greater share of peoples incomes than it did in the past, and there is no reason for it. We wouldn't tolerate the price of food going up by the same percentage.

PaulDavisThe1st 5y ago
We tolerate it in housing because the asset appreciates. If food costs went up substantially, but you could eat the food and then resell it for more than you paid for it (and sometimes a lot more than just inflation-linked increases), I suspect we'd tolerate that too.
- HarryHirsch 5y ago
  Now we are getting somewhere. The owner class tolerates housing price increases because they think they are getting a good deal (but it's just inflation, if the price of necessary goods goes up, that's inflation), and the renter class gets fleeced. It's not a recipe for long-term stability when 2/3 of the population band together to oppress the remaining 1/3, all this with government support. It's also concerning that housing is a government-supported investment, it's an unproductive asset. That's not how you encourage progress and development. Even if you just have a field you can grow crops but no such luck with housing. (Maybe there's change on the horizon, a collegue who lives somewhere in the Rust Belt complained that her 25-year old daughter can't move out. She has a regular job, but the rents have become so high that she cannot afford an apartment on her salary. So there's hope that civil unrest will be averted.)
rsj_hn 5y ago
> The price for housing has gone up substantially in the last 20 years This is the result of supply and demand. How does demand for housing increase? Falling mortgage, downpayment assistance programs, government guaranteed loans. That increases demand. And housing is also larger than 20 years ago. > We wouldn't tolerate the price of food going up by the same percentage. This is just silly. It is not something you "tolerate" it's something you cause. Food prices also rise when demand increases. The public has 100% control over demand as they are the ones bidding up the house prices! Now they do not have 100% control over supply. But house prices have not risen because of a decline in supply.
- HarryHirsch 5y ago
  How does demand for housing increase? Falling mortgage, downpayment assistance programs, government guaranteed loans. Also growing population and people moving to areas where the jobs are. Most recently: pandemic refugees from NYC and California settling in adjacent areas. When demand changes for a good with inelastic supply you see large excursions in price. And housing is also larger than 20 years ago. That's a problem right there. Everyone needs a roof over the head. Some people would like a palace. There is not enough entry-level housing being built to keep up with demand, meanwhile the existing stock has reached the end of its serviceable life. There's a good chunk of 70's construction which has deteriorated to a point that it needs rebuilding. The shortage at the low end causes high rents for those who can least afford it. Food prices also rise when demand increases. Food prices mostly rise in response to missing supply, either because the harvest fails and the government can't secure imports or because of political upheavals. Either way, it's a political problem, food riots are what starts revolutions. and food price instability is a hallmark of banana republics.
  - rsj_hn 5y ago
    > Also growing population and people moving to areas where the jobs are. Most recently: pandemic refugees from NYC and California settling in adjacent areas. When demand changes for a good with inelastic supply you see large excursions in price. Right, when there is a disruption. Say there is an increase in jobs in city A and wages rise by 10%. Say there is a decrease in jobs in city B and wages decrease by 10%. Now what must happen is some kind of population transfer from B to A. We also know that rents will rise in A and fall in B. But how does this happen? Via evictions in B as people can no longer afford the existing rents and move out. That adds to the rental supply in B as landlords struggle to find tenants, which causes rents to fall. Similarly in A, there is a bidding war for apartments and rents rise. This is how the market adjusts to the new reality of jobs and wages in both cities. Now covid had lots of these disruptions. Entire job markets were shutdown, others thrived. So what happens when the government puts a freeze on evictions in both A and B. Then everything is frozen except for the handful of new construction in A and B, so you get massive price spikes and rent too high in city A as well as rents being too high by not adjusting downward in city B. The effect of this is that prices are always much higher than the market clearing price, which is what this paper demonstrates. This is also what happens when you try to make economic interventions based on sentimental intuition -- "it's not fair that you should be evicted if you are laid off" -- often the exact opposite of what you want ends up happening, as housing becomes too expensive for everyone. What has to happen is that people must live in the housing they can afford. Attempting to live in housing that they can't afford always causes excessively high prices for the majority.

