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I've never understood how real returns on house prices could be believed to be sustainable. If the value of a house appreciates in terms of purchasing power for

I've never understood how real returns on house prices could be believed to be sustainable. If the value of a house appreciates in terms of purchasing power for some other good at a constant rate, at some point in the far future just a single house would become valuable enough to purchase the entire global supply of the other good. The illusion of house price appreciation is due to historical population growth creating scarcity, and cheaper money allowing for higher and higher leverage. At some point the music has to stop.

draw_down 3y ago
[dead]
cantaloupe 3y ago
Especially considering the house structure itself is usually depreciating in real/material value (whether or not the price is still going up) due to aging. At a certain point, just the land needs to cover those real returns.
- JKCalhoun 3y ago
  The land is the part that appreciates. Proximity to good schools (and well paying jobs at one time) were the driver.
  - pydry 3y ago
    It's amazing how we've managed to set up an economic system where schoolteachers drive up their own rent and declared it fair.
    - dumbfounder 3y ago
      That's true for anyone that provides a positive impact on the community. You make something better, it increases in value. Could be a store, could be a trash person, could be a police officer, could be street performer, could just be the person that maintains a nice lawn.
- quonn 3y ago
  It‘s not like the structure rots or crumbles every year. It can last 100 years or more so it doesn‘t really affect the price that much. In any case the same house in a great location is valued far, far higher than in the middle of nowhere which is a good indicator where the price comes from. Not from the structure primarily.
  - zxcvbn4038 3y ago
    Have you priced housing in middle of nowhere lately? I would be more then happy to live an hour off the interstate and have a couple acres of trees for neighbors. No problems with maintaining a well, having a septic system, and a propane tank. Doesn’t bother me that DoorDash doesn’t come there, StarBucks is a trip, and Amazon doesn’t do next day delivery. Houses like that now start around $350k and go straight to the moon. Most of them were purchased in the last 2-3 years and the sellers are trying flip them at 2-6x the price having made no improvements at all. The purchase history is public record and very telling. At some point the banks should step in and say hey, there is no way this property is worth $300k, $600k, $900k - it will never sell at that price again, none of the local industries pay well enough to have a $7k per month mortgage payment, if the loan defaults we are going to take a bath. However the banks don’t do that, they just say California idiot has money to blow, give him the loan. And of course the California idiot is going to have problems also when he wants to move in 2-7 years and finds out nobody can afford his house.
- DesiLurker 3y ago
  but the real appreciation is actually in land prices. at least in highly contested markets. though I agree with larger point that its not productive growth. In fact I have been saying in past that land prices are the perfectly useless sink for the worthless money created by central bankers out of thin air.
jahnu 3y ago
Stein’s Law - If something cannot go on forever, it will stop.
quonn 3y ago
Wait what happens when it collapses a bit. Less improvements will be done on existing properties, even less will be built. Sustainability requirements and quality of new housing goes up, as usual. Prices will rise again to reflect this. edit: Seems to be a controversial opinion given the votes. But what‘s controversial about a pork cycle? Housing markets create a pork cycle.
DesiLurker 3y ago
Most people stay in houses (statistically) for 7 years. so it really is appreciation of their capital. for a common person its the most leveraged investment one can do because its deem 'safe'. let leverage is 5x-10x depending upon your down payment. so from ROI terms it works out so long as prices steadily march upwards. I agree its just larger buyer pool chasing slowly increasing supply. but you have to understand the population growth is only needed locally so so long as a metro remains financially viable growth will continue & hence housing prices. Also thanks to some spectacularly BS regulations/nimbyism we cannot build fast enough so that creates extra pressure in coastal centers.
baerrie 3y ago
Shelter is a unique and essential commodity. To me, it makes sense that it appreciates faster than your average good which is rarely essential. At the same time, if housing was made universally available, I think the great lift in burden on the average citizen would render the need for appreciating assets to diminish. As it stands now, my house has to appreciate for it to be worth it
- datadata 3y ago
  Food is also essential. If housing appreciated at a constant rate against a commodity like wheat for example, eventually you would be able to sell a house for the entire global supply of wheat (assuming wheat supply grew slower) .
  - baerrie 3y ago
    Food in general is essential but not any one specific form of food. If wheat was the only food then I would agree. The same could be said for housing but housing in a particular location is mostly fixed and limited unlike the flow of food and other resources
