4 ms·

Buying a house is an investment. You're making a bet that worker productivity will improve near you. After all, what is the value of land? Some land can be farm

by rcme 4y ago

Buying a house is an investment. You're making a bet that worker productivity will improve near you. After all, what is the value of land? Some land can be farmed or house a factory. But usually, when we talk about residential real estate, we're talking about land that houses workers. So, the value of that land is directly proportional to the economic value those workers can provide. We refer to "economic value provided by workers" as "economic productivity." As the economic productivity of each worker rises, so does the value of the land. Of course, market conditions and government incentives can distort the market is weird ways. But ultimately, the price of real estate is going up because its underlying value is going up. You can't change that.

deleted 4y ago
[deleted]
fooker 4y ago
> You can't change that. You don’t have to change that. You can just make policies which make speculative investment less profitable while still allowing homeowners to buy houses.
- rcme 4y ago
  That won't help things, ultimately. Wages have been essentially flat since the 70s. Productivity has increased massively. Real estate was always going to become more unaffordable without real wages increasing.
hammock 4y ago
Is worker productivity going up?
- svachalek 4y ago
  See the graph halfway down the page https://www.bls.gov/productivity/home.htm https://www.bls.gov/productivity/home.htm
  - hammock 4y ago
    Why does the chart start at 1973?
    - steveklabnik 4y ago
      '73 to '23 is fifty years. I'd imagine it's just the arbitrary choosing of the chart maker.
    - theandrewbailey 4y ago
      https://wtfhappenedin1971.com/ https://wtfhappenedin1971.com/
pxmpxm 4y ago
> bet that worker productivity will improve near you There's also a huge positive externality of people actually having skin in the game in that regard - all the sudden you have an incentive to making sure that productivity improvement actually happens.
yvdriess 4y ago
That makes the slowdown of productivity growth only more worrisome. The EU area is sitting at -0.2% and the UK is having a full blown crisis. https://data.oecd.org/lprdty/labour-productivity-and-utilisation.htm https://data.oecd.org/lprdty/labour-productivity-and-utilisa...
benlivengood 4y ago
This is one of the key points the article didn't make; the structures depreciate and the land (for the most part) appreciates because we have positive population and economic growth. Urban areas experience an increase in population density with population and economic growth and this drives the higher demand for land. Most likely the way to control individual housing costs is systematically lowering the cost of building vertically including regulatory and zoning changes as well as new construction methods. There is a bit of a land-value cliff that needs to be smoothed over by socializing the costs as well; as single-family homes are replaced by highrises the immediate property value of SFH drops, and I think this is because housing is priced over ~10 year periods by residents and more instantaneously by the real estate market, so there's a dip in unrealized value for residents who can't sell their home for what it would be worth in their neighborhood until its value as raw land has reached the same level by being squeezed between overly-dense highrises and suburbia, effectively forming a very slow-moving barrier to densification. SFH owners want suburbia, they paid for it, and can only sell at the price they want to folks who can get the same. They're incentivized to wait it out because they already have a home which is also a huge investment. A financial instrument to buy out entire neighborhoods on the expectation of profits from higher-density housing sounds like the solution, and the risk probably needs to be borne partially by the government, and maybe a real-estate tax credit for SFH neighborhoods experiencing lower prices from new nearby dense construction which incentives them to vote for the zoning changes.
- jjoonathan 4y ago
  Everyone feels entitled to a bailout for their bad investment, lol.
swexbe 4y ago
This would makes sense if everyone was self-employed. But the demand side of housing is decided by salaries which do not necessarily follow productivity.

by rcme 4y ago

deleted 4y ago

[deleted]

fooker 4y ago

> You can't change that. You don’t have to change that. You can just make policies which make speculative investment less profitable while still allowing homeowners to buy houses.

rcme 4y ago
That won't help things, ultimately. Wages have been essentially flat since the 70s. Productivity has increased massively. Real estate was always going to become more unaffordable without real wages increasing.

hammock 4y ago

Is worker productivity going up?

svachalek 4y ago
See the graph halfway down the page https://www.bls.gov/productivity/home.htm https://www.bls.gov/productivity/home.htm
- hammock 4y ago
  Why does the chart start at 1973?
  - steveklabnik 4y ago
    '73 to '23 is fifty years. I'd imagine it's just the arbitrary choosing of the chart maker.
  - theandrewbailey 4y ago
    https://wtfhappenedin1971.com/ https://wtfhappenedin1971.com/

pxmpxm 4y ago

> bet that worker productivity will improve near you There's also a huge positive externality of people actually having skin in the game in that regard - all the sudden you have an incentive to making sure that productivity improvement actually happens.

yvdriess 4y ago

That makes the slowdown of productivity growth only more worrisome. The EU area is sitting at -0.2% and the UK is having a full blown crisis. https://data.oecd.org/lprdty/labour-productivity-and-utilisation.htm https://data.oecd.org/lprdty/labour-productivity-and-utilisa...

benlivengood 4y ago

This is one of the key points the article didn't make; the structures depreciate and the land (for the most part) appreciates because we have positive population and economic growth. Urban areas experience an increase in population density with population and economic growth and this drives the higher demand for land. Most likely the way to control individual housing costs is systematically lowering the cost of building vertically including regulatory and zoning changes as well as new construction methods. There is a bit of a land-value cliff that needs to be smoothed over by socializing the costs as well; as single-family homes are replaced by highrises the immediate property value of SFH drops, and I think this is because housing is priced over ~10 year periods by residents and more instantaneously by the real estate market, so there's a dip in unrealized value for residents who can't sell their home for what it would be worth in their neighborhood until its value as raw land has reached the same level by being squeezed between overly-dense highrises and suburbia, effectively forming a very slow-moving barrier to densification. SFH owners want suburbia, they paid for it, and can only sell at the price they want to folks who can get the same. They're incentivized to wait it out because they already have a home which is also a huge investment. A financial instrument to buy out entire neighborhoods on the expectation of profits from higher-density housing sounds like the solution, and the risk probably needs to be borne partially by the government, and maybe a real-estate tax credit for SFH neighborhoods experiencing lower prices from new nearby dense construction which incentives them to vote for the zoning changes.

jjoonathan 4y ago
Everyone feels entitled to a bailout for their bad investment, lol.

swexbe 4y ago

This would makes sense if everyone was self-employed. But the demand side of housing is decided by salaries which do not necessarily follow productivity.