3 ms·

> if interest rates being high was making housing unaffordable, one would expect prices to be down. I think you have to be careful with the definition of "unaf

> if interest rates being high was making housing unaffordable, one would expect prices to be down. I think you have to be careful with the definition of "unaffordable". Housing, at this moment, is unaffordable in the sense that the cost of housing squeezes many people's discretionary budget, savings, and even sometimes the budget for necessities. It is not unaffordable in the sense that (most) people do have enough money that they can pay for it, even though paying for it might cause them hardship elsewhere. Housing is an inelastic good - particularly for demographics who have limited access to transportation and therefore need to live very close to where the jobs are. The price increases until it consumes all the money available to pay for it.

ipsento606 2y ago
> Housing is an inelastic good - particularly for demographics who have limited access to transportation and therefore need to live very close to where the jobs are. The price increases until it consumes all the money available to pay for it. Housing is not rising in price because it is an inelastic good. Housing is rising in price because the growth in the supply of housing is less than the growth in the demand for housing. Indeed, the very fact that housing has inelastic demand means that it is particularly susceptible to price reductions when supply is higher than demand.
- banannaise 2y ago
  You are taking as an assumption the very thing we are currently questioning - does lack of supply actually account for the increase in housing prices? Lack of supply would cause prices to rise - but so would cartel behavior on the part of those who control that supply. Housing of the type necessary for relatively low-income individuals, where the location must be close to jobs (see above), is typically controlled by a set of entities who exhibit cartel behavior in how they price the rent.
- bernawil 2y ago
  but what raises demand IS that it's an inelastic. Anyway, supply and demand are murky concepts that don't map well to reality when trying to take them out of the supply/demand chart. You can't actually quantify potential "demand" because "someone wants a good or service" is not a data point for demand, only actual trades that happened do.
dan-robertson 2y ago
That’s a fair point. To be more precise, I mean that many people who buy houses need mortgages to do so. Higher interest rates mean that for a fixed deposit and budget for mortgage payments, the amount one can borrow decreases. All other things being equal, one would expect the demand for purchasing houses (I’m trying to be careful here to not talk about renting, which I guess the term ‘housing’ often includes) to decrease. Something that might not be equal is the available mortgage payment budget – it may be lower due to more money being spent on other things or it may be higher due to wage increases – so perhaps that’s part of it.

ipsento606 2y ago

> Housing is an inelastic good - particularly for demographics who have limited access to transportation and therefore need to live very close to where the jobs are. The price increases until it consumes all the money available to pay for it. Housing is not rising in price because it is an inelastic good. Housing is rising in price because the growth in the supply of housing is less than the growth in the demand for housing. Indeed, the very fact that housing has inelastic demand means that it is particularly susceptible to price reductions when supply is higher than demand.

banannaise 2y ago
You are taking as an assumption the very thing we are currently questioning - does lack of supply actually account for the increase in housing prices? Lack of supply would cause prices to rise - but so would cartel behavior on the part of those who control that supply. Housing of the type necessary for relatively low-income individuals, where the location must be close to jobs (see above), is typically controlled by a set of entities who exhibit cartel behavior in how they price the rent.
bernawil 2y ago
but what raises demand IS that it's an inelastic. Anyway, supply and demand are murky concepts that don't map well to reality when trying to take them out of the supply/demand chart. You can't actually quantify potential "demand" because "someone wants a good or service" is not a data point for demand, only actual trades that happened do.

dan-robertson 2y ago

That’s a fair point. To be more precise, I mean that many people who buy houses need mortgages to do so. Higher interest rates mean that for a fixed deposit and budget for mortgage payments, the amount one can borrow decreases. All other things being equal, one would expect the demand for purchasing houses (I’m trying to be careful here to not talk about renting, which I guess the term ‘housing’ often includes) to decrease. Something that might not be equal is the available mortgage payment budget – it may be lower due to more money being spent on other things or it may be higher due to wage increases – so perhaps that’s part of it.