- mitthrowaway2 3y ago
  Shelter is essential, but "real returns" means returns to housing as an asset above inflation, which includes the cost of shelter. Even if the cost of every other good drops to zero and all that is left is rent, the house asset would need to keep going up faster than the rent charged to live there. Maybe that's possible in the case of increasing population and population density, but it can't be possible everywhere, especially with a flat or declining population. Unless interest rates fall forever, that is.
Gareth321 3y ago
> I've never understood how real returns on house prices could be believed to be sustainable. If the value of a house appreciates in terms of purchasing power for some other good at a constant rate, at some point in the far future just a single house would become valuable enough to purchase the entire global supply of the other good. This is likely on me for misunderstanding your comments, but if housing costs increase in line with inflation then everything else will get expensive too. The relative cost of other goods will be constant, and we would never reach a place where a single house could be so relatively valuable. Unfortunately, house prices have been outpacing inflation. This can't continue forever. It's being propped up by laws and policies and special tax exemptions, but eventually the majority of voters will live in rental accommodation, and they'll vote for policies to bring house prices back in line with inflation.
- ericpauley 3y ago
  This is what GP means by “real” (after accounting for inflation) returns, as opposed to nominal returns.
- throwaheyy 3y ago
  GP is talking about housing appreciation in excess of inflation — the terms they used “real return” and “purchasing power” are specific economic terms that mean inflation-adjusted rate of return or price levels respectively.
- deleted 3y ago
  [deleted]
- kwere 3y ago
  >but eventually the majority of voters will live in rental accommodation, and they'll vote for policies to bring house prices back in line with inflation. For most developed countries with declining birth rates, the opposite will happen, older generations will be more than ever represented politically and they will vote to favour home ownership bcs they inherited valuable assets from previous generations and/or had the possibility after decades of renting to get on the property ladder.
waveBidder 3y ago
the scarcity is more a property of the concentration of people in urban areas than population growth in general, but yeah. homes are depreciating assets with some bonus land speculation
rcpt 3y ago
> far future Voting demographics and policy makers will be dead by then.
snowwrestler 3y ago
Real returns from home price appreciation are sustainable to the extent that only some homes see such real returns. And indeed, national housing data shows that averaged over time and distance, U.S. home prices don’t climb faster than inflation. Even though some hot markets do.
- ascotan 3y ago
  Here's are a few charts tracking home prices vs the consumer price index: https://www.longtermtrends.net/home-price-vs-inflation/ https://www.longtermtrends.net/home-price-vs-inflation/ https://www.bankingstrategist.com/housing-prices-hpi-vs-cpi https://www.bankingstrategist.com/housing-prices-hpi-vs-cpi
whatever1 3y ago
Physical space in desired locations is limited. Aka each marginal spot will be higher in price with the last spot having a price of infinity. So yes as long a location is desirable (think Manhattan or Shanghai) , sky is the limit in terms of prices. Skyscrapers can help a bit by making this 2d problem to 3d but still there are limits.
- QIYGT 3y ago
  Skyscrapers are very expensive to build. What would actually help is allowing ~10 story buildings everywhere in the five boroughs with a fast and simple permitting process.
  - adastra22 3y ago
    Geology factors into this. There is a reason only downtown and midtown have skyscrapers.
    - QIYGT 3y ago
      There is a reason, but it is not geology. https://www.6sqft.com/the-bedrock-myth-the-evolution-of-the-nyc-skyline-was-more-about-dollars-than-rocks/ https://www.6sqft.com/the-bedrock-myth-the-evolution-of-the-...
      - bobthepanda 3y ago
        To elaborate; downtown and midtown are the two transport nexuses in New York City where most if not all suburban labor markets are easy to access, and employers want to have their pick of employees. NYC is an archipelago separated by large bodies of water, and it is hard to avoid going through Manhattan to go between the western suburbs, the northern suburbs/Bronx, and the eastern suburbs/Brooklyn/Queens. What few links exist are always horribly congested.
        jen20 3y ago
        That wasn’t always the case - there used to be street cars between Brooklyn and Queens for example. Geology is the reason there aren’t skyscrapers in the west village etc though.
dragonwriter 3y ago
> If the value of a house appreciates in terms of purchasing power for some other good at a constant rate, Houses don't appreciate, they just (often) depreciate less in absolute terms than the land they sit on appreciates.
- majormajor 3y ago