PaulDavisThe1st 5y ago

We tolerate it in housing because the asset appreciates. If food costs went up substantially, but you could eat the food and then resell it for more than you paid for it (and sometimes a lot more than just inflation-linked increases), I suspect we'd tolerate that too.

HarryHirsch 5y ago
Now we are getting somewhere. The owner class tolerates housing price increases because they think they are getting a good deal (but it's just inflation, if the price of necessary goods goes up, that's inflation), and the renter class gets fleeced. It's not a recipe for long-term stability when 2/3 of the population band together to oppress the remaining 1/3, all this with government support. It's also concerning that housing is a government-supported investment, it's an unproductive asset. That's not how you encourage progress and development. Even if you just have a field you can grow crops but no such luck with housing. (Maybe there's change on the horizon, a collegue who lives somewhere in the Rust Belt complained that her 25-year old daughter can't move out. She has a regular job, but the rents have become so high that she cannot afford an apartment on her salary. So there's hope that civil unrest will be averted.)

rsj_hn 5y ago

> The price for housing has gone up substantially in the last 20 years This is the result of supply and demand. How does demand for housing increase? Falling mortgage, downpayment assistance programs, government guaranteed loans. That increases demand. And housing is also larger than 20 years ago. > We wouldn't tolerate the price of food going up by the same percentage. This is just silly. It is not something you "tolerate" it's something you cause. Food prices also rise when demand increases. The public has 100% control over demand as they are the ones bidding up the house prices! Now they do not have 100% control over supply. But house prices have not risen because of a decline in supply.

HarryHirsch 5y ago
How does demand for housing increase? Falling mortgage, downpayment assistance programs, government guaranteed loans. Also growing population and people moving to areas where the jobs are. Most recently: pandemic refugees from NYC and California settling in adjacent areas. When demand changes for a good with inelastic supply you see large excursions in price. And housing is also larger than 20 years ago. That's a problem right there. Everyone needs a roof over the head. Some people would like a palace. There is not enough entry-level housing being built to keep up with demand, meanwhile the existing stock has reached the end of its serviceable life. There's a good chunk of 70's construction which has deteriorated to a point that it needs rebuilding. The shortage at the low end causes high rents for those who can least afford it. Food prices also rise when demand increases. Food prices mostly rise in response to missing supply, either because the harvest fails and the government can't secure imports or because of political upheavals. Either way, it's a political problem, food riots are what starts revolutions. and food price instability is a hallmark of banana republics.
- rsj_hn 5y ago
  > Also growing population and people moving to areas where the jobs are. Most recently: pandemic refugees from NYC and California settling in adjacent areas. When demand changes for a good with inelastic supply you see large excursions in price. Right, when there is a disruption. Say there is an increase in jobs in city A and wages rise by 10%. Say there is a decrease in jobs in city B and wages decrease by 10%. Now what must happen is some kind of population transfer from B to A. We also know that rents will rise in A and fall in B. But how does this happen? Via evictions in B as people can no longer afford the existing rents and move out. That adds to the rental supply in B as landlords struggle to find tenants, which causes rents to fall. Similarly in A, there is a bidding war for apartments and rents rise. This is how the market adjusts to the new reality of jobs and wages in both cities. Now covid had lots of these disruptions. Entire job markets were shutdown, others thrived. So what happens when the government puts a freeze on evictions in both A and B. Then everything is frozen except for the handful of new construction in A and B, so you get massive price spikes and rent too high in city A as well as rents being too high by not adjusting downward in city B. The effect of this is that prices are always much higher than the market clearing price, which is what this paper demonstrates. This is also what happens when you try to make economic interventions based on sentimental intuition -- "it's not fair that you should be evicted if you are laid off" -- often the exact opposite of what you want ends up happening, as housing becomes too expensive for everyone. What has to happen is that people must live in the housing they can afford. Attempting to live in housing that they can't afford always causes excessively high prices for the majority.