10 ms·

What makes housing so expensive?

111 points by jseliger 3y ago

recursivedoubts 3y ago
In the modern economy costs expand to fill the available debt financing. See also cars and university tuition.
- lifestyleguru 3y ago
  The cost of housing and to some extend education have more dimensions to expand into - investment funds and virtually infinite fortunes of billionaires/oligarchs/sheikhs. Any attractiveness factor of these two multiplies the cost exponentially. Nowadays the "supply-demand" cliche sounds like a ruthless teasing.
croo 3y ago
The question is interesting, the conclusion says basically nothing: > The cost of housing comes from a variety of sources. In most cases, for both new construction and existing housing, the largest line item is the cost of constructing the home itself. For new construction this is on average 80% of the cost of a home (including hard and soft costs), while for existing construction it's still in the neighborhood of 60-70%. > It’s only in dense urban areas that the cost of land begins to dominate the cost of new housing, driven by regulatory and zoning restrictions that limit how much housing can be built in a given area. Another way of looking at it is that in the areas that we need housing the most, zoning and regulatory factors are responsible for the lion’s share of housing costs.
- 082349872349872 3y ago
  > It’s only in dense urban areas that the cost of land begins to dominate the cost of new housing It's only in hot loops that cross-iteration dependencies begin to dominate the cost of instruction dispatch.
lwansbrough 3y ago
While I think the article does a good job breaking down the costs, the top comment does a better job highlighting the arbitrary restriction of supply as the primary source of housing costs (though, the article does get there in the end and makes effort to highlight zoning in the conclusion.) It should be considered that, in a market where supply is limited, the economics of scaling housing development are also limited, such that the associated costs of building go up. Fewer opportunities to build means fewer materials suppliers, fewer labourers, etc. which can mean price gouging when demand is bursting. Zoning restrictions and building code are the primary causes from which (virtually) all systemic issues originate. They are also the easiest to fix, and can be rewritten overnight if needed. We just don't see enough outrage yet, but I believe the pitchforks are coming for city councillors across Canada and the US.
- nemo44x 3y ago
  Who is going to build all these new houses? Unemployment is super low and tradesmen are completely booked. Many skilled tradesmen require licensing that takes years to acquire and can not be brought online quickly. Others are unionized that restrict membership. We can’t even fulfill demand today for the necessary labor. And then there’s materials. Did you see what happened to costs with an uptick in the demand/supply balance during Covid? It’s not so easy to just suddenly increase supply to suit demand on many materials as the inputs come from natural sources that are limited. It would also increase demand for labor from an increasingly small pool driving up costs again. Lastly the people that own the land wound rather build valuable things on it than housing for poors. So even if you changed zoning you wouldn’t be able to build much more any time soon, if ever. For most of history a lot of people had rather modest living conditions. Very small spaces with limited services. It’s more likely we regress towards that than somehow create ample housing that we consider comfortable today.
  - daedrdev 3y ago
    In cities that have removed massive zoning barriers, like Minneapolis, housing prices have massivley improved in just a few years. As it turns out, we live in a dynamic economy that can scale up production when it becomes profitable, espically when you consider that its easier to build a multi unit housing block on one piece of land than the same number of housing units in several pieces. Additionally, we know that though all new housing is marketed as luxgury, studies have shown that still improves the housing market for the less well of as prospective buyers wont take the more run down units ahead of them. I woukd say that allowing housing prcies to continue to increase is clearlu much worse for the poor anyway. Overall, I completely disagree with your argument, as you argue that we shouldn't try and induce more housing because it is difficult? Like why is that even a reason to not build hosting given private developers will pay for it anyway.
jonplackett 3y ago
Landlords: https://www.youtube.com/watch?v=6izshH4ymtk https://www.youtube.com/watch?v=6izshH4ymtk
OtherShrezzing 3y ago
>People concerned about building more housing are right to pay attention to zoning and land use rules: over 100 million Americans live in places where most of the cost of residential property comes from the land itself. But they should not neglect the physical costs of building homes, which are overall more important. I think the author misses the reason people focus on the post-construction demand/supply issues, rather than the cost of construction parts and labour. You can only reduce the cost of parts and labour for newbuild properties (improvements in prefabrication techniques for example, will not reduce the construction cost of a 1930's townhouse). The price increase from building a home becomes essentially irrelevant, as far as construction costs are concerned, the second it's complete. Supply-side changes & reforms impact all houses - new builds and existing properties. Increasing supply or reducing demand lowers the price of all homes, which is why people focus attention there.
- mitthrowaway2 3y ago
  Reducing the cost of newly built housing does also reduce the resale price of existing old-stock housing, because they're competing for the same buyers.
  - cqqxo4zV46cp 3y ago
    Kind of. A house built in, say, 2024 would have to be quite significantly less costly before I’d consider it over a house from, say, ~30 years ago. Construction is making a terrible name for itself. I am far from alone in this mentality.
    - thereisnospork 3y ago
      Sure, but the market will/would equilibrate to a price differential for new vs. old stock. What that differential is ( and how it matches to your personal valuation) is irrelevant to the net validation decrease.
    - bombcar 3y ago
      It really depends on the area and builders and buyers - around here 30 years puts you right into the last building boom, so the average house from then isn’t necessarily well build, and is much worse from an energy/HVAC viewpoint.
hunglee2 3y ago
Mainly because its an asset bubble, which can inflate and deflate depending on investment demand. Remember in the 1980's when the Imperial Palace in Tokyo was worth more than all the real estate in California? 40 years on and you can buy a home in Japan for literally zero cost.
whatever1 3y ago
Who knows why American houses are expensive? They are completely trash. Built with paper and matchsticks.
- silisili 3y ago
  My first house was built in the 40s. It was framed of 2x4s just as today, and had asbestos siding to boot. People like to hate on our building methods, but they hold up really well for the most part.
  - formerly_proven 3y ago
    From a bricks and concrete and steel perspective, wooden-framed houses with drywall interiors certainly have many advantages, for example far easier infrastructure maintenance - a lot of the piping and wiring remains openly accessible or is just in drywall. If you need to replace a leaky pipe in an european house, you're going to absolutely wreck the room. If you need to replace the wiring or want to pull new wires (e.g. network or CATV), well there is no pulling new wires. Only wrecking the rooms with a wall chaser. Remodeling seems way easier. Also central ventilation being quite common, while essentially impossible to retrofit into a brick and mortar house.
    - silisili 3y ago
      This is certainly true, but one thing I've found a pain in the ass is that every era has a texturing technique that nobody in the future can figure out. My house now has a knockdown texture, and I've had four people(including myself and 3 pros) try to match it and fail. So while accessing the plumbing in the wall is super easy, you can also easily tell someone accessed the plumbing in the walls.
      - bombcar 3y ago
        You have to retexture the whole wall or room! The optical wall covering for maintenance is probably something like shiplap, but it’s much more expensive.
f321x_ 3y ago
Fiat money
moulovi 3y ago
[flagged]
andrewstuart 3y ago
The title should be "What makes constructing a house so expensive". Housing is expensive for many other reasons.
deleted 3y ago
[deleted]
mihaic 3y ago
The fact that it makes more sense financially to borrow a million to buy a house and keep your 500k of savings tied up in the S&P 500 means we're far away from a solution. People don't seem to realize that something being a solid investment and it being widely accessible are contradictory terms and that ideal regulation would work towards a balance of these, not over-optimization of either.
- anneessens 3y ago
  This exactly. It's in the best financial interest of a homeowner to stop as much new construction of homes as possible. Until we move away from the idea that owning a home = wealth, then I don't see how this problem can be significantly fixed.