  Yeah, and that's also the reason that far more people are complaining about housing prices specifically in high-demand cities vs ghost towns in the rust belt... Talking about housing prices without talking about demand being a non-static thing is only talking about half the story. And development, by its very nature, is intended to increase demand and make land even more valuable, so it can easily have unanticipated results. We moved demand around in the past, such as with the federal government and defense contractors spreading out a bunch of work in the Cold War to smaller developing cities. It could happen again.
7speter 3y ago
At this point, I think people of a certain age would just be happy to have a parcel of land with a roof over their head to call their own as opposed to buying a house as some sort of long term investment whose value keeps accumulating (and whose tax value will continue to increase as a result)
- notyourwork 3y ago
  Exactly, I just want my own place. The land and roof to do what I want with. It’s not monopoly for most people.
  - dataflow 3y ago
    Sure if you have a separate home on your own dedicated land, but what about everyone with HOAs, property taxes, etc. to deal with? For many people they still have to pay "rent" and still can't really do whatever they want with the land and roof, so they don't see much of these benefits either, right?
    - b112 3y ago
      This is like women's pants, and women complaining about the lack of pockets. If everyone refused to buy with a HOA, then they would vanish in new builds, and could even be uniformly voted to disband in old builds. But apparently some like HOAs (don't ask me why).
      - bobthepanda 3y ago
        HOAs are the only legal mechanism for a development to assess fees to maintain common amenities. If your neighborhood hires landscapers, or has a pool, or you share literally any part of the building structure, then an HOA comes into play. Often new developments have private roads that need maintenance, snow clearing, etc.
      - throwaway646465 3y ago
        Many local municipalities actually require the developer to include a new HOA as part of the permitting process for new development. This is because small local governments are often too cash poor to foot the additional road maintenance, utilities, etc so they want to offload the cost to the developers/ the developers customers.
version_five 3y ago
In north america, housing has outpaced other costs because of a shift to near universal low-income families, then multi-generational families, plus capital flight from other countries (china etc). There's some other factors (population growth, move to cities) but there are less important.
- version_five 3y ago
  Low-income should be "two-income"
ajmurmann 3y ago
This is where it would make sense to differentiate between land value and property value and go all Georgian on this. You should benefit from value you added by improving what's on the lot. However, we should limit or erase what someone gains from the land itself going up in value. That we aren't doing that, results in empty lots being a fine investment, even though it's a massive lost opportunity for society.
oceanplexian 3y ago
The house doesn’t go up in value, houses depreciate. Hence why the IRS let’s you take a tax break for depreciation if you use one for business purposes. It’s the land that goes up in value and land will never be a sustainable resource. As the saying goes- they aren't making any more land. Land (in an area with a growing population) is a finite resource, like gold or precious metals. Nothing about it is an illusion, if you re-zone for dense housing, it will actually further accelerate the increase in price for a single family home since the land underneath is now has more utility.
- smileysteve 3y ago
  They aren't making more land, but in many places, they are making habitable, service-able land - and vice versa.
- seventhtiger 3y ago
  Land is effectively infinite. But it's a non-fungible ranked good. For something like real estate your entire lifestyle depends on your ranking, including ability to work. It's a community wide constant auction. It is naturally a race to the bottom. As long as a community is getting wealthier, the competition will be more fierce. You can develop more land as fast as possible. Unless you're lowering the ranking of the whole area, then again as the community develops competition will become more fierce. How much does a home cost? $(however much the second buyer can maximally afford) + $1.
  - formerly_proven 3y ago
    > How much does a home cost? $(however much the second buyer can maximally afford) + $1. Which, as a corollary, also means that with double income now being the norm, prices are basically doubled on their own. This also means everyone who doesn't participate in comphet can get fucked.
    - seventhtiger 3y ago
      I've thought about this a lot, and this is happening in real time where I am in Saudi Arabia. The break neck transition from single income households to double income households. Employment is never a choice. You either can't work, or you must work. Choosing not to work means getting priced out by everyone who does work for all ranked goods. If you could put a value on a stay-at-home spouse's labor, you can work out whether this was a positive or negative to the family's economy. You see that at the low income end, a double income society forces the family to have a lot less just to compete for rent. Educated professional couples earn more, while outsourcing house labor to the low income families. Capitalists are very happy because they doubled the supply of their labor. Essentially you see a person go from full time cooking for their family and raising their kids, to working at a fastfood restaurant and babysitting other people's kids for minimum wage, while their own family gets no support.
