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I wonder if persistently low interest rates is the real culprit that led to housing as investment. I have been recently intrigued by FinTwit arguments that an e

I wonder if persistently low interest rates is the real culprit that led to housing as investment. I have been recently intrigued by FinTwit arguments that an excess of demand spurred by too low interest rates is the real reason for many shortages. As a saver, that argument naturally appeals to me.

DubiousPusher 4y ago
> I have been recently intrigued by FinTwit arguments that an excess of demand spurred by too low interest rates is the real reason for many shortages I don't believe this is the case as since 2008 the U.S. construction industry has not even built enough units to keep up with population growth. I believe this is a supply problem which is two-fold. 1) Restrictive zoning and permitting which really took off around the 70s 2) A boom and bust construction cycle which has convinced many to not risk it any longer and find other work (this which has been going on for decades but truly inflected after 2008).
- aluminussoma 4y ago
  > I don't believe this is the case as since 2008 the U.S. construction industry has not even built enough units to keep up with population growth. I believe this is a supply problem which is two-fold. A counterargument to this is that population growth has not been very high in the past few decades: https://fred.stlouisfed.org/graph/?g=SUL3 https://fred.stlouisfed.org/graph/?g=SUL3 You certainly have valid points, especially in San Francisco. Nevertheless, looking at the broader market, outside of California, the market appears to be working: builders find a way to build what will sell and maximize their profits. Last week, I drove around a planned community in a middle-America state. Developers started building houses around ~2010 and are still building out the area. These developers had no problem building thousands of homes that were selling well until very recently.
  - DubiousPusher 4y ago
    Population growth has been lower but construction levels have been lower still. This is not speculation. It is fact. https://www.cnbc.com/2021/09/14/america-is-short-more-than-5-million-homes-study-says.html https://www.cnbc.com/2021/09/14/america-is-short-more-than-5... The only parts which are speculative are why. There is consistently lower workforce participation in construction though, that is also a fact. https://finance.yahoo.com/news/construction-industry-after-recession-140430175.html https://finance.yahoo.com/news/construction-industry-after-r... I'm glad the builders in your area have been able to work consistently. I would guess that they are likely riding a trend of a decreasing number of builders who are increasingly professionalized and technologized their operations. Regardless, that is an anecdote and the statistics paint a pretty clear picture.
not_real_acct 4y ago
> I wonder if persistently low interest rates is the real culprit that led to housing as investment. Of course. The profit from selling a leveraged investment is based on the delta between what you pay to borrow the money and how quickly the asset goes up. Doesn't matter it that's a house, a stock, bonds, whatever. Housing is particularly attractive for these bets, because it's so easy to qualify for a big loan and because the rates have been so low. Once mortgage rates exceed about six percent, the incentive to invest in real estate will be much lower.

DubiousPusher 4y ago

> I have been recently intrigued by FinTwit arguments that an excess of demand spurred by too low interest rates is the real reason for many shortages I don't believe this is the case as since 2008 the U.S. construction industry has not even built enough units to keep up with population growth. I believe this is a supply problem which is two-fold. 1) Restrictive zoning and permitting which really took off around the 70s 2) A boom and bust construction cycle which has convinced many to not risk it any longer and find other work (this which has been going on for decades but truly inflected after 2008).

aluminussoma 4y ago
> I don't believe this is the case as since 2008 the U.S. construction industry has not even built enough units to keep up with population growth. I believe this is a supply problem which is two-fold. A counterargument to this is that population growth has not been very high in the past few decades: https://fred.stlouisfed.org/graph/?g=SUL3 https://fred.stlouisfed.org/graph/?g=SUL3 You certainly have valid points, especially in San Francisco. Nevertheless, looking at the broader market, outside of California, the market appears to be working: builders find a way to build what will sell and maximize their profits. Last week, I drove around a planned community in a middle-America state. Developers started building houses around ~2010 and are still building out the area. These developers had no problem building thousands of homes that were selling well until very recently.
- DubiousPusher 4y ago
  Population growth has been lower but construction levels have been lower still. This is not speculation. It is fact. https://www.cnbc.com/2021/09/14/america-is-short-more-than-5-million-homes-study-says.html https://www.cnbc.com/2021/09/14/america-is-short-more-than-5... The only parts which are speculative are why. There is consistently lower workforce participation in construction though, that is also a fact. https://finance.yahoo.com/news/construction-industry-after-recession-140430175.html https://finance.yahoo.com/news/construction-industry-after-r... I'm glad the builders in your area have been able to work consistently. I would guess that they are likely riding a trend of a decreasing number of builders who are increasingly professionalized and technologized their operations. Regardless, that is an anecdote and the statistics paint a pretty clear picture.

not_real_acct 4y ago

> I wonder if persistently low interest rates is the real culprit that led to housing as investment. Of course. The profit from selling a leveraged investment is based on the delta between what you pay to borrow the money and how quickly the asset goes up. Doesn't matter it that's a house, a stock, bonds, whatever. Housing is particularly attractive for these bets, because it's so easy to qualify for a big loan and because the rates have been so low. Once mortgage rates exceed about six percent, the incentive to invest in real estate will be much lower.