  - cqqxo4zV46cp 3y ago
    In a very short-sighted way, sure. It doesn’t even take that much galaxy-brain thinking to see how housing inequality can be detrimental to one’s finances.
    - anneessens 3y ago
      The short sightedness is the problem. As far as I know, NIMBY is endemic in the USA, precisely because home owners are so worried about lowering the value of their home.
      - mihaic 3y ago
        Exactly. If you stop seeing your house as an investment, and you own it, it doesn't matter if it's value goes down, if it goes along with the market. It even means it's easier for you to trade up. For the poor souls that have decades of interest left to pay on a loan it's a different story, but somehow, someone has to lose something for most people to have decent housing costs.
        anneessens 3y ago
phkahler 3y ago
The answer is in the first paragraph: >> "Most new homebuyers will pay around 30% of their income on their mortgage" You go to the bank looking for a loan. They use that exact sentence to determine your monthly payment. Lower interest rates mean you can borrow more for a given payment. Then they tell you how much you can borrow. Everyone involved - banker, agents, seller, neighbors - wants you to spend as much as possible. Even if you don't, prices are set by "the market" where people do. Hence prices are determined by interest rates. That first statement has been fairly constant for a very long time. There are exceptions in areas where other factors distort the market.
- drpixie 3y ago
  Yes - normal people normally pay everything they can afford on their house, so it's peoples' income that determines house prices. Interesting that almost everyone is happy to drive around in a mass produced car, precisely the same as 10,000 other vehicles. And cars, although much more capable, cost (relatively) much less than decades ago. But almost everyone wants their house to be special and unique, and pays whatever they can to that end. I don't see it as housing supply driving costs, so much as money supply.
  - bombcar 3y ago
    Builder are very good at making you think you’re getting a custom house as you build out a mass produced one. But even manufactured homes are expensive.
- surfingdino 3y ago
  A colleague of mine tried to apply for a mortgage in the UK. He had good savings, enough to cover 20% deposit (the lenders officially accepted 10% deposits) and there would be enough left to pay mortgage for a year. Good, steady income to allow him to comfortable pay the mortgage and put aside some money for savings/investments. One bank after another refused him a mortgage unless he'd agree to put all of his savings into the deposit, essentially forcing him into a precarious situation where any adverse event (loss of job, health problems, etc.) would jeopardise his ability to pay off his debt. Each bank he spoke to massively increased (doubled+) the interest rates way above what was advertised even if he'd put all of his savings into the deposit. He walked away and is still renting.
patrickhogan1 3y ago
The core of San Francisco’s housing problem is bureaucracy. In San Francisco, the fees paid to the government for building a single-family house range from $300K to $500K (compared to $30K average across the country), excluding land, materials, and labor costs. This means that for every existing house valued at $1 million, 30% to 50% of its value represents the fees (tax) imposed by the government.
crtified 3y ago
Another aspect is the vast infrastructure which underpins communities. The majority of which is beyond ones own property boundary. There's a consensus in some countries saying that infrastructure has been suffering a many decades-long decline. For example, New Zealand speaks of a theoretical US$120B deficit, which is in the ballpark of that entire country's yearly GDP. And as New Zealand itself is somewhat a testament to - it's possible to build somewhere new and distant instead, if you please, away from all these pesky existing infrastructure woes; and then, enjoy paying for everything to be transported there, and building your own all-new infrastructure. Not just the obvious - remember to include things like schools and hospitals and libraries and parks and commercial districts. The costs are numerous. I believe the author is correct in the sense that the biggest cost of housing may be the externalities, in the same broadly philosophical way that the biggest influence upon a person's life is the world. But it's a lot more than merely the zoning, I think.
- Dalewyn 3y ago
  >There's a consensus in some countries saying that infrastructure has been suffering a many decades-long decline. Everyone loves building. Everyone hates maintenance.
  - crtified 3y ago
    It's like the inverse of the saying 'The more things change, the more they stay the same' : The more you want things to remain the same, the more you have to keep altering them. :)
    - mejutoco 3y ago
      “Everything must change for everything to remain the same” – Tancredi, Prince Fabrizio Salina’s beloved nephew in the renowned novel “The Leopard”, written by Giuseppe Tomasi di Lampedusa.
leobg 3y ago
To me, it has always seemed completely bonkers that for most people, the roof over their head should be their #1 expense throughout their adult lives. It boggles my mind that walls made of bricks that someone laid some 50 years back along with a bunch of pipes are more expensive today than my Tesla Model X… and by a factor of 5 to 10. Of course, a house is more in terms of pure weight of material. But the again, that material is only dirt. It’s unreasonable that this should be something you’d be paying offf month after month, over decades. I understand that for people in urban areas, thei main part of their housing cost is actually competing with other people who’d like to live in the same place. I’m talking about construction cost only.
- cqqxo4zV46cp 3y ago
  There are plenty of things that have departed from cost-based pricing into supply and demand territory. That’s how things very often tend to go. Housing is just…special.
- oconnor663 3y ago
  To be fair, it's not really the bricks that are so expensive. It's the dirt :)
  - bombcar 3y ago
    Not around here, I can get the dirt for $15k, $50k if all services are ready for hookup. The bricks add another $250k, which is why the used houses go for somewhat less.
    - leobg 3y ago
      I want to buy a hydraulic press, and then fabricate the walls for my house right from the dirt at the building site. Like when they built The Dakota.
      - bombcar 3y ago
        Adobe is still used in the southwest sometimes, and works fine. Saves somewhat on the materials, but a lot of the cost is labor and things like plumbing, electrical, etc.
monkburger 3y ago
Greed makes them expensive. Besides, modern American homes are constructed very poorly, unable to justify the cost..
chihwei 3y ago
Need to build more large condo/apartment, just like NYC. SFH can't use land efficiently. Bureaucracy also contributes to house price significantly to the issue, but this is what you guys voted for, so enjoy it.
me551ah 3y ago
One thing that I've never understood, is why is there a huge preference for SFH in the US, compared to other countries? Where I live, India, most people prefer Apartments because of how many amenities you can get with it along with the added advantage of things like security. Seems like it is opposite in the US. Because if area is a concern, then apartments can house a lot more people compared to a row of SFH houses
- daedrdev 3y ago
  Its often bexaus eof zoning rules set by existing owners who dont want their neibhoood to change. Never mind that it makes little sense for single family housing only zoning to even exist in cities like SF.
- _8j50 3y ago
  More freedom and space. Having a back yard means you can do a lot of private outdoor activities and own larger pets and a nice playground for kids. A garage means you have a place to work on your car or other projects. I've lost cars because they were broken down and the apartmenr complex had them towed away because their polic forbids broken down cars (even just a flat tire). Apartments also mean noise issues, both being careful not to bother others and neighbors more easily disturbing you. And renting means you can get evicted easily for any number of reasons and in general, you end up moving every few years which makes it difficult to raise a family. Once you own a home and pay it off, you can work less or even stop working. You can even run a business out of it. You hear about tech companies like google or microsoft that were started in garages, most americans don't have those. The quality of life, especially for raising kids is much better with SFH.
  - fragmede 3y ago
    Apartments meaning noise issues is an issue of the American implementation of capitalism resulting in construction that doesn't prioritize how nice it is to actually live there. Similar to how the users of a product aren't the ones paying for it. Eg Microsoft Teams. If the incentives were different, the housing would be better constructed and not have noise issues.
crtified 3y ago