capableweb 3y ago
> I've never understood how real returns on house prices could be believed to be sustainable. If the value of a house appreciates in terms of purchasing power for some other good at a constant rate, at some point in the far future just a single house would become valuable enough to purchase the entire global supply of the other good. Isn't this the illusion our economic system gives us though, for everything from goods to companies in general? There is no "top" of the value of a company, so seemingly everyone is OK believing companies can grow forever and always get bigger/more profitable, so shareholders gets more profit. If this is to believed, why cannot you believe the same for the housing market? Seems to fit with how most people understand the underlying economic model anyways.
paulcole 3y ago
> I’ve never understood how real returns on house prices could be believed to be sustainable Isn’t this the entire point of the article? That everybody knows this is unsustainable. They just care about sustaining it until they benefit. Then after that who gives a shit.
ummonk 3y ago
Well, that could just mean other goods are getting cheaper (in real terms). The actual issue is if returns on house prices outpace wage growth.
enaaem 3y ago
Home owners are a big voting block.
akira2501 3y ago
> historical population growth creating scarcity Is that really down to a single factor? Would it be impossible to improve the situation by creating more developed land and/or rezoning the land we already have to allow higher density in more desirable locations? If it's all just population growth, then all you've done is shifted to a new "unsustainable" metric with all the attendant problems you've just flagged.
WillPostForFood 3y ago
house price appreciation is due to historical population growth creating scarcity, and cheaper money allowing for higher and higher leverage If was just population growth and cheap money, you might expect housing prices would rise everywhere, but prices have dropped in places like Buffalo, Detroit, Cleveland. The housing price bubble is in large part because there is a been a highly uneven distribution of high value job creation. Also, a side effect of the influx of high paying jobs is that local amenities spring up (restaurants, grocery stores, coffee, breweries - typical gentrification), and that reinforces the demand and pushes prices even higher. Drive across the country and it is clear land scarcity is not a problem, it is just that too many people want or need to live in the same small areas.
jschveibinz 3y ago
Scarcity does exist and will always exist in desirable locations. The music only stops when the location is no longer desirable. Remember: location, location, location.
rrrrrrrrrrrryan 3y ago
The upper limit is when the middle class has the entirety of their retirement accounts invested in their homes. As long as investments in primary residences continue to maintain their unique tax advantages, people will keep dumping their life savings into their homes.
- nazgulnarsil 3y ago
  And then sell to someone who is willing to trade away $ sufficient to retire on for just a home. I'd say this seems crazy but we're already there. People in SF and NY sit on homes and keep working when they could sell the home and jet set for life.
Freire_Herval 3y ago
Bubbles can pop but actual scarcity doesn't cause the music to stop.
seanmcdirmid 3y ago
> The illusion of house price appreciation is due to historical population growth creating scarcity, and cheaper money allowing for higher and higher leverage. At some point the music has to stop. The music did stop in the 90s, we just forgot what a low point in the cycle looks like.
muyuu 3y ago
it's based on an expectation of long-term economic concentration that has held for centuries so it's not expected to reverse anytime soon the concentration is two-fold: of capital toward assets as the monetary mass keeps growing outpacing human labour/capital, and geographical as location near economic activity continues to matter a lot for most people i don't think there are any instances of these trends reversing without the money simply moving elsewhere
- harambae 3y ago
  > long-term economic concentration that has held for centuries This reminds me of the article someone posted on HN that, from ancient Roman times till today, a nice house has always cost roughly 10,000 grams of gold. It wasn't quite true and is an over-generalization, but it was an interesting point. I see this recent housing boom mostly through the lens of monetary expansion, since the US population has not actually skyrocketed over the last 2 years.
  - muyuu 3y ago
    while you are right this hasn't strictly happened over a 2-year period, the US population has concentrated significantly during this generation, creating a supply crunch on economically desirable locations supply crunches create volatile markets in the short term
tim333 3y ago
They historically go up in line with wages. That means city center property may go up in real terms as wages go up in real terms. Non city center, people tend to build bigger better houses as they get richer so you have to invest more to keep up.

