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The last time we had a prolonged period of high inflation was in the 1970s. At that time not only did housing prices reach historic lows, but it became common

The last time we had a prolonged period of high inflation was in the 1970s. At that time not only did housing prices reach historic lows, but it became common knowledge that houses were depreciating assets. That is, without ongoing maintenance replacing the roof and plumbing as needed the house fails and becomes unlivable and useless as an asset. In the current environment blowing a bunch of loose capital or taking out a funny money loan to upgrade a kitchen or bathroom is common, but when interest rates go up and capital is not flowing freely that level of ongoing investment becomes a real burden. But now we have had asset values rising out of control during a prolonged period of low inflation and effectively zero interest rates therefore it will be different this time? More likely we will again see the usual. House prices will stagnate while inflation does its work and people will come to understand that housing is not an endless free money game but in fact a depreciating asset that is difficult and expensive to transfer especially when it is transformed into a boat anchor.

api 5y ago
Isn't there another factor here? The 1970s was still immediately after a huge period of rapid home building. Home building has stagnated and fallen far below demand since then, leading to an outright housing shortage in some metropolitan areas. NIMBY politics are a major factor here. Another factor is that the expansion of the suburbs has hit the limits of practicality. Suburban size is limited by things like commute radius from major city and town centers, the ability of roads to take more cars, and whether or not mass transit is available. Housing too far out starts to become indistinguishable from rural housing. Coupled with NIMBY politics this creates an environment for scarcity to explode. If housing was going up during a period of otherwise tame inflation, it's possible that housing will now really explode. That's what seems to be happening so far. The only thing that is going to bring it down or at least tame the rise is taking on NIMBY politics and zoning and other artificial barriers to increasing the number of housing units. Edit: Of course yet another possibility is that there's some truth to the allegations of inflation hawks over the past 10-20 years: that inflation is actually a lot higher than we think and has been masked by the deflationary effects of technology and globalization. Tech and cheap overseas labor have held down the price of manufactured goods and kept the price of some consumables like food in check, but things not subject to these efficiency gains like college tuition and housing have exploded. In general anything that can't easily be automated or outsourced has gone up in cost. Personally I think all these factors are in play.
- trgn 5y ago
  We were writing a reply together it seems. 100% agreed on this.
- solarmist 5y ago
  The edit is really insightful. I’ve had vaguely similar thoughts, but this is the first time I’ve seen it stated coherently. Any resources for reading up on this point of view?
trgn 5y ago
I don't think this will be the case this time. In wealthy societies, housing becomes a way to store generational wealth. In the USA, the complaints about high housing prices seem to ignore to how much housing costs in other countries. 10x homeprice to income ratios are very common abroad. There's nothing inherently unreasonable about that. It means location accrues a long time value, and land becomes a more favored asset class. US is somewhat unique, in that undeveloped land was effectively worthless for the longest time, and cheap horizontal expansion was possible because of the car, still so in the 70s. That is why Americans are fairly unique in thinking of housing as a commodity (it's just some some wood and bricks after all). The conditions that enabled that though or over. Horizontal expansion (and thus commodification) is no longer sustainable, and we will see an ossification of the urban landscape, freezing value in place. It's a ratchet upwards. The only way out is boost supply through heavy infill, which is possible in some US metros, mainly the ones with depopulated urban cores (fly-over country basically). It's going to be much much much harder on the coast. Since the average American (who's in their 50s) absolutely loathes what densification seems to imply (pedestrians, cyclists, and mixed income, riffraff), I don't really see that happening at any kind of scale or fast enough to ease pressure on prices.
- gopi 5y ago
  I agree relative to income, US housing is still one of the cheapest in the world. But abundant land don't explain it as in countries with even more land like Canada, housing is more expensive. Maybe its the substantial carrying cost of real estate in US (high property taxes) which discourages people from using it as pure store of value (like Chinese).
  - totony 5y ago
    >But abundant land don't explain it as in countries with even more land like Canada, housing is more expensive. Canada has a lot of land, but most of it is either unlivable or a pain to live in (due to weather).

api 5y ago

Isn't there another factor here? The 1970s was still immediately after a huge period of rapid home building. Home building has stagnated and fallen far below demand since then, leading to an outright housing shortage in some metropolitan areas. NIMBY politics are a major factor here. Another factor is that the expansion of the suburbs has hit the limits of practicality. Suburban size is limited by things like commute radius from major city and town centers, the ability of roads to take more cars, and whether or not mass transit is available. Housing too far out starts to become indistinguishable from rural housing. Coupled with NIMBY politics this creates an environment for scarcity to explode. If housing was going up during a period of otherwise tame inflation, it's possible that housing will now really explode. That's what seems to be happening so far. The only thing that is going to bring it down or at least tame the rise is taking on NIMBY politics and zoning and other artificial barriers to increasing the number of housing units. Edit: Of course yet another possibility is that there's some truth to the allegations of inflation hawks over the past 10-20 years: that inflation is actually a lot higher than we think and has been masked by the deflationary effects of technology and globalization. Tech and cheap overseas labor have held down the price of manufactured goods and kept the price of some consumables like food in check, but things not subject to these efficiency gains like college tuition and housing have exploded. In general anything that can't easily be automated or outsourced has gone up in cost. Personally I think all these factors are in play.

trgn 5y ago
We were writing a reply together it seems. 100% agreed on this.
solarmist 5y ago
The edit is really insightful. I’ve had vaguely similar thoughts, but this is the first time I’ve seen it stated coherently. Any resources for reading up on this point of view?

trgn 5y ago

I don't think this will be the case this time. In wealthy societies, housing becomes a way to store generational wealth. In the USA, the complaints about high housing prices seem to ignore to how much housing costs in other countries. 10x homeprice to income ratios are very common abroad. There's nothing inherently unreasonable about that. It means location accrues a long time value, and land becomes a more favored asset class. US is somewhat unique, in that undeveloped land was effectively worthless for the longest time, and cheap horizontal expansion was possible because of the car, still so in the 70s. That is why Americans are fairly unique in thinking of housing as a commodity (it's just some some wood and bricks after all). The conditions that enabled that though or over. Horizontal expansion (and thus commodification) is no longer sustainable, and we will see an ossification of the urban landscape, freezing value in place. It's a ratchet upwards. The only way out is boost supply through heavy infill, which is possible in some US metros, mainly the ones with depopulated urban cores (fly-over country basically). It's going to be much much much harder on the coast. Since the average American (who's in their 50s) absolutely loathes what densification seems to imply (pedestrians, cyclists, and mixed income, riffraff), I don't really see that happening at any kind of scale or fast enough to ease pressure on prices.

gopi 5y ago
I agree relative to income, US housing is still one of the cheapest in the world. But abundant land don't explain it as in countries with even more land like Canada, housing is more expensive. Maybe its the substantial carrying cost of real estate in US (high property taxes) which discourages people from using it as pure store of value (like Chinese).
- totony 5y ago
  >But abundant land don't explain it as in countries with even more land like Canada, housing is more expensive. Canada has a lot of land, but most of it is either unlivable or a pain to live in (due to weather).