"We'll (just) overhaul these incredibly complex regulations!" are famous last words for some, and somewhat reminiscent of the paradox in the classic "we have too many competing standards, so let's solve that by... creating a new one" xkcd. Codes and regulations can't wisely be quickly slash-and-burned, because some are based upon solid reasoning - so the article's solution of overnight zoning and building code changes may be optimistic as a one-shot vision. We take so much for granted. Do we like our new fences being in exactly the right place? Do we want our new roof, or bathroom, to develop a leak in 3 years? Do we want the electricity to be safe, sharing the walls with our water pipes? Do we mind if a sewage composting facility sets up in the cheap suburb, next to the school? Is lead in the paint ok? Asbestos? Is it ok for workers in certain industries to get sick at a certain age because of what they've been exposed to? We could go on a long time. In the end, do the members of any densely-populated species gain their exclusive territory cheaply?
daedrdev 3y ago
Its because we have essentially banned building more housing in many cities. (Relative to the number of new jobs/housing needed, some housing does get built) Any project that makes it past the insane zoning requirements are attacked by locals for whatever reasons they can come up with to try and cancel the project. Complaints about foreign buyers and vacant homes do not make up for the massive supply shortfall.
- jeffreygoesto 3y ago
  Maybe it is also the slow but steady shift from rural to urban, because rural life is becoming less and less attractive? Otherwise there would not be such an influx and need for urban housing. Why is making life outside cities better not considered as alternative or additional measure?
- vjk800 3y ago
  What we usually see in cities all over the world is that increasing population density drives the house prices up, not down. For whatever reason, people like to live around other people. The more people already live in a city, the more other people want to move there, and this creates an upward pressure on housing prices.
  - jpgvm 3y ago
    Which is meant to be balanced out by increased housing density like we see in Asian mega cities like Tokyo and Bangkok which have very affordable housing despite many many more people. By making it impractical or outright banning high density housing this is the situation you arrive at.
  - daedrdev 3y ago
    I disagree. Cities are in a endless race to build more housing. They need to continue building housing to keep prices temporarily lower, a metaphorical treadmill as more people will always move into the city. If a city stop building housing, prices will go up for sure because demand continues to increase. Cities of course always have more demand, but that is their nature as economic and cultural hubs, we have no choice but to try and match this demand. Housing prices will not be low without building more housing, except your city has a specific reason that lowers demand, like lawlessness, economic ruin or some other disaster.
tibanne 3y ago
Governments allows banks to create new money in the money supply when they make a loan. Banks live to make these type of loans. It's basically no work for them and a lot of free interest money once they have them secured. One socially accepted area of taking a massive loan is in housing. People seem strangely ok to work as a slave for the banks so that they can live in a box. This pushes up the prices of housing and at the same time inflates the money supply. If we removed their ability to create new money, house prices would come down and people instead of banks could make an income from their own capital in peer to peer lending.
hiAndrewQuinn 3y ago
I grew up in one of those construction oriented families that sunk everything they had into buying, building, and renovating new properties. Indeed it made them very wealthy, but it left me impoverished in more ways than one. Did you know how much you have to pay for college isn't just calculated on your parents' income, but their assets, too? My parents didn't. I decided early on I don't want anything to do with that pyramid scheme. Give me a nondescript apartment on the 57th floor of a highrise any day of the week and let me do work which matters.
- zemvpferreira 3y ago
  I don't mean to comment on your particular situation but I would use your post to share a different experience. My own family was construction-oriented four generations ago, and it elevated us (the 3 still-to-be-born generations and the alive-at-the-time one) from poor to wealthy. That effort by my great-grandparents was one of the definitive blessings of my life. I still invest in construction/renovation myself and take as much meaning from providing housing to others as I do from work in technology.
  - hiAndrewQuinn 3y ago
    No offense taken. Cleaving away my very personal anger about how my dad's wealth fucked over my college plans: Moral culpability for high housing prices lies primarily with those who enact the housing regulations which artificially constrain supply, and hence allow long-term profits to be made in a market which really should drift down towards prefect competition, and not with the actual housing providers themselves, who are just ordinary profit-seeking business owners like the rest of us. You're doing a service to your fellow man, no matter what, because voluntary trade benefits both parties by definition. People often get in fights about the thorny intermediate layer here, which is that politics and economics intertwine. Many landlords politically advocate for further supply-constraining laws in their area, because surprise surprise, long-term profits are a really sweet deal if you can get them. I have no qualms saying that that is both (a) perfectly economically rational and (b) still a wrong thing to do. But I want to underline that that is mostly missing the forest for the trees here, which is housing regulations being a well entrenched thing in the first place.
avar 3y ago
Discussions of zoning, building codes etc. are valuable, but I think everyone's missing the main factor: If you somehow made housing 50% cheaper people would just demand 50% larger housing. If you look at housing size over time people today are living in palaces by the standards of someone a century ago. In the US, the average household size has expanded by 1000 sq ft since the 70s [1]. That's an addition of an average household from the 1910s, which on average had two more people living in it compared to today. And where people don't demand extra space they demand more luxury. One example is AC. It's unthinkable to construct a house without it in some parts of the US, but people living there a 100 years ago somehow made do without. Over here in western Europe we've had less size inflation than the Americans, but we've had the same luxury inflation. People here want insulation and sound proofing that's extravagant by American standards so they won't hear the neighbours, huge windows, electric sockets everywhere etc. 1. https://populationeducation.org/wp-content/uploads/2020/04/average-house-household-size-in-us-infographic.jpg https://populationeducation.org/wp-content/uploads/2020/04/a...
- quartesixte 3y ago
  The size thing is getting out of hand. I grew up in older housing built in the 60s and 70s -- fairly small by modern standards, but there was a bigger backyard and still enough space to store everything. It felt adequate and honestly more than enough for sleeping, eating, and resting from the outside world with friends and family. And then I started visiting my friends' more modern home and I was flabbergasted by the sheer size. You have to text someone to get their attention because yelling across the house is not very convenient anymore. And so many rooms just stood empty like gallery spaces -- "to be used on specific occasions". I don't quite get it -- and I hope that construction costs come down and permitting eases. For once I am ready to buy a home, I want to be able to custom build my own small house.
  - bombcar 3y ago
    The problem is that many prices for building are fixed, but increasing volume (size) is relatively cheap. It takes a builder about as much time to build a small house as a large one, and the large one is more profitable, so which do you think they’d like to build? You can certainly build a smaller house, but you get the $250k for a small house build but only $300-350 to double its size.
_8j50 3y ago
With the mortgage route, owning a house isn't beneficial until you pay it off, which for most people isn't until they are well into their 60's. The main benefit of owning a home is immediate improvement in quality of life, which is worth it only if you have a children to raise in my subjective opinion. Often, it's the people in the area that make or break the housing market, which blog posts like this always overlook. There are maybe a handful of metropolitan areas/megapolis in the US where the majority of americans could live and feel welcome. Land and building costs are probably cheaper in Idaho or rural Ohio but it may not be safe for anyone who can't assimilate to the goings ons if those areas. That can be said much of rural US. That's why not many remote workers relocate to cheaper and prettier places in the US. I am however a huge proponent of high speed rail connecting remote suburbs with city centers. Building new housing on unincorporated land and connecting it via high speed rail that is. Imagine suburbs in NE california or south of Reno,NV (or much of south central NV) to LA and SF. Or Denver with western colorado. Point is, much of the US is not developed. People would want to live in rural areas if it meant easy and fast access to cities. Even considering remote suburbs part of the big city in terms of tax, laws and infrastructure support.