draw_down 3y ago

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cantaloupe 3y ago

Especially considering the house structure itself is usually depreciating in real/material value (whether or not the price is still going up) due to aging. At a certain point, just the land needs to cover those real returns.

JKCalhoun 3y ago
The land is the part that appreciates. Proximity to good schools (and well paying jobs at one time) were the driver.
- pydry 3y ago
  It's amazing how we've managed to set up an economic system where schoolteachers drive up their own rent and declared it fair.
  - dumbfounder 3y ago
    That's true for anyone that provides a positive impact on the community. You make something better, it increases in value. Could be a store, could be a trash person, could be a police officer, could be street performer, could just be the person that maintains a nice lawn.
quonn 3y ago
It‘s not like the structure rots or crumbles every year. It can last 100 years or more so it doesn‘t really affect the price that much. In any case the same house in a great location is valued far, far higher than in the middle of nowhere which is a good indicator where the price comes from. Not from the structure primarily.
- zxcvbn4038 3y ago
  Have you priced housing in middle of nowhere lately? I would be more then happy to live an hour off the interstate and have a couple acres of trees for neighbors. No problems with maintaining a well, having a septic system, and a propane tank. Doesn’t bother me that DoorDash doesn’t come there, StarBucks is a trip, and Amazon doesn’t do next day delivery. Houses like that now start around $350k and go straight to the moon. Most of them were purchased in the last 2-3 years and the sellers are trying flip them at 2-6x the price having made no improvements at all. The purchase history is public record and very telling. At some point the banks should step in and say hey, there is no way this property is worth $300k, $600k, $900k - it will never sell at that price again, none of the local industries pay well enough to have a $7k per month mortgage payment, if the loan defaults we are going to take a bath. However the banks don’t do that, they just say California idiot has money to blow, give him the loan. And of course the California idiot is going to have problems also when he wants to move in 2-7 years and finds out nobody can afford his house.
DesiLurker 3y ago
but the real appreciation is actually in land prices. at least in highly contested markets. though I agree with larger point that its not productive growth. In fact I have been saying in past that land prices are the perfectly useless sink for the worthless money created by central bankers out of thin air.

jahnu 3y ago

Stein’s Law - If something cannot go on forever, it will stop.

quonn 3y ago

Wait what happens when it collapses a bit. Less improvements will be done on existing properties, even less will be built. Sustainability requirements and quality of new housing goes up, as usual. Prices will rise again to reflect this. edit: Seems to be a controversial opinion given the votes. But what‘s controversial about a pork cycle? Housing markets create a pork cycle.

DesiLurker 3y ago

Most people stay in houses (statistically) for 7 years. so it really is appreciation of their capital. for a common person its the most leveraged investment one can do because its deem 'safe'. let leverage is 5x-10x depending upon your down payment. so from ROI terms it works out so long as prices steadily march upwards. I agree its just larger buyer pool chasing slowly increasing supply. but you have to understand the population growth is only needed locally so so long as a metro remains financially viable growth will continue & hence housing prices. Also thanks to some spectacularly BS regulations/nimbyism we cannot build fast enough so that creates extra pressure in coastal centers.

baerrie 3y ago

Shelter is a unique and essential commodity. To me, it makes sense that it appreciates faster than your average good which is rarely essential. At the same time, if housing was made universally available, I think the great lift in burden on the average citizen would render the need for appreciating assets to diminish. As it stands now, my house has to appreciate for it to be worth it

datadata 3y ago
Food is also essential. If housing appreciated at a constant rate against a commodity like wheat for example, eventually you would be able to sell a house for the entire global supply of wheat (assuming wheat supply grew slower) .
- baerrie 3y ago
  Food in general is essential but not any one specific form of food. If wheat was the only food then I would agree. The same could be said for housing but housing in a particular location is mostly fixed and limited unlike the flow of food and other resources
mitthrowaway2 3y ago
Shelter is essential, but "real returns" means returns to housing as an asset above inflation, which includes the cost of shelter. Even if the cost of every other good drops to zero and all that is left is rent, the house asset would need to keep going up faster than the rent charged to live there. Maybe that's possible in the case of increasing population and population density, but it can't be possible everywhere, especially with a flat or declining population. Unless interest rates fall forever, that is.