- willis936 3y ago
  >With the mortgage route, owning a house isn't beneficial until you pay it off This is wrong. It's (financially) beneficial as soon as your equity surpasses the difference in payments between rental and buying, which is nearly immediately.
  - _8j50 3y ago
    This makes no sense, how does equity factor in? You mean if you sell the house? If so, that's only true if you are not just going to buy another house. So long as you have a monthly mortgage your liquidity will continue to be strangled by those payments. Your quality of life will not improve until you start having extra liquidity. Money is meaningless if you can't buy stuff with it. Being technically able to liquify your assets is not the same as having actual liquidity.
    - 3y ago
infl8ed 3y ago
".. but it also means that innovation is risky, and new products tend to be evolutionary ones that don’t change the overall construction process... In some cases, those efforts are successful, as with PEX piping replacing copper piping." Out of curiosity I searched 'pex piping microplastics' and several articles/studies came up about plastic shedding in pipes, including in pex piping, so innovation is risky indeed!
- karma_pharmer 3y ago
  Your water company's main pipes aren't made of copper. They're probably shedding something worse than microplastics into your water, long before it crosses your property line.
jnation 3y ago
Cheap money on tap from the bank pushes up house prices. Combine this with municipalities being unwilling to free up zoning for residential, and you have a limited supply which people will borrow as much as the bank will give them in order to obtain.
vjk800 3y ago
My own armchair economics theory of why housing is so expensive is that places where housing is not expensive tend to wither economically and people move elsewhere. Let me elaborate. We have made pretty much everything else than housing cheap. In places with cheap housing, people don't have an incentive to work and contribute to the economy anymore, which drives the economy down in those places. As a result, people have to move elsewhere (since the jobs will also disappear with the economy), driving housing prices up there. There is a feedback loop between housing prices and overall economic activity and people have to live in places with at least some sort of functioning economy, and thus all of the world gets partitioned into parts with cheap housing and no jobs and expensive housing with jobs.
- mariusor 3y ago
  That sounds a lot like you're confusing correlation for causation. :)
- surfingdino 3y ago
  Hard to disagree. Housing is essential, the rest is a luxury. However, in the UK we are slowly running out of places to move to for cheaper housing and maintain our ability to do the work we can do in the cities while maintaining current levels of income. Yes, there are cheaper places, but there are no jobs there or employers who notice you live there offer you substantially less money. People gravitate towards London and other large cities and he property prices follow. But there is a cruel twist to that story. In terms of income, London-based IT salaries and contract rates have gone back and below 2010 low levels. At least that's what I see on LinkedIn and in my inbox. The property prices did not adjust and even worse, the quality of newbuilds has gone through the floor (often literally) further exacerbating housing shortage. This is not going to end well for the UK.
martinbaun 3y ago
Monetary premium is the word to describe this. People use housing as a way to save their money because the gov. and banks print so much money and inflate our currencies away. In the countries, where people trust the governments and banks less, the prices of houses are usually a lot higher proportionally to the income of the people. Why? People do anything to save in real estate instead of saving in the bank or equities.
fulafel 3y ago
This seems set in the era of wasteful energy use. Outside of a narrow band of ideal natural climate, the energy efficiency imperative requires high focus on insulation, heat pumps, ventilation air energy recovery etc, whether you need to keep the cool air inside or outside. And in budgeting and design perspectives like this article, that can't angle can't be omitted.
concordDance 3y ago
The author seems to have ignored the elephant in the room. Inflation adjusted house prices have nearly doubled in the past 30 years.[1] The median price historically seems to have been around $200k but since the 1990s has increased to $400k. As far as I can see he provides no hypothesis that could explain the change. More than half the cost being physical construction means the physical construction costs have gone up by a lot. The libertarian in my feels obliged to notice that regulations and licensing can definitely increase all the costs of materials, electrical work, foundation building and construction in general, but that'll be mostly speculation. [1] https://dqydj.com/historical-home-prices/ https://dqydj.com/historical-home-prices/
- bombcar 3y ago
  Some of that can be explained by changes in the median home size - but not all. https://www.newser.com/story/225645/average-size-of-us-homes-decade-by-decade.html https://www.newser.com/story/225645/average-size-of-us-homes...
dhx 3y ago
A few more reasons, at least for Australia: - The easiest land is developed first, with further expansion and in-fill occurring for land that in the past was deemed too hard or too expensive to develop on. - Homes are larger and more complex as everyone's expectations have increased. A bedroom shared by two kids in two small beds is now two large bedrooms with queen sized beds. Second and third living areas are commonplace and much larger. - Modern homes are typically designed to only last only ~20 years before being knocked down and rebuilt. The theory being that people in 20 years time will demand different floor plans, different house features, etc and the cost of renovating an existing structure far exceeds the cost of rebuilding at the 20 year mark. - Homes are better engineered (for example, better insulated and with more waterproofing) but this requires more materials and labour, and is more complex, meaning more mistakes made during construction that require expensive repairs and rework. - Old growth forest has been depleted and we've now got a materials price that better matches longer term sustainable forestry pricing (however, it's still too low). - Public infrastructure such as roads are built to a much higher quality than the past. Open drains are replaced with buried stormwater piping. People expect MRI machines in climate controlled hospitals and larger climate controlled schools with more extra-curricular space/features.
oliwarner 3y ago
Finance! We've been in a 50 year cycle of banks and institutions offering higher and higher salary multipliers to borrowers so that people can afford bigger and better houses. The demand for those houses goes up, the prices follows. Time to increase the multiplier. Rinse, repeat. Why? Big mortgages generate big interest, far outweighing defaults. If you're uncertain, what do you think would happen to house prices if banks suddenly limited their new loans to 5x salary?
6510 3y ago
I really enjoyed learning that there is lots of experience in game design with land tax and real estate taxes to prevent players from hoarding it without doing anything with it. The later will create stale maps where nothing interesting ever happens. The prevailing logic (I read) is to turn it into a hot potato that you want to get rid of as fast as possible unless you really need it. I'm not suggesting loot boxes or to genetically engineer monsters to have players hunt them in the park to earn their keep. Our game already has plenty of grind.
Ajay-p 3y ago
The cost of housing comes from a variety of sources. In most cases, for both new construction and existing housing, the largest line item is the cost of constructing the home itself. For new construction this is on average 80% of the cost of a home (including hard and soft costs), while for existing construction it's still in the neighborhood of 60-70%. It’s only in dense urban areas that the cost of land begins to dominate the cost of new housing, driven by regulatory and zoning restrictions that limit how much housing can be built in a given area. Another way of looking at it is that in the areas that we need housing the most, zoning and regulatory factors are responsible for the lion’s share of housing costs.
wseqyrku 3y ago
> What makes housing so expensive? Because people will pay it.
deleted 3y ago
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paulus_magnus2 3y ago
How is housing expensive?? Assuming a 1.2m house (for easy math). You pay 200k down and take a 1m loan which is 6k/mo. After 10y you sell the house for 2.4m. Having paid 720k, ~500k of mortgage is left over. So 200k turns into 2.4m -500k -720k = 1.18m profit. Rather than renting for 5k (600k over 10y). How is housing expensive??