Gareth321 3y ago

> I've never understood how real returns on house prices could be believed to be sustainable. If the value of a house appreciates in terms of purchasing power for some other good at a constant rate, at some point in the far future just a single house would become valuable enough to purchase the entire global supply of the other good. This is likely on me for misunderstanding your comments, but if housing costs increase in line with inflation then everything else will get expensive too. The relative cost of other goods will be constant, and we would never reach a place where a single house could be so relatively valuable. Unfortunately, house prices have been outpacing inflation. This can't continue forever. It's being propped up by laws and policies and special tax exemptions, but eventually the majority of voters will live in rental accommodation, and they'll vote for policies to bring house prices back in line with inflation.

ericpauley 3y ago
This is what GP means by “real” (after accounting for inflation) returns, as opposed to nominal returns.
throwaheyy 3y ago
GP is talking about housing appreciation in excess of inflation — the terms they used “real return” and “purchasing power” are specific economic terms that mean inflation-adjusted rate of return or price levels respectively.
deleted 3y ago
[deleted]
kwere 3y ago
>but eventually the majority of voters will live in rental accommodation, and they'll vote for policies to bring house prices back in line with inflation. For most developed countries with declining birth rates, the opposite will happen, older generations will be more than ever represented politically and they will vote to favour home ownership bcs they inherited valuable assets from previous generations and/or had the possibility after decades of renting to get on the property ladder.

waveBidder 3y ago

the scarcity is more a property of the concentration of people in urban areas than population growth in general, but yeah. homes are depreciating assets with some bonus land speculation

rcpt 3y ago

> far future Voting demographics and policy makers will be dead by then.

snowwrestler 3y ago

Real returns from home price appreciation are sustainable to the extent that only some homes see such real returns. And indeed, national housing data shows that averaged over time and distance, U.S. home prices don’t climb faster than inflation. Even though some hot markets do.

ascotan 3y ago
Here's are a few charts tracking home prices vs the consumer price index: https://www.longtermtrends.net/home-price-vs-inflation/ https://www.longtermtrends.net/home-price-vs-inflation/ https://www.bankingstrategist.com/housing-prices-hpi-vs-cpi https://www.bankingstrategist.com/housing-prices-hpi-vs-cpi

whatever1 3y ago

Physical space in desired locations is limited. Aka each marginal spot will be higher in price with the last spot having a price of infinity. So yes as long a location is desirable (think Manhattan or Shanghai) , sky is the limit in terms of prices. Skyscrapers can help a bit by making this 2d problem to 3d but still there are limits.

QIYGT 3y ago
Skyscrapers are very expensive to build. What would actually help is allowing ~10 story buildings everywhere in the five boroughs with a fast and simple permitting process.
- adastra22 3y ago
  Geology factors into this. There is a reason only downtown and midtown have skyscrapers.
  - QIYGT 3y ago
    There is a reason, but it is not geology. https://www.6sqft.com/the-bedrock-myth-the-evolution-of-the-nyc-skyline-was-more-about-dollars-than-rocks/ https://www.6sqft.com/the-bedrock-myth-the-evolution-of-the-...
    - bobthepanda 3y ago
      To elaborate; downtown and midtown are the two transport nexuses in New York City where most if not all suburban labor markets are easy to access, and employers want to have their pick of employees. NYC is an archipelago separated by large bodies of water, and it is hard to avoid going through Manhattan to go between the western suburbs, the northern suburbs/Bronx, and the eastern suburbs/Brooklyn/Queens. What few links exist are always horribly congested.
      - jen20 3y ago
        That wasn’t always the case - there used to be street cars between Brooklyn and Queens for example. Geology is the reason there aren’t skyscrapers in the west village etc though.

dragonwriter 3y ago

> If the value of a house appreciates in terms of purchasing power for some other good at a constant rate, Houses don't appreciate, they just (often) depreciate less in absolute terms than the land they sit on appreciates.

majormajor 3y ago
Yeah, and that's also the reason that far more people are complaining about housing prices specifically in high-demand cities vs ghost towns in the rust belt... Talking about housing prices without talking about demand being a non-static thing is only talking about half the story. And development, by its very nature, is intended to increase demand and make land even more valuable, so it can easily have unanticipated results. We moved demand around in the past, such as with the federal government and defense contractors spreading out a bunch of work in the Cold War to smaller developing cities. It could happen again.

7speter 3y ago

At this point, I think people of a certain age would just be happy to have a parcel of land with a roof over their head to call their own as opposed to buying a house as some sort of long term investment whose value keeps accumulating (and whose tax value will continue to increase as a result)

notyourwork 3y ago
Exactly, I just want my own place. The land and roof to do what I want with. It’s not monopoly for most people.
- dataflow 3y ago
  Sure if you have a separate home on your own dedicated land, but what about everyone with HOAs, property taxes, etc. to deal with? For many people they still have to pay "rent" and still can't really do whatever they want with the land and roof, so they don't see much of these benefits either, right?
  - b112 3y ago
    This is like women's pants, and women complaining about the lack of pockets. If everyone refused to buy with a HOA, then they would vanish in new builds, and could even be uniformly voted to disband in old builds. But apparently some like HOAs (don't ask me why).
    - bobthepanda 3y ago
      HOAs are the only legal mechanism for a development to assess fees to maintain common amenities. If your neighborhood hires landscapers, or has a pool, or you share literally any part of the building structure, then an HOA comes into play. Often new developments have private roads that need maintenance, snow clearing, etc.
    - throwaway646465 3y ago
      Many local municipalities actually require the developer to include a new HOA as part of the permitting process for new development. This is because small local governments are often too cash poor to foot the additional road maintenance, utilities, etc so they want to offload the cost to the developers/ the developers customers.

version_five 3y ago

In north america, housing has outpaced other costs because of a shift to near universal low-income families, then multi-generational families, plus capital flight from other countries (china etc). There's some other factors (population growth, move to cities) but there are less important.

version_five 3y ago
Low-income should be "two-income"

ajmurmann 3y ago

This is where it would make sense to differentiate between land value and property value and go all Georgian on this. You should benefit from value you added by improving what's on the lot. However, we should limit or erase what someone gains from the land itself going up in value. That we aren't doing that, results in empty lots being a fine investment, even though it's a massive lost opportunity for society.

oceanplexian 3y ago

The house doesn’t go up in value, houses depreciate. Hence why the IRS let’s you take a tax break for depreciation if you use one for business purposes. It’s the land that goes up in value and land will never be a sustainable resource. As the saying goes- they aren't making any more land. Land (in an area with a growing population) is a finite resource, like gold or precious metals. Nothing about it is an illusion, if you re-zone for dense housing, it will actually further accelerate the increase in price for a single family home since the land underneath is now has more utility.

smileysteve 3y ago
They aren't making more land, but in many places, they are making habitable, service-able land - and vice versa.
seventhtiger 3y ago
Land is effectively infinite. But it's a non-fungible ranked good. For something like real estate your entire lifestyle depends on your ranking, including ability to work. It's a community wide constant auction. It is naturally a race to the bottom. As long as a community is getting wealthier, the competition will be more fierce. You can develop more land as fast as possible. Unless you're lowering the ranking of the whole area, then again as the community develops competition will become more fierce. How much does a home cost? $(however much the second buyer can maximally afford) + $1.
- formerly_proven 3y ago
  > How much does a home cost? $(however much the second buyer can maximally afford) + $1. Which, as a corollary, also means that with double income now being the norm, prices are basically doubled on their own. This also means everyone who doesn't participate in comphet can get fucked.
  - seventhtiger 3y ago
    I've thought about this a lot, and this is happening in real time where I am in Saudi Arabia. The break neck transition from single income households to double income households. Employment is never a choice. You either can't work, or you must work. Choosing not to work means getting priced out by everyone who does work for all ranked goods. If you could put a value on a stay-at-home spouse's labor, you can work out whether this was a positive or negative to the family's economy. You see that at the low income end, a double income society forces the family to have a lot less just to compete for rent. Educated professional couples earn more, while outsourcing house labor to the low income families. Capitalists are very happy because they doubled the supply of their labor. Essentially you see a person go from full time cooking for their family and raising their kids, to working at a fastfood restaurant and babysitting other people's kids for minimum wage, while their own family gets no support.