111 points by jseliger 3y ago

recursivedoubts 3y ago

In the modern economy costs expand to fill the available debt financing. See also cars and university tuition.

lifestyleguru 3y ago
The cost of housing and to some extend education have more dimensions to expand into - investment funds and virtually infinite fortunes of billionaires/oligarchs/sheikhs. Any attractiveness factor of these two multiplies the cost exponentially. Nowadays the "supply-demand" cliche sounds like a ruthless teasing.

croo 3y ago

The question is interesting, the conclusion says basically nothing: > The cost of housing comes from a variety of sources. In most cases, for both new construction and existing housing, the largest line item is the cost of constructing the home itself. For new construction this is on average 80% of the cost of a home (including hard and soft costs), while for existing construction it's still in the neighborhood of 60-70%. > It’s only in dense urban areas that the cost of land begins to dominate the cost of new housing, driven by regulatory and zoning restrictions that limit how much housing can be built in a given area. Another way of looking at it is that in the areas that we need housing the most, zoning and regulatory factors are responsible for the lion’s share of housing costs.

082349872349872 3y ago
> It’s only in dense urban areas that the cost of land begins to dominate the cost of new housing It's only in hot loops that cross-iteration dependencies begin to dominate the cost of instruction dispatch.

lwansbrough 3y ago

While I think the article does a good job breaking down the costs, the top comment does a better job highlighting the arbitrary restriction of supply as the primary source of housing costs (though, the article does get there in the end and makes effort to highlight zoning in the conclusion.) It should be considered that, in a market where supply is limited, the economics of scaling housing development are also limited, such that the associated costs of building go up. Fewer opportunities to build means fewer materials suppliers, fewer labourers, etc. which can mean price gouging when demand is bursting. Zoning restrictions and building code are the primary causes from which (virtually) all systemic issues originate. They are also the easiest to fix, and can be rewritten overnight if needed. We just don't see enough outrage yet, but I believe the pitchforks are coming for city councillors across Canada and the US.

nemo44x 3y ago
Who is going to build all these new houses? Unemployment is super low and tradesmen are completely booked. Many skilled tradesmen require licensing that takes years to acquire and can not be brought online quickly. Others are unionized that restrict membership. We can’t even fulfill demand today for the necessary labor. And then there’s materials. Did you see what happened to costs with an uptick in the demand/supply balance during Covid? It’s not so easy to just suddenly increase supply to suit demand on many materials as the inputs come from natural sources that are limited. It would also increase demand for labor from an increasingly small pool driving up costs again. Lastly the people that own the land wound rather build valuable things on it than housing for poors. So even if you changed zoning you wouldn’t be able to build much more any time soon, if ever. For most of history a lot of people had rather modest living conditions. Very small spaces with limited services. It’s more likely we regress towards that than somehow create ample housing that we consider comfortable today.
- daedrdev 3y ago
  In cities that have removed massive zoning barriers, like Minneapolis, housing prices have massivley improved in just a few years. As it turns out, we live in a dynamic economy that can scale up production when it becomes profitable, espically when you consider that its easier to build a multi unit housing block on one piece of land than the same number of housing units in several pieces. Additionally, we know that though all new housing is marketed as luxgury, studies have shown that still improves the housing market for the less well of as prospective buyers wont take the more run down units ahead of them. I woukd say that allowing housing prcies to continue to increase is clearlu much worse for the poor anyway. Overall, I completely disagree with your argument, as you argue that we shouldn't try and induce more housing because it is difficult? Like why is that even a reason to not build hosting given private developers will pay for it anyway.

jonplackett 3y ago

Landlords: https://www.youtube.com/watch?v=6izshH4ymtk https://www.youtube.com/watch?v=6izshH4ymtk

OtherShrezzing 3y ago

>People concerned about building more housing are right to pay attention to zoning and land use rules: over 100 million Americans live in places where most of the cost of residential property comes from the land itself. But they should not neglect the physical costs of building homes, which are overall more important. I think the author misses the reason people focus on the post-construction demand/supply issues, rather than the cost of construction parts and labour. You can only reduce the cost of parts and labour for newbuild properties (improvements in prefabrication techniques for example, will not reduce the construction cost of a 1930's townhouse). The price increase from building a home becomes essentially irrelevant, as far as construction costs are concerned, the second it's complete. Supply-side changes & reforms impact all houses - new builds and existing properties. Increasing supply or reducing demand lowers the price of all homes, which is why people focus attention there.

mitthrowaway2 3y ago
Reducing the cost of newly built housing does also reduce the resale price of existing old-stock housing, because they're competing for the same buyers.
- cqqxo4zV46cp 3y ago
  Kind of. A house built in, say, 2024 would have to be quite significantly less costly before I’d consider it over a house from, say, ~30 years ago. Construction is making a terrible name for itself. I am far from alone in this mentality.
  - thereisnospork 3y ago
    Sure, but the market will/would equilibrate to a price differential for new vs. old stock. What that differential is ( and how it matches to your personal valuation) is irrelevant to the net validation decrease.
  - bombcar 3y ago
    It really depends on the area and builders and buyers - around here 30 years puts you right into the last building boom, so the average house from then isn’t necessarily well build, and is much worse from an energy/HVAC viewpoint.

hunglee2 3y ago

Mainly because its an asset bubble, which can inflate and deflate depending on investment demand. Remember in the 1980's when the Imperial Palace in Tokyo was worth more than all the real estate in California? 40 years on and you can buy a home in Japan for literally zero cost.

whatever1 3y ago

Who knows why American houses are expensive? They are completely trash. Built with paper and matchsticks.

silisili 3y ago
My first house was built in the 40s. It was framed of 2x4s just as today, and had asbestos siding to boot. People like to hate on our building methods, but they hold up really well for the most part.
- formerly_proven 3y ago
  From a bricks and concrete and steel perspective, wooden-framed houses with drywall interiors certainly have many advantages, for example far easier infrastructure maintenance - a lot of the piping and wiring remains openly accessible or is just in drywall. If you need to replace a leaky pipe in an european house, you're going to absolutely wreck the room. If you need to replace the wiring or want to pull new wires (e.g. network or CATV), well there is no pulling new wires. Only wrecking the rooms with a wall chaser. Remodeling seems way easier. Also central ventilation being quite common, while essentially impossible to retrofit into a brick and mortar house.
  - silisili 3y ago
    This is certainly true, but one thing I've found a pain in the ass is that every era has a texturing technique that nobody in the future can figure out. My house now has a knockdown texture, and I've had four people(including myself and 3 pros) try to match it and fail. So while accessing the plumbing in the wall is super easy, you can also easily tell someone accessed the plumbing in the walls.
    - bombcar 3y ago
      You have to retexture the whole wall or room! The optical wall covering for maintenance is probably something like shiplap, but it’s much more expensive.

f321x_ 3y ago

Fiat money

moulovi 3y ago

[flagged]

andrewstuart 3y ago

The title should be "What makes constructing a house so expensive". Housing is expensive for many other reasons.

deleted 3y ago

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mihaic 3y ago

The fact that it makes more sense financially to borrow a million to buy a house and keep your 500k of savings tied up in the S&P 500 means we're far away from a solution. People don't seem to realize that something being a solid investment and it being widely accessible are contradictory terms and that ideal regulation would work towards a balance of these, not over-optimization of either.