capableweb 3y ago

> I've never understood how real returns on house prices could be believed to be sustainable. If the value of a house appreciates in terms of purchasing power for some other good at a constant rate, at some point in the far future just a single house would become valuable enough to purchase the entire global supply of the other good. Isn't this the illusion our economic system gives us though, for everything from goods to companies in general? There is no "top" of the value of a company, so seemingly everyone is OK believing companies can grow forever and always get bigger/more profitable, so shareholders gets more profit. If this is to believed, why cannot you believe the same for the housing market? Seems to fit with how most people understand the underlying economic model anyways.

paulcole 3y ago

> I’ve never understood how real returns on house prices could be believed to be sustainable Isn’t this the entire point of the article? That everybody knows this is unsustainable. They just care about sustaining it until they benefit. Then after that who gives a shit.

ummonk 3y ago

Well, that could just mean other goods are getting cheaper (in real terms). The actual issue is if returns on house prices outpace wage growth.

enaaem 3y ago

Home owners are a big voting block.

akira2501 3y ago

> historical population growth creating scarcity Is that really down to a single factor? Would it be impossible to improve the situation by creating more developed land and/or rezoning the land we already have to allow higher density in more desirable locations? If it's all just population growth, then all you've done is shifted to a new "unsustainable" metric with all the attendant problems you've just flagged.

WillPostForFood 3y ago

house price appreciation is due to historical population growth creating scarcity, and cheaper money allowing for higher and higher leverage If was just population growth and cheap money, you might expect housing prices would rise everywhere, but prices have dropped in places like Buffalo, Detroit, Cleveland. The housing price bubble is in large part because there is a been a highly uneven distribution of high value job creation. Also, a side effect of the influx of high paying jobs is that local amenities spring up (restaurants, grocery stores, coffee, breweries - typical gentrification), and that reinforces the demand and pushes prices even higher. Drive across the country and it is clear land scarcity is not a problem, it is just that too many people want or need to live in the same small areas.

jschveibinz 3y ago

Scarcity does exist and will always exist in desirable locations. The music only stops when the location is no longer desirable. Remember: location, location, location.

rrrrrrrrrrrryan 3y ago

The upper limit is when the middle class has the entirety of their retirement accounts invested in their homes. As long as investments in primary residences continue to maintain their unique tax advantages, people will keep dumping their life savings into their homes.

nazgulnarsil 3y ago
And then sell to someone who is willing to trade away $ sufficient to retire on for just a home. I'd say this seems crazy but we're already there. People in SF and NY sit on homes and keep working when they could sell the home and jet set for life.

Freire_Herval 3y ago

Bubbles can pop but actual scarcity doesn't cause the music to stop.

seanmcdirmid 3y ago

> The illusion of house price appreciation is due to historical population growth creating scarcity, and cheaper money allowing for higher and higher leverage. At some point the music has to stop. The music did stop in the 90s, we just forgot what a low point in the cycle looks like.

muyuu 3y ago

it's based on an expectation of long-term economic concentration that has held for centuries so it's not expected to reverse anytime soon the concentration is two-fold: of capital toward assets as the monetary mass keeps growing outpacing human labour/capital, and geographical as location near economic activity continues to matter a lot for most people i don't think there are any instances of these trends reversing without the money simply moving elsewhere

harambae 3y ago
> long-term economic concentration that has held for centuries This reminds me of the article someone posted on HN that, from ancient Roman times till today, a nice house has always cost roughly 10,000 grams of gold. It wasn't quite true and is an over-generalization, but it was an interesting point. I see this recent housing boom mostly through the lens of monetary expansion, since the US population has not actually skyrocketed over the last 2 years.
- muyuu 3y ago
  while you are right this hasn't strictly happened over a 2-year period, the US population has concentrated significantly during this generation, creating a supply crunch on economically desirable locations supply crunches create volatile markets in the short term

tim333 3y ago

They historically go up in line with wages. That means city center property may go up in real terms as wages go up in real terms. Non city center, people tend to build bigger better houses as they get richer so you have to invest more to keep up.