anneessens 3y ago
This exactly. It's in the best financial interest of a homeowner to stop as much new construction of homes as possible. Until we move away from the idea that owning a home = wealth, then I don't see how this problem can be significantly fixed.
- cqqxo4zV46cp 3y ago
  In a very short-sighted way, sure. It doesn’t even take that much galaxy-brain thinking to see how housing inequality can be detrimental to one’s finances.
  - anneessens 3y ago
    The short sightedness is the problem. As far as I know, NIMBY is endemic in the USA, precisely because home owners are so worried about lowering the value of their home.
    - mihaic 3y ago
      Exactly. If you stop seeing your house as an investment, and you own it, it doesn't matter if it's value goes down, if it goes along with the market. It even means it's easier for you to trade up. For the poor souls that have decades of interest left to pay on a loan it's a different story, but somehow, someone has to lose something for most people to have decent housing costs.
      - anneessens 3y ago

phkahler 3y ago

The answer is in the first paragraph: >> "Most new homebuyers will pay around 30% of their income on their mortgage" You go to the bank looking for a loan. They use that exact sentence to determine your monthly payment. Lower interest rates mean you can borrow more for a given payment. Then they tell you how much you can borrow. Everyone involved - banker, agents, seller, neighbors - wants you to spend as much as possible. Even if you don't, prices are set by "the market" where people do. Hence prices are determined by interest rates. That first statement has been fairly constant for a very long time. There are exceptions in areas where other factors distort the market.

drpixie 3y ago
Yes - normal people normally pay everything they can afford on their house, so it's peoples' income that determines house prices. Interesting that almost everyone is happy to drive around in a mass produced car, precisely the same as 10,000 other vehicles. And cars, although much more capable, cost (relatively) much less than decades ago. But almost everyone wants their house to be special and unique, and pays whatever they can to that end. I don't see it as housing supply driving costs, so much as money supply.
- bombcar 3y ago
  Builder are very good at making you think you’re getting a custom house as you build out a mass produced one. But even manufactured homes are expensive.
surfingdino 3y ago
A colleague of mine tried to apply for a mortgage in the UK. He had good savings, enough to cover 20% deposit (the lenders officially accepted 10% deposits) and there would be enough left to pay mortgage for a year. Good, steady income to allow him to comfortable pay the mortgage and put aside some money for savings/investments. One bank after another refused him a mortgage unless he'd agree to put all of his savings into the deposit, essentially forcing him into a precarious situation where any adverse event (loss of job, health problems, etc.) would jeopardise his ability to pay off his debt. Each bank he spoke to massively increased (doubled+) the interest rates way above what was advertised even if he'd put all of his savings into the deposit. He walked away and is still renting.

patrickhogan1 3y ago

The core of San Francisco’s housing problem is bureaucracy. In San Francisco, the fees paid to the government for building a single-family house range from $300K to $500K (compared to $30K average across the country), excluding land, materials, and labor costs. This means that for every existing house valued at $1 million, 30% to 50% of its value represents the fees (tax) imposed by the government.

crtified 3y ago

Another aspect is the vast infrastructure which underpins communities. The majority of which is beyond ones own property boundary. There's a consensus in some countries saying that infrastructure has been suffering a many decades-long decline. For example, New Zealand speaks of a theoretical US$120B deficit, which is in the ballpark of that entire country's yearly GDP. And as New Zealand itself is somewhat a testament to - it's possible to build somewhere new and distant instead, if you please, away from all these pesky existing infrastructure woes; and then, enjoy paying for everything to be transported there, and building your own all-new infrastructure. Not just the obvious - remember to include things like schools and hospitals and libraries and parks and commercial districts. The costs are numerous. I believe the author is correct in the sense that the biggest cost of housing may be the externalities, in the same broadly philosophical way that the biggest influence upon a person's life is the world. But it's a lot more than merely the zoning, I think.

Dalewyn 3y ago
>There's a consensus in some countries saying that infrastructure has been suffering a many decades-long decline. Everyone loves building. Everyone hates maintenance.
- crtified 3y ago
  It's like the inverse of the saying 'The more things change, the more they stay the same' : The more you want things to remain the same, the more you have to keep altering them. :)
  - mejutoco 3y ago
    “Everything must change for everything to remain the same” – Tancredi, Prince Fabrizio Salina’s beloved nephew in the renowned novel “The Leopard”, written by Giuseppe Tomasi di Lampedusa.

leobg 3y ago

To me, it has always seemed completely bonkers that for most people, the roof over their head should be their #1 expense throughout their adult lives. It boggles my mind that walls made of bricks that someone laid some 50 years back along with a bunch of pipes are more expensive today than my Tesla Model X… and by a factor of 5 to 10. Of course, a house is more in terms of pure weight of material. But the again, that material is only dirt. It’s unreasonable that this should be something you’d be paying offf month after month, over decades. I understand that for people in urban areas, thei main part of their housing cost is actually competing with other people who’d like to live in the same place. I’m talking about construction cost only.

cqqxo4zV46cp 3y ago
There are plenty of things that have departed from cost-based pricing into supply and demand territory. That’s how things very often tend to go. Housing is just…special.
oconnor663 3y ago
To be fair, it's not really the bricks that are so expensive. It's the dirt :)
- bombcar 3y ago
  Not around here, I can get the dirt for $15k, $50k if all services are ready for hookup. The bricks add another $250k, which is why the used houses go for somewhat less.
  - leobg 3y ago
    I want to buy a hydraulic press, and then fabricate the walls for my house right from the dirt at the building site. Like when they built The Dakota.
    - bombcar 3y ago
      Adobe is still used in the southwest sometimes, and works fine. Saves somewhat on the materials, but a lot of the cost is labor and things like plumbing, electrical, etc.

monkburger 3y ago

Greed makes them expensive. Besides, modern American homes are constructed very poorly, unable to justify the cost..

chihwei 3y ago

Need to build more large condo/apartment, just like NYC. SFH can't use land efficiently. Bureaucracy also contributes to house price significantly to the issue, but this is what you guys voted for, so enjoy it.

me551ah 3y ago

One thing that I've never understood, is why is there a huge preference for SFH in the US, compared to other countries? Where I live, India, most people prefer Apartments because of how many amenities you can get with it along with the added advantage of things like security. Seems like it is opposite in the US. Because if area is a concern, then apartments can house a lot more people compared to a row of SFH houses

daedrdev 3y ago
Its often bexaus eof zoning rules set by existing owners who dont want their neibhoood to change. Never mind that it makes little sense for single family housing only zoning to even exist in cities like SF.
_8j50 3y ago
More freedom and space. Having a back yard means you can do a lot of private outdoor activities and own larger pets and a nice playground for kids. A garage means you have a place to work on your car or other projects. I've lost cars because they were broken down and the apartmenr complex had them towed away because their polic forbids broken down cars (even just a flat tire). Apartments also mean noise issues, both being careful not to bother others and neighbors more easily disturbing you. And renting means you can get evicted easily for any number of reasons and in general, you end up moving every few years which makes it difficult to raise a family. Once you own a home and pay it off, you can work less or even stop working. You can even run a business out of it. You hear about tech companies like google or microsoft that were started in garages, most americans don't have those. The quality of life, especially for raising kids is much better with SFH.
- fragmede 3y ago
  Apartments meaning noise issues is an issue of the American implementation of capitalism resulting in construction that doesn't prioritize how nice it is to actually live there. Similar to how the users of a product aren't the ones paying for it. Eg Microsoft Teams. If the incentives were different, the housing would be better constructed and not have noise issues.

crtified 3y ago

"We'll (just) overhaul these incredibly complex regulations!" are famous last words for some, and somewhat reminiscent of the paradox in the classic "we have too many competing standards, so let's solve that by... creating a new one" xkcd. Codes and regulations can't wisely be quickly slash-and-burned, because some are based upon solid reasoning - so the article's solution of overnight zoning and building code changes may be optimistic as a one-shot vision. We take so much for granted. Do we like our new fences being in exactly the right place? Do we want our new roof, or bathroom, to develop a leak in 3 years? Do we want the electricity to be safe, sharing the walls with our water pipes? Do we mind if a sewage composting facility sets up in the cheap suburb, next to the school? Is lead in the paint ok? Asbestos? Is it ok for workers in certain industries to get sick at a certain age because of what they've been exposed to? We could go on a long time. In the end, do the members of any densely-populated species gain their exclusive territory cheaply?

daedrdev 3y ago

Its because we have essentially banned building more housing in many cities. (Relative to the number of new jobs/housing needed, some housing does get built) Any project that makes it past the insane zoning requirements are attacked by locals for whatever reasons they can come up with to try and cancel the project. Complaints about foreign buyers and vacant homes do not make up for the massive supply shortfall.

jeffreygoesto 3y ago
Maybe it is also the slow but steady shift from rural to urban, because rural life is becoming less and less attractive? Otherwise there would not be such an influx and need for urban housing. Why is making life outside cities better not considered as alternative or additional measure?
vjk800 3y ago
What we usually see in cities all over the world is that increasing population density drives the house prices up, not down. For whatever reason, people like to live around other people. The more people already live in a city, the more other people want to move there, and this creates an upward pressure on housing prices.
- jpgvm 3y ago
  Which is meant to be balanced out by increased housing density like we see in Asian mega cities like Tokyo and Bangkok which have very affordable housing despite many many more people. By making it impractical or outright banning high density housing this is the situation you arrive at.
- daedrdev 3y ago
  I disagree. Cities are in a endless race to build more housing. They need to continue building housing to keep prices temporarily lower, a metaphorical treadmill as more people will always move into the city. If a city stop building housing, prices will go up for sure because demand continues to increase. Cities of course always have more demand, but that is their nature as economic and cultural hubs, we have no choice but to try and match this demand. Housing prices will not be low without building more housing, except your city has a specific reason that lowers demand, like lawlessness, economic ruin or some other disaster.

tibanne 3y ago

Governments allows banks to create new money in the money supply when they make a loan. Banks live to make these type of loans. It's basically no work for them and a lot of free interest money once they have them secured. One socially accepted area of taking a massive loan is in housing. People seem strangely ok to work as a slave for the banks so that they can live in a box. This pushes up the prices of housing and at the same time inflates the money supply. If we removed their ability to create new money, house prices would come down and people instead of banks could make an income from their own capital in peer to peer lending.

hiAndrewQuinn 3y ago

I grew up in one of those construction oriented families that sunk everything they had into buying, building, and renovating new properties. Indeed it made them very wealthy, but it left me impoverished in more ways than one. Did you know how much you have to pay for college isn't just calculated on your parents' income, but their assets, too? My parents didn't. I decided early on I don't want anything to do with that pyramid scheme. Give me a nondescript apartment on the 57th floor of a highrise any day of the week and let me do work which matters.

zemvpferreira 3y ago
I don't mean to comment on your particular situation but I would use your post to share a different experience. My own family was construction-oriented four generations ago, and it elevated us (the 3 still-to-be-born generations and the alive-at-the-time one) from poor to wealthy. That effort by my great-grandparents was one of the definitive blessings of my life. I still invest in construction/renovation myself and take as much meaning from providing housing to others as I do from work in technology.
- hiAndrewQuinn 3y ago
  No offense taken. Cleaving away my very personal anger about how my dad's wealth fucked over my college plans: Moral culpability for high housing prices lies primarily with those who enact the housing regulations which artificially constrain supply, and hence allow long-term profits to be made in a market which really should drift down towards prefect competition, and not with the actual housing providers themselves, who are just ordinary profit-seeking business owners like the rest of us. You're doing a service to your fellow man, no matter what, because voluntary trade benefits both parties by definition. People often get in fights about the thorny intermediate layer here, which is that politics and economics intertwine. Many landlords politically advocate for further supply-constraining laws in their area, because surprise surprise, long-term profits are a really sweet deal if you can get them. I have no qualms saying that that is both (a) perfectly economically rational and (b) still a wrong thing to do. But I want to underline that that is mostly missing the forest for the trees here, which is housing regulations being a well entrenched thing in the first place.

avar 3y ago

Discussions of zoning, building codes etc. are valuable, but I think everyone's missing the main factor: If you somehow made housing 50% cheaper people would just demand 50% larger housing. If you look at housing size over time people today are living in palaces by the standards of someone a century ago. In the US, the average household size has expanded by 1000 sq ft since the 70s [1]. That's an addition of an average household from the 1910s, which on average had two more people living in it compared to today. And where people don't demand extra space they demand more luxury. One example is AC. It's unthinkable to construct a house without it in some parts of the US, but people living there a 100 years ago somehow made do without. Over here in western Europe we've had less size inflation than the Americans, but we've had the same luxury inflation. People here want insulation and sound proofing that's extravagant by American standards so they won't hear the neighbours, huge windows, electric sockets everywhere etc. 1. https://populationeducation.org/wp-content/uploads/2020/04/average-house-household-size-in-us-infographic.jpg https://populationeducation.org/wp-content/uploads/2020/04/a...

quartesixte 3y ago
The size thing is getting out of hand. I grew up in older housing built in the 60s and 70s -- fairly small by modern standards, but there was a bigger backyard and still enough space to store everything. It felt adequate and honestly more than enough for sleeping, eating, and resting from the outside world with friends and family. And then I started visiting my friends' more modern home and I was flabbergasted by the sheer size. You have to text someone to get their attention because yelling across the house is not very convenient anymore. And so many rooms just stood empty like gallery spaces -- "to be used on specific occasions". I don't quite get it -- and I hope that construction costs come down and permitting eases. For once I am ready to buy a home, I want to be able to custom build my own small house.
- bombcar 3y ago
  The problem is that many prices for building are fixed, but increasing volume (size) is relatively cheap. It takes a builder about as much time to build a small house as a large one, and the large one is more profitable, so which do you think they’d like to build? You can certainly build a smaller house, but you get the $250k for a small house build but only $300-350 to double its size.

_8j50 3y ago

With the mortgage route, owning a house isn't beneficial until you pay it off, which for most people isn't until they are well into their 60's. The main benefit of owning a home is immediate improvement in quality of life, which is worth it only if you have a children to raise in my subjective opinion. Often, it's the people in the area that make or break the housing market, which blog posts like this always overlook. There are maybe a handful of metropolitan areas/megapolis in the US where the majority of americans could live and feel welcome. Land and building costs are probably cheaper in Idaho or rural Ohio but it may not be safe for anyone who can't assimilate to the goings ons if those areas. That can be said much of rural US. That's why not many remote workers relocate to cheaper and prettier places in the US. I am however a huge proponent of high speed rail connecting remote suburbs with city centers. Building new housing on unincorporated land and connecting it via high speed rail that is. Imagine suburbs in NE california or south of Reno,NV (or much of south central NV) to LA and SF. Or Denver with western colorado. Point is, much of the US is not developed. People would want to live in rural areas if it meant easy and fast access to cities. Even considering remote suburbs part of the big city in terms of tax, laws and infrastructure support.

willis936 3y ago
>With the mortgage route, owning a house isn't beneficial until you pay it off This is wrong. It's (financially) beneficial as soon as your equity surpasses the difference in payments between rental and buying, which is nearly immediately.
- _8j50 3y ago
  This makes no sense, how does equity factor in? You mean if you sell the house? If so, that's only true if you are not just going to buy another house. So long as you have a monthly mortgage your liquidity will continue to be strangled by those payments. Your quality of life will not improve until you start having extra liquidity. Money is meaningless if you can't buy stuff with it. Being technically able to liquify your assets is not the same as having actual liquidity.
  - 3y ago

infl8ed 3y ago

".. but it also means that innovation is risky, and new products tend to be evolutionary ones that don’t change the overall construction process... In some cases, those efforts are successful, as with PEX piping replacing copper piping." Out of curiosity I searched 'pex piping microplastics' and several articles/studies came up about plastic shedding in pipes, including in pex piping, so innovation is risky indeed!

karma_pharmer 3y ago
Your water company's main pipes aren't made of copper. They're probably shedding something worse than microplastics into your water, long before it crosses your property line.

jnation 3y ago

Cheap money on tap from the bank pushes up house prices. Combine this with municipalities being unwilling to free up zoning for residential, and you have a limited supply which people will borrow as much as the bank will give them in order to obtain.

vjk800 3y ago

My own armchair economics theory of why housing is so expensive is that places where housing is not expensive tend to wither economically and people move elsewhere. Let me elaborate. We have made pretty much everything else than housing cheap. In places with cheap housing, people don't have an incentive to work and contribute to the economy anymore, which drives the economy down in those places. As a result, people have to move elsewhere (since the jobs will also disappear with the economy), driving housing prices up there. There is a feedback loop between housing prices and overall economic activity and people have to live in places with at least some sort of functioning economy, and thus all of the world gets partitioned into parts with cheap housing and no jobs and expensive housing with jobs.

mariusor 3y ago
That sounds a lot like you're confusing correlation for causation. :)
surfingdino 3y ago
Hard to disagree. Housing is essential, the rest is a luxury. However, in the UK we are slowly running out of places to move to for cheaper housing and maintain our ability to do the work we can do in the cities while maintaining current levels of income. Yes, there are cheaper places, but there are no jobs there or employers who notice you live there offer you substantially less money. People gravitate towards London and other large cities and he property prices follow. But there is a cruel twist to that story. In terms of income, London-based IT salaries and contract rates have gone back and below 2010 low levels. At least that's what I see on LinkedIn and in my inbox. The property prices did not adjust and even worse, the quality of newbuilds has gone through the floor (often literally) further exacerbating housing shortage. This is not going to end well for the UK.

martinbaun 3y ago

Monetary premium is the word to describe this. People use housing as a way to save their money because the gov. and banks print so much money and inflate our currencies away. In the countries, where people trust the governments and banks less, the prices of houses are usually a lot higher proportionally to the income of the people. Why? People do anything to save in real estate instead of saving in the bank or equities.

fulafel 3y ago

This seems set in the era of wasteful energy use. Outside of a narrow band of ideal natural climate, the energy efficiency imperative requires high focus on insulation, heat pumps, ventilation air energy recovery etc, whether you need to keep the cool air inside or outside. And in budgeting and design perspectives like this article, that can't angle can't be omitted.

concordDance 3y ago

The author seems to have ignored the elephant in the room. Inflation adjusted house prices have nearly doubled in the past 30 years.[1] The median price historically seems to have been around $200k but since the 1990s has increased to $400k. As far as I can see he provides no hypothesis that could explain the change. More than half the cost being physical construction means the physical construction costs have gone up by a lot. The libertarian in my feels obliged to notice that regulations and licensing can definitely increase all the costs of materials, electrical work, foundation building and construction in general, but that'll be mostly speculation. [1] https://dqydj.com/historical-home-prices/ https://dqydj.com/historical-home-prices/

bombcar 3y ago
Some of that can be explained by changes in the median home size - but not all. https://www.newser.com/story/225645/average-size-of-us-homes-decade-by-decade.html https://www.newser.com/story/225645/average-size-of-us-homes...

dhx 3y ago

A few more reasons, at least for Australia: - The easiest land is developed first, with further expansion and in-fill occurring for land that in the past was deemed too hard or too expensive to develop on. - Homes are larger and more complex as everyone's expectations have increased. A bedroom shared by two kids in two small beds is now two large bedrooms with queen sized beds. Second and third living areas are commonplace and much larger. - Modern homes are typically designed to only last only ~20 years before being knocked down and rebuilt. The theory being that people in 20 years time will demand different floor plans, different house features, etc and the cost of renovating an existing structure far exceeds the cost of rebuilding at the 20 year mark. - Homes are better engineered (for example, better insulated and with more waterproofing) but this requires more materials and labour, and is more complex, meaning more mistakes made during construction that require expensive repairs and rework. - Old growth forest has been depleted and we've now got a materials price that better matches longer term sustainable forestry pricing (however, it's still too low). - Public infrastructure such as roads are built to a much higher quality than the past. Open drains are replaced with buried stormwater piping. People expect MRI machines in climate controlled hospitals and larger climate controlled schools with more extra-curricular space/features.

oliwarner 3y ago

Finance! We've been in a 50 year cycle of banks and institutions offering higher and higher salary multipliers to borrowers so that people can afford bigger and better houses. The demand for those houses goes up, the prices follows. Time to increase the multiplier. Rinse, repeat. Why? Big mortgages generate big interest, far outweighing defaults. If you're uncertain, what do you think would happen to house prices if banks suddenly limited their new loans to 5x salary?

6510 3y ago

I really enjoyed learning that there is lots of experience in game design with land tax and real estate taxes to prevent players from hoarding it without doing anything with it. The later will create stale maps where nothing interesting ever happens. The prevailing logic (I read) is to turn it into a hot potato that you want to get rid of as fast as possible unless you really need it. I'm not suggesting loot boxes or to genetically engineer monsters to have players hunt them in the park to earn their keep. Our game already has plenty of grind.

Ajay-p 3y ago

The cost of housing comes from a variety of sources. In most cases, for both new construction and existing housing, the largest line item is the cost of constructing the home itself. For new construction this is on average 80% of the cost of a home (including hard and soft costs), while for existing construction it's still in the neighborhood of 60-70%. It’s only in dense urban areas that the cost of land begins to dominate the cost of new housing, driven by regulatory and zoning restrictions that limit how much housing can be built in a given area. Another way of looking at it is that in the areas that we need housing the most, zoning and regulatory factors are responsible for the lion’s share of housing costs.

wseqyrku 3y ago

> What makes housing so expensive? Because people will pay it.

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paulus_magnus2 3y ago

How is housing expensive?? Assuming a 1.2m house (for easy math). You pay 200k down and take a 1m loan which is 6k/mo. After 10y you sell the house for 2.4m. Having paid 720k, ~500k of mortgage is left over. So 200k turns into 2.4m -500k -720k = 1.18m profit. Rather than renting for 5k (600k over 10y). How is housing